Audit: High-Rise Developers Get Special Access, Breaks on Fees

According to its own budget guidelines, San Jose is supposed to recover costs for regulating new construction. But an internal audit found that the city often fails to track fees and waivers for high-rise development.

The City Council will discuss the findings when it meets Tuesday.

One fee that planners failed to account for is the cost-recovery charge for voluntary preliminary review meetings, in which developers meet with senior city staff to talk about project concepts. For at least one of the major projects auditors reviewed, however, there was no record of a pre-application meeting taking place and no evidence that any fees were assessed, paid or waived.

“According to Planning Division staff, these pre-application meetings outside of the preliminary review structure can ultimately save staff time by helping ensure developers submit more polished plans,” the report states. “However, there are no clear guidelines on eligibility requirements for these meetings, which staff can organize them, which staff should be present, and when they can be scheduled. Clear policies and procedures—including rationale for this free service including high-level staff— would promote transparency, public accountability, and a greater sense of fairness among development project applicants.”

When San Jose Inside asked earlier this month for a list of pre-application meetings and fees charged, the city affirmed that no such records exist.

Additionally, the city failed to properly account for parkland fees on residential high-rises. Among several other incentives, San Jose gives qualifying developers a 50 percent discount on park fees and allows payment deferrals until 80 percent of inspections have been scheduled. However, the city has no reliable method for checking whether a project meets that threshold, auditors found.

Park fees were paid in full on two projects reviewed by auditors—$2.4 million for One South Market and $2.7 million for Centerra. But planning inspectors were unable to tell from their permitting software whether the fees were paid before performing final inspections. They have to either check with other city departments or override controls in the software to log inspection records.

With no consistent way to determine whether a developer has reached the 80 percent inspections benchmark, the city’s planning staff relied on informal monitoring.

“Parkland fees are significant in both value and purpose,” Erickson stated in her report. “They can be worth millions of dollars, and they provide funding for public recreation and open spaces to benefit city residents.”

Erickson also suggested that the city adopt higher standards of review to safeguard against risk as taller buildings are constructed. A lack of rigorous review has apparently led the city to compromise on safety standards.

During an inspection of One South Market’s window-walls, the city found that it didn’t meet the higher energy rating the developer specified in original plans. But because the walls were already bought and installed, the city allowed the developer to offset the lower ratings by improving other energy saving measures.

What’s more alarming, however, is that the city has also compromised on critical safety standards. According to the audit, the city realized late in the process that the smoke control system at One South Market needed significant changes to meet life safety requirements. That required last-minute additions to an already-installed system.

“This may have been due in part to initial plans lacking full details of the system, relegating the discovery of potential issues to the inspection phase,” Erickson wrote. “But development services staff explained that it is typical not to require disclosure of the details of some building elements within larger systems. This may be especially true for elements of smoke control systems, which are typically complex and require the involvement of both the Fire Department and Building Division.”

The state defines a high rise as a building with floors at least 75 feet above its street-level entrance. San Jose has relatively few high rises for a major city, according to the report. Even its tallest building—the 22-story apartment complex at 88 E. San Fernando St.—is comparatively small to its counterparts in other cities.

But the city actively promotes high-rise development by offering tax breaks and expedited permitting. In addition to the park fee waivers, other incentives offered by the city include half-off discounts from construction tax, commercial-residential tax and waived parking requirements.

The city’s campaign seems to have paid off. Some 20 high-rises are either under construction or in the planning process.

“Even though buildings developed in the city so far present relatively fewer development challenges than other cities with taller and more complex buildings, San Jose is likely to see more and taller high-rises,” Erickson concluded. “With the spread of taller buildings developed throughout the city, San Jose will need to continue to enforce ever-evolving building standards for residential high-rises, as well as consider the need for its own standards to address local climatic, geological, and topographical conditions.”

Click here to read the report.

More from the San Jose City Council agenda for September 19, 2017:

  • A controversial pilot project to “improve quality of life” for low-income neighborhoods with more policing recently wrapped up its pilot run. After a year of community-based policing and crime-prevention outreach, residents of the Hoffman-Via Monte neighborhood reported greater trust in the city’s cops, according to an anonymous survey. Hoffman-Via Monte is home to about 2,000 residents—about 73 percent of them Latino and 93 percent of them renters—and it has been identified as a “gang hot spot” in the past. But a longstanding distrust between residents and the police has prevented many people from reporting crimes. “At the beginning of the pilot, many residents were hesitant to talk with the officers,” police Chief Eddie Garcia wrote in a report. “[H]owever, as they got used to seeing the officers in the neighborhood, they began to engage. Midway through the pilot, neighbors began to talk with the officers and share their concerns about the neighborhood.”
  • The city will consider expanding its inclusionary housing fee, which subsidizes construction of below-market-rate units, to encompass for-sale developments of three to 19 units.
  • Last year, voters approved Opportunity to Work, a measure that requires employers to offer more hours to part-time employees before hiring new staff. The idea was to give people more stability and benefits instead of being forced to rely on multiple part-time gigs. But City Hall apparently exempted itself from the rule it’s now tasked with enforcing. Councilman Don Rocha wants the city to reconsider that exemption. “Thousands of San Jose businesses must live under the Opportunity to Work rules or face enforcement action by the city, but the city has chosen to excuse itself from those same rules,” Rocha wrote. “This is not fair: we should be willing to follow any rules that we enforce on others. Following the rules will have the added benefit of helping us understand the experience of businesses [that] must live under them, and could potentially help inform how we enforce the rules on businesses.”

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 E. Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260

Jennifer Wadsworth is the former news editor for San Jose Inside and Metro Silicon Valley. Follow her on Twitter at @jennwadsworth.


  1. That is the ugliest building I have seen the City of San Jose produce since the Old City Hall on Mission Street.

  2. DROPPED-Draft Recommendations on the Inclusionary Housing Ordinance & Affordable Housing Impact Fee

    Last Friday, the California Legislature passed AB 1505 Land Use: Zoning Regulations, also known as Palmer fix. AB 1505 allows local governments to require affordable housing units in new rental developments. At this time, we are waiting for the Governor’s signature on this bill. As a result of this legislation, the memo regarding Potential Modifications to the Affordable Housing Impact Fee and Inclusionary Housing programs will be dropped from the September 19, 2017 agenda. Once this item is reagendized, we will send you notification of the rescheduled Council Agenda date.

  3. This is only PART of the story! The Mayor and City Council aren’t paying attention to a lot of development going on in our neighborhoods. A gas station owner right near my apartment just got approval for a 5 car stackable automated carwash ZERO feet from our 4-plex, right under my, and 16 other 4-plex bedroom windows, AND less than a half of a block from an elementary school where at least 50-60 kids will be walking to and from school, in the direct path of the exit of this car wash! I have filed an appeal to this project to the tune of a $500.00 appeals fee! Sickening!

    Plus, the Planning Department is rubber stamping and advocating for these projects based on old outdated ordinances. These are cookie cutter ordinances that do not take individual sites into account! The Planning Commission is pushing them through based on the Planning Departments approval of these projects and these antiquated ordinances. The whole process is a frightening joke!

  4. What is needed is affordable housing, more options for everyone. Many can’t, neither want to waste $3K to $5K in month’s rent, but the city is not allowing for options like other cities in the US. It is abusing.

    • > What is needed is affordable housing, more options for everyone.


      San Jose-Sunnyvale-Santa Clara metro area has the highest median household income in the country: $110,040.

      Any “affordable (tax-payer subsidized) housing” built in San Jose will be “rich people” housing in just about every other metro in the U.S.

      If you want to build housing that people can afford, build it in Laredo, Texas or Grants Pass, Oregon.

      Whose idea was it that a tiny thimble full of people have a “right” to have someone else pay for their “rich people” housing in the most expensive metropolitan area in the U.S.?

      To quote Bernie Sanders: “THAT”S NOT FAIR!”

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