SR-11-B (2)
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"AR 2 5 1986
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city Council Meeting: 3/25/86
Santa Monica, California
TO:
Mayor and City Council
FROM:
City Staff
SUBJECT: Recommendation Regarding Office Development Project
Mitigation Measures for Housing and Parks
INTRODUCTION
This report recommends that the city Council, as part of the
establishment of an Office Development Housing and Parks Project
Mitigation Program (Mitigation program) as required by the Land
Use and Circulation Element, adopt a method for allocating
in-lieu fees between housing and parks, and set certain
development standards for the Mitigation Program. The report also
recommends that the City Council direct the Ci ty Attorney to
prepare an ordinance establishing the Mitigation Program.
BACKGROUND
The Land Use and Circulation Element (LUCE) adopted in 1984
requires that the City adopt a program to mitigate the impact of
office development projects on the community. The LUCE specified
that the program was to mitigate the impacts of new office
development on parks and public open space, and affordable
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MAR 2 5 1986
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housing. On January 14, 1986, as part of a discussion of an
ordinance to implement this program, the City council directed
the city staff to (1) conduct a re-analysis of the basis for the
allocation of mitigation fees between housing and parks, and (2)
address certain implementation issues of such a program,
including a means by which the provision of housing or park space
would be required to obtain discretionary approval by the city
and a means to ensure that the provision of park space on an
office site would not in any way reduce the amount of open space
the development would otherwise be required to provide. The
following discussion addresses each of these areas.
DISCUSSION
The Land Use and Circulation Element adopted in 1984 found that
new office developments create a need for additional affordable
housing and parks, but do not pay the same taxes as other types
of development, such as retail, that the City may use to address
these needs. Therefore, the LUCE required that the City establish
a Mitigation Program to require that office developments mitigate
these impacts by either directly providing housing or parks
according to formulas based on the demands for affordable housing
or park space created by the new developments, paying an in-lieu
fee to the City or participating in an appropriate housing or
parks production program to be designed by the City. This
discussion outlines the basic parameters for a recommended
Mitigation Program, including the method for allocating program
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(1) Allocation of Fees Between Housing and Parks
The LUCE requires that the mitigation measures for housing be
based on a formula that estimates the number of new office
workers to be employed in new office developments who desire to
live in the city and whose income limits their housing options to
affordable housing. It also requires that the mitigation measures
for parks be based on a formula that estimates the number of
square feet per 1000 office employees likely to regularly use the
city's parks and public open space. In order to meet legal
requirements that the Mitigation Program address the needs
created by the office developments, and for sound program
planning, the Mitigation Program should define standard
allocations of mitigation fees between housing and parks.
There are two components of the allocation formula. The first
component is the estimated demand for housing or parks created by
office developments, and the second is the cost of providing the
housing or parks. The combination of the demand and cost
estimates shown in Attachment fiB" to the LUCE, which was
presented to the City council at the time the LUCE was adopted
(Exhibi t "A"), results in an allocation of 72% of the in-lieu
fees for housing and 28% for parks. This document included cost
estimates of $53,740 per housing unit and $62 per square foot of
park space, and demand estimates of one housing unit per 7,740
square feet of office space and 4,356 square feet of parks per
100,000 square feet of office space.
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This allocation can be adjusted from the current 72/28% split
either by modifying the demand analysis assumptions developed in
the HRS study, or by modifying the cost assumptions outlined in
Attachment "B" to the LUE. The following sections summarize the
staff review of the assumptions used in this Attachment.
A. Estimate of Demand
The original basis for the mitigation requirement was a demand
analysis conducted by Hamilton, Rabinowitz and Szanton, Inc. in
1982 , which surveyed new off ice developments to determine the
effects of office development on housing demand and park usage in
the city. This study presented a wide range of policy options for
decision-makers; indeed, it specified quite clearly that varying
the interpretation of the data collected yields substantially
differing results. As directed by the City Council, the staff has
reviewed the HRS demand analyses again to determine which
assumptions may be adjusted without conducting an entirely new
study.
The HRS study identified several methods of determining
affordable housing demand. Demand could be measured according to
the number of office workers who qualified for affordable housing
and who (1) said that housing costs were keeping them out of
Santa Monica, which creates a demand of one housing unit per
1,454 sq. ft. of office space, or (2) said that they would move to
Santa Monica if they could, which creates a demand of one unit
per 3,283 sq. ft. or (3) by the number who were in both of the
above two groups, which creates a demand for one unit per 7,740
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square feet of office space. The demand for affordable housing
that was used in the LUCE was based on the third assumption,
which was the lowest demand possible resulting from the HRS
analysis. This produced a demand for affordable housing equal to
3.23% of the office workers in the average building. It is not
recommended that the Mitigation program change the assumptions
about housing demand at this time.
The assumptions used to determine the demand for parks created by
office development were based on the Parks and Recreation
Commission' s standard for parks and open space, which is 2.5
acres per 1,000 residents. This standard for residents was
adjusted to reflect the number of office workers who responded to
the HRS survey indicating that they used the city's parks, and an
estimate of the amount of time that those office workers spent in
the City. The HRS study found that 40% of the office workers who
responded to the survey used the city1s parks. The most flexible
assumption in this formula was the estimate of the amount of time
spent by office workers in the City's parks, as compared to the
amount of time spent by residents. Attachment liB" to the LUCE
estimated that office workers were in the city about 25% of the
time that residents were here. Various complicated methods of
estimating this amount of time can be used, including calculating
the number of dayl ight evening and weekend hours spent in the
City by residents, the number of lunchtime and after work hours
spent in the parks by office workers, and the number of daylight
hours spent in the city by non-resident office workers who would
usually be working in their offices. One of the most direct
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methods of adj usting the assumption that office workers spend
twenty-five percent of the time that residents spend in the City
would be to use the percentage of the daytime population made up
by office workers. According to the HRS study, office workers
comprise forty percent (40%) of the daytime population of the
city. If this figure is used in the formula the demand for park
space per 1,000 office workers increases significantly, as shown
below.
Table 1: Demand for Park Space
A. Original Demand Formula:
400 employees (@ 1 employee per 250 sq. ft.) x .40
(percent of office workers who use parks) x .25 (time in
city) x 108,900 sq. ft. (2.5 acres) = 4,356 square feet
of park space
B. Revised Demand Formula:
400 employees (@ 1 employee
(percent of office workers who
City) x 108,900 = 6,969 square
per 250 sq. ft.) x .40
use parks) x .40 (time in
feet of park space
NOTE: Example is based on 100,000 sq. ft. office building
B. Estimate of Costs
The second component to the mitigation program formula is the
cost of providing affordable housing or parks. The costs of
providing subsidized housing or parks presented in Attachment IIBII
were $53,740 per housing unit, and $62 per square foot of park
space. The actual costs of both housing and parks will vary
depending on the type of housing construction or park
improvements and on the cost of land. The ranges of actual cost
estimates are shown in detail in Exhibit "B" to this report.
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Based on the city's experience in affordable housing programs
over the past few years, if it is assumed that the City could use
funds received through the in-lieu fee program in the most
effective manner po~sible, the per unit subsidy would be $30,060.
The parks costs could range from $22 to $70 per square foot of
improved park space. These costs will vary based on different
assumptions of the value of park land, particularly in a prime
office development area. As discussed in the implementation
issues section below, it is reasonable that the value of land
used in on-site park development be reduced if the park area is
included in the development's Floor Area Ratio (FAR) calculation.
It is recommended that the midpoint of the range, which is $48
per square foot as shown in Exhibit "B", for parks costs be used
in the Mitigation Program.
c. Use of Demand and Cost Estimates to Develop New Formula
The previous two sections indicated that the demand analysis for
either housing or parks can be adjusted by using different
assumptions, and the cost estimates can vary significantly. As
shown in Exhibit "D" to this report, if the demand estimates are
adjusted to increase the percentage of time office parks users
spend in the City's parks, but the original cost estimates are
not adjusted, the allocation of fees between housing and parks
would be approximately 60% and 40%, respectively. This exhibit
also shows that adjusting the range of actual cost estimates, but
not adjusting the demand analysis, can produce a split between
51%/49% to 93%/7% for housing and parks respectively.
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Another approach is out1 ined in Table 3, which presents three
possible scenarios based on (a) the original allocation formula,
(b) the allocation formulas with revised costs, and (c) the
formulas with both revised costs and revised demand.
Table 3
A. Housing: 12.92 units x $53,740 = $694,320 (72%)
Parks: 4,356 sq. ft. x $62 = $270,072 (28%)
Total = $964,392
B. Housing: 12.92 units x $30,060 = $388,375 (65%)
Parks: 4,356 sq. ft. x $48 = $209,088 (35%'
Total = $597,463
C. Housing: 12.92 units x $30,060 $388,375 (50%)
Parks: 6,969 sq. ft. x $48 = $334,512 (50%)
Total = $672,887
Note: The formula for housing mitigation is based on the
cost estimate of $30,060 in subsidy per affordable unit,
and the parks formula is based on the midpoint of the
parks cost range, which is $48 per square foot of
improved park space.
The City Council could adopt one of the above formulas as part of
the Mitigation Program. However, in order to provide additional
flexibility in the use of the in-lieu fees it is recommended that
the City council permit ten percent (10%) of the funds to be used
in either category, and allocate the remaining ninety percent
(90%) between housing and parks according to one of the
allocation formulas.
To further enhance the flexibility of the program it is
recommended that the Mitigation Program allow the Planning
Commission and the City Council to approve specific office
projects that include on-site parks or housing units in different
ratios than required by the allocation formula, provided that the
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overall allocation of fees and actual in-kind developments be
maintained within the Mitigation program. For example, an office
development that is required to provide 5,000 square feet of park
space and twelve housing units could provide more than 5,000
square feet of park space and fewer housing units. As additional
fees were paid from subsequent projects they would then be
allocated in greater proportions to housing until the overall
allocation was brought into balance. This provision is described
in greater detail in the following section on "Equivalent units
of Exchange".
(2) Implementation Issues
In addition to the allocation of mitigation requirements between
housing and parks there are a number of issues concerning the
implementation of the mitigation program that require resolution.
These include the need to have "equivalent units" of exchange for
valuing mitigation measures provided on-site rather than paid in
fees, the guidelines for on- or off-site provision of mitigation
measures, and the establishment of a mechanism for discretionary
approval of any in-kind provision of mitigation measures.
(1) Equivalent Units of Exchange
If all or a portion of the housing or park space needed to
satiSfy project mitigation is provided on-site or off-site by the
developer, a mechanism to value the housing or park space is
needed to determine the credit the developer should receive
toward the mitigation fees. The LUCE established a cap on in-lieu
fees of $2.25 for the first 15,000 square feet, and $5.00 for
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every square foot thereafter. New construction projects with
fewer than 15,000 square feet and additions to existing offices
of less than 10,000 square feet are automatically exempted. As
shown in Exhibit "D" this "economic cap" fee is much lower than
the actual costs of providing housing or parks.
Because the provision of these measures on-site is almost always
more costly than the payment of the fees, no developer has as yet
opted for the on-site satisfaction of these requirements. To
date, three office developments with a total of 208,450 square
feet have received approvals from the Planning Commission and
entered into third party agreements to pay mitigation fees of
$830,000. Another 140,000 square feet of office developments are
in the pipeline and will produce in-lieu fees of approximately
$550,000.
The use of an equivalent unit of exchange is needed in order to
value housing units and park space if a developer wishes to
satisfy only a portion of the mitigation requirement on site and
pay the balance in fees, or wishes to provide more on-site park
space or housing than would be required and receive a credit of
the balance toward the housing or park fee. In order to determine
the value of these mitigation measures we can use the averaged
allocation of housing and parks fees, and the housing subsidy and
parks cost per unit or square foot, to determine the equivalent
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unit of exchange, as shown in the following example:
Sample Building - 100,000
Total in-lieu fee
$458,750 x 50%* (housing)
$458,750 x 50%* (parks)
sq. ft. net rentable
- $458,750
- $229,375
- $229,375
Average Cost per Affordable Housing unit - $30,060
Average Cost per Square Foot of Park - $48
$229,375 / $30,060 per unit = 8 affordable units
$229,375 / $48 per sq. ft. = 4,778 sq. ft. of improved park.
*Note: This 50%/50% split is used as an example only.
Thus, if this method were used, the developer in this example
would have the option to pay the in-lieu fee or to provide on or
Off-site, with City approval, eight units of affordable housing,
and 4,778 square feet of improved park space. If the developer
provided only five units of housing then the economic equivalent
of three units, multiplied by the average cost of $30,060 per
unit, would be due the City in in-lieu fees, in addition to the
fees for the parks mitigation. If the developer were to provide,
with city approval, additional square feet of park space and
receive credit for this additional park space against the housing
portion of the requirement, then the value of the in-lieu fees
for the park space in excess of the park requirement would be due
to the housing portion of the fund from subsequent in-lieu
payments from later developments.
It should be noted that other methods of establishing the value
of on-site housing or parks were considered prior to developing
this recommendation. In particular, the idea of using the actual
fair market value as based on an appraisal was considered.
However, the question of how to value a parcel of land for a park
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that has no buildable value, because the office development has
used the park site for establishing the FAR, is a very difficult
one that would have to be resolved before the city could
determine the assumptions that could be used in an appraisal.
Therefore, it is recommended that the equivalent units of
exchange of $48 per square foot of improved park space, and
$30,060 per affordable housing unit be used to determine the
value of on or off-site parks and housing developments.
(2) Guidelines for On- or Off-Site Mitigation Measures
If park space or housing is to be developed on or off a project
site to mitigate the proj ect impacts , it is necessary to set
forth clear standards to ensure the developments are consistent
with City goals and policies. The following standards are
recommended for inclusion in the mitigation program:
General Standards:
o The developer has a right to pay the in-lieu fees and may not
be required to provide any parks or housing on- or off-site. The
only exception to this is in the Special Office District defined
in the LUE, which states that the open space must be provided on
site if the development is allowed by the Planning Commission to
exceed the standard height limits.
o The developer may satisfy all or a portion of the mitigation
measures on- or Off-site only with a conditional Use Permit, or a
Development Agreement approved by the Planning Commission or the
city Council.
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o Prior to issuance of a building permit for an office project
developers shall post a security device in a form acceptable to
the city, in the amount of the in-lieu fee securing payment of
the fees in a timely manner. The Mitigation Program Ordinance
shall establish provisions ensuring that the actual development
of housing or parks by office developers be completed in a timely
manner, and that adequate security devices are provided to the
City to ensure that the housing or parks are completed.
o New housing or parks developments shall be under construction
within two years, and must be completed within four years, after
issuance of the Building Permit for the office project.
Park standards:
o All required setbacks shall be provided and shall not count as
park space. Park space must be separated by a clearly defined
physical barrier, such as a fence, hedge or landscaping
treatment, from the office building. The physical barrier must be
separated from the office buildings by the normally required
setback.
o The minimum approvable park size shall be one-half acre (21,780
square feet).
o Park space shall be accessible to the general public directly
from public thoroughfares. Parks shall be located so as to be
highly visible from the surrounding streets.
o Parking spaces for the park shall be provided according to a
demand analysis. The parking for the park may be included in the
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park space square footage if the parking is dedicated solely to
park users. If the parking spaces are included in the park square
footage they may not be used as additional office or visitor
parking.
o Park space shall be improved to the standards set by the
Planning commission upon the advice of the Department of
Recreation and Parks, or to the satisfaction of the City Council
upon appeal of a decision of the Planning Commission.
o Park space shall be dedicated to, and maintenance shall be the
responsibility of, the City unless alternative mutually
acceptable arrangements are made.
o I f any park space improvements required by the city can be
clearly demonstrated to exceed the average of $6.00 per square
foot used in this report, as averaged for the entire park and
adjusted for inflation from the date of the adoption of the
ordinance, the cost in excess of $6.00 per square foot shall be
credited to the office developer against the Mitigation Program
requirements. The burden of proof of excess cost shall lie with
the developer, and the Planning Commission or City Council shall
clearly approved any excess expenditure as part of the approval
process.
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Housing standards:
o All of the units provided on- or off-site must be affordable to
households earning no more than 120% of the median area income,
as published by the U.S. Department of Housing and Urban
Development from time to time.
o The formulas for establishing rents shall be the same as those
used in the city's inclusionary housing program.
o Units that are required to be provided on or off-site under the
terms of a Removal penni t from the Rent Control Board by an
office development that will displace existing controlled rental
units may not be counted towards satisfaction of the mitigation
requirements.
o Housing developed as part of the mitigation program shall be
targeted primarily to low and moderate-incom.e families. Units
shall have an average of at least two-bedrooms.
o Prior to approval of a permit for on-site or off-site housing
the developer must submit a managment plan describing how tenants
will be selected and how the building will be managed to ensure
that the developer has the capacity to manage affordable housing.
o Units developed under the Mitigation Program shall be
deed-restricted for at least fifty years to ensure long-term
affordability to low and moderate income residents.
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BUDGETARY I FISCAL IMPACT
This ordinance will result in the receipt of housing and parks
funds. There is no budgetary or fiscal action required at this
time.
RECOMMENDATIONS
It is recommended that the city Council:
(1) Adopt a formula to allocate ninety (90%) of the the Office
Mitigation Program in-lieu fees between housing and parks, and
permit the remaining ten percent (10%) to be used for either
purpose; and
(2) Direct the city Attorney to prepare an Ordinance establishing
a Mitigation Program as described in this report.
Prepared by: Peggy curran, Acting Director
Ann Sewill, Housing Program Manager
Department of Community and Economic Development
Attachments: "AIf - Attachment "B" to the LUE
"B" - Ranges of Estimated Housing and Parks Costs
"c" - Comparison of Actual Costs and Cap on Fees
"0" - Adjusted Demand and Cost Estimates
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