HomeMy WebLinkAboutAgenda Packet - CC - 2017.12.04
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STAFF REPORT
AGENDA NO: 9a
MEETING DATE: December 4, 2017
To: Honorable Mayor and City Council
Date: December 4, 2017
From: Margaret Glomstad, Parks and Recreation Director – (650) 558-7307
Bob Disco, City Arborist and Parks Superintendent – (650) 558-7333
Subject: Public Hearing to Consider an Appeal of the Beautification Commission’s
Denial of the Removal of a Deodar Cedar at 1555 Alturas Drive
RECOMMENDATION
Staff recommends that the City Council conduct a public hearing and review the Beautification
Commission’s decision to deny the removal of a Deodar Cedar at 1555 Alturas Drive. The
Council can reaffirm (with or without modification) or reverse the decision of the Commission, or
remand for further proceedings consistent with Council’s direction.
BACKGROUND
On September 18, 2017, the property owners at 1555 Alturas Drive submitted a Protected Tree
Removal Permit for the removal of a Deodar Cedar on their property (Exhibit A). The tree is
located in the front yard adjacent to the neighbor at 1549 Alturas Drive. The tree, planted in 1980,
is roughly 50-60 feet tall and is located about 10-12 feet from the foundation of the house and
driveway.
The permit application listed the reason for removal as “tree creates too much pollen.” The letter
and packet that accompanied the permit also listed additional reasons for removal: invasive roots
in the sewer lines, roots cracking and lifting the driveway, previous fire in the chimney, and
excessive leaf debris. The City Arborist denied the permit because the request did not meet the
requirements for tree removal per Chapter 11.06.060 (d)(1-7)) of the Municipal Code: Urban
Reforestation and Tree Protection Ordinance (Exhibits B, C).
DISCUSSION
The property owners, Dave and Anne Nannini, appealed the City Arborist’s decision to deny the
removal of the tree (Exhibit D), and the Beautification Commission heard the appeal at the
November 2, 2017 Beautification Commission meeting. During the meeting, staff presented a
report (Exhibit E), the appellant spoke and provided additional information (incorporated into the
meeting minutes), and public comment was heard. After discussion, the Commission voted 2-1
to deny the appeal because the tree is healthy, structurally sound, and does not meet the criteria
for removal (Exhibit F).
Deodar Cedar Appeal 1555 Alturas Drive December 4, 2017
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On November 13, 2017, the Nanninis appealed the Beautification Commission’s decision to deny
the removal to the City Council (Exhibit G). The Nanninis submitted additional materials in
support of their appeal on November 28, 2017 (Exhibits H, I, J).
FISCAL IMPACT
There is no fiscal impact.
Exhibits:
Protected Tree Removal Permit and Supporting Documents
Arborist Denial Letter
Urban Reforestation and Tree Protection Ordinance
Nannini Appeal to Burlingame Beautification Commission
Beautification Commission Staff Report
Beautification Commission Denial Letter & Meeting Minutes
Nannini Appeal to City Council
Nannini Letter to City Council Dated 11/28/17
Neighborhood Petition
Mayne Tree Expert Company Report
Exhibit H
Anne and David L. Nannini
1555 Alturas Drive
Burlingame, CA 94010
650-343-5922
da.nannini@gmail.com
November 28, 2017
To: Burlingame City Council
RE: Cedar Deodar Tree located 1555 Alturas Drive
We are writing this letter to appeal to the City Council for a permit to remove the above mentioned tree
from our property. The reason for this request is I have a severe allergy to the tree. It is affecting my
quality of life. I should not be made to live with a tree that makes me ill. In addition, we are requesting
this permit because of the damage it is creating to our driveway and the hazard and liability it will
continue to cause.
The Beautification Commission voted 2-1 NOT to allow a permit because of the Urban Reforestation and
Tree Protection Ordinance, Chapter 11.06.050. It is our understanding in their current ordinance, there
is no verbiage to allow for a tree removal for health reasons. This should be re-evaluated between the
City Park and Recreation Department and the City Council.
We recognize, officially, that the Beautification Commission has no specific basis to permit the Cedar
tree removal for health reasons; however, we believe the City Council does have the authority to grant
general relief to avoid pain and suffering.
We would hope the City of Burlingame would listen to the needs of its residents on an individual basis. I
have lived with the allergies for 37 years, but only in the last several years has it been an issue. We had
no way of knowing down the road the Cedar tree would be a problem for me. I have a prescription I
take for these allergies. Although at the Commission meeting I was asked how much do I take, it is
noted I said on per needed basis. However, I started tracking the medication since the November 2nd
meeting and I was horrified to see that I was taking on the average two tablets a day, and at times three,
in the 9 days out of 12 days I have been tracking. Obviously, over time, my exposure to the pollens has
debilitated me even further.
The pollen pods cause an inordinate amount of pollen that enters into our house. If our home has this
much pollen, what about my neighbors? Another issue is the size of the tree. It is too massive for the
area in which it is planted. The limbs rest on the chimney of my neighbor’s house (who is tired of the
droppings onto her driveway) can be a fire hazard. A fire hazard I knowingly experienced back in
February of 2017 when our house had a flue fire and I had to call 911.
In addition, there are the many cracks in our driveway that are fingering their way towards the
foundation of the house. The uplifting of the driveway, the roots of the tree are popping through the
ground and out to the edge of the driveway. Because of the overbearing size of the cedar tree, other
trees that need the sun are not able to grow properly.
Another burden would be the constant trimming of the Cedar tree to keep the pollens at bay. Mr. Disco
said the tree could be trimmed every 6–7 years. Not true. In our case, it would have to be trimmed
every year to rid the greens that carry the pollen pods. An expense we do not need to nor should we
have to deal with.
We know this tree is protected because of its size as told to us by the arborist, Bob Disco. But we also
notice that on the Park and Rec web site it is not one of the protected trees officially named on the
City’s List of Protected Trees. Nonetheless, we are prepared to replace with an evergreen not a
deciduous tree.
Our neighbors are understanding of our issue. Along with letters from some of the neighbors is a
petition that was signed by my neighbors that they did not object to its removal. As I was asking for
their signatures, I reassured them that we will replant a tree in its place. Our neighbor Diana Wang is
out of the country until December 12 but did send me an email saying to reiterate her feelings as per
our original letter to Bob Disco when requesting the permit for removal.
We told the Beautification Commission at their meeting, and we would like express to our City Council
at this time, we will work with the City to replace the tree.
Our years of commitment to the City of Burlingame, the family community it represents, and especially
our neighbors, are all very important to us. We hope the Council will consider our request for the
removal of the Cedar tree and issue a permit for its removal.
We don’t know what more we can say at this time: but, please seriously consider our request for
removal. Thank you for your time and consideration.
Anne Nannini David L. Nannini
Exhibit I
Exhibit J
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STAFF REPORT
AGENDA ITEM NO:
10b
MEETING DATE:
December 4, 2017
To: Honorable Mayor and City Council
Date: December 4, 2017
From: William Meeker, Community Development Director – (650) 558-7255
Subject: Recent Developments in California Housing Law
RECOMMENDATION
Staff recommends that the City Council consider the information in a presentation regarding
recent developments in California housing law, and provide direction as appropriate.
BACKGROUND
During the 2017 legislative session, the California Legislature passed over one dozen bills in a
housing package developed together with Governor Jerry Brown's office. The intent was to
provide a range of responses to address the shortage of housing (particularly affordable
housing) throughout the state. While the package raises more money for affordable housing,
including new resources designated for local governments, the legislation also establishes
requirements for “streamlining” housing development approvals with the intent of having more
housing units approved and constructed throughout the state.
The provisions regarding streamlining of development approvals are complex, and the
complexity and nuances have not necessarily been reflected in press coverage of the
legislation. Staff has invited Eric Phillips of Goldfarb & Lipman LLP to provide the City Council
with an overview of the legislation, and provide information in response to questions from the
Council and community members.
DISCUSSION
The impacts upon local agencies such as Burlingame can be grouped into five general areas:
1. Processing Housing Applications
2. Housing Element and Annual Reporting
3. New Housing Funding Sources and Streamlining Opportunities
4. Accessory Dwelling Units
5. Inclusionary Housing in Rental Developments
The Goldfarb & Lipman presentation will provide an overview of each area. Below are points for
each area with reference to its applicability to Burlingame. A more detailed summary paper
prepared by Goldfarb & Lipman is included as an attachment to the staff report.
Recent Developments in California Housing Law December 4, 2017
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Processing Housing Applications: Senate Bill 35 (SB 35) has received the most attention in
the press regarding changes to the processing of housing applications, but the Housing
Accountability Act and provisions for “no net loss” of housing units also have implications on the
review and approvals of housing applications.
SB 35 seeks to streamline the approval process for some housing developments that contain
affordable (below market rate) units. SB 35 applies to any municipality that has not issued
enough building permits to satisfy its Regional Housing Need Allocation (RHNA) by income
category, which encompasses most communities in the state. While some municipalities have
been able to satisfy RHNA targets for overall production, few have been able to satisfy targets
by income category. Even with incentives such as density bonuses, the construction market
alone has difficulty accommodating the lower-income ranges without subsidies. Although
Burlingame is on track to meet its overall production goals within the current RHNA cycle, most
of the new housing will be market-rate or moderate-income units.
Permit streamlining provisions contained within SB 35 only apply to applications for housing
developments meeting the following qualifications, among others:
propose to create two or more multi-family units;
at least 10% of the units, and, in some cases, at least 50% of the units, must be
affordable to households making below 80% AMI (Low Income Category);1
be situated on a site zoned or have a general plan designation for residential use;
be consistent with all "objective" standards;
be situated on a site that has not contained housing occupied by tenants within the past
10 years;
if greater than 10 units are proposed, the developer must commit to paying prevailing
wages; if greater than 75 units, the developer must use a "skilled and trained workforce"
(i.e., union labor).
If a project meets all of these requirements, it may qualify for a streamlined, ministerial
development review. Although this review may be undertaken by the Planning Commission
rather than by staff, any public oversight must be complete within specific timeframes and may
only be conducted for the purpose of applying “objective zoning standards” and “objective
design review standards” without inhibiting the ministerial review process. “Objective zoning
standards” and “objective design review standards” mean standards that “involve no personal or
subjective judgment by a public official and are uniformly verifiable by reference to an external
and uniform benchmark or criterion available and knowable by both the development applicant
or proponent and the public official prior to submittal.” Building setbacks, heights, lot coverage,
and declining height envelopes are examples of objective standards, whereas “neighborhood
compatibility” would be a subjective measure could not in itself be the basis for rejecting a
qualifying development project.
1 In San Mateo County in 2017, the Low Income Category corresponds to an individual earning up to
$73,750 per year, a two-person household earning up to $84,300, or a family of four with an income up to
$105,350.
Recent Developments in California Housing Law December 4, 2017
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Perhaps covered less in the press than SB 35 but with greater implications for municipalities
such as Burlingame are changes to the Housing Accountability Act through AB 678/SB 167 and
AB 1515. Unlike SB 35, these bills affect every housing development application reviewed by
the City, including both market-rate and affordable projects, and including mixed use projects
with at least two-thirds of the square footage designated for residential use. If a project
conforms with all “objective” general plan, zoning, and subdivision standards, it may not be
denied, or reduced in density, unless specific findings can be made regarding “specific adverse
impacts” to public health and safety that cannot be mitigated in any way other than denying or
reducing the density of the project. For a project to be denied or reduced in density, the
municipality would need to identify objective standards that the project does not comply with, or
make a public health and safety finding. As with SB 35, “suitability” or “neighborhood
compatibility” would be subjective measures that could not in themselves be the basis for
rejecting or lowering the density of a project. Findings for denying or reducing the density of a
project would be evaluated based on a preponderance of the evidence, not merely substantial
evidence.
A further criterion in evaluating housing developments is the provision that there be no net loss
of units (SB 166). The previous "no net loss" provision in state law did not allow municipalities to
downzone sites or approve projects at less density than shown in their housing elements,
unless the city finds that enough sites are available to meet the RHNA. SB 166 builds upon
previous law to require that similar findings be made if sites are not developed for the income
category shown in the housing element. Under the requirements of SB 166, if a housing
development is approved at a density less than shown in the housing element and/or the
income category, the approval must include findings that adequate sites remain within the
jurisdiction to meet the RHNA.
Housing Element Reporting: SB 35 requires cities and counties to provide additional
information in their annual reports regarding housing element compliance, including the number
of entitlements, permits, and certificates of occupancy that are issued for housing projects.
Production reports must outline the net number of new units entitled, permitted, or occupied,
identify whether the units are for sale or rent, the applicable RHNA category, and assessor
parcel number.
The intent is for the State to better monitor and assess the effectiveness of the housing element
law. Currently, the State lacks basic data for tracking production; more than a quarter of
California’s 539 cities and counties failed to tell the State how many homes were built within
their boundaries over the eight-year period leading up to 2014.2 The California Department of
Housing and Community Development (HCD) will publish each report online as part of a
statewide database. Annual reports are due each year by April 1st, and failure to submit two or
more consecutive Annual Reports triggers SB 35 streamlining.
Burlingame has been compliant with submitting the Annual Reports; the two most recent reports
are posted on the City’s website at www.burlingame.org/housingelement.
2 Los Angeles Times, June 29, 2017: http://www.latimes.com/projects/la-pol-ca-housing-supply/
Recent Developments in California Housing Law December 4, 2017
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New Housing Funding Sources and Streamlining Opportunities: SB 2 provides a
permanent funding source for affordable housing through recording fees on real estate
transactions. After the loss of over $1 billion each year for affordable housing with the demise of
Redevelopment, SB 2 provides funding for affordable housing by imposing a $75 fee on each
recorded document up to a maximum of $225 per transaction per parcel, estimated to raise
between $200 and $300 million per year. Documents exempted from the fee include documents
transferring a residential dwelling to an owner-occupant, and documents recorded in connection
with transfers that are subject to the transfer tax, such as grant deeds not involving related
parties. The funds to be generated by the fees will be provided to local governments and HCD
to provide affordable housing as specified in the bill, with the majority of the funding designated
for local government use.
SB 3 places on the November 6, 2018 ballot a bond measure to raise $3 billion for existing
State affordable housing programs and $1 billion for the veterans' home purchase program.
The housing package also includes other planning and development tools to streamline and
fund development. For example, a Neighborhood and Infill Finance and Transit Improvements
District, under AB 1568, can be created to fund more affordable housing units, as well as
needed infrastructure upgrades to meet current and future capacity demands. After the
dissolution of Redevelopment Agencies, the State adopted several economic development tools
using more restrictive tax increment funding mechanisms than the one utilized under
Redevelopment. One of these tools is an "enhanced infrastructure financing district" ("EIFD").
AB 1568 allows a local jurisdiction to direct a portion of its local sales and use taxes and
transaction and use taxes to an EIFD if the area is an infill site and specific affordable housing
requirements are met. Another bill, AB 1598, creates a new financing tool called an Affordable
Housing Authority (AHA). If the City creates an AHA, it would be permitted to pledge sales and
use taxes and future tax increment to issue bonds to develop low and moderate income
housing.
Accessory Dwelling Units: Earlier this year the City Council adopted an ordinance to revise
Chapter 25.59 of the Burlingame Municipal Code to bring Burlingame into conformance with
Government Code Section 65852.2 regulating Accessory Dwelling Units (formerly known as
Secondary Dwelling Units). AB 494 and SB 229 make a number of clarifying edits to
Government Code section 65852.2. AB 494 reduces the maximum parking that may be required
to one space per unit, regardless of the number of bedrooms, and eliminates a jurisdiction's
ability to prohibit tandem parking or parking in setback areas. Burlingame Municipal Code
Chapter 25.59 currently complies with these provisions.
SB 229 requires certain ADUs to be permitted on all lots where single-family uses are permitted
and that include an existing or proposed single-family dwelling. In particular, local governments
must allow interior ADUs (i.e., those created entirely within an existing structure) in any district
where single family homes are permitted. By contrast, exterior (those accommodated in a new
structure or expansion of an existing structure) ADUs may continue to be allowed only in
designated areas specified by the City. Burlingame Municipal Code Chapter 25.59 requires a
Minimum Lot Size of 6,000 square feet. Because of SB 229, interior ADUs must be allowed on
all lots that permit single-family uses, including those under 6,000 square feet. Furthermore, SB
Recent Developments in California Housing Law December 4, 2017
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229 restricts the ability of special districts and water corporations to impose utility connection
fees and capacity charges on new ADUs.
Inclusionary Housing in Rental Developments: For jurisdictions requiring inclusion of a
proportion of affordable units in new developments, AB 1505 provides a mechanism for
requiring inclusionary units in rental projects as well as for sale projects. However, Burlingame
does not have an inclusionary housing requirement, since the "Burlingame Fair Property Rights
Ordinance" (i.e. Measure "T" - Ordinance No. 1356) restricts the City of Burlingame from
imposing affordable units through an inclusionary housing program. In Burlingame, affordable
units may be provided through the City’s Density Bonus program in conjunction with
concessions and incentives, but because the program is voluntary it already pertains to rental
and for sale projects. Therefore the provisions of AB 1505 are not applicable to Burlingame
under the City’s current legal structure.
FISCAL IMPACT
None.
Exhibit:
Recent Developments in California Housing Law – Summary of 2017 Housing Legislation
Goldfarb & Lipman, LLP, October 29, 2017
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GOLDFARB & LIPMAN LLP
RECENT DEVELOPMENTS IN CALIFORNIA HOUSING LAW
SUMMARY OF 2017 HOUSING LEGISLATION
OCTOBER 29, 2017
OAKLAND
510 836 6336
LOS ANGELES
213 627 6336
SAN DIEGO
619 239 6336
This summary has been published by Goldfarb & Lipman LLP to alert clients and others of
recent changes in California law related to the state's housing package. This summary does not
represent the legal opinion of the firm or any member of the firm on the issues described, and the
information contained in this publication should not be construed as legal advice. Should further
analysis or explanation be required, please contact any Goldfarb & Lipman attorney.
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TABLE OF CONTENTS
Page
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I. CHANGES REQUIRED IN PROCESSING OF ALL HOUSING PROJECTS ................ 2
A. Housing Accountability Act (HAA): Applicable to All Housing
Development Projects (AB 678, SB 167, and AB 1515; Government Code
§ 65589.5) ............................................................................................................... 2
B. "No Net Loss": Applicable to All Development on Sites Listed in the
Housing Element (SB 166; Government Code § 65863) ........................................ 5
C. Streamlined Approval for Housing Projects Meeting Specific Criteria
(SB 35; Government Code § 65913.4) ................................................................... 7
II. ANNUAL REPORTING AND HOUSING ELEMENT ENFORCEMENT ................... 11
A. Increased Annual Reporting Obligations, Now Applicable to Charter
Cities (AB 879 and SB 35; Government Code § 65400) ...................................... 11
B. Increased Enforcement of Housing Law (AB 72; Government Code
§ 65585) ................................................................................................................ 12
C. Future Housing Element Sites Restricted (AB 879 and AB 1397;
Government Code §§ 65583 and 65583.2) ........................................................... 13
III. SUPPORT FOR AFFORDABLE HOUSING .................................................................. 15
A. New Permanent Funding Sources for Housing (SB 2 and SB 3) ......................... 15
B. Support for Farmworker Housing and Migrant Farm Labor Centers
(AB 571) ............................................................................................................... 18
C. Preservation of Units with Expiring Use Restrictions (AB 1521) ........................ 19
D. Welfare Exemption for Over-Income Tenants (AB 1193) ................................... 22
IV. NEW DISTRICTS AND ZONES TO STREAMLINE DEVELOPMENT AND
FINANCE HOUSING ...................................................................................................... 23
A. Workforce Housing Opportunity Zones (SB 540) ................................................ 23
B. Housing Sustainability Districts (AB 73) ............................................................. 25
C. Neighborhood Infill Finance and Transit Improvements (NIFTI) Districts
(AB 1568) ............................................................................................................. 29
V. ACCESSORY DWELLING UNIT LEGISLATION ....................................................... 31
VI. RETURN OF RENTAL INCLUSIONARY HOUSING .................................................. 33
A. The Palmer Decision ............................................................................................ 33
B. AB 1505 Authorizes Inclusionary Housing Requirements in Rental
Projects .................................................................................................................. 33
C. Implications for Local Ordinances ........................................................................ 34
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INTRODUCTION
On September 15, 2017, the last day of the 2017 legislative session, the California Legislature
responded to the state's housing crisis by passing fifteen bills in a landmark housing package
developed together with Governor Jerry Brown's office. The Governor signed all fifteen bills on
September 29, 2017. The package raises more money for affordable housing—much designated
for local government—in exchange for requirements to "streamline" housing development
approvals. Although most of the attention has been focused on only three of the bills, SB 2, SB 3,
and SB 35, many significant changes are contained in more obscure bills which received little
publicity. Together, the bills will require each city and county to change the way it processes
housing applications.
This summary discusses the key provisions of all fifteen bills, as well as several other laws
related to housing, such as the legislation covering accessory dwelling units. Each bill has
numerous complex provisions, and this review only provides highlights. Please contact any
attorney at Goldfarb & Lipman for more information regarding the effects of these new laws and
their applicability to your organization or projects.
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I. CHANGES REQUIRED IN PROCESSING OF ALL HOUSING PROJECTS
The 2017 legislative session included the enactment of fifteen significant bills, many of which
were intended to "streamline" local government approvals of housing projects. This reflects the
Legislature's view that local government approval processes significantly delay housing
construction and increase costs. While SB 35 was the most publicized statute related to
streamlining, its effects on local government will be relatively minor compared with those
required by amendments to the Housing Accountability Act and the so-called "No Net Loss"
statute. The changes to the Housing Accountability Act and the No Net Loss statute will require
changes on how housing applications are processed after January 1, 2018.
A. Housing Accountability Act (HAA): Applicable to All Housing Development
Projects (AB 678, SB 167, and AB 1515; Government Code § 65589.5)
1. Key HAA Provisions. The HAA currently applies to all "housing development projects,"
whether or not affordable. Its key provisions are:
a. A Housing Project May Usually Not be Denied or Reduced in Density if It
Conforms with All "Objective" Standards. For all housing projects, whether
affordable or not, the key provision requires that if a housing project complies
with all "objective" general plan, zoning, and subdivision standards, it may only
be denied or have its density reduced if a city or county can find that the project
would have a "specific adverse impact" on public health and safety.
A "specific adverse impact" is a "significant, quantifiable, direct, and unavoidable
impact, based on objective, identified written public health or safety standards" in
effect when the application was deemed complete; and there is no feasible method
to mitigate the impact.
b. Additional Findings Must be Made to Deny an Affordable Project. If a project is
also "housing for very low-, low- or moderate-income households," additional
findings need to be made to deny the project, reduce the density, or add a
condition making the project infeasible—even if the project does not comply with
all "objective" standards.
Affordable developments include projects where at least 20 percent of the units
are affordable to low-income households (incomes up to 80% of median) or 100%
are affordable to either moderate-income households (120% of median) or
middle-income households (150% of median).
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2. Major Changes to the HAA.
As of January 1, 2018:
a. Applicants Must be Informed of Any Inconsistencies within 30-60 Days after the
Application is Complete. Cities and counties must identify any inconsistencies
with any applicable "plan, program, policy, ordinance, standard, requirement, or
similar provision" within 30 days after an application for 150 units or less has
been deemed complete, or within 60 days for projects with more than 150 units. If
the local agency does not identify an inconsistency within the required period, the
project will be "deemed consistent."
It is not clear how this provision applies to "pipeline" projects: projects that are
deemed complete before January 1, 2018. Clearly when a project is found to be
complete before January 1, 2018, the provision is not yet in effect. The most
reasonable approach is that the requirement applies only to projects deemed
complete after January 1, 2018. However, this issue was not resolved in the
legislation.
b. Definition of a "Housing Development Project" Expanded. A "housing
development project" will include any mixed-use project where at least two-thirds
of the square footage in the project is designated for residences, as well as
projects that include residences only and transitional and supportive housing.
c. Definition of "Objective" Standard. The HAA does not define "objective."
However, SB 35 defines an "objective" standard as one that involves "no personal
or subjective judgment by a public official and uniformly verifiable by reference
to an external and uniform benchmark or criterion available and knowable by both
the development applicant… and the public official prior to submittal." Although
SB 35 states that this definition is confined to that statute, courts may reference
this definition in interpreting the HAA.
Provisions such as permitted uses, density, height, setbacks, floor area ratio, even
specific design guidelines such as required materials should all be considered to
be "objective" standards under this definition. On the other hand, subjective
criteria such as "consistent with the character of the city" are not likely to be
considered "objective" and, if not objective, cannot be the basis for denying a
housing project or reducing the density.
d. Projects Receiving Density Bonuses Are Consistent. Receipt of a density bonus is
not a basis to find a housing project inconsistent with applicable development
standards.
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e. Less Deference to Local Government Findings of Inconsistency. A housing
project "shall" be deemed consistent with applicable standards if there is
substantial evidence that would allow a reasonable person to conclude that the
project is consistent. Currently a local government's finding of either consistency
or inconsistency is upheld unless no reasonable person could agree.
This new standard may make it more difficult for local governments to deny
projects, because if a court finds that evidence of project consistency submitted by
an applicant is reasonable, the project may be found consistent even if the local
government has better evidence that the project is inconsistent. The standard will
also make it more difficult for project opponents to challenge a project as
inconsistent when the local government has found it to be consistent.
Additionally, any findings made to deny a housing project must be supported by a
preponderance of the evidence, which is a less deferential standard of review than
the current substantial evidence standard. Rather than only looking at the city's or
county's evidence to see if it is "substantial," a court will compare the agency's
evidence with the applicant's evidence and determine which is more convincing.
f. Increased Penalties for Failure to Comply with the HAA. If a local government
improperly denies any housing project, whether market rate or affordable, the
prevailing party in a lawsuit brought under the Housing Accountability Act is
entitled to attorneys' fees. In addition, if a local agency fails to comply with a
court order to approve a project pursuant to the Housing Accountability Act, it
shall be fined a minimum of $10,000 per unit. Penalties can increase to five times
this amount if the local agency fails to comply with a court order, and the court
finds bad faith.
3. Coastal Act. The HAA provides specifically that nothing in the Act relieves a local
agency from compliance with the Coastal Act. In Kalnel Gardens LLC v. City of Los
Angeles (2016), the Court of Appeal stated in dicta that the HAA is likely to be
subordinate to the Coastal Act as a consequence of this provision. Assuming that this
conclusion is correct, projects within the coastal zone may be denied if they are
inconsistent with relatively subjective provisions of the Coastal Act, such as the
requirement that they be "visually compatible with the character of the surrounding area."
However, an applicant may submit evidence of consistency into the record. It is not clear
if a court would evaluate a local decision regarding the Coastal Act under the HAA
standard of review rather than under the usual 'substantial evidence' standard for
administrative mandate. Under the HAA, if a court were to find that a developer's
evidence is substantial and would allow a reasonable person to conclude that the project
is consistent, a finding of inconsistency by the local agency may not be upheld.
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4. CEQA. In reviewing the project, the agency must also comply with CEQA and, if
approving a project, must make all findings required by CEQA. (See Schellinger Bros. v.
City of Sebastopol (2009).) Since environmental review may well substantially exceed 30
to 60 days, applicants will often receive a list of plan inconsistencies long before CEQA
review is completed. That review could require the incorporation of various mitigation
measures into the project, potentially resulting in major project changes. The HAA
contains no provisions for submittal of revised plans, and re-review, once a project is
deemed complete.
5. Implications for Processing of Housing Development Applications. Thirty to sixty days
is a very short time to review developments for consistency with every local standard. In
the short term, local governments may want to develop checklists of all of the objective
requirements placed on housing development and require applicants to demonstrate how
they comply with those requirements. Because agencies must review compliance with all
"standards and requirements," as well as the general plan, zoning, and subdivision
ordinance, applications may need to show a higher level of detail to demonstrate this
consistency.
In the longer term, local governments may wish to review their standards to ensure that
they are "objective," especially design review standards and findings for approval of
projects. Under SB 2, significant planning funds will be available in 2018 that may be
used for the purpose of streamlining housing approvals. Developing "objective" standards
may both enable local government to achieve quality development and provide more
certainty to housing developers.
B. "No Net Loss": Applicable to All Development on Sites Listed in the Housing
Element1 (SB 166; Government Code § 65863)
1. Key "No Net Loss" Provisions. Each city and county in its housing element must list
specific sites that can accommodate its Regional Housing Need Allocation (RHNA) for
three income levels: lower (very low and low); moderate; and above moderate. For each
site listed, the housing element must show the number of units that can be constructed on
the site, and whether the site is intended to meet the need for lower-, moderate-, or above-
moderate-income housing. Sites designated for lower-income housing need to be zoned at
certain densities, usually 20 or 30 units per acre in urban areas.
The current "no net loss" provisions apply only when a city or county subject to the
provision approves a project on a site shown in the housing element with fewer units than
shown in the housing element. If that is the case, the government must either:
1 The provision also applies to sites zoned for residential development in communities that have not adopted housing
elements. However, because this affects fewer than 5% of communities, these provisions are not described here.
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• Find that other sites shown in the housing element are adequate to meet the
RHNA at all income levels; or
• Identify other sites so there is 'no net loss' in capacity.
Under current law, if a site designated as suitable for lower-income housing is developed
with the number of units shown in the housing element, there is "no net loss," even if the
units are not affordable.
The statute applies only to general law cities and counties, and SB 166 did not apply the
provision to charter cities.
2. Major Change to "No Net Loss": Maintaining Capacity by Income Category. As of
January 1, 2018, cities and counties subject to the provision will need to make "no net
loss" findings if projects are approved on housing element sites with either fewer units
OR a different income category than shown in the housing element. If a site shown as
suitable for lower- or moderate-income housing is developed with market-rate units—
even with the same number of units as shown in the housing element—the local
government must either:
• Make a written finding (including unmet need and remaining capacity of sites)
that other sites shown in the housing element are adequate to meet the RHNA for
lower- or moderate-income housing, as applicable; or
• "Identify and make available" within 180 days other sites zoned at a density
suitable for lower- or moderate-income housing, either by identifying existing
properly zoned sites or by making such sites available through rezoning. It is not
entirely clear when the 180-day period starts; the most likely interpretation is that
it begins on the date that a project is approved that results in sites being
inadequate.
Other important provisions include:
a. Denial Because of Need to Rezone. Cities and counties are not authorized to
disapprove a housing development because additional sites would need to be
identified for a specific income category. This appears to be intended to disallow
project denials when a market-rate housing project is proposed on a site shown as
suitable for affordable housing, and a replacement site must be found. Note that
this provision does not apply to non-residential development proposed on a
housing element site, apparently allowing non-residential development to be
disapproved for this reason.
b. CEQA Review of Any Required Rezoning. If an approval results in the need to
find a replacement housing site, the agency is not "obligated" to complete CEQA
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review of any rezoning or other action needed to create a replacement site. While
this language appears to be intended to separate any CEQA review of the project
from CEQA review of any needed rezoning, it does not clearly prevent agencies
from reviewing both actions together, if they choose to do so.
The obligation to identify another site within 180 days of project approval does not allow
any extension due to the need to complete CEQA review.
3. Implications for Processing of Applications on Housing Element Sites. Any
development application on a site shown in the housing element, including commercial
development on mixed-use sites, should be reviewed for compliance with this section.
Before January 1, 2018, agencies should review all applications approved on housing
element sites since adoption; list the number of units approved and their income category;
list all housing approved on sites not listed in the housing element and their income
category; and determine if there is a current shortage of sites in any income category. If
so, when another application is reviewed for a site listed in that income category, the
agency will need to "identify and make available" a replacement site within 180 days if
the project does not include the density and income category shown in the housing
element. The replacement site could be one that is properly zoned but not shown in the
housing element; or a site not included in the housing element that is rezoned to a higher
density.
SB 166 does not appear to require that the housing element be amended if a site not
shown in the housing element is "identified and made available" to account for any
shortfall. However, AB 879 requires that housing element annual reports list any sites
rezoned or identified to comply with this provision.
C. Streamlined Approval for Housing Projects Meeting Specific Criteria (SB 35;
Government Code § 65913.4)
1. Jurisdictions Subject to SB 35. Government Code section 65913.4 applies to general law
and charter cities and counties; however, jurisdictions are only subject to its provisions if:
• HCD has determined that the jurisdiction has not issued enough building permits
to satisfy its regional housing need allocation (RHNA) by income category; or
• A jurisdiction has not submitted its required annual report to HCD for at least two
consecutive years.
HCD will make its determination for each "reporting period," and once HCD has
determined that a jurisdiction is subject to streamlining requirements, housing projects
remain eligible through the end of that reporting period. A "reporting period" is either the
first half or second half of the either five- or eight-year-long housing element planning
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period. Accordingly, HCD determinations will last for a maximum of either two and a
half or four years, depending on the length of each jurisdiction's housing element
planning period.
2. Projects Eligible for Streamlining. To be eligible for streamlined approval, the project
must:
• Propose at least two residential units;
• Be located in an urban area, with 75% of the site's perimeter already developed;
• Have a general plan or zoning designation that allows residential or mixed-use
development; and
• Meet all "objective" zoning and design review standards in effect when the
project is submitted.
o A project that receives a density bonus and other regulatory incentives
under density bonus law is considered consistent, and any "maximum unit
allocation" (presumably under a growth control measure) must be ignored.
o Maximum density is the maximum shown in the general plan. Under
SB 35, general plan standards trump other standards if documents are
inconsistent.
In addition, projects must meet affordable housing and labor requirements. Specifically:
• If the jurisdiction has not approved enough units to meet its RHNA for above-
moderate-income housing, a project with more than 10 units of housing qualifies
if it dedicates at least 10% of the total unit count for low-income households;
• If the jurisdiction has not issued enough building permits to meet its RHNA for
low-income housing, a project qualifies if it dedicates 50% of the total unit count
for low-income households;
• If the jurisdiction has not issued enough building permits to meet its RHNA for
low-income housing and above-moderate-income housing, the applicant can
choose between dedicating 10% or 50% of the total unit count for low-income
households;
• Projects with more than 10 units must commit to paying prevailing wages; and
• Projects must be completed using a "skilled and trained workforce" if they:
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o Are located in jurisdiction in a coastal or bay county with a population of
225,000 or more and propose 75 or more units (January 1, 2018, until
December 31, 2021) or 50 or more units (January 1, 2022, until December
31, 2025) that are not 100 percent subsidized affordable housing; or
o Are located in jurisdiction with a population of fewer than 550,000 that is
not located in a coastal or bay county and propose 75 or more units
(January 1, 2018, until December 31, 2019), 50 or more units (January 1,
2020, until December 31, 2021), or 25 or more units (January 1, 2022,
until December 31, 2025) that are not 100 percent subsidized affordable
housing.
3. Exclusions. If a project meets the above qualifications, it may be eligible for
streamlining if no exclusions apply. Specifically, the project site must not be in the
following areas:
• The coastal zone;
• Prime farmland or farmland of statewide importance;
• Wetlands;
• Specified hazardous areas (e.g., severe fire hazard areas, hazardous waste sites,
fault zones, floodways, etc.);
• Sites subject to a conservation easement or designated for conservation in a
habitat conservation plan;
• Sites subject to the Mobilehome Residency Law, the Recreational Vehicle Park
Occupancy Law, the Mobilehome Parks Act, or the Special Occupancy Parks Act;
• Sites that require the demolition of housing restricted to households with
moderate income or lower or housing subject to rent control or an historic
structure; or
• Sites that have contained housing occupied by tenants within last 10 years, even if
such housing has subsequently been demolished.
Finally, the project must not involve the subdivision of a parcel unless it satisfies the
prevailing wage and skilled and trained workforce requirements (summarized above) or it
is financed with low-income housing tax credits and commits to paying prevailing wages.
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4. Limitations on Parking for Eligible Projects. No more than one parking space per unit
may be required for eligible projects. Moreover, no parking may be required if the project
is located:
• Within one-half mile of public transit;
• Within an architecturally and historically significant historic district;
• In an area where on-street parking permits are required but not offered to the
occupants of the development; or
• Within one block of a car share vehicle.
5. Streamlining Benefits to Applicant. Most importantly, qualifying projects are eligible
for streamlined approvals under a ministerial process, which excludes qualified projects
from environmental review under the California Environmental Quality Act.
An applicant must request review under the streamlining provisions. A jurisdiction then
has 60 days from submittal (90 days for projects with more than 150 units) to provide the
applicant with written notice of any objective development standards that the project does
not satisfy and an explanation for the conflict; failure to meet this timeframe results in a
project being deemed consistent with such standards. The jurisdiction must complete any
"design review or public oversight" for the project within 90 days of an application's
submittal (180 days for projects with more than 150 units).
Because of the numerous qualification criteria and exclusions, it is not clear how many
projects will be in a position to take advantage of the new streamlining provisions.
However, note that the timeframes for processing applications are triggered from the date
of submittal, not from the date an application is accepted as complete, which increases
the pressure on local agency staff to review and process applications quickly. Regardless,
agencies may want to develop a checklist to evaluate eligibility for streamlining and
submittal requirements needed to determine if a project is consistent with all objective
standards. As with the Housing Accountability Act, cities and counties will need to
compile a list of applicable objective development standards that can be used to evaluate
housing applications going forward.
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II. ANNUAL REPORTING AND HOUSING ELEMENT ENFORCEMENT
SB 35, AB 72, AB 879, and AB 1397 have created significant changes to housing element
requirements and annual reporting of housing development.
A. Increased Annual Reporting Obligations, Now Applicable to Charter Cities (AB 879
and SB 35; Government Code § 65400)
General law cities have been obliged to draft an annual report on implementation of their general
plans that includes a description of housing development activity in the jurisdiction. The annual
report requires a discussion of the jurisdiction's progress towards implementing its housing
element programs to meet its share of the regional housing needs allocation (RHNA). Local
governments are required to hold a hearing and accept public comment regarding the report, as
well as to submit the report to the state Department of Housing and Community Development
(HCD) and state Office of Planning and Research (OPR) by April 1 each year. HCD has adopted
forms for the annual reports.
SB 35 and AB 879 impose additional substantive requirements for the preparation and contents
of annual reports on implementation of the general plan and extend the requirements to charter
cities. The bills require that the following additional information be included in the report:
• The number of housing development applications received in the prior year;
• The number of units included in all development applications in the prior year;
• The number of units approved and disapproved in the prior year;
• A listing of sites that were rezoned to accommodate any portion of the local government's
share of the RHNA for each income level that could not be accommodated on sites
identified in the site inventory of the housing element;
• A listing of sites that were identified or rezoned if housing was developed at a lesser
density or for a different income level than anticipated for that site in the housing element
site inventory, in accordance with the new "No Net Loss" requirements in AB 166;
• A production report that identifies:
o The number of net new units of housing (both rental and for-sale) that have been
issued a "completed entitlement," a building permit, or a certificate of occupancy,
thus far in the housing element cycle. The term "completed entitlement" is
defined in the streamlining provisions of SB 35 as "all required land use approvals
or entitlements necessary for issuance of [a] building permit" (Government Code
section 65913.4). It appears likely this definition will be used for the annual
reports; and
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o The income category that each new housing unit satisfies, based on the
anticipated area median income of the future occupants, presumably in
accordance with the RHNA categories (e.g. very low-, lower-, moderate-, and
above-moderate-income categories); and
o A unique site identifier for each entitlement, building permit, or certificate of
occupancy, including the assessor parcel number.
• A report on the impact of SB 35's streamlining provisions (Government Code section
65913.4), including the number of applications for streamlining, the location and number
of each development approved and building permit issued via SB 35 streamlining, and
the total number of units constructed via streamlining by income category and noting
whether the unit is for rent or sale.
HCD has been given authority to revise the housing element annual report forms it previously
adopted via notice and comment, but the new revisions are not subject to the California
Administrative Procedures Act. Presumably the new annual report forms will incorporate all of
the new requirements. HCD has stated that the additional information must be submitted in the
annual reports due on April 1, 2019, but that the reports due on April 1, 2018 need only conform
with the regulations adopted in 2010.
Each city, county, or city and county that fails to submit an annual report in substantial
compliance with the new requirements by May 31 of each year may be subject to a court order
requiring completion of the report. After HCD revises the forms to incorporate the above
requirements, agencies may be ordered by a court to prepare a report consistent with the new
forms by October 1 following the adoption of the forms, but no sooner than six months following
their adoption, and after that must submit consistent annual reports by April 1. Separately, failure
to submit the annual report for two or more consecutive years triggers SB 35 streamlining
provisions for housing development applications.
AB 879 also directs HCD to evaluate the reasonableness of local government fees charged under
the Mitigation Fee Act by June 30, 2019, with direction to identify fee reduction opportunities to
promote housing development.
B. Increased Enforcement of Housing Law (AB 72; Government Code § 65585)
Currently, HCD reviews all housing elements and determines whether each housing element or
amendment substantially complies with state housing element law. In the past HCD has revoked
its finding of compliance when communities have failed to implement their housing elements but
has not had statutory authority to do so.
AB 72 provides explicit authority for HCD to revoke its compliance finding, allowing the
department to review any action or failure to act that is inconsistent with either an adopted
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housing element or state housing element law, such as a failure to complete required rezonings.
HCD must provide the city or county with a "reasonable" time to respond that cannot exceed 30
days and then may revoke its finding of substantial compliance and may refer the violation for
potential action by the California Attorney General. HCD may additionally report to the Attorney
General any violations of the Housing Accountability Act, the "No Net Loss" statute, density
bonus law, or fair housing law. However, no funds were appropriated for the Attorney General to
act on these referrals.
C. Future Housing Element Sites Restricted (AB 879 and AB 1397; Government Code
§§ 65583 and 65583.2)
AB 1379 and AB 879 require cities and counties to provide additional analysis when adopting a
housing element and seek to limit the designation of certain sites as suitable for lower-income
housing, especially non-vacant sites. Although most housing elements in the state will not be
required to be revised until 2021 to 2023, cities and counties should be aware of the substantial
changes regarding adequate sites.
1. Site Inventory Requirements. Housing elements previously required land inventories that
identify sites that could accommodate housing development. Now, the site inventory
must include the "realistic and demonstrated potential" for identified sites to
accommodate housing development. While the realistic and demonstrated potential is not
clearly defined, new requirements for the site inventory may shed light. The site
inventory must now identify each property by its assessor parcel number (rather than
allowing other identifiers) and then describe whether the property either currently has
access to sufficient water, sewer, and dry utilities, or is scheduled to have such access
according to an adopted plan. As currently required, the site inventory must identify the
number of units that can "realistically be accommodated" on site, but AB 1397 requires
more justification of the number of units identified for each site, including a review of the
density of projects on similar sites in the jurisdiction and at similar affordability levels.
2. Restrictions on Site Designations. AB 1397 revises Government Code section 65583.2
to impose new restrictions on which sites may be included in the site inventory based on
the size and current use of the site. Sites smaller than one-half acre and those larger than
ten acres are presumed to be inappropriate for development of housing affordable to
lower-income households, unless the jurisdiction can provide evidence why the site
would be appropriate. Acceptable evidence includes either a proposal for or an approved
development project affordable to lower-income households for the site.
3. Use of Vacant Sites in the Site Inventory. Vacant sites that were previously included in
prior housing element site inventories are subject to additional scrutiny. If a vacant site
was identified in two or more consecutive planning periods to accommodate lower-
income households but was not a site of an approved housing development, or if a non-
vacant site was identified in a prior housing element, the site cannot be used to fulfill the
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jurisdiction's obligation to accommodate development for lower-income households
unless:
• the site is or will be rezoned to the minimum lower-income household density for
the jurisdiction within three years; and
• the zoning allows for residential development by right if at least twenty percent
(20%) of the units are affordable to lower-income households.
4. Use of Non-vacant Sites in the Site Inventory. For each non-vacant site identified in the
housing element site inventory, the development potential for the site must additionally
consider the jurisdiction's past experience converting existing uses to higher density
residential development, the current market demand for the existing use, and an analysis
of any existing leases or contracts that could prevent redevelopment of the site.
Additionally, if a jurisdiction relies on non-vacant sites to accommodate fifty percent
(50%) or more of its housing need for lower-income households, the "existing use shall
be presumed to impede additional residential development, absent findings based on
substantial evidence that the use is likely to be discontinued during the planning period."
Sites identified for housing development that currently or within the last five years
contained residential units occupied by lower-income households, or were subject to an
affordability requirement or local rent control policy, must be replaced one-for-one with
units affordable to the same or lower income levels. This replacement requirement must
be a condition to any development of the site.
5. Additional Analysis Required. The analysis of governmental constraints on the
production of housing must specifically address "any locally adopted ordinances that
directly impact the cost and supply of residential development." Such ordinances likely
include mitigation fees related to traffic, parks, and utilities, but could potentially be
interpreted to include typical zoning constraints like height limits or mandatory setbacks
from streets and lot lines.
Finally, the housing element must expand the analysis of nongovernmental constraints on
the production of housing. AB 1397 requires that this analysis discuss any requests to
develop housing at densities below the density identified for the site in the land
inventory, describe the length of time between project approval and a request for building
permits, and identify local efforts to address nongovernmental constraints.
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III. SUPPORT FOR AFFORDABLE HOUSING
A. New Permanent Funding Sources for Housing (SB 2 and SB 3)
For over a decade, and more urgently since the demise of redevelopment in 2012, which
provided over $1 billion each year for affordable housing, local governments and affordable
housing developers have been struggling to find an alternative source of funding to help address
the state's severe housing shortage. The California Legislature passed two funding bills this year
as part of the fifteen-bill housing package in an effort to replace some of the lost redevelopment
funds and provide a permanent source of funding.
1. Permanent Source for Housing—Recording Fee. SB 2, the Building Homes and Jobs
Act, provides a "permanent source" of funding for affordable housing by imposing a $75
fee on each recorded document up to a maximum of $225 per transaction per parcel,
estimated to generate $200 to $300 million annually. Documents exempted from the fee
include documents transferring a residential dwelling to an owner-occupant and
documents recorded in connection with transfers that are subject to the transfer tax, such
as grant deeds not involving related parties.
As of January 1, 2018, SB 2 requires county recorders to send fee revenues quarterly,
after deduction of administrative costs, to the State Controller for deposit in the Building
Homes and Jobs Fund. The funds to be generated by the fees will be provided to local
governments and the California Department of Housing and Community Development
(HCD) in two phases, with the majority of the funding designated for use by local
governments.
a. Year 1: January 2018—December 2018
• 50% for local governments to streamline housing production. During the
first year, 50% of the funds will be available for local governments to
update planning documents and zoning ordinances to streamline housing
production, including but not limited to general plans, community plans,
specific plans, sustainable communities strategies, and local coastal
programs. The funds can also be used for analyses under the California
Environmental Quality Act (CEQA) to eliminate the need for project-
specific review and for process improvements to expedite local permits.
To obtain funding, local governments must submit requests to HCD with a
description of the proposed use of the funds in the interest of accelerating
housing production. HCD is required to ensure geographic equity in the
allocation of the funds.
• 50% for HCD to combat homelessness. The remaining 50% of the funds
will be available to HCD to assist individuals experiencing or at risk of
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homelessness including, but not limited to, providing rapid rehousing,
rental assistance, navigation centers, and the new construction,
rehabilitation, and preservation of permanent and transitional rental
housing.
b. Year 2 and Beyond: January 2019—Beyond
Beginning January 1, 2019, the funding will shift toward the creation of
affordable housing with 70% of funds designated for local government use and
30% for HCD use. Additionally, SB 2 requires that 20% of all funds be used for
affordable owner-occupied workforce housing, but does not define "workforce
housing."
• 70% for local governments to support affordable housing,
homeownership opportunities, and other housing-related programs. Of
the 70% for local governments, 90% of the funds will be allocated based
on the same formula as used for Community Development Block Grants
(CDBG) funds, except that the funds allocated to non-entitlement areas
pursuant to the CDBG formula will be distributed by HCD through a
competitive grant program. As under the CDBG program, cities with
populations of at least 50,000 and urban counties with a population of at
least 200,000 (excluding entitlement cities) will be designated as
entitlement jurisdictions and receive grants by formula, provided they
comply with certain minimum requirements.
For non-entitlement areas, HCD is required to prioritize counties that have
populations of 200,000 or less in unincorporated areas, local governments
that did not receive awards based on the CDBG formula in 2016, and local
governments that pledge to use the funds towards assisting persons
experiencing or at risk of homelessness.
The remaining 10% of the funds for local governments will be allocated
equitably among non-entitlement areas using the CDBG formula.
Minimum Requirements. To receive the funds, cities and counties must
comply with the following minimum requirements: (1) submit a plan to
HCD describing how the funds will be used consistent with the eligible
uses and to meet the local government's unmet share of the regional
housing needs allocation (RHNA); (2) have a "compliant" housing
element and submit a current housing element annual report (Government
Code section 65400); (3) submit an annual report to HCD tracking the
uses and expenditures of any allocated funds; (4) expend funds for the
eligible purposes; and (5) prioritize investments that increase the housing
supply to households that are at or below 60% Area Median Income
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(AMI). If there is no "documented plan" to spend the funds within five
years, the funds revert to HCD for use in its Multifamily Housing
Program.
Uses of Funds. Local governments may use the funds for a wide variety of
purposes that include: (1) predevelopment, development, acquisition,
rehabilitation, and preservation of multifamily, residential live-work,
rental housing that is affordable to extremely low-, very low-, low- and
moderate-income households; (2) affordable rental and ownership housing
that meets the needs of a growing workforce earning up to 120% of AMI
(or 150% AMI in high-cost areas, which are not defined); (3) capitalized
reserves for services connected to the creation of new permanent
supportive housing; (4) assisting persons who are experiencing or at risk
of homelessness; (5) accessibility modifications; (6) acquisition and
rehabilitation of foreclosed or vacant homes; (7) homeownership
opportunities; or (8) fiscal incentives or matching funds to local agencies
that approve new affordable housing.
Two or more cities may spend their allocation on a joint project. Only five
percent of the funds may be spent on administration.
HCD is authorized to adopt guidelines in consultation with "stakeholders"
to implement this section and determine allocation methodologies.
• 30% for HCD for specified purposes. The remaining 30% of the funds
will be made available to HCD for the following purposes: 5% for state
incentive programs including loan and grant programs administered by
HCD, 10% to address affordable homeownership and rental housing
opportunities for agricultural workers and their families, and 15% will be
appropriated to the California Housing Finance Agency to create mixed-
income multifamily residential housing for lower- or moderate-income
households.
2. Veterans and Affordable Housing Bonds. SB 3 places on the November 6, 2018 ballot
a bond measure to raise $3 billion for existing state affordable housing programs and $1
billion for the veterans' home purchase program. For the most part, funds raised under
SB 3 (if approved by voters) are not directed to local governments. Like SB 2, SB 3 is
also an urgency measure that became effective on September 29, 2017. Supporters intend
to develop get-out-the-vote efforts and other campaign efforts to ensure that this will be a
successful initiative.
3. Summary. Both SB 2 and SB 3 are long-awaited sources of funding for affordable
housing. Local governments will need to pay special attention to eligibility requirements
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to receive funding under SB 2, and developers and other entities should be aware of new
recording fees as a result of SB 2.
B. Support for Farmworker Housing and Migrant Farm Labor Centers (AB 571)
AB 571 makes several changes to the state low-income housing tax credit program to promote
the development of additional farmworker housing, and also provides additional support and
flexibility for the operation of migrant farm labor centers. AB 571 is an urgency measure, so it is
effective as of September 29, 2017, except as otherwise provided in the legislation.
1. Changes to the State Low-Income Housing Tax Credit for Farmworker Housing.
California's state low-income housing tax credit program provides a set-aside of
$500,000 annually for farmworker housing, which accrues if unused. As of June 7, 2017,
there was approximately $4.8 million of unused state farmworker tax credits available.
AB 571 alters the state low-income housing tax credit program to make the farmworker
set-aside more effective. These changes are:
a. As of January 1, 2018, the definition of "farmworker housing" is modified so that
only 50 percent (rather than 100 percent ) of the residential units in the
development must be occupied by farmworker households.
b. As of January 1, 2018, the California Tax Credit Allocation Committee
("TCAC") can now allocate farmworker state low-income housing tax credits to
housing developments located in difficult to develop areas (DDAs) and Qualified
Census Tracts (QCTs) (which are the two areas where developments qualify for a
30% basis boost for federal tax credits). Previously, TCAC could only allocate
state credit for developments in DDAs and QCTs where at least 50% of the units
served special needs populations.
c. As of January 1, 2018, for developments that also receive 4% federal low-income
housing tax credits, the state low-income housing tax credit for farmworker
housing will be increased to 75% of the development's basis over four years. For
all other situations, the state low-income housing tax credit equals only 13% of
the development's basis over four years.
These changes will work together to make the farmworker set-aside of the state low-
income housing tax credit more flexible and enable owners of farmworker housing to
raise more equity than was previously possible. The goal is to encourage more
farmworker housing to be constructed.
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2. Changes to the State Migrant Farm Labor Centers Programs. AB 571 also provides
more support and flexibility to the state's migrant farm labor centers in the following
ways:
a. Allows HCD to make advance payment of up to 20% of annual operating costs
for migrant farm labor centers, provided the contractors do not have outstanding
advance balances from previous periods.
b. Clarifies that the maximum occupancy period, consisting of the standard 180-day
occupancy period plus any HCD-approved extended occupancy period, cannot
exceed a total of 275 days in a calendar year.
c. Deletes a condition for approval of an extended occupancy period that no
additional subsidies from HCD are to be used for the extended occupancy period
beyond the first 14 days of the extended period.
These changes will provide more flexibility in extending the occupancy period, which
will presumably make housing available to migrant farm labor households for longer
periods of time.
C. Preservation of Units with Expiring Use Restrictions (AB 1521)
AB 1521 provides additional measures to retain the affordability of developments with expiring
use restrictions, a proposed termination of a subsidy contract, or a proposed prepayment in an
effort to preserve more affordable housing developments (collectively, "expiring use
restrictions").
1. Changes to the Required Notices for Assisted Affordable Housing Developments with
Expiring Use Restrictions.
• Assisted Housing Developments. The notice requirement applies to multifamily
affordable housing developments with federal, state, or local governmental
assistance, with the exception of Housing Choice Vouchers, and does not apply to
units under rent control/rent stabilization ordinances.
• Notice Period. Under current law, notice of "expiring use restrictions" must be
given for all assisted affordable housing developments within one year of the
expiration of those restrictions. The legislation now provides that notice must also
be given at least three years prior to the expiration date of restrictions to
prospective tenants, current tenants, and "affected local entities" if the rental
restrictions are set to expire after January 1, 2021. This change will allow
potential purchasers more time to obtain financing to maintain the affordability of
the units. "Affected local entities" are the local city or county, any local housing
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authority, and the California Department of Housing and Community
Development.
• Injunctive Relief. Injunctive relief was always a remedy for violation of the notice
requirements. Now, the legislation provides that the re-imposition of the prior
restrictions and restitution of increased rents are remedies that a court can impose
for violations of this notice requirement, along with attorneys' fees and costs to a
prevailing plaintiff.
2. Changes to the Mandatory Offer to Purchase Process for Assisted Affordable Housing
Developments with Expiring Use Restrictions. Under current law, the owners of assisted
affordable housing developments are required to provide a notice of the opportunity to
offer to purchase the development within five years of termination of a subsidy contract,
prepayment of a mortgage, or expiration of rental restrictions. AB 1521 makes the
following changes to the offer to purchase requirements:
• HCD Certification. Any eligible purchase offers made during the first 180 days
after the owner's notice of the opportunity to offer to purchase must be from
qualified purchasers, which have been certified by HCD and which own and
operate at least three comparable developments subject to regulatory agreements
with a California or federal department or agency. HCD is now required to
maintain a list of certified entities that is to be updated annually.
• Maintain Affordability. Under existing law, the offeror must also agree to
maintain the affordability of the development for the longer of 30 years after the
purchase of the development or the remaining term of any existing federal
restrictions.
• Initial 180-Day Period. The offer to purchase must be made by a certified,
qualified entity and submitted within 180 days of the owner's notice of
opportunity to submit an offer. If the owner wishes to sell, it must accept the offer
and sign a purchase and sale agreement within 90 days of receipt of the offer.
• Limits on Owner. If the owner receives an offer to purchase from a qualified
entity within 180 days of the owner's notice of opportunity to submit an offer,
then the owner cannot accept offers from other entities and shall either accept that
offer or decide not to sell by making a declaration that it will not sell the property
for at least five years. That declaration must be made under penalty of perjury and
recorded against the property.
• Fair Market Value Determination. The owner and buyer can establish fair market
value by negotiation or by the appraisal process set forth in the legislation
(Government Code section 65863.11(k)).
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• After the Initial 180-Day Period. Under existing law, the owner may accept an
offer in the 180-day period following the initial 180-day period from any
purchaser which is not qualified. However, the owner must first notify any
qualified offeror who made an offer during the initial 180-day period of the
opportunity to purchase on the same terms and conditions as the pending offer
unless the new offeror agrees to maintain the affordability of the development for
the longer of 30 years after the purchase of the development or the remaining term
of any existing federal restrictions. The legislation is not clear on how this
provision works given the new requirement to record a declaration not to sell
within five years if the owner does not accept an offer from a certified, qualified
purchaser within the first 180-day period.
• Exemptions. Under AB 1521, the provisions related to the offers to purchase and
HCD reporting (as set forth below) do not apply to affordable housing
developments where 25% or fewer of the units are subject to affordability
restrictions due to density bonus or inclusionary zoning requirements. Under
existing law, the requirements to send notices to tenants and local jurisdictions
and to potential purchasers for developments with expiring use restrictions do not
apply if a regulatory agreement is recorded on the property to maintain
affordability that contains all the conditions set forth in Government Code section
65863.13 for the longer of an additional 30 years or the remaining term of any
existing regulatory agreement.
• Enforcement. Judicial action to enforce these provisions can now be brought by
tenant associations and affected public entities that have been adversely affected
by failure to follow the statute. The court can waive bonding requirements and
award attorneys' fees and costs to a prevailing plaintiff.
3. New HCD Monitoring and Annual Report Requirements. Under AB 1521, HCD now is
required to monitor and issue annual reports, starting no later than March 31, 2019, on
compliance with these procedures for all assisted affordable housing developments.
• Annual Reporting by Owners. Owners of assisted affordable housing
developments where 25% or more of the units are subject to affordability
restrictions will now need to report annually to HCD on forms to be provided by
HCD.
• HCD Annual Report. HCD is required to compile specified data and provide a
report annually to the Legislature. HCD's annual report will also be available on
its website.
• Violations. If HCD discovers violations, it can refer those to the Attorney General
for enforcement.
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D. Welfare Exemption for Over-Income Tenants (AB 1193)
AB 1193 expands the welfare property tax exemption for developments receiving federal low-
income housing tax credits for residential units where tenant incomes increase above lower
income (defined as income at or below 80% of the Area Median Income (AMI)). In the past,
increases in tenant incomes above 80% of AMI created fiscal problems for tax credit
developments because those units were not eligible for the welfare exemption, the tax credit
projects were underwritten assuming a property tax exemption for all units affordable to "lower-
income" residents, and, under tax credit rules, the owners are unable to raise rents on those units
unless incomes are increased above a specified level.
• Expansion of Exemption. For fiscal years 2018–19 through 2027–28 only, the welfare
exemption for affordable housing developments that receive federal low-income housing
tax credits will be expanded to include residential units where the tenant occupant income
was at or below 80% of AMI at the time of initial occupancy, even if that tenant
occupant's income has increased up to 140% of AMI. For units where the tenant
occupant's income has increased above 140% of the AMI, those units will not be eligible
for the welfare property tax exemption.
• Claim for Welfare Exemption. For fiscal years 2018–19 through 2027–28 only, the claim
for the welfare exemption for units with tenant incomes that have increased over "lower
income" must include an affidavit with specified information about the increased income
and rent paid by that tenant household. The affidavit form is not available yet, but is
likely to be published before the January 1, 2018 lien date for the 2018–19 fiscal year.
The legislation also provides that the information provided in such affidavits is not
subject to the Public Records Act to protect the privacy of the individual households.
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IV. NEW DISTRICTS AND ZONES TO STREAMLINE DEVELOPMENT AND
FINANCE HOUSING
A. Workforce Housing Opportunity Zones (SB 540)
1. What is a Workforce Housing Opportunity Zone (WHOZ) and How is One Created?
SB 540 permits local jurisdictions to create a Workforce Housing Opportunity Zone
(WHOZ) to streamline housing approvals. A city or county can establish a WHOZ
through the preparation of an EIR and adoption of a specific plan creating the zone. The
WHOZ can include in its boundaries contiguous or non-contiguous parcels which must be
identified in the community's housing element land inventory.
Prior to adoption of the specific plan, a community must meet detailed statutory
requirements, including holding two noticed public hearings that are at least 30 days apart
and providing written notice to local agencies, property owners within the proposed zone,
and property owners within 300 feet of the proposed zone.
The specific plan must include text and diagrams that:
• Specifies the distribution and location of 100 to 1,500 residential dwelling units
within the zone, but the community may not include more than 50% of the
community's regional housing needs allocation (RHNA) within the zone.
However, if the community's RHNA is less than 100 dwelling units, the zone
must include the entire allocation;
• Specifies the distribution, location and extent and intensity of major components
of public and private infrastructure and essential facilities (including schools) that
will be required to support the construction of the residential dwelling units within
the zone;
• Identifies traffic, water quality, public utility, and natural resource protection
mitigation measures that will apply to all developments within the zone (in
addition to mitigation measures identified in the EIR);
• Specifies density ranges for housing in an amount not lower than is deemed
appropriate to accommodate the lower-income housing, and a density range for
single-family attached or detached housing not less than 10 units per acre;
• Identifies the uniformly applied development policies or standards that will apply
to all development constructed within the zone;
• Identifies the manner in which funding will be provided for infrastructure and
services necessary for development within the zone; and
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• Includes design review standards.
Within five years of adoption of the specific plan for the zone, the community must
complete an analysis of the EIR under Public Resource Code section 21166 to determine
if a supplemental or subsequent EIR must be prepared, and consider whether any
amendments are required to the specific plan for the zone. The community must then
hold a noticed public hearing to consider amendments and re-adoption of the specific
plan (for a new five-year period).
2. What are the benefits of adopting a WHOZ? For a period of five years after the specific
plan is adopted (or re-adopted), a housing development that is consistent with the specific
plan, and satisfies the criteria listed below, must be approved within 60 days after the
application is deemed complete:
• The development is located on land within the boundaries of the zone;
• The development is consistent with the specific plan for the zone, including
applicable density ranges;
• The development implements the low- and moderate-income housing targeting
within the zone, as follows:
o At least 30% of the total units constructed or substantially rehabilitated in the
zone will be sold or rented to moderate-income households;
o At least 15% of the total units constructed or substantially rehabilitated in the
zone will be sold or rented to lower-income households; and
o At least 5% of the total units constructed or substantially rehabilitated in the
zone will be sold or rented to very low-income households.
o Not more than 50% of the total units constructed or substantially rehabilitated
in the zone will be sold or rented to above-moderate-income households. If
the total number of units in a development will be sold or rented to above-
moderate-income households exceeds 50%, then not less than 10% of the
units in the development must be sold or rented to lower-income households.
• The developer must provide sufficient legal commitments to ensure continued
availability of units for very low-, low-, moderate-, or middle-income households
for 55 years for rental units and 45 years for owner-occupied units;
• The development incorporates all applicable mitigation measures from the
specific plan and those identified in the EIR;
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• The development incorporates each of the applicable uniformly applied
development standards;
• The development complies with the applicable adopted design review standards;
and
• The developer agrees to pay all construction works employed in execution of the
work at least the general prevailing rate of per diem wages.
When the community receives an application for a housing development within the zone,
the community must post a notice on its website and mail or deliver notice to interested
parties within 10 days of receiving the completed application. In addition, the community
must include the number of residential dwelling units approved within the zone during
the past fiscal year that comply with the income targeting requirements for the zone.
After the adoption of a WHOZ, no additional environmental review is required for
housing within the zone if the development is consistent with the specific plan, specified
affordability goals are achieved, mitigation measures and the uniformly applied
development standards are incorporated in the development, the development complies
with the applicable design review standards, and the project proponent certifies the
payment of prevailing wages and related requirements under the Labor Code. The
community may not deny approvals for a development unless the community makes a
finding, based on substantial evidence in the record of a public hearing for the project,
regarding changes in the physical condition of the site that would result in a specific,
adverse impact upon public health or safety.
Under SB 540, HCD may provide grants or no-interest loans to cities and counties to
develop the specific plan and related EIR required for the adoption of a zone.
B. Housing Sustainability Districts (AB 73)
1. What is a Housing Sustainability District and how is one created? AB 73 permits
communities, with HCD's approval, to create housing sustainability districts meeting
designated conditions, including a specified amount of low- and moderate-income
housing and zoning to permit residences through a ministerial permit.
A community may establish a housing sustainability district through adoption of a zoning
ordinance under Government Code section 65800, and subject to the following criteria:
• The district must be located in an eligible location and the district may include an
area adjacent to an eligible location if the adjacent area is served by existing
infrastructure, defined to include an area within 1/2 mile of public transit; or an
area that, by virtue of existing infrastructure, transportation access, existing
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underutilized facilities, or location, is highly suitable for a residential or mixed-
use housing sustainability district.
• The area must be zoned to permit residential uses through the ministerial issuance
of a permit. Other uses may be permitted by conditional use or other discretionary
permit, provided that uses are consistent with residential use.
• The area must be subject to density ranges for multifamily housing in an amount
not less than is deemed appropriate to accommodate the lower-income housing,
and a density range for single-family attached or detached housing not less than
10 units per acre, and the density range must specify a minimum and maximum of
dwelling units per acre.
• The development of housing is permitted, consistent with neighborhood building
and use patterns and applicable building codes.
• No limitations or moratoriums on residential use, other than those imposed by a
court, apply to any of the area within the district.
• The area within the district is not subject to any general age or occupancy
restrictions, except that the community may allow for the development of specific
projects within the district, exclusively for the elderly or the disabled or for
assisted living.
• Housing units must comply with all applicable federal, state, and local fair
housing laws.
• The area included within a housing sustainability district may not exceed 15% of
the total land area under the jurisdiction of the community, unless approved by
HCD. A community may not include more than 30% of the total land area under
its jurisdiction in housing sustainability districts.
• Development projects within the district must comply with the replacement
housing obligations applicable to the district.
The ordinance proposing to establish a housing sustainability district must:
• Provide for an "approving authority" to review permit applications for
development within the district consistent with requirements of the bill.
• Provide a manner of review by an approving authority, consistent with HCD
regulations.
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• Require that at least 20% of the residential units constructed within the district be
affordable to very low-, low-, and moderate-income households and subject to
recorded affordability restrictions for at least 55 years. A development that is
affordable to above-moderate-income households must include not less than 10%
of the units for lower-income households, subject to additional requirements
imposed by local ordinance. For communities that include their entire RHNA
within the district, then the percentages of the total units constructed or
substantially rehabilitated within the housing sustainability district shall match the
percentages in each income category of the community's RHNA.
• Specify that a project is not deemed to be for residential use if it is infeasible for
actual use as a single or multifamily residence.
• Require the applicant for a development within the district to pay prevailing
wages or use skilled and trained workforce to construct the development based on
the location of the project, population of the county the project is located in, and
the size of the project.
• Provide that a project is not eligible for approval if the project involved or
involves a subdivision, with limited exceptions for projects receiving assistance
under the low-income housing tax credit program or if the project is subject to the
requirement that prevailing wages be paid, and a skilled and trained workforce be
used.
• Provide relocation assistance for persons and families displaced from their
residences due to development within the housing sustainability district.
2. How Is HCD Involved in Review of a Housing Sustainability District? A community
that desires to create a housing sustainability district must first submit a preliminary
application to HCD along with the following information:
• The proposed boundaries of the district;
• A description of the developable land within the proposed district;
• A description of other residential development opportunities within the city,
county, or city and county, including infill development and reuse of existing
buildings within already developed areas;
• A copy of the community's housing element;
• A copy of the adopted housing sustainability ordinance (made subject to HCD
approval);
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• A copy of the environmental impact report;
• Design review standards applicable to developments within the district, adopted
pursuant to Government Code section 66206;
• Other materials establishing the community's compliance with the requirements
for a sustainability district.
HCD must give the community a preliminary determination as to the eligibility of the
proposed housing sustainability district within 45 days of receipt of the application.
Following preliminary approval of an application, and following receipt of a notice
provided by the community that the ordinance establishing the housing sustainability
district has taken effect, HCD must confirm approval of the district.
The ordinance establishing the housing sustainability district will remain in effect for 10
years, subject to one 10-year extension. But on or before October 1 of each year
following the approval of the ordinance establishing the housing sustainability district,
HCD must issue a certificate of compliance if the community has satisfied all of the
following:
• The ordinance establishing the housing sustainability district is in effect;
• The housing sustainability district complies with the minimum requirements to
adopt the district;
• The community has only denied a permit for a residential development consistent
with its housing sustainability district ordinance, the provisions of its housing
element, or for failure to comply with the housing sustainability district
ordinance, failure to pay any applicable district application fees, or a change in
the physical condition on the site of the development that would have a specific
adverse impact on the public health or safety;
• The design review standards, if any, adopted by the community ensure that the
physical character of development within the district is complementary to
adjacent buildings and structures and is consistent with the community's general
plan, including the housing element. "Design review standards" is defined as
reasonable application of qualitative design requirements that are clear and
concise and consistently applied to all types of development applications, with
specific terms defined or generally accepted word definitions.
HCD may deny the certification of the housing sustainability district if HCD finds that
the conditions are not satisfied.
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3. What are the benefits of adopting a housing sustainability district? A community with
an HCD-approved housing sustainability district is entitled to receive a zoning incentive
payment. The amount of the zoning incentive payment will be based on the number of
new residential units constructed within the district, subject to specified exclusions. If a
community reduces the density of sites within the district from the required levels, the
community will be required to return the full amount of the zoning incentive payment it
received.
The EIR included as part of the application to HCD will serve as the EIR for all housing
projects developed in the district for the next 10 years, thereby reducing development
costs for projects within the district that are consistent with the requirements of the
district.
Grounds to deny a housing project are very specific and limited. AB 73 also gives
developers the ability to opt-out of the requirements of the district and standing to sue if a
project is denied or has been approved subject to conditions rendering the project
infeasible for residential uses.
Similar to SB 35, the bill requires payment of prevailing wages and use of a "skilled and
trained workforce" for projects with more than 10 units.
C. Neighborhood Infill Finance and Transit Improvements (NIFTI) Districts (AB 1568)
1. What is a NIFTI and how is one created? Existing law allows for the creation of
enhanced infrastructure financing districts (EIFDs), a tax increment tool available for
community economic development activities. Under AB 1568, a city or county may now
designate one or more EIFD overlay districts identified as Neighborhood Infill Finance
and Transit Improvements (NIFTI) Districts, by adopting a resolution at a noticed public
hearing.
2. How is a NIFTI funded? Prior to or after the adoption of the EIFD's infrastructure
financing plan, a community, through adoption of an ordinance at a noticed public
hearing, may pledge sales and use taxes and transaction and use taxes to the EIFD. In the
ordinance, the community must establish procedures to calculate amounts derived from
sales and use taxes and transaction and use taxes and amounts of each to be allocated to
the EIFD.
3. What are eligible activities? NIFTI funds may be used by the district to fund affordable
housing and infrastructure upgrades to meet current and future capacity demands in infill
areas. Any housing units assisted by the district must be subject to recorded covenants or
restrictions ensuring the units remain affordable to, and are occupied by, very low-, low-
and moderate-income households (as applicable) for the longest time feasible, but for not
less than 55 years for rental units and 45 years for owner-occupied units.
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NIFTI-generated funds are limited for use on "infill sites" and must be used for activities
that are consistent with the purposes for which the tax was imposed. NIFTI funds may
not be used for highway or highway interchange improvements.
4. What are the affordable housing requirements? A community that desires to establish a
NIFTI must ensure that the infrastructure financing plan applicable to the district requires
that:
• At least 20% of all funds allocated to the EFID are set aside for the acquisition,
construction, or rehabilitation of very low- and low-income housing; and
• That at least 20% percent of any new housing units constructed within the district
be affordable to low- or moderate-income households with:
o At least 6% of new units affordable to very low-income households;
o At least 9% of new units affordable to low-income households; and
o Up to 5% of new units affordable to moderate-income households.
The District must ensure that the production requirements are satisfied every 10 years,
and for the 45-year life of the plan. A local community may not adopt an ordinance to
terminate the district, if the district has not complied with the affordable housing
obligations.
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V. ACCESSORY DWELLING UNIT LEGISLATION
In 2016, the Legislature adopted two bills that significantly limited the restrictions jurisdictions
could place on the construction of second units, formally called "accessory dwelling units" or
"ADUs." This year, two more pieces of legislation were adopted, and additional changes will
become effective on January 1, 2018.
1. Non-Complying Ordinances Are Void. Even public agencies that adopted or amended
ADU ordinances within the past year may want to review their ADU ordinances to
confirm if further amendments are required to comply with the latest state requirements.
This review is especially important because Government Code section 65852.2 still
includes language that all non-complying ordinances are void, and non-complying local
governments must approve or disapprove an ADU application ministerially, applying
only the standards specified in Government Code section 65852.2.
2. Existing ADU Processing Requirements. Government Code section 65852.2 requires
local jurisdictions to approve ADU applications through a ministerial process.
• If a property owner applies to create a new accessory structure or expand an
existing structure to create an ADU (an "exterior ADU"), the jurisdiction may
restrict which areas of the jurisdiction allow ADUs and impose certain physical
standards.
• By contrast, if a property owner applies to create an ADU entirely within an
existing structure (an "interior ADU"), the jurisdiction may impose fewer
restrictions.
3. Exterior ADUs. Jurisdictions continue to have the ability to designate where ADUs are
permitted. AB 494 and SB 229 clarify that an applicant may propose an ADU on any lot
that is zoned to permit a single-family dwelling and includes an existing or proposed
single-family dwelling, provided that the site is included within the area designated.
4. Interior ADUs. Under the current law, jurisdictions must permit interior ADUs on sites
with an existing single-family home in all single-family zoning districts. The new
legislation requires the approval of interior ADUs on sites with existing or proposed
single-family homes in any district where single-family dwellings are permitted (e.g.,
multifamily zones that permit single-family dwellings). This should not require local
agencies to approve ADUs in zones where there are non-conforming single-family
dwellings, because such uses are not permitted in the zoning district.
5. Parking Requirements. The new legislation further reduces parking requirements that
may be imposed in connection with ADU development.
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• Parking for exterior ADUs is limited to no more than 1 space per unit or per
bedroom, whichever is less.
o The "whichever is less" language may imply that no parking is required for
ADUs that are studio units (because they do not have bedrooms), but the
language is unclear, so the actual effect of this new provision is uncertain.
• Jurisdictions may only prohibit ADU parking in setbacks or in tandem spaces by
making specific findings that such parking is not feasible due to site specific,
topographical, or fire and life safety issues. Finding that parking in setbacks or in
tandem spaces is not permitted elsewhere in the jurisdiction is no longer
sufficient.
6. Utility Fees. The new legislation clarifies that Government Code section 65852.2 applies
to local agencies along with special districts and water corporations. Accordingly, such
entities:
• May not consider an ADU to be a new residential use for the purpose of
calculating connection fees or capacity charges;
• May not require the applicant to install a new or separate utility connection
directly between an interior ADU and the utility or impose a related connection
fee or capacity charge; and
• May require a new or separate utility connection for exterior ADUs, subject to a
connection fee or charge that is based on the ADU's size or the number of its
plumbing fixtures.
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VI. RETURN OF RENTAL INCLUSIONARY HOUSING
AB 1505 restores the ability of cities and counties to adopt inclusionary housing policies for
rental projects. It explicitly allows local ordinances to require the provision of affordable rental
housing, if so desired, superseding the California Court of Appeal's 2009 decision in
Palmer/Sixth Street Properties LP v. City of Los Angeles (Palmer). However, the ordinances
must meet certain standards, and the Department of Housing and Community Development
(HCD) may review inclusionary requirements for rental projects under certain circumstances.
A. The Palmer Decision
In 2009, the Court of Appeal held in Palmer that the Costa-Hawkins Rental Housing Act (Costa
Hawkins) prevented local governments from imposing inclusionary requirements on rental units
that did not receive government assistance. In relevant part, Costa Hawkins gives rental housing
owners the right to set the initial rent level at the start of any tenancy. In Palmer, Los Angeles
adopted a policy requiring certain residential housing projects to construct affordable housing
units subject to rent restrictions for at least 30 years or pay an in lieu fee that the city would use
to build affordable housing units elsewhere. A rental housing developer challenged the
application of the policy to rental housing projects as invalid under Costa Hawkins. The court
ruled in favor of the developer, stating that requiring a rental housing project to provide
affordable housing units at regulated rents is "clearly hostile" to the right afforded under Costa
Hawkins for a rental housing owner to establish the rental rate at the start of a tenancy; and that
in-lieu fees were "inextricably intertwined" with the affordable housing requirement and also
invalid.
Local Responses to Palmer. Since the Court's decision in Palmer, local governments have been
prohibited from implementing policies requiring rental housing developers to provide affordable
housing units unless the government provided financial assistance or a regulatory incentive such
as a density bonus. Instead, some communities adopted rental housing impact fees to mitigate the
impact of market-rate rental housing on the need for affordable housing; while others simply
stopped applying their inclusionary ordinances to rental housing development.
B. AB 1505 Authorizes Inclusionary Housing Requirements in Rental Projects
AB 1505 expressly supersedes the Palmer decision by authorizing the legislative body of any
city or county to adopt ordinances requiring that, as a condition of developing rental housing
units, the development include a certain percentage of rental units affordable to moderate-
income, lower-income, very low-income, or extremely low-income households.
1. Alternative Means of Compliance Required. Any inclusionary housing ordinance
requiring affordable rental housing must provide alternative means of compliance, which
may include, but are not limited to, in-lieu fees, land dedication, off-site development of
units, or acquisition and rehabilitation of existing units. Cities and counties have broad
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discretion to provide any of these alternatives, or additional alternatives not listed, so
long as alternative means of compliance are available.
2. Possible HCD Review. HCD may review an inclusionary housing ordinance that: 1) was
adopted after September 15, 2017; and 2) requires more than 15 percent of the rental
units to be affordable to households with incomes of 80 percent or less of the area median
income (low-income households) if either of two conditions is met:
• The city or county has failed to meet at least 75 percent of its share of the regional
housing need for the above-moderate-income category for five years or more; or
• The city or county has not submitted its annual housing element report (required
by Government Code section 65400) for at least two consecutive years.
If either of these conditions is met, HCD may request, and the locality must provide, an
economic feasibility study meeting specified standards that demonstrates that the
ordinance does not unduly constrain the production of housing.
If HCD finds that the economic feasibility study does not meet these specified standards,
or if the local government fails to submit the study within 180 days, the city or county
cannot require that more than 15 percent of rental units be affordable to low-income
households until the city or county submits an economic feasibility study that HCD finds
to support the ordinance.
HCD cannot ask to review an economic feasibility study for an ordinance more than 10
years after it was adopted or amended.
C. Implications for Local Ordinances
1. Ordinances that Require Rental Inclusionary Housing. Local inclusionary ordinances
that were not amended after Palmer and continued to require affordable rental housing, or
which provide that inclusionary rental housing will be required if state law so allows,
may be implemented after January 1, 2018 so long as they provide alternative means of
compliance. If the ordinance was adopted by September 15, 2017, HCD has no authority
to request review of an economic feasibility study, regardless of the required percentage
of affordable units.
2. New and Amended Inclusionary Ordinances. Inclusionary ordinances adopted after
September 15, 2017 or amended to require affordable rental housing after September 15,
2017 may require 15 percent of rental units to be affordable to low-income households
without being subject to a future HCD request for an economic feasibility study. If the
ordinance proposes a higher inclusionary requirement, or affordability for extremely low-
income or very low-income households, it would be good practice to prepare an
economic feasibility study meeting the standards in the statute prior to adoption.
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3. Need for Ordinance. AB 1505 authorizes communities to adopt rental inclusionary
requirements by ordinance. An ordinance should be adopted to implement inclusionary
requirements contained in general plans, housing elements, or other policy documents.
4. Need for a Nexus Study. No nexus study is required to justify a rental inclusionary
requirement. In its 2015 decision California Building Industry Ass'n v. City of San Jose
(CBIA), the California Supreme Court determined that inclusionary requirements were
land use provisions similar to rent and price controls and met constitutional requirements
so long as not "confiscatory" and designed to further the public health, safety, and
welfare. After Palmer, the Costa Hawkins Act prevented communities from adopting
rental inclusionary requirements, and many instead completed nexus studies to support
the adoption of rental housing impact fees. However, a requirement to limit rents in a
certain number of units is a form of rent control that does not need to be supported by a
nexus study.
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STAFF REPORT
AGENDA NO: 10e
MEETING DATE: December 4, 2017
To: Honorable Mayor and City Council
Date: December 4, 2017
From: Carol Augustine, Finance Director – (650) 558-7222
Subject: Acceptance of the Comprehensive Annual Financial Report for the Year
Ended June 30, 2017
RECOMMENDATION
Staff recommends that the City Council accept the Comprehensive Annual Financial Report
(CAFR) for the fiscal year 2016-17.
BACKGROUND
Following the close of each fiscal year, the City’s external auditors conduct an audit of the City’s
financial records and assist in the compilation of the Comprehensive Annual Financial Report
(CAFR). The paramount objective of general purpose external financial reporting is accountability.
The goal of a financial statement audit is to provide users with a reasonable assurance from an
independent source that the information presented in the statements is reliable. The audit for the
fiscal year ended June 30, 2017 was just recently completed.
DISCUSSION
The 2016-17 fiscal year audit is the second annual audit performed by Maze & Associates as the
City’s external auditors. The firm conducts their audits in accordance with generally accepted
auditing standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. The standards require that the auditors
plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. On a sample basis, they examine evidence
supporting the amounts and disclosures in the financial statements. The audit also includes
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall basic financial statement presentation.
The auditor’s unmodified (“clean”) opinion is presented as the first item in the financial section of
the CAFR (page 1). In accordance with Government Auditing Standards, the auditors also issue a
report of recommendations to City management identifying any areas for improvement in the
City’s internal control over financial reporting. The City’s Audit Committee, currently comprised of
Vice Mayor Michael Brownrigg and Councilmember Donna Colson, recently met with staff and the
auditors to discuss the audit reports, results, and recommendations.
Comprehensive Annual Financial Report 2016-17 December 4, 2017
2
The City participates in the CAFR award program administered by the Governmental Finance
Officers Association (GFOA), and has been successful in obtaining the award each fiscal year
beginning in 1989-90. Staff has submitted the City’s FY 2016-17 CAFR to the GFOA program and
is confident that the report will again merit the GFOA Certificate of Achievement for Excellence in
Financial Reporting. The FY 2016-17 CAFR is posted to the City’s web site (Finance Department
web page) at 2016-17 CAFR.
Management’s Discussion and Analysis
Governmental Accounting Standards require a Management’s Discussion and Analysis (referred
to as MD&A) to be included with the audited financial statements, with the intent of giving readers
an objective and easily readable analysis of the City’s financial performance for the year. The
MD&A includes a discussion of the basic financial statements, some condensed financial
information, an analysis of the City’s financial position, and results of operations on both a City-
wide and Fund basis. The Management’s Discussion and Analysis begins on page 5 of the
CAFR.
As noted in the document, the financial standing of the City remains relatively strong. The City’s
total revenues increased $10.3 million over the prior year, and total expenses increased slightly
over $1.8 million – nearly $406,000 in governmental activities (0.7 percent) and $1.4 million in the
City’s business-type activities (5.4 percent). The business-type activities consist of self-
supporting functions (largely comprised of the City’s Water and Wastewater utilities operations).
The government-wide financial statements, which provide a broad overview of the City’s finances,
indicate that the City’s net position increased $34.7 million (18.8 percent) during the fiscal year
ending June 30, 2017: $24.5 million due to governmental activities, and $10.2 million due to
business-type activities. Governmental revenues were up nearly $7.2 million from the prior year -
due largely to increases in charges for services ($6.4 million): a $5 million increase in Community
Development fees, an $838,000 increase in charges for Public Works services, and a $424,000
increase in Recreation and Aquatics receipts.
GASB standards that relate to the recording and reporting of pension costs and liabilities were
newly implemented in the 2014-15 fiscal year CAFR. As a result, governmental net position
(reported in the government-wide financial statements) was reduced significantly, creating a
negative balance in the unrestricted net position of the City’s governmental activities. Note that
all governmental agencies that conform to governmental accounting standards were impacted by
this change, which reflects only a change in accounting principle, not an actual change in
financial condition. As the net pension liability diminishes, the unrestricted portion of the City’s
net position will improve. The City’s unrestricted net position for governmental activities, though
still negative, increased $15.9 million in fiscal year 2016-17.
Note that the GASB standards regarding other post -employment benefits (OPEB)
liabilities will be implemented in the current fiscal year. Similar to the reporting of pension
liabilities, reporting the actuarially accrued liabilities of the City’s retiree healthcare
benefits on the face of the financial statements (as opposed to disclosure in the footnote
section) will once again result in a greatly decreased net position.
Comprehensive Annual Financial Report 2016-17 December 4, 2017
3
General Fund Status
General Fund highlights for the 2016-17 fiscal year are summarized in the MD&A. A separate
disclosure, the Budgetary Comparison Schedule for the General Fund, is included in the CAFR
(page 119) after Required Supplementary Information.
The General Fund experienced a surplus for the year, as revenues of the fund exceeded
expenditures and net transfers by nearly $3.3 million. The largest positive revenue budget
variance was reported for Charges for Services, which totaled over $6.0 million – $776,000 higher
than anticipated, and over $1.5 million higher than in the previous fiscal year. Property tax
revenues ($18.9 million) were up nearly $1.3 million, a 7.3 percent increase over the prior year,
reflecting strong property values. The City’s highest General Fund revenue source – Transient
Occupancy (Hotel) Tax – remained solid at over $26.2 million. Most revenue increases were
anticipated at mid-year and were reflected in the adjusted budget for the year. Still, actual
revenues came in $535,000 higher than the adjusted budget, a positive variance of 0.8 percent.
Budgetary savings (positive expenditure variances) within the General Fund were experienced in
all departments, resulting in expenditures of almost $3.2 million (roughly 6.1 percent) less than
budgeted for the fiscal year. While this is higher than the General Fund variance experienced in
the prior year (5.6 percent), a larger amount of the budget was “encumbered” – contractually
obligated – so that the unencumbered variance remains relatively level at 4.7 – 4.8 percent. Over
$1.5 million of the budgetary savings experienced was in total personnel costs – a 5.1 percent
variance. Of this amount, $650,000 was from salaries and wages, indicating a moderately low
vacancy rate. (The budget is established assuming full staffing throughout the year.) A slightly
higher amount - but smaller percentage - variance was generated from non-personnel spending.
The area with the highest percentage of budgetary savings was Community Development, where
amounts were encumbered for professional services contracts related to the multi-year General
Plan Update project. Higher budgetary savings were also experienced in the Public Works
Department, where transition in the Streets and Storm Drainage Division staff prevented full
execution of the division’s anticipated workload.
Since local government expenditure budgets (appropriations) serve as the legal level of
budgetary control, some level of savings will be realized in any fiscal year. In addition, budgets
are developed based on year-round occupancy of all authorized staff positions. In periods of high
turnover or other reasons for an increased level of staff vacancies, higher budgetary savings may
be experienced.
Storm Drain Fund Status
Although the Storm Drainage Fund was established in fiscal year 2009-10 to account for the
storm drainage fees collected as a result of an assessment approved by the voters, it was not
shown as a major governmental fund in the CAFR until fiscal year 2014-15. Fee revenues to the
fund (nearly $2.8 million) reflected a slight increase (3 percent) over the prior year. Transfers of
$2.3 million for debt service on previously issued bonds resulted in a fund balance of $3.2 million.
With all bond proceeds from previous years having been appropriated for current storm drain
Comprehensive Annual Financial Report 2016-17 December 4, 2017
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projects, the City issued a third bond series ($9,855,000) in March 2016 to keep Storm Drain
projects appropriately funded without interruption or the need to borrow from other funds.
Proprietary Funds
Proprietary Funds are used to account for activities that are fueled by charges for the services
provided by each fund. Enterprise Funds account for external activities (largely utilities), while
Internal Service Funds (ISFs) account for internal (interdepartmental) activities.
The W ater and Sewer Funds account for the City’s main enterprise activities. Charts depicting
the historical financial performance of these two funds are included in the MD&A. The funds are
self-supporting: the sale of water and provision of wastewater services to customers generates
the revenue needed to support the operations and capital needs of these utilities. Both utilities
experienced an increase in net position in fiscal year 2016-17: a $1.4 million increase for the
Water Fund, and $4.5 million for the Sewer Fund. However, these increases represented growth
in each fund’s net investment in capital assets. The Water Fund unrestricted net position
decreased $53,500 (0.6 percent); the Sewer Fund unrestricted net position decreased $247,500
(2.8 percent).
The Solid Waste Management Fund and Landfill Fund are both fueled by a surcharge on garbage
rates. The Solid Waste Fund accounts for City costs of street cleaning, the household hazardous
waste program, steam cleaning of City receptacles and other related activities, and provides a
rate stabilization reserve for rate payers. The Landfill Fund accounts for post closure
maintenance and monitoring of the City’s old landfill site. The City reports its obligation to ensure
that the City’s landfill site is properly maintained going forward as a post -closure liability, which
results in a deficit position for the fund. However, the landfill surcharge should serve not only to
maintain the site, but also to reduce the unfunded portion of the post-closure liability in future
years.
Other enterprise funds consist of the Parking Fund and the Building Fund. The Parking Fund’s
net position increased nearly $1.8 million, appropriate for funding future improvements and
replacements in the City’s parking infrastructure. The Building Fund experienced close to $2.1
million in increased net position, as revenues from permit and plan check activities were $1.8
million higher than the prior year.
The City’s six Internal Service Funds (ISFs) are utilized to report activities that provide insurance,
facilities, vehicles and equipment, and information technology services to support the City’s
various programs and functions. The combined net positions reported in all of the ISFs increased
in fiscal year 2016-17 due largely to the stable claims development within both the City’s general
liability and workers compensation programs.
The City’s OPEB (Other Post-Employment Benefits) Fund was created in fiscal year 2013-14 to
account for funding of the external trust account established to meet the City’s retiree medical
obligations. Surcharges on departmental payrolls provide revenue to the OPEB ISF; retiree
medical premiums and monthly contributions to the trust account comprise the fund’s
expenditures. The City forwards any remaining departmental charges to the trust fund, where
higher interest earnings are obtained than can be achieved in the City’s investment portfolio.
Comprehensive Annual Financial Report 2016-17 December 4, 2017
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The City strives to maintain an appropriate level of reserves in these funds to protect against
unusual losses beyond normal experience. Charges to the departments are calibrated so as to
the cover costs of each activity, though demands of these funds have varied considerably in
recent fiscal years. As of June 30, 2017, all of the ISFs maintain adequate balances, and internal
(departmental) charges for services should require only small adjustments in future years.
Other Funds
The MD&A discusses changes in the City’s Capital Projects Fund and Debt Service Fund, which
are considered major funds for financial statement purposes. Capital project expenditures totaled
nearly $7.0 million, with several streets capital improvements leading the list. The City spent $1.3
million on the 2016 Annual Street Resurfacing project, $1.2 million on the US 101/Broadway
Interchange project, and $1.0 million for Sidewalk, ADA, Curb and Gutter Improvements. A
couple of Park projects figured prominently in spending as well: both the Murray Field Lights
Retrofit and the Village Park Update projects expended over $330,000 each. Governmental debt
activities for the year were limited to debt service payments on the City’s outstanding debt, which
included $5.6 million in principal payments and $3.2 million in interest and administrative costs.
As noted in the document’s Letter of Transmittal, the City’s AA+ general obligation credit rating
was last re-affirmed by Standard & Poor’s in June 2016.
The City also has eight non-major governmental funds, all of which are considered Special
Revenue Funds. (Special revenue funds are used to account for the proceeds of governmental
revenues that are restricted or committed for purposes other than debt service or capital
projects.) Details of these funds are reported in the Combining Financial Statements beginning
on page 124 of the CAFR. The City’s largest special revenue fund is the Development Fees
Fund, which got a boost this fiscal year with revenues of over $5.0 million. A significant portion of
these revenues ($2.9 million) came from Parking in-lieu fees assessed on two major
developments in the downtown area. Non-major special revenue funds also include the Gas Tax
and Measure A Funds. Transactions in these funds consist largely of transfers to the Capital
Projects Fund for street and transportation related projects.
The impact of the 2016-17 fiscal year results for the City’s General Fund on the current year
budget continues to be analyzed in conjunction with a monthly budget-to-actual review. A review
of all of the City’s funds, an update on the status of major projects and priorities, and an update of
economic conditions will be presented to the Council with the mid-year report and budget
adjustments in March. At that time, the long-term financial forecast will also be revised.
FISCAL IMPACT
Acceptance of the City’s CAFR has no direct impact on City resources. However, obtaining an
unqualified opinion from the auditor is an important independent verification and validation of the
City’s financial management practices and a prerequisite to receive the GFOA award. An award -
winning CAFR contributes to the City’s excellent bond rating.
Exhibit:
City of Burlingame Fiscal Year 2016-17 Comprehensive Annual Financial Report