PURPOSE:

The purpose of this report is to inform City Council of details regarding two proposed ordinances that will be presented to Council within a few months.  One ordinance is the inclusionary housing (also called inclusionary zoning) ordinance which Council directed staff to prepare which would require developers of new residential projects to include affordable units within the development.  The other is the density bonus ordinance which codifies state law.  The ordinances include implementing regulations which have not yet been presented to Council.  Also, an updated in-lieu fee study has been completed.  This study session seeks Council�s input on the implementing regulations, or more specifically, the concessions to be offered to developers, and the in-lieu fee study.

BACKGROUND AND DISCUSSION:

In  2002, City Council (also acting as the Redevelopment Agency Board), created a Blue Ribbon Task Force on Affordable Housing to review information and create concepts for new affordable housing.  The Task Force included over 20 representatives from various members of the community and organizations throughout the City including two Council Members, one Planning Board Member, tenants, landlords, a Senior Board Member, a member of the Burbank Association of Realtors and a member of the Apartment Owners Association of Southern California.

In 2003, the Task Force developed seven recommended housing objectives and corresponding programs for affordable housing.  One of the objectives was to encourage balance and variety in housing and the program to meet this objective was for the City to adopt inclusionary zoning to integrate affordable units within market rate developments.  Inclusionary zoning, stated the Task Force, is a regulatory tool adopted by over 75 California jurisdictions (now over 120 jurisdictions), which requires developers to integrate an established percentage of lower and moderate income units within new residential developments.  The primary objective of inclusionary zoning is to increase the supply of affordable housing in conjunction with market rate development and can be particularly effective in communities, such as Burbank, experiencing a strong demand for housing.  The Task Force recognized that reducing the fiscal impact to developers subject to the ordinance would be important and therefore also recommended that the program allow modified development standards and possibly financial offset.  The recommendation further requested that the City conduct economic sensitivity analyses to ensure the affordability requirement and in-lieu fee amount would be structured to not unduly burden development.

The City Council and the Redevelopment Agency Board adopted resolutions to accept the recommendations of the Task Force and directed staff to move forward immediately with the proposal for inclusionary zoning and asked staff to return with suggested guidelines for Council direction.

On March 18, 2003, staff presented some options for the ordinance and ultimately, Council directed staff to move forward with the preparation of the ordinance and offered direction concerning specific parameters of the ordinance.

Models for Burbank�s Ordinance:  When creating the City�s ordinance, research was conducted of other ordinances.  The proposed ordinance is closely modeled after the City of Pasadena ordinance, but modified based on discussions with City of Pasadena staff who are in the process of amending their two year old ordinance, and based on the needs of the Burbank community.

In addition to this research, in November 2003, staff and one of the City�s consultants attended a round table discussion at the City of Glendale with representatives from various cities (such as Pasadena, Santa Monica, West Hollywood, Los Angeles and Long Beach) as all of these cities have adopted or are considering adopting inclusionary ordinances.  This was yet another opportunity to gather data and make sure that Burbank�s ordinance would not be overburdensome when compared to ordinances of surrounding cities.

While staff has been processing this ordinance, the City of Glendale has adopted an inclusionary ordinance for their San Fernando Road Corridor Redevelopment Project Area.  The requirement in this area is to provide 15% of the project for affordable households.  Of this, 9% is for low or moderate income and 6% is for very low income households.

Public Outreach:  Staff has been undergoing public outreach during this process.  Staff formed a focus group in April 2003 that consisted of developers and representatives of various organizations in the City.  The purpose of this focus or �stakeholders� group was to get their input on the ordinance from the perspective of those in the development community.  This focus group consisted of representatives from the Planning Board, the Board of Realtors, the Chamber of Commerce, the Burbank Housing Corporation and five other developers of housing in the City.  The group met three times over the course of five months and the ordinance went through many changes based on suggestions from the group.  The first meeting in May 2003 was the most informative as two representatives from the City of Pasadena attended who gave their impression of Pasadena�s ordinance and offered many suggestions to prevent problems with any ordinance that Burbank might adopt.

For a period of over six months, staff posted a sign-in sheet at the public counter informing developers and potential developers of housing of the impending ordinance.  Those who signed in were informed they would be notified of a community workshop on the issue.  In addition, another mailing list was developed that consisted of all applicants and most property owners who were proposing multi-family developments in 2003.  This list was developed for the potential Interim Development Control Ordinance (IDCO) that City Council was considering adopting.  Another sign-in sheet was posted at the public counter for anyone who was interested in receiving information on the potential IDCO.  All of these members of the public were invited to a workshop to discuss the proposed inclusionary housing ordinance.  Approximately 11 people attended this meeting. 

Staff also held meetings at the Board of Realtors and Chamber of Commerce to discuss the ordinance and answer questions.  The Chamber of Commerce meeting was attended by approximately 15 people and the Board of Realtors meeting was attended by over 100 people.

For the Planning Board hearings (one held in March 2004 and the other in October 2005), staff mailed a notice to the same mailing list of over 150 people and published a notice in the Burbank Leader.

State Density Bonus Law:  While staff was processing the inclusionary ordinance, the State of California made amendments to the density bonus law.  Most of these amendments take away discretion from local jurisdictions and give more incentives to developers of affordable housing.  Specifically, the density bonus permitted now ranges from 5% to 35% based on the level and type of affordability.  Also, developers may now receive a reduction in parking requirements as a matter of right.  For example, one bedroom units need provide only one on-site parking space (rather than the 1.75 required by Burbank code).  Also, additional guest spaces do not need to be provided as required by Burbank code.  These spaces may also be tandem and uncovered which, depending on the size of project or location, could also be contrary to Burbank code.  And lastly, the developer may request a certain number of concessions (based on the amount of affordable units) which must be granted by the City if certain findings are made.  The findings, also described in the Implementing Regulations, are listed below: (Exhibit A)

1. The concession or incentive is required in order to provide for affordable housing costs or for rents for the targeted units.

2. The concession or incentive would not have a specific adverse impact upon public health and safety or the physical environment or on any real property that is listed in the California Register of Historical Resources and for which there is not feasible method to satisfactorily mitigate or avoid the specific adverse impact without rendering the development unaffordable to low and moderate income households.

3. The applicant has shown that the waiver or modification of development standards is necessary to make the housing units economically feasible.

Although the developer may request any concession, staff has developed a tiering system where the type of concession requested would determine which body will determine if the findings are made.  These are discussed in more detail in the Inclusionary Housing Incentives section below.

A big problem with the state density bonus law, as discussed at the joint City Council and Planning Board Study Session in May of 2005, is the term of affordability.  For ownership projects, the owner may sell the unit immediately and receive his or her share of the equity on the unit.  While the City will receive its share of the equity, that will be one less affordable unit in the City.  For rental projects, the term is 30 years.  By adopting an inclusionary ordinance, the City can ensure that those who were already going to take advantage of the density bonus law can now have their units affordable for longer terms (as discussed below).

Parameters of the Inclusionary Ordinance:  As stated earlier, Council gave specific direction on different aspects of the ordinance.  Staff took these suggested parameters to the community in the outreach effort, and through the various group meetings, have made some modifications and offer the following parameters for the ordinance:

• The requirement would apply to projects involving construction of five or more new housing units within one project.

• 15% of the units must be available at affordable rates.  For rental, 10% is for low income households and 5% is for very low income households.  For ownership, all 15% is for moderate income households.

• Units must remain affordable in perpetuity for rental and for 45 years for ownership.

• Credits will be given for deeper income targeting or special needs units.  For example, if low income ownership units are provided in lieu of the required moderate income units, the developer will receive a credit of two units for every one provided.  Also, if a greater number of three or more bedroom units are provided than required for the project, the developer will receive a credit of one and one-half units for every one unit.

• Alternatives for on-site construction are provided, but allowed by-right only based on the size of the development and allowed on a discretionary basis only if certain financial feasibility findings are made.  These alternatives include off-site construction of the units, substantial rehabilitation of off-site units, donation of land, and an in-lieu fee.

Incentives to Construct Inclusionary Units:  The City recognizes that constructing the units is a cost to development and therefore, as other cities do, will be offering incentives to developers to build the units within the project, rather than opting to pay an in-lieu fee.  These incentives are in the form of modifications or waivers of development standards.  Offering concessions, while vital to the developer, has land use implications and needs to be scrutinized carefully.  However, under state density bonus law, concessions must be awarded if certain limited findings are made.  The goal, therefore, of the inclusionary ordinance, was to allow developers who take advantage of the density bonus option certain �classes� of concessions so that a different body gets to scrutinize whether they meet the findings or not.

Staff is proposing that the incentives (or concessions) be broken down into three tiers depending on their level of impact on residents of the project and/or the surrounding community.  Concessions with an anticipated greater impact require a higher level of review and approval, but again, would still be subject to the same findings.  The three tiers of approval are administrative (Community Development Director), Planning Board, and City Council.  The ordinance is structured such that the Community Development Director would have the authority to make modifications to Implementing Regulations, if new concessions, that were not previously contemplated by staff were requested by developers.  However, staff would return to the Council every five years for a complete review of the ordinance and implementing regulations.  Below is a list of potential concessions that will be listed in the Implementing Regulations (Exhibit B).

Tier 1

(Administrative approval by the Community Development Director with appeal to Planning Board and City Council)

• Reduce common open space area by up to 30% and/or reduce private open space area by up to 30% per unit or eliminate private open space for 30% of units

• 30% reduction of both common and private open space not allowed � must mix and match between the two to reach average equivalent

• Does not allow for reduced minimum open space dimensions

• Increase lot coverage from 60% to 70% when greater than 300 feet from R-1 zoned property

• Increase to three stories of habitable space (including necessary increase in building height up to the maximum height otherwise allowed in the zone) when greater than 300 feet from R-1 zoned property

• Allow laundry/utility room on third floor when 150 to 300 feet from R-1 zoned property

• Reduce side yard setback for three story projects from 6 feet to 5 feet

Tier 2

(Planning Board approval with appeal to City Council)

• Any three or more concessions from Tier 1 requested for one project

• Other increases in lot coverage not covered in Tier 1

• Reduce front, side or rear average setbacks and fa�ade breaks (not minimum setbacks)

• Reduce 50% of amenities

• Reduce 25% of landscaping requirements or amenities

Tier 3

(City Council approval)

• Any five or more concessions from Tier 1 and/or Tier 2 requested for one project

• Any additional reductions or variations thereof not specifically covered in Tiers 1 and 2 (e.g. reduce open space greater than 30%, three stories of habitable space when less than 300 feet from R-1, etc.)

• Deviation from any other development standards not addressed in Tiers 1 and 2 (e.g. parking, landscaping, amenities, etc.)

• Development impact fee waivers on affordable units, and fee deferrals on market rate units until issuance of certificate of occupancy

• Any direct financial assistance, including that for purchasers of affordable units.

As stated earlier, concessions can only be granted for density bonus projects if certain findings are made.  Therefore, staff requires the same findings (that were previously listed) for an inclusionary project which seeks concessions.

In light of recently adopted code, these concessions become even more important.  It is a goal of the City to allow quality development that is compatible with the surrounding neighborhood.  The question then becomes, by allowing the waivers of code, can we continue to ensure compatibility?  These two issues are exclusive, but can be achieved simultaneously.  A quality project can have a modification from code, yet still be compatible with the surrounding neighborhood and still provide the required affordable units.  The determination of compatibility will first rest in the hands of staff, but Planning Board and City Council will be called upon depending on the level of concession requested or the input from the neighborhood.  With the new code, the result is better standards to appropriately limit the type of development and even density of projects making them more compatible with the neighborhood.  Concessions allowed in the inclusionary ordinance, therefore, will not allow such drastic changes that would be out of character for the neighborhood.  Ultimately, the Board or Council, just like staff, will have to show in denying a concession that it does not meet the findings.

In our outreach effort, developers told staff that the incentives offered would be key in the decision to include the units within the development or not.  However, to use one of the alternatives to on-site construction, the developer of larger projects will have to show that it is not financially feasible to construct the units on site.

Process for Meeting Ordinance Requirements:  Applicants would be required to submit a Development Review application as currently required for multi family projects.  In addition to this, applicants would have to specifically state what, if any, incentives are necessary in order to construct the affordable units.  The findings require that the concessions or incentives are required in order to provide for affordable housing costs or for rents for the targeted units.  The applicant, through a financial ProForma must show that the waiver or modification of development standards is necessary to make the housing units economically feasible.  City and Redevelopment Agency Staff will review the submitted materials and process the appropriate approvals.  Likely, the City with have a financial consulting firm on contract who can review technical ProFormas.  Ultimately, the developer will be required to sign an affordable housing agreement stating that the units will remain affordable for the term required by the ordinance.

For ownership projects, the term is 45 years with a City/Agency right of refusal to purchase the unit and an equity share provision.  If a participant desires to sell the property, the participant will be required to notify the City/Agency (�First Notice�) that they intend to sell the property.  The City/Agency shall have the first right to purchase the property at an Affordable Housing Cost for a Moderate Income Household (�First Right of Refusal�).  If the City/Agency passes on its First Right of Refusal, then the participant shall use its best efforts to market the property to a Moderate Income Household; a Marketing Period.  During that period, the participant shall obtain from the City/Agency, if available, a list of Moderate Income Households that have expressed interest in acquiring affordable units.  If after the termination of the Marketing Period, the participant still remains unable to secure a buyer who meets the Moderate Income Household definition, the participant shall provide notice to the City/Agency that (1) it is unable to secure a Moderate Income Household buyer, and (2) it desires to offer the property to the City/Agency to purchase at an Affordable Housing Cost for a Moderate Income Household (�Second Right to Repurchase�).  In the event the City/Agency passes on the Second Right to Repurchase, then the participant may sell the property on the open market provided the participant pays an equity share amount which is a percentage share of the appreciation in the value of the property.

On an annual basis, the developer/property owner will certify that the units are in fact maintaining affordability with eligible tenants for rental projects.  For ownership projects, the units are to remain owner-occupied.

In-lieu Fee:

One of the alternatives to on-site construction of the affordable units is to pay an in-lieu fee.  Small projects (five to nine units) are permitted to use this option by right.  All other projects require City Council approval to pay the in-lieu fee.  The in-lieu fee option is subject to requirements which include submitting a ProForma analysis that demonstrates financial infeasibility of constructing the on-site units.  The in-lieu fee is to be paid prior to issuance of a building permit, and deposited into the City�s Affordable Housing Fund.  These funds will be used for affordable housing projects throughout the City.  The amount of the fee is based on the gap between market and affordable housing costs as determined by a Fee Study. (Exhibit C)  The Fee Study from late 2003 called for a fee between the range of $7 and $15 per square foot based on the size of project (number of units) and whether it was providing rental or ownership units.  The City�s consultant recently updated this fee based on the current market conditions and found that the affordability gap is much larger.  The in-lieu fee structure is tiered, providing reduced fees for residential developments of between 10 and 13 units, and further fee reductions for developments of between five and nine units.  It was determined that these smaller projects have more difficultly paying the large fee because of profit margins.  Below is the revised in-lieu fee:

Cities have found that when the fee is too much below the gap, most developers will opt for the fee, and the units are then not constructed because a city usually does not have enough funds to construct the unit.  This is why staff is proposing a fee that is equivalent to the gap and also why staff is proposing that developers only be permitted to pay the fee when they can prove that it is financial infeasible to construct the units on site.

The City of Glendale almost one year ago adopted an in-lieu fee option for their new inclusionary ordinance.  The fee they adopted was $17 per square foot for ownership or rental.  It is important to note that the fee study prepared supported up to a $39 per square foot fee.  As this program is new, staff does not know if developers are opting more for the fee or for developing the projects.

Applicability and Phase-In:

Staff is proposing that the ordinance apply to new projects only, and not to projects which have a complete Development Review application as of the effective date of the ordinance.  The effective date of the ordinance would be approximately 31 days from the date the City Council adopts the ordinance, giving applicants ample warning before the requirements are effective.

Staff is also proposing a �phase-in� period for the first six months the ordinance is effective which will allow developers a reduced fee option or if they choose to construct the units, the requirement would be reduced to 10% affordable units versus 15%.  For rental projects, that would translate into a minimum of three percent (3%) of all the units shall be Very Low Income and the remaining seven percent (7%) of the units shall be Low Income.  For projects paying the in-lieu fee, the amount of the fee shall be 65% of the amount established by City Council.  Finally, the ordinance does not apply to Redevelopment Agency projects as those are negotiated development projects.

PLANNING BOARD COMMENTS:

This matter was discussed at a public hearing before the Planning Board in October.  The Planning Board voted 2-3 to recommend approval of the two ordinances which meant that the ordinances were recommended for denial.  After further discussion, the Board voted unanimously to recommend approval of the density bonus ordinance and implementing regulations.  The three Board members who did not support the inclusionary ordinance stated they had philosophical objections to the ordinance.  They did not feel developers should bear the costs of providing affordable housing in the community.  They understood the ordinance and did not believe changes could be made to the ordinance to a level that could gain their support.

One concern the Board members brought up (by both those who supported and did not support the ordinances) was that through the process of Planning Board or City Council granting concessions, the public may believe they have a right to influence this decision.  Because the findings are so finite, the Board or Council must look at the concession objectively and cannot consider public input not related to the findings.  It is a similar problem the City has with ministerial Development Review projects.  While the findings can be considered a discretionary action, they are very limited and the Board or Council, like staff, will have to put evidence on the record of why or how a project does or does not meet the findings.  The public, of course, will still have the opportunity to state their objections to the project as a whole, but if conditions are placed on the project or if it is denied, it must be based on the requirements listed in the Development Review code.

Some Planning Board members also had a concern that very few people came to the public hearing on the matter.  They understood the outreach and notification that staff completed, but questioned if greater public outreach was necessary.

RECOMMENDATION:

Staff recommends that Council direct staff to continue processing the zone text amendments for inclusionary housing and density bonus and that Council direct staff if any changes are needed to the concessions list or in-lieu fee study.

LIST OF EXHIBITS

Exhibit A          Draft Density Bonus Implementing Regulations

Exhibit B          Draft Inclusionary Housing Implementing Regulations

Exhibit C          In-lieu Fee Study dated October 18, 2005

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