Are your Development Impact Fees Compliant?

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By Dima Galkin

With constraints on tax revenue growth and overwhelming pension obligations, how can cities and counties ensure they have the financial capacity to fund the capital improvements necessary to accommodate new development? One way is by imposing development impact fees (DIFs). This option does not require a public vote (a sales or transient occupancy tax increase does) but involves a series of qualifications and reporting requirements not associated with standard tax revenues. Fees can be applied to a wide range of physical infrastructure, from parks and police facilities to streets and sewers.

The guidelines for DIFs were established with the Mitigation Fee Act (MFA), passed in 1987 as AB 1600 and filed in Government Code Section 66000 et seq. As amended, the MFA reflects the requirements established by the influential US Supreme Court decisions Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994).

The fee must be “‘roughly proportional’… both in nature and extent to the impact of the proposed development.” For example, a park impact fee could only be applied to a development that increases the need for parks and in an amount that equals the cost of building that additional park space. Despite this limitation, DIFs are a critical financial resource for jurisdictions looking to match new development with new infrastructure to serve it, without impacting the availability of other City funds for ongoing public services.

The MFA requires agencies file Annual and 5-year Reports. The Annual Report cover amounts collected and spent, what projects were funded, and whether any loans were made between funds. The 5-Year Report provide continued justification for the fee amounts.

According to State Senator Jeff Stone, almost one-third of localities have not kept up with these reporting requirements. In response, Senator Stone sponsored Senate Bill 1202, passed and signed into law in 2018. Under SB 1202, agencies that fail to keep up with MFA reporting can be subjected to an independent audit at their own expense and if they fail to make findings for the fee’s necessity, agencies may be forced to pay back unused impact fees.

In addition, several pieces of pending legislation focusing on transparency and promoting housing affordability would affect DIFs.

AB 1484

This bill would require each city (including charter cities) and county to post its fee information for housing development on its website and to provide that website address to development applicants.

AB 831

Existing law requires the State’s Housing and Community Development Department (HCD) to complete a study evaluating the reasonableness of local DIFs and to make recommendations on potential amendments to the MFA to reduce fees for residential development by June 30, 2019.

AB 831 would add the following requirements for HCD:

·         Post this study on its website,

·         Complete a separate study by June 30, 2020 that identifies the category of all fees for residential development and the average amount thereof in each of the State’s 47 Councils of Governments and post on its website, and

·         Issue a report to the State Legislature by January 1, 2024 on the progress of cities and counties in adopting the recommendations made in the first study.

AB 1483 would enhance the requirements of the Annual Progress Reports to include more detailed information on permitting and development applications and would require agencies to post a schedule of fees on their websites.

This recent and pending legislation points to increased scrutiny applied to development impact fees of all kinds, but especially those that apply to residential development, as the State puts in place sticks (also carrots, but mostly sticks) to address the statewide housing crisis. This makes it more important than ever to meet the reporting requirements and be aware of new requirements as they arise.

RSG is available to help you keep up with reporting and other requirements for DIFs, as well as for housing and economic development.

Legislative Bill Spotlight: ACA 1 (lower voter approval threshold for housing and infrastructure bonds) and AB 213 (VLF to cities)

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by Julia Cogan

Assembly Constitutional Amendment (ACA) 1, also known as the Community Say for Community Needs Act, would place a measure on the 2019 ballot to amend the California constitution to lower the voter approval threshold from two-thirds to 55 percent for affordable housing and infrastructure revenue measures, namely local general obligation (GO) bonds and certain special taxes. It has been a growing concern at the state level that local governments do not have enough tools to address the housing crisis and the ever-growing local infrastructure need. A way to tackle this is to increase localities’ access to GO bonds and certain special taxes by lowering the threshold to a more easily reached 55 percent approval rate.

ACA 1 was heard in the Assembly Appropriations committee on May 16th and is expected to go the floor for final reading and vote before being sent over to the Senate. If your locality is for this legislation, submit comments to the author on the California Legislative Information site, or at the California Legislature Position Letter Portal.

AB 213, is passed, will revise the formula for allocating annual “vehicle license fee (VLF) adjustment amounts” to restore revenues to 143 cities that annexed inhabited territory after 2004 in reliance on the financial incentives that were removed by the passage of SB 89 in 2011, and are thus unable to take advantage of VLF revenues. The bill also provides this revenue source for future annexations of inhabited territory, now using the same rules applied to other cities.

Did your locality annex an area after 2004 that could now be eligible to receive VLF under the same formula as other cities? If so, you can voice your support to the author on the California Legislative Information site, or at the California Legislature Position Letter Portal. AB 213 was heard in the Assembly Appropriations committee on May 16th and is expected to go the floor for final reading and vote before being sent over to the Senate.

Up to $3 Billion in New Community Development Grant Funds Proposed by SB 5 and 15

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by Suzy Kim

The State legislature is considering two bills, Senate Bills (SB) 5 and 15, that would create up to $3 billion in one-time funding for housing, public improvements, and community revitalization projects by reallocating Educational Revenue Augmentation Funds (ERAF).  Local agencies could apply for funding on an area-wide basis through SB 5, or a project-basis through SB 15.  Both bills require matching resources (financial, land dedication, public-private funds, etc.). 

At this point, SB 5 has a broader range of eligible projects and allows bonding but comes with more restrictions.  The following table provides a brief comparison of the application process, financing, eligible process, and other requirements.  For a more detailed comparison, click here.

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Assembly Bill 147 - Increased Sales Taxes to California Cities and Counties

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As if one was even needed, there is now another reason to shop local.  Smaller and local retailers used to find themselves at a disadvantage when it came to the issue of sales tax and consumers.  While they found themselves in a position of having to charge sales and use tax on their goods, online and out of state retailers were not required to do the same.  This resulted in online and out of state retailers being able to charge less for their goods and ultimately entice more consumers to shop with them. 

Recognizing the imbalance of the situation this created for local businesses, California decided to enact legislation that will place the majority of businesses on a level playing field when it comes to the application of sales and use tax.  On April 25, 2019, California Governor Gavin Newsom signed into effect AB 147.  This bill requires all retailers who exceed $500,000 a year in sales from deliveries made to California, regardless of that retailer’s location, charge sales and use tax on consumer purchases.

This legislation is good news for cities, counties, and the state for a few reasons.  With the playing field now leveled, small businesses and local merchants may see an increase in revenue from shoppers, helping to provide a boost in local economy.  In addition to this, local and state government could see an increase in available funding for budget items including critical infrastructure.  Now in effect, it will be interesting to see the impact this legislation has on both the marketplace and local economy.  An in depth analysis of AB 147 can be found here.

RSG's Housing Right Now Workshop (April 24th, 2019)

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Last Wednesday, RSG collaborated with law firm Rutan and Tucker, LLP to host a workshop ambitiously titled “Everything You Need to Know about Housing Now.” The event quickly sold out, illustrating just how eager city and county staff are to learn more about recent housing legislation and how it affects their communities. Held in RSG’s Irvine office, the event was attended by city and county staff from the counties of Los Angeles, Orange, Riverside, San Diego, and Ventura.

The workshop presenters were attorneys Bill Ihrke and Kathy Jenson and RSG principals Tara Matthews and Hitta Mosesman, which allowed workshop attendees to hear about both the legal and practical implications of recent housing bills:

  • Bill delved into the nuances of several pieces of legislation, focusing primarily on Senate Bill (SB) 35, which streamlines the approval process for infill developments in local communities that failed to meet their Regional Housing Needs Allocation (RHNA).

  • Hitta provided several case studies of cities that have already received applications for projects from developers looking to take advantage of the streamlined approval process allowed by SB 35.

  • Kathy explained how recent housing legislation and the California Coastal Commission’s new focus on “no net loss” affects coastal communities.

  • Tara guided attendees through strategic steps to take to ensure compliance with the new housing legislation, including getting involved early in the RHNA process, updating local planning and zoning policies as needed, applying for SB 2 technical assistance grants by the November 30th deadline, maintaining a current inventory of existing affordable units and staying up to date on compliance monitoring, and filing the required annual reports.

In light of California’s housing crisis and the need for 100,000 new housing units each year, State legislators are looking to hold communities responsible for doing their part in creating more housing in California. For better or for worse, the recent Legislative Housing Package created several new requirements and implications for every California community. If you’re interested in learning more about how your community is impacted, please contact us at RSG today. We’re happy to help!

RSG at the 2019 Housing California Conference

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This year’s Housing California Conference marked the 40th anniversary of the organization’s tireless efforts to build a California with affordable and dignified housing for all. This year’s conference was flooded with celebration of recent legislative wins for housing, passion for the solutions, and enthusiasm for the future. With attendees ranging from community organizers, to housing developers, to state legislators, it is evident that housing is at the forefront of every Californian’s priorities.

The importance of housing and growth of its public support were highlighted by a significant increase in attendance – 2019 out-shined 2018 with approximately 50% more attendees. The estimated 2,200 attendees had the opportunity to attend an array of workshops ranging from public policy, to funding sources, to community engagement. With such a diverse collection, there were learning opportunities for everyone.

While the conference provided us with a variety of topics, it was tough to miss some common themes that resonated throughout most of the workshops – nimbyism, homelessness, and funding. Such themes highlight the fact that with growing support, there are also growing concerns. Fortunately, California’s strong, pro-housing leadership at the state level is actively making strides to provide cities across the state with the necessary tools to combat such obstacles as made evident by the Department of Housing and Community Development’s (HCD) palpable presence at the conference.

RSG left this year’s conference feeling energized about the direction California is heading in, and the growing public support for affordable housing. It was exciting to see how this 40th annual conference presented an educational experience that encompassed an inclusionary and progressive vision for affordable housing. We are eager to see the opportunities and solutions that will arise in future legislation and look forward to celebrating more wins at the 2020 conference in San Diego.

AB2162 - What are your thoughts?

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AB2162 (Chiu; Planning and zoning: housing development: supportive housing), requires that proposed permanent and supportive housing developments meeting certain criteria, be granted approval by local governments within a specified time frame and be considered a “use by right” in zones used for multifamily and mixed uses as well as non-residential zones that allow for multifamily use.  Developers are required to provide the planning agency with details of a plan for on-site supportive services for residents.  In addition to this, local government is prohibited from placing any minimum parking requirements on developments whose units are occupied by supportive housing residents and located within 1/2 mile of a public transit stop.

It may be worth noting that the bill also specifies that its stipulations do not impede the ability of a developer to pursue a density bonus from the local government or alter the authority of a local government to accept or modify land use policies or regulations that promote the development of supportive housing.

The Housing and Community Development Department is interested in learning the level of understanding on the part of local governments regarding AB2162 – By Right Permanent Supportive Housing.  By taking this short survey, you can play a part in helping them learn how to best assist with implementation of this new legislation.  To take the survey, click here.

SB2 and You: What you need to be ready

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SB2 was first introduced in 2017 as one of 15 bills in the 2017 Legislative Housing Package. In it’s design to create a permanent funding source for affordable housing, the bill has led to $128 million becoming available in funding and technical assistance grants to help local governments implement activities aimed at addressing the challenges of our housing crisis, which include updates to general plans, local process improvements, updates to zoning ordinances, infrastructure financing plans, and pre-approved architectural and site plans, among many others.

With applications for Technical Assistance grants due November 30, 2019, RSG wants to make sure that you are ready to take advantage of this funding source.  Per the Housing and Community Development Department, applicants must meet all of the threshold requirements for participation in the program as provided in the grant guidelines and listed below:

  • Housing element compliance – The applicant must have a housing element that has been adopted by the jurisdiction’s governing body by the deadline specified in the NOFA and subsequently determined to be in substantial compliance with state housing element law pursuant to Gov. Code Section 65585.

  •  Annual Progress Report (APR) on the housing element - The applicant must submit the APR to the Department as required by Gov. Code section 65400 for the current or prior year by the date established in the NOFA.

  • Nexus to accelerating housing production - The applicant must propose and document plans or processes that accelerate housing production. The application must demonstrate a significant positive effect on accelerating housing production through timing, cost, approval certainty, entitlement streamlining, feasibility, infrastructure capacity, or impact on housing supply and affordability.

  • State Planning and Other Planning Priorities - Applicants must demonstrate that the locality is consistent with State Planning or Other Planning Priorities. Consistency may be demonstrated through activities (not necessarily proposed for SB 2 funding) that were completed within the last five years.

 Whether it be an inquiry as to if your project qualifies or a question about the application process, RSG is here to answer all your questions! Contact Irlanda Martinez (imartinez@webrsg.com) with any inquiries regarding SB2.

Are Density Bonuses a Solution to the Housing Crisis?

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As the housing crisis remains front and center in legislative talks at both the state and local level, the presence of density bonuses can be seen in housing bills AB1763, AB1279 and SB50.  These three bills could ultimately increase density bonuses, concessions and incentives, overall allowing for the easier development of housing and possibly enticing developers into creating more affordable housing.  Below we have provided a brief overview of how density bonuses play a role in each bill.

  • AB1763 (Chiu; Planning and zoning: density bonuses: affordable housing). This bill would require a developer be awarded additional density bonuses, incentives, concessions, and height increases if 100% of the units in the development are targeted to lower income households.  Specifically, the development would now receive 4 incentives and concessions from what used to be only 3, a density bonus that is now 80% of the number of units for lower income households of which it used to be only 35%, and height and floor area increases and elimination of maximum density for those developments within ½ mile of a major “transit stop” or “high quality transit corridor”. 

  • AB1279 (Bloom; Planning and zoning: housing development: high-resource areas). This bill would require the Housing and Community Development Department to identify, with the feedback of stakeholders, areas that are considered low inclusion areas and label them as “high resource” areas.   Development projects occurring in this “high-resource” areas would then be deemed a “use by right” making them eligible to receive increased density bonuses.  Zoning changes would also allow for the development of multi-family homes in previously single-family zoning areas and would offer density bonuses to developers who include additional affordable units in residential use projects located in prime development locations.

    Density bonuses along with other incentives or concessions would also be granted for development projects in which some of the units offered were at an affordable housing cost, or affordable rent accessible to lower income and very low-income households based on the area median income.  This bill would also render the “use by right” development projects exempt from required CEQA approval.

  • SB50 (Wiener; Planning and Zoning: housing development incentives).  This bill will require local governments to grant “equitable communities incentives,” which reduce local zoning standards in jobs-rich and transit rich areas, if the development meets certain requirements including the residential development is either a jobs-rich housing project or transit rich housing project, located on a site that is zoned to allow “housing as an underlying use” in the zone, complies with all applicable labor, construction, employment, and wage standards as well as complies with all architectural design, demolition, impact fee, and community benefit standards, requirements, and/or prohibitions imposed by the local government, and remains affordable for 55 years for rental units and 45 years for units offered for sale, or abides by local inclusionary ordinances.

    Depending on whether a development is jobs rich or transit rich, the “equitable communities incentives” offered could include density waivers from maximum controls on density, minimum parking requirements greater than .5 parking spaces per unit, maximum height requirements less than 55 feet, maximum floor area ratio requirements less than 3.25, and up to three incentives and concessions under density bonus law. 

While SB50, AB1279 and AB1763 all aim to address the undeniable housing crisis through the use of density bonuses, some cities and counties may be wondering at what cost.  These bills are still moving through the legislative process.  If you’d like more information or to provide feedback to the legislature, please contact RSG Principal, Tara Matthews (tmatthews@webrsg.com).

Housing is a Hot Topic at the California Capitol

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In its February 2018 Statewide Housing Assessment, the California Housing and Community Development Department stated that 180,000 homes would need to be produced annually between 2015-2025 to keep up with projected population and household growth. This is a goal that will likely go unmet, as California has only built an average of 80,000 homes per year over the last 10 years. As a result, California legislators have introduced multiple housing bills, many of which are aimed at streamlining housing production, increasing the state’s ability to control land use at the local level, and developing financing tools to fund increased housing production. A few of these bills, most notably ACA 1, SCA 1, AB 68, and SB 9 will significantly impact the state’s ability to meet its housing target. Here is a brief summary of these bills:

·         ACA 1 is focused on providing an additional funding source to enable construction of affordable housing and infrastructure. The additional funding would be available at a local level and would be focused on "workforce housing" (up to 150% AMI), thereby including the “missing middle” that is often neglected in housing legislation.  ACA 1 accomplishes this by reducing the local vote threshold (from a two-thirds vote to a 55-percent majority) for approval of an ad valorem tax to service bond indebtedness incurred to fund the construction, reconstruction, rehabilitation, or replacement of public infrastructure or affordable housing.

ACA 1 also includes provisions requiring that annual performance audits be made available to the public and a citizens’ oversight committee be formed, allowing the public to track progress and hold the issuer accountable for expenditures related to applicable projects. However, lawmakers should consider the administrative burden that these accountability provisions may create, as operation expenses will not be a cost covered by debt issuance. Link to bill.

·         SCA 1 would streamline the approval process for affordable housing developers and municipalities. SCA 1 would repeal Article 34 of the California Constitution, which was enacted in 1950 and prohibits the development, construction, or acquisition of a low-rent housing project by any state public body until electors of the public body approve the project with a majority vote. By requiring voter approval, Article 34 has slowed the approval process and increased the cost of affordable housing drastically. Link to bill.

·         AB 68 seeks to increase residential housing density in California by requiring that streamlined approval be given to permit applications for the development of Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs). This bill also prohibits a local ordinance from imposing minimum lot size, lot coverage, or floor area ratio requirement on ADUs.  Link to bill.

·         SB 9 is a financing tool that seeks to incentivize investment in affordable housing development. This bill authorizes a developer that is awarded a low-income housing tax credit to sell that credit to investors for each taxable year the credit is allowed indefinitely, thereby removing a January 1, 2020 sunset provision in existing law. Therefore, this change spurs investment in affordable housing projects for a longer, indefinite period of time than current law allows. Link to bill.