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O2470City Council Meeting: October 14, 2014 Santa Monica, California ORDINANCE NUMBER 2470 (CCS) (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA ADDING CHAPTER 9.74 TO THE SANTA MONICA MUNICIPAL CODE ESTABLISHING THE AFFORDABLE HOUSING COMMERCIAL LINKAGE FEE PROGRAM, THE AFFORDABLE HOUSING COMMERCIAL LINKAGE FEE, AND ESTABLISHING AN ADJUSTMENT AND WAIVER PROVISION WHEREAS, new commercial development (creative office space, hotel, retail and entertainment, medical, industrial /light manufacturing, institutional, and hospitals) creates a variety of new jobs with varied degrees of compensation for workers in commercial developments; and WHEREAS, the addition of new workers in these new commercial developments generates housing demands for households at extremely low, very low, low, and moderate incomes; and WHEREAS, due to housing and market conditions, new market -rate development projects in the City have provided a disproportionate quantity of housing units that are not affordable to all income groups creating an unbalanced housing stock; and WHEREAS, funds for construction, expansion or improvement of affordable housing, including Federal and State housing finance and subsidy programs, are not available to accommodate the needs caused by development projects which will promote an inadequate supply of affordable housing stock within the City; and WHEREAS, there is a low vacancy rate for housing affordable to persons of extremely low, very low, low, and moderate income households; and WHEREAS, Los Angeles County is the least affordable real estate market in the country; and WHEREAS, the City's existing rental housing stock is quickly becoming unaffordable to very low and low income households; and WHEREAS, due to the Costa - Hawkins Act, 63.3% of the controlled rental units for which the Santa Monica Rent Control Board has registered rents have rented at market rates; and WHEREAS, since 1999, the median monthly rents for these units have increased from $800 to $1,250 for studio /efficiency units, from $1000 to $1900 for one - bedroom units, from $1400 to $2525 for two- bedroom units and from $1800 to $3201 for three or more bedroom units; and WHEREAS, due to these factors, workers of very low, low, and moderate income are experiencing increasing difficulty in locating and maintaining adequate, safe, and sanitary affordable housing within the City or even near the City; and 2 WHEREAS, the failure to provide adequate affordable housing for lower -wage workers can force these workers to live in less than adequate housing within the City, pay a significantly disproportionate share of their incomes to live in adequate housing within the City, or commute ever - increasing distances to their jobs from housing located outside the City; and WHEREAS, the lack of affordable housing has detrimental impacts on traffic, transit, and related air quality impacts and the demands placed on the regional transportation infrastructure; and WHEREAS, commercial uses in the City benefit from the availability of housing close to their employees; and WHEREAS, a Commercial (Non - Residential) Nexus Study & Linkage Fee Analysis was prepared by Rosenow Spevacek Group, Inc. in July 2013 to analyze the relationship between commercial development, job creation, and the demand for affordable housing ( "Nexus Study "); and WHEREAS, the Nexus Study demonstrates the reasonable relationship between the purpose of the affordable housing fee, the fee amount, the revenue generated, and the impacts of commercial development that the proposed use of that revenue is intended to address; and WHEREAS, more specifically, the Nexus Study documents the linkage between new and expanded commercial development, the net number of new employees and employee households generated by businesses occupying these land use buildings, and the housing demands of these households; and WHEREAS; as detailed, new housing affordable to persons identified in the Nexus Study is not now being added to the supply in sufficient quantity to meet the needs of the new employee households associated with new or expanded commercial development; and WHEREAS, the Nexus Study quantifies the cost mitigation associated with developing affordable housing units based on the identified need resulting from employees generated by new commercial development; and WHEREAS, the City Council is imposing the fee established by this Ordinance in order to partially close the this gap by using the fee to provide for increased affordable housing; and WHEREAS, the Santa Monica Municipal Code does not currently establish an adequate mechanism to account for the impact that commercial development has on increasing the need for affordable housing; and WHEREAS, requiring commercial developers to assist in the production of affordable housing is also consistent with the City's long- standing commitment to achieve and maintain a suitable living environment including decent housing for all economic levels; and C! WHEREAS, this municipal commitment conforms with State and Federal policies and is an important goal of the City's current Housing Element and its Consolidated Plan; and WHEREAS, Objective 2.0 of the City's 2013 -2021 Housing Element provides that the City should develop new affordable housing financial programs, in part, through the adoption of new local impact fees, including commercial development impact fees, based on the recommendations of appropriate nexus studies; and WHEREAS, this program will benefit the City as a whole since each development which contributes to affordable housing through the payment of this fee assists in augmenting the City's housing mix, helps to increase the supply of housing for all economic segments of the community, and addresses the affordable housing need generated by the development, thereby supporting a balanced community which is beneficial to the public health, safety, and welfare of the City. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES HEREBY ORDAIN AS FOLLOWS: SECTION 1. Santa Monica Municipal Code Chapter 9.74 is hereby added to the Santa Monica Municipal Code to read as follows: 0 Chapter 9.74 Affordable Housing Commercial Linkage Fee Program 9.74.010 Purpose and Findings. (a) The purpose of this Chapter is to facilitate the development and availability of housing affordable to a broad range of households with varying income levels within the City. As detailed in the findings supporting the ordinance codified in this Chapter, the requirements of this Chapter are based on a number of factors including, but not limited to, the City's long- standing commitment to economic diversity; the serious need for affordable housing as reflected in local, State, and Federal housing regulations and policies; the demand for affordable housing created by commercial development; and the impact that the lack of affordable housing production has on the health, safety, and welfare of the City's residents including its impacts on traffic, transit and related air quality impacts, and the demands placed on the regional transportation infrastructure. Imposing a fee that is reasonably related to the burdens created by new commercial development on the City's need for affordable housing will enable the City to fund development of affordable housing units that will contribute to addressing these impacts and fulfilling these goals. (b) The City has prepared a Commercial Nexus Study and Linkage Fee Analysis. It shows, and the City Council finds that there is a reasonable relationship between the purpose for which the fees established by this Ordinance are to be used and the type of development 9 projects on which the fees are imposed, and between the amount of the fees and the cost of the affordable housing units or portion of the units attributable to the development on which the fees are imposed. (c) It is the intent of the City Council that the fee required by this Chapter shall be supplementary to any conditions imposed upon a development project pursuant to other provisions of the Municipal Code, the City Charter, the Subdivision Map Act, the California Environmental Quality Act, other state and local laws, which may authorize the imposition of project specific conditions on development. 9.74.020 Applicability of Chapter. (a) The regulations, requirements and provisions of this Chapter and Council resolutions adopted pursuant hereto shall apply to any commercial portion of any new Project for which a development application was determined complete or an application for change(s) in existing use(s) was made on or after the effective date of this Ordinance. Any project subject to the provisions of this Chapter shall not be required to comply with Part 9.04.10.12 of the Santa Monica Municipal Code, Project Mitigation Measures. (b) Notwithstanding the above, the following projects or portions of projects as specified thereof shall not be subject to the requirements of this Chapter: (1) places of worship; (2) City projects; VA (3) day care centers; (4) private K -12 schools; (5) commercial portions of multi - family rental housing projects developed by a nonprofit housing provider if the developer is receiving financial assistance through a public agency, so long as the multi - family rental housing project is an affordable housing project meeting the requirements of Santa Monica Municipal Code Section 9.04.02.030.025 and the project's affordable housing obligations will be secured by a regulatory agreement, memorandum of agreement, or recorded covenant with a public agency for a minimum period of fifty -five years; (6) re- occupancy of square footage in an existing building or structure if there is no change of use; (7) square footage used for outdoor dining in the public right of way. If a development is exempt from the fee at initial construction, but later converts to a commercial development subject to this Ordinance, the converted square footage will be deemed net new commercial square footage and the housing impact fee shall be paid prior to final approval of a building permit. 9.74.030 Definitions. For the purpose of this Chapter, the following terms shall be defined as follows: (a) "City Projects" shall mean City public works projects and City community facilities (e.g. libraries, public parking structures, recycling centers, and community centers), not including public /private partnerships. (b) "Nexus Study" shall mean the Commercial Nexus Study and Linkage Fee Analysis prepared by Rosenow, Spevacek Group, Inc., dated July 2013. (c) 'Project' shall mean any development having a commercial use component and gross new or additional floor area of one thousand square feet or more or that changes an existing use to a different use that increases the demand for affordable housing. Gross floor area for the purposes of this definition shall be the same as Section 9.04.02.030.315, or any successor legislation, but shall exclude parking area (d) "Affordable Housing Commercial Linkage Fee" shall mean a fee paid to the City by an applicant pursuant to Section 9.74.040 of this Chapter in connection with approval of a project, to contribute to the creation of affordable housing production or preservation to offset additional need for affordable housing generated by new commercial development. 9.74.040 Affordable Housing Mitigation Requirement. Except as provided in Section 9.74.050, the developer of a Project shall pay an affordable housing commercial linkage fee in accordance with the following: (a) Affordable Housing Commercial Linkage Fee. Fees shall be computed as follows: 9 I . All non - residential portions of a Project shall pay the following based on the gross square footage of each use included in the proposed Project: (A) Retail: $9.75 square foot. (B) Office: $11.21 per square foot. (C) Hotel /Lodging: $3.07 per square foot. (D) Hospital: $6.15 per square foot. (E) Industrial: $7.53 per square foot. (F) Institutional: $10.23 per square foot. (G) Creative Office: $9.59 per square foot. (H) Medical Office: $6.89 per square foot. 2. The land use categories identified in subsections (A) — (H), above, shall have the following meanings: (A) Retail shall include: animal kennels and veterinary hospitals, auto repair, car wash, retail and wholesale construction - related materials, nurseries and garden centers, entertainment and recreational facilities, gas stations, art galleries, nightclubs and bars, Personal services, Post- secondary educational facility, private studio, restaurants — fast food and cafes, restaurants — sit down, retail durable goods, retail food and markets, retail mixed, and retail non -food. (B) Office shall include: financial institutions and office, and general office. 10 (C) Hotel /Lodging shall include: hotels, motels and other overnight accommodations. (D) Hospital shall include: full service hospitals. (E) Industrial shall include: surface or structured auto inventory storage, City maintenance facilities and bus yards, heavy industrial and manufacturing, light industrial, utilities, warehouse and self- storage, and wholesale distribution and shipping. (F) Institutional shall include: educational and cultural facilities. (G) Creative Office shall include: offices, production spaces and work spaces of establishments that are in the business of the development of creative property, including but not limited to, advertising, architectural services, broadcasting, communications, computer software design, entertainment, engineering, graphic design, interior design, internet content, landscape design, and similar uses. (H) Medical Office shall include: Medical office, including medical clinics, and offices for medical professionals. 3. The amount of legally permitted non - residential square footage to be demolished in an existing building or structure, or to be removed from an outdoor area used as part of a service station or for auto dealer sales, display and inventory storage, as a part of a Project shall be a credit in the calculation of the Affordable Housing Commercial Linkage Fee. Outdoor area used as part of a gas station shall not include setbacks, landscaping, parking and other paved areas used solely for 11 access and circulation. Credit shall be applied on a per square foot basis according to per square foot fee assigned to the type of commercial use that existed on the site prior to the new Project application submittal. (b) Timing of Fee Payment. 1. The Project applicant shall pay fees according to the schedule of fees in place on the date the fees are paid, except that the applicant for a vesting tentative map for a development project shall pay the fees in effect on the date the application for the vesting tentative map is deemed complete, as automatically adjusted. 2. No building permit for any Project shall be issued unless the fees have been paid. 9.74.050 Fee Adjustments and Waivers. (a) A developer of any Project subject to the fee described in Section 9.73.040 (a) may request that the requirements of this Chapter be adjusted or waived based on a showing that applying the requirements of this Chapter would effectuate an unconstitutional taking of property or otherwise have an unconstitutional application to the property. (b) To receive an adjustment or waiver, the applicant must submit an application to the City Manager or her /his designee, at the time the applicant files a discretionary project application, or if no such application is required, a building permit application. The applicant shall bear the burden of presenting substantial evidence to support the request and set IF forth in detail the factual and legal basis for the claim, including all supporting technical documentation. (c) The City Manager or her /his designee, shall render a written decision within ninety days after a complete application is filed. The City Manager's or designee's decision may be appealed to the City Council if such appeal is filed within fourteen consecutive calendar days from the date that the decision is made in the manner provided in Part 9.04.20.24, Sections 9.04.20.24.010 through 9.04.20.24.050 of this Code or any successor thereto. (d) If the City Manager or her /his designee, or City Council on appeal, upon legal advice provided by or at the behest of the City Attorney, determines that applying the requirements of this Chapter would effectuate an unconstitutional taking of property or otherwise have an unconstitutional application to the property, the affordable housing fee requirements shall be adjusted or waived to reduce the obligations under this Chapter to the extent necessary to avoid an unconstitutional result. If the City Manager or her /his designee, or City Council on appeal, determines that no violation of the United States or California Constitutions would occur through application of this Chapter, the requirements of this Chapter remain fully applicable (f) If an adjustment or waiver is granted, any change in use from the approved project shall invalidate the adjustment or waiver. 13 9.74.060 Fee Revenue Account. Pursuant to Government Code Section 66006, the Affordable Housing Commercial Linkage Fee Reserve Account is hereby established. The fees paid to the City pursuant to the provisions of this Chapter shall be deposited into the Affordable Housing Commercial Linkage Fee Reserve Account and used solely for the purpose described in this Chapter. All monies deposited into the Reserve Account shall be held separate and apart from other City funds. All interest or other earnings on the unexpended balance in the Reserve Account shall be credited to the Reserve Account. 9.74.070 Distribution of Affordable Housing Commercial Linkage Fee Funds. All monies and interest earnings in the Affordable Housing Commercial Linkage Fee Reserve Account shall be expended solely on the production or preservation of affordable housing to help fulfill the need identified in the Nexus Study to increase the supply of housing affordable to worker households of extremely low, very low, low, or moderate income, or such other report as may be prepared from time to time to document the reasonable fair share of the costs to mitigate the increased need for affordable housing that is created by new commercial development. Such expenditures may include, but are not necessarily limited to the following: (a) Reimbursement for all direct and indirect costs incurred by the City to fund the production of affordable housing pursuant to this im Chapter, including but not limited to, the cost of land and right -of -way acquisition, planning, legal advice, engineering, design, construction, construction management, materials and equipment, or issuing loans to nonprofit affordable housing developers to acquire land and /or to rehabilitate existing buildings or build new developments to increase the supply of affordable housing units. (b) Costs of issuance or debt service associated with bonds, notes or other security instruments issued to fund affordable housing needs identified. (c) Reimbursement for administrative costs incurred by the City in establishing or maintaining the Affordable Housing Commercial Linkage Fee Reserve Account required by this Chapter, including but not limited to the cost of studies to establish the requisite nexus between the fee amount and the use of fee proceeds and yearly accounting and reports. No portion of the Affordable Housing Commercial Linkage Fee Reserve Account may be diverted to other purposes by way of loan or otherwise. 9.74.080 Periodic Review and Adjustment of Affordable Housing Commercial Linkage Fees. To account for inflation in affordable housing development costs, the fee imposed by this ordinance shall be adjusted automatically on July 1 of each fiscal year, beginning on July 1, 2015, by a percentage equal to the appropriate Construction Cost Index as published by Engineering 15 News Record, or its successor publication, for the preceding twelve (12) months. (a) If an affordable housing commercial linkage fee is collected on a Project and the permit for that Project later expires, is vacated or voided before commencement of construction, the developer shall, upon request, be entitled to a refund of the unexpended housing commercial linkage fee paid, less a portion of the fee sufficient to cover costs of collection, accounting for and administration of the fee paid. Any request for a refund shall be submitted in writing to the Planning and Community Development Director within one year of the date that the permit expires or is vacated or voided. Failure to timely submit a request for refund shall constitute a waiver of any right to a refund. (b) Fees collected pursuant to this Chapter which remain unexpended or uncommitted for five or more fiscal years after deposit into the Affordable Housing Commercial Linkage Fee Reserve Account shall be accounted for or may be refunded as provided by state law. 9.74.100 Fee revision by resolution. The amount of the affordable housing commercial linkage fee and the formula for the automatic annual adjustment established by this Chapter may be reviewed and revised periodically by resolution of the City Council. This Chapter shall be considered enabling and directive in this regard. UP 9.74.110 Regulations. The City Manager, or her /his designee, is authorized to adopt written administrative regulations or guidelines that are consistent with and that further the terms and requirements set forth within this Chapter. SECTION 2. This Ordinance shall apply to all development applications meeting the criteria for applicability as defined herein determined complete after the effective date of this Ordinance. SECTION 3. The Council finds that the adoption of this ordinance is not a project pursuant to CEQA Guideline section 15378(b)(4), which excludes from the definition of Project "the creation of government funding mechanisms or other government fiscal activities, which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment." Alternatively, the proposed ordinance is exempt from the provisions of the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) in that it can been seen with certainty that the proposed ordinance does not have the potential to significantly impact the environment, since the proposed ordinance amendment is a fee that will be levied on projects that will be evaluated in compliance with CEQA on their own merits. SECTION 4. 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. `rl SECTION 5. 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 6. 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 60 days from its adoption. APPROVED AS TO FORM: *M=X JO E MT 1E City Attorney W. Approved and adopted this 14th day of October, 2014. 1 am O'Connor, Mayor State of California ) County of Los Angeles ) ss. City of Santa Monica ) I, Sarah P. Gorman, City Clerk of the City of Santa Monica, do hereby certify that the foregoing Ordinance No. 2470 (CCS) had its introduction on September 23, 2014, and was adopted at the Santa Monica City Council meeting held on October 14, 2014, by the following vote: Ayes: Councilmembers: Davis, Holbrook, Vazquez, Winterer Mayor O'Connor, Mayor Pro Tern O'Day Noes: Councilmembers: McKeown Absent: Councilmembers: None A summary of Ordinance No. 2470 (CCS) was duly published pursuant to California Government Code Section 40806 . ATTEST: Sarah P. Gorman, City Clerk