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SR-02-25-2014-8C - 407-000-01City Council Meeting: February 25, 2014 Agenda Item: 01.e To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: Affordable Housing Funding and Policy Recommended Action Staff recommends that the City Council: 1. Direct staff to continue exploration and analysis of placing a ballot measure or measures on the November 2014 ballot related to creating a local, dedicated funding source for affordable housing. 2. Authorize the City Manager to negotiate and execute a first modification to Contract No. 9794 with Fairbank, Maslin, Maullin, Metz & Associates (FM3), a California -based company, in an amount not to exceed $27,800 for a total contract amount of $55,600, to conduct additional voter surveying regarding potential affordable housing ballot measures in November 2014. 3. Introduce for first reading the attached ordinance amending Section 9.56 of the Municipal Code (Affordable Housing Production Program) to establish minimum occupancy standards for affordable housing. 4. Approve revisions to the Affordable Housing Trust Fund Guidelines to require affordable housing funded by the City to provide preferences for accessible units to persons living with disabilities. Executive Summary This staff report discusses opportunities for increasing funding for affordable housing at the federal, state, regional, and local levels. The report finds that the greatest opportunity to restore funding for affordable housing is at the local level, and recommends that the Council support the exploration and analysis of a potential ballot measure that would increase the documentary (real property) transfer tax, perhaps accompanied by a companion measure that allows voters to express their preference that the increased receipts be directed toward affordable housing. The report also recommends discrete amendments to existing requirements related to minimum occupancies in privately owned affordable housing and preferences for persons living with disabilities. 1 Background Council held policy discussions on February 28 2012 and December 11, 2012 to consider a variety of issues related to affordable housing in Santa Monica. The policy discussions were held in the wake of the dissolution of all redevelopment agencies in California, including the Santa Monica Redevelopment Agency (RDA.) The RDA provided the primary local funding source for the production and preservation of affordable housing in Santa Monica. Historically, the Housing Division has invested approximately $15 million of Housing Trust Funds annually to finance affordable housing through loans and grants to non - profit housing developers. The investment of local Housing Trust Fund dollars has leveraged an additional $15 to $20 million annually from private investors and institutional lenders. With the dissolution of redevelopment, the flow of funds in the Housing Trust Fund, as well as the City's ability to leverage outside funding, has been radically diminished. Since 1994, approximately 36 percent of all new housing built in Santa Monica has been affordable to low- and moderate - income households, totaling nearly 1,400 residences that will serve many generations of families and individuals of modest incomes. This is an outstanding accomplishment that few cities have achieved. Funding from the RDA played the central role in the City's ability to finance the production and preservation of affordable housing. With state - mandated vacancy decontrol significantly impacting the affordability of Santa Monica's rent - controlled apartment supply, financing the production and preservation of affordable housing has been a critical City tool in ensuring the continued availability of housing that is affordable to households of all income levels and in maintaining economic diversity in Santa Monica. The final wave of redevelopment- funded affordable housing developments has recently been completed or is under construction. During the first quarter of 2014, over 250 new affordable apartments will become available to low- income households. Another 32 affordable apartments are expected to be completed in early 2015. Staff anticipates that two or three additional housing rehabilitation opportunities will be funded from 2 recent land sales. Once those opportunities are funded and completed, the non - profit affordable housing pipeline in Santa Monica is expected to run dry. Finding new funding sources will be critical to continuing. Santa Monica's commitment to a diverse community with housing for people of all incomes. Discussion This staff report discusses affordable housing financing opportunities at the federal, state, regional, and local levels, discussing local opportunities in more detail. It also discusses proposed amendments to the AHPP and Housing Trust Fund (HTF) Guidelines to address affordable housing built and operated by private and non - profit housing providers. Federal Opportunities and Challenges Opportunities for additional federal funding of affordable housing appear bleak. Over the last several years, the federal government generally has decreased Santa Monica's Community Development Block Grant (CDBG) and HOME (HOME Investment Partnership Act) funding, two sources of affordable housing development. With the expected continued gridlock in Washington, as well as continuing federal budget deficits, it seems unlikely that new programs will be developed or that existing programs will be strengthened. An additional challenge that affordable housing advocates are carefully monitoring is potential federal reductions or elimination of the low- income - housing tax credit. Federal tax credits play a critical role in the financing of affordable housing through the country, including in Santa Monica. In the absence of tax credits, cities would need to contribute dramatically more to make affordable housing feasible. Some members of congress and others with policy influence have proposed eliminating tax credits or reducing the amount of tax credits that are available per project or per unit produced. Both could have severe impacts on Santa Monica, where land and construction costs are very high. 3 State Opportunities and Challenges Many lawmakers have recognized that the dissolution of redevelopment has had devastating consequences for affordable housing in California. Lawmakers have proposed legislation to help restore some level of funding for affordable housing. During the past two years, legislation (SB 391, the California Homes and Jobs Act) has been introduced which would provide an estimated $500 million annually to support affordable housing statewide. In both years, the legislation failed to make it out of the legislature for the governor's consideration. If the bill were to eventually make it to the governor, he has not indicated whether he would sign it. If the governor were to sign the bill, there is no indication as to how much of the funding would be available for affordable housing in Santa Monica. There has also been significant activity at the state level with respect to inclusionary housing policies, such as Santa Monica's Affordable Housing Production Program (AHPP, Section 9.56 of the Municipal Code.) In a 2009 judicial decision against the City of Los Angeles, a state appellate court determined that an inclusionary housing policy in a Los Angeles specific plan (unsupported by a nexus study), which required the construction of housing with restricted rents or payment of an in -lieu fee as part of the development of market -rate housing, violated the Costa - Hawkins Rental' Housing Act. Known as the Palmer decision, the ruling called into question many inclusionary housing policies throughout California. Fortunately, Santa Monica's AHPP was not impacted because, in contrast, it imposes affordable housing fee requirements based on a nexus analysis linking the development of market -rate housing to the need for affordable housing. In addition, by its own terms, the Costa - Hawkins Act does not apply where an owner has otherwise agreed with a public entity to build affordable housing in consideration for a direct financial contribution or any other form of assistance specified in State Density Bonus law. As a result, neither Costa - Hawkins nor the Palmer decision applies to development agreements or other development approvals in which an owner accepts specified forms of assistance, such as fee and tax waivers, or modified development standards, in exchange for producing affordable housing. 12 In 2013, the state legislature approved a bill (AB 1229) that would overturn the Palmer decision. For Santa Monica, the bill had the potential to provide the City with greater flexibility in its design of the AHPP. The bill was ultimately vetoed by Governor Brown. Four days after the governor's veto, the California Supreme Court announced its decision in Sterling Park, L.P. v. City of Palo Alto. There, the court determined that Palo Alto's on -site inclusionary housing policy requiring a private developer to grant a purchase option to the City and its in -lieu fee requirements were not traditional land use regulations, but rather exactions subject to review under the Mitigation Fee Act, likely requiring the preparation of a nexus analysis. While Santa Monica's AHPP again appears to be secure because of its nexus analysis, opportunities to expand affordable housing requirements are likely limited. Late in 2013, the Supreme Court granted review of a case against the City of San Jose's inclusionary ordinance. The San Jose case will give the Court the opportunity to decide the question it reserved in the Palo Alto decision: whether forcing a developer to sell some units below market value, by itself, would constitute an exaction. A court decision on the case may be issued in 2014. The decision may provide greater clarity on which inclusionary housing ordinances pass legal muster. In the meantime, there are limited opportunities to adjust the reach of Santa Monica's affordable housing objectives, other than within the specific context of negotiated development agreements. Regional Opportunities and Challenges Counties throughout California have been principal beneficiaries of redevelopment dissolution, as counties are often the largest property- taxing entities within former redevelopment project areas. For example, through July 17, 2013, approximately one and a half years after redevelopment agencies were dissolved, the California Department of Finance calculated that the County of Los Angeles had received over $400 million of additional funds due to redevelopment dissolution, with nearly $24 million coming from Santa Monica. Some counties have targeted the funds toward the production and preservation of affordable housing. For example, San Francisco voters approved an initiative in November 2012 that targeted a large portion of the 5 newly received funds to affordable housing. Los Angeles County representatives have informed City staff that the County plans to invest approximately $86 million of such funds into affordable housing over the next five years. While this represents a small fraction of the total funds received by the County, it does represent some redirection of the funds toward their original purpose. However, it is uncertain whether any of the funds will be allocated toward affordable housing opportunities in Santa Monica. For example, County mental health funds were recently made available through a competitive process for permanent supportive housing. However, Santa Monica was excluded as a targeted geographic location. Local Opportunities and Challenges Staff believes that if Santa Monica wants to continue its commitment to creating affordable housing opportunities, it cannot rely on uncertain opportunities at the federal, state, and regional levels. Continuing to negotiate for significant commitments to affordable housing through development agreements, as well as providing for additional affordable housing in the new zoning ordinance will address some affordable housing needs. However, providing an affordable housing program that addresses the needs of a variety of households, including working families, seniors, people with disabilities, veterans, and formerly homeless individuals, will require local funds that can be dedicated to investing in housing produced and preserved by non - profit affordable housing providers. Given the growing pressures on the City's General Fund in the coming years, dedicating existing City funds toward affordable housing production would require serious reductions in other City programs. Before redevelopment dissolution, the City was spending an average of $15 million per year on affordable housing production and preservation. To give an order -of- magnitude comparison, the FY 2013 -14 budget of the Santa Monica Public Library is approximately $12 million, demonstrating that severe cuts would be necessary to return affordable housing funding to its previous level. Another suggestion is to consider the residual funds the City is receiving as a result of redevelopment dissolution. However, unlike the counties and the state, the City 6 receives a relatively small portion of redistributed redevelopment property tax increment. During FY 2013 -14, the General Fund impact from redevelopment dissolution is approximately $9 million, including the cost of the senior housing voucher program, Civic Parking Structure bond payments, parking structure insurance and assessments, RDA loan repayments that the state disallowed, and certain project costs related to capital improvements that the City is now funding. By comparison, the City is projected to receive less than $6 million of redistributed redevelopment property taxes during FY 2013 -14. If residual redevelopment funds grow in the coming years, those funds could be considered for dedication to affordable housing. Staff believes that in order to make a substantial investment in affordable housing production and preservation, new, local funding sources must be created. Two opportunities were discussed by Council on December 11, 2012, including implementing a fee on commercial development to mitigate affordable housing impacts and an adjustment to the City's documentary (real property) transfer tax. These two opportunities to dedicate new funds to affordable housing are discussed below. Commercial/ Housing Linkage Fee In, December 2012, staff described the methodology for the commercial / housing linkage fee nexus study. The nexus study and analysis of maximum justifiable fee amounts have been completed. An economic consultant is now completing an analysis of how the financial feasibility of various development prototypes would be affected by the commercial /housing linkage fee, as well as the proposed park development impact fee, in the context of existing fees, including the transportation impact fee. Council is expected to consider both proposed development impact fees in the coming months. While a commercial /housing linkage fee would play an important role in mitigating the impacts of commercial development on affordable housing needs, staff does not expect it to be a significant, on -going source of funding to invest in affordable housing. One of 7 the primary reasons is that there is not expected to be significant commercial development in Santa Monica in the coming years. Within the current development pipeline, most of the proposed projects are primarily residential. Most of the significant commercial developments (hotels, mixed -use creative office / residential developments) are anticipated to include affordable housing. Commercial components of any new developments will also likely be off -set by existing, on -site commercial structures. While only a portion of the projects may ultimately make it into construction, it does provide a reasonable proxy for the type of development that will be expected. As a result, if approved, the new fee will likely be an important, though relatively insignificant, source of funding for affordable housing, requiring funds to be accumulated over multiple years to be sufficient to create or preserve new affordable housing. Documentary (Real Property) Transfer Tax A documentary transfer tax is collected by a county recorder whenever property changes hands and an ownership transfer document is recorded. All California counties collect a documentary transfer tax of $1.10 per $1,000 of transferred value. In addition, many California cities charge an additional transfer amount that is collected by the county recorder and paid to the respective city. Santa Monica collects an additional amount of $3 per $1,000 of transferred value that goes to support general City programs. Currently, the range of city transfer rates in California is $1.10 to $25.00 per $1000 of transferred value. (See Attachment A for a list of California cities' transfer rates.) For example, if a property in Santa Monica sold for $1,000,000, the Los Angeles County Recorder would collect a transfer tax of $4,100 ((1,000,000/1000)(1.10 +3.00)), with $1,100 for the county and $3,000 for the City. Payment of the transfer amount can be negotiated between the buyer and the seller. In 2012, the Mayor of San Francisco proposed to increase the local real estate transfer rate and dedicate the funds toward affordable housing. As a city and county, San 8 Francisco ultimately chose to allocate increased county revenues which resulted from the elimination of redevelopment toward affordable housing. Since this option is unavailable to Santa Monica, the idea of increasing transfer rates and using the increased receipts for affordable housing is appealing for a variety of reasons. First, transfer receipts can vary widely from year to year, based on transactions that occur during any year. Such receipts tend to be affected by the general volume of residential and commercial sales and the exact timing of significant sales. For example, a handful of significant commercial property sales in one year, combined with brisk residential sales activity, could spike transfer receipts, while minimal commercial and residential sales in a subsequent year could drop municipal receipts. (See Attachment B for historical transfer fee receipts in Santa Monica.) The volatility of transfer receipts would make it difficult to fund an operating program that has relatively fixed costs each year. By comparison, affordable housing opportunities are funded once sufficient funds have been collected to support the opportunity. As a result, the volatility of the funding source would not be a significant detriment to the City's funding system for affordable housing. Increasing the transfer rate and later allocating funds toward affordable housing also has appeal from a policy perspective. While the existing AHPP ensures that new market -rate residential development mitigates the need for affordable housing, and the proposed housing linkage fee will help mitigate new commercial development's impact, there is no means to address the affordable housing impacts of existing commercial and residential properties, particularly those that were developed before current affordable housing policies were in place. Increasing the transfer rate on property transfers and then allocating the revenues toward affordable housing could allow a small portion of the escalation in values of existing residential and commercial properties to be dedicated to promoting economic diversity and to helping address the housing needs of low- income members of the Santa Monica community. Adjusting the local transfer tax with a requirement that it be dedicated to a specific purpose would require approval of over two- thirds of Santa Monica residents voting in E an election, pursuant to Proposition 218, passed by California voters in 1996. If the tax were increased for general municipal purposes, it would require approval by over 50 percent of voters. A tax adjustment for general purposes could be paired with a companion measure demonstrating voters' desire that the increased revenue be directed toward affordable housing. Recent voter polling has shown that while a significant percentage of voters are wary of the need for additional funding for general government and capital purposes, there is support for additional funding for affordable housing, as discussed below. In September 2013, Fairbank, Maslin, Maullin, Metz & Associates (FM3) conducted a telephone survey of 477 likely Santa Monica voters, with a margin of error of plus or minus 4.5 percent. The poll results showed strong support for the City's funding of affordable housing. The poll also asked about increasing the real property transfer rate to support the City's affordable housing program. The survey asked about increasing rates for transfers valued at over $1,000,000 and $5,000,000. While the poll did not present a fully developed ballot question, it did find that 55 percent of the likely electorate would vote to double the transfer rate for sales valued over $1,000,000, with 57 percent support at a $5,000,000 threshold, if the funding were used to support affordable housing. (See Attachment C for a summary of FM3's September 2013 poll results.) The approach is intended to shield homeowners of more modest means from the increased rate when they sell their homes. The threshold ensures that virtually all commercial transactions would pay the higher transfer rate and that most of the higher -value residential transactions would pay the higher rate. (San Francisco is currently the only city in California that employs a graduated rate, with the highest -value transactions paying a fee of 2.5 percent or $25 per $1,000 of sales value.) Staff believes that there are several reasons for the demonstrated voter support for an increased real estate transfer rate. First, residents encounter the transfer tax only when they are buying or selling property, which is a rare occasion for most residents. Second, residential sales prices in Santa Monica have peaked at a level that is 10 commensurate with their pre- recession levels. (See Attachment D for median residential sales prices since 2000.) As a result, most residential sales are expected to involve value appreciation that far surpasses any likely amount of the transfer rate. Sales by longer -term owners can see doubling, tripling, and quadrupling of values since purchase. Local brokers estimate that commercial property values have similarly recovered from the recession. Second, the payment of the transfer tax can be negotiated between buyers and sellers and the payment is accompanied by a variety of other escrow and closing costs that many buyers and sellers consider to be part of the cost of the transaction. Finally, with a minimum transaction threshold for application of the higher rate, commercial properties would play an important role in the total receipts from the increased rate, ensuring that existing commercial properties contribute to the community's needs when a sale occurs. It is worth emphasizing the last point. During 2013, Santa Monica saw some striking sales of commercial properties. For example, one commercial property sold for over $325 million. Under the current transfer rate, the City received less than $1 million for the general fund as part of the recording of the single sale. If the fee were doubled with the incremental increase used for affordable housing, the sale would have provided nearly $1 million of additional funding that could be used for purposes such as affordable housing. A similarly scaled transaction in San Francisco would provide that jurisdiction with over $8 million. One approach could be to impose the higher transaction rate on commercial transfers only. Staff cautions against such an approach, as the receipts would be reduced markedly and would become even more volatile, making it difficult to do any long -term planning. Attachment E provides estimates of average annual receipts based on different amounts and thresholds of an increased transfer rate. A counter - argument to increasing the transfer rate is that it could cool real estate sales and values. However, San Francisco's transfer rates, which peak at nearly $10 higher than any other city in California, have not appeared to dampen one of the hottest real 11 estate markets in the country. Berkeley, with the next highest rate, has a very strong real estate market as well. Santa Monica's strong real estate fundamentals are very likely able to similarly withstand a higher real estate transfer rate. Additional Voter Surveying . While the FM3 voter survey tested the general notion of increasing the transfer rate and using the increased revenues to support affordable housing, it did not test different levels of increase to the transfer rate. In addition, it tested only two thresholds of increase at $1,000,000 and $5,000,000 of sales value, and the wording of the questions could have led survey respondents to conclude that the tax would apply to residential transactions only. In crafting a potential ballot measure, staff believes that it would be valuable to complete additional testing of voter attitudes toward the amount of the transfer rate increase, the valuation threshold for the increase, and the inclusion of residential and commercial transfers. Additional surveying could also test support for a dedicated tax measure compared to a general tax measure, as well as voter attitudes toward discrete elements of the funding program, such as inclusion of a rental stabilization program, exclusion of all staff and administrative costs, and attitudes toward affordable housing compared to other City programs and efforts. In addition, polling could measure voter support when critical arguments are presented. As a result, staff recommends amending FM3's existing contract by an amount not to exceed $27,800 to conduct additional voter surveying to help identify a ballot structure that would most likely resonate with voters. Proposed AHPP and HTF Guidelines Amendments In addition to replenishing lost funding sources for affordable housing, staff supports improvements to the existing affordable housing program to serve as many people as possible given limited funding. Staff recommends that amendments to the Affordable Housing Production Program (AHPP) and Housing Trust Fund (HTF) Guidelines could fine -tune the City's housing programs by establishing minimum occupancy standards IN and setting preferences for occupancy of accessible apartments by persons living with disabilities. Minimum Occupancy On December 11, 2012, Council directed staff to explore opportunities to Establish minimum occupancy standards for affordable housing governed by the AHPP and built by private developers. Establishing minimum occupancy standards (i.e., minimum household sizes) for each unit size could help ensure that larger apartments actually house larger families. While the AHPP requires private apartment owners to pull first from the City's consolidated housing waitlist, the waitlist does not always contain all household sizes and income levels. (The City's waitlist is mostly composed of one- and two - person households at extremely low- and very low- income levels.) As a result, it is sometimes necessary for private owners to complete tenant selection and certify the incomes of prospective tenants. Staff has worked with the City Attorney's Office to confirm that minimum occupancy standards can be established while complying with fair housing requirements. The proposed minimum occupancy standards below are taken from HUD standards for publicly funded affordable housing. Unit Size Minimum Number of Occupants 0 BR 1 1 BR 1 2 BR 2 3 BR 3 4 BR 5 If approved by Council, minimum occupancy would be reviewed as part of the compliance monitoring process for affordable housing. 13 Housing for Persons Living with Disabilities Whether by law or agreement, newly built apartments are being designed and constructed to serve the housing needs of persons living with disabilities. However, the City's Housing Trust Fund (HTF) Guidelines do not address how affordable apartments with special features would be accessed by the target population who needs them. Staff recommends amendments to the HTF Guidelines to provide persons living with disabilities with a preference for the specially designed, accessible apartments. The preferences would be aligned with the existing preferences for households who live or work in Santa Monica, so that Santa Monica households living with disabilities would be given preference for the accessible apartments. If a household with a disability was not successful in getting an accessible apartment, but was able to get another apartment within the building, the household with the disability would be able to petition to move to the accessible apartment once it became available. Implementing the requirements would need to be coordinated with other federal and state requirements. Because accessible apartments represent a small percentage of the total number of apartments created, staff does not believe that the proposed preferences would significantly interfere with other preferences for evicted, homeless, and veteran households. To the contrary, these amendments to the Guidelines provide a formal, proactive procedure for reasonable accommodations. Next Steps If Council accepts staff's recommendations, FM3 will conduct additional polling to assist in developing potential ballot measures that have the highest likelihood of achieving success with voters in November 2014. Staff would return to Council before July 2014 with recommendations regarding potential ballot language. Staff would also implement the proposed changes to the AHPP and HTF to ensure that the existing housing program maximizes its ability to serve all types of eligible households. 14 Financial Impacts & Budget Actions The contract amendment to be awarded to Fairbank, Maslin, Maullin, Metz & Associates is $27,800, for an amended contract total not to exceed $55,600. Funds are available in the FY 2013 -14 Budget in Division 2071. The contract will be charged to account 012071.555060. Prepared by: Andy Agle, Director of Housing and Economic Development Approved: Andy Agle, Director Housing and Economic Development Attachments: Forwarded to Council: r� Rod Gould City Manager A. Comparison of Existing California Documentary Transfer Rates B. Historical Documentary Transfer Receipts: 1991 - 2012 C. 2013 Voter Survey Results Related to Affordable Housing D. Median Residential Sales Prices: 2000 — 2013 E. Summary of Documentary Transfer Rate Scenarios F. Ordinance Amending Section 9.56 of the Santa Monica Municipal Code G. Proposed Amendments to the Housing Trust Fund Guidelines 15 Attachment A COMPARISON OF EXISTING REAL ESTATE TRANSFER FEES I0[01!/g1T11 ]44.0193 CITY ALAMEDA FEE PER $1000 OF SALE VALUE $12.00 ALBANY $11.50 BERKELEY $15.00 COTATI $1.90 CULVER CITY $4.50 HAYWARD $4.50 LOS ANGELES $4.50 MOUNTAIN VIEW $3.30 OAKLAND, $15.00 PALO ALTO $3.30 PETALUMA $2.00 PIEDMONT $13.00 POMONA $2.20 REDONDO BEACH $2.20 RICHMOND $7.00 RIVERSIDE $1.10 SACRAMENTO $2.75 SAN FRANCISCO SAN JOSE $3.30 SAN LEANDRO $6.00 SAN MATEO $5.00 SAN RAFAEL $2.00 SANTA ROSA $2.00 SANTA MONICA $3.00 VALLEJO $3.30 WOODLAND $1.10 * SAN FRANCISCO HAS A GRADUATED TAX, AS FOLLOWS SALE VALUE $5.00 $6.80 $7.50 $20.00 SOURCE: CaliforniaCityFinance.com Attachment B Staff Report - City of Santa Monica Attachment C TO: Interested Parties FROM: Fairbank, Muslin, Maullin, Metz & Associates (FM3) RE: Summary of City of Santa Monica Issues 2013 Survey Date: December 1, 2013 Between September 23r, — 29t", 2013, Fairbank, Maslhl, Maullin, Metz & Associates (FM3) conducted a telephone survey of 477 City of Santa Monica voters who are likely to vote in the November 2014 General Election. The margin of error for the full sample is plus or minus 4.5 percent; margins of error for subgroups will be higher. 1 The three main goals of this survey are to: (1) Examine general perceptions of the City (2) Gauge the level of support for a proposed public safety bond measure (3) Assess support for affordable housing The key survey findings include: • A majority of voters consider the City to be headed in the right direction • About half of all voters perceive the City does not need additional funds • A majority of voters support a potential Public Safety Bond and many of its proposed projects, but support for the measure never reaches the supermajority (66 percent plus 1) required to pass this dedicated measure • Six -in -ten voters (60 percent) support the City investing funds to ensure there is additional affordable housing available and that support increases to two- thirds (66 percent) after learning more about the City's program The balance of this memo provides a detailed summary of the findings. (1) General Perceptions of the City: A majority of voters have positive views of where the City is headed Fifty -nine percent feel that the City of Santa Monica is headed in the right direction and about one -third (34 percent) perceive that the City is seriously off on the wrong track. Only seven percent are undecided. Nearly one half of all voters perceive that the City needs additional funds Forty -nine percent of respondents said that the City of Santa Monica has a great (16 percent) or some (33 percent) need for additional funds to provide the level of City services that residents need or want. Forty percent identified little or no need for additional funding. The balance of voters (10 percent) are undecided. 2 (2) Support for a Public Safety Bond Measure: Initial /Current level of support A simple majority of voters (51 percent) initially support a $78 million public safety bond measure, but the level of support is well short of the supernudority required to pass. Respondents were initially read the following possible ballot language: "Shall the City of Santa Monica issue general obligation bonds for use to protect the health and safety of Santa Monica residents by maintaining police, fire, and paramedic emergency response times, improving 91 -1 emergency http: / /www.smgov. net /departments /Council/ agendas/ 2013 / 20131217 /s2Ol3l2l7O8- A- 1.htm[1/27/2014 5:19:48 PM] Staff Report - City of Santa Monica communication technology and training, ensuring fare stations meet seismic earthquake laws, and other City inrprovennents, totaling 78 million dollars, with manual independent financial audits, and no money going to administrative salaries, pensions or Sacramento?" City of Santa Monica voters indicated that if the election was held "today," a slight majority (51 percent) would eithe definitely or probably vote yes, or lean toward voting yes, in favor of a public safety bond. At this time, 35 percent of voters would either definitely or probably vote no, or lean toward voting no on the measure. A further fourteen percent are undecided (see Figure 1). Figure 1: Vote on the Public Safety Bond Reaction to educational and critical statements about the public Safety Bond Measure In order to test a variety of Santa Monica voters' opinions (pro and con) about the proposed Public Safety Bond Measure, the survey presented respondents with a series of both educational statements describing the need for public safety upgrades and improvements as well as critical statements suggesting reasons why voters should not vote for the proposed measure. 3 Educational Statements After each educational statement was read, respondents were asked to indicate whether hearing the educational statements made them more inclined to vote for the measure. Educational messages that resonated with a sizable majority of Santa Monica voters (60 percent or more) dealt primarily with structurally unsafe fire stations, outdated public safety communication equipment, and the need to ensure that public safety officers can continue to respond quickly to medical emergencies. The above referenced statements are presented in detail below: • Structural engineers have determined some of the City fire stations will be severely damaged during an earthquake, threatening the lives of firefighters and preventing emergency response. This measure will upgrade outdated fire stations to ensure firefighters and paramedics can respond to emergencies during an earthquake (65 percent more inclined to vote yes after hearing this statement). • Santa Monica's first responders rely on decades old emergency communication technology. This measure will improve communication technology among firefighters, the police and paramedics (62 percent more inclined to vote yes after hearing this statement). • Sixty-seven percent of all 911 calls to the Santa Monica Fire Department require emergency medical attention. This measure will provide the resources needed so that fast responders can continue to respond rapidly to save lives (62 percent more inclined to vote yes after hearing this statement). Critical Statements Voters were also read critical statements and asked to indicate whether hearing the respective statement would makethem more inclined to vote against the measure. The impact of the critical statements is more modest than the educational statements. While the top educational messages garnered 62 to 65 percent of voters saying they would be more inclined to vote yes on the measure, leading critical messages motivated between 44 and 49 percent of respondents to say they would be more inclined to vote no on the measure. The most influential critical statements include claims that the City should already have the necessary funds if they were to cut waste and excessive salaries; the City should not add to its projected deficit; and Santa Monica residents are already overtaxed. The above mentioned statements are presented in more detail below: The City of Santa Monica has enough funds to pay for the proposed public safety projects without raising residents' taxes by just cutting waste and excessive salaries (49percent more inclined to vote no after hearing this statement). http : / /www.smgov.netldepartments /Council/ agendas /2013/ 20131217 ls2Ol3l2l7O8- A- 1.htm[112712014 5:19:48 PM] Staff Report - City of Santa Monica The City projects a deficit of more than $13 million by 2018. Before the City goes into greater debt by issuing bonds, it should balance its books (47percent more inclined to vote no after hearing this statement). We are already overtaxed. The City has enough funds to pay for the proposed public safety projects without raising our taxes (44 percent more inclined to vote no after hearing these statements). Levels of support after educational and critical staten ents, respectively A presentation of educational statements increases initial support for the $78 million Public Safety Bond Measure to 59 percent, with 33 percent opposed and eight percent remaining undecided. After the initial vote in response to the $78 million Public Safety Bond Measure ballot summary and a reading of educational messages, voters were asked again how they would vote on the measure if an election were held "today." On the second vote, respondents increased their support by eight percent, from 51 to 59 percent. Opposition slightly declined by two percent, from 35 to 33 percent. Finally, the undecided also declined —from 14 to 8 percent, with roughly six percent moving to the "Yes side" (see Figure 2). After having beard critical statements toward the $78 million Public Safety Bond Measure, support for the measure declines from its high point after educational statements (59 percent), to 55 percent. Opposition increases to its peak of 38 percent, and seven percent remain undecided. After hearing critical statements, voters were asked one final time how they would vote on the $78 million Public Safety Bond Measure if an election were held "today." Fifty five percent said they would vote yes, a decline of four percentage points from the vote after educational messages. The percentage of voters who report they would vote no increases five percentage points — 33 percent from the previous ask to 38 percent. The undecided voter percentage remained largely static, with seven percent unable to decide how they would vote (see Figure 2). Figure 2: Initial Vote on $78 Million Public Safety Bond Measure, Vote after Educational Statements and Vote after Critical Statements Support for the Public Safety Bond Measure at different cost scenarios Lowering the amount of the Public Safety Measure from $78 million to $48 million does not increase support for the measure to the two- thirds supermajority threshold. After voters were initially asked how they would vote on the $78 million Public Safety Bond Measure, they were asked how they would vote if the Bond Measure was for $48 million dollars instead. They were later asked again how they would vote on the $48 million Bond Measure after hearing educational and critical statements. In both cases, support for the $48 million Bond Measure hovered in the mid - fifties, well below the supermajority needed to pass. Support remains in the 50 percent range when the respective $78 and $48 million bonds are described in terms of the cost per $100,000 of assessed property value. In the case of the former bond measure, the cost would be $30 and in the latter case it would be $19. Importance of how the Bondfinrds are spent Santa Monica voters most value protecting the health and safety of City residents by maintaining police, tire and paramedic emergency response times as part of any public safety bond measure. Among the many public safety goals and facility upgrades and improvements mentioned as part of a potential bond measure, Santa Monica voters gauged the following five components as extremely or very important at a rate of between 65 and 73 http : / /www.smgov.net/departments /Council/ agendas/ 2013 / 20131217 /s2Ol3l2l708- A- 1.htm[t/27/2014 5:19:48 PM] Staff Report - City of Santa Monica percent: • Protecting the health and safety of Santa Monica residents (73 percent Extrenrely/Very Important) • Maintaining police, fire, and paramedic emergency response times (72 percent) • Ensuring all fire stations meet seismic earthquake laws (67percent) • Improving 911 emergency training (66 percent) • Improving 911 emergency communications technology so emergency departments can communicate with each other (65 percent) Less valued public safety - related upgrades and improvements include: • Building a firefighting training facility for local firefighters (35 percent Extremely /Very Important) • Installing traffic congestion management cameras at City intersections (31 percent) In addition to the aforementioned public safety upgrades and improvements asked about, a number of other proposec capital/infrastructure projects were also mentioned. While most public safety features scored close to or above the two - thirds requirement for passage of a dedicated bond measure, other non - public safety upgrades /improvements are considered extremely or very important by a much smaller percentage of Santa Monica voters. Lower rated projects can be grouped into two categories: park and open space - related projects, and others. The former involves the following: • Creating more open space and natural areas (46 percent Extremely /Very Important) • Acquiring additional land to create more open space and natural areas (42 percent) • Improving City parks and recreation facilities (42 percent) • Establishing new community parks (33 percent) • Acquiring additional land for new community parks (33 percent) Other City capital/infrastructure projects mentioned and their responses are presented below • Improving accessibility to City -run facilities for seniors and the disabled (51 percent Extremely /Very Important) • Making additional affordable housing available (49 percent) • Providing additional parking downtown (43 percent) • Creating express parking signals downtown to inform drivers of open parking spaces to reduce traffic congestion (40 percent) • Upgrading and earthquake retrofitting the Santa Monica Civic Auditorium (40 percent) (3) Support for Affordable Housing: Sixty percent of voters initially support the City of Santa Monica investing fiords to ensure there is additional affordable housing available. After simply hearing the term "affordable housing," six out of ten voters support the City investing -funds to ensure its expanded availability. Three out of ten voters said they oppose the City investing funds to ensure additional affordable housing is available; ten percent are undecided. Respondents were then read the following City- approved description of "affordable housing:" "The City makes loans to non-profit developers to build new apartments or acquire existing buildings that are then fixed up and rented to low - income families who otherwise could not afford to live in Santa Monica. Low income is defined as about $69,000 or less per year for a family of four. The individuals who tend to be helped by this program include seniors, people with disabilities and people with HIV. " More education about the City's affordable housing program leads to an increase in the percentage of Santa Monica voters supporting the City investing funds to ensure additional affordable housing is available. After hearing the http: / /www.smgov. net /departments /Council/ agendas/ 2013 / 20131217 /s20l3l2l708- A- 1.htm[1/27/2014 5:19:48 PM] Staff Report - City of Santa Monica , aforementioned description of the term "affordable housing," support for City investment in additional affordable housing increased by six percent, from 60 to 66 percent. Further, opposition to more additional affordable housing declined two percent, from 30 to 28 percent, with more information. Finally, five percent remain undecided (see Figure 3). Figure 3: Initial Support and Support after Information on the City Investing Additional Funds Support for a conceptual affordable housing measure While two- thirds of voters support the City investing in additional affordable housing, mention of a possible affordable housing sales transfer tax increase receives support from only about 55 to 57 percent of voters at this time. Voters were asked a conceptual question, rather than a filly developed ballot summary question, about how they would vote on an affordable housing measure that would increase the tax for properties sold from $3 per $1,000 of sales to $6 per $1,000 of sales. Respondents were told that the revenues raised would go to paying for the City's affordable housing program. The conceptual measure received support in the mid - fifties both under a scenario where the increase would only be for homes sold at $1 million dollars or more (55 percent total yes), and in the case where the increase would only be for homes sold at $5 million dollars or more (57 percent total yes). In both cases, this dedicated housing measure would not meet the necessary supermajority vote (see Figure 4). A more developed ballot summary with greater details of the measure may have garnered greater support. Figure 4: Vote on Real Property Transfer Tax Measure Vote at One and Five Million Minimum Sales Threshold pondents were given a choice to conduct the survey in English or Spanish. e when results do not equal 100% this is due to rounding errors. ements are paraphrased in this memo to highlight the key aspect orthe statements. Respondents were asked the following conceptual question: "The City is considering payhrg for its affordable housing program by increasing the : for properties sold from $3 per $1,000 of sales to $6 per $1,000 of sales. This world apply only to sales of hones valued over ($11$5) million. " it rdonr half the sample was asked at the $1 nnllion dollar sales threshold and the remaining random sample was asked at the $5 million dollar sales eshold. http : / /www.smgov,netldepartments /Council/ agendas /2013/ 20131217 ls20l3l2l708- A- 1.htm[112712014 5:19:48 PMl Attachment D MEDIAN RESIDENTIAL SALES PRICES SANTA MONICA 2000-2013 Median Sales Price Santa Monica, CA I All properties I All years !. C u lcl $1.20tU1 T' LOW - �,.rg $6001( ' ,�' '`... •4 ,°r `s?"�tsf $6001( j;338K $2001( $01< 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 El All properties SOURCE: TRULIA Attachment E SUMMARY OF DOCUMENTARY TRANSFER FEE ANALYSIS July 08- Aug. 12- June 09 July 13 Actual payments received at current $3 - $ 2,652,996 $ 6,709,444 Scenario 2. Projected Increase from Actual Payments :3;417;238,= Graduation scale - $3 up to $1m and: Scenario $1,435,147 $`7;901,973 Scale Over 1m Over 5m Over 10m Proposed $ 1 $ 61$ 91$ 12 Scenarios $ 2,574;225 $ 12,077,347: Scale Over Im Over Sm Over IOm Proposed $ $ 9 $ 12 $ 15 Transaction detail I,$ 3„713;3035 July 08 -June 09 ,Au ust12- Julv13 itof % ofTotal Nof %of Total Property Values :Transfers > $1m '.. Transfers > $Im $1m and up to $1.5m 122 44% 217 40% up to $2. Om 48 17% 105 19% up to $3. Om 51 19% 88 16% up to $4. Om 25 9% 50 9% up to $5. Om 10 4% 24 4% up to $6. Om 9 3% 13 2% up to $7.Om 3 1% 10 2% Greater than $7.Om 7 31 32 6% Total properties $1 million and greater 275 42% 539 53% Total properties under $1 million 383_58% 481 47% Total properties sold this period _ 658 1020 F:atty \muni \laws \barry\AH PPAmend2 -25 -14 City Council Meeting 2 -25 -14 Santa Monica, California ORDINANCE NUMBER (CCS) (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AMENDING SANTA MONICA MUNICIPAL CODE SECTION 9.56.050 TO ESTABLISH MINIMUM OCCUPANCY STANDARDS FOR AFFORDABLE HOUSING UNITS WHEREAS, the City's Affordable Housing Production Program ( "AHPP ") establishes a range of affordable housing unit bedroom sizes, with a minimum total floor area for each bedroom size, that may be developed under specified circumstances; and WHEREAS, the AHPP does not establish minimum occupancy requirements (i.e., minimum household sizes) for these affordable housing units; and WHEREAS, on December 11, 2012, the City Council directed staff to assess the establishment of minimum occupancy requirements; and WHEREAS, minimum occupancy standards for each unit size would help ensure that larger units actually house larger families; and WHEREAS, Policy 1.6 of the City's Housing Element provides, in part, that the City should maintain development standards that promote the development of family housing; and 1 WHEREAS, the program for Objective 2.a of the City's Housing Element provides, in part, that the City should revise the AHPP as appropriate to address the housing needs of the community; and WHEREAS, the proposed minimum occupancy standards mirror Housing and Urban Development's standards for publically funded affordable housing. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES HEREBY ORDAIN AS FOLLOWS: SECTION 1. Santa Monica Municipal Code Section 9.56.050 is hereby amended to read as follows: 9.56.050 On -site option. The following requirements must be met to satisfy the on -site provisions of this Chapter: (a) For ownership projects of at least four units but not more than fifteen units in multi - family residential districts, the multi - family project applicant agrees to construct at least: (1) twenty percent of the total units as ownership units for moderate - income households, or as an alternative; (2) twenty percent of the total units as rental units for 80% income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2); (3) ten percent of 2 the total units as rental units for 50% income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2); or (4) five percent of the total units as rental units for 30% income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2). (b) For ownership projects of sixteen units or more in multi - family residential districts, the multi - family project applicant agrees to construct at least: (1) twenty -five percent of the total units as ownership units for moderate - income households, or as an alternative; (2) twenty -five percent of the total units as rental units for 80% income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2); (3) fifteen percent of the total units as rental units for 50% income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2); or (4) ten percent of the total units as rental units for 30% income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2). 3 (c) For all other multi - family applicants, the multi- family project applicant agrees to construct at least: (1) five percent of the total units of the project for 30% income households; (2) ten percent of the total units of the project for 50% income households; (3) twenty percent of the total units of the project for 80% income households; or (4) one hundred percent of the total units of a project for moderate income households in an Industrial /Commercial District. (d) Any fractional affordable housing unit that results from the formulas of this Section that is 0.75 or more shall be treated as a whole affordable housing unit (i.e., any resulting fraction shall be rounded up to the next larger integer) and that unit shall also be built pursuant to the provisions of this Section. Any fractional affordable housing unit that is less than 0.75 can be satisfied by the payment of an affordable housing fee for that fractional unit only pursuant to Section 9.56.070(a)(4) or by constructing all the mandatory on -site affordable units with three or more bedrooms. The City shall make available a list of income levels for 30% income households, 50% income households, 80% income households, and moderate income households, adjusted for household size, the corresponding maximum affordable rents adjusted by household size appropriate for 151 the unit, and the minimum number of units required for 30% income households, 50% income households, or 80% income households required for typical sizes of multi - family projects, which list shall be updated periodically. (e) The multi - family project applicant may reduce either the size or interior amenities of the affordable housing units as long as there are not significant identifiable differences between affordable housing units and market rate units visible from the exterior of the dwelling units; provided, that all dwelling units conform to the requirements of the applicable Building and Housing Codes. However, each affordable housing unit provided shall have at least two bedrooms unless: (1) the proposed project comprises at least ninety -five percent one bedroom units, excluding the manager's unit, in which case the affordable housing units may be one bedroom; (2) the proposed project comprises at least ninety -five percent zero bedroom units, excluding the manager's unit, in which case the affordable housing units may be zero bedroom units; (3) the proposed project comprises zero and one bedroom units, excluding the manager's unit, in which case the affordable housing units must be at least one bedroom units; or (4) the multi - family project applicant has elected not to pay the affordable 5 housing fee pursuant to Section 9.56.070(a)(4), in which case the affordable housing units must be at least three bedroom units. The design of the affordable housing units shall be reasonably consistent with the market rate units in the project. An affordable housing unit shall have a minimum total floor area and minimum number of occupants, depending upon the number of bedrooms provided, no less than the following: 0 bedrooms 500 square feet 1 occupant 1 bedroom 600 square feet 1 occupant 2 bedrooms 850 square feet 2 occupants 3 bedrooms 1,080 square feet 3 occupants 4 bedrooms 1,200 square feet 5 occupants Affordable housing units in multi - family projects of one hundred units or more must be evenly disbursed throughout the multi - family project to prevent undue concentrations of affordable housing units. (f) All affordable housing units in a multi - family project or a phase of a multi - family project shall be a constructed concurrently with the construction of market rate units in the multi - family project or phase of that project. (g) On -site affordable housing units must be rental units in rental projects. In ownership projects, these affordable housing units may be either rental units or ownership units. (h) Each multi - family project applicant, or his or her successor, shall submit an annual report to the City identifying which units are affordable units, the monthly rent (or total housing cost if an ownership unit), vacancy information for each affordable unit for the prior year, verification of income of the household occupying each affordable unit throughout the prior year, and such other information as may be required by City staff. (i) A multi - family project applicant in a residential district who meets the requirements of this Section shall be entitled to the density bonuses and incentives provided by Sections 9.04.10.14.040 or any successor thereto and 9.04.10.14.050 or any successor thereto and the waiver /modification of development standards provided by Section 9.04.10.14.060 or any successor thereto. A multi- family project applicant in a commercial or industrial district 7 shall be entitled to the development bonuses and incentives provided in the Land Use and Circulation Element and implementing ordinances. Q) All residential developments providing affordable housing on -site pursuant to the provisions of this Section shall receive priority building department plan check processing by which housing developments shall have plan check review in advance of other pending developments to the extent authorized by law. (k) The City Council may by resolution establish compliance monitoring fees which reflect the reasonable regulatory cost to the City of ensuring compliance with this Section when affordable housing units are being initially rented or sold, when the required annual reports are submitted to the City, and when the units are being re -sold or re- leased. SECTION 2. Any provision of the Santa Monica Municipal Code or appendices thereto inconsistent with the provisions of this Ordinance, to the extent of such inconsistencies and no further, is hereby repealed or modified to that extent necessary to effect the provisions of this Ordinance. SECTION 3. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional. SECTION 4. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The City Clerk shall cause the same to be published once in the official newspaper within 15 days after its adoption. This Ordinance shall become effective 30 days from its adoption. APPROVED AS TO FORM: p Attachment G Proposed Amendments to the Housing Trust Fund Guidelines Management and Affirmative Marketing Plan Except in the case of projects funded under the federal Section 202 Supportive Housing Program and Section 811 Supportive Housing Program, the Applicant shall prepare a Project Management Plan for the City /Agency's review and approval. The Plan shall describe the Applicant's policies and procedures concerning: (1) Affirmative marketing and tenant selection procedures including application procedures, prioritization of Santa Monica residents (see Local Preference section below) where possible; waiting lists, and lease agreements; and marketing efforts and tenant selection procedures that will be used to attract eligible persons from all racial, ethnic and gender groups, as well as persons living with disabilities, in the housing market area to the available housing; the Plan should describe the protocols for keeping records of affirmative marketing activities and for keeping records of requests (from a )Iicants and existing tenantsl for accessible units• (2) Procedures for determining tenant eligibility and certifying incomes; the Plan should demonstrate sufficient outreach to disability - related groups to ensure that accessible units are occupied to the extent possible by those households who need the accessibility features due to disability; (3) Management /tenant relations and assistance to tenant organizations, including the training and use of tenants to perform maintenance and management functions as appropriate; (4) Maintenance and repair services; (5) On -site management facilities; (6) Rent collection; (7) Records and reporting requirements; (8) Personnel and staffing; (9) Compliance with all tenant protection laws, including rent control law and Building and Health and Safety Codes; (10) Fee schedule. No person shall on the grounds of race, marital status, sex, color, age, religion, national origin, ancestry, physical disability, AIDS, or sexual orientation be excluded from participating in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with these funds. Local Preference Local preference for Santa Monica residents and workers in tenant selection has been established by the City /Agency as policy. Local preference shall be a requirement of the Citywide Housing Trust Fund, Redevelopment Housing Trust Fund, and the TORCA Trust Fund. Local preference 1 shall be a requirement of the HOME and CDBG Trust Funds only if permitted by the federal government. Subject to applicable tenant income limits and any preferences required by the laws of the United States or the State of California (including but not limited to laws and regulations governing nondiscrimination and preferences in housing occupancy), the Borrower shall give preference in leasing units in the following order of priority. (1) First priority shall be given to persons who have been permanently displaced or face permanent displacement from housing in Santa Monica as a result of any of the following: (a) A redevelopment project undertaken pursuant to California's Community Redevelopment Law (Health & Safety Code Sections 33000, et seq.) -- applicable only to projects funded by the Redevelopment Housing Trust Fund. (b) Ellis Act, owner- occupancy, or removal permit eviction; (c) Earthquake, fire, flood, or other natural disaster; (d) Cancellation of Section 8 contract by property owner; or (e) Governmental Action, such as Code enforcement. (2) Second priority shall be given to persons who are either: (a) Residents of Santa Monica and /or (b) Working in Santa Monica at least 36 hours per week for at least 6 months. Regarding any "accessible units" that are required as part of a multifamily development, such accessible units should be first offered to existing occupants of the building (if applicable) who are not occupying an accessible unit and who have indicated a need for the features of an accessible unit If no existin occupants of the building have indicated the need for the features of an accessible unit or if the buildi is being leased for the initial occupancy, then such accessible units should first be offered to applicants who have indicated the need for the features of an accessible unit inchisivc of flee preferences above. The application of preferences maw conflict with Section 504 of the Rehabilitation Act of 1973, 24 C.F.R. $100.202, and any other preemptive laws that may be enacted re arg d ng fair housing for persons living with disabilities. "Accessible units" refers to those units which were originall a) roved by the City specifically as accessible units and which provide specific features to address the needs of persons living with mobilit r}�nnpairments or persons living with sensor,�impairments. Reference: Modified Contract 9794 (CCS)