SAN JOSE CAPITAL OF SILICON VALLEY

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1 CITY OF 4% SAN JOSE CAPITAL OF SILICON VALLEY COUNCIL AGENDA: ITEM: 4.4 Memorandum TO: HONORABLE MAYOR AND CITY COUNCIL SUBJECT: SEE BELOW FROM: Toni J. Taber, CMC City Clerk DATE: August 19, 2016 SUBJECT: Budget Trailer Bill Streamlining Affordable Housing Approval RECOMMENDATION: As recommended by the Rules and Open Government Committee on August 17,2016, adopt a position of Oppose Unless Amended for Budget Trailer Bill 707.

2 SAN TOSE CAPITAL OF SILICON VALLEY Department(s): Housing PBCE Date: 8/11/2016 CITY COUNCIL ACTION REQUEST Coordination: City Attorney's Office City Manager's Office RULES COMMITTEE: ITEM: G.4. Dept. Approval: /s/ Jacky Morales-Ferrand /s/ Harry Freitas kcmo A roval: SUBJECT: Budget Trailer Bill Streamlining Affordable Housing Approva RECOMMENDED POSITION: Oppose Unless Amended RECOMMENDED ACTION: 1. Adopt a position of Oppose Unless Amended for Budget Trailer Bill Recommend a one-week turnaround so that the City's Legislative Advocate in Sacramento can indicate an Oppose Unless Amended position for Budget Trailer Bill 707. BILL SYNOPSIS: On May 16, 2016, Governor Brown introduced Budget Trailer Bill 707, "Streamlining Affordable Housing Approvals" as part of his Budget Revision. The trailer bill is commonly referred to as the "by-right" housing bill. Though the proposed bill was introduced with the revised budget, it does not contain funding appropriations or have an impact on the state budget. As active legislation, the deadline for the Legislature to send bills to the Governor for approval is August 31, Besides limited financial resources, key constraints to affordable housing production include local opposition to housing - often expressed through CEQA challenges to residential development proposals - and the complexity and cost of the development review process. The Governor's proposal seeks to address these constraints by streamlining the development process, reducing the time needed for approval, and eliminating discretionary or subjective requirements. Under the proposed bill, a developer of a multifamily development could choose to submit a streamlined development application instead of pursing the conventional process that currently exists. This streamlined process would subject it only to "ministerial" review (similar to that of approval of Building Permits), thereby exempting the development from CEQA. For a development to be considered under the streamlined process it must be (1) on or near an "urban use," which is significantly broader than how infill development sites are currently defined under State law, (2) meet the existing General Plan and Zoning Code, and include a percentage of affordable units in the development. The bill requires the City to review the proposed development for General Plan and Zoning Code conformance, and respond within 30 days. If the development conforms to the General Plan and Zoning Code, the development proceeds through design review, which must be completed within 90 days. Unlike the existing development review process, a development being processed under this proposed bill would not require public outreach or input, or approval by the Planning Commission or City Council. In order to qualify for the streamlined process, a developer must include affordable units in the proposed development. For developments proposed within onehalf mile of a major transit stop that is existing or planned, 10% of units must be affordable to low income households, or 5% of units affordable to very low income households. For all other developments that are not within one-half mile of transit, the development must reserve 20% of the units for low income households. In San Jose, a family of four is considered "low income" or "very low income" if they earn less than $80,650, or $50,400, respectively.

3 IMPACTS TO CITY OF SAN JOSE: As currently written, the proposed bill would significantly narrow the City's land use authority, and it calls into question the collection of certain types of development and impact fees associated with new affordable housing. Accordingly, unless the proposed bill is amended to exempt charter cities, the City should remain opposed to it. Planning & Zoning As written, by-right housing requires that a proposed development be consistent with the General Plan, Zoning Code, specific area plans, and any other "objective planning standards" or policies However, the City's Envision San Jose 2040 General Plan, which was adopted five years ago, does not include parcel-level planning specifications. Thus, it is unclear how much of a role the City's General Plan will play in the consistency analysis required under the proposed bill. Additionally, the proposed bill exempts qualifying developments from CEQA analysis. In its place, only a "ministerial review" by the City would be conducted. If there is no overarching CEQA clearance analysis or other such study for the area of the proposed development, the project impacts cannot be assessed and as such would be unmitigated. Further, the legislation does not adequately define "objective planning standard," and it is unclear whether the existing urban village plan and existing planned development approach would fit within this narrow definition. Notably, the proposed bill would allow the City to exercise discretionary review over projects that are inconsistent with "objective planning standards." However, that consistency analysis must happen within 30 days of a by-right development application submittal. Stated another way, the City would have only 30 days from application submittal to respond with a determination of consistency with the land use policies for a project, regardless of the amount of information provided. It should be further noted that the proposed legislation does not set a minimum standard for completeness, and thus, the City would not be allowed to reject an application for incompleteness. If the City fails to respond to an application within the 30-day timeframe, regardless of whether it has enough information to make the determination, the project will be deemed consistent with the City's "objective planning standards" and allowed to proceed under the expedited by-right process. Fiscal Impact The City currently collects development and impact mitigation fees as a condition of approving proposed developments. While the State has opined that development fees that are set through formula or another objective means would still be enforceable, the City receives revenue for impact mitigation that may be questioned as unenforceable under the proposed bill. Currently, most impact mitigation fees (like traffic) are called for by CEQA or CEQA-related studies. Under the proposed bill those studies will not be required or completed, leaving the City with no basis to calculate the fees necessary to mitigate those impacts. It is unclear at this time what the actual fiscal impact may be to the City, but there will likely be a constraint to impact mitigation fees, at the very least. Affordable Housing The proposed bill purports to spur or incentivize the development of affordable housing by requiring its inclusion in developments that benefit from the streamlining of the by-right process. Included in the proposed bill is the requirement that a development must offer 20% of the planned units to households making 80% of the area median income. Developments proposed in transit-priority areas must offer 10% of their units to households making 80%, or 5% of their units to households making 60% of the area median income.

4 In San Jose, 89% of renter households earning between 30%-80% of area median income are paying more than 30% of their annual income on housing. Providing housing to those below 80% AMI is necessary to ensure that lower-earning residents have safe, decent housing that is not overcrowded. The affordability levels set by the Governor's by-right plan do not meet the housing need in San Jose because the by-right plan only requires developers to build units for middleincome households in exchange for exemptions from the public process. To make a meaningful difference in San Jose, the proposed bill would have to lower the income targets to include very low-income (60% AMI) households, and it would need to increase the percentage of affordability units required in transit-priority areas. The City has an existing inclusionary housing ordinance that is in place for ownership properties. The proposed bill contains some ambiguous language ("non-discretionary inclusionary zoning ordinances") which may or may not call into question portions of the City's existing inclusionary housing ordinance. Because the existing ordinance allows a developer to pay a fee, build units onsite, or build them at another location, it is unclear whether these aspects of the ordinance would be considered "discretionary" and thus unenforceable. Additionally, the majority of housing being built in San Jose is rental. The by-right bill makes no provisions that reverse the Palmer v. City of Los Angeles decision which prohibits inclusionary housing on rental developments. Fundamental Issues The State of California has made very significant changes to how affordable housing is built. With the elimination of the 20% Affordable Housing Fund available through Redevelopment Agencies and no meaningful replacement funds available, building housing that meets the needs of our community has been extremely difficult. The Legislature has had numerous opportunities to create a permanent source of funding for affordable housing, as well as create legislative changes that encourage other cities to build their fair share of housing, and they have failed to act on this issue. Instead of creating or restoring a funding stream that would allow cities to invest in these sorely needed housing options, the State is choosing to enact broad language that will undoubtedly divert the City's attention and resources to responding to unanswerable questions and legal challenges of our land use policies. Opportunities to reduce barriers to affordable housing development exist through reforming the grounds for challenging CEQA and reducing frivolous lawsuits, monitoring and enforcement of local Regional Housing Needs Assessment performance, passing a Palmer fix to allow inclusionary housing on rental developments, and recreating a permanent source of funding to develop housing that is affordable for all San Jose residents. Should such a discussion occur through the normal legislative process, the City would be happy to engage and provide meaningful leadership to that discussion. Disappointingly, the proposed bill has come forward without input or discussion from cities, and on an express timeline: San Jose has been a leader in affordable housing development, and continues to pursue significant policy changes to ensure that residents of all income levels have access to safe and decent housing in areas of our city that promote a healthy environment. We have done so with little to no financial support from the State. Rather than removing our ability to implement these policies, the State should focus on providing us tools. Instead, the proposed bill exempts developers' projects from CEQA and waives the City's discretionary determination of General Plan consistency for these projects, as well as imposing unfunded mandates to cities.

5 POLICY ALIGNMENT: This bill aligns with the Council-approved 2016 Legislative Guiding Principles and Priorities to "Protect local government revenues by maintaining local authority over the collection of fees and generation of revenues; Oppose legislation, policies, or budgets that have negative impacts on City services, revenues or costs," and to "Protect local decision making in relation to transportation and land-use decisions." SUPPORTERS/OPPONENTS: This bill is supported by: San Francisco Mayor Ed Lee, Oakland Mayor Libby Schaaf, Los Angeles Mayor Eric Garcetti, California Building Industry Association, California Apartment Association, California Association of Realtors, Silicon Valley Leadership Group, among others. This bill is opposed by: The California League of Cities, environmental and labor groups, tenants' rights groups and certain affordable housing advocates, and approximately 100 small and medium sized cities. STATUS OF BILL: To be considered for approval by the Governor, Budget Trailer Bill 707 must be voted on by the Legislature by August 31. The Governor has until September 30 to sign or veto legislation. If signed into law, this bill will take effect January 1, FOR QUESTIONS CONTACT: Jacky Morales-Ferrand,