EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: March 15, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Jaime M. Fontes, City Manager
BY: Patrick Heisinger, Assistant City Manager
Patrick Heisinger, Assistant City Manager
SUBJECT: Issues Concerning the Light Tree Affordable Housing Project and the East Palo Alto Sanitary District
Recommendation
It is recommended that the City Council:
1. Accept the report on the issues concerning the Light Tree affordable housing project and the East Palo Alto Sanitary District; and
2. Reaffirm the City Council’s desire to enter into a Memorandum of Understanding with the East Palo Alto Sanitary District to ensure the Light Tree development is able to provide much needed affordable housing to the community by January 2023.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 4: Improve Public Facilities and Infrastructure Priority No. 6: Create a Healthy and Safe Community
Background
On January 29, 2019, the East Palo Alto City Council (“Council”) approved the Light Tree development, a 185-unit 100% affordable housing project (“Project”) located at 1805 East Bayshore Road developed by Eden Housing and EPACANDO (“Developer”). At that time, the Council appropriated $4,000,000 from the Facebook Catalyst Fund to support the Project. The City of East Palo Alto (“City”) received no comments or claims of adverse impacts from reviewing agencies with jurisdiction over systems that may be affected by the Project. As such, the Project received a Categorical Exemption under the California Environmental Quality Act (“CEQA”).
In June 2019, the State of California (“State”) awarded the Project $20,000,000 of Affordable Housing and Sustainable Communities (“AHSC”) funding. The City is responsible for ensuring these funds are spent for their intended purposes prior to the deadline stipulated in the agreement between the City and the State (July 2024).
The scope of the Project entails an expansion of the number of dwelling units on site from 94 apartments to 185 units through a combination of substantial rehabilitation and new construction. As such, the Developer was aware that a connection fee to the East Palo Alto Sanitary District (“EPASD”) would be required to ensure service for the 91 net new units.
Shortly following Project approval, the Developer approached EPASD to discuss the Project’s eventual connection to the EPASD infrastructure, but EPASD stated that their system did not have capacity to serve the Project. Specifically, EPASD contended that their system would only need improvements if the additional 90 units resulting from the Project are added to the system.
The City, Developer, and EPASD then held several meetings to seek a joint resolution, with the goal of receiving a “will serve” letter from EPASD for the Project. The City, Developer, and several knowledgeable professionals challenged the assertions that the EPASD system could not accommodate the Project. However, due to timeline limitations associated with Project financing, the Developer decided to resolve the dispute by negotiating a payment to EPASD.1 On June 12, 2020, EPASD and the Developer entered into a Wastewater Service Agreement (“WSA”) for the Project. The WSA outlines the roles and responsibilities of each party, respectively, as described in the table below. Please also see Attachment 1 to review the full WSA.
Entity Obligation
Developer Make a payment totaling $2,486,585 to fund infrastructure costs, as well as capacity, permitting, and other administrative fees.
EPASD Provide wastewater service to the Project within 18 months of receiving the Developer’s payment.
EPASD also committed to pay $2,000,000 to contribute to the cost of the upgrades.
The segments and improvements of the necessary work codified in the WSA are illustrated in Map #1 below:
Map #1
1 Through the negotiation period, EPASD increased their request for Developer funding for the improvements from $3,000,000 to $5,000,000 and eventually to $7,000,000.
On August 5, 2020, the Developer paid EPASD the administrative fee of $17,400; on September 25, 2020, the Developer paid EPASD the remaining fee of $2,469,185. Based on this schedule, EPASD would be required to complete necessary system improvements and provide wastewater service by March 25, 2022.
The Project broke ground on October 5, 2020, 20 homes were completed in August 2021, 28 are expected to be completed by April 1, 2022, and 47 new homes are anticipated for completion by May 17, 2022. These 95 total units equal the number of apartments that previously existed at the location prior to the initiation of the Project and, therefore, these units could be assumed to have EPASD service. The 90 additional homes are expected to be completed by January 3, 2023.
In late November 2021, the City was made aware that EPASD had retained EMC Planning, the firm that had completed the Notice of Exemption (“NOE”) for the Project. In response to the City’s questions regarding Segment 7 shown in the map above, EPASD asked EMC Planning to conduct an environmental review for a new Trunk Line (“Trunk Line Project”) and any update necessary to the Project’s NOE. The map below shows the location of the Trunk Line Project:
Map #2
In early January 2022, the City became aware that EPASD would not meet the terms of the WSA by providing the “will serve” letter when the Project’s new units were completed. Eden Housing provided further information that EPASD was requiring the Developer to sign an amended WSA, obligating the Developer to pay for all additional costs attributed to “unforeseen” costs resulting from the improvements identified in the WSA. When the Developer informed EPASD that the WSA could not be amended due to the fact that the award of Federal/State Tax Credits and investments in the Project were based on the signed WSA, EPASD expressed their desire to turn the improvement project over to the Developer.
On February 8, 2022, the Mayor, City and EPASD representatives met to discuss the Project.
During that meeting, the EPASD General Manager stated that their consultant, EMC Planning, had reported the need for a new CEQA and permitting process due to the EPASD Trunk Line project. City staff inquired about potential options and the EPASD General Manager stated that EPASD would be willing to consider another option, if EMC Planning could identify a viable solution that would move the Project forward and not impact the Trunk Line project.
On February 9, 2022, during a call between the City and EMC Planning, EMC Planning identified a feasible means of advancing the Project, without other impacts, as described in the Proposed Approach section below. EMC Planning also mentioned that this option had been communicated to EPASD in November 2021.
On February 23, 2022, the City and representatives from the Developer and EMC Planning met to discuss potential approaches for advancing the Project. During that meeting, EMC Planning reaffirmed their professional opinion that the Project’s existing CEQA approvals could be updated without interrupting progress on the development.
Analysis
Proposed Approach Articulated by EMC Planning
To ensure that the Project can be completed in a timely manner, EMC Planning proposed to bifurcate and study the potential environmental impacts of the two upgrade projects individually, as follows:
1. The improvement project move forward with construction shown in segments A through 6, in map #1 above since the CEQA clearance for that work is document in the Notice of Exemption filed by EPASD on March 23, 2021 pertaining to the “1805 East Bayshore Road Sewer Main Replacement” Project.
2. EPASD would complete a full CEQA review of all work associated with their Trunk Line project which would include Segment 7 (map #2 above).
On February 24, 2022, City and EPASD representatives met again to discuss the option provided by EMC Planning. After reviewing the recommended option, the EPASD General Manager stated that this approach would increase the project costs by $1,000,000. An increase of $1,000,000 to the Project’s sewer improvement would equate to a cost increase of 22% in one year. When asked about the basis of this opinion, the General Manager stated that construction costs have increased since the WSA was executed. However, the General Manager also confirmed that EPASD has yet to complete a bid process for the improvement work which would beneficial to better estimate construction costs.
It is customary for jurisdictions to calculate assumed construction cost increases that account for the timeline associated with the completion of the improvement, and to include these cost increases in any agreements, as appropriate. However, EPASD is not able to provide a current Capital Improvement Plan that would describe the anticipated or needed improvements over time, it is difficult to understand the basis for EPASD’s estimates. When asked why the fees established in the WSA did not account for price adjustments overtime, the EPASD General Manager’s response was, “Nobody does fees that way.” Concluding the February 24, 2022, meeting, the Mayor suggested that the City draft and forward a proposal to the EPASD Board of Directors for consideration. The EPASD Board Chair and General Manager agreed to consider the proposal once received. In the interest of transparency and providing a forum for all parties to be heard, the Mayor also suggested that it may be beneficial to discuss the Project at both a City Council meeting and an EPASD Board of Directors meeting.
City’s Proposed Approach
On March 4, 2022, a letter (Attachment 2) from the Mayor was sent to EPASD’s Board of Directors and EPASD’s General Manager requesting the following:
1. The project move forward with construction shown in segments A through 6 identified in Map #1 above;
2. The City will issue an encroachment permit for all work required in segments A through 6 identified in Map #1 above;
3. EPASD begin construction work on segments A through 6; and
4. The CEQA environmental review of the construction and installation of the sewer lines in Segment 7 will be included in the CEQA review for EPASD’s Trunk Line Project.
In an effort to advocate for more transparency, the City recommends that the City and EPASD enter into a Memorandum of Understanding (MOU) to codify the proposed approach outlined above.
Next Steps
As of the date of this memorandum, staff is not certain if EPASD will consider the City’s proposal outlined in the Mayor’s letter sent on March 4, 2022. City staff is eager to engage with the District’s Board to resolve the issues placing the Light Tree affordable housing development at risk of not being completed.
Conclusion
The Project is a $170 Million development that will provide much needed housing for East Palo Alto. In addition, the City is responsible for ensuring that the AHSC funding allocated to the Project is spent in a timely manner. For these reasons, it is imperative that the City and EPASD partner to resolve the impasse between the District and Developer to ensure the Project will be 100% occupied by January 2023.
Fiscal Impact
At this time, there is no fiscal impact to the City associated with this report.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website and at the San Mateo Co. Library located at 2415 University Avenue, East Palo Alto.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(5), in that it is a government administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Wastewater Services Agreement
2. Letter from Mayor Abrica to the EPASD Board of Directors and General Manager dated March 4, 2022