Over a six month period, this group was specifically charged with formulating recommendations for expanding affordable housing based on their review of existing studies.  They were exposed to affordable housing issues and toured sites to better understand zoning and planning concepts along with real world applications.  Various developers and architects made presentations to the Task Force in an effort to educate them on financial and design matters surrounding affordable housing.

The Task Force stated that the desire for affordable housing was due to the increasing costs of housing, and specifically housing that would serve the workforce.  Many cannot afford to purchase their own homes and sometimes even pay rent for an apartment in Burbank.  A recent Los Angeles Times article stated that government support for affordable housing has never been higher and neighbors are more willing to accept inclusionary projects, largely because those who need subsidized housing are not only the poor and elderly, but also professionals � teachers, nurses, ministers, social workers, and police officers. (Kelley, July 27, 2003)

In 2003, the Task Force completed their study and developed seven recommended housing objectives and corresponding programs for affordable housing. (Exhibit A)  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 request that affordable units be integrated 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, which can be particularly effective in communities such as Burbank that are 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, a financial offset.  The recommendation further requested that the City conduct economic sensitivity analyses to ensure that the affordability requirement and in-lieu fee amount would be structured to not unduly burden development.

The City Council and the Redevelopment Agency Board, on February 18, 2003, adopted Resolution Number 26,434 and Resolution Number R-2056 to accept the recommendations of the Task Force and directed staff to initiate work programs for the Council�s future consideration and implementation of the Task Force�s recommendations. (Exhibits B and C)  During discussion at that meeting, the Council further 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.  The Council ultimately directed staff to move forward with the preparation of the ordinance, and offered direction concerning specific parameters to be included.

In March of 2004, staff presented the final draft of the inclusionary housing ordinance to the Planning Board at a noticed public hearing.  The Board raised several questions at this hearing (discussed in more detail in the Planning Board section below) and requested further analysis and possible amendments.  At this same time, the City was considering adopting new density and development standards which would impact an inclusionary housing requirement, and the State of California was in the process of adopting new density bonus law which would require an update to the City�s density bonus ordinance.  Because of all of these issues, processing of the inclusionary ordinance was put on hold.  By the end of Summer 2005, new multi family density and development standards became effective and the State adopted the current density bonus law.

On May 7, 2005, the City Council held a joint study session with the Planning Board on affordable housing.  The Council again expressed their interest in an inclusionary ordinance and the growing need for an ordinance given the number of applicants possibly wanting to take advantage of the density bonus law with Burbank�s new density and development standards.

On October 24, 2005, the Planning Board held a hearing to discuss both the inclusionary housing and density bonus ordinances.  They did not recommend approval of the inclusionary ordinance, but did recommend approval of the density bonus ordinance.  This is discussed further below.

On November 22, 2005, the City Council held a study session to discuss the parameters of an inclusionary housing ordinance and how it would work with state density bonus law.  Council asked staff to conduct further analysis regarding possible different options for the ordinance.  These are discussed below.

History of Inclusionary Zoning:  Inclusionary zoning programs have a long history in California, largely because housing prices have traditionally been among the highest in the nation.  Up until the 1970s, housing prices within California were on par with the national average, but began to rise sharply during the inflationary period in the early 1970s and as heavy in-migration placed substantial pressure on the housing market.  The passage of Proposition 13 and limitation on property tax revenue caused jurisdictions to begin depending increasingly on development impact fees to fund infrastructure development for new housing.  Consequently, development fees in California are among the highest in the country, contributing to further housing costs for consumers.  Inclusionary housing, nevertheless, has become a growing trend in California and now over 120 jurisdictions statewide have adopted some form of an inclusionary housing program.

The proposed ordinance is closely modeled after the City of Pasadena ordinance, but modified based on discussions with City of Pasadena staff who recently amended their four year old ordinance, and based on the needs of the Burbank community.  In addition to research on other cities� ordinances, 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 ensure that Burbank�s ordinance would not be overburdensome when compared to ordinances of surrounding cities.  The City of Glendale recently adopted an inclusionary ordinance that applies only to projects within their San Fernando Road Corridor Redevelopment Project Area.

There has been much debate concerning the effect that adopting an inclusionary housing ordinance will have on housing production.  Some argue that if supply is reduced, housing costs will increase thereby acting contrary to the purpose of an ordinance.  The Reason Public Policy Institute produced a study that claims inclusionary zoning programs in the Bay area led to a decline in housing production in those communities and contributed to rising housing prices overall. (San Francisco Chronicle, April 15, 2004)  A paper put out by the American Planning Association, however, states that the study�s methodology exhibited a number of omissions, including a failure to include communities without inclusionary and a failure to account for other factors that could have an effect on housing production, such as the unemployment rate, interest rate, growth boundaries, and lack of available land.  �As a result, the study�s conclusion that inclusionary zoning is the cause (or a significant cause) of decreased housing production in these communities remains wholly unsupported.� (Brunick, 2004)  Another study of 28 California cities (not just Bay Area communities) over 20 years by David Paul Rosen and Associates reaches the opposite conclusion of the Reason study.  It concludes that inclusionary zoning does not negatively impact overall levels of housing production.

Others argue that developers will raise the cost of market rate homes in order to make up the costs they lose by providing the affordable units.  Our consultants tell us this argument does not make sense.  Developers will charge the maximum amount they can get for market rate units; this is in fact the definition of market rate.  What this will affect, however, is the cost of land.  Land may cost less because the cost to construct a project increases.  However, again consultants believe these costs are balanced over time.  This is why staff proposes to exempt projects which have already been submitted for Development Review, and also why a six month phase-in period is included.  Those who have owned land longer have likely seen an increase in property values such that the ordinance will only minimally affect them.

Public Outreach:  When staff requested direction from City Council on the parameters of the ordinance, it was also stated that the intent of staff was to do as much community outreach as possible.  Staff formed a focus group in April 2003 that consisted of developers and representatives of various stakeholder organizations in the city.  The purpose of this focus 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 that 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.  In February, staff sent a notice to all of these members of the public informing them of a workshop to discuss the proposed inclusionary housing ordinance.  The notice also gave a brief description of the ordinance parameters that were to be discussed at the workshop.  Approximately 11 people attended this meeting.  The parameters of the ordinance were discussed, handouts were given and questions were answered.  Some were concerned over the level of incentives offered.  They stated that the incentives would be key in the decision to include the units within the development.  There was also concern over the financial analysis stating that rents received in some parts of the City were much lower than the market rates identified in the study. There was also overall concern by developers that this is just another fee levied against the development community to achieve a City goal.

As is typical with other jurisdictions who have adopted similar ordinances, the primary argument against inclusionary housing is that the costs in making units affordable are simply passed on to the market rate owner in the form of higher sales prices or to the tenant in the form of increased rents.  However, if housing demand is price sensitive (as it is today), developer profit is reduced because costs cannot be passed on to the consumer.  Other arguments against inclusionary zoning include: unfeasibility for small development projects; prices of inclusionary units may not be significantly below market rents; and, restricted units may not be targeted to housing needs of jurisdiction.  Therefore, the inclusionary ordinance proposed takes these concerns into consideration and allows flexibility to the developer to achieve the goal set by the City.

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.  The issues brought up in these meetings surrounded advertising of units (so that Burbank residents and workers are informed of the location of affordable housing) and the desire to have the ordinance sunset after a certain number of years.

For both Planning Board hearings, staff mailed a notice to the same mailing list of over 150 people and published a notice in the Burbank Leader.  Staff has received general inquiries on the ordinance and a few comments, similar to those expressed at the public meetings.  The Building Industry of America for the Greater Los Angeles and Ventura area sent in a letter stating that inclusionary will raise prices and put residential land in jeopardy of being converted to other land uses. (Exhibit D-1)  This has not been the case for Burbank when the opposite has been requested by developers and approved by the Council, even with an affordable requirement.

A letter from Sister Lucille Dean was also received stating the need for affordable housing in the City and how inclusionary is one step toward meeting this need. (Exhibit D-2)

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: (See attached Ordinance and proposed Resolution with Implementing Regulations)

Applicability:  The requirement would apply to projects involving construction of five or more new housing units within one project.  Therefore, developers of one single family home, a duplex, a triplex or a four-unit apartment project are not subject to the requirements of this ordinance.  The requirement is based upon the number of units being constructed and is not affected by the number of existing units on the site or the number of units to be demolished.

Requirements:  Fifteen percent (15%) of all newly constructed units must be available for Low or Moderate income households.  For rental projects, 5% of the units must have rents which are affordable to Very Low income households and 10% of the units must have rents which are affordable to Low income households.  Developers may not use Moderate income units to meet Low or Very Low income unit requirements.  Very Low income households are defined as those earning 50% of the median family income (MFI) for LA County and Low income are those earning 80% of the MFI.  Income levels are adjusted for household size appropriate for the unit.  Attached to the Implementing Regulations is the 2005 listing of maximum income levels and maximum allowable housing costs.

Where the units are offered for sale, all of the affordable units (15%) must be available for Low or Moderate income households.  Moderate Income households are defined as those which earn up to 120% MFI, adjusted for household size.  These income definitions are based upon the housing cost definition within the California Health and Safety Code and are consistent with income thresholds used in Burbank�s other housing programs.

Inclusionary Credits for deeper income targeting, special needs units:  The City has greater needs for certain housing types and therefore will offer a credit to developers who provide this housing. Specifically, if Very Low Income rental units are provided in lieu of required Low Income rental units, the developer will receive a credit of one and one-quarter units for every one unit toward the 15% total.  If Low Income owner units are provided in lieu of required Moderate Income owner units, the developer will receive a credit of two units for every one unit toward the 15% total.  Lastly, if a greater number of affordable rental or ownership units are provided for large families (3 or more bedrooms) than required for the project or if fully accessible units (in excess of California Building Code Chapter 11A requirements) are provided for the physically disabled, the developer will receive a credit of one and one-half units for every one unit.

Alternatives to on-site construction:  Under certain circumstances described below, developers may be permitted to meet their requirement through means other than on-site construction of the affordable units.  These options are:

Off-site development:  The developer may construct the affordable units off-site within another project (including a mixed use project).  Small projects (five-nine units) are permitted to use this option by right.  All other projects are subject to discretionary approval by the City Council.  The off-site development option is subject to criteria such as site suitability and the same bedroom mix as the based project.  The off-site units may have a different design standard from the base project units in  terms of size, appearance, materials and finished quality, but shall be comparable to market rate units within the neighborhood where the off-site units are constructed and be of a quality consistent with new housing.

Off-Site Substantial Rehabilitation and Adaptive Reuse:  In-lieu of constructing the affordable units on-site, the developer may perform substantial rehabilitation of existing off-site units.  This option also includes adaptive re-use of an existing non-residential building.  Small projects (five-nine units) are permitted to use this option by right. All other projects are subject to discretionary approval by the City Council.  The rehabilitation and adaptive reuse option is subject to certain criteria which includes that the minimum cost threshold for substantial rehabilitation is $40,000 per unit, adjusted periodically for inflation.  The site must also be suitable for the type of development if the adaptive re-use option is utilized.

Donation of Land:  The developer may donate land in lieu of constructing the affordable units within the project.  Small projects (five-nine units) are permitted to use this option by right. All other projects are subject to discretionary approval by the City Council.  The land donation option is subject to criteria such as the land donated must be of equal or greater value than the in-lieu fee alternative as determined by a certified City appraisal paid for by the applicant.  The number of affordable units to be credited will be based on zoning and the holding capacity of the site and any other applicable factors.  Title to the land shall be conveyed to the City before a building permit is issued for any or all portions of the base residential development.

In-Lieu Fee:  In-lieu of constructing the affordable units on-site, the developer may pay a fee.  Small projects (five-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 the Fee Study.  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. (Exhibits E & F)  The City�s consultant recently updated this fee based on the current market conditions and found that the affordability gap is much larger. (Exhibit G)  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 as 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 far below the gap, most developers will opt for the fee, and the units are not constructed because then the city does not have enough construction funding.  This is why staff is proposing a fee that is equivalent to the gap and that developers only be permitted to pay the fee when they can prove that it is financial infeasible to construct the units on site.

Incentives to Construct Inclusionary Units:  As discussed, 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.  These incentives are in the form of modifications or waivers of development standards.  Offering concessions, while vital to the developer, have land use implications and need to be scrutinized carefully.

Staff is proposing that the incentives (or concessions) be broken down into three tiers depending on their potential level of impact on residents of the project and/or the surrounding community.  Concessions with an anticipated greater potential impact would require a higher level of review and approval.  The three tiers of approval are administrative (Community Development Director), Planning Board, and City Council. A list of potential concessions is attached to the Resolution for the Implementing Regulations, and include reduced common open space, increased lot coverage and increased floors of habitation.  The ordinance is structured such that the Community Development Director would have the authority to make modifications to Implementing Regulations, including the tiers, if new concessions were requested by developers.

In light of the 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 issues are mutually exclusive, but can be achieved simultaneously.  A quality project can have a modification from code, yet still be compatible with the surrounding neighborhood while providing 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 and input from the neighborhood.  The new code has resulted in better standards to appropriately limit the type and density of development projects, making them more compatible with the neighborhood.  Concessions allowed in the inclusionary ordinance, therefore, will not allow drastic changes that would be out of character for the neighborhood.

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 which, 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.  Ultimately, the developer will be required to sign an affordable housing agreement stating that the units will remain affordable in perpetuity or for the life of the structure and that the developer/property owner will certify annually that the units are in fact maintaining affordability with eligible tenants.

State Density Bonus Law:  The State of California has adopted new density bonus laws.  Under the new law, a developer may receive a density bonus from 5% up to 35% based on the percentage of affordable units provided with the project.  Attached to the Density Bonus Implementing Regulations is a table listing the exact density bonus allowed based on the threshold level of affordability.

Density bonus law requires cities to allow concessions to developers of certain kinds of affordable housing projects.  The inclusionary zoning concessions discussed above are designed to work with the density bonus law, including the tiered approval process.  The State requires cities to approve such concessions unless they make findings that it is not financially feasible.  The findings that staff is proposing for the inclusionary ordinance is the same as that required for the State density program to maintain consistency.

If a developer chooses to take advantage of the State density bonus law, they must construct the units on site.  They may only use the land donation option if the site is more than one acre or is large enough to accommodate 40 units.

The inclusionary ordinance was written so that a developer could meet the City of Burbank�s code and meet the State�s requirements for a density bonus.  The main difference between the two is the term of affordability.  In Burbank�s inclusionary ordinance, the affordable units are required to be available to Very Low, Low or Moderate income households in perpetuity, or for the life of the structure.  Under state density bonus law, rental units are required to remain affordable for 30 years and ownership projects are permitted an equity sharing buy-out option.  This means that after an eligible family purchases the home, they may sell it at market rate and will get a percentage of the increase in value that is proportional to their cost of the original value of the home.  Because all development will be subject to the inclusionary ordinance, developers will be required to meet Burbank�s affordability terms.  A developer may choose to both meet Burbank�s code and have more affordable units that are only subject to the State terms, but this would require that the developer construct many more affordable units which will likely have a significant increase in the cost to develop.

Under State law, in addition to the permitted concessions, developers may reduce the parking in a project as a matter of right.  Specifically, zero to one bedroom units need only provide one onsite parking space, two to three bedroom units, two onsite parking spaces, and four or more bedrooms, two and one-half parking spaces.  These spaces are inclusive of handicapped and guest parking.  All fractions of numbers are rounded up and the developer may also use tandem or uncovered parking to meet these requirements.  This differs from Burbank�s standards which require one and three-fourths spaces for studio (over 500 square feet) or one bedroom units, and two parking spaces for units with two or more bedrooms, plus one guest space for each five units.  Also, Burbank�s code allows tandem only for projects with three or fewer units and uncovered parking is only to be located in the rear 50% of the lot.

Whether or not the City Council adopts the density bonus ordinance (attached to the resolution), any developer may apply for a project under State density bonus law and it must be processed accordingly.  While developers always have this right, staff is processing this ordinance to implement the tiered concessions as a way to notify developers which concessions the City believes are appropriate.

Environmental Review:

A Negative Declaration was prepared for these two ordinances. (Exhibit H)  Adopting the ordinances and projects which meet the requirements of the ordinances will not have a significant adverse impact on the environment.  Each project will also be subject to environmental review as appropriate.

Applicability and Phase-In:

Developers may take advantage of state density bonus law now; the proposed ordinance simply codifies the law and adopts regulations for its implementation in Burbank.  Staff is proposing that the inclusionary requirement apply to new projects only, and not to projects which have submitted a complete Development Review application as of the effective date of the ordinance.  The effective date of the ordinance would be more than 30 days from the date the City Council adopts the ordinance, giving applicants ample warning before the requirements are effective.

Staff is also proposing a six month �phase-in� period 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.

Department Comments:

The proposed ordinance was routed to the Building Division for input into the ordinance.  They offered several suggestions which are included in the ordinances.  The Building Division was also a part of the focus group meetings and therefore is well versed in the purpose of the ordinance and the concerns of developers.

Planning Board Discussion:

The Planning Board reviewed a previous draft of the inclusionary ordinance in March of 2004. At this meeting, there were many questions because of pending changes to the multi family density and development standards and other global issues such as a new state density bonus ordinance.  Below is a summary of some of the questions asked by Board Members at the public hearing and staff�s response. (Exhibit I)

How many lots in City of Burbank affected by ordinance?  All lots that would contain residential development are subject to the inclusionary ordinance.  This means even commercial lots that choose to construct a mixed use project with five or more units is also subject to the ordinance.  While there are many lots in the City that may permitted to construct only four units and therefore would not be subject to the ordinance, most of these lots also have the ability to combine with adjacent lots thereby making the larger development subject to the ordinance.  Staff believes, however, that this ordinance will not effect most existing single family lots because there are few areas where it is possible to construct five new single family homes, unless in a small lot configuration.

What is the difference between inclusionary ordinance and state density bonus law?  The inclusionary ordinance is designed so that a typical development subject to the inclusionary requirement would be able to take advantage of the state density bonus law.  The main difference is the term of affordability.  State law requires that rental projects are required to maintain the affordable unit for 30 years while the inclusionary ordinance requires a term in perpetuity, or the life of the structure.  State law allows ownership projects a �buy-out� thereby having no term of affordability whereas the inclusionary ordinance again requires a term in perpetuity for ownership projects as well.  There are situations where a developer could provide their inclusionary required units and separately provide affordable units for a density bonus project, but this situation is not anticipated as it will likely have a bigger cost impact to the developer.  Below is a sample scenario for a developer who would meet their inclusionary requirement and take advantage of state density bonus law:

• Density permitted 15 units; developer wishes to construct 15 rental units

• Three affordable units must be provided.  One of the affordable units shall be available for rent to a very low income household and two of the affordable units shall be available for rent to low income households.

• This allows the developer to apply for a 35% density bonus.  This is because with 5% very low rental units, the developer can receive a 20% bonus and with 10% low rental units, the developer can receive a 20% bonus.  However, when combined, the total density bonus cannot exceed a 35% density bonus.

• Therefore, the developer can construct 21 units, one available for a very low income household and two available for low income households and 18 rented at market rates.

• The developer may request two concessions and will also receive the modified parking standard.

What is the status of other objectives to build affordable housing and what is the number of units built?  Describe what the Redevelopment Agency has done to provide and promote affordable housing?  The City�s current affordable housing objectives are presented in the recommendations of the 2002 Blue Ribbon Task Force on Affordable Housing.  These objectives include the following:

• Create community in conjunction with housing by integrating community-serving uses with housing development

• Encourage balance and variety in housing by providing incentives for affordable housing and integrating affordable housing units within market rate developments

• Facilitate mixed-use and in-fill development through reuse of existing structures in the downtown and along commercial corridors

• Preserve existing affordable housing

• Sustain and strengthen neighborhoods through housing rehabilitation assistance

• Expand home ownership opportunities

• Promote affordable and accessible housing to special needs populations

The Redevelopment Agency (Agency) is responsible for implementing programs and projects to achieve many of these affordable housing objectives.  Currently, the Agency contributes approximately $6 million annually to the provision of affordable housing in the community.  These funds are used for new construction of affordable rental and ownership housing, acquisition and rehabilitation of rental housing, provision of mortgage assistance to new home buyers, and rehabilitation assistance to existing property owners.    

Currently, the City of Burbank has an affordable housing inventory exceeding 1,200 units, including homes for families, senior citizens and disabled persons.  In addition, the Burbank Housing Authority administers the Section 8 Rental Assistance Program that provides rental assistance to over 1,000 households in Burbank.  While this may seem like a significant amount of affordable housing in the community, there are currently extensive waiting lists of people for each affordable housing unit in the City.  The table below shows affordable housing developments in the City.

In addition to the above new development projects, the Agency partners with the Burbank Housing Corporation to acquire and rehabilitate affordable rental housing for families.  Since 1999, BHC has acquired and is rehabilitating over 200 distressed rental housing units located within specific focus neighborhoods in the City.  In addition, BHC has developed four Activity/Family Resource Centers that provide a service-enriched environment for residents in each neighborhood.    

In addition, the Agency offers housing rehabilitation loans and grants to lower and moderate income property owners.  These loans and grants assist property owners with code related health and safety repairs to their property.  Assistance is available to both home owners and apartment building owners in the community.  Apartment owners make a portion of their units available to lower-income households at affordable rents in return for the assistance.  Since 1976, over 500 properties have been rehabilitated through this program.           

What is the number of units expected to be produced under the inclusionary ordinance? This question is difficult to answer given the uncertainty of development.  If the inclusionary ordinance was in effect approximately one year, six months ago, the City would be seeing construction of approximately 66 units.

What if the City did not offer incentives to on site development or what if development modifications are not approved? Under the state density bonus law, developers are permitted to receive a certain number of concessions.  If they prove the concession is necessary to construct the affordable units, the City must approve.  Therefore, it makes sense to also allow these concessions under the inclusionary ordinance.  The tiers that have been created encourage developers to request certain concessions over others that require a higher level of approval authority.  Some development modifications are also allowed by right under the density bonus law.

Would the inclusionary ordinance be a disincentive to residential development along commercial corridors? In general, there appears to be more difficulty constructing along commercial corridors because of the density that developers need to make the projects work financially.  Therefore, the financial burden of providing affordable units may make it more difficult.  However, if the property is of a size to get enough residential units, developers could take advantage of the concessions as well as the density bonus law in order to be able to provide the required number of affordable units.

Can we identify a group of workers we should target and that would be given priority for affordable housing?  Have other cities identified these groups of people? As part of the inclusionary ordinance, the City is offering its assistance in marketing the units for the developers.  The City could market the units to certain professionals such as teachers, health care professionals and safety officers as part of this effort.  However, the City would not want to discriminate or give any appearance of discrimination.  It would not be appropriate to give preference to certain groups of people without a study confirming that this is not a discriminatory practice.  Therefore, all persons who meet the income criteria would be eligible to rent or own the affordable units.

Besides Pasadena who has had their ordinance for only two and one-half years, what is the status of other cities which have an inclusionary ordinance?  Are there other communities that are more reflective or Burbank and have had their ordinance longer and what is their outcome?  Staff is unaware of any cities which have adopted an inclusionary ordinance that have now terminated the ordinance.  In other words, it appears that the ordinance is working and that developers are considering it a part of developing residential projects in California.  Many cities who adopted low in-lieu fee schedules have increased their fees in the last two years because of the high cost of development and to help encourage developers to construct the units rather than pay the fee.  In the last year, even the City of Glendale adopted an inclusionary ordinance.  The ordinance applies to projects within their San Fernando Corridor Redevelopment Project Area only.  The in-lieu fee adopted is $17 per square foot which was still below what their study indicated was necessary to construct the units.

Would this ordinance have the effect of increasing density? Because developers would be required to provide affordable units, they would also be able to take advantage of the state density bonus law in most circumstances.  With the recent density changes, however, densities experienced would likely be lower than what was previously permitted, but would be similar to other surrounding communities.

How does the new multi family requirement for compatibility play into this ordinance? The City�s recently adopted multi family ordinance modified the previous language about compatibility.  While overall compatibility of appearance is still a requirement, the vague terminology of �compatibility� has been removed.  Also, with the recent changes of density, affordable projects which obtain a density bonus will not look out of character with recently constructed projects under the old densities.

City Council Discussion:

At the November 22, 2005 study session on inclusionary and density bonus, the Council asked staff to bring back more analysis and information on a few topics.  Below is a summary of the topics and staff�s response.

If we lower the percentage of affordable units required, how low would we have to go so developers do not take advantage of the state�s density bonus law? 

Most cities offer density bonus as part of the incentives to providing affordable housing.  Without this incentive, it is quite a cost to developers.  The City Council would like to create an inclusionary housing ordinance that does not automatically encourage developers to pursue the density bonus.  This means that the impacts created by the inclusionary housing affordability requirements must be less than the net impact created by a project that fulfills the affordability requirements imposed by the density bonus ordinance.  Unfortunately, in the case of rental units, a developer need construct only 5% Very Low income units to quality for the density bonus.  The project economics are stronger than the economics associated with a 100% market rate project.  This means that any developer of apartment units is likely to invoke the density bonus even if the city does not adopt an inclusionary ordinance.  If the City adopts any kind (even if only 5%) of inclusionary ordinance it is likely that apartment developers will use the density bonus to defray the impacts of the inclusionary requirements.

For ownership projects, there is a threshold.  If the City imposes a 15% Moderate income requirement on ownership units, the developers will have a clear incentive to obtain a density bonus.  To create a situation where developers would be likely to fulfill the inclusionary requirements without requesting a density bonus, the inclusionary standard would have to be set at 8% Moderate rather than 15%. (Exhibit J)  This is the point where developers where the density bonus would not be financially beneficial.

In a discussion with the author of �The Inclusionary Housing Debate: The Effectiveness of Mandatory Programs Over Voluntary Programs,� Nicholas Brunick states that:

As a general matter, communities that do not have much developable land left and wish to address their affordable housing problems as quickly as possible would be well-advised to craft an inclusionary housing program that encourages developers to build the affordable housing units instead of applying the fee.

He states that one way to achieve this is to set the in lieu fee as close as possible to the level needed to make a market-rate housing unit affordable.  He state many communities achieve this by requiring developers to apply for the right to use the in lieu feet option, rather than offering it by right.  Yet, he admits that a creative community can make excellent use of the in lieu fee to address a range of housing issues.  Inclusionary is one tool, but many communities have a diverse array of housing needs.  By collecting a fee in lieu, a community can build a local housing trust fund and use those funds in a flexible manner to do many things.

Could we just make the in lieu fee by right for all projects?  This way developers won�t take advantage of the density bonus law. The premise for this being that the amount of the in-lieu fee should be less than financial impact created by a project that fulfills the inclusionary obligation by invoking the density bonus.  As stated above, in ownership projects, the inclusionary requirement could be reduced to 8% Moderate rather than 15%.  If this is lowered, the in lieu fee schedule should be adjusted as well.  The resulting fee is approximately $20 per square foot.  Since the rental fee is $20.53 per square foot, the same amount could be used for ownership projects.  If this fee is offered by right, developers would see a clear advantage to paying the fee and would not see any advantage to increase their affordability to pursue a density bonus.

For rental projects, the $20.53/sf in-lieu fee creates less of an impact on developers than the proposed on-site inclusionary requirements.  If a developer does not choose to use the density bonus, it is likely that they will attempt to win City Council approval to pay the fee.  The City could reduce the fee to less than $20.53/sf in an attempt to make it more attractive to pay the fee rather than to take the density bonus.  However, there is no fee amount that provides stronger economics than using the density bonus.  If the fee were offered by right, there might be some developers who would choose to pay the fee rather than provide the affordable units simply for lack of knowledge of affordable housing or desire to create a high end project that would not accommodate affordable units.

Is offering the in lieu fee by right, especially for rental projects, enough for developers to forget the advantages of the density bonus law?  For example, the increased density and reduced parking requirements are strong incentives.  Along these lines, it seems like there is an incentive to build one bedroom units because the state�s parking reduction.  As stated above, the advantage of density bonus is greater.  Not only because the increase in units, but the reduction in parking is an enormous financial incentive.  This applies especially for one bedroom units, but projects with two bedroom units would still see the advantage because of no guest space requirements and the ability to use tandem spaces to meet the parking requirements.  As stated above, however, there would be some developers who would pay the fee if offered by right simply because they do not want the hassle of maintaining affordable units and want a simple way of identifying costs to financial lenders.

What is the cost per square foot to do Very Low units?  What would an appropriate in lieu fee be for this type of affordable unit?  The City cost to produce affordable units is best ascertained by looking at BHC projects.  Based on historical results, the $20.53 per square foot fee should be sufficient to produce a commensurate number of units as would have been provided in on-site developments.  This number covers both Low and Very Low.  However, the affordable units would all be rentals, while the vast majority of the market rate projects will be comprised of ownership units.

Some of the incentives being offered by right and through approvals by both the Planning Board and City Council seem like standards we don�t want to give up.  These include reduced landscaping, open space, increased height, and lot coverage.  Could we take these away and still offer enough incentive for developers to be able to include affordable housing in the projects?  In general, most of these incentives are not desired by developers.  They require incentives that significantly reduce their costs.  Therefore, density bonus and parking reductions are two of the only incentives that are worth much to developers.  With density bonus law, they may receive both of these by right, without any offer through an inclusionary ordinance.  Therefore, if Council is not comfortable with listing these incentives, they could be removed.

PLANNING BOARD RECOMMENDATION:

At their October 24, 2005 public hearing, the Board received answers to their questions from their March 2004 meeting and had lengthy deliberations regarding the proposed ordinances. (Exhibit K)  They voted 2-3 to recommend approval of the inclusionary ordinance, therefore the action failed. (Exhibit L)  The three members who were not in support did not feel the ordinance could be changed to be acceptable to them and instead stated they had philosophical objections to the proposal.  They believed, individually, that the Redevelopment Agency is doing a good job at providing affordable housing and did not believe developers should have to shoulder the burden of providing it since they already have other fees placed on them.  They felt if the City really wanted this, they should make it a tax on everyone and then have everyone vote on it.  They felt some will be just above the income thresholds and this ordinance would then push them out of the market.    The two members who supported the ordinance felt that Burbank was at risk of losing its middle class and this ordinance was a way to support the service sector.  They supported the in lieu fee that truly covered the gap.

The Board did, however, recommend approval of the density bonus ordinance with accompanying implementation regulations by a vote of 5-0. (Exhibit M)  They stated it was part of state law and therefore accepted staff trying to address state law.

CONCLUSION & FISCAL IMPACT:

Staff has prepared an ordinance as directed by the City Council for inclusionary zoning.  This ordinance was created after tremendous community outreach from the Task Force to the development community.  Provision of affordable housing through an inclusionary ordinance can be accomplished in several ways; the two main variations being that the ordinance either requires the units to be constructed on site, or pay an in lieu fee upon a discretionary approval, or that developers are given the option of paying the in lieu fee by right.  Staff has prepared an alternative ordinance that allows payment of the in lieu fee by right for all projects.

The cost to provide affordable housing until now has rested predominantly within the City�s, or more specifically, the Redevelopment Agency�s budget.  With agreements between various developers, the City has been able to construct and rehabilitate hundreds of units.  With adoption of an inclusionary ordinance, some of this burden will be shared with other developers who are making a tremendous profit from their developments.  If the City chooses the option of allowing the in lieu fee by right for all projects, these funds would go directly to providing affordable housing and administrative review to certify compliance with the ordinance.  If the City chooses an in lieu fee that is less than the affordability gap, that simply mean less units are constructed or rehabilitated, but again, the fee goes directly to affordable housing.

Pros

• If developers take advantage of density bonus, the term of affordability is only 30 years for rental and essentially no term for ownership.  Adopting this ordinance ensures longer affordability terms.

• It is a good time to take advantage of the high market; the market will have enough time to right itself.

• Even without many, or any, administratively approved concessions, developers will still get parking concessions with state density bonus law; therefore the inclusionary ordinance should be in place for long term affordability requirements.

• Most communities admit that a multi-faceted approach to affordable housing is best.  The Task Force also recognizes this and inclusionary is one way to have developers pay their fair share.

• If there is a significant change in the market, the City can simply adjust the fee or remove the inclusionary requirement.

Cons

• Voluntary programs do not work to get units.  With the state density bonus law on the books for several years, we�ve only had one developer take advantage of it.

• It imposes a cost on developers and sometimes without being able to provide incentives.

• Council may not be willing to give some incentives such as open space, height, and lot coverage.  Although these may not be incentives developers desire.

• By adopting the ordinance, it may encourage developers to take advantage of the density bonus law.

RECOMMENDATION:

Staff recommends that City Council approve Zone Text Amendment No. 2003-4 for an inclusionary ordinance and Project No. 2005-157, Zone Text Amendment for a density bonus ordinance along with the implementing regulations for each.

LIST OF EXHIBITS

Exhibit A          Blue Ribbon Task Force on Affordable Housing Final Recommendations

Exhibit B          City Council Resolution Number 26,434 dated February 18, 2003

Exhibit C          Redevelopment Agency Resolution Number R-2056 dated February 18, 2003

Exhibit D-1       Letter from BIA dated March 22, 2004

Exhibit D-2       E-mail and letter from Sister Lucille Dean dated October 28, 2005

Exhibit E           In lieu fee study dated September 14, 2003

Exhibit F           Tiered in lieu fee schedule dated September 14, 2003

Exhibit G          Updated feed study dated October 18, 2005

Exhibit H          Proposed Negative Declaration

Exhibit I            Minutes from March 22, 2004 Planning Board meeting

Exhibit J           Affordable Housing Case Studies dated March 14, 2006

Exhibit K          Minutes from October 24, 2005 Planning Board meeting

Exhibit L           Planning Board Resolution #3007 on Inclusionary dated October 24, 2005

Exhibit M         Planning Board Resolution #3008 on Density Bonus dated October 24, 2005

California Environmental Quality Act - Initial Study

Appendix A 40 Townhomes

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