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Council Poised to Raise Affordable Housing Fees

By Olin Ericksen
Staff Writer

July 26 -- Developers seem up in arms over a change in housing policy the City Council will consider Tuesday that would significantly raise affordable housing fees without fully studying its effects on builders' bottom lines.

Developers are not necessarily opposed to the jump in "in-lieu" fees of nearly 200 percent for condos and 300 percent for apartments they pay the City to develop affordable housing instead of building the units themselves.

But the City's decision to forgo the study on how the fee hikes impact developers, something it has done in previous years, could possibly lead to litigation after nearly a decade of relative calm.

"Our main concern is that for the first time in years, the council is considering not doing a study," said Chris Harding, a local land-use attorney who represents the Santa Monica Housing Council, a group of local housing providers.

"As a result of the impact analysis that was being performed, there hasn't been a lot of housing litigation in the last eight years," Harding said.

The study -- known as an "economic impact analysis" -- shows how feasible it is for developers to build high density housing when affordable housing fees increase and has been performed by the City since the late-1990s.

In place of the study, a proposed amendment to the law would establish an "administrative remedy" or appeals process for "any developer who contends that the (affordable housing fee), as applied to his or her property, violates either the Federal or State constitution," according to the staff report.

The amendment "will replace the current requirement that the City conduct an economic analysis as part of the fee adoption process and is consistent with current case law," the report states.

Yet while City officials say the amendment gives developers another voice, Harding believes the amendment is a poor substitute for what he calls "solid analytic analysis."

"Its disingenuous... to say this is in place of the analysis," said Harding, adding that the City is covering itself against litigation.

The proposed amendment could only be used in "exceptional situations," when developers show they will lose money on a project, Harding said. One example would be when the City must take over a property because it has been condemned after a disater.

"I can't think of a single situation where (the administrative remedy) could be used," Harding said.

However, Jeff Mathieu, who oversees affordable housing for the City, disagrees.

"The appeals process allows developers to come to us, and come to us early, and say that the (affordable housing fees) are a severe financial burden," said Mathieu, who heads the City's Resource Management Division.

"In many ways it gives (developers) more options, not less," Mathieu said.

The administrative remedy could be used when "a developer shows that it is no longer economically feasible," Mathieu said. One example, he said, is if a bank loan falls through.

Harding, however, worries that the City may try to use the amendment to fend off any legal challenges that could crop up and that the real reason the City does not want to perform the study "is because they are afraid of what they may find."

An impact study as performed in recent years, he contends, would probably not justify the proposed jump in affordable housing fees under the new ordinance.

Currently developers pay $6.14 per square foot in affordable housing fees for apartments and $11.01 per square foot for condominiums.

The increase would almost triple that fee to $22.33 per square foot for apartments and more than double to $26.08 per square foot for condominiums, a change Harding described as "enormous" in a letter addressed to the City.

City officials flatly denied the assertions that the City is looking for cover from future litigation. They contend that the fee increases are moderate and pegged the proposed affordable housing fees to fees being used in other cities, such as Pasadena.

"The only group I've heard complain about the change is (The Housing Council)," Mathieu said.

The City instructed consultants not to perform the study because it was deemed unnecessary, as the City has met its housing goals for the current planning period set by the Southern California Association of Governments, according to City officials.

"We have to be fair to all members of the community," said Mathieu, "and the proposed fees would generate enough revenue to increase the number of affordable housing units in the City."

While Harding admits the City's housing policy over the last eight years has contributed to more housing being built in Santa Monica, he maintains part of the reason is that the City has backed up any affordable housing fee increases with the impact study.

"There's still a severe imbalance of housing compared to jobs in Santa Monica," said Harding. "Now it seems they are just pulling out these numbers out from thin air.

The housing council, Harding said, "wouldn't have a problem raising the fees, per se, as long as it's backed up by some analytical analysis justifying the increase, like it's been done in previous years."

Paul Silvern, a former planning director for the city in the 1980's -- whose consulting firm conducted the study in the past -- would not comment on why the study was not performed this time around because he had not received permission from his client, the City, to speak to The Lookout.

His consulting company -- Hamilton, Rabinovitz & Alschuler (HR&A) -- helped write the report after the council directed staff at the May 10 meeting to find ways to meet the goals outlined under Proposition R, which requires that 30 percent of all newly constructed multifamily housing be affordable to low and moderate income households.

In addition to the possible fee increases, developers may also soon find themselves losing an option on how they fund affordable housing.

The City allows developers to choose whether they want to build the affordable housing on-site, off-site or put the money into City fund to build more housing -- an option know as "in-lieu fees" -- but that could change soon as well, Harding said.

The council, Harding said, instructed City staff at a May 17 meeting to return with an updated affordable housing ordinance that would not include an in-lieu fee option for developers.

"If the City continues down the path of the May 17 meeting, then it's certain there will be litigation," said Harding

Harding said he will "push, and push hard" Tuesday night for the council to reconsider the decision to forgo the impact study as well.

If that change does not come, what Harding described as a "cease fire" in the courts between the City and developers may draw to an end.

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