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Just weeks after the city of San Diego appeared to end its longstanding legal squabble with the local building industry, the developer group’s challenge to an affordable housing law has been rekindled and will play out in Superior Court on Friday.
The Building Industry Association of San Diego County in 2003 challenged the city’s affordable housing policy, which requires that 10 percent of a residential developers’ project be affordable housing. To avoid that benchmark, developers can also pay what’s known as the in-lieu fee, a tariff that is used to construct affordable housing in other parts of the city.
Builders say the city law is too expensive and unfairly cumbersome. In its lawsuit, the BIA contends that the 2002 law is unconstitutional because “the U.S. and California Constitutions prohibit government agencies from imposing conditions on a development project that are not reasonably necessary to mitigate the impacts of that project.”
A month ago, it seemed the case was resolved. The City Council on April 3 approved a compromise hammered out between Mayor Jerry Sanders’ staff and the BIA. Under the compromise, the city would assess builders’ in-lieu fees earlier in the construction process, an alteration that would save builders money and allow them more certainty when drawing up budgets for their projects.
The move opened the window for developers to take advantage of the newer rates, as the in-lieu fee is scheduled to increase from $2.50 per square foot to $7.31 per square foot in July. The city’s affordable housing fund would potentially lose between $9 million and $43 million under the compromise, as a substantial number of developers would be able to avoid the fee hike because the surcharge would be assessed before the jump.
For example, the developer of a 15,000-sqaure-foot condominium project could have hypothetically expected to pay $109,650 under the city’s current interpretation of the ordinance. Under the April 3 compromise, the same developer would pay $37,500.
The compromise included a safeguard for the city, requiring that the fee be reassessed if three years past between the approval of a tentative map and the time a builder pulled his or her building permit.
Some on council decried the compromise, saying it weakened a law that already lags behind its goal. Proponents hailed it as the end of the lengthy lawsuit. Against the recommendation of City Attorney Mike Aguirre, who said the city could have won the case, the council approved the mayor’s compromise by a close 5-to-3 vote.
Two weeks later, the dispute was revived.
The BIA wanted the right to revive its legal challenge to the ordinance if the council tweaked any part of the law within the next two years. There has been talk among some council members of abolishing the in-lieu fee altogether.
“We’re just trying to protect our rights, just as the city is trying to protect theirs,” said Matt Adams, the BIA’s lobbyist. “If they’re going to change rules after a month, it’s only fair that we would be able to pursue our issues in court.”
The City Council scoffed at the new demand. On April 18, the council rejected the additional concession in closed session.
“The BIA’s request was for the council to take its hands off the program for a period of time,” Council President Scott Peters said. “I don’t think that was appropriate.”
Several council members hinted during the April 4 hearing that they wanted to do away with the in-lieu fee, saying they doubted that it was raising enough money to pay for the affordable housing projects that were needed throughout the city.
An analysis of city data by voiceofsandiego.org showed that 7.1 percent of the units that were constructed since the inclusionary zoning ordinance took effect were affordable – short of the 10-percent goal the council intended.
Of the 9,179 units built or being built on market-rate residential projects, 126 affordable units were built within those developments and 523 units were paid for by the affordable housing trust fund, the analysis showed.
Peters said he expected the Land Use and Housing Committee to take up the in-lieu fee issue soon, although a spokeswoman for Councilman Jim Madaffer, the panel’s chairman, said that topic has not been docketed yet.
“I think we want to take a look to see if the fee is high enough, if it’s tough enough or if the law discourages, in general, the production of housing,” Peters said.
Jerry Livingston, the BIA’s staff attorney, said Wednesday that the trade group wanted a judicial ruling because the settlement fell apart.
“We wanted to bring it back into the hands of a judge,” he said.
The group contends that the best way to make housing more affordable is to increase the supply of units and to encourage governments such as the city to participate in programs that subsidize the construction of affordable units, such as the increased tax revenue generated by redevelopment, housing bonds and federal and local grants.
A judge will often release a tentative ruling the day before a hearing, although the Superior Court’s Web site posted a message Thursday afternoon saying there would be no tentative judgment. Judge John Meyer will hear oral arguments at Friday afternoon in San Diego Superior Court.