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SR-9-C (20) J -4"'" - __; ,:--- J f" /"1 9-G Santa Monica, NOV "1 9 1991 proprstf.rpt California Council Meeting: November 12, 1991 To: Mayor and City council From: City staff SubJect: Recommendation to Direct the city Attorney to Prepare an Ordlnance Implementing Proposition R INTRODUCTION The full staff analysis and implementation plan for Proposition R is contained in the Proposition R Summary Report and the Proposition R Technical Report. copies of these reports have been previously delivered to council. This report presents background lnformation on Proposition R and a review of comments received from the pUblic on the Proposition R proposal. BACKGROUND On January 8, 1991, City Staff presented to the City Council a proposal for the lmplementation of Proposition R. At the request of the Plannlng commission, the Council deferred immediate action pending Planning ComnUSS10n reVlew. On February 20, 1991 staff proposed to the Planning Commission that further study be conducted over a six month time period. WhJ.le that study was belng conducted, the City Council adopted an interim ordinance on March 26th, 1991 and, on September 10, 1991, extended the interim ordinance to January 101 1991. 1 CJ-C- NOV 1 9 1991 - - ~ .. l . , .. ~- . \. The completed staff study together with the staff implementation proposal were lncorporated into the Summary Report and Technlcal Report on Proposition R, both of which were made available to Councll members and to the public on September 10, 1991- The Housing commission discussed the proposal in the Summary Report and the Technical Report on October 3 I 1991- They then presented to the Planning Cornmlssion a list of their concerns regardlng implementation, which is attached. On October 16, 1991 the Planning Commisslon held a public hearlng on the proposals ln the Summary Report and Technical Report. They requested additional information from staff, which was provided to them on October 23, 1991. At a special meeting on Friday, October 25, 19911 the Planning Commission discussed the proposals in the Summary Report and Technical Report further. At that time they took no position on the proposal but rather voted to request City Councl1 to continue their consideration for two to three months while the Plannlng Commission considers the proposal further at their meeting on December 10, 1991. A separate staff report will be provided to the Council summarizing the Planning Commission deliberations. STAFF IMPLEMENTATION PROPOSAL The staff implementation proposal, as set forth in the Summary Report and Technical Report, attempts to interpret Proposition R in light of the two principal housing policies of the city of Santa r- 'l. ~ 2 "Ii;. -.~ -- . . Monical i.e.t increasing the supply of housing for all income groups, particularly low and moderate income persons, and protecting the existing supply of affordable housing. These policies are the cornerstone of the new National Affordable Housing Act of 19901 the state of Californ1a Housing Element Law and have long been central to city housing policy. While they at times can be seen as conflictlng, staff believe it is important that Proposition R be implemented so as to maximize its impact on both increasing the affordable housing supply and preserving existing affordable houslng. The staff implementation proposal accomplishes this through a mixed ln lieu fee and onsite program, implemented through a tiered program which provides different levels of exaction for different levels of development. The interim ordinance currently in effect requires that all new market rate residential development make 30 percent of the units in each development permanently available on slte to low and moderate income persons as provided for in Proposition R. The staff proposal differs from the interim ordinance in providing a tiered response which permits in lieu fees instead of onsite units at certain levels of development. The staff proposal requires that all new market rate residential development of less than four units either provide 30 percent low and moderate units on sitet as in the interim ordinance, or pay an in lieu fee of $12.00 per square foot. It requires that all new market rate development of greater than three units but less than 3 . twenty e1ther provide 30 percent low and moderate units on site, as 1n the interim ordinance I or pay an in lieu fee of $12.00 per square foot for the low income unit and provide the remain1ng moderate income units on site. Finally, all new market rate developments of greater than twenty units are required to provide the 30 percent low and moderate units on site, as in the interim ordinance. The staff proposal further requires that any new development which results in the demolition of a rent controlled unit with an Maximum Allowable Rent (MAR) of less than 60% of the median MAR must provide the 30 percent low and moderate units on site, as 1n the interim ordinance. ISSUES TO BE RESOLVED Comments from the public regarding the staff proposal have focussed on a number of issues which must be resolved as part of any implementation strategy. The major issues which have engendered comment are as follows. The detailed position of staff as to each of the issues and the basis for staffs' position are set forth in the reports that have been provided to council and the Planning Commission. 1. Overall strategy - Should the implementation strategy require compliance on a project by project basis or should it merely measure compliance on a Citywide basis. The staff proposal takes a middle position, requiring project by project compliance only for moderate income units in developments of more than 3 units. 4 2. In-lieu Fees - Should payment of in-lieu fees be permitted or should all the inclusionary housing be requ1.red to be produced onslte? The staff proposal permits in-lieu fees for low income units but requlres most moderate income unlts onsite. 3. Amount of In-Lieu Fee - If an In-Iieu fee option is chosen should it be enough to fully compensate the city for the cost of producing the new affordable housing? The staff proposal does not fully compensate the city for the cost of subsidy but assumes that additlonal subsidy funds from the state and federal government will continue to be available. 4. Impact on New Develop~ent - Whatever option is chosen, to what degree will it depress new residential multifamily development? Staff has performed financial analyses of the var10US proposals and does not believe lts proposal will prevent new residential multifamily development. s. Incluslonary ownershlp units - Should the current policy of requiring all on site inclusionary units to be rentals be continued or should inclusionary ownership units be permitted? The staff proposal changes current policy and permits inclusionary ownership units. 6. Rent controlled units - Should the implementation plan require all inclusionary housing onsite if the new development results in 5 the demolition of a low rent controlled unlt? Should any type of existing housing be provided wlth the higher level of protection which would result lf all inclusionary units are required to be provided onsite? The staff proposal requlres that any new development WhlCh results in the demolition of a rent controlled unit with an Maximum Allowable Rent (MAR) of less than 60% of the median MAR must provide all the inclusionary units onsite. 7. Tiered approach - If a tiered approach is permitted, where should the break point for each tier be? since most neTiV residential development consists of small (3 to 6 unit) projects, different tiers for small projects may have significant impact. The staff proposal permits new residential development of less than four units to elther provide all inclusionary units on site, as in the interim ordinance, or to pay an in lieu fee of $12.00 per square foot. All new residential development of greater than three units but less than twenty may either provide all the incluslonary units on site or pay an in lieu fee of $12.00 per square foot for the low income unlts and provide the remaining moderate income units on site. Finally, all new residential developments of greater than twenty units must provide all the inclusionary units on site. S. Calculation of 30% - Should the required number of onsite lnclusionary units be "rounded Upll since this is the only way to guarantee that a sufficient number of affordable units are 6 . produced? The staff proposal requires that all calculations of inclusionary units required be "rounded up" to the next highest whole number. 9 . Tenant Selection - Should the tenant selection process be centralized and controlled by the City or decentralized and controlled by the individual developers? The staff proposal requires that the City control the waiting llst but that individual owners continue to have the right to choose the individual tenant referred by the City. 10. compliance Measurement - How, and when, will compliance with Proposition R be measured? What will be the result of a fallure of the Clty to comply? While the ultimate decision as to the effect of noncompliance with Proposition R is a legal one, staff recornnends that the Council retain the maximum amount of flexibility in fashioning its response to any development shortfall. Budqet{Financial Impact The recommendation conta1ned in the Summary Report will have a budgetaryjflnancial impact in that in lieu fees will be collected and held for future programming. It 1S not possible to predict with any certainty the amount of in lieu fees. However I an estimate based on the number of units constructed during the past five years which have chosen to pay the in lieu fees, using an 7 . estimated square footagel would predict an annual revenue of approximately $1/300,000. Add1 tionally 1 dependlng upon the implementat10n strategy adopted by the Councll, additlonal staff time of the community Development Department and Land Use and Transportation Management Departments will be required for implementation and monitoring. RECOMMENDATION It is recommended that the City council hold a public hearing and direct the city Attorney to draft an ordinance implementing the Proposition R lmplementation strategy contained in the Summary Report. Prepared by: Peggy Curran, Director Chuck Elsesser, Housing Program Manager Denise Altay, Senior Development Analyst Community Development Department 8 -