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San Jose: $19 Million Giveaway to Luxury Apartment Developers

The developer of this 18-story residential tower at 323 Terraine Street will get $4.1 million in subsidy from the city. Image: City of San Jose

San Jose city officials endlessly blame the city’s poor fiscal state on the local jobs-housing imbalance, yet on Tuesday October 3 the Mayor and City Council dutifully signed off on an $18.9 million corporate giveaway in the form of reduced fees on four residential buildings downtown.

Parks fees and construction taxes that developers are supposed to pay will be slashed by 50 percent, as an “incentive” to ensure high-quality residential construction downtown. Any other new residential buildings hoping to win the same dole from San Jose must be at least 12 stories tall and secure a permit by July 2018 and finish construction by 2020.

“Particularly in San Jose high-rises are challenged to be financially feasible,” claimed Deputy City Manager Kim Walesh at the meeting in defense of the subsidies. “I think it’s important to realize that every [residential] high-rise project that we see in our downtown has been created under an incentive program.”

North San Pedro SJ, LLC of Foster City will receive $4.1 million in subsidy on the 18-story North San Pedro Tower III at 323 Terraine Street, with 313 residential units. Park View Towers SJ, LLC of Foster City will receive $2.7 million in subsidy on the 13-story and 18-story Park View Towers at 252 N. First Street, with 220 residential units. SJC Properties, LLC of San Jose will receive $8.5 million in subsidy on two 28-story towers SJSC Towers at 33 N.Fifth Street, with 610 residential units. And AMCAL Swenson, LLC of Agoura Hills with receive $3.6 million in subsidy on the 19-story Graduate Tower at 88 E. San Carlos Street, with 260 residential units.

“We believe that investment into our downtown should not only be for our economy but for our people as well,” wrote City Council member Raul Peralez, who supported the entire $18.9 million giveaway in an October 2 memo.

But the public objected to luxury apartment developers who don’t pay livable wages or provide apprenticeship programs receiving the same city subsidy as developers who do.

“Tell the developers of [the North San Pedro Tower III, Park View Towers, and the Graduate Tower] projects to do what SJSC Towers is doing and commit to paying local workers a family sustainable wage and support apprenticeship programs to build and sustain San Jose’s middle class,” said resident Juan Gutierrez of UA Local 393.

“We’re working hard to finalize a ballot measure that would mandate projects to hire local workers and pay them a family sustainable wage. The measure would also require projects to support apprenticeship programs to ensure a pipeline of highly-skilled construction workers,” said John Paul Wolf of IB Local 332, speaking on behalf of Responsible Development San Jose. “It’s unfortunate that we will have to go to the ballot to do what the City Council could do by ordinance.”

Other speakers objected to providing any subsidy at all to wealthy developers for building luxury apartments. City Council members Raul Peralez, Johnny Khamis, Lan Diep, Sylvia Arenas, and Mayor Sam Liccardo defended the subsidies in their comments.

“What we’re doing today is not giving a single dollar from our General Fund to anyone, it’s quite the contrary,” countered Khamis. “This is a discount [on taxes and fees] that we artificially put in place to begin with. The harder that we make it on developers the less likely they will be to build things in the city in the future.”

“We recognize there is far more lost when nothing gets built,” said Liccardo, who argued that the new buildings will generate millions of dollars in property taxes every year.

“These fee reductions are not on the backs of any of our union members or working families,” said Arenas. “As a matter of fact we’re increasing the housing stock.”

The city’s largesse works out to a $13,500 subsidy paid by the city to developers per new housing unit, just one in a long list of corporate subsidy programs that break the city’s bank. Direct subsidies for real estate developers in the form of reduced parks fees and construction taxes began in 2007 and were expanded in 2012 under former Mayor Chuck Reed, and were eagerly extended under current Mayor Sam Liccardo in 2016.