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While the city of San Diego under former Mayor Kevin Faulconer was pushing forward with a redevelopment plan that now appears to run afoul of a state edict governing what cities can do if they want to lease or sell land, across town a different agency took proactive steps to protect itself from a shift it saw coming.
A former Faulconer official last week described the new rules as a complete surprise, but the Metropolitan Transit System – including four San Diego Council members who sit on its board – had two discussions last summer about the pending change to state law.
In those meetings, the agency’s legal counsel said clearly that the state’s Surplus Lands Act would soon apply to ground leases, not just attempts to sell public land. That meant the sort of redevelopment efforts that many public agencies, MTS and San Diego included, typically engage in would soon fall under stricter requirements.
MTS has, for several years, wanted to sell or lease some of its land around transit stops to build housing, increasing ridership and combating the regional housing shortage. The agency’s legal counsel and multiple board members, during that meeting, said they disagreed with AB 1486, the 2019 legislation that strengthened the longstanding Surplus Lands Act, but they nonetheless took a series of steps to make sure their ongoing real estate efforts would comply with the law.
The board also directed staff to engage state legislators about passing a new bill to address their concerns.
That was in July 2020. A month later, Faulconer’s administration chose a development partner for its plan to redevelop the Sports Arena, an arrangement now threatened because the state’s regulatory change means the city must first offer the property to affordable housing developers before it can pursue a market-rate project.
The city of San Diego now says it was aware of the potential for trouble, but it chose not to act because it hoped the state would change course and not include leases. The state’s housing department, however, first in preliminary regulations issued in December and then a finalized version released last week, did not.
There was no such confusion at MTS, which had not been included in the Surplus Land Act at all, until AB 1486 changed the law to include transit agencies. At the July meeting, MTS legal counsel Karen Landers told the board clearly and unequivocally that attempts to lease public property to private entities were included in the strengthened Surplus Land Act.
“(The law) requires us to go through the surplus land noticing process, for certain ground lease and joint-use projects, which we didn’t have to do before this bill,” Landers said at one point. “We do have a couple ground lease negotiations that were underway that we have to stop and send out notices on before we can take those back up,” she said at another.
MTS during its July meeting made multiple properties available to affordable housing developers, satisfying the new requirement. That was six months before the law went into effect and five months before the state released its draft guidelines, but it allowed MTS to continue its renewal efforts.
The city under Mayor Todd Gloria now says it was the state’s interpretation of the law – an interpretation with which Jay Goldstone, the city’s COO, says the city disagrees – that is threatening its attempt to ink a development agreement with Brookfield Properties, the developer that won the right to turn the 48 acres of city land into an entertainment district with a new or refurbished arena and more than 2,000 new homes.
County Supervisor Nathan Fletcher, who is MTS’s board chair, likewise said none of this was a surprise. Throughout last year, he engaged with the author of AB 1486, Assemblyman Phil Ting of San Francisco, to understand the legislation’s intent and seek clarity on how the agency could be sure it was complying.
The city of San Diego took a different strategy. It chose a winning developer in August, then spent the fall using the promise of redevelopment at the Sports Arena to help pass Measure E, which exempted the Midway area from the city’s 30-foot coastal height limit, facilitating the Sports Arena redevelopment.
As of last month, Goldstone said the city was still awaiting word that the state regulations were indeed final before it considered changing course.
But the city was not caught by surprise by the December guidelines, Goldstone said in a statement to Voice of San Diego.
He said the city had been engaging with the state’s department of Housing and Community Development since AB 1486 passed, arguing that “including certain leases could be problematic and provided feedback to the state” to exclude properties “where housing would never be feasible.”
As it engaged with the state, the city determined its entire portfolio of leases was in flux.
“The city of San Diego did not deem it prudent to upend its real estate strategies while these discussions with the state about how the drafted guidelines could potentially be revised,” Goldstone said in an email.
The city is still considering its options.
“Those options could include rebidding the property to an affordable housing developer or receiving an exemption if a certain number of affordable units are built on the site,” Goldstone said. “However, there is no intention to issue a new request for proposals at this time.”
Those internal conversations about the impending state legal change appear not to have been well traveled in the city.
Matt Awbrey, a former top Faulconer aide who left the office in the fall to work on the Measure E campaign, for instance, last week called the regulations “surprising,” accused the state of “changing the rules mid-game” and said “nothing about this was clear in advance,” in a Twitter thread on the disruption. This came after the Union-Tribune blamed Faulconer for not foreseeing the hassle the change would create.
“This oversight happened on Faulconer’s watch and is another reason to scoff when he runs for governor denouncing Newsom’s record of management, decisions and governance while touting his own,” the paper wrote.
Former Council President Georgette Gómez, who was on the MTS board when it was told how the change could alter the agency’s real estate plans, specifically asked Landers why joint-development deals were suddenly included in the Surplus Lands Act, when it had previously only applied to selling property.
In an interview last week, she said she had no recollection of anyone at the city – not the city attorney, city staff or the mayor’s office – bringing up that the issue could also be a problem for the city of San Diego.
“I didn’t put one and two together, to say, ‘Hey, wait, we’re having this other conversation over here, why wouldn’t this be part of it?’” she said. “It just seems that’s an obvious thing that should have been flagged.”
The city attorney’s office declined to comment, citing attorney-client privilege for any advice it gave city staff.
Fletcher said MTS is still pushing for a legislative fix, but he doesn’t think the changes significantly impact its ability to develop land it owns around transit stations to provide affordable housing and boost ridership.
“It changed the process by which we do it, and it might slow it down a little bit but in the grand scheme of how long these projects take, it’s not a significant delay,” he said.
In the meeting, though, the agency’s legal counsel and board openly discussed their frustration with the law, and the clear implication that far more public projects now fell under the Surplus Lands Act’s umbrella.
Chula Vista Mayor Mary Salas called it “awful,” and warned that it could derail any city’s attempt to develop land for a public benefit.
“This is something that I think is well intentioned, but the consequences are alarming,” Salas said.
In his statement, Goldstone stressed that when Gloria voted for AB 1486, which he did three times as the bill made its way through the legislative process, the measure did not include leases.
As it moved through the Capitol, AB 1486 did become less explicit about whether leases were included. Early drafts of the bill said directly that the law applied any time a public agency chose to “sell, lease, transfer or otherwise convey any interest in real property owned by a local agency.” By the end, the law said only that the Surplus Lands Act applied any time an agency wanted to “dispose of” property, but omitted an explicit definition of which types of real estate actions constituted disposal.