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SR-9A (21) ~ " /k RM:JM:PB:MS:nhsits13.rpt Council Meet~ng: July 12, 1994 Santa Mon~ca, Californ~a To: Mayor and c~ty Counc~l From: city staff Subject: Recommendations ~egarding Feasib~lity of 1642 Ocean f . . Avenue and Other C~ty-Owned S~tes for ProJect New Hope. INTRODUCTION This report provides an analysis of the potential use of three i City-owned properties as a site for a 25 unit low-income housing project sponsored by Project New Hope and recommends that City Council author~ze staff to enter into an option agreement with Project New Hope for a long-term qro~nd lease at 1642 Ocean Avenue. BACKGROUND On April 12, 1994 the City council 1nstructed staff to explore the feasib~lity of locating Project New Hope on several alternative s~tes in the City including: 1642 Ocean Avenue, 502 Colorado Avenue, 1920-28 Ocean Avenue ("Bay Street site") and any other appropriate site, and report back to Council as expeditiously as possible. In addit~on, the City Attorney was asked to evaluate several 1ssues specific to 1642 Ocean Avenue, 1ncluding the City's replacement housing obligation associated with the site and the City's obl1gation to reimburse the Gas Tax Fund (which was used to acquire a port~on of the s1te). -1- " . ~ .. ~ ... ... . DISCUSSION pro;ect New Hope P_oject New Hope rece~ved a reservatlon of $2.4 million from HUD 1n O::tober 1993 for a proposed new c~nst""uction, 25 unit, rental housing proj ec;..t. HUn t-egu1red that they identify and secure ~ -~i-t.e' for the project by September 30, 1994. The proposed project will provide permanent housing for the very low-income physically disabled, with supportive services for persons with HIVjAIDS and include a Community RoomjTralning Center. As per HUD guidelines tenants will pay no more than 30% of their adjusted income for rent. project New Hope is a non-prof~t corporation founded in 1990 to provide supportive hous1ng and employment retraining services for persons with HIVjAIDS. It is an outgrowth of the Bishop's Commission on AIDS Ministry of the Protestant Episcopal Church in the Diocese of Los Angeles. Project New Hope has operated a vocat1onal tralning facility for persons with AIDS since January 1993, providing training ~n advanced computer skills and job development and placement serv1ces. In additlon, they are currently developing two other resident~al projects in the C.lty of Los Angeles. Their staff includes a part-time executive director, housing development staff person, vocational training staff and supportive services coord~nator. -2- Project New Hope works closely w1th Yokota and AssOc1ates on the development of each of 1ts affordable hous1ng projects. JoAnne Yokota has worked w1th the sponsor for over four years in develop1ng these projects. In addition, she has worked as a consultant for 6 years w1th other non-prof1ts to develop affordable housing through a w1de var1ety of housing subsidy programs, including the Low Income Housing Tax Credit Program, CDBG and HOME Programs, Redevelopment Agency and Housing Authority programs. Architectural work will be performed by Killefer, Flammang, Purtill Architects. The firm has undertaken design of affordable housing projects in both Santa Monica and Los Angeles. Upon completion, property management serV1ces w1l1 be performed by the firm of Hous1ng Management Associates. This non-profit agency was founded in 1986 as part of the Episcopal Diocese of Los Angeles, and merged In 1990 wlth an existing property management firm. They spec1al:lze in management of subsidized housing, and currently manage 932 units of hous1ng. A resident manager will live on the project site and supportive serV1ces will be provided by Santa Monica Aids Project. 1642 Ocean Avenue Slte 1642 Ocean Avenue 1S a C1ty-owned vacant site at the corner of Seaside Terrace and Ocean Avenue. The site is zoned Residential- Visitor Commercial (RVC) and was most recently used as the site of -3- an 11 unit apartment build~ng. The 1642 Ocean building along w1th the 1616 Ocean bu~ld~ng received a Category nOli removal permit February 9, 1989, from the Rent Control Board. The 1642 Ocean bu~lding was damaged in the January 17, 1994 earthquake, was nred- taggedn hy bu~lding inspectors and demolished shortly thereafter. The 1642 Ocean site is contiguous to other city-owned parcels which, when added together, total approximately 33,607 square feet of developable land. In analyzing whether development of this site by Project New Hope is feasible or desirable, a number of considerat~ons must be addressed. These include: (1) replacement housing and relocation obligat1ons associated with a removal permit obtained by the C1ty, (2) the impact of the City's obligation to reimburse the Gas Tax Fund, (3) FEMA reimbursement for the replacement of the demolished structure, (4) the expans~on of the storm water treatment facility, and (5) development standards and costs. The first two require legal analysis. That analysis is attached as Exhibit A. . Replacement Housing Issue As discussed in detail in the city Attorney's memorandum, the City is obllgated to provide replacement housing in accordance with the removal permit issued by the Rent Control Board. The total replacement obligation for 1642 Ocean Avenue and 1616 Ocean Avenue is 28 units. -4- thus the package price ~s deeply clscounted when compared to the price of an lndlvldual channel; and WHEREAS, a Santa Monlca subscrlber must lease a converter box, at a monthly rate of either $0 45 (excluslve of franchlse fee) for most converters currently ln use, ln order to receive any servlce other than baslc cable serVlce plus all 12 Century Select channels, thus requlrlng a Santa Monlca subscrlber to pay a slgnlflcant equipment charge to recelve fewer than all 12 Century Select c~annelsi and WHEREAS, the Company stated that the Arts & Entertalnment programmlng serVlce oOJected to belng restructured to Century Select, see Memorandum from Kathryn Vernez, Senlor Management Analyst, City of Santa Monlca, to Robert Larson, Assistant Vice PresldentjController, Century Communlcatlons Corp. at 3 (May 27, 1994), and WHEREAS, by creatlng the Century Select serVlce, the Company clalms that the channels on Century Select should not be taken lnto account ~n calculatlng the basic service tier rate, which, if the Company were correct, would permlt the Company to avold rate reductlons that otherwise would have been requlred under the Commlssion's rules, see Second Order on Reconslderatlon at ~ 196; and WHEREAS, the Clty Council has determined, by application of the FCC Rules, that the creatlon or Century Select serVlce 6 ProJect New Hope would be required to build addit10nal un~ts with non-HUD funding. Either scenar10 w1ll add add1tional cost to the development of the s1te. . State Gas Tax Funds A portlon of the 1642 Ocean Avenue property was purchased by the City 1n 1975 for proposed highway improvements using state Gas Tax Funds. The extent of the City's obligation to reimburse the Gas Tax Fund is addressed in the City Attorney's memorandum. The fair market value of the reimbursement to the Gas Tax Fund for the housing portion of the site is estlmated to be between $215,000 anu $330,000, dependent upon the actual square footage of land utilized by Project New Hope. Th1S money will be paid by Project New Hope as part of its site acquisltion costs. . FEMA Reimbursement The 11-unit bU1ld1ng on the site was demol1shed as a result of the January, 1994 earthquake. As such, the cost to demolish and to replace the 11 un1ts is expected to be elig1ble for re1mbursement from FEMA. The applicat10n to FEMA is in the process of being submitted and it is anticipated by staff that the City will receive approximately $700,000 for the replacement of that building. The FEMA funds may be used by the City as part of any potential housing trust fund subsidy for Project New Hope or for any other affordable housing project. -6- . Storm Water Treatment Expanslon The Environmental & Public Works Management Department ~s propos~ng a new storm water treatment facil1ty to be located on the north side of the 1642 Ocean property along Appi~n Way. The new facillty will extend to the north along Appian Way and away from the proposed housing site. The process used to treat the storm water is not harmful, and measures needed to mitigate any sound, odor or visual impacts could be addressed in the des1gn and constructlon of both the hous1ng and the storm water treatment fac~lity. . Development Standards The proposed 25-unit project is consistent with the current zonlng for the site and will include a least a 35 foot landscaped set-back along the Ocean Avenue frontage. Malntenance responsibillty for th1s landscaped area is currently under discussion between Staff and proj ect New Hope. The Zoning would also allow the construction of relocation units for former tenants who select that option. . Development Costs Development costs for the site include acquisitlon, construction, flnanclng and ~nd~rect costs. The estimated development cost for the 25 unit New Hope proJect on this site is as follows: -7- Est~mated Development Cost Cost Per Unit site Acqu~s~t~on(est) $1,520,000 $60,800 Construction 2,479,864 $99,195 Financing 5,000 $ 200 Indirect costs 816.470 $32.659 TOTAL DEVELOPMENT eOST $4,821,334 $192,853 Project New Hope has obtained financing commitments of approximately $2,425,000 from HUD and $500,000 from the City of Los Angeles' Office of Housing Opportunities for Persons with AIDS (HOPWA). consistent with housing trust fund guidelines and based on discussions with the proJect sponsor, Staff anticipates the project may qualify for a houslng trust fund loan of up to $900,000. This will leave a flnancing gap of approximately $1,000,000. The project sponsor has indlcated that they will be able to close this gap through a combination of construction cost savings, funds from other f~nancing sources, or a lower land value based upon a future HUD appralsal. Although several 1ssues rema1n to be fully resolved, as outlined above, the 1642 Ocean site appears to be feas1ble for the proposed Project New Hope project. . Alternatives for 1642 Ocean Avenue City Councll also directed staff to look at alternative uses for -8- 1642 Ocean Avenue such as a view corridor for the Pier and other visitor serv~ng uses. staff rev~ewed the alternatives and determined that the site is best suited for housing, primarily because of the replacement hous~ng requ~rements for the site. In add~tlon, the availability of a qualified developer, like ProJect New Hope, bringing $2,900,000 in funding commitments provides the City an opportunity to meet ~t's replacement housing obligat~on for the s1te. Staff also considered the possibility that Project New Hope could satisfy the replacement housing obligations for both 1616 Ocean Avenue and 1642 Ocean Avenue. However, because the tenants at 1616 Ocean Ave must be provided a right of first refusal for the new units but are not disabled (disabled status 1S a requlrement of New Hope's funding), this opt~on is not considered viable. Further, staff considered holding the 1642 Ocean Avenue site vacant until another housing developer could be found. Staff concluded that the lmmediate replacement housing advantage and the worthwhile nature of the Project New Hope development outweigh the unpredictability of a future housing developer coming to the site. Bay street Site The Bay Street site, located at 1920-28 Ocean Avenue, is the second of three sites analyzed by staff. This S1te is a City-owned vacant parcel of approximately 20,640 square feet located next to the -9- ?ritikin Center at th~ nort~west corner of Ocean Avenue and Bay street. The site 1.5 in a R4 Hl.gh Denslty Multiply Family Resl.dential District and 1.S adJacent to the Beach Promenade and across Bay Street from Crescent Bay Park. . Development Standards The development standards for the site would allow for a 4 story building with a maximum of 35 reS1.dentlal units. ProJect New Hope's HUD fundlng, however, only allows a maXlmum of 25 unlts. In an effort to reduce the per un1.t land costs a second 10 unlt project, in conjunction with the 25 unit Project New Hope development, was consldered. However, lncreaslng the density ln this manner would add s1.gnificant cost and timing delays and could Jeopardize Project New Hopes $2.4 million in HUD funding. . Development Costs The est1.mated development cost for the 25 unit Project New Hope on the Bay street slte is as follows: Estimated Development Cost Site Acquisition $2,000,000 construction 2,840,000 Flnancing 7,000 Ind1.rect costs 923.000 TOTAL DEVELOPMENT COST $5,770,000 '-17 -10- Cost Per Unit $ 80,000 $113,600 $ 280 $ 36,920 $230,800 As previously ment1oned, Project New Hope has obta1ned financing comm1tments of approx1mately $2,425,000 from HUD and $500,000 from HOPWA, leaving a financ1ng gap of approximately $2,800,000 at this time. Because of the substant1al financial gap, Bay Street is cons1dered less feas1ble as a site by the sponsor and staff. 502 Colorado Slte The Colorado site is the th1rd of three sites evaluated by staff. 502 Colorado 1S a c1ty-owned vacant parcel of approximately 12,525 square feet located on the south east corner of 5th and Colorado streets. The site is adJacent to Angels Attic on the east and the Santa Monica Municipal Bus Yard to the south. The site is in the C3 Downtown Commercial District. . Replacement Housing Obligation 502 Colorado Avenue was purchased by the City to be ut1lized to meet the replacement hous1ng obligations that the C1ty incurred when 1t was granted a removal permit from the Rent Control Board for 50S Olympic Boulevard. More specifically, 1n obtaining the removal pernut, the City agreed to construct either a 42-bed homeless shelter or a 42-room single residency occupancy (SRO) proJect within seven years from the date that the removal permit agreement was executed -- June 29, 1993. While the removal permit pertained specifically to 505 Olympic, the agreement authorizes the C1ty to meet 1ts replacement housing obligation on that parcel or any contiguous parcel now owned or subsequently acquired by the -11- city. 502 Colorado Avenue satisf1es this requ1rement. This agreement also author1zes the City to subsequently convert the shelter or SRO housing to another fo":"m of residential rental housing. The obligations under the agree~ant last for twenty five years dat1ng from the time of execut10n of the agreement. Since the development proposed by ProJect New Hope is neither a shelter nor SRO housing, this development would not sat1sfy the City's current replacement housing obligation for 50S Olympic. However, Rent control Board staff believe that the Rent Control Board would llkely be amenable to amending the Agreement in a w~y that would enable ProJect New Hope to satisfy the City's replacement housing obligation if this project provides housing for 42 indiv1duals. Project New Hope has indicated that this project will house at least 42 persons. . Development Standards The development standards for the site allow for a 3 start building w1th approximately 337, SOD square feet, assuming an affordable housing bonus. Given the current development standards, the site could accommodate the 25 units proposed by ProJect New Hope. . Development Costs The estimated development cost for the 25 unit Project New Hope is as follows: -12- Estimated Developm2nt Cost Cost Per Unit S1te Acquisition $ 875,000 $ 35,000 Construction 2,200,000 $ 88,000 Financing 5,000 $ 200 Indirect costs 735,000 $ 49,400 TOTAL DEVELOPMENT COST $3,815,000 $.152,600 As mentioned earlier in the report, Project New Hope has financing comm1tments of approximately $2,425,000 from HUD and $500,000 from HOPWA. This leaves a gap for this site of approximately $900,000. Although this gap is smaller than the gap for 1642 Ocean, the project sponsor has rejected 502 Colorado for reasons detailed below~ . Environmental Suitability The sponsor has reJected 502 Colorado as a s~te for the ProJect New Hope because of environmental concerns. The sponsor's target populat~on are physically disabled households w~th an emphasis on persons with HIVjAIDS. The sponsor also 1ndicated it is likely there will be households with children living in the project. The location next to the City Bus Yard, in a commercial district and on the corner of a busy intersection presents negat1ve environmental impacts that are unacceptable to the sponsor. FINANCIAL/BUDGETARY IMPACTS No budgetary action 1S requ1red at this time. Upon conclusion of -13- lease negotiations, staff antlcipates a future City loan to the project of up to $900,000 from housing trust funds. This figure is with~n the loan limit of hous1ng trust fund guidelines. RECOMMENDATIONS Staff recommends that the City Council author1ze staff to enter into an opt~on agreement with Project New Hope for a long term ground lease at 1642 Ocean Avenue. Prepared by: Howard Robinson, Real Estate Manager Paula Burrier, Housing & Redevelopment Manager Mlke Strader, Senior Development Analyst Attachment -14- SANTA MONICA =ITY ATTORNEY'S OFFICE STAFF REPORT DATE: July 6, 1994 TO: Mayor and City Council FROM: Marsha Jones Moutrie, City Attorney Barry Rosenbaum, Deputy City Attorney Eriko Matsumoto, Deputy C1ty Attorney RE: 1642 Ocean Avenue Pursuant to the request of the C1ty Council, th1s memorandum responds to three legal 1S5ues arising from the City's possible use of 1642 Ocean Avenue as a s1te for a 25 un1t low-income housing proJect sponsored by ProJect New Hope: (1) whether the City is obligated to prov1de replacement hous~ng at 1642 Ocean Avenue pursuant to the removal perm1t issued by the Rent Control Board for this property and 1616 Ocean Avenue; (2) whether the City can remove this property from the rental housing market pursuant to the Ellis Act; and (3) whether and to what extent the C1ty would be obligated to reimburse the Gas Tax Fund since the C1ty utilized revenues from th1s fund to acqu1re 1642 Ocean Avenue. CONCLUSION The C1ty is requ1red to provide replacement housing at 1642 Ocean Avenue pursuant to the removal perm1t 1ssued for this property s~nce after the City obtained the removal permit, and pursuant to the authority of the permit, the City entered into relocation agreements with the tenants at 1642 Ocean Avenue and relocated these tenants to other hous1ng 1n the City. The C1ty can utilize the Ellis Act to withdraw rental property from the hous1ng market Just as any other landlord can. However, since the C~ty has already obta1ned a removal permit from the Rent Control Board which achieves the same result, and the City is obligated to meet the cond1tions attached to that permit, resort to the Ell1s Act would be of no utility. The City 1S obligated to reimburse the Gas Tax Fund at the fa~r market value for any port10n of 1642 Ocean Avenue not used for a perm1ssible street or highway purpose but 1nstead used for the prov1sion of hous1ng. ANALYSIS OF ISSUE ONE To answer the first inqulry, It is necessary to examine the C~ty's actlons leading up to and following the issuance of the removal permit by the Rent Control Board. On or about July 1, 1988, the C1ty Submltted removal permlt appllcatlons for 1616 and 1642 Ocean Avenue. See Applications for Removal Permlt, No. 246R-D (ExhlbltS A and B).l These properties conta1n a total of twenty-e1ght (28) housing unlts. As reflected ln these appl1cations, the Clty lntended to redevelop these propert1es, and adjoining propert1es, w1th a park1ng structure to serve the Pier and nearby beaches. The appl1cations provided that twenty-nlne (29) unlts of replacement houslng would be developed at City-owned property located on Bay Street. No on-slte hous1ng was contemplated. On or about October 6, 1988, the City submitted an alternat1ve plan Wh1Ch provided for the construction of th1rty (30) resldential houslng unlts on-site in the park1ng structure. See October 6, 1988 letter from John Jalili to Mary Ann Yurkonls (Exhibit C). Twenty-eight (28) of the replacement units would be sUbject to rent control and be deed-restricted to be permanently affordable to low income persons. Current tenants of the property would have the right of first refusal to occupy the replacement units. Given the nature of the redevelopment, lt was env1s1oned that the temporary relocat1on of the tenants at 1642 Ocean Avenue would be necessary. However, the Clty intended to develop the replacement houslng before relocatlng the tenants at 1616 Ocean Avenue and demollsh1ng that bUl1dlng. Rent Control Board staff lssued its staff report in late October 1988. See Santa Monlca Rent Control Board Staff Report on Removal Permlt Appllcation (Exhibit D). Staff recommended that the C1ty'S request to bU1Ld off-Slte replacement housing be denied Slnce 1t was not perm1tted by the Rent Control Law. Staff also recommended that the Clty'S alternative removal permit request cond1t10ned upon an on-slte houslng replacement requ1rement be approved. On or about January 3, 1989, the C1ty formally withdrew ltS off-slte replacement houslng proposal, seeking instead to proceed solely with its second proposal. See January 3, 1989 letter from John Jalil1 to Mary Ann Yurkonls (Exhlbit E). The City relterated that all twenty-e1ght units would be replaced on-site All exhlb1ts referenced ~n this memorandum will be available for reVlew at the July 12, 1994 C1ty Council meet1ng on th1S matter. 2 ~n the proposed parking structure. The tenants who were temporar1ly relocated from th~s property would be guaranteed ~nter~m houslng 1n the City. The d~splaced tenants would also be prov~ded moving and storage expenses, utility hook-up fees, rent d1fferential payments, and relocat~on payments of at least $1,000.00 per un~t. On or about January 27, 1989, the Clty prov1ded the Rent Control Board wlth supplemental informatlon regarding ~ts removal permlt appl~cat~on. See January 27, 1989 letter from Peggy Curran to Mary Ann Yurkonls (Exh1bit F). In th1S correspondence, the C1ty guaranteed that the 1616 Ocean Avenue property would not be demolished until replacement housing was built. The City further deta11ed the relocat1on assistance beneflts that would be prov1ded the tenants at 1642 Ocean Avenue and the meet1ngs that had been held wlth tenants concerning the City's latest proposal. The Clty stated that the relocation assistance benefits would be guaranteed through b1nd1ng agreements between the tenants and the C1ty. In a supplemental staff report issued by the Rent Control Board, the staff recommended approval of the City's removal applicat10n request based on the City's proposal reflected in the January 27, 1989 letter. See Santa Monica Rent Control Board Supplemental Staff Report on Removal Permit Application (EXhibit G). Th1S recommendat10n was based on the understandlng that the Clty would bU1ld on-s~te replacement hous1ng. On February 9, 1989, the Rent Control Board granted the removal permlt application. See Removal Permit Application -- Not1ce of DeC1S1on of Rent Control Board (Exhlb1t H). On or about February 1989, the Clty mailed the residents of 1642 Ocean Avenue a letter lnform1ng them of the Board's declslon, settlng forth the relocation benef1ts that would be prov1ded by the City, and commltt1ng the City to enter into 1nd1vidual agreements with each tenant deta1ling these relocation beneflts. See February 28, 1989 letter from Candy Rupp to Res1dents of 1642 Ocean Avenue (EXhibit I). The right of f1rst refusal of an on-site replacement unit was expressly stated as one of the relocation benefits. On or about March 1, 1989, the City entered into an agreement ent1tled "Relocatlon Plan" wlth Sandra Leet, a tenant at 1642 Ocean Avenue. See Leet's Relocat1on Plan (Exh1bit J). Th15 agreement specifically outl1ned the relocation benef1ts that the C1ty would provide Ms. Leet as required by the removal permit includlng: the right of f1rst refusal to occupy the replacement hous1ng that wouJd be constructed, l~terim hous1ng, moving and storage costs, and relocat1on counsel~ng. Ms. Leet subsequently vacated her un1t and the C1ty made payments to Ms. Leet as requ1red by th15 agreement. 3 Later ~n March 1989, the c~ty entered ~nto a s~m~lar agreement with Nancy Safonov. See Safonov's Relocat1on Plan (Exhib~t K). Ms. Safonov also vacated her un~t ~n accordance with th1S agreement and City payments were made. Relocation Plans were subsequently prepared for Peter Woods and M~lton & Aldana Stark. See Wood's ari Starks' Relocat1on Plans (Exh1b1tS Land M). Although these agreements were never formally executed, these tenants moved 1, accordance with ~he provis1ons of the agreements and the City made certain payments to these tenants as requ1red by the agreements' terms. The last rema1n1ng tenant at the property, Ida Porterfield, was relocated after the Northridge Earthquake. A Relocat~on Plan was also prepared for Ms. Porterf~eld. See Porterfield's Relocat1on Plan (Exhib1t N). Although not executed, she also received payments in accordance with the terms of the relocation agreements. In entering 1nto relocat~on plans with the tenants at 1642 Ocean Avenue and relocating these tenants from the property, the C1ty proceeded in relia~ce on the removal permit issued by the Board and in accordance with the commitments that the C1ty made to the Board. The removal permit established the underlying authority for the actions the City undertook after the permlt was issued. Having util1zed certain of the benefits of the permlt, 1.e., obta1n1ng the authority to relocate tenants from the property, the C1ty must also accept the burdens of the permit -- provision of replacement hous1ng on the site. See Sports Arenas Properties, Inc. v. San Oieqo, 40 Cal. 3d 808, 815, 710 P.2d 338, 341-42, 221 Cal. Rptr. 538, 541-42 (1985) (if permittee has exerc1sed its authorlty pursuant to a permlt, "it must accept the burdens wlth the benefits of the permit"). Accord City of Santee v. Super lor Court, 228 Cal. App. 3d 713, 718, 279 Cal. Rptr. 22, 25 (1991) (landowner who spec1fically agreed to perm1t condition and accepted benefits afforded by permlt cannot later challenge condit1on imposed in grantlng perm1t). Further, fallure to build the replacement housing would directly contravene the agreements which the City entered into with each tenant at 1642 Ocean Avenue and which it agreed would be bind~ng on the C1ty. We are unaware of any authority which would justify such action.2 2 As a condition of the grant~ng of the removal permit, the city is required to enter into a removal permit agreement wlth the Rent Control Board which embodies the terms and conditions of the removal permit approval. As of this date, the City has not entered into th1s agreement. However, this factor does not alter the above analysls glven the precise factual circumstances of th1s case. 4 It should be noted that although the removal permlt was granted for both 1616 and 1642 Ocean Avenue, the Clty has only relocated tenants at the latter property. Further, the Clty has not entered lnto relocatlon plans wlth any tenant at 1616 Ocean Avenue. Glven these c1rcumstances, the Clty lS not obligated to proceed with the removal of 1616 Ocean Avenue from the rental market as or1g1nally contemplated when the C1ty obta1ned the removal permit from the Board.J ANALYSIS OF ISSUE TWO The EIllS Act, Government Code Section 7060 et seq., author1zes a landlord to cease operatlng property as rental property and eVlct all the tenants thereon w1thout obta1ning a removal permit from the Rent Control Board. A publ1C ent1ty, such as the C1ty, 15 entltled to utilize the Act ln the same manner as any other landlord. While the C1ty could have withdrawn the 1616-1642 Ocean Avenue properties from the rental market pursuant to th~ Ellis Act, there would be no utllity in dOlng so now. As discussed above, the Clty has already obta1ned a removal permit from the Rent Control Board Wh1Ch author1zes the C1ty to undertake the very actions that an ElllS Act wlthdrawal would author1ze and the City 1S obligated to comply w1th the perm1t's terms and conditions. In short, resort to the Ellis Act would be redundant and have no pract1cal effect or benef1t. ANALYSIS OF ISSUE THREE In or around 1975, the Clty acqu1red 1642 Ocean Avenue for proposed highway improvements w1th revenues from the Gas Tax Fund. (The other contlguous parcels adJacent to 1642 Ocean Avenue, which are collectlvely be1ng exam1ned as the site of ProJect New Hope, are not the subJect of this analysls Slnce these other parcels were apparently purchased with funds other than the Gas Tax Fund.) Subsequent to the purchase and up until demolit1on early this year, the rental revenue from 1642 Ocean Avenue was placed 1nto the Gas Tax Fund 1n compliance w1th state 3since the City's poss1ble use of 1642 Ocean Avenue as the site for Project New Hope ~s quite d~stinct from the proposal before the Rent Control Board in 1989, and does not include the removal of 1616 Ocean Avenue, this proposed use w111 have to be revlewed by the Rent Control Board to assure conformity with the Rent Control Law and the replacement hous1ng requ1rements thereunder. 5 gU1de11nes pend1ng a f1nal d~C1s1on on the use of the sUbJect parcel. The use of revenues from the Gas Tax Fund is spec1fically limited by the Cal1fornia constitution and applicable state gU1delines to street and highway purposes. See Californ1a Constitution, Article 19, Section 1; State controller, "Gu1delines Relat1ng to Gas Tax Expenditures" ("state Controller's Guidelinesll), Chapter 1, section II. Where, such as here, revenues from the Gas Tax Fund are used to purchase real property initially slated for a street or highway use, but is no longer required for such purpose, the C1ty must re2mburse the Gas Tax Fund in an amount equivalent to the current fa2r market value of the parcel. See Californ1a Constitution, Art. 19, sections 8 & 9. However, if a portion of the parcel purchased with Gas Tax Funds is used for housing and the other portion used for a related street or highway purpose such as street widen1ng, the city's obligation to reimburse is limited to just that portion of the parcel used for housing. The C1ty's use of a portion of the parcel for street widening, street betterments, or any other permissible street or highway purpose is not subject to reimbursement. See qenerally, State Controller's Guidelines, Chapter 2 ~ sP~. memos\bar\removal.ct2 6