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Monday, April 10, 2006 | When the City Council was first set to respond to a lawsuit from the Building Industry Association that would have allowed developers to pay less into a fund for affordable housing, the staff recommendation they were to receive told them to stand pat against the developers.
The day the measure was to be decided on at council on March 21, the office of Mayor Jerry Sanders withdrew the Housing Commission’s recommendation. In a closed-door meeting with the building industry and commission officials the next day, the mayor’s staff hammered out a compromise that was more aligned with what developers were seeking in court. A city attorney was not present at the meeting.
The Housing Commission staff changed its advice after the meeting. Last week, with the new recommendation before it, the City Council approved changing the affordable housing fee, a move that will allow some builders to cut their affordable housing fees by one-third.
Developers say the measure will provide more certainty to builders when they budget their projects, but it will likely cost the citywide fund used to construct affordable housing tens of millions of dollars. The Housing Commission’s report to the City Council stated those concerns weeks ago, but the commission changed its tune after the meeting with the Mayor’s Office.
“It’s the first time it’s happened to one of my reports,” policy analyst Todd Phillips, who’s been with the commission since 2004, said of the reversal.
“It does seem like we gave the BIA everything they wanted, the outcome of which is more money for developers and less for affordable housing,” said Donald Cohen, executive director for the Center for Policy Initiatives, a local think tank that advocates for the working poor.
Representatives of the mayor and the council members who voted for the compromise said the change allowed the city to avoid a court judgment this week that could have gone against the cash-strapped government, although the City Attorney’s Office said the city had a strong case against the BIA.
Sanders’ land use czar Jim Waring said representatives of the Mayor’s Office were concerned with the case. Settling was the best way to ensure a speedy resolution and to secure some sort of compromise that may not have happened if left up to a jury, he said.
The mayor’s staff said a deputy city attorney was invited to the March 22 meeting, but didn’t show.
Aguirre said he would not comment on his office’s absence at the recent meeting, but criticized the Sanders administration’s decision to settle with the BIA.
“Not to disrespect anybody involved, but if we’re going to change the way we do business, then we have to stand up and do what’s right,” Aguirre said.
The council’s independent budget analyst also issued a sharp rebuke of the settlement that the council eventually approved, saying that easing the fee requirements would hurt the housing fund and serve as a disincentive to developers for building affordable housing with their projects.
The City Council for years has weekly declared a state of emergency because of the city’s shortage of affordable housing. Currently, only 8 percent of the households in the San Diego region can afford to buy a median-priced home, a Realtors group estimated.
The Building Industry Association of San Diego County sued the city in 2004 over its interpretation of the inclusionary housing law that became effective a year earlier.
Builders are required to set aside 10 percent of a project’s residential units for affordable housing or pay a fee, which is then deposited into a citywide trust fund for constructing affordable housing.
Known as the inclusionary housing “in-lieu fee,” the surcharge has gradually increased since the law took effect and is scheduled to nearly triple in July. Under the compromise struck by Sanders and the BIA, many developers who would otherwise be assessed in-lieu fees after the prices skyrocket in months will be handed a less costly bill.
The affordable housing trust fund will potentially miss out on between $9 million and $43 million because of the change, the Housing Commission estimated.
“We’re talking a great deal of money here, and the only people who are going to benefit from that huge increase are the developers,” Frye said. “That’s really the shame of us.”
The BIA contested the fact that the city charged the in-lieu fee when a project’s building permit is complete, arguing that developers should be able to pay the fee at the project’s inception, when a sketch of the development – known as a tentative map – is filed with the city.
At issue is the apparently vague language of the law that in-lieu fees be paid “at the time the application is deemed complete.”
The settlement now gives developers time to file their tentative maps with the city before July 1, thereby avoiding the steeper fees that would have been all but certain under the city’s original interpretation.
For example, the developer of a 15,000-square-foot residential project that turned in a tentative map to the city now but received a building permit after July 1 would have paid $109,650 under the city’s original practice.
The same developer will pay $37,500 under the council’s new policy, if it formally ratifies last week’s decision in May.
Staff for the Housing Commission prepared a report for the March 21 council meeting that suggested the council maintain the policy of charging developers when a building permit is complete – something the report calls “consistent with the process for assessing other City fees.”
The March 28 staff report, crafted after the meeting with the mayor’s staff and the BIA, advises the City Council to change the policy to specifically state that the fee be assessed when the tentative map is approved.
The only variance from the BIA’s lawsuit is that the commission recommends that the fee be recalculated if the building permit is not completed in three years.
In a legal opinion issued last July, the City Attorney’s Office said that both options are legally defensible.
The council approved of the change by a 5-to-3 vote. Council President Scott Peters and Councilmen Kevin Faulconer, Tony Young, Brian Maienschein and Jim Madaffer voted for the new interpretation. Frye, Councilwoman Toni Atkins and Councilman Ben Hueso voted no.
Representatives of the Mayor’s Office said they recommended the change to the Housing Commission’s report because the commission’s board of directors approved the compromise last year. A report coming from the staff that was inconsistent with the board’s direction didn’t make sense, mayoral aide Jeff Gattas said.
BIA officials said during the meeting that they would not drop the case unless the council agreed to the compromise, Phillips said.
Phillips said his initial recommendation sprang from a consensus that was reached between the staffs for the Housing Commission, the Planning Department and the Development Services Department. Of all the people he said were involved in those staff meetings, only Development Services Director Gary Halbert is still employed with the city, although he was unavailable Friday. The Planning Commission also voted to keep the city’s current reading of the law.
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