Petaluma development over budget

When the highly anticipated Haystack mixed-use development was approved more than a year ago, it was lauded for its public benefits.

Bordered by East Washington and D Streets, it would add 182 much needed housing units and commercial space next to the city’s transit hub, helping to reduce residents’ reliance on cars. It would add pocket parks and bike path improvements. It would improve traffic circulation and improve a blighted vacant lot in Petaluma’s downtown.

But since the Planning Commission’s approval of the project proposal from San Diego-based Pacifica Companies, the land has sat vacant, a grim testament to the current cost of building housing in Petaluma. The Haystack project is not likely to break ground anytime soon due to its ballooning price tag, said Abbie Hawkins, entitlement manager for Pacifica.

“The numbers came back $30 million over budget,” she said. “We were pretty shocked.”

Hawkins attributed the rising construction bill to an increase in labor and material costs. Sonoma County has faced a shortage of construction workers since the rebuilding effort from the 2017 North Bay wildfires, which destroyed more than 5,000 homes.

Then there are the fees levied on new developments that cut into the project’s bottom line, which developers use to determine whether the project can “pencil out.” Like most cities, Petaluma charges a raft of development fees including for traffic mitigation, infrastructure, public art and parks. Residential developers are required to pay into a fund for affordable housing, although Pacifica is designating 27 units in the Haystack project as affordable to meet that requirement.

Other jurisdictions also charge impact fees, adding to a project’s overall cost. The Petaluma City Schools District board this week approved an increase in development fees for the first time in five years. The district increased fees it charges developers to $4.08 per square foot for residential construction and $0.66 per square foot for commercial construction, bringing the fees inline with a statewide standard

Those fees are meant to offset a development’s impact on existing schools in the district, increasing student enrollment as more families move into new homes, said Chris Thomas, the district’s chief business official.

“We are experiencing growth at a couple of our schools,” she said. “We will be able to address future growth by adding capacity at existing schools.”

Some city officials worry that increased development fees will discourage developers from starting construction.

“This action is incredibly unhelpful in the midst of a regional housing crisis,” City Councilman Mike Healy said in an email.

Petaluma has plans to add hundreds of new residential units on vacant parcels within the city limits to address skyrocketing regional housing prices. Gov. Gavin Newsom has set a goal of building 3.5 million new homes statewide by 2025 and has goaded cities to encourage more construction.

Thomas said the school district’s impact fee was justified since new students would increase enrollment at schools, especially on the city’s east side. She said that the district supports housing development in Petaluma.

“These are very modest fee increases,” she said. “I sincerely doubt most developers plan their developments around school fees. We hope it’s not a make-or-break for them.”

For Pacifica companies, any increase in the project’s bottom line will make it more difficult to pencil out, Hawkins said. She said the company is working with the city to come up with creative ways to make the project cheaper, like re-engineering the buildings, using different materials or seeking state grants for transit-oriented development.

Right now, to get closer to breaking ground, the project needs to shed costs, not add them.

“This is a market where development fees are already substantial,” Hawkins said. “Nothing will get build if it’s too expensive.”

(Contact Matt Brown at matt.brown@arguscourier.com.)