Portland Planning Board says no to hotel fee hike, but Council will have final say

Photo / Tina Fischer Hotels approved prior to implementation of the IZ fee, including the one under construction at Thompson's Point, would not be affected by a fee increase.

Write a Comment

By Tina Fischer

A proposal to increase the fee on Portland hotel developments, which the city has used to encourage the creation of more affordable housing projects, might be stalled, at least temporarily.

The Portland Planning Board on Tuesday, Sept. 23, voted (3-3, 1 absent) to not recommend to the City Council an amendment to the Hotel Inclusionary Zoning ordinance which would have doubled the opt-out fine for developers who choose not to build affordable housing, from $4,831 per guest room to $9,520 per room.

The Hotel IZ ordinance requires developers of new and expanding hospitality builds to also create one unit of affordable housing for every 28 hotel rooms in a project. (Properties with fewer than 10 rooms are excluded.)

The fee is assessed only if a developer chooses to opt out of the requirement. The money goes into Portland’s housing trust fund and is used to help finance affordable housing projects. The balance in that fund is currently $2,418,981.

The city has said the pace of hotel development between 2012 and 2018 exacerbated the housing crunch by adding lower-wage jobs and usurping properties that could have supported affordable apartment projects.

The increased fine was proposed to better reflect the cost of construction, which has risen dramatically in the past few years.

Since the ordinance was enacted in 2019, not a single developer has answered the call; instead, developers have paid the fine, sometimes known as a linkage fee. Those fees have totaled $920,976.

A moratorium on new hotel projects went into effect in December 2024, effectively halting proposals, but 15 projects were granted approvals prior to the suspension. Some of those are under construction, some are on hold.

The fee hike was proposed by the Housing and Economic Development Committee, which has been studying the issue for months along with staff, and Colliers International was hired to conduct a feasibility study. That study concluded that a hike up to $13,731 per room was “generally supportable” but the HEDC decided to recommend $9,520.

Provided photo

Kate Sykes, Portland City Council District 5

The ordinance had called for the fee to be reviewed annually, but it did not include an automatic inflation adjustment mechanism, according to City Council member Kate Sykes, who serves on the HEDC. “As a result, the original fee of $4,831 per room has not increased over time. If it had been adjusted annually for inflation based on CPI, staff estimate it would now be approximately $6,490 per room.”

Planning Board Chair Brandon Mazer was one of the three dissenting votes Tuesday night.

“I had a number of concerns which led me to voting against the recommendation. My first concern was whether a linkage fee was legal and what costs the fees were covering, under the analysis provided in the memo.

“I also had concerns regarding the fact that the future increases are coupled with the general inclusionary zoning ordinance. This ordinance may be looked at in the near future and if they change how these increases are calculated they could have a domino effect on this recommendation.

COURTESY BRANDON MAZER

Portland Planning Board Chair Brandon Mazer

“Finally, I agreed with some of my fellow board members in their concern that this policy only focuses on hotels as opposed to general commercial uses which appears to be what most other municipalities [that use linkage fees] have focused on.”

Councilor Sykes told Mainebiz, “Almost every other city that employs this tool applies it to all new business development, recognizing that all businesses, in fact, create jobs and resultant housing pressures.

“That said, I think planning staff recognize, as do I, that now is not the time to broaden this ordinance to apply to all businesses. That could create some real hurdles for economic development in Portland.

“This item will now come to the council with the planning board recommendation, but the council is free to move in whatever direction it wishes with it. I don’t think the uniqueness of Portland‘s ordinance is a reason to allow it to continue to fall behind, which is what has happened. And it’s why we are taking a look at it now. I still feel that we need to increase the fees and index them to inflation so we don’t have to keep revisiting this.”