When the San Diego City Council voted on April 3 to settle a lawsuit with the Building Industry Association (BIA), it looked like a three-year dispute over the city's inclusionary-housing ordinance was about to end. But, apparently, the BIA couldn't leave well-enough alone, and the compromise might be dead.
The affordable-housing law, passed in 2003, says developers of multi-family residential projects in the city of San Diego must sell or rent 10 percent of the units at a level considered affordable to moderate-wage earners, or pay an in-lieu fee into the city's affordable-housing trust fund.
At the meeting, the City Council was told that both the San Diego Housing Commission and the mayor's office supported the compromise to the lawsuit; they were told the compromise came out of a discussion with city staff, representatives of the BIA and the mayor's land-use-and-housing czar, Jim Waring. They were not told, however, how much influence the BIA had over the compromise nor that the Housing Commission's own board didn't know all the details of the compromise.
The settlement, which passed 5-3 with City Councilmembers Toni Atkins, Donna Frye and Ben Hueso opposed, was a boon for developers and a bust for the city's affordable-housing trust fund, which, under the settlement, stood to lose anywhere from $9 million to $41 million. The basis of the compromise involved when in-lieu fees are assessed-the compromise allowed a significant number of projects to be "grandfathered in" at a lower fee (in-lieu fees have increased annually since the law went into effect).
A day after the City Council approved the settlement, the BIA filed a notice in court asking that additional provisions be added to the compromise. In the notice, BIA attorneys requested what's known as a "tolling agreement." The tolling agreement said the BIA would dismiss its case "without prejudice" only if the City Council agreed to certain terms. According to the court document, if, within two years of the settlement deal, the City Council takes any action that would "undermine the compromise," the BIA would have the option of reinstating its lawsuit.
BIA CEO Paul Tryon, in an interview with CityBeat, said a vote by the City Council to rescind or amend the compromise or make any changes to the inclusionary-housing ordinance that are not in the best interest of developers-such as raise the in-lieu fee or repeal the fee option altogether-would be considered undermining the compromise.
Affordable housing advocates and some members of the City Council have argued that the in-lieu fee is too low and provides no incentive for developers to build affordable housing-indeed, of the 200 projects that have been subject to the ordinance since it went into effect in 2003, 187 have opted to pay the fee. Fees, which are assessed according to a project's size, started at $1 per square-foot in 2003 and have gradually increased to $2.50 per square foot. In July, the fee will jump to $7.31 based on a new calculation system that takes into account area median income and the average cost of buying a home-the more disparate the two numbers are, the higher the fee will be.
Under the inclusionary-housing ordinance, fees are assessed when a developer applies for a building permit. Under compromise language hammered out by the BIA and the city's Development Services Department, the fee is assessed when a developer applies for a development permit-a step that comes much earlier in the process than the building permit, anywhere from six months to a number of years. It's for that reason that 20,000 units for which development permits, but not building permits, have been issued, will get to take advantage of the $2.50 fee rate rather than the $7.31 rate. Though, those projects would have three years to break ground lest they have their fee reassessed, according to terms of the compromise.
"You might as well just write developers a check," Frye quipped at the April 3 City Council meeting.
So far, the housing trust fund has collected $7.9 million from in-lieu fees, "a "mere drop in the bucket,'" according to a memo from the city's independent budget analyst, Andrea Tevlin, sent to the City Council prior to the April 3 vote.
City Councilmember Jim Madaffer referenced that memo in the meeting though he opted to vote in favor of the compromise settlement. "I see we're really about $122 million short in subsidy if we were to produce the number of [affordable] units we ought to be producing," he said. "Obviously, even the current program we have isn't doing that [and] this compromise isn't going to help anything." Madaffer supported the compromise, explaining he didn't want to subject the city to additional litigation.
In an interview, City Council President Scott Peters said that while the fee is generating funds for affordable housing, more money could be coming in. "If you compare it to four years ago, when there was no inclusionary policy--I mean, it's a huge improvement..... Now, it probably could be better; I think it should be tougher."
The BIA's Tyron said that the tolling language wasn't intended to "tie the hands of the council.
"They're the lawmakers," he said. "They do have full freedom to make those changes. We just simply want to be able to preserve our rights with the litigation should they make changes that are fundamental to the agreement we have reached."
But apparently the City Council didn't like having strings attached to a settlement it had already approved. According to a knowledgeable City Hall source, last week, the City Council, in a meeting closed to the public, voted to reject the tolling agreement, which, basically, undermines the compromise. Councilmembers contacted by CityBeat declined to comment since speaking about closed-session matters is a no-no.
David Carlin, the city attorney currently handling this case, said he plans to be back in court on Friday, April 28, to talk to Judge John Meyer.
At the April 3 City Council meeting, several speakers urged the City Council to let a judge decide the matter. Jeremy Kaercher, who heads the San Diego Organizing Project, one of the groups that helped lay the groundwork for the inclusionary-housing ordinance, told the City Council that given all the other legal challenges it's facing, this isn't the one to cave to.
"Considering the spectrum of litigation that's before you, why should the housing issue be the one for which expedience has priority over principle?" he asked.
Fred Sainz, spokesperson for Mayor Jerry Sanders, said the mayor's office "didn't have faith that the case was being litigated properly.... The BIA could have very well prevailed in the lawsuit," he said. A BIA victory would mean the city would have to pick up all legal fees and court costs. Carlin acknowledged that he's the third or fourth attorney to whom the case has been passed off, and court records show the judge losing patience with the city largely because of delays on the part of the city attorney. City Attorney Mike Aguirre, though, denied his office mishandled the case. "Delay should not be an excuse for abandonment," he told CityBeat.
If the City Council had rejected the compromise, the case would have gone to court anyhow. In an April 10 story on the website Voice of San Diego, Evan McLaughlin reported that the mayor's office organized a closed-door meeting for March 22 with city staff, representatives from the BIA and Waring. Aguirre said his office was not informed of the meeting, and there is no written record of what was discussed.
Prior to the meeting with the mayor's office, both the independent budget analyst and the staff of the San Diego Housing Commission recommended that the City Council stand by its inclusionary-housing ordinance and not support the BIA settlement, even if it meant the case would go to court. After the meeting with the mayor's staff, the Housing Commission staff flip-flopped and asked the City Council to support the settlement. The Housing Commission board was on record, too, as supporting the compromise. But what was not made clear at the City Council meeting is that the board had taken that vote in 2004 when there was an entirely different settlement on the table-one that did not include the grandfather provision that meant at least a $10 million hit to the affordable-housing trust fund.
Housing Commissioner Todd Gloria said he's asked that the matter be brought back up for a vote at the commission's May 5 meeting, even if the vote is only symbolic. "I don't want the [Housing Commission] to be on record as saying this [settlement] was a good idea, because my sense is it's probably not [good] for our trust fund."
Carlin, meanwhile, insists that the city has a strong case. According to their initial complaint, attorneys for the BIA argued that the city's inclusionary-housing law was unconstitutional because it imposed a financial burden on developers. They also argued that there was no clear evidence that an inclusionary-housing policy would ease the city's affordable-housing shortage. The city, in its response to that first complaint, countered that the BIA case lacked merit, citing a 2002 appellate decision in which the city of Napa, whose inclusionary-housing law is similar to San Diego's, prevailed in a similar lawsuit. "The judge found that [Napa's ordinance] was valid and constitutional," Carlin said.
David Rolland contributed to this story.