Malibu City Council
November 13, 2023

Agenda Item # 3.B.10.

Council Agenda Report
To: Mayor Uhring and the Honorable Members of the City Council Prepared by: Joseph D. Toney, Assistant City Manager
Approved by: Steve McClary, City Manager
Date prepared: October 23, 2023 Meeting date: November 13, 2023 Subject: Fee Study Professional Services Agreement
RECOMMENDED ACTION: Authorize the Mayor to execute the Professional Services Agreement with Matrix Consulting Group, Ltd., for conducting a Fee Study.

FISCAL IMPACT: No additional appropriation is required. Funding for this agreement/project is included in the Adopted Budget for FY 2023-24 in Account No. 100- 7054-5100-00 (Finance-Professional Services). This agreement has a not-to-exceed of $68,650.

STRATEGIC PRIORITY: This item supports the Finance Operations – Fee Schedule Update priority identified in the Adopted FY 2023-24 Strategic Priority Project List.

DISCUSSION: Initiating a fee study was originally identified in the FY 2022-23 Adopted Budget, carried forward into the FY 2023-24 Adopted Budget, and now prioritized as a Strategic Priority.

The City’s last fee study was completed in FY 2015-16. The rates established in the fee study are used as a base amount that is increased annually based on the Consumer Price Index (CPI) for the period ending in February for the Los Angeles-Long BeachAnaheim, CA area. The annual percentage change of CPI was 5.1% in February 2023, and this adjustment was included in the Schedule of Fees for FY 2023-24. The Schedule of Fees establishes the amount the City can charge for fees for service. The City’s annual budget typically includes approximately $5.0 million in revenue from Service Charges and approximately $3.5 million in revenue from Licenses and Permits.

Due to the annual increase based on inflation only, and changes in operations and staffing since FY 2015-16, the City is overdue for conducting a new fee study to ensure City Council Meeting
11-13-23
Item

3.B.10.

Agenda Item # 3.B.10.
fees are in alignment with full cost recovery; such studies typically result in some fees being updated, removed, or new ones added. The goal is to have a revised fee schedule in-place for the start of FY 2024-25, at July 1, 2024.

A Request for Proposals (RFP) was issued on August 3, 2023, and closed on August 29, 2023. The City has chosen Matrix Consulting Group, Ltd., to conduct the study. Matrix was founded in 2002, has 25 full-time and five part-time staff, and extensive experience conducting these studies throughout California and with coastal communities. The firm will oversee a thorough process that will include but not limited to: data collection, interviews, production of a cost allocation plan (internal and indirect costs), updated Fee Schedule, presentation of results, and a new master fee workbook for updating annually.

The overall project is anticipated to take about 3-5 months.

ATTACHMENTS: Agreement for Fee Study

AGREEMENT FOR PROFESSIONAL SERVICES
This Agreement is made and entered into as of November 13, 2023, by and between the City of Malibu (hereinafter referred to as the "City"), and Matrix Consulting Group, Ltd. (hereinafter referred to as "Consultant").

The City and the Consultant agree as follows:

R E C I T A L S
A. The City does not have the personnel able and/or available to perform the services required under this Agreement.

B. The City desires to contract out for consulting services for certain projects relating to conducting a comprehensive fee study and updated fee schedule.

C. The Consultant warrants to the City that it has the qualifications, experience and facilities to perform properly and timely the services under this Agreement.

D. The City desires to contract with the Consultant to perform the services as described in Exhibit A of this Agreement.

NOW, THEREFORE, the City and the Consultant agree as follows:

1.0 SCOPE OF THE CONSULTANT’S SERVICES. The Consultant agrees to provide the services and perform the tasks set forth in the Scope of Work, attached to and made part of this Agreement, except that, to the extent that any provision in Exhibit A conflicts with this Agreement, the provisions of this Agreement govern. The Scope of Work may be amended from time to time by way of a written directive from the City.

2.0 TERM OF AGREEMENT. This Agreement will become effective on November 13, 2023, and will remain in effect for a period of two years from said date unless otherwise expressly extended and agreed to by both parties or terminated by either party as provided herein.

3.0 CITY AGENT. The City Manager, or his or her designee, for the purposes of this Agreement, is the agent for the City; whenever approval or authorization is required, Consultant understands that the City Manager, or his or her designee, has the authority to provide that approval or authorization.

4.0 COMPENSATION FOR SERVICES. The City shall pay the Consultant for its professional services rendered and costs incurred pursuant to this Agreement in accordance with the Scope of Work’s fee and cost schedule. The cost of services shall not exceed a total amount of $68,650 for the term of the agreement. No additional compensation shall be paid for any other expenses incurred, unless first approved by the City Manager, or his or her designee.

Attachment 1
Agreement for Professional Services
Matrix Consulting Group, Ltd.

4.1 The Consultant shall submit to the City, by no later than the 10th day of each month, its bill for services itemizing the fees and costs incurred during the previous month.

The City shall pay the Consultant all uncontested amounts set forth in the Consultant's bill within 30 days after it is received.

5.0 CONFLICT OF INTEREST. The Consultant represents that it presently has no interest and shall not acquire any interest, direct or indirect, in any real property located in the City which may be affected by the services to be performed by the Consultant under this Agreement. The Consultant further represents that in performance of this Agreement, no person having any such interest shall be employed by it.

5.1 The Consultant represents that no City employee or official has a material financial interest in the Consultant’s business. During the term of this Agreement and/or as a result of being awarded this contract, the Consultant shall not offer, encourage or accept any financial interest in the Consultant’s business by any City employee or official.

5.2 If a portion of the Consultant’s services called for under this Agreement shall ultimately be paid for by reimbursement from and through an agreement with a developer of any land within the City or with a City franchisee, the Consultant warrants that it has not performed any work for such developer/franchisee within the last 12 months, and shall not negotiate, offer or accept any contract or request to perform services for that identified developer/franchisee during the term of this Agreement.

6.0 GENERAL TERMS AND CONDITIONS.

6.1 Termination. Either the City Manager or the Consultant may terminate this Agreement, without cause, by giving the other party ten (10) days written notice of such termination and the effective date thereof.

6.1.1 In the event of such termination, all finished or unfinished documents, reports, photographs, films, charts, data, studies, surveys, drawings, models, maps, or other documentation prepared by or in the possession of the Consultant under this Agreement shall be returned to the City. If the City terminates this Agreement without cause, the Consultant shall prepare and shall be entitled to receive compensation pursuant to a close-out bill for services rendered and fees incurred pursuant to this Agreement through the notice of termination.

If the Consultant terminates this Agreement without cause, the Consultant shall be paid only for those services completed in a manner satisfactory to the City.

6.1.2 If the Consultant or the City fail to fulfill in a timely and proper manner its obligations under this Agreement, or if the Consultant or the City violate any of the covenants, agreements, or stipulations of this Agreement, the Consultant or the City shall have the right to terminate this Agreement by giving written notice to the other party of such termination and specifying the effective date of such termination. The Consultant shall be entitled to receive compensation in accordance with the terms of this Agreement for any work satisfactorily completed hereunder. Notwithstanding the foregoing, the Consultants shall not be relieved of liability for damage sustained by virtue of any breach of this Agreement and any payments due under this Agreement may be withheld to off-set anticipated damages.

Agreement for Professional Services
Matrix Consulting Group, Ltd.

6.2 Non-Assignability. The Consultant shall not assign or transfer any interest in this Agreement without the express prior written consent of the City.

6.3 Non-Discrimination. The Consultant shall not discriminate as to race, creed, gender, color, national origin, or sexual orientation in the performance of its services and duties pursuant to this Agreement, and will comply with all applicable laws, ordinances and codes of the Federal, State, County and City governments.

6.4 Insurance. The Consultant shall submit to the City certificates indicating compliance with the following minimum insurance requirements no less than one (1) day prior to beginning of performance under this Agreement. Consultant further agrees to comply with all provisions in the attached Exhibit B which is incorporated herein.

6.5 Indemnification.

To the fullest extent permitted by law, Consultant shall indemnify and hold harmless City and any and all of its officials, employees, agents, and/or volunteers (“Indemnified Parties”) from and against any and all losses, liabilities, damages, costs, and expenses, including attorney’s fees and costs, caused in whole or in part by the negligent or wrongful act, error or omission of Consultant, its officers, agents, employees or subconsultants (or any agency or individual that Consultant shall bear the legal liability thereof) in the performance of services under this Agreement. Consultant’s duty to indemnify and hold harmless City shall not extend to the City’s sole or active negligence or willful misconduct.

6.5.1. Duty to defend:

In the event the Indemnified Parties, individually or collectively, are made a party to any action, lawsuit, or other adversarial proceeding arising from the performance of the services encompassed by this Agreement, and upon demand by City, Consultant shall defend the Indemnified Parties at Consultant’s cost or at City’s option, to reimburse City for its costs of defense, including reasonable attorney’s fees and costs incurred in the defense of such matters to the extent the matters arise from, relate to or are caused by Consultant’s negligent acts, errors or omissions. Payment by City is not a condition precedent to enforcement of this provision. In the event of any dispute between Consultant and City, as to whether liability arises from the sole or active negligence or willful misconduct of the City or its officers, employees, or agents, Consultant will be obligated to pay for City’s defense until such time as a final judgment has been entered adjudicating the Indemnified Parties as solely or actively negligent or to have acted with willful misconduct. Consultant will not be entitled in the absence of such a determination to any reimbursement of defense costs including but not limited to attorney’s fees, expert fees, and costs of litigation.

6.6 Compliance with Applicable Law. The Consultant and the City shall comply with all applicable laws, ordinances, and codes of the federal, state, county, and city governments, including, without limitation, Malibu Municipal Code Chapter 5.36 Minimum Wage.

6.7 Independent Contractor. This Agreement is by and between the City and the Consultant and is not intended, and shall not be construed, to create the relationship of agency, servant, employee, partnership, joint venture, or association, as between the City and the Agreement for Professional Services
Matrix Consulting Group, Ltd.

Consultant.

6.7.1. The Consultant shall be an independent contractor and shall have no power to incur any debt or obligation for or on behalf of the City. Neither the City nor any of its officers or employees shall have any control over the conduct of the Consultant, or any of the Consultant’s employees, except as herein set forth, and the Consultant expressly warrants not to, at any time or in any manner, represent that it, or any of its agents, servants or employees are in any manner employees of the City, it being distinctly understood that the Consultant is and shall at all times remain to the City a wholly independent contractor and the Consultant's obligations to the City are solely such as are prescribed by this Agreement.

6.8 Copyright. No reports, maps or other documents produced in whole or in part under this Agreement shall be the subject of an application for copyright by or on behalf of the Consultant.

6.9 Legal Construction.
(a) This Agreement is made and entered into in the State of California and shall in all respects be interpreted, enforced, and governed under the laws of the State of California.
(b) This Agreement shall be construed without regard to the identity of the persons who drafted its various provisions. Each and every provision of this Agreement shall be construed as though each of the parties participated equally in the drafting of same, and any rule of construction that a document is to be construed against the drafting party shall not be applicable to this Agreement.
(c) The article and section, captions and headings herein have been inserted for convenience only and shall not be considered or referred to in resolving questions of interpretation or construction.
(d) Whenever in this Agreement the context may so require, the masculine gender shall be deemed to refer to and include the feminine and neuter, and the singular shall refer to and include the plural.

6.10 Counterparts. This Agreement may be executed in counterparts and as so executed shall constitute an agreement which shall be binding upon all parties hereto.

6.11 Final Payment Acceptance Constitutes Release. The acceptance by the Consultant of the final payment made under this Agreement shall operate as and be a release of the City from all claims and liabilities for compensation to the Consultant for anything done, furnished or relating to the Consultant’s work or services. Acceptance of payment shall be any negotiation of the City’s check or the failure to make a written extra compensation claim within ten (10) calendar days of the receipt of that check. However, approval or payment by the City shall not constitute, nor be deemed, a release of the responsibility and liability of the Consultant, its employees, sub-consultants and agents for the accuracy and competency of the information provided and/or work performed; nor shall such approval or payment be deemed to be an assumption of such responsibility or liability by the City for any defect or error in the work Agreement for Professional Services
Matrix Consulting Group, Ltd.

prepared by the Consultant, its employees, sub-consultants and agents.

6.12 Corrections. In addition to the above indemnification obligations, the Consultant shall correct, at its expense, all errors in the work which may be disclosed during the City’s review of the Consultant’s report or plans. Should the Consultant fail to make such correction in a reasonably timely manner, such correction shall be made by the City, and the cost thereof shall be charged to the Consultant.

6.13 Files. All files of the Consultant pertaining to the City shall be and remain the property of the City. The Consultant will control the physical location of such files during the term of this Agreement and shall be entitled to retain copies of such files upon termination of this Agreement.

6.14 Waiver; Remedies Cumulative. Failure by a party to insist upon the performance of any of the provisions of this Agreement by the other party, irrespective of the length of time for which such failure continues, shall not constitute a waiver of such party's right to demand compliance by such other party in the future. No waiver by a party of a default or breach of the other party shall be effective or binding upon such party unless made in writing by such party, and no such waiver shall be implied from any omissions by a party to take any action with respect to such default or breach. No express written waiver of a specified default or breach shall affect any other default or breach, or cover any other period of time, other than any default or breach and/or period of time specified. All of the remedies permitted or available to a party under this Agreement, or at law or in equity, shall be cumulative and alternative, and invocation of any such right or remedy shall not constitute a waiver or election of remedies with respect to any other permitted or available right of remedy.

6.15 Mitigation of Damages. In all such situations arising out of this Agreement, the parties shall attempt to avoid and minimize the damages resulting from the conduct of the other party.

6.16 Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way.

6.17 Attorneys' Fees. The parties hereto acknowledge and agree that each will bear his/her or its own costs, expenses and attorneys' fees arising out of and/or connected with the negotiation, drafting and execution of the Agreement, and all matters arising out of or connected therewith except that, in the event any action is brought by any party hereto to enforce this Agreement, the prevailing party in such action shall be entitled to reasonable attorneys' fees and costs in addition to all other relief to which that party or those parties may be entitled.

6.18 Entire Agreement. This Agreement constitutes the whole agreement between the City and the Consultant, and neither party has made any representations to the other except as expressly contained herein. Neither party, in executing or performing this Agreement, is relying upon any statement or information not contained in this Agreement. Any changes or modifications to this Agreement must be made in writing appropriately executed by both the City and the Consultant.

Agreement for Professional Services
Matrix Consulting Group, Ltd.

6.19 Notices. Any notice required to be given hereunder shall be deemed to have been given by depositing said notice in the United States mail, postage prepaid, and addressed as follows:

CITY: Steve McClary CONSULTANT: Richard Brady
City Manager President
City of Malibu Matrix Consulting Group, Ltd.
23825 Stuart Ranch Road 1650 S.Amphlett Blvd., Ste 213
Malibu, CA 90265-4861 San Mateo, CA 94402
TEL (310) 456-2489 x 226 (650) 858-0507
FAX (310) 456-2760 [email protected]
Agreement for Professional Services
Matrix Consulting Group, Ltd.

6.20 Warranty of Authorized Signatories and Acceptance of Facsimile or Electronic Signatures. Each of the signatories hereto warrants and represents that he or she is competent and authorized to enter into this Agreement on behalf of the party for whom he or she purports to sign. The Parties agree that this Contract, agreements ancillary to this Contract, and related documents to be entered into in connection with this Contract will be considered signed when the signature of a party is delivered physically or by facsimile transmission or scanned and delivered via electronic mail. Such facsimile or electronic mail copies will be treated in all respects as having the same effect as an original signature.

7.0 GENERAL TERMS AND CONDITIONS. (City and Consultant initials required at EITHER 7.1 or 7.2)

7.1 Disclosure Required. By their respective initials next to this paragraph, City and Consultant hereby acknowledge that Consultant is a “consultant” for the purposes of the California Political Reform Act because Consultant’s duties would require him or her to make one or more of the governmental decisions set forth in Fair Political Practices Commission Regulation 18700.3(a) or otherwise serves in a staff capacity for which disclosure would otherwise be required were Consultant employed by the City. Consultant hereby acknowledges his or her assuming-office, annual, and leaving-office financial reporting obligations under the California Political Reform Act and the City’s Conflict of Interest Code and agrees to comply with those obligations at his or her expense. Prior to consultant commencing services hereunder, the City’s Manager shall prepare and deliver to consultant a memorandum detailing the extent of Consultant’s disclosure obligations in accordance with the City’s Conflict of Interest Code.

City Initials ______
Consultant Initials ______

7.2 Disclosure not Required. By their initials next to this paragraph, City and Consultant hereby acknowledge that Consultant is not a “consultant” for the purpose of the California Political Reform Act because Consultant’s duties and responsibilities are not within the scope of the definition of consultant in Fair Political Practice Commission Regulation 18700.3(a) and is otherwise not serving in staff capacity in accordance with the City’s Conflict of Interest Code.

City Initials ______
Consultant Initials ______
RB
RB
Agreement for Professional Services
Matrix Consulting Group, Ltd.

This Agreement is executed on _____________________, at Malibu, California, and effective as of November 13, 2023.

CONSULTANT:
_______________________________
By: RICHARD BRADY, President
CITY OF MALIBU:
___________________________________
STEVE UHRING, Mayor
ATTEST:
___________________________________
KELSEY PETTIJOHN, City Clerk
(seal)
APPROVED AS TO FORM:
___________________________________
TREVOR RUSIN, Interim City Attorney
Agreement for Professional Services
Matrix Consulting Group, Ltd.

EXHIBIT A

SCOPE OF WORK
[PROPOSAL ATTACHED]
Proposal to Develop a Comprehensive Fee Study

MALIBU, CALIFORNIA
August 29, 2023

EXHIBIT A
Table of Contents
Letter of Transmittal i
1 Organization, Credentials, and Experience 1
2 Understanding of the Scope of Work 13
3 Professional Services Agreement 27
4 Compliance 28
5 Litigation 29
6 Fees 30
7 Timeline 31

EXHIBIT A
August 29, 2023
Joseph Toney
Assistant City Manager
City of Malibu
23825 Stuart Ranch Road
Malibu, CA 90265
Dear Mr. Toney:

The Matrix Consulting Group is pleased to submit a proposal to conduct a Comprehensive Fee Study for the City of Malibu. Our firm stands apart for the following reasons:
• Experience in cost-of-service studies: Our firm and team have conducted 300+ cost of service studies for municipalities over the last 20 years across the United States, with recent Southern California clients including: Downey, Glendale, Manhattan Beach, Orange, Menifee, Riverside, Redlands, and San Bernardino. • Data Driven Analysis: While cost allocation and cost of service methodologies are standardized, our project teams review all previous assumptions to ensure accuracy and develop current service assumptions based on information provided by staff, vetting data to ensure accurate representations of support services. • Project team expertise: Our Project Executive and Project Manager are not only experts in cost-of-service methodologies, but also organizational and staffing analyses. Their understanding of service and process assumptions behind fees ensures accurate and defensible results.

If you have questions or require additional information, please contact me at 650-858-0507 or [email protected]. We look forward to discussing our proposal and to the opportunity to work with the City of Malibu.

Richard Brady, President
Matrix Consulting Group, Ltd.
matrix
consulting group

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 4
1 Organization, Credentials, and Experience
The Matrix Consulting Group was formed by experienced consultants to pursue an operating model in which analytical work is performed by senior level staff. Our firm’s history and composition are summarized below:
• We were founded in 2002, incorporated in California, and have our headquarters there (in San Mateo with a Southern California satellite office in Irvine) and regional offices in Edwardsville (IL), the Dallas Metroplex (TX), Portland (OR), and the Tampa (FL) area.
• We are comprised of 25 full time and five part time highly experienced management consultants who specialize in the analysis of local government functions encompassing the entire spectrum of critical operational areas. We have a dedicated financial services team.
• Since our founding, we have worked with over 1,600 government agencies, conducting cost of service and management studies providing recommendations relating to operations, improvements, and cost recovery.

The market and service focus of the Matrix Consulting Group has always been financial, management, staffing and operations analysis of local government. The following outlines our core financial services provided by our firm:

OMB 2 CFR Part 200 Cost Plans User Fee Studies
Full Cost Plans Development Impact Fee Studies
Indirect Cost Rate Proposals Fully Burdened Hourly Rates Internal Service Fund Analyses Revenue Projections
No other firm better understands how public agencies operate, or how to help them thrive.

Cost Allocation Plan Experience
Whether we are working with large cities, small towns, special districts, or individual departments, our goal is to document and define the services being provided, and accurately allocate costs to all beneficiaries. The following points highlight our experience with developing cost allocation processes and metrics:
• Administrative Functions: Our firm has extensive experience in evaluating processes and functions associated with Clerk, Finance, Human Resources, and Purchasing. From basic tasks and responsibilities to process improvement and oversight controls, our project teams can:

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 5
– Identify core service functions, such as payroll, employee benefits, budget preparation, agenda, and board support.
– Review current data metrics, and work with staff to ensure resulting allocations are appropriate, fair, and equitable.
– Recognize services that are not in direct support of departments, including land acquisition and stewardship, and ensure they are accurately identified, but not further allocated.

Our project teams understand the core services associated with administrative functions, as well as the time associated with process completion, and are adept at helping staff determine daily, weekly, monthly, or annual time spent on a task.

These assumptions form the core basis of a cost allocation plan, and should be defensible not only through documentation, but also by City staff. • Governmental Functions: The Matrix Consulting Group has worked with and been a part of managerial studies relating to Manager and Legal services. Additionally, we have extensive experience working with, and presenting to various boards, councils, subcommittees, and the public. Our understanding of the various types of services provided allow our project teams to assess what services are best for allocation. Our team understands how these costs can and should be treated in both a Full Cost Plan and OMB compliant plan, including making staff aware of common practices, as well as aggressive allocation options. • Internal Services: The Matrix Consulting Group has significant experience evaluating services and functions associated with Facilities Maintenance, Fleet Services, and Information Technology. While these services can be part of the general fund or internal services, their allocation is important when trying to understand the indirect costs associated with any Fund, Department, or Program.

We are committed to ensuring that all cost centers being allocated comply with state and federal laws, use fair and equitable allocation metrics, and are documented and defensible.

The following table provides a sampling of California jurisdictions for whom we have provided similar services within the last five years, including the types of services provided to each jurisdiction, relevant to cost allocation plans:

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 6
Jurisdiction Full Cost OMB Indirect Rates Annual Plan
Adelanto, CA X
Citrus Heights, CA X X
Cupertino, CA X X
Daly City, CA X
Dixon, CA X X
Downey, CA X X
Elk Grove, CA X X X
Fairfield, CA X X
Hercules, CA X X
Livermore, CA X X X
Manhattan Beach, CA X X X
Millbrae, CA X X
Pacific Grove, CA X X
Port of Long Beach, CA X X
Redwood City, CA X X
Resource Conservation Dist. Of Santa Cruz County X X X X Sacramento Regional Transit, CA X X X
San Mateo, CA X X X
San Mateo Resource Conservation District X X X
Santa Clara, CA X X X
South San Francisco, CA X X
Sunnyvale, CA X X X
Services provided to the above clients were delivered by our proposed project executive and project manager out of our San Mateo and Irvine offices.

Fee Study Experience
Our firm has extensive experience conducting comprehensive user fee studies for a variety of municipal organizations and departments. When conducting comprehensive user fee studies, the focus is often on Community Development (building, planning, and engineering) and Parks and Recreation services. The following points highlight our experience in these areas:
• Community Development: Our firm has extensive experience in evaluating development review permitting functions for Building, Planning, Engineering, and Fire Prevention. From the basic process steps for submitting, reviewing, inspecting, and approving applications and permits to development of processes, procedures, and cost recovery goals, our project teams can address topics as:
- The best metric for assessing fees, such as building valuation, square footage, construction estimate, or number of fixtures.
- Appropriate deposit amounts, guidelines, and processes to ensure actual cost recovery is achieved.

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 7
- Setting fees at levels that both recover costs but are not cost prohibitive. - Cost recovery and implementation options for support services including General Plan Updates, Technology Fees, GIS, etc.

Beyond understanding processes and assessing time estimates provided, our project teams are aware of the cross-departmental support associated with application and permit services. These costs are included in the full cost calculation and can be expressed as part of the established fee or a separate fee. • Parks and Recreation: The Matrix Consulting Group has worked with every type of recreation function, including traditional parks and recreation, libraries, and open space preserves. Our experience spans master and strategic planning, park condition assessments, and program staffing and cost recovery. Our project teams are well versed in the areas that most impact cost recovery, including:
- The best use of a tiered recovery approach, such as resident versus nonresident, or profit versus non-profit. - Setting fees according to the cost recovery pyramid to ensure that premium services have a higher cost recovery.

The goal in reviewing parks and recreation costs for service, is to ensure that fees and rates are set at a level that allows the City to continue to serve the community in a manner consistent with current goals and commitments.

The following table includes a sampling of California clients over the last five (5) years for whom we have conducted cost of service (user fee) studies:

Jurisdiction
Planning
Fees
Building
Fees
Engineering
Fees
Fire
Prev.

Fees
Admin
Fees
Utility
Fees
Police
Fees
Recreation
Fees
Adelanto, CA X X X X X
Capitola, CA X X X X
Citrus Heights, CA X X X X X X
Commerce, CA X
Cupertino, CA X X X X
Daly City, CA X X X X X X
Dixon, CA X X X X X X
Downey, CA X X X X X X X X
Elk Grove, CA X X X
Livermore, CA X X X X
Los Altos Hills, CA X X X X
Manhattan Beach, CA X X X X X X X X
Millbrae, CA X X X X X X
Mill Valley, CA X X X X X X
Montebello, CA X X X X X X X X
Orange, CA X X X X X X X X
Pacific Grove, CA X X X X X X

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 8
Jurisdiction
Planning
Fees
Building
Fees
Engineering
Fees
Fire
Prev.

Fees
Admin
Fees
Utility
Fees
Police
Fees
Recreation
Fees
Redwood City, CA X X X X X X X X
San Bernardino, CA X X
San Mateo, CA X X X
Santa Clara, CA X X X X X X X X
South Pasadena, CA X X X X X X X
So. San Francisco, CA X X X X X X X X
Stockton, CA X X X X
Vacaville, CA X X X X X X X
Winters, CA X X X X X X X
Services provided to the above clients were delivered by our proposed project executive and project manager out of our San Mateo (headquarters) and Irvine, CA offices.

Project Team
The project team being proposed by the Matrix Consulting Group are all full-time employees of our firm. The following chart outlines the project team, their specific roles, and reporting structure.

The following table provides a summary of experience of our proposed project team and their roles through the course of this project.

Coordination of data
collection, support City
staff in data
development, and
populate models.

Responsible for leading
interviews, financial
analysis, policy
discussion and
development.

Primary contact for the
project, providing
expertise in reviewing
drafts and presenting
results.

Project oversight and
overall Project approval City of Malibu
Courtney Ramos
Project Executive
Khushboo Ingle
Project Manager
Abnsh Minhas
Analyst
Madison Dixson
Analyst

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 9
Courtney Ramos
Vice President,
Project Executive
Experience:
18 years
Ms. Ramos is our Financial Services Practice Leader, who oversees cost allocation plan, user fee, development impact fee, and cost of service engagements. Her tenure has also included participation in operational audits focusing on organizational / staffing structure enhancements.

Courtney has completed over 250 cost of service studies. Recent Southern California clients include Manhattan Beach, Port of Long Beach, Orange, Downey, Riverside, Glendale, and Menifee.

Her role on this project would be to serve as the Project Executive involved in reviewing and presenting results.

Khushboo Ingle
Senior Manager,
Project Manager
Experience:
11 years
Ms. Ingle is a Senior Manager who manages cost allocation plan, user fee, development impact fee, and cost of service engagements. Her experience with the firm also includes participation in operational audit engagements focusing on organization, staffing, and internal processes.

Khushboo has completed over 150 cost of service studies. Recent Southern California clients include Adelanto, Blythe, Manhattan Beach, Port of Long Beach, Orange, Downey, Riverside, Glendale, San Bernardino County Fire, and Menifee.

Her role on this project would be to serve as the Project Manager, involved in leading meetings, developing draft results, and reviewing results.

Madison Dixson
Consultant,
Data Analyst
Experience:
2 years
Ms. Dixson is an analyst who assists our senior staff on cost allocation plan, user fee, development impact fee, and cost of service engagements.

Recent Southern California clients include Adelanto, Glendale, Walnut, Menifee, Riverside, Manhattan Beach, San Bernardino, Port of Long Beach, and Redlands.

Her role on this project would be to serve as an Analyst, involved in attending meetings, data input, and developing models.

Abnash Minhas
Consultant,
Analyst
Experience:
1 year
Ms. Minhas is an analyst who has recently joined our firm to assist our staff on cost of service engagements including cost allocation plan, user fee, and development impact fee studies. She has recently assisted on projects for Redlands, San Bernardino, and Chico.

Her role on this project would be to serve as an Analyst, involved in attending meetings, data input, and model development.

Resumes for Courtney Ramos, Project Executive, and Khushboo Ingle, Project Manager, have been included below.

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COURTNEY RAMOS

FINANCIAL SERVICES VICE PRESIDENT, MATRIX CONSULTING GROUP Ms. Ramos is our Financial Services Practice Leader, who oversees cost allocation plan, user fee, development impact fee, and cost of service engagements. Her tenure with the firm has also included participation in operational audit engagements focusing on reviewing organizational and staffing structures to enhance services.

Courtney’s relevant experience include:
• Completed over 250 cost of service studies for clients across the United States.
• Analysis focuses on development and documentation of direct and indirect costs, fair and equitable allocation methodologies, and defensible results.
• Expertise also includes development of fiscal policies and procedures relating to cost of service and cost recovery.

Experience Highlights
Manhattan Beach, CA (FY15-16 and FY19-20): Courtney served as the project executive and project manager on this engagement which determined the overhead allocation and full cost of providing city feebased services. Key analysis included:
• Identifying services provided by City staff, including documenting services, and service levels.
• Ensuring fair and equitable allocations of support services. • Recommending capital project allocation through direct engineering charges.
• Repeat client who engaged us for the same study 4 years later.

Riverside, CA (FY22): This study reviewed the City’s overhead review practices. Key analysis included:
• Ensuring all central services are appropriately accounted for in the plan.
• Identifying best practices for cost allocation.

Role on This Engagement:

Courtney will serve as the Project Executive on this engagement, ensuring timely project deliverables, quality control, and presentation support to stakeholders.

Relevant CA Clients:

Citrus Heights
Cupertino
Daly City
Dixon
Elk Grove
Fairfield
Humboldt County
Livermore
Long Beach
Manhattan Beach
Orange
Pacific Grove
Redwood City
San Bernardino County
San Pablo
San Mateo
Santa Clara
Santa Clara County
Sonoma County
South San Francisco
Stanislaus County
Sunnyvale
Vacaville
Winters
Willits
Years of Experience: 17
Education:

A.A. Administration of
Justice, A.A. Sociology
Santa Barbara City College
(CA).

Professional Association /
Certification:

Government Finance
Officers Association
California Society of
Municipal Finance Officers
OMB Cost Plan Best
Practices

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KHUSHBOO INGLE

SENIOR MANAGER, MATRIX CONSULTING GROUP
Ms. Ingle is a Senior Manager who manages cost allocation plan, user fee, development impact fee, and cost of service engagements. Her experience with the firm also includes participation in operational audit engagements focusing on reviewing organizational, staffing, and internal processes to enhance services.

Khushboo’s relevant experience include:
• Completed over 150 cost of service studies for clients across the United States.
• Analysis focuses on development and documentation of direct and indirect costs, fair and equitable allocation methodologies, defensible results.
• Expertise also includes development of fiscal policies and procedures relating to cost of service and cost recovery.

Experience Highlights
Orange, CA: Khushboo served as the Project Manager on this engagement which looked and conducting a citywide fee study and development impact fee analysis. Key analysis includes:
• Streamlining land use categories for Fire impact fees to represent the current types of use.
• Identifying growth projections and appropriate nexus
considerations for impact fees.

Downey, CA (FY16-18): Khushboo served as the project manager on this engagement which looked and developing a citywide cost plan, comprehensive user fee study, and Development Impact Fees. Key analysis included:
• Review of current administrative functions, and ensuring all appropriate functions were included in the plan.
• Incorporating updated metrics to account for each service area. • Calculation of Indirect costs for enterprise fund reimbursements Role on This Engagement:

Khushboo will serve as the Project Manager on this engagement, leading interviews and coordinating necessary data collection for the financial analysis, policy discussions, and working with the Analysts to compile and analyze data.

Relevant CA Clients:

Berkeley
Citrus Heights
Cupertino
Dixon
Elk Grove
Fairfield
Humboldt County
Livermore
Long Beach
Manhattan Beach
Orange
Pacific Grove
Redwood City
Riverside
San Bernardino County
San Pablo
San Mateo
Santa Clara
Santa Clara County
Sonoma County
South San Francisco
Stanislaus County
Sunnyvale
Vacaville
Walnut
Years of Experience: 11
Education:

B.A., University of California
– San Diego, International
Economics
M.A., University of California
– San Diego, International
Affairs
Professional Association /
Certification:

California Society of
Municipal Finance Officers
OMB Cost Allocation Best
Practices

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References
The following table provides information for three (3) clients for whom we have provided similar services.

Client Client Contact Project Type
Glendale, CA
141 N. Glendale Ave.

Glendale, CA 91206
Mari Karamyan
Budget Manager
(818) 551-4608
[email protected]
Citywide Fee Study
Development Impact Fee
Study
Manhattan Beach, CA
1400 Highland Ave.

Manhattan Beach, CA 90266
Steve Charelian
Finance Director
(310) 802-5555
[email protected]
Full Cost Allocation Plan
Citywide User Fee Study
Pacific Grove, CA
300 Forest Ave.

Pacific Grove, CA 93950
Lori J. Frati
Finance Management Analyst
(831) 648-3133
[email protected]
Cost Allocation Plan
Citywide Comprehensive Fee
Study
We would be happy to provide additional references upon request.

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2 Understanding of the Scope of Work
The City of Malibu is requesting two scopes of work: (1) a Comprehensive Fee Study and (2) an Overhead Cost Allocation Analysis. The following points outline our understanding of each of these scopes, including a summary of the steps required to meet the city’s need for each study.
• Citywide User Fee Study: The City is looking to document the direct and indirect costs associated with fee-based city services. Furthermore, the City is also looking to identify services currently provided for which fees could be assessed and understand how services and fees compare within the regional area. The following chart outlines the basic process steps for conducting a citywide user fee study.

The culmination of the citywide user fee study will provide the City with documentation outlining the full cost of providing fee-based services. This information, in conjunction with the jurisdictional survey will help the City determine where to set fees.
• Cost Allocation Plan: The City wishes to develop a cost allocation plan to establish a full cost allocation methodology for specific administrative overhead costs that will properly reimburse the General Fund and estimate anticipated reimbursements. A Full Cost plan would be developed based on budgeted expenditures, would be used for interfund transfers, and development of fully burdened hourly rates. The following chart outlines the basic process steps for developing a cost allocation plan.

The results of this engagement will provide the City with documentation outlining the direct and indirect costs associated with providing services both internally and externally, Review existing fees and services
Establish time estimates and service level assumptions
Calculate fully burdened hourly rates
Conduct jurisdicitonal comparison
Develop fee recommendations and master fee schedule
Review existing allocation assumptons
Determine cost categories and services for allocation
Review indirect costs for allocation
Develop allocation recommendations

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and outline options for recovering costs through fees or other mechanisms. Furthermore, Excel-based models will be provided to staff, along with guides and training, allowing staff to update assumptions and results in future years as the organization changes.

Project Management and Quality Control
We believe very strongly in the science of our craft. As such, our firm utilizes quality control techniques which include:
• Project Management: Ensuring our projects meet the needs and timelines of our clients are accomplished through the following:
– The project manager and lead analyst develop general and project specific data collection plans and interview guides.
– All project work activities are defined in advance and tied to each project team member, deliverables, the schedule, and the budget. – We have frequent client review meetings to discuss the quality and direction of the project through interim deliverables and draft documents. • Numerical Results: Financial analyses are used to develop budgets and projections, and often are subject to public oversight and review. For this reason, our firm ensures data determined quality control through the following:
– Expenditure data entered into cost models are tied to budget documents. – Revenue projections developed are based on existing workload and projected development activity.

These project management approaches have resulted in all our projects being delivered at a high level of quality, on time and on budget.

Task Plan
The Comprehensive User Fee Study and Overhead Cost Allocation Plan can be conducted concurrently as there are economies of scale that can be achieved by conducting them in this way. The following subsections details our approach to project-wide, cost allocation plan, and fee study specific tasks.

Project-Wide Tasks
There are five key tasks that are integral to both scopes of work, two of which help begin the project, and three which help finalize the project. The following tasks would be conducted for both scopes of work.

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Task 1 Data Collection
Prior to any initial meetings, the Matrix Consulting Group will provide the City with a list of initial data requirements for the study. This will allow our project team to review this information thoroughly in preparation for initial discussions with staff. A common list of data collection items include:
• Budgeted expenditures on a fund, department, and line-item basis. • Copy of any prior studies
• List of all budgeted personnel by fund, department, and division. • Most recent completed Fiscal Year revenue reports
• List of all current fees being charged to be included in the analysis. • List of comparative jurisdictions to be included in the analysis.

The above list is just a sampling of the type of information that will be requested. The provision of these items allows our project team to familiarize themselves with current financial practices.

Deliverable List of basic data requirements for the Study Meetings None
Estimated City Support 4-8 hours for staff to collect and distribute information Task 2 Study Objectives and Project Schedule
Once the data has been collected, the project team will then meet with designated City staff to discuss any issues identified by the project team, as well as to clarify any existing concerns held by the City regarding current fee methodologies. Discussions will include:
• Review of the City’s specific needs and critical issues surrounding development and implementation of the fee study.
• Discussion of concerns or issues that should be addressed during the development of the study.
• Discussions regarding current fee structure and any potential changes. • Review and identify existing cost recovery policies or established subsidies.

At the culmination of the meeting, the project team and the designated City staff will leave with a greater understanding of the overall approach and methodology that will be taken by the project team to conduct the User Fee study.

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Deliverable Project Schedule
Meetings Kickoff
Estimated City Support 1 hour for all involved City Departments Task 3 Present the Final Report to Key Stakeholders
The presentation of results to City officials and/or stakeholders is critical to the success of the overall engagement. Because the product from the study is often controversial, the objective of this final step is to present a succinct summary that provides decision makers with key information.

We will attend and present the Study at a minimum of two (2) meetings with the Council Finance and Investment Review Committee and the City Council.

Deliverable Fee Study Presentation
Meetings Min. of 2 City Committee / Council and Stakeholder Meetings Estimated City Support 1-2 hours for Presentation Review Task 4 Excel-Based Models and Training
The City wishes to have the ability to update the final version of the Study, including the ability to add, revise or remove costs or service types, as well as update assumptions regarding any fee changes. Our technical models would provide the ability for the City to adapt and continuously update each study from year to year as the organization changes.

While the model is structured in Excel, the technical model is proprietary and for internal use by City staff only. By having our model based in Excel the requirements for software training, new software products, updates, licensing, or other support, would be minimized.

After the final draft of the cost allocation plan and user fee study is approved, at the discretion of City staff, the project team would meet with and train designated City employees on use of requested models. Staff will be provided with training that includes:
a User’s Manual which explains key concepts, defines basic terms, includes a customized updated checklist of data that needs to be entered, and discusses different scenario options (e.g., adding new central services, removing receivers, etc.), as well as instruction tabs for the User Fee Models.

Deliverable Model, Backup Documentation, User Guide
Meetings Model Training
Estimated City Support 2 hours for Training Attendance

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Task 5 Implementation and Future Support
The Matrix Consulting Group is committed to helping our clients not only develop accurate and defensible cost allocation and cost of service methodologies, but helping ensure that they are able to implement the results of these studies appropriately. Our project team will work with City staff to facilitate an understanding of the results of each analysis, and how to incorporate those results into budget and policy documents, informational handouts, and other City materials.

Our Client support does not stop once a final report has been issued. We understand that questions can arise about the development of a study well after project completion and are committed to working with our clients to answer any questions about methodologies and applications of results. This support is provided to our clients at no extra cost.

Cost Allocation Plan Tasks
Through this scope of service, the Matrix Consulting Group will work with City staff to define the purpose and goals for the overhead cost allocation plan, developing a plan that is both accurate and reflective of the City’s current organizational structure. The following tasks outline our approach for developing a Full Cost Allocation Plan.

Task 1 Interview Staff and Gather Allocation Metrics
The project team would review the City’s budget and financial structure to identify City departments and services to be allocated. To structure a custom cost allocation model, our project team would perform the following:
• Review and discuss the accounting (fund and organizational levels) structure of the City based upon the budgeted expenditures to identify any anomalies from previous years.
• Identify and meet specific central services departments to develop allocation bases and ensure that the plan reflects the following aspects:
– All current services provided by the City are identified and documented within the Cost Allocation Plan.
– Allocation bases discussed to be utilized are reflective of the current level of effort and most relatable to the service being performed. • Discuss alternative allocations, including outcomes and potential impacts.

The points above provide examples of the types of detailed and in-depth discussions that the project team will have with City departments involved in the cost allocation process.

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At this point in the process, the project team would reach out to each department and ask for specific allocation metrics such as purchase orders, invoices, sq. ft. per facility, etc.

Deliverable Allocation Metric Requests from Support Departments Meetings 1 Departmental Support Meeting per Department
Estimated City Support 1 hour per City Support Department Task 2 Review of Draft Cost Allocation Metrics
Based upon units of service identified in Task 1 and the allocation metrics collected, the project team would put together allocation statistic workbooks for review with specific central service departments. The purpose of these workbooks is to review the initial results of the allocation metrics gathered by the project team. The following graphic shows an example of the allocation workbook:

Fund Dept Desc
# of AR Transactions
per Fund/Dept Allocation %
1 10 City Manager 3 0.87%
1 16 Human Resources 30 8.75%
1 20 City Attorney 30 8.75%
1 30 Police 68 19.83%
1 35 Fire 1 0.29%
1 40 Development Services 7 2.04%
1 50 Public Works Streets 5 1.46%
1 50 Public Works Facilities 1 0.29%
1 50 Public Works Community Services 185 53.94%
10 Water 1 0.29%
14 Sewer 8 2.33%
29 Self-Insured Liability Fund 4 1.17%
TOTAL 343 100.00%
In the sample graphic provided, based upon the number of AR transactions per fund/department, the primary support is for Public Works Community Services (54%) for all the Parks and Recreation transactions, followed by Police (20%). Based upon the results of this sample, the project team would verify with Finance that the statistics were allocated to the appropriate fund/department and that the resulting percentage is reflective of the support being provided by the Accounts Receivable staff and function.

This type of detailed review is critical for the development of a defensible cost allocation plan. It also ensures that departmental staff and City staff are comfortable with the use of the allocation metrics and the support that those metrics represent.

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Deliverable Draft Allocation Workbooks
Meetings 1 Draft Allocation Meeting per Department
Estimated City Support 1 hour per City Support Department Task 3 Structure and Prepare Draft Full Cost Allocation Model Once the central service departments and administrative functional areas have agreed upon the appropriate allocation metrics for their services; allowable administrative or other indirect costs are allocated to each benefiting City department, operating unit, or fund. At this point the project team would begin customizing the Cost Plan model to meet the City’s specified needs, including:
• Ensuring methodologies and assumptions comply with Federal regulations and general accounting principles.
• Providing the ability to add or remove direct or indirect costs as future needs and programs change.

During the development of the cost allocation plan, the project team will ensure that any expenses included in the plan are vetted and reviewed with Budget staff as well as incorporate any direct reimbursements. The results of the draft custom cost allocation model will be provided to City staff in numerical format in excel prior to the development of a draft report.

Deliverable Draft Cost Allocation (Excel Results)
Meetings Virtual Draft Results Meeting with Finance
Estimated City Support 1 hour for Finance
Task 4 Finalize the Cost Allocation Plan
Upon review and approval of the draft cost plan by central service departments and the Finance Department, the project team will finalize the Cost Allocation Plan and report.

The final deliverables associated with the Cost Allocation Plan will be:
• Cost allocation plan report: including all detailed allocation schedules, cost schedules, summary schedules, and narrative information regarding the central services included.
• Excel summary schedule: the results of the full cost allocation plan in Excel format for ease of calculations, incorporation into City documents, and review by staff.

This type of final work product ensures that information is available in a variety of formats for City staff to use. The detailed report serves as backup documentation; whereas the excel results can be input into budget documents.

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Deliverable Final Cost Allocation Report
Meetings None
Estimated City Support None
User Fee Study Tasks
This study aims to calculate the full (direct and indirect) cost associated with providing all citywide fee-related services and ensure that current fees comply with state (Prop 26 & 218) and local guidelines. The following tasks provide our workplan for conducting the Comprehensive User Fee Study.

Task 1 Develop a Schedule of Current and Potential Fees for Service The project team will work with staff to go through their current fee schedules in line-item by line-item detail. This meeting is critical in ensuring that staff can incorporate any updates or changes to the fee study based upon code, regulation, staffing, process, or technological changes. The focus of this meeting will be the following:
• Renaming fees: Rewording or renaming fees to identify services more clearly. • Eliminating fees: Removing any outdated services or fees. • Adding new fees: Capturing any new services or breaking out existing fee categories to identify all the services being provided by city staff more clearly, as well as identifying potential fees for service that the city would like to provide. • Recategorization of fees: Collapsing or expanding multiple fee ranges to better capture the services being provided.
• Building permit fee basis: Discussing options for charging building fees based upon project valuation or sq. ft. and occupancy type, and / or different types of fees for different types of projects.

It is important to note that this meeting occurs first, as to ensure that any major proposed structural changes are captured prior to collecting time estimate information or developing draft fee results. However, there is the ability to make future adjustments.

Deliverable Proposed Fee Structure(s)
Meetings Virtual Fee Structure Meeting
Estimated City Support 1 hour per involved City Departments Task 2 Conduct Time Data Gathering Workshops
The project team will conduct workshops to gather time estimates for each service included in the study, interviewing key personnel from each department, and analyzing

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the various activities being performed. The flowchart shows an example of the steps involved in permit processing and time associated with each step.

As the flowchart shows, basic process steps in application/permit processing will be documented and provided in detail for each department / division represented in the study. Where possible, the project team will try to minimize impact on staff by incorporating any baseline assumptions from prior city studies. Staff will be provided time to provide any edits or comments on time estimate information.

Task 3 Develop Fully Burdened Hourly Rates
Based on the City’s staffing and budget information, the project team will calculate fully burdened hourly rates inclusive of direct and indirect costs. The following points highlight the cost components and factors included in fully burdened rates:
• Direct costs: This component accounts for salary and benefits associated with each employee or position and is reflective of City staffing and salary reports. • Indirect costs - Departmental: This component accounts for administrative and management support provided to line level staff, as well as operational services and supplies which are used in the execution of job duties. This cost component is developed through interviews with staff, as well as an analysis of budgets. • Indirect costs - Citywide: This component accounts for citywide support such as Finance, HR, and City Attorney support provided by other city departments. This cost component is typically derived from the City’s Cost Allocation Plan. If there is no cost plan available, the project team will work with City staff to identify an alternative mechanism to capture this support.

Once the cost components have been documented and developed, the project team will review MOUs, and talk with departmental staff to determine appropriate productive hour calculations. This reduction in available hours will ensure that fully burdened hourly rates account for leave accruals (holiday, vacation, and sick), as well as any meetings or trainings. The project team will utilize the results of this task along with Task 4 to calculate the full cost of services.

Intake and
Processing
• Permit Tech
• 15 min
Routing
• Permit Tech
• 10 min
Initial Review
• Plan Checker
• 1 hr
Final Review
• Plan Check
Eng.
• 30 min
Issue Permit
• Permit Tech
• 15 min

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Task 4 Perform Total Cost Analysis
The Matrix Consulting Group’s costing model is built based on the City’s operations, budget detail and intended uses for the results. This method is a customized approach specific to each jurisdiction for cost analysis of user fee services. It is a “bottom-up” approach, which is the most defensible methodology for calculating user fees. The methodology incorporates the time estimate information and fully burdened hourly rate information. The following graphic shows the cost calculation:

This costing method uses time and annual activity level data to establish the cost of providing services on both a unit and annual level. Once the time spent for a fee activity is determined for each individual or position, the team uses its fee and rate software to apply the fully burdened hourly rates calculated in the previous task.

Resulting costs are presented on a unit and annual level and are compared to the existing fee schedule and revenue reports. The following graphic shows a sample presentation:

Per Unit
Fee Title Current Fee Total Cost Per Unit
Surplus /
(Deficit) Per Unit Cost Recovery %
Lot Line Adjustment $900 $1,557 ($657) 58%
Temporary Use Permit $40 $325 ($285) 12%
AVERAGE COST RECOVERY PER UNIT 35%
Annual
Fee Title Workload
Revenue at Current
Fee
Revenue at Full
Cost
Annual Surplus/
(Deficit)
Lot Line Adjustment 4 $3600 $6,228 ($2,628)
Temporary Use Permit 60 $2400 $19,500 ($17,100)
TOTAL $6,000 $25,728 ($19,728)
As the example in the graphic indicates, the per unit subsidy for the Lot Line Adjustment at $657 is more than double the per unit subsidy for the Temporary Use Permit. However, the annual results help provide Department management with some additional context, as due to the volume of activity, the larger impact to the Department is felt by the smaller subsidy for the Temporary Use Permit.

Time
Estimate
Fully
Burdened
Rate
Full Cost
Fee

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The City will obtain detailed information like that presented in the previous graphic regarding cost recovery surpluses and deficits on both a detailed (per unit) and global (annualized) level, as well as an understanding of cost components for each service.

Deliverable Per Unit and Annual Fee Study Results
Meetings 1-2 Virtual Draft Results Meetings
Estimated City Support 1-3 hours per City Department
Task 5 Conduct a Market Rate Survey to Similar Jurisdictions We will work with the City to identify jurisdictions in Los Angeles County or elsewhere in Southern California to conduct a comparative survey of fees. This comparative survey activity will include the following:
• Developing fee scenarios for each department included in the study to be compared to other jurisdictions.
• Graphing the results of the fee analysis for easy visual comparison purposes. • Collecting contextual information such as population size, budget, staffing, last time fee study was done, and last fee schedule update.

As market surveys do not provide adequate or objective information about the relationship of a jurisdiction’s costs to its fees, these steps ensure we provide the City with the most amount of information as possible.

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Deliverable Comparative Graphs (included in Draft Report) Meetings None
Estimated City Support None
Task 6 Review / Revise Fee Study Results
Because the analysis of fees for service is based on estimates and information provided by City staff, it is extremely important that all participants are comfortable with our methodology and with the data they have provided. Once the department agrees that the analysis reflects the reasonable costs of providing services, City management will have an opportunity to review the results.

At this point in the process, the project team will provide Development Services staff with Recommended Fee Workbooks. The Recommended Fee Workbooks will provide departments / divisions the results of the fee study in an excel based format. The following table shows an example of the Recommended Fee Workbook:

Current - Per Unit Results
Fee Title Current Fee Total Cost
Surplus/(Deficit)
Per Unit
Cost Recovery
%
Lot Line Adjustment $900 $1,557 ($657) 58%
Temporary Use Permit $40 $325 ($285) 12%
Recommended Fee
Fee Title
Recommended
Fee
$ Change to
Recommended
Fee
% Change to
Recommended Fee
Recommended
Fee Cost
Recovery %
Lot Line Adjustment $1,200 $300 33% 77%
Temporary Use Permit $100 $60 150% 31%
Recommended Fee Annual
Fee Title Workload
Revenue at
Current Fee
Revenue at
Recommended Fee
Potential
Change in
Revenue
Lot Line Adjustment 4 $3,600 $4,800 $1,200
Temporary Use Permit 60 $2,400 $6,000 $3,600
TOTAL $6,000 $10,800 $4,800
As the table above indicates, the recommended fee workbook allows the Development Services to input information into the Recommended Fee column and see its impacts such as the dollar increase, percentage increase, and what percentage of their current costs they are going to recover. Additionally, the workbook allows the Department to calculate potential increases or declines to revenue because of the recommended fees.

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Deliverable Recommended Fee Workbooks
Meetings None
Estimated City Support None
Task 7 Prepare a Draft User Fee Study Report
Upon conclusion of the fee study, we will prepare a detailed report that summarizes the results of each of the previous work tasks described above. This report will include:
• A succinct executive summary discussing the study, methodology, and the results. • A narrative describing the services included in the study. • A section on proposed modifications to the current fee schedule, including removal or addition of new fees for service.
• A section on per unit and annual results for each fee included in the analysis and where workload data is available.
• A comparative survey section outlining key fees, their comparison to other local jurisdictions, and contextual information regarding budget, staffing, and when they last conducted fee studies.

The draft report will be provided to City staff for comments.

Deliverable Draft Fee Study Report
Meetings None
Estimated City Support 1-2 Hours per City Department to Review Report Task 8 Finalize Fee Study Report
Any edits or revisions to the draft user fee study report will be incorporated into the finalized fee study report. This finalized fee study report will not only include all elements of the draft fee study report, but also include any additional cost recovery considerations and policy considerations for council’s review.

Deliverable Final Fee Study Report
Meetings None
Estimated City Support None

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Task 9 Master Fee Schedule
Once the final user fee study report is approved, the project team will develop a master fee schedule, consolidating all fees in a singular location. The master fee schedule will include a numbering system, the department name, the fee title, the unit of application, the current fee, the total cost per unit calculated through the study, the difference, the cost recovery, the relevant rule / regulation that applies to the fee type, the staff recommended fee, and staff recommended cost recovery level. This type of attachment is extremely helpful for staff as part of the staff report provided to Council upon adoption.

Deliverable Master Fee Schedule
Meetings None
Estimated City Support None

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3 Professional Services Agreement
The Matrix Consulting Group agrees to use and comply with the terms and conditions of the City’s Professional Services Agreement as provided in Attachment 2 of the RFP.

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4 Compliance
The Matrix Consulting Group currently complies, and will continue to comply with the California Labor Code pursuant to:
• Federal Labor Standards Provisions.
• Federal Prevailing Wage Decision.
• State of California Prevailing Wage Rates.
• The City of Malibu’s Minimum Wage Ordinance.

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5 Litigation
Neither the firm or any member of the proposed team assigned to this engagement has ever been involved in claims or litigation with Federal, State or Local Government, or Private Entity.

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6 Fees
The Matrix Consulting Group proposes to perform the services associated with developing a comprehensive fee study and overhead cost allocation analysis for a fixed fee of $71,850. The chart below provides a breakdown of hours and cost by team member and task.

Project
Executive
Project
Manager Analyst Total Cost

PROJECT WIDE TASKS
Data Collection 0 4 8 $1,800
Study Objectives and Schedule 4 4 0 $1,800
Excel Models & Training 8 8 0 $3,600
Presentation of Results 0 6 16 $3,200
Project Wide Tasks Subtotal 12 22 24 $10,400

USER FEE STUDY
Current & Potential Fees 0 10 14 $3,750
Time Data Workshops 4 24 40 $10,800
Fully Burdened Hourly Rates 2 8 20 $4,600
Total Cost Analysis 8 16 40 $10,200
Comparative Survey 0 4 20 $3,300
Review / Revise Results 2 18 30 $7,850
Draft Fee Study Report 4 10 18 $5,250
Final Fee Study Report 2 6 12 $3,200
Develop Master Fee Schedule 0 2 10 $1,650
Subtotal User Fee Study 22 98 204 $50,600

FULL COST ALLOCATION PLAN
Interview Staff & Gather Allocation Metrics 2 6 10 $2,950 Review Draft Allocation Metrics 2 6 12 $3,200
Draft Cost Allocation Plan 2 4 12 $2,800
Finalize CAP 2 2 8 $1,900
Full CAP Subtotal 8 18 42 $10,850
Total Hours 42 138 270
Hourly Rate $250 $200 $125
Total Professional Fees $10,500 $27,600 $33,750 $71,850 Total Project Cost $71,850
Our typical practice is to bill for hours worked monthly, with our contracts set up as fixed not-to-exceed price contracts. We are open to billing on a task or deliverable basis as well.

These billing rates would be used for any added services requested during the contract

EXHIBIT A
Proposal to Conduct a Comprehensive Fee Study Malibu, CA Matrix Consulting Group 31
7 Timeline
The typical timeframe for completing projects of this nature is approximately six (6) months. However, the City would like the project to be complete by December 31, 2023, to present to the City Council for consideration of adoption in early 2024 to include in the FY 2024-25 Proposed Budget. The following table shows, by task, the proposed week(s) of work and deliverables to meet the City’s requested scopes of work:

Task Week(s) Deliverable

PROJECT WIDE TASKS
Data Collection Weeks 1-2 Data Collection and Project Schedule Memo Study Objectives Weeks 1-2 Initial meeting with key City staff Models and Training Weeks 16+ Delivery of excel models, training, and user guide Presentation of Results Weeks 16+ Council presentation

FEE STUDY
Current & Potential Fees Weeks 2-4 Provision of proposed fees Data Workshops Weeks 4-6 Time Estimate Workbooks
Fully Burdened Hourly Rates Weeks 5-8 Fully burdened hourly rates by position Total Cost Analysis Weeks 6-9 Draft Per Unit and Annual Cost Analysis Results Comparative Survey Weeks 4-10 Survey Results
Review/Revise Results Weeks 10-12 Draft Results Workbooks / Recommended Fees Draft Fee Study Report Weeks 12-14 Draft Fee Study Report Prepare Final Report Weeks 14-16 Final Fee Study Report Develop Master Fee Schedule Week 16 Consolidated Master Fee Schedule

COST ALLOCATION ANALYSIS
Interview Staff and Gather Data Weeks 2-5 Review of organizational changes, additional allocation metrics.

Review Allocation Metrics Weeks 4-9 Review of allocation workbooks Structure Draft Full Cost Plan Weeks 6-9 Draft Cost Allocation Model Finalize Full Cost Plan Weeks 9-12 Final Cost Plan Report This timeline assumes an early September 2023 start date to maximize City staff availability for interviews, data production, and draft reviews. All presentations, models, and training would occur after approval of study results, and in accordance with staff preference and schedules.

EXHIBIT A
October 25, 2023
Joseph Toney, Assistant City Manager
City of Malibu
23825 Stuart Ranch Road
Malibu, CA 90265
Dear Mr. Toney:

On August 29, 2023, Matrix Consulting Group submitted a proposal to the City of Malibu to conduct a Comprehensive Fee Study. Our proposal included tasks and costs associated with a Citywide User Fee Study, Cost Allocation Plan, and Excel-based models that would allow the City to update the results of each study internally. However, on discussion with City staff, it was determined that the rather than dynamic models that would require staff training for annual updates, the City would prefer workbooks that would facilitate current practices, which include the use of an annual CPI to increase fees.

Based on this understanding, we have revised our cost proposal to eliminate the Excel Models & Training Task. The following chart outlines our revised cost proposal, including a breakdown of hours by team member and costs for each task area to conduct the requested scope of services.

Project
Executive
Project
Manager Analyst Total Cost

PROJECT WIDE TASKS
Data Collection 0 4 8 $1,800
Study Objectives and Schedule 4 4 0 $1,800
Presentation of Results 8 8 0 $3,600
Project Wide Tasks Subtotal 12 22 24 $7,200

USER FEE STUDY
Current & Potential Fees 0 10 14 $3,750
Time Data Workshops 4 24 40 $10,800
Fully Burdened Hourly Rates 2 8 20 $4,600
Total Cost Analysis 8 16 40 $10,200
Comparative Survey 0 4 20 $3,300
Review / Revise Results 2 18 30 $7,850
Draft Fee Study Report 4 10 18 $5,250
Final Fee Study Report 2 6 12 $3,200
Develop Master Fee Schedule 0 2 10 $1,650
Subtotal User Fee Study 22 98 204 $50,600
matrix
consulting group

EXHIBIT A
Revised Cost Proposal Malibu, CA
Matrix Consulting Group 2
Project
Executive
Project
Manager Analyst Total Cost

FULL COST ALLOCATION PLAN
Interview Staff & Gather Allocation Metrics 2 6 10 $2,950 Review Draft Allocation Metrics 2 6 12 $3,200
Draft Cost Allocation Plan 2 4 12 $2,800
Finalize CAP 2 2 8 $1,900
Full CAP Subtotal 8 18 42 $10,850
Total Hours 42 132 254
Hourly Rate $250 $200 $125
Total Professional Fees $10,500 $26,400 $31,750 $68,650 Total Project Cost $68,650
Our revised price proposal reduces our original price from $71,850 to $68,650. As stated previously, while the reduction in cost is due to the elimination of the Excel-based model and training, we are still committed to providing the City with dynamic workbooks that will allow City staff to easily update fees from year to year based on CPI or other factorbased increases.

If you have questions or require additional information, please contact me at 650-858-0507 or [email protected].

Richard Brady, President
Matrix Consulting Group, Ltd.

EXHIBIT A
Agreement for Professional Services
Matrix Consulting Group, Ltd.

EXHIBIT B

INSURANCE LANGUAGE
Without limiting Consultant’s indemnification of City, and prior to commencement of work and/or services under this Agreement, Consultant shall obtain, provide, and maintain at its own expense during the term of this Agreement, policies of insurance of the type and amounts described below and in a form satisfactory to City.

General Liability Insurance. Consultant shall maintain commercial general liability insurance with coverage at least as broad as Insurance Services Office form CG 00 01, in an amount not less than $1,000,000 per occurrence, $2,000,000 general aggregate, for bodily injury, personal injury, and property damage. The policy must include contractual liability that has not been amended. Any endorsement restricting standard ISO “insured contract” language will not be accepted.

Automobile Liability Insurance. Consultant shall maintain automobile insurance at least as broad as Insurance Services Office form CA 00 01 covering bodily injury and property damage for all activities of the Consultant arising out of or in connection with Work to be performed under this Agreement, including coverage for any owned, hired, non-owned, or rented vehicles, in an amount not less than 1,000,000 combined single limit for each accident.

Professional Liability (Errors & Omissions) Insurance. Consultant shall maintain professional liability insurance that covers the Services to be performed in connection with this Agreement, in the minimum amount of $1,000,000 per claim and in the aggregate. Any policy inception date, continuity date, or retroactive date must be before the effective date of this agreement and Consultant agrees to maintain continuous coverage through a period no less than three years after completion of the services required by this agreement.

Workers’ Compensation Insurance. Consultant shall maintain Workers’ Compensation Insurance (statutory limits) and Employer’s Liability insurance (with limits of at least $1,000,000).

Consultant shall submit to Agency, along with the certificate of insurance, a Waiver of Subrogation endorsement in favor of City, its officers, agents, employees, and volunteers.

OTHER PROVISIONS OR REQUIREMENTS
Proof of Insurance. Consultant shall provide certificates of insurance and required endorsements to City as evidence of the insurance coverage required herein. Insurance certificates and endorsements must be approved by City’s Risk Manager prior to commencement of performance. Current certification of insurance shall be kept on file with City for the contract period and any additional length of time required thereafter. City reserves the right to require complete, certified copies of all required insurance policies, at any time.

Duration of Coverage. Consultant shall procure and maintain for the contract period, and any additional length of time required thereafter, insurance against claims for injuries to persons or damages to property, or financial loss which may arise from or in connection with the Agreement for Professional Services
Matrix Consulting Group, Ltd.

performance of the Work hereunder by Consultant, their agents, representatives, employees, or subconsultants.

Primary/Noncontributing. Coverage provided by Consultant shall be primary and any insurance or self-insurance procured or maintained by City shall not be required to contribute with it. The limits of insurance required herein may be satisfied by a combination of primary and umbrella or excess insurance. Any umbrella or excess insurance shall contain or be endorsed to contain a provision that such coverage shall also apply on a primary and non-contributory basis for the benefit of City before the City’s own insurance or self- insurance shall be called upon to protect it as a named insured.

City’s Rights of Enforcement. In the event any policy of insurance required under this Agreement does not comply with these specifications or is canceled and not replaced, City has the right but not the duty to obtain the insurance it deems necessary, and any premium paid by City will be promptly reimbursed by Consultant or City will withhold amounts sufficient to pay premium from Consultant payments. In the alternative, City may cancel this Agreement.

Acceptable Insurers. All insurance policies shall be issued by an insurance company currently authorized by the Insurance Commissioner to transact business of insurance or is on the List of Approved Surplus Line Insurers in the State of California, with an assigned policyholders’ Rating of A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best’s Key Rating Guide, unless otherwise approved by the City’s Risk Manager.

Waiver of Subrogation. All insurance coverage maintained or procured pursuant to this agreement shall be endorsed to waive subrogation against City, its elected or appointed officers, agents, officials, employees, and volunteers or shall specifically allow Consultant or others providing insurance evidence in compliance with these specifications to waive their right of recovery prior to a loss. Consultant hereby waives its own right of recovery against City and shall require similar written express waivers and insurance clauses from each of its subconsultants.

Enforcement of Contract Provisions (Non Estoppel). Consultant acknowledges and agrees that any actual or alleged failure on the part of the City to inform Consultant of non-compliance with any requirement imposes no additional obligations on the City nor does it waive any rights hereunder.

Requirements Not Limiting. Requirements of specific coverage features or limits contained in this Section are not intended as a limitation on coverage, limits or other requirements, or a waiver of any coverage normally provided by any insurance. Specific reference to a given coverage feature is for purposes of clarification only as it pertains to a given issue and is not intended by any party or insured to be all inclusive, or to the exclusion of other coverage, or a waiver of any type. If the Consultant maintains higher limits than the minimums shown above, the City requires and shall be entitled to coverage for the higher limits maintained by the Consultant. Any available insurance proceeds in excess of the specified minimum limits of insurance and coverage shall be available to the City.

Agreement for Professional Services
Matrix Consulting Group, Ltd.

Notice of Cancellation. Consultant agrees to oblige its insurance agent or broker and insurers to provide the City with a thirty (30) day notice of cancellation (except for nonpayment for which a ten (10) day notice is required) or nonrenewal of coverage for each required coverage. If any of the Consultant’s insurers are unwilling to provide such notice, then Consultant shall have the responsibility of notifying the City immediately in the event of Consultant’s failure to renew any of the required insurance coverages, or insurer’s cancellation or non-renewal.

Additional Insured Status. General liability, automobile liability, and umbrella/excess liability insurance policies shall provide or be endorsed to provide that City and its officers, officials, employees, agents, and volunteers shall be additional insureds under such policies.

Prohibition Of Undisclosed Coverage Limitations. None of the coverages required herein will be in compliance with these requirements if they include any limiting endorsement of any kind that has not been first submitted to City and approved of in writing.

Separation of Insureds. A severability of interests’ provision must apply for all additional insureds ensuring that Consultant’s insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the insurer’s limits of liability. The policy(ies) shall not contain any cross-liability exclusions.

Pass Through Clause. Consultant agrees to ensure that its subconsultants, subcontractors, and any other party who is brought onto or involved in the project/service by Consultant (hereinafter collectively “Subcontractor”), provide the same minimum insurance coverage and endorsements required of Consultant under this Agreement. Consultant agrees to monitor and review all such coverage and assumes all responsibility for ensuring that such coverage is provided in conformity with the requirements of this section. However, in the event Consultant’s Subcontractor cannot comply with this requirement, which proof must be submitted to the City, Consultant may still be able to utilize the Subcontractor provided Consultant shall be required to ensure that its Subcontractor provide and maintain insurance coverage and endorsements sufficient to the specific risk of exposure involved with Subcontractor’s scope of work and services, with limits less than required of the Consultant, but in all other terms consistent with the Consultant’s requirements under this Agreement. This provision does not relieve the Consultant of its contractual obligations under the Agreement and/or limit its liability to the amount of insurance coverage provided by its subcontractors. This provision is intended solely to provide Consultant with the ability to utilize a Subcontractor who may be otherwise qualified to perform the work or services but may not carry the same insurance limits as required of the Consultant under this Agreement given the limited scope of work or services provided by the subcontractor. Consultant agrees that upon request, all agreements with Subcontractors, and others engaged in the project and/or services, will be submitted to City for review.

City’s Right to Revise Specifications. The City reserves the right at any time during the term of the contract to change the amounts and types of insurance required by giving the Consultant ninety (90) days’ advance written notice of such change. If such a change results in substantial additional costs to the Consultant, the City and Consultant may renegotiate the Consultant’s compensation.

Agreement for Professional Services
Matrix Consulting Group, Ltd.

Self-Insured Retentions. Any self-insured retentions must be declared to and approved by the City. City reserves the right to require that self-insured retentions be eliminated, lowered, or replaced by a deductible, or require proof of ability to pay losses and related investigations, claim administration, and defense expenses within the retention through confirmation from the underwriter.

Timely Notice Of Claims. Consultant shall give City prompt and timely notice of claims made or suits instituted that arise out of or result from Consultant’s performance under this Agreement, and that involve or may involve coverage under any of the required liability policies.

Additional Insurance. The consultant shall also procure and maintain, at its own cost and expense, any additional kinds of insurance, which in its own judgment may be necessary for its proper protection and prosecution of the work.

Agenda Item # 3.B.11.

Council Agenda Report
To: Mayor Uhring and the Honorable Members of the City Council Prepared by: Alexis Brown, Deputy City Manager
Reviewed By: Rob Houston, Interim Deputy City Manager
Approved by: Steve McClary, City Manager
Date prepared: October 30, 2023 Meeting date: November 13, 2023 Subject: Amendment to Professional Services Agreement with Stoel Rives LLP RECOMMENDED ACTION: Authorize the Mayor to execute Amendment No. 3 to the Professional Services Agreement with Stoel Rives LLP for a total contract amount not-toexceed $175,000.

FISCAL IMPACT: No additional appropriation is required. Funding for this amendment is included in the Adopted Budget for Fiscal Year 2023-24 in Account No. 100-7005-5100 (Legal Counsel-Professional Services).

STRATEGIC PRIORITY: This item is part of the day-to-day operations identified in the Adopted FY 2023-24 Strategic Priority Project List.

DISCUSSION: On May 9, 2022, the City engaged Stoel Rives LLP to represent the City of Malibu with respect to potential litigation against the County of Los Angeles regarding 1) its plans for Camp Kilpatrick to be used as a permanent Secured Youth Track Facility (SYTF) for male youth and 2) the Santa Monica Mountains Local Coastal Program Amendment (LCPA) to modify the standard of review under which resource-dependent uses, including low impact campgrounds, may be established in sensitive habitats. The City contracts with Best, Best & Krieger LLP (BBK) to provide legal services including representing the City in litigation. Due to a conflict of interest, BBK is unable to represent the City in these matters.

On March 15, 2022, the Los Angeles County Board of Supervisors voted to move highrisk juvenile prisoners to Camp Vernon Kilpatrick and to develop a plan for renovations of the facility within 120 days. Camp Vernon Kilpatrick is located in the Santa Monica City Council Meeting
11-13-23
Item

3.B.11.

Agenda Item # 3.B.11.

Mountains north of Malibu. Since that time, the County has begun to move a number of juvenile prisoners to Camp Kilpatrick on a “temporary” basis. Stoel Rives LLP has assisted the City with its continual opposition to the project, including the County’s failure to analyze the wildfire, public safety and other environmental effects of the project under the California Environmental Quality Act.

On April 19, 2022, the Los Angeles County Board of Supervisors held a public hearing and adopted a motion to amend the Santa Monica Mountains Local Coastal Program to allow low-impact camping in environmentally sensitive areas consistent with the California Coastal Commission’s (CCC) recommendation. The Board instructed County Counsel to prepare a resolution adopting the policy revisions to the Santa Monica Mountains Land Use Plan and prepare an ordinance to adopt the revision to the Santa Monica Mountains Land Implementation Plan and instructed the Director of Regional Planning to transmit the adopted amendment to the CCC once finalized. On November 15, 2022, the Board approved and adopted the resolution and ordinance, which will be sent to the CCC to determine whether it meets the requirements for final certification and implementation. Stoel Rives LLP has assisted the City in its continued opposition to the LCP amendments, including their potential to exacerbate wildfire related impacts.

At this time, if the Council wishes to continue its objections to the County’s plan to move high-risk juvenile prisoners to Camp Vernon Kilpatrick and the County’s LCPA for camping in environmentally sensitive areas, additional legal services are needed. To this end, staff recommends that the City Council authorize the Mayor to execute Amendment No. 3 to the Professional Services Agreement with Stoel Rives LLP increasing the contract expenditure authority for the work by $50,000 for a total contract amount not-toexceed $175,000. Additional legal budget may be needed in the future to continue this effort, depending upon the County’s actions. Further, this increased contract expenditure authority is for the administrative process on these two matters only and does not include potential litigation against the County.

ATTACHMENTS: 1) Amendment No. 3 to Professional Services Agreement with Stoel Rives LLP
AMENDMENT NO. 3 TO AGREEMENT
THIS AMENDMENT NO. 3 TO that May 9, 2022, Engagement Letter and Advanced Waiver is made and entered in the City of Malibu on November 13, 2023, by and between the CITY OF MALIBU, hereinafter referred to as City, and Stoel Rives LLP, hereinafter referred to as Consultant.

The City and the Consultant agree as follows:

R E C I T A L S
A. On May 9, 2022, the City entered into an Agreement with Consultant for professional legal services. (the “Agreement”).

B. On August 8, 2022, the City entered into Amendment No. 1 with Consultant to authorize an additional seventy-five thousand dollars ($75,000) for a total amount not to exceed one hundred thousand dollars ($100,000).

C. On December 12, 2022, the City entered into Amendment No. 2 with Consultant to authorize an additional twenty five thousand dollars ($25,000) for a total amount not to exceed one hundred twenty thousand dollars ($125,000).

D. The City desires to amend the Agreement to authorize an additional fifty thousand dollars ($50,000) for a total amount not to exceed one hundred seventy-five thousand dollars ($175,000).

NOW THEREFORE, in consideration of their mutual promises, obligations and covenants hereinafter contained, the parties hereto agree as follows:

1. City and Consultant agree that authorized budget for the Agreement is increased by fifty thousand dollars ($50,000) for a total amount not to exceed one hundred seventy-five thousand dollars ($175,000). Any amount in excess of this amount shall require written approval by the City.

2. The Parties agree that this Amendment will be considered signed when the signature of a party is delivered physically or by facsimile transmission or scanned and delivered via electronic mail. Such facsimile or electronic mail copies will be treated in all respects as having the same effect as an original signature.

3. All terms and conditions of the Agreement not amended by this Amendment No. 3 remain in full force and effect.

This Agreement is executed on ______________________, at Malibu, California, and effective as of November 13, 2023.

CITY OF MALIBU:
____________________________________
STEVE UHRING, Mayor
ATTEST:
____________________________________
KELSEY PETTIJOHN, City Clerk
(seal)
Attachment 1
Amendment No. 3 to Agreement
Stoel Rives, LLP

_____________________
255-2
APPROVED AS TO FORM: CONSULTANT:

STOEL RIVES LLP
_____________________________________ ____________________________________ TREVOR RUSIN, Interim City Attorney By: Lindsay D. Puckett Title: Of Counsel

Agenda Item # 4.A.

Council Agenda Report
To: Mayor Uhring and the Honorable Members of the City Council Prepared by: Joyce Parker-Bozylinski, Contract Planner
Tyler Eaton, Senior Planner
Reviewed by: Richard Mollica, Planning Director
Approved by: Steve McClary, City Manager
Date prepared: November 1, 2023 Meeting date: November 13, 2023 Subject: An amendment to Title 17 (Zoning) of the Malibu Municipal Code (MMC) and the Local Coastal Program to Update Regulations Related to Accessory Dwelling Units
RECOMMENDED ACTION: Continue this item to the November 27, 2023 City Council Meeting.

City Council Meeting
11-13-23
Item

4.A.

Agenda Item # 5.A.

Council Agenda Report
To: Mayor Uhring and the Honorable Members of the City Council Prepared by: Patricia Salazar, Development and Operations Manager Reviewed by: Richard Mollica, Planning Director

Approved by: Steve McClary, City Manager
Date prepared: October 25, 2023 Meeting date: November 13, 2023 Subject: Woolsey Fire Fee Waiver Program
RECOMMENDED ACTION: Adopt Resolution No. 23-50 superseding and replacing Resolution No. 23-40, directing the City Manager to waive certain fees related to the rebuilding of structures that were damaged or destroyed by the Woolsey Fire on a property used as a primary residence, and finding the action to be exempt from the California Environmental Quality Act.

FISCAL IMPACT: There is no fiscal impact associated with the recommended action. To date, the City has waived or refunded approximately $5.22 million in fees associated with the Woolsey Fire. The Adopted Budget for FY 2023-24 includes sufficient funding to assist all remaining Woolsey Fire property owners and is not reliant on revenue from permit fees.

STRATEGIC PRIORITY: This item is part of the day-to-day operations identified in the Adopted FY 2023-24 Strategic Priority Project List.

DISCUSSION: The purpose of this agenda report is to memorialize the City Council’s direction at its September 25, 2023 meeting, to make the Woolsey Fire Fee Waiver program transferable to heirs of previously qualified property owners, consistent with existing City practice.

At its September 25, 2023 meeting, the City Council adopted Resolution No. 23-40 extending the Woosley Fire fee waiver program deadlines by three years. In addition, the City Council directed staff to ensure that heirs of previously qualified property owners were eligible for the fee waiver program. As such, the Council directed staff that if this provision did not exist in the adopted resolution to come back with a resolution memorializing its direction.

City Council Meeting
11-13-23
Item

5.A.

Agenda Item # 5.A.

To implement this new provision, two options are provided to the Council. One is a simple addition to Section 2, Subsection 5 of the resolution to make it clear that the fee waiver program is transferable to heirs. The second option takes into consideration that many property titles in Malibu are complex, which may make implementing the new provision difficult.

Option 1
This option adds heirs to Section 2, Subsection 5 of the resolution. Amendments to the resolution are in underlined/strikethrough format below.

Section 2, Subsection 5
(5) fee waivers are not transferable, except for heirs of previously qualified property owners.

Section 2, add Subsection 6
(6) If a waiver is obtained, a Certificate of Occupancy will only be issued to the property owner, or grantee as described in Subsection (5) above, who filed the affidavit establishing primary residence at the time of the Woolsey Fire with the City.

All fees that were waived must be paid to the City before a Certificate of Occupancy will be issued to an owner other than the one listed on the fee waiver.

Option 2
Staff reviewed instances where the fee waiver program eligibility was transferred to another party, typically an heir, and determined that transfers pursuant to California Revenue and Taxation Code Sections 62 and 63 may meet the intent of the Council. A copy of California Revenue and Taxation Code Sections 62 and 63 is included as Attachment 2. These sections list change of ownership or title transfer scenarios that do not require a property reassessment. The inclusion of the California Revenue and Taxation Code would provide clear criteria for staff and members of the public to apply this new provision. To implement this provision, when a request is made to transfer the eligibility of the fee waiver program, staff will review the Los Angeles Tax Assessor property data, (which is provided on a quarterly basis) and verify that the type of title change/transfer meets the criteria. Fortunately, the data provided by the County includes a title transfer legend which will assist staff in making the determination.

Agenda Item # 5.A.

Amendments to the resolution which are in underline/strikethrough format below.

Section 2, Subsection 5
(5) fee waivers are not transferable, except for changes of ownership or transfers of title excluded from reassessment pursuant to the California State Revenue and Taxation Code Sections 62 and 63, including but not limited to transfers between husband and wife, parent-child, grandparent-grandchild, intrafamily, registered domestic partners, co-tenants, co-owners, an individual or individuals and a legal entity or between legal entities, creation, assignment, termination, or reconveyance of a lender’s security interest in real property or any transfer required for financing purposes only (for example, co-signor), perfecting the title (name change only), and substitution of a trustee.

Section 2, add Subsection 6 (and renumber subsequent subsections) (6) If a waiver is obtained, a Certificate of Occupancy will only be issued to the property owner, or grantee as described in Subsection (5) above, who filed the affidavit establishing primary residence at the time of the Woolsey Fire with the City.

All fees that were waived must be paid to the City before a Certificate of Occupancy will be issued to an owner other than the one listed on the fee waiver.

SUMMARY: A resolution with Option 1 amendments is attached for the Council’s consideration.

ATTACHMENTS:

1. Resolution No. 23-50

2. California State Revenue and Taxation Code Sections 62 and 63 RESOLUTION NO. 23-50

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MALIBU
SUPERSEDING AND REPLACING RESOLUTION NO. 23-40; DIRECTING

THE CITY MANAGER TO WAIVE CERTAIN FEES RELATED TO THE

REBUILDING OF STRUCTURES THAT WERE DAMAGED OR

DESTROYED BY THE WOOLSEY FIRE ON A PROPERTY USED AS A
PRIMARY RESIDENCE; AND FINDING THE ACTION TO BE EXEMPT

FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT
The City Council of the City of Malibu does hereby find, order and resolve as follows:

SECTION 1. Recitals.

A. The 2018 Woolsey Fire destroyed at least 488 single-family homes in Malibu.

B. In the public interest of encouraging the rebuilding of homes in the City that were lost in theWoolsey Fire, the City desires to waive certain planning and building permit feesrelated to the rebuilding structures that were damaged or destroyed by the Woolsey Fire.

C. The waiving of fees will only be applicable to owners of properties that are being rebuilt as a like-for-like or like-for-like plus 10% rebuild and were used as a primary residence by such owners as of November 8, 2018.

D. Property owners requesting a waiver of fees must demonstrate primary residency with an active voter registration, a valid driver’s license or other government-issued identification cardwith the address of the property that was destroyed by the Woolsey Fire acceptable to the City Manager and file an affidavit with the City on the form specified by the City Manager.

E. Building permits eligible for fee waiver shall include grading, foundation, building, plumbing, mechanical, electrical and Onsite Wastewater Treatment System (OWTS) permits.

F. The City cannot waive permit fees required by other agencies including, but not limited to, the County of Los Angeles and the State of California.

G. On June 24, 2019, the City Council adopted Resolution No. 19-30 authorizing the waiving of fees from November 8, 2018 through June 30, 2020.

H. On February 24, 2020, the City Council adopted Resolution No. 20-10 authorizing the waiving of certain fees from November 8, 2018 through December 30, 2020.

I. On June 22, 2020, the City Council adopted Resolution No. 20-32 authorizing the waiving of certain fees from November 8, 2018 through June 30, 2021.

Attachment 1
Resolution No. 23-50

_____________________
J. On March 22, 2021, the City Council adopted Resolution No. 21-10 authorizing the waiving of certain fees from November 8, 2018 through June 30, 2022.

K. On November 8, 2021, the City Council adopted Resolution No. 21-62, authorizing the waiving of certain fees from November 8, 2018 through December 30, 2023.

L. On September 11, 2023, the City Council directed staff to modify and replace Resolution No. 21-62, extending the deadlines by three years, from November 8, 2018 through December 30, 2026, to coincide with Assembly Bill 1500, which amends the Revenue and Taxation Code (RTC) section 70.5 to allow property owners an additional three years to reconstruct improvements on the property substantially damaged or destroyed by the 2018 Woolsey Fire and the 2018 Camp Fire.

M. On September 25, 2023, the City Council adopted Resolution No. 23-40, authorizing the waiving of certain fees from November 8, 2018 through December 30, 2026. In addition, the City Council directed staff to ensure that heirs of previously qualified property owners, were eligible for the fee waiver program. As such, the Council directed staff that if this provision did not exist in the adopted resolution to come back with a resolution memorializing its direction.

N. The City Council now desires to modify and replace Resolution No. 23-40 as herein described.

SECTION 2. Action
The recitals above are adopted and, based thereon, the City Council directs the City Manager to waive the necessary planning and building permit fees for projects rebuilding a likefor-like or like-for like plus 10% structures that were damaged or destroyed by the Woolsey Fire where the property owner demonstrates to the satisfaction of the City Manager that the property was used as the primary residence by the property owner on November 8, 2018, subject to the following requirements and limitations:
(1) an application for waiver is received by June 30, 2026. (2) all required Planning Department applications for the project are deemed complete by June 30, 2026.
(3) all required building permits are pulled by December 30, 2026 (fees will have to be paid for any building permit pulled after December 30, 2026, before it will be issued. (4) all fees associated with post-approval revisions to the project’s Planning Department approval or building permit issuance will be charged in accordance the City’s Adopted Fee Schedule.
(5) fee waivers are not transferable, except for heirs of previously qualified property owners.
(6) If a waiver is obtained, a Certificate of Occupancy willonly be issued to the property Resolution No. 23-50

_____________________
owner who filed the affidavit establishing primary residence atthe time of the Woolsey Fire with the City. All fees that were waived must be paid to the City before a Certificate of Occupancy will be issued to an owner otherthan the one listed on the fee waiver.

This resolution supersedes and replaces Resolution 23-40.

SECTION 3. Environmental Review.

The Council finds that the adoption and implementation of this resolution is exempt from the provisions of the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines section 15061(b)(3) because it can be seen with certainty that there is no possibility that the Ordinance may have a significant effect on the environment, section 15064(e) which exempts purely economic regulations, and Public Resources Code Section 21080(b)(4) regarding actions to mitigate or prevent an emergency.

SECTION 4. The City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

PASSED, APPROVED, and ADOPTED this 13th of November 2023. _____________________________
STEVE UHRING, Mayor
ATTEST:
__________________________________
KELSEY PETTIJOHN, City Clerk
(seal)
APPROVED AS TO FORM:
__________________________________
TREVOR RUSIN, City Attorney
- 1 -
Attachment 2
California Code, Revenue and Taxation Code
- RTC § 62
Current as of January 01, 2023 |
Change in ownership shall not include:
(a)(1) Any transfer between coowners that results in a change in the method of holding title to the real property transferred without changing the proportional interests of the coowners in that real property, such as a partition of a tenancy in common. (2) Any transfer between an individual or individuals and a legal entity or between legal entities, such as a cotenancy to a partnership, a partnership to a corporation, or a trust to a cotenancy, that results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer. The provisions of this paragraph shall not apply to transfers also excluded from change in ownership under the provisions of subdivision (b) of Section 64.
(b) Any transfer for the purpose of perfecting title to the property. (c)(1)  1 The creation, assignment, termination, or reconveyance of a security interest; or (2) the substitution of a trustee under a security instrument. (d) Any transfer by the trustor, or by the trustor's spouse or registered domestic partner, or by both, into a trust for so long as (1) the transferor is the present beneficiary of the trust, or (2) the trust is revocable; or any transfer by a trustee of such a trust described in either clause (1) or (2) back to the trustor; or, any creation or termination of a trust in which the trustor retains the reversion and in which the interest of others does not exceed 12 years duration.
(e) Any transfer by an instrument whose terms reserve to the transferor an estate for years or an estate for life. However, the termination of such an estate for years or estate for life shall constitute a change in ownership, except as provided in subdivision (d) and in Section 63.
(f) The creation or transfer of a joint tenancy interest if the transferor, after the creation or transfer, is one of the joint tenants as provided in subdivision (b) of Section 65. (g) Any transfer of a lessor's interest in taxable real property subject to a lease with a remaining term (including renewal options) of 35 years or more. For the purpose of this subdivision, for 1979-80 and each year thereafter, it shall be conclusively presumed that all homes eligible for the homeowners' exemption, other than manufactured homes located on rented or leased land and subject to taxation pursuant to Part 13 (commencing - 2 -
with Section 5800) and floating homes subject to taxation pursuant to Section 229, that are on leased land have a renewal option of at least 35 years on the lease of that land, whether or not in fact that renewal option exists in any contract or agreement. (h) Any purchase, redemption, or other transfer of the shares or units of participation of a group trust, common trust fund, pooled fund, or other collective investment fund established by a financial institution.
(i) Any transfer of stock or membership certificate in a housing cooperative that was financed under one mortgage, provided that mortgage was insured under Section 213, 221(d)(3), 221(d)(4), or 236 of the National Housing Act, as amended, or that housing cooperative was financed or assisted pursuant to Section 514, 515, or 516 of the Housing Act of 1949 or Section 202 of the Housing Act of 1959, or the housing cooperative was financed by a direct loan from the California Housing Finance Agency, and provided that the regulatory and occupancy agreements were approved by the governmental lender or insurer, and provided that the transfer is to the housing cooperative or to a person or family qualifying for purchase by reason of limited income. Any subsequent transfer from the housing cooperative to a person or family not eligible for state or federal assistance in reduction of monthly carrying charges or interest reduction assistance by reason of the income level of that person or family shall constitute a change of ownership. (j) Any transfer during the period March 1, 1975, to March 1, 1981, between coowners in any property that was held by them as coowners for all or part of that period, and which was eligible for a homeowner's exemption during the period of the coownership, notwithstanding any other provision of this chapter. Any transferee whose interest was revalued in contravention of the provisions of this subdivision shall obtain a reversal of that revaluation with respect to the 1980-81 assessment year and thereafter, upon application to the county assessor of the county in which the property is located filed on or before March 26, 1982. No refunds shall be made under this subdivision for any assessment year prior to the 1980-81 fiscal year.
(k) Any transfer of property or an interest therein between a corporation sole, a religious corporation, a public benefit corporation, and a holding corporation as defined in Section 23701h holding title for the benefit of any of these corporations, or any combination thereof (including any transfer from one entity to the same type of entity), provided that both the transferee and transferor are regulated by laws, rules, regulations, or canons of the same religious denomination.
(l) Any transfer, that would otherwise be a transfer subject to reappraisal under this chapter, between or among the same parties for the purpose of correcting or reforming a deed to express the true intentions of the parties, provided that the original relationship between the grantor and grantee is not changed.
(m) Any intrafamily transfer of an eligible dwelling unit from a parent or parents or legal guardian or guardians to a minor child or children or between or among minor siblings as a result of a court order or judicial decree due to the death of the parent or parents. As used in this subdivision, “eligible dwelling unit” means the dwelling unit that was the - 3 -
principal place of residence of the minor child or children prior to the transfer and remains the principal place of residence of the minor child or children after the transfer. (n) Any transfer of an eligible dwelling unit, whether by will, devise, or inheritance, from a parent or parents to a child or children, or from a guardian or guardians to a ward or wards, if the child, children, ward, or wards have been disabled, as provided in subdivision (d) of Section 12304 of the Welfare and Institutions Code, for at least five years preceding the transfer and if the child, children, ward, or wards have adjusted gross income that, when combined with the adjusted gross income of a spouse or spouses, parent or parents, and child or children, does not exceed twenty thousand dollars ($20,000) in the year in which the transfer occurs. As used in this subdivision, “child” or “ward” includes a minor or an adult. As used in this subdivision, “eligible dwelling unit” means the dwelling unit that was the principal place of residence of the child or children, or ward or wards for at least five years preceding the transfer and remains the principal place of residence of the child or children, or ward or wards after the transfer. Any transferee whose property was reassessed in contravention of this subdivision for the 1984-85 assessment year shall obtain a reversal of that reassessment upon application to the county assessor of the county in which the property is located. Application by the transferee shall be made to the assessor no later than 30 days after the later of either the transferee's receipt of notice of reassessment pursuant to Section 75.31 or the end of the 1984-85 fiscal year. (o) Any transfer of a possessory interest in tax-exempt real property subject to a sublease with a remaining term, including renewal options, that exceeds half the length of the remaining term of the leasehold, including renewal options. (p)(1) Commencing on January 1, 2000, any transfer between registered domestic partners, as defined in Section 297 of the Family Code, including, but not limited to:
(A) Transfers to a trustee for the beneficial use of a registered domestic partner, or the surviving registered domestic partner of a deceased transferor, or by a trustee of such a trust to the registered domestic partner of the trustor. (B) Transfers that take effect upon the death of a registered domestic partner. (C) Transfers to a registered domestic partner or former registered domestic partner in connection with a property settlement agreement or decree of dissolution of a registered domestic partnership or legal separation.
(D) The creation, transfer, or termination, solely between registered domestic partners, of any coowner's interest.
(E) The distribution of a legal entity's property to a registered domestic partner or former registered domestic partner in exchange for the interest of the registered domestic partner in the legal entity in connection with a property settlement agreement or a decree of dissolution of a registered domestic partnership or legal separation. - 4 -
(2) Any transferee whose property was reassessed in contravention of the provisions of this subdivision for a transfer occurring between January 1, 2000, and January 1, 2006, shall obtain a reversal of that reassessment upon application to the county assessor of the county in which the property is located. Application by the transferee shall be made to the assessor no later than June 30, 2009. A county may charge a fee for its costs related to the application and reassessment reversal in an amount that does not exceed the actual costs incurred. This paragraph shall be liberally construed to provide the benefits of this subdivision and Article XIII A of the California Constitution to registered domestic partners.
(A) After consultation with the California Assessors' Association, the State Board of Equalization shall prescribe the form for claiming the reassessment reversal described in paragraph (2). The claim form shall be entitled “Claim for Reassessment Reversal for Registered Domestic Partners.” The claim shall state on its face that a “certificate of registered domestic partnership” is available upon request from the California Secretary of State.
(B) The information on the claim shall include a description of the property, the parties to the transfer of interest in the property, the date of the transfer of interest in the property, and a statement that the transferee registered domestic partner and the transferor registered domestic partner were, on the date of transfer, in a registered domestic partnership as defined in Section 297 of the Family Code. (C) The claimant shall declare that the information provided on the form is true, correct, and complete to the best of the claimant's knowledge and belief. (D) The claimant shall provide with the completed claim the “Certificate of Registered Domestic Partnership,” or photocopy thereof, naming the transferee and transferor as registered domestic partners and reflecting the creation of the registered domestic partnership on a date prior to, or concurrent with, the date of the transfer for which a reassessment reversal is requested.
(E) Any reassessment reversal granted pursuant to a claim shall apply commencing with the lien date of the assessment year, as defined in Section 118, in which the claim is filed.

No refunds shall be made under this paragraph for any prior assessment year. (F) Under any reassessment reversal granted pursuant to that claim, the adjusted full cash value of the subject real property in the assessment year described in subparagraph (E) shall be the adjusted base year value of the subject real property in the assessment year in which the excluded purchase or transfer took place, factored to the assessment year described in subparagraph (E) for both of the following:
(i) Inflation as annually determined in accordance with paragraph (1) of subdivision (a) of Section 51.

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(ii) Any subsequent new construction occurring with respect to the subject real property. (q)(1) Any transfer of property occurring on or after January 1, 2000, to June 26, 2015, inclusive, between local registered domestic partners, including, but not limited to:
(A) Transfers to a trustee for the beneficial use of a local registered domestic partner, or the surviving local registered domestic partner of a deceased transferor, or by a trustee of such a trust to the local registered domestic partner of the trustor. (B) Transfers that take effect upon the death of a local registered domestic partner. (C) Transfers to a local registered domestic partner or former local registered domestic partner in connection with a property settlement agreement or decree of dissolution of a local registered domestic partnership or legal separation. (D) The creation, transfer, or termination, solely between local registered domestic partners, of any coowner's interest.
(E) The distribution of a legal entity's property to a local registered domestic partner or former local registered domestic partner in exchange for the interest of the local registered domestic partner in the legal entity in connection with a property settlement agreement or a decree of dissolution of a local registered domestic partnership or legal separation.
(2) Any transferee whose property was reassessed in contravention of this subdivision shall obtain a reversal of that reassessment upon application to the county assessor of the county in which the property is located. Application by the transferee shall be made to the assessor no later than June 30, 2022. A county may charge a fee for its costs related to the application and reassessment reversal in an amount that does not exceed the actual costs incurred. This paragraph shall be liberally construed to provide the benefits of this subdivision and Article XIII A of the California Constitution to local registered domestic partners.
(A) After consultation with the California Assessors' Association, the State Board of Equalization shall prescribe the form for claiming the reassessment reversal described in paragraph (2). The claim form shall be entitled “Claim for Reassessment Reversal for Local Registered Domestic Partners.”
(B) The information on the claim shall include a description of the property, the parties to the transfer of interest in the property, the date of the transfer of interest in the property, and a statement that the transferee local registered domestic partner and the transferor local registered domestic partner were, on the date of transfer, in a local registered domestic partnership as defined by paragraph (3).
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(C) The claimant shall declare that the information provided on the form is true, correct, and complete to the best of their knowledge and belief. (D) The claimant shall provide with the completed claim documentation naming the transferee and transferor as local registered domestic partners and reflecting the creation of the local registered domestic partnership on a date prior to, or concurrent with, the date of the transfer for which a reassessment reversal is requested. (E) Any reassessment reversal granted pursuant to a claim shall apply commencing with the lien date of the assessment year, as defined in Section 118, in which the claim is filed.

No refunds shall be made under this paragraph for any prior assessment year. (F) Under any reassessment reversal granted pursuant to that claim, the adjusted full cash value of the subject real property in the assessment year described in subparagraph (E) shall be the adjusted base year value of the subject real property in the assessment year in which the excluded purchase or transfer took place, factored to the assessment year described in subparagraph (E) for both of the following:
(i) Inflation as annually determined in accordance with paragraph (1) of subdivision (a) of Section 51.
(ii) Any subsequent new construction occurring with respect to the subject real property. (3) For purposes of this subdivision, “local registered domestic partner” means a registered domestic partnership established by a city, county, city and county, or special district in which both of the following conditions are met:
(A) The registrants were of the same sex at the time of registration. (B) The registrants were not in a registered domestic partnership with, or married to, any other person at the time of the transfer.
(r)(1) Any parent to child transfer of stock in a qualified corporation that results in a change in ownership of a qualified property owned by the qualified corporation, provided that the transfer of stock is due to the death of a parent or parents. (2) The assessor shall report quarterly to the State Board of Equalization all transfers for which a claim for exclusion is made for a qualified property pursuant to this subdivision and the amount of each exclusion claimed.
(3) The exclusion provided by this section shall apply only to a qualified property. (4) For purposes of this subdivision, both of the following definitions shall apply:
(A) “Qualified corporation” means a corporation that satisfies all of the following conditions:
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(i) Was created between March 1, 1975, and November 6, 1986, inclusive. (ii) The corporation owns qualified property.
(iii) The only stockholders in the corporation have been the parents and their children. (B) “Qualified property” means a parcel of land that satisfies both of the following conditions:
(i) Contains the principal place of residence of the parents prior to their death that has been the continuous place of residence of a child of those parents since the creation of the qualified corporation.
(ii) Its full cash value, as defined in Section 2 of Article XIII A of the California Constitution and Section 110.1, with any adjustments authorized by those sections, as of the date immediately prior to the date of death of the last surviving parent does not exceed one million dollars ($1,000,000).

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California Code, Revenue and Taxation Code
- RTC § 63
Current as of January 01, 2023 |
Notwithstanding any other provision in this chapter, a change of ownership shall not include any interspousal transfer, including, but not limited to:
(a) Transfers to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such a trust to the spouse of the trustor, (b) Transfers which take effect upon the death of a spouse, (c) Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation, or (d) The creation, transfer, or termination, solely between spouses, of any coowner's interest.
(e) The distribution of a legal entity's property to a spouse or former spouse in exchange for the interest of such spouse in the legal entity in connection with a property settlement agreement or a decree of dissolution of a marriage or legal separation.

Agenda Item # 5.B.

Council Agenda Report
To: Mayor Uhring and Honorable Members of the City Council Prepared by: Richard Mollica, Planning Director

Approved by: Steve McClary, City Manager
Date prepared: November 2, 2023 Meeting date: November 13, 2023 Subject: Initiate Code Amendments to Address Home-Sharing RECOMMENDED ACTION: 1) Receive a report from staff; and 2) Adopt Resolution No. 23-16 initiating an amendment to the Malibu Municipal Code (MMC) and initiating an amendment to the Local Coastal Program Local Implementation Plan confirming that timeshare use in the City is prohibited and finding the action exempt from the California Environmental Quality Act.

FISCAL IMPACT: There is no fiscal impact associated with the recommended action.

STRATEGIC PRIORITY: This item is categorized as day-to-day work and was not on the list of top priorities identified in the Adopted FY 2023-24 Strategic Priority Project List.

DISCUSSION: On April 10, 2023, the City Council received staff’s presentation and oral and written testimony on this item and directed that it be brought back to Council for further discussion.

Since that time, the City has informed Pacaso, Inc., that it is operating in violation of the MMC and LIP, and the California Coastal Commission has certified Local Coastal Program amendments that limit or prohibit timeshare use of single-family homes for the cities of Newport Beach and Carmel-by-the Sea. The staff reports for these LCP amendments are attached to this report.

Similar to other communities, the City has been receiving complaints regarding singlefamily homes in the City that have been effectively turned into timeshares and were being sold and/or marketed as “fractional ownership” or “co-ownership” homes, wherein each buyer may acquire a one-eighth interest in a limited liability company that will own the home. To address this growing issue that removes housing stock and converts it to City Council Meeting
11-13-23
Item

5.B.

Agenda Item # 5.B.
vacation or second homes, Sonoma and Monterey Counties and the City of Palm Springs have issued cease and desist orders to these fractional ownership or co-ownership property management companies. In addition, jurisdictions such as the Town of Truckee, City of Sonoma, City of St. Helena, and the City of North Haven have adopted or updated their time-share ordinances to address fractional or co-ownership of homes.

Under the fractional ownership or co-ownership structure pursuant to which these dwelling units are marketed and sold, each owner receives a one-eighth share along with the right to use the home for one-eighth of each year, indefinitely. During each owner’s usage period, that owner has exclusive use of the entire house/property. Rentals are prohibited; only owners and their guests are permitted to use the house under the structure of the agreement. Each owner also pays regular assessments to fund the operating costs of the home and maintenance reserves.

This arrangement, which provides that each purchaser is entitled to exclusive use of the property for a fixed number of days each year, meets the definition of a “time-share plan” as defined in Business and Professions Code section 11212. Time-share uses are not specifically permitted in any zoning district and are therefore currently prohibited in all zoning districts (MMC Section 17.04.050).

Time-share use has a negative impact on housing stock in the City and runs counter to the City’s efforts, over many years, to preserve its existing housing stock for long-term residential use. It removes property that could be used for long-term residents and instead limits the property’s use to a part-time vacation or second home.

The conversion of existing residential units to uses other than long-term residential use also reduces the City’s existing long-term housing supply and causes further imbalance between the demand for housing in the City and the existing supply. In addition, such use could also alter the character of the City’s residential neighborhoods and present challenges to the City’s efforts to provide affordable housing within the community.

Proposed Zoning Text Amendment and Local Coastal Program Amendment Staff proposes to bring forward a draft ordinance that will confirm the City’s prohibition on time-share use and aid enforcement of that prohibition, which will also include options for addressing single family homes that are currently violating this prohibition.

Recommendation: Staff recommends that the Council provide comment and adopt Resolution 23-16 initiating a Zoning Text Amendment and Local Coastal Program Amendment to further regulate time-share use in the City. Staff will then present a draft ordinance to ZORACES for comments prior to bringing a draft ordinance to the Planning Commission to provide recommendations.

Agenda Item # 5.B.

ATTACHMENTS:

1. Resolution No. 23-16

2. California Coastal Commission Staff Report City of Newport Beach LCP Amendment Number LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share) for October 12, 2023 Hearing

3. California Coastal Commission Staff Report for City of Carmel-by-the-Sea LCP Amendment No. LCP-3-CML-23-0022-1-Part B (Timeshare Provisions) for October 13, 2023 Hearing
Attachment 1
RESOLUTION NO. 23-16

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MALIBU

INITIATING AN AMENDMENT TO THE MALIBU MUNICIPAL CODE AND

INITIATING AN AMENDMENT TO THE LOCAL COASTAL PROGRAM

LOCAL IMPLEMENTATION PLAN ADDRESSING TIME SHARE USES IN

THE CITY AND FINDING THE ACTION EXEMPT FROM THE CALIFORNIA

ENVIRONMENTAL QUALITY ACT
The City Council of the City of Malibu does hereby find, order, and resolve as follows:

SECTION 1. Recitals.

A. On November 13, 2023, the City Council initiated a Zoning Text Amendment(ZTA) and Local Coastal Program Amendment (LCPA) to address time-share uses in the City and directed the Planning Commission to schedule a public hearing regarding the ZTA and LCPA and provide a recommendation to the Council whether to approve, modify, or reject the amendment.

SECTION 2. Initiation.

Pursuant to MMC Chapter 17.74, the City Council hereby initiates an amendment to address time-share use in the City.

Pursuant to LIP Chapter 19, the City Council hereby initiates an amendment to the LCP and directs staff to issue a Notice of Availability consistent with LIP section 19.3.1. The amendment shall include provisions to address time share use within the City.

SECTION 3. Hearings.

A. The Zoning Ordinance and Code Enforcement Revisions Subcommittee is hereby directed to consider the amendments and provide direction to staff.

B. The Planning Commission is hereby directed to conduct a duly noticed public hearing in accordance with Chapter 19 of the Malibu LIP. Following the public hearing, the Planning Commission shall recommend to the City Council whether it should approve, modify, or deny the proposed amendments. The Planning Commission’s recommendation shall be made by resolution carried by the affirmative vote of not less than the majority of the entire Planning Commission.

Resolution No. 23-16

_____________________
SECTION 4. Certification.

The City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

PASSED, APPROVED, and ADOPTED this 13th day of November 2023. _____________________________
STEVE UHRING, Mayor
ATTEST:
___________________________________
KELSEY PETTIJOHN, City Clerk
(seal)
APPROVED AS TO FORM:
_________________________________
TREVOR RUSIN, City Attorney
STATE OF CALIFORNIA — NATURAL RESOURCES AGENCY GAVIN NEWSOM, GOVERNOR

CALIFORNIA COASTAL COMMISSION SOUTH COAST DISTRICT OFFICE 301 E. OCEAN BOULEVARD, SUITE 300
LONG BEACH, CA 90802
PHONE: (562) 590-5071
WEB: WWW.COASTAL.CA.GOV
Th15a
Prepared September 29, 2023, for October 12, 2023, Hearing To: Commissioners and Interested Persons
From: Karl Schwing, Deputy Director, South Coast District Shannon Vaughn, District Manager, South Coast District
Zach Rehm, District Supervisor, South Coast District
Fernie Sy, Coastal Planner, South Coast District
Subject: City of Newport Beach LCP Amendment Number LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

SUMMARY OF STAFF RECOMMENDATION
The City of Newport Beach requests to amend the certified Implementation Plan (IP) of the City’s certified Local Coastal Program (LCP) to clarify that Fractional Ownership uses are defined as a Time Share use; and make minor cleanup revisions to existing time share regulations. The LCP amendment would modify Time Share related definitions (time share accommodation, time share project, time share estate, time share instrument, time share interval, time share plan, time share property, time share unit and time share use) to include Fractional Ownership arrangements as a defined category of time share. The permitted locations for, and development standards that apply to, Time Shares would not be changed.

The LCP currently prohibits Time Shares in all residential areas, while they are permitted in (and only in) the following commercial land use areas: Recreational and Marine Commercial (CM), Visitor-serving Commercial (CV), Mixed-Use Horizontal (MUH), and Mixed-Use Water Related (MU-W). The LCP amendment would classify Fractional Ownership uses as a Time Share use, and as a result would prohibit them in all residential use areas but allow Fractional Ownership uses in the designated commercial land use areas listed above.

This LCP amendment was initiated as a result of the City seeing an influx of Fractional Ownership and Time Share oriented uses of residential property, where ownership of the residence is shared among multiple non-related owners (Fractional Ownership). The entity responsible for much of this activity in the City is Pacaso, a private company which owns or manages nine Fractional Ownership homes in the City.

The City is proposing to modify the definitions in its IP to identify Fractional Ownership as a Time Share use. The Commission’s role in reviewing IP amendments is a limited one. It can only reject an IP amendment if it would render the IP out of conformity with or inadequate to carry out the Land Use Plan portion of the LCP. In this case, there is ATTACHMENT 2
LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

nothing in the LUP that would preclude the City’s proposed change. The model of fractionalized home ownership applied to properties like those owned by Pacaso, wherein individuals hold a form of fee title to private residential property, and essentially establish their own parameters on when and how often each individual owner can use the property, appears to be quite similar to a Time Share model, which similarly is premised upon being a type of residential property rights with predefined lengths of stay and other use parameters that are specified by owners. That the City is identifying Fractional Ownership as a Time Share use does not raise any LUP consistency problems.

The City of Newport Beach LCP does not prohibit Time Share uses. However, it does contain various policies indicating where residential uses and commercial land use areas are to be located and specifying which uses in each of these respective areas would be consistent with their land use designation. The proposed LCP amendment would identify Fractional Ownership as a Time Share use, and as such, Fractional ownership would be prohibited in all residential areas and allowed in identified commercial land use areas. By doing so, the LCP amendment would maintain the City’s existing LCP policies of identifying the appropriate land uses allowed in specific areas and would not change existing use designations or allow uses not consistent with their use designation. Thus, the LCP amendment would be consistent with the City’s LUP.

The City’s intent to include Fractional Ownership as a Time Share use does not raise any LUP consistency problems, and rather can be understood as addressing residential ownership issues generally outside the LCP’s coastal resource protection lens. Despite Pacaso’s claims that their private residential ownership arrangements somehow enhance public access and visitor-serving opportunities, Fractional Ownership is simply a private ownership structure that benefits the few individuals capable of buying into them (no matter the size of the scheme) and therefore such arrangements only benefit those few and not the public at large. Yes, those fractional owners of single-family residences are members of the public for whom their access might be improved, but the general public does not achieve better access as a result of Pacaso’s efforts. In fact, for those not lucky enough to be able to achieve residency in Newport Beach, including for those for whom such residency is prohibitively expensive, the Pacaso ownership model does not contribute to any sort of public access or visitor-serving improvement.

Staff therefore recommends that the Commission find the proposed amendment leaves the IP consistent with and adequate to carry out the certified LUP, and that the Commission approve the amendment as submitted. The motion and resolution are found on page 4 below.

Staff Note: LCP Amendment Action Deadline
This proposed LCP amendment was determined to be submitted as complete on July 12, 2023. The proposed amendment affects the LCP’s IP, and the 60-working-day action deadline was October 5, 2023. On September 7, 2023, the Commission extended the deadline for Commission action by one year, to October 5, 2024. Thus, the last regularly scheduled hearing that the Commission has to act on this item is September 13, 2024.

LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

TABLE OF CONTENTS

1. MOTION AND RESOLUTION ............................................................................. 4

2. FINDINGS AND DECLARATIONS..................................................................... 4 A. Proposed LCP Amendment Description ............................................................... 4 B. Proposed LCP Amendment Consistency Evaluation............................................ 7 C. California Environmental Quality Act (CEQA)..................................................... 12

EXHIBITS
Exhibit No. 1: City’s Adopted Ordinance
Exhibit No. 2: Proposed IP Amendment (changes shown in red, strikethrough and underline)
Exhibit No. 3: Opposition to Proposed IP Amendment
Exhibit No. 4: Correspondence from City
LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

1. MOTION AND RESOLUTION
Staff recommends that the Commission, after public hearing, certify the proposed LCP amendment as submitted. The Commission needs to make one motion in order to act on this recommendation, and staff recommends a NO vote on the motion below.

Following staff’s recommendation on this motion will result in certification of the Implementation Plan Amendment as submitted and the adoption of the following resolution and findings. The motion passes only by an affirmative vote of a majority of the Commissioners present.

Motion to Certify: I move that the Commission reject Implementation Plan Amendment LCP-5-NPB-23-0020-2 as submitted by the City of Newport Beach, and I recommend a no vote.

Resolution to Certify: The Commission hereby certifies Implementation Plan Amendment LCP-5-NPB-23-0020-2 for the City of Newport Beach as submitted and adopts the findings set forth below on the grounds that the amended Implementation Plan conforms with, and is adequate to carry out, the provisions of the certified Land Use Plan. Certification of the amended Implementation Plan complies with the California Environmental Quality Act, because either 1) feasible mitigation measures and/or alternatives have been incorporated to substantially lessen any significant adverse effects of the amended Implementation Plan on the environment, or 2) there are no further feasible alternatives and mitigation measures that would substantially lessen any significant adverse impacts on the environment.

2. FINDINGS AND DECLARATIONS
A. Proposed LCP Amendment Description
The proposed amendment would modify the LCP’s Implementation Plan (IP) to clarify that Fractional Ownership uses are defined as a Time Share use; and make minor cleanup revisions to existing Time Share regulations; which as a result would prohibit Fractional Ownership in all residential areas.
1 The permitted locations and development
standards that apply to time shares would not be changed.

Fractional Ownership is when multiple owners (usually 4-8) share property ownership through a formal agreement, often managed by a private company, or are selforganized. The time each owner has to use the property is dependent upon their paid share of the property. The time spent at the property is usually done in one- or twoweek periods of time. The owners pay for their share of the home, as well as other 1 The term ‘Time Share’ generally refers to a property ownership arrangement whereby multiple owners share ownership and ‘share’ time using the property. In the Commission’s experience, Time Shares have generally been understood to be a type of ownership associated with visitor-serving overnight accommodation products, such as hotels, whereby the hotel operates as a pseudo-residential product where rooms are used (at some times or all the time) exclusively by these owners and are not offered for overnight use in exchange for a room rate to the general public.

LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

associated home and maintenance fees. There are currently twelve Fractional Ownership homes located in Newport Beach, according to the City.

This LCP amendment was initiated as a result of the City seeing an influx of Fractional Ownership and Time Share oriented uses of residential property, where ownership of the residence is shared among multiple non-related owners (Fractional Ownership). The entity responsible for much of this activity in the City is Pacaso, a private company that purchases residential properties and then sells fractional interests in such properties to private parties, where such private parties then share use of that property. Pacaso indicates that their general business model is to buy a single-family residential property, offer it for sale to up to eight co-owners, and then manage that property and its use for those owners for a fee, where the owners can elect to sever ties with Pacaso. According to the City, nine of the twelve Fractional Ownership homes in the City belong to Pacaso.

The City states that the rise of these Fractional Ownership uses operating instead of a full-time owner-occupied unit has caused increased traffic, parking congestion, and noise within the residential areas of the Coastal Zone. Furthermore, the City also states that the conversion of residential units into Fractional Ownership and Time Share oriented uses has eliminated them from being available for occupancy as full-time residences. As a result, fewer residences are available for the public to rent or purchase, which consequently increases housing costs. In turn, these increased housing costs have reduced the opportunities for the availability of affordable housing for extremely low-, very low-, low-, and moderate-income households.

The LCP currently prohibits Time Shares in all residential areas, while Time Shares are only permitted in the following commercial land use areas: Recreational and Marine Commercial (CM), Visitor-serving Commercial (CV), Mixed-Use Horizontal (MU-H), and Mixed-Use Water Related (MU-W). The proposed LCP amendment would not modify the development standards or locations where Time Share uses are permitted, nor would the LCP amendment authorize new development or establish new uses within the Coastal Zone. The LCP amendment would classify Fractional Ownership uses as a Time Share use, and as a result would prohibit them in all residential use areas but will allow Fractional Ownership uses in designated commercial land use areas.

More specifically, the LCP amendment would modify time share related definitions (time share accommodation, time share project, time share estate, time share instrument, time share interval, time share plan, time share property, time share unit and time share use) to include Fractional Ownership arrangements as a defined category of time share.

Regarding these definitions, the City indicates the following are the critical definitions with key language underlined where applicable:

Time Share Use means the use of one or more accommodations or any part thereof, as a time share property.

Time Share Property means one or more accommodations subject to the same time share instrument, together with any other property or rights to property appurtenant to those accommodations.

LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

Time Share Instrument means one or more documents, by whatever name denominated, creating a time share plan or governing the operation of a time share plan, and includes the declaration dedicating accommodations to the time share plan.

Time Share Plan means any arrangement, plan, scheme, or similar device, whether by membership agreement, bylaws, shareholder agreement, partnership agreement, sale, lease, deed, license, right to use agreement, or by any other means, whereby a purchaser, in exchange for consideration, receives the right to exclusive use of real property, or any portion thereof, whether through the granting of ownership rights, possessory rights or otherwise, for a period of time less than a full year during any given year, on a recurring basis for more than one year, but not necessarily for consecutive years. A time share plan shall be deemed to exist whenever such recurring rights of exclusive use to the real property, or portion thereof, are created, regardless of whether such exclusive rights of use are a result of a grant of ownership rights, possessory rights, membership rights, rights pursuant to contract, or ownership of a fractional interest or share in the real property, or portion thereof, and regardless of whether they are coupled with ownership of a real property interest such as freehold interest or an estate for years in the property subject to the time share plan.

The proposed LCP amendment requires that several conditions be met to trigger regulation and does not inadvertently capture non-time share uses, like the purchase of an entire property between family and friends. Pacaso contends that the LCP amendment is designed in such a way that it would fail to identify the difference between Time Share/Fractional Owned properties and properties co-owned between family and friends and as a result would end up prohibiting both types of ownership. In addition, Pacaso contends that the LCP amendment would only be enforced against Fractional Ownership arbitrarily, while they believe that the LCP amendment could be broadly applied to a wide range of co-ownership arrangements. The City contends that the key to differentiating between Fractional Ownership and homes shared by family and friends is based in the LCP amendment’s proposed definitions of time share accommodation, time share project, time share estate, time share instrument, time share interval, time share plan, time share property, time share unit, and time share use. Collectively, these definitions make clear that the LCP amendment prohibits: (a) the use of real property; (b) pursuant to an arrangement, plan, scheme or similar device (including a written plan); (c) whereby a purchaser, (d) in exchange for value, (e) receives the right to exclusive use the real property, (f) for a period of less than a full year during a given year, on a reoccurring basis for more than one year.

Furthermore, per the LCP amendment, there is a significant difference between a “Fractional Ownership home” and a home owned by family/friends. Family or friends who jointly acquire a home will typically do so as joint tenants or tenants-in-common and the owners each possess the full and unrestricted right to use and enjoy the property. They do not have the right to exclude their co-owners, which is in contrast with owners of interests in a “Fractional Ownership” home that expressly pay for exclusive rights to use the property; meaning only one interest-holder is permitted to use the property at a time. In addition, family or friends who buy a property together acquire unlimited rights to use and enjoy the property for the entire year and can co-occupy the property as a matter of right. However, owners of a Fractional Ownership interest in a LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

home pay for exclusive rights to use a property for less than a year, and this arrangement is typically memorialized in a written instrument that all fractional interest holders agree to when they purchase their ownership interest. With this all being said, the City is confident that it will be able to discern between property bought by friends and family from a commercial “Fractional Ownership Home.” See Exhibit No. 1 for the City’s adopted ordinance and Exhibit No. 2 for the proposed amendment text.

B. Proposed LCP Amendment Consistency Evaluation
Standard of Review
The proposed amendment affects only the LCP’s IP, and the standard of review for IP amendments is that they must conform with and be adequate to carry out the policies of the certified LCP Land Use Plan (LUP).

Applicable Land Use Plan Policies
The Newport Beach LUP includes policies that mirror Coastal Act coastal resource protection requirements. In this case, the LUP seeks to maintain a balance of visitorserving, commercial, and residential uses in the City, and to protect and provide for visitor accommodations and other visitor-serving facilities. The LUP states the following:

LUP Policy 2.1.2-1 (Land Use and Development/Land Use/District/Corridor Policies). Development in each district and corridor shall adhere to policies for land use type and density/intensity contained in Table 2.1.1-1, except as modified in Sections 2.1.3 to 2.1.8.

LUP Policy 2.1.4-1 (Land Use and Development/Land Use/Mariner’s Mile).

For properties located on the inland side of Coast Highway in the Mariners’ Mile Corridor that are designated as MU-H, (a) the Coast Highway frontages shall be developed for marine-related and highway-oriented general commercial uses in accordance with CM and CG categories; and (b) portions of properties to the rear of the commercial frontage may be developed for free-standing neighborhoodserving retail, multi-family residential units, or mixed-use buildings that integrate residential with retail uses on the ground floor in accordance with the CN, RM , CV, or MU-V categories respectively.

LUP Policy 2.1.4-2 (Land Use and Development/Land Use/Mariner’s Mile).

For bay-fronting properties that are designated as MU-W, encourage marinerelated and visitor-serving retail, restaurant, hotel, institutional, and recreational uses. Vertically integrated mixed use structures are allowed as described below.

Permitted uses include those permitted by the CM, CV, and MU-V categories.

On sites developed with mixed-use structures, a minimum of 50 percent of the permitted square footage shall be devoted to non-residential uses. Mixed-use structures may only be developed on sites with 200 feet or more of street frontage along Coast Highway and, in aggregate, no more than 50 percent of the waterfront land area along Coast Highway between the Arches Bridge and the Boy Scout Sea Base may be developed with mixed use structures.

LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

LUP Policy 2.1.4-4 (Land Use and Development/Land Use/Mariner’s Mile).

For bay-fronting properties that are designated as CV or CM, encourage marinerelated and visitor-serving retail, restaurant, hotel/motel, institutional, and recreational uses.

LUP Policy 2.1.5-7 (Land Use and Development/Land Use/Balboa Peninsula). Allow retail and visitor-serving commercial along the Newport Boulevard Corridor consistent with the CV category.

LUP Policy 2.1.5-9 (Land Use and Development/Land Use/Balboa Peninsula). On the Balboa Village bay frontage (designated as CV), prioritize water-dependent, marine-related retail and services and visitor-serving retail.

LUP Policy 2.1.9-1 (Land Use and Development/Land Use/Coastal Land Use Map). Land uses and new development in the coastal zone shall be consistent with the Coastal Land Use Plan Map and all applicable LCP policies and regulations.

LUP Policy 2.2.1-1 (Land Use and Development/General Development Policies/Location of New Development). Continue to allow redevelopment and infill development within and adjacent to the existing developed areas in the coastal zone subject to the density and intensity limits and resource protection policies of the Coastal Land Use Plan.

LUP Policy 2.2.1-2 (Land Use and Development/General Development Policies/Location of New Development). Require new development be located in areas with adequate public services or in areas that are capable of having public services extended or expanded without significant adverse effects on coastal resources.

LUP Policy 2.3.1-3 (Land Use and Development/Visitor-serving and Recreational Development/Commercial). On land designated for visitorserving and/or recreational uses, give priority to visitor-serving commercial recreational facilities designed to enhance public opportunities for coastal recreation over other commercial uses, except for agriculture and coastaldependent industry.

LUP Policy 2.3.1-4 (Land Use and Development/Lower Cost Visitor and Recreational Facilities/Commercial). Protect oceanfront land designated for visitor-serving and/or recreational uses for recreational use and development unless present and foreseeable future demand for public or commercial recreational activities that could be accommodated on the property is already adequately provided for in the area.

LUP Policy 2.3.1-7 (Land Use and Development/Lower Cost Visitor and Recreational Facilities/Commercial). Give priority to visitor-serving and recreational uses in the mixed-use areas of the Balboa Peninsula, and Balboa Island.

LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

And the LUP specifically encourages and protects visitor-serving accommodations.

Importantly, lower cost such opportunities are required to be protected, encouraged, and where feasible, provided. The LUP also allows for commercial activities in some visitor serving zones. The LUP states:

LUP Policy 2.3.3-1 (Land Use and Development/Visitor-serving and Recreational Development/Commercial/Lower Cost Visitor and Recreational Facilities). Lower-cost visitor and recreational facilities, including campgrounds, recreational vehicle parks, hostels, and lower-cost hotels and motels, shall be protected, encouraged and, where feasible, provided.

Developments providing public recreational opportunities are preferred. New development that eliminates existing lower-cost accommodations or provides high-cost overnight visitor accommodations or limited use overnight visitor accommodations such as timeshares, fractional ownership and condominiumhotels shall provide lower-cost overnight visitor accommodations commensurate with the impact of the development on lower-cost overnight visitor accommodations in Newport Beach or pay an "in-lieu" fee to the City in an amount to be determined in accordance with law that shall be used by the City to provide lower-cost overnight visitor accommodations.

LUP Policy 2.3.3-3 (Land Use and Development/Visitor-serving and Recreational Development/Commercial/Lower Cost Visitor and Recreational Facilities). Identify, protect, encourage and provide lower-cost visitor-serving and recreation facilities, including museums and interpretative centers.

LUP Policy 2.3.3-4 (Land Use and Development/Visitor-serving and Recreational Development/Commercial/Lower Cost Visitor and Recreational Facilities). Encourage visitor-serving and recreational developments that provide public recreational opportunities.

LUP Policy 2.3.3-6 (Land Use and Development/Visitor-serving and Recreational Development/Commercial/Lower Cost Visitor and Recreational Facilities). Continue to issue short-term lodging permits for the rental of dwelling units as a means of providing lower-cost overnight visitor accommodations while continuing to prevent conditions leading to increase demand for City services and adverse impacts in residential areas and coastal resources.

Thus, overall, the City’s LUP protects coastal resources through a full suite of provisions that reflect and implement fundamental goals of the Coastal Act, including related to identifying and maintaining land uses in areas where they are designated.

Consistency Analysis
The City’s prohibition of Time Share Uses in residential areas in its LCP has existed since 2009. The proposed LCP amendment would identify Fractional Ownership as a type of Time Share use, which is prohibited in residential areas. Time Share uses would remain permitted in the following identified commercial land use areas: Recreational LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

and Marine Commercial (CM), Visitor-serving Commercial (CV), Mixed-Use Horizontal (MU-H), and Mixed-Use Water Related (MU-W). In this context, the proposed amendment does not make a significant material change to the LCP, but rather makes relatively minor changes to clarify that the LUP provisions for Time Share uses also include Fractional Ownership. Thus, at face value, the proposed amendment is clearly consistent with and adequate to carry out the LUP in that sense.

The City of Newport Beach LCP contains various policies indicating where residential uses and commercial land uses are to be located and that uses in these areas would be consistent with their land use designation. For example, the LUP identifies areas in the City where residential uses are located and other locations where commercial and visitor-serving land uses are to be located. The City’s LCP currently prohibits Time Share uses in residential areas and only allows them in commercial land use areas, where they would function as a commercial type of use. The proposed LCP amendment would identify Fractional Ownership as a Time Share use, and as a result it would be prohibited in all residential areas but would be allowed in identified visitor-serving land use areas, which also allow commercial uses. By doing so, the LCP amendment would maintain the City’s LCP policies of identifying the uses allowed in specific areas and would not change them or allow uses not consistent with their use designation. Thus, the LCP amendment would be consistent with the City’s LUP.

The proposed LCP amendment would not change the permitted locations or development standards that apply to Time Share uses. In addition, the proposed LCP amendment would not authorize new development or establish new uses within the Coastal Zone and would not restrict any existing authorized residential or visitor serving land uses within the Coastal Zone. The City of Newport Beach has a substantial inventory of visitor serving opportunities in the Coastal Zone, including hotels, time shares, and short-term rentals, which are all regulated by the certified LCP. The proposed clarifications to the definition of Time Share uses will not reduce visitor serving uses within the coastal zone, but rather will clarify where a specific type of use is allowed. As identified in numerous LCP policies, visitor-serving uses are important uses as they offer public opportunities for coastal recreation, and the proposed LCP amendment would not negatively impacts those policies, but instead provide clarification on where Fractional Ownership uses can be located with similar types of development.

Pacaso has voiced concerns with the proposed amendment (see Exhibit No. 3), and the City has also responded to Pacaso’s concerns (see Exhibit No. 4). Among Pacaso’s assertions is that their housing product furthers Coastal Act objectives in a variety of ways, including pooling multiple owners together for a single-family residential property (and thereby freeing up additional coastal housing for others since, ostensibly, those multiple owners do not separately pursue their own homes), protecting affordable housing (because Pacaso alleges that the average sale price of a Pacaso-owned home is seven times more expensive than an average home), as well as providing a type of visitor-serving use given that these types of ownership constructs necessarily results in multiple users (and thus can be understood as facilitating visitors to these communities).

In other words, Pacaso argues that the ownership and property management ownership arrangements that they facilitate are a way to bring more people to the coast in a LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

manner that not only does not impact housing stock, but actually relieves pressure on it by relieving some housing demand.

To respond to these points, it’s first important to establish what Pacaso is and does with respect to housing. Per their submitted materials: “A Pacaso home is owned through an LLC that is owned by between four to eight individuals or families; Owners can tailor their financial investment based upon how much of the home they want to own and their expected use.” Specifically, Pacaso purchases a single-family residential property and then transfers ownership to an LLC. Pacaso then sells between four to eight interests in that LLC to separate entities or individuals that collectively own the company. In the first four years, Pacaso serves as a property manager, both in terms of property uptake and managing the time each owner uses the property. After that initial period, the owners may elect to sever ties with Pacaso, or not. But the primary point is that the residence in question remains fully on the private marketplace and used for private residential use per the specifications of the owners. On this point it is a stretch to suggest, as Pacaso does, that such an arrangement constitutes and/or facilitates public access and visitorserving use. On the contrary, the Pacaso model facilitates private residential use and ownership of private residential property, including as these properties are not available to the general public, and should not be understood as furthering LCP public access and visitor-serving use objectives.

The City is proposing to modify the definitions in its IP to identify Fractional Ownership as a Time Share use, and there is nothing in the LUP, which is the standard of review in this determination, that would suggest it cannot do so. Again, the Commission’s role in reviewing IP amendments is a limited one. It can only reject an IP amendment if it would render the IP out of conformity with or inadequate to carry out the Land Use Plan portion of the LCP. In this case, the change will merely clarify that one form of ownership arrangement that is, in all relevant respects, the same as a traditional timeshare, and that does not, for the reasons stated above, provide additional visitorserving amenities, should be treated in the same manner as traditional timeshares.

Fractionalized home ownership models like the one Pacaso practices, wherein individuals hold a form of fee title to private residential property, and essentially establish their own parameters on when and how often each individual owner can use the property, appear to be quite similar to a Time Share model, which similarly is premised upon being a type of residential ownership with lengths of stay and other use parameters that are specified by the owners. The fact that the City is identifying Fractional Ownership as a Time Share use does not raise any LUP consistency problems.

That the City intends to also ensure that the LCP defines and categorizes the Pacaso form of co-ownership does not raise any sort of significant LUP coastal resource concern, and rather can be understood as addressing residential ownership issues generally outside the LCP’s coastal resource protection lens. To the extent that Pacaso collaterally argues that the way in which their ownership model allows multiple parties to achieve homeownership status equates to achieving better public access and visitor serving outcomes for those people, and thus this is the manner that such ownership arrangements better maximize public access, Pacaso posits a false equivalency. Yes, those persons are members of the public for whom their access might be improved, but LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

the general public does not achieve better access as a result of Pacaso’s efforts. In fact, for those not fortunate enough to be able to achieve residency in Newport Beach, including for those for whom such residency is simply prohibitively expensive, the Pacaso ownership model does not lead to any sort of public access improvement.

Pacaso contends that the LCP amendment is designed in such a way that it would fail to identify the difference between Time Share/Fractional Owned properties and properties co-owned between family and friends and as a result would end up prohibiting both types of ownership. Pacaso also contends that LCP amendment would only be enforced against Fractional Ownership arbitrarily, while they believe that the LCP amendment could be broadly applied to a wide range of co-ownership arrangements. As discussed earlier in the staff report, the City has explained how they would distinguish between Time Share/Fractional Owned properties and properties coowned between family and friends. The Commission’s review is focused on whether the proposed IP amendment is consistent with and can carry out the LUP portion of the LCP. Commission staff agrees the proposed time share-related definitions in the IP are consistent with the LUP.

In short, the amendment’s proposal to identify Fractional Ownership as a Time Share use does not raise any LUP consistency problems and/or coastal resource issues. The amendment would also make minor cleanup revisions to existing time share regulations and would modify Time Share related definitions to include Fractional Ownership arrangements as a defined category of time share in order to clearly define Fractional Ownership and to make it clear that it is a Time Share use. And in terms of that Pacaso model, as discussed above, the amendment on this point appears to center around how property can be owned, with whatever issues associated with it falling within the broader regulatory authorities of the City and outside the LUP’s coastal protection lens. The effect of the proposed amendment would be to continue to prohibit Time Shares/Fractional Ownership in residential use areas located in the City but allow them in identified commercial areas. The Commission thus finds the proposed amendment consistent with and adequate to carry out the policies of the LUP.

C. California Environmental Quality Act (CEQA)
CEQA Section 21080.5(d)(2)(A) prohibits a proposed LCP or LCP amendment from being approved if there are feasible alternatives and/or feasible mitigation measures available that would substantially lessen any significant adverse effect that the LCP or LCP amendment may have on the environment. Although local governments are not required to satisfy CEQA in terms of local preparation and adoption of LCPs and LCP amendments, many local governments use the CEQA process to develop information about proposed LCPs and LCP amendments, including to help facilitate Coastal Act review. In this case, the City states that the LCP amendment is not subject to environmental review under CEQA, pursuant to Section 15060(c)(2) of the CEQA Guidelines, California Code of Regulations, Title 14, Division 6, Chapter 3, which states that an activity is not subject to CEQA if the activity will not result in a direct or reasonable foreseeable indirect physical change in the environment or will not have the potential for causing a significant effect on the environment. The proposed LCP amendment will only clarify definitions associated with Time Share uses and not alter how Time Shares uses are regulated, and thus will not result in a direct or reasonably LCP-5-NPB-23-0020-2 (Fractional Ownership and Time Share)

foreseeable indirect physical change in the environment and will not have the potential to cause a significant effect on the environment.

The coastal Commission is not exempt from satisfying CEQA requirements with respect to LCPs and LCP amendments, but the Commission’s LCP/LCP amendment review, approval, and certification process has been certified by the Secretary of the Natural Resources Agency as being the functional equivalent of the environmental review required by CEQA (CCR Section 15251(f)). Accordingly, in fulfilling that review, this report has discussed the relevant coastal resource issues with the proposal, and has concluded that approval of the proposed amendment is not expected to result in any significant environmental effects, including as those terms are understood in CEQA.

Accordingly, it is unnecessary for the Commission to suggest modifications (including thorough alternatives and/or mitigation measures) as there are no significant adverse environmental effects that approval of the proposed amendment would necessitate.

Thus, the proposed amendment will not result in any significant adverse environmental effects for which feasible mitigation measures have not been employed, consistent with CEQA Section 21080.5(d)(2)(A).

STATE OF CALIFORNIA - NATURAL RESOURCES AGENCY GAVIN NEWSOM, GOVERNOR

CALIFORNIA COASTAL COMMISSION
South Coast District Office
301 E Ocean Blvd., Suite 300
Long Beach, CA 90802-4302
(562) 590-5071
Th15a
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OCTOBER 12, 2023

EXHIBITS
Table of Contents
EXHIBIT NO. 1 – CITY’S ADOPTED ORDINANCE....................................... 2 EXHIBIT NO. 2 – PROPOSED IP AMENDMENT (CHANGES SHOWN IN RED, STRIKETHROUGH AND UNDERLINE.........................................13 EXHIBIT NO. 3 – OPPOSITION TO PROPOSED IP AMENDMENT............20 EXHIBIT NO. 4 – CORRESPONDENCE FROM CITY ................................. 67 LCP-5-NPB-23-0020-2
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2 Exhibit No. 1 – City’s Adopted Ordinance
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75 RESOLUTION NO. 23-16

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MALIBU

INITIATING AN AMENDMENT TO THE MALIBU MUNICIPAL CODE (MMC)

AND INITIATING AN AMENDMENT TO THE LOCAL COASTAL PROGRAM (LCP) LOCAL IMPLEMENTATION PLAN (LIP) ADDRESSING TIME SHARE

USES IN THE CITY AND FINDING THE ACTION EXEMPT FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT.

The City Council of the City of Malibu does hereby find, order, and resolve as follows:

SECTION 1. Recitals.

A. On November 13, 2023, the City Council held a duly noticed public hearing and approved a motion to 1) initiate a Zone Text Amendment (ZTA) and Local Coastal Program Amendment (LCPA) to address time-share uses in the City and 2) direct the Planning Commission to schedule a public hearing regarding the ZTA and LCPA and provide a recommendation to the Council whether to approve, modify, or reject the amendment.

SECTION 2. Initiation.

Pursuant to MMC Chapter 17.74, the City Council hereby initiates an amendment to address time-share use in the City.

Pursuant to LIP Chapter 19, the City Council hereby initiates an amendment to the LCP and directs staff to issue a Notice of Availability consistent with LIP section 19.3.1. The amendment shall include provisions to address time share use within the City.

SECTION 3. Hearings.

A. The Zoning Ordinance and Code Enforcement Revisions Subcommittee is hereby directed to consider the amendments and provide direction to staff.

B. The Planning Commission is hereby directed to conduct a duly noticed public hearing in accordance with Chapter 19 of the Malibu LIP. Following the public hearing, the Planning Commission shall recommend to the City Council whether it should approve, modify, or deny the proposed amendments. The Planning Commission’s recommendation shall be made by resolution carried by the affirmative vote of not less than the majority of the entire Planning Commission.

ATTACHMENT 3
Resolution No. 23-16

_____________________
SECTION 4. Certification.

The City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

PASSED, APPROVED, and ADOPTED this 13th day of November 2023. _____________________________
Bruce Silverstein, Mayor
ATTEST:
___________________________________
KELSEY PETTIJOHN, City Clerk
(seal)
APPROVED AS TO FORM:
_________________________________
Trevor Rusin, Interim City Attorney

STATE OF CALIFORNIA - NATURAL RESOURCES AGENCY GAVIN NEWSOM, GOVERNOR

CALIFORNIA COASTAL COMMISSION

SOUTH COAST DISTRICT OFFICE
301 E. OCEAN BLVD., SUITE 300
LONG BEACH, CA 90802
(562) 590-5071
Th15a
LCP-5-NPB-23-0020-2 (CITY OF NEWPORT BEACH)
OCTOBER 12, 2023

ADDENDUM

STATE OF CALIFORNIA - NATURAL RESOURCES AGENCY GAVIN NEWSOM, GOVERNOR

CALIFORNIA COASTAL COMMISSION

SOUTH COAST DISTRICT OFFICE
301 E. OCEAN BLVD, SUITE 300
LONG BEACH, CA 90802-4325
VOICE (562) 590-5071
FAX (562) 590-5084
Th15a

ADDENDUM
October 11, 2023
TO: Coastal Commissioners and Interested Parties
FROM: South Coast District Staff
SUBJECT: ADDENDUM TO ITEM TH15A, APPLICATION NO. LCP-5-NPB-23-0020-2 FOR THE COMMISSION MEETING OF THURSDAY, OCTOBER 12, 2023.

The purpose of this addendum is to respond to concerns raised in recent correspondence, responses which Commission staff propose the Commission incorporate into its findings.

I. RESPONSE TO CORRESPONDENCE
On October 6, 2023, the Commission received a letter from Latham & Watkins LLP, which represents Pacaso, Inc., regarding the proposed Newport Beach LCP amendment addressing Fractional Ownership and Time Share uses.

Letters/Emails were also received from: Good Neighbor Newport received September 22 and October 2, 2023; Best, Best & Krieger LLP dated September 26, 2023 that represent the City of Newport Beach, Bud Reveley dated September 27 & 28, 2023, Gary Cruz dated September 27, 2023, Steven and Cathy Gilbert dated September 28, 2023, Scott McFetters dated September 28, 2023, Bob Yant and Ann Kenowsky dated September 29, 2023, Sharon and John Davies dated September 29, 2023, Lou Silverman dated September 29, 2022, Sarah and Michael Abraham dated October 1, 2023, Keith and Cheryl Garrison dated October 1, 2023, Lawrence and Susan Leifer dated October 1, 2023, Paul Watkins dated October 2, 2023, Dennys Oberman dated October 3, 2023, Jim and Pam Muth dated October 3, 2023, Corona Del Mar Residents Association dated October 4, 2023, Carmen Rawson dated October, Better Neighbors LA dated October 6, 2023, and City of Newport Beach dated October 6, 2023, and the comments in these letters/emails were already addressed in the recommended findings.

The proponent of the fractional ownership arrangement, Pacaso, Inc., raises several objections to the City proposal and the staff recommendation. The letter is attached as part of the 2nd Correspondence file posted on the Commission’s web-based agenda for this hearing item.
2 One contention raised in the letter is that Fractional Ownership is an overnight accommodation use that provides increased overnight accommodation for individuals with higher incomes and thus should be allowed. The applicant’s representative states that Fractional Ownership would be consistent with the City’s LUP Policy 2.3.3-2., which states the following: “Encourage new overnight visitor accommodation developments to provide a range of rooms and room prices in order to serve all income ranges.” The LCP amendment would allow this type of land use, similar to Time Shares, to occur in specific commercial land use areas, but it is not the same as the overnight accommodation uses (hotels, motels, campsites, etc.) protected by the Coastal Act and the certified LCP.

Another contention is that the LCP amendment would modify the development standards for Time Shares. As already discussed in the findings on page 4 of the staff report, the permitted locations for, and development standards that apply to, Time Shares would not be changed.

The letter also raises another contention contending that the staff report is inconsistent with its characterization of Fractional Ownership and its consistency with the LCP. As stated in the staff report and earlier in this addendum, the proposed LCP amendment would not entirely prohibit Fractional Ownership. While it would prohibit it in residential areas, it would allow it in designated commercial land use areas, all of which would be similar to Time Share uses. Fractional Ownership is a type of accommodation use under Newport Beach’s LCP. However, it is not a preferred use as shown in City’s LUP Policy

2.3.3-1. This policy states that lower-cost visitor and recreational facilities shall be protected, encouraged and, where feasible, provided. Furthermore, it states that new development that eliminates existing lower cost accommodations or provides high-cost visitor accommodations or limited use overnight accommodations such as Time Shares and Fractional Ownership, shall provide lower cost accommodations commensurate with the impact on lower cost overnight visitor accommodations or pay an in-lieu fee. Thus, this policy underscores that Fractional Ownership and Time Shares, while providing an accommodation use, are not the preferred type of accommodation use since their use would replace a preferred low-cost visitor accommodation.

While Fractional Ownership and Time Share uses are commercial land uses under the Newport Beach LCP, it should be made clear that although they share some characteristics of a residential use, such as longer term stays, they are not residential land uses in the way that use is commonly known. Time Share uses are currently prohibited in residential areas and the proposed LCP amendment would also prohibit Fractional Ownership in residential land use areas.

The City’s LCP identifies the types of uses that are allowed in the City. The LCP amendment would maintain the City’s existing LCP policies of identifying the appropriate land uses allowed in specific areas and would not change existing use designations or allow uses not consistent with their use designation. Thus, the LCP amendment would be consistent with the City’s LUP.

Lastly, the proponent of these fractional ownerships, Pacaso, Inc., asserts that the proposed LCP amendment is designed in such a way that it would fail to identify the difference between Time Share/Fractional Owned properties and properties co-owned between family and friends and as a result would end up prohibiting both types of ownership. They also contend that LCP amendment would only be enforced against Fractional Ownership arbitrarily, while they believe that the LCP amendment could be 3 broadly applied to a wide range of co-ownership arrangements. This contention has already been discussed in the staff report on page 12.

STATE OF CALIFORNIA — NATURAL RESOURCES AGENCY GAVIN NEWSOM, GOVERNOR

CALIFORNIA COASTAL COMMISSION CENTRAL COAST DISTRICT
725 FRONT STREET, SUITE 300
SANTA CRUZ, CA 95060
PHONE: (831) 427-4863
FAX: (831) 427-4877
WEB: WWW.COASTAL.CA.GOV
F13b
Prepared September 29, 2023, for October 13, 2023 Hearing To: Commissioners and Interested Persons
From: Kevin Kahn, Central Coast District Manager
Katie Butler, Central Coast District Supervisor
Subject: City of Carmel-by-the-Sea LCP Amendment Number LCP-3-CML-23- 0022-1-Part B (Timeshare Provisions)

SUMMARY OF STAFF RECOMMENDATION
The City of Carmel-by-the-Sea proposes to modify its Local Coastal Program (LCP) Implementation Plan (IP) provisions related to timeshares by updating timeshare-related definitions, by maintaining the LCP’s existing timeshare prohibition, and by adding a similar prohibition and penalties for marketing of timeshares in the City. The LCP’s existing timeshare prohibition (certified by the Commission when the LCP was first certified in 2004) is premised on maintaining the City’s existing stock (and encouraging new such stock) of visitor-serving overnight accommodations and guarding against their conversion to pseudo-residential use, such as would be represented by a timeshare ownership arrangement. Thus, at face value, the proposed amendment only strengthens the LCP’s current timeshare provisions.

However, the City also intends to make explicit that such timeshare prohibitions and related measures also accrue to forms of timeshare that are not related to the types of visitor-serving overnight accommodations for which the original LCP provisions were intended. In submitting this LCP amendment, the City believes that the existing timeshare prohibitions extend to timeshare/fractional ownership of other properties in the City, whether they are visitor-serving properties or not, and the City wants to make such a conclusion even more self-evident and explicit. Per the City’s reasoning, such changes do not alter the base LCP prohibition, as it currently applies to all properties in the City, not just visitor-serving such properties. At least one property owner in the City, Pacaso, however, contends that fractional ownership of private residential properties (i.e., Pacaso’s business model) is not currently prohibited by the LCP, and that the proposed amendment extends the LCP’s timeshare prohibition to a type of timeshare/fractional ownership that is currently allowed. Thus, the City and Pacaso disagree as to whether the Pacaso model of ownership is already prohibited by the LCP or whether the proposed LCP amendment would prohibit it for the first time.

This disagreement, however, is largely immaterial to the proposed amendment at hand, which on this point is to explicitly include fractional/co-ownership constructs under the umbrella of ‘timeshares.’ In its discretion, the City is proposing to update the definition of ATTACHMENT 3
LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

what a timeshare is, and there is nothing in the LUP, which is the standard of review in this determination, that would suggest it cannot also include co-housing and other forms of fractional ownership. These all appear to be some form of ‘timeshare,’ which can be reasonably construed to apply to Pacaso’s type of fractional ownership. In other words, fractionalized home ownership like the Pacaso model, wherein individuals hold a form of fee title to property, and essentially establish, through a third party, their own parameters on when and how often each individual owner can use such private property, appears to be quite similar to a timeshare model, which similarly is premised upon being a type of private residential ownership with lengths of stay and other use parameters specified by the owners. That the City is making this point clearer does not raise any LUP consistency problems.

Perhaps most importantly, substantively, the City’s proposal does not raise any coastal resource or LUP consistency concerns. As indicated, the intent behind the LCP’s restrictions on timeshares is to guard against the loss of visitor-serving overnight accommodations, whether the LCP defines timeshares in ways that extend to private fractional ownership of private homes or not. The reason for this is because timeshares as applied to such overnight accommodations are a type of private residential ownership not open to the general public, so that when a hotel or other such overnight room is converted into a timeshare, it results in the incremental loss of that high Coastal Act and LCP priority public visitor-serving overnight accommodation offering. As such, the Commission has historically found – and found here in certifying the City’s LCP originally in 2004 – that the primary coastal resource objective is to limit such ownership schemes by ensuring that bona fide visitor-serving overnight accommodations are not converted to timeshare/fractional ownership uses. The proposed amendment does not change this core provision, and in fact only strengthens it by adding additional enforcement and penalties associated with timeshare marketing, all of which is not only LUP consistent but also an improvement for coastal resource protection.

That the City intends to also ensure that the LCP covers the Pacaso form of coownership does not raise any sort of significant LUP coastal resource concern, and rather can be understood as addressing residential ownership issues generally outside the LCP’s coastal resource protection lens. Considering co-housing of this private residential nature as a type of timeshare in and of itself has no effect on coastal resources since it only addresses private residential ownership schemes, and it does not lead to any LUP coastal resource concerns. Further, to the extent that the amendment helps to further ensure that bona fide transient accommodations are not converted to this private co-housing model, that is a good thing under the Coastal Act and LCP. In the end, and despite Pacaso’s claims that their private residential ownership arrangements somehow enhance public access and visitor-serving opportunities, such ‘co-housing’ models are simply private ownership structures that benefit the few individuals capable of buying into them (no matter the size of the scheme) and therefore such arrangements only benefit those few and not the public at large. Yes, those fractional owners of single-family residences are members of the public for whom their access might be improved, but the general public does not achieve better access as a result of Pacaso’s efforts. In fact, for those not fortunate enough to be able to achieve residency in Carmel, including for those for whom such LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

residency is simply prohibitively expensive, the Pacaso ownership model does not lead to any sort of public access or visitor-serving improvement.

In short, the amendment’s continued prohibition on traditionally understood timeshares, and its prohibition – whether a continuing prohibition or not – on fractional residential ownership arrangements akin to the Pacaso model, simply does not raise any LUP consistency problems and/or coastal resource issues. And in terms of that Pacaso model, as discussed above, the amendment on this point appears to center around how property can be owned, with whatever issues associated with it falling within the broader regulatory authorities of the City and outside the LUP’s coastal protection lens.

Importantly, prohibiting the Pacaso ownership model in the City would be expected to lead to no LUP coastal resource concerns, and thus the amendment can readily be found LUP consistent on such points. Furthermore, as a general rule, and in the manner in which the proposed amendment actually affects coastal resources (i.e., in terms of timeshares as they relate to visitor-serving overnight accommodations), the amendment adds additional clarity to the LCP’s existing timeshare prohibition, including in terms of adding additional enforcement and penalties for potential marketing violations, and thus can be understood as a minor change to make an established LCP provision even stronger and clearer. The effect of the proposed amendment would be to continue to prohibit timeshares in the City, with similar LCP outcomes as a result as is currently the case.

Staff therefore recommends that the Commission find the proposed amendment leaves the IP consistent with and adequate to carry out the certified LUP, and that the Commission approve the amendment as submitted. The motion and resolution are found on page 5 below.

Staff Note: LCP Amendment Action Deadline
This proposed LCP amendment was filed as complete on June 20, 2023. The proposed amendment affects the LCP’s IP, and the 60-working-day action deadline was September 14, 2023. On September 6, 2023, the Commission extended the deadline for Commission action by one year, to September 14, 2024. Thus, the Commission has until September 14, 2024 to take a final action on this LCP amendment.

LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

TABLE OF CONTENTS

1. MOTION AND RESOLUTION ............................................................................. 5

2. FINDINGS AND DECLARATIONS..................................................................... 5 A. Proposed LCP Amendment Description ............................................................... 5 B. Proposed LCP Amendment Consistency Evaluation............................................ 7 C. California Environmental Quality Act (CEQA)..................................................... 13

EXHIBITS
Exhibit 1: City’s Adopted Ordinance
Exhibit 2: Proposed IP Amendment (changes shown in strikethrough and underline) Exhibit 3: Opposition to Proposed IP Amendment
Exhibit 4: Correspondence from City (including history of correspondence with opposition)

EX PARTE COMMUNICATIONS
LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

1. MOTION AND RESOLUTION
Staff recommends that the Commission, after public hearing, certify the proposed LCP amendment as submitted. The Commission needs to make one motion in order to act on this recommendation, and staff recommends a NO vote on the motion below.

Failure of this motion will result in certification of the Implementation Plan amendment as submitted and the adoption of the following resolution and findings. The motion passes only by an affirmative vote of a majority of the Commissioners present.

Motion to Certify: I move that the Commission reject Implementation Plan Amendment LCP-3-CML-23-0022-1-Part B as submitted by the City of Carmelby-the-Sea, and I recommend a no vote.

Resolution to Certify: The Commission hereby certifies Implementation Plan Amendment LCP-3-CML-23-0022-1-Part B for the City of Carmel-by-the-Sea and adopts the findings set forth below on the grounds that the amended Implementation Plan conforms with, and is adequate to carry out, the provisions of the certified Land Use Plan. Certification of the amended Implementation Plan complies with the California Environmental Quality Act, because either 1) feasible mitigation measures and/or alternatives have been incorporated to substantially lessen any significant adverse effects of the amended Implementation Plan on the environment, or 2) there are no further feasible alternatives and mitigation measures that would substantially lessen any significant adverse impacts on the environment.

2. FINDINGS AND DECLARATIONS
A. Proposed LCP Amendment Description
The proposed amendment would modify the LCP’s Implementation Plan (IP) related to timeshare provisions.1 The LCP currently prohibits timeshares,2 and the proposed amendment does not change this, rather it would modify the definition of what constitutes a timeshare, and it would add a similar prohibition and penalties for marketing of timeshares in the City. With respect to the former, existing IP Section

17.70.020 includes multiple timeshare definitions, including of Time-Share Estate, TimeShare Use, Time-Share Occupancy, Time-Share Program, Time-Share Project, and Vacation Time Sharing Project, all of which are generally based on similar definitions in state law.3 The City indicates that these existing definitions are overly complicated and 1 The term ‘timeshare’ generally refers to a property ownership arrangement whereby multiple owners share ownership and ‘share’ time using the property. In the Commission’s experience, timeshares have generally been understood to be a type of ownership associated with visitor-serving overnight accommodation products, such as hotels, whereby the hotel operates as a pseudo-residential product where rooms are used (at some times or all the time) exclusively by these owners and are not offered for overnight use in exchange for a room rate to the general public. 2 The City indicates that is has prohibited timeshares since 1988, which actually pre-dates the LCP’s certification in 2004.
3 The City indicates that the existing IP provisions essentially emanate from and are meant to conform to the Vacation Ownership and Time-Share Act of 2004, as set forth in California Business and Professions Code Section 11210 et seq.

LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

overlapping, and that they introduce unnecessary complexity into the City’s LCP that could limit the ability of the LCP’s timeshare provisions to adequately protect coastal resources. The proposed amendment would combine the various definitions into one singular definition of a “Time-Share Plan” as follows:
“Time-Share Plan” means any arrangement, plan, scheme, or similar device, whether established by membership agreement, sale, lease, deed, license, rightto-use agreement, articles of organization or incorporation, operating agreement or bylaws, or by any other means, whereby a purchaser, in exchange for consideration, receives the right to exclusive use of real property or portion thereof, according to a fixed or floating time schedule, for a period of time less than a full year during any given year, on a recurring basis for more than one year, but not necessarily for consecutive years. A timeshare plan shall be deemed to exist whenever such recurring rights of exclusive use to real property are created, regardless of whether such exclusive rights of use are a result of a grant of ownership rights, possessory rights, membership rights, rights pursuant to contract, or ownership of a fractional interest or share in real property, and regardless of whether they are coupled with ownership of a real property interest such as freehold interest or an estate for years in the property subject to the time-share plan.
“Time-Share Use” and “Fractional Interest Use” means the use of real property or any part thereof, pursuant to a timeshare plan.

As to the proposed timeshare marketing provisions, these are new proposed IP provisions that implement the IP’s timeshare prohibition by extending it to marketing of such products, including introducing penalties for violating the prohibition. That proposed new IP text under Section 17.28.010 would state:

B. Any responsible person, including but not limited to an owner of a time-share interest, management entity, agent, or broker who uses, or allows the use of, or advertises or causes to be printed, published, advertised, or disseminated in any way and through any medium, the availability for sale or use of real property in violation of this section is guilty of a misdemeanor for each day in which such accommodation is used, allowed to be used, or advertised for sale or use in violation of this chapter. Such violation shall be punishable pursuant to Chapter 1.16 (General Penalty).

C. Any responsible person, including but not limited to an owner of a time-share interest, management entity, agent, or broker who uses, or allows the use of, or advertises or causes to be printed, published advertised, or disseminated in any way and through any medium, the availability for sale or use of real property in violation of this section is subject to administrative fines and/or penalties as set forth in Chapter 18.04 (Municipal Code and Ordinance Enforcement).

D. Each day a violation of this section occurs shall constitute a separate offense, and the remedies under this section are cumulative and in addition to any and all other remedies available at law and equity.

LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

Finally, of note, the City indicates that the proposed new timeshare definition is meant not only to continue to apply to the type of timeshare hotel and the like that is familiar to the Commission from past timeshare cases, but also to extend to certain other forms of fractional private residential ownership. The City indicates that this aspect of the proposed amendment is in response to recent activity in the City by Pacaso, a private company that purchases residential properties and then sells fractional interests in such properties to private parties, where such private parties then share use of that property. 4 The City determined that such private residential fractional ownership arrangement is a form of timeshare already prohibited under the LCP, but the City indicates that the proposed amendment is intended to make this point more explicit, in addition to adding complementary enforcement and penalty provisions.
5 See Exhibit 1 for the City’s adopted ordinance and Exhibit 2 for the proposed amendment text.

B. Proposed LCP Amendment Consistency Evaluation
Standard of Review
The proposed amendment affects the LCP’s IP, and the standard of review for IP amendments is that they (or the resulting version of the IP) must conform with and be adequate to carry out the policies of the certified LCP Land Use Plan (LUP).

Applicable Land Use Plan Policies
The Carmel-by-the-Sea LUP includes goals, objectives, and policies that mirror Coastal Act coastal resource protection requirements and are also tailored to address the City’s unique ‘village in the forest’ context. Overarching requirements related to community character, public access, scenic views and visual quality, and beach and forest resources include:

LUP Goal G1-2. Preserve the residential village character and perpetuate a balance of land uses compatible with local resources and the environment.

LUP Objective O1-6. Recognize the natural resources and scenic quality of Carmel as a coastal community and allow uses in the community that are consistent with local needs, the Carmel Local Coastal Plan, and the California Coastal Act.
4 Pacaso indicates that their general business model is to buy a single-family residential property, offer it for sale to up to eight co-owners, and then manage that property and its use for those owners for a fee, where the owners can elect to sever ties with Pacaso. According to the City, there is currently one such Pacaso-owned property in the City.
5 And the City has already initiated enforcement proceedings against Pacaso, whereby the City alleges that Pacaso has violated its timeshare prohibition, and the City has demanded that Pacaso cease and desist their unlawful operations within the City. Pacaso maintains that it has not violated any applicable laws, and is currently actively defending itself against the City’s allegations.

LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

LUP Policy P1-27. Continue to ensure that development, whether commercial or residential, does not diminish the village character by excessively blocking important public or private views and disturbing natural topography, mature trees, or native growth.

LUP Goal G1-3. Recognize the qualities and attributes that make up the unique architectural character of Carmel, retain these qualities in existing buildings, and encourage the use of them in new structures.

LUP Objective O1-18. Identify and protect archaeological resources within Carmel.

LUP Goal G1-6. Protect, conserve and increase Carmel's available water resources and water quality.

LUP Goal G4-1. Provide for maximum public access to, and recreational use of, the shoreline consistent with private property rights and environmental protection.

LUP Goal G4-4. Provide for a wide variety of passive and active recreational experiences for all beach users while protecting the resource values of beach environs.

LUP Goal G5-1. New development shall minimize risks to life and property, assure stability and structural integrity over the life of the development, and neither create nor contribute significantly to erosion, geologic instability, or destruction of the site or surrounding area.

LUP Goal G5-3. Protect, conserve and enhance the unique natural beauty and irreplaceable natural resources of Carmel and its Sphere of Influence, including its biological resources, water resources, and scenic routes and corridors.

LUP Objective O5-8. Protect, conserve and enhance designated open space, the urban Monterey pine forest, beach and shoreline, the sensitive habitats and the hillside areas, and acquire additional open space as deemed appropriate.

LUP Goal G5-4. Preserve and enhance the City's legacy of an urbanized forest of predominantly Monterey pine, coast live oak and Monterey Cypress.

LUP Goal G5-12. Identify, protect and manage Environmentally Sensitive Habitat Areas (ESHAs) to ensure their long-term integrity and the biological productivity of these habitats.

LUP Goal G5-13. Develop, preserve and enhance areas of scenic interest and determine methods to protect key scenic corridors and routes.

In addition to the above coastal resource protection requirements, the LUP also seeks to maintain a balance of visitor-serving, commercial, and residential uses in the City, and to protect and provide for visitor accommodations and other visitor-serving facilities, with an emphasis on lower cost such accommodations/facilities. The LUP implements LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

such objectives through multiple provisions, including establishing that visitor-serving uses have access to scarce public services over other types of development, including private residential development. The LUP states:

LUP Policy P1-116. Where existing public services including water can accommodate only a limited amount of new development, priority uses, including essential public services, public recreation, commercial recreation, and visitorserving land uses shall not be precluded by services to other development.

And the LUP specifically encourages and protects visitor-serving accommodations, including their physical upkeep and maintenance, as well as opportunities for replacement of any demolished units. Importantly, lower cost such opportunities are required to be protected, encouraged, and where feasible, provided. The LUP states:

LUP Objective O4-11: Establish standards that support the improvement and/or replacement of existing motel facilities…
LUP Policy P4-58: Establish a City-wide cap on hotel/motel units equal to the number of existing authorized hotel/motel units. If units are demolished or converted to other uses allow lost units to be reestablished on other sites up to the cap….

LUP Policy P4-62. Lower cost visitor and recreational facilities shall be protected and encouraged and where feasible, provided. Developments providing public recreational opportunities are preferred.

Finally, to guard against conversion of these high-priority visitor-accommodation uses, the LUP includes a specific prohibition against timeshares:

LUP Policy P4-64. Continue to prohibit the sale of interests in and rights to use real property in the City on a timesharing basis.

Thus, overall, the City’s LUP protects coastal resources through a full suite of provisions that reflect and implement fundamental goals of the Coastal Act, including related to priority uses such as lower cost and other visitor-serving overnight accommodations, where the LUP explicitly prohibits their conversion to timeshare forms of ownership.

Consistency Analysis
As discussed above, the LUP’s prohibition against timeshares is premised on maintaining the City’s existing stock (and encouraging new such stock) of visitor-serving overnight accommodations and guarding against their conversion to pseudo-residential use, such as would be represented by a timeshare ownership arrangement. The Commission supported this timeshare prohibition in its 2004 certification of the LCP.

And such prohibitions/restrictions on timeshares are not limited to Carmel; rather it is a concept with which the Commission is quite familiar, including to ensure the protection of important visitor-serving uses consistent with the Coastal Act. In fact, the Commission has routinely approved both LCP amendments and coastal development permits that prohibit the conversion of ‘standard’ hotel/motel units to timeshare/fractional LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

ownership constructs.6 The proposed amendment maintains this prohibition and carries it out with additional enforcement and penalty provisions. In this context, the proposed amendment does not make a significant material change to the LCP, but rather makes relatively minor changes to make established LUP provisions for protecting overnight accommodations from timeshare ownership arrangements even clearer and more enforceable. Thus, at face value, the proposed amendment is clearly consistent with and adequate to carry out the LUP in that sense.

However, as indicated above, the City also intends to make explicit that such timeshare prohibitions and related measures also accrue to forms of timeshare that are not related to the types of visitor-serving overnight accommodations for which the original LCP provisions were intended. In submitting this LCP amendment, the City believes that the existing timeshare prohibitions already extend to timeshare/fractional ownership of other properties in the City, and whether they are visitor-serving properties or not, the City wants to make such a conclusion even more self-evident and explicit. Per the City’s reasoning, such changes do not alter the base LCP prohibition, as it currently applies to all properties in the City, not just visitor-serving such properties. At least one property owner in the City, Pacaso, however, contends that fractional ownership of private residential properties is not currently prohibited by the LCP, and that the proposed amendment on this point extends the LCP’s timeshare prohibition to a type of timeshare/fractional ownership that is currently allowed.

Specifically, Pacaso has voiced concerns with the proposed amendment (see Exhibit 3), and the City has also responded to Pacaso’s concerns (see Exhibit 4). Among Pacaso’s concerns is that their model of fractional ownership, or ‘co-housing’ as they also call it, should not be understood as a timeshare, and thus should not be considered currently prohibited under the LCP. They also argue that their housing product furthers Coastal Act objectives in a variety of ways, including pooling multiple owners together for a single-family residential property (and thereby freeing up additional coastal housing for others since, ostensibly, those multiple owners do not separately pursue their own homes), protecting affordable housing (because Pacaso alleges that the average sale price of a Pacaso-owned home is seven times more expensive than an average home), as well as providing a type of visitor-serving use given that these types of ownership constructs necessarily results in multiple users (and thus can be understood as facilitating visitors to these communities). In other words, Pacaso argues that the ownership and property management ownership arrangements that they facilitate are a way to bring more people to the coast in a manner that not only does not 6 See, for example, CDPs 3-19-0011 (Harborwalk Plaza) and 3-16-0287 (Front Street Cottages). In terms of LCPs, this type of timeshare provision is also increasingly more common, including as evidenced by recent certifications and major updates (see, for example, the recently certified Pacific Grove LCP (see LUP Policy PRA-11) and Morro Bay’s recently certified updated LUP (see LUP Policy LU-6.1)) where provisions were put in place to ensure that new and/or modified hotels/motels and the like appropriately provide for overnight accommodations to the general public, and do not limit such general public use by virtue of some type of fractional ownership arrangement. Such provisions also exist in the City of Newport Beach, where timeshares are restricted to certain portions of the City under their LCP, and where the City is also pursuing a timeshare-related LCP amendment very similar to this one, also scheduled to be heard at the Commission’s October meeting (item number Th15a).

LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

impact housing stock, but actually relieves pressure on it by relieving some housing demand.

To respond to these points, it is first important to establish what Pacaso is and does with respect to housing. Per their submitted materials: “A Pacaso home is owned through a LLC that is owned by between four to eight individuals or families; Owners can tailor their financial investment based upon how much of the home they want to own and their expected use.” Specifically, Pacaso purchases a single-family residential property and then transfers ownership to an LLC. Pacaso then sells between four to eight interests in that LLC to separate entities or individuals that collectively own the company. In the first four years, Pacaso serves as a property manager, both in terms of property uptake and managing the time each owner uses the property. After that initial period, the owners may elect to sever ties with Pacaso, or not. But the primary point is that the residence in question remains fully on the private marketplace and used for private residential use per the specifications of the owners. On this point it is a stretch to suggest, as Pacaso does, that such an arrangement constitutes and/or facilitates public access and visitor-serving use. On the contrary, the Pacaso model facilitates private residential use and ownership of private residential property, including as these properties are not available to the general public, and should not be understood as furthering LCP public access and visitor-serving use objectives.

As described previously, the City and Pacaso disagree as to whether the Pacaso model of ownership is already prohibited by the LCP or whether the proposed LCP amendment would prohibit it for the first time. This disagreement, however, is largely immaterial to standard that governs the Commission’s review of the proposed amendment, which is to explicitly include fractional/co-ownership constructs under the umbrella of ‘timeshares.’ In its discretion, the City is proposing to update the definition of what a timeshare is, and there is nothing in the LUP, which is the standard of review in this determination, that would suggest it cannot also include co-housing and other forms of fractional ownership. These all appear to be some form of ‘timeshare,’ which can be reasonably construed to apply to Pacaso’s type of fractional ownership. In other words, fractionalized home ownership like the Pacaso model, wherein individuals hold a form of fee title to private residential property, and essentially establish their own parameters on when and how often each individual owner can use the property, appears to be quite similar to a timeshare model, which similarly is premised upon being a type of residential ownership with lengths of stay and other use parameters that are specified by the owners. That the City is making this point clearer does not raise any LUP consistency problems.

But, and perhaps most importantly, substantively, the City’s proposal does not raise any coastal resource concerns. As discussed previously, the intent behind the LCP’s restrictions on timeshares is to guard against the loss of visitor-serving overnight accommodations, whether the LCP defines timeshares in ways that extend to private fractional ownership of private homes or not. The reason for this is because timeshares as applied to such overnight accommodations are a type of private residential ownership not open to the general public, so that when a hotel or other such overnight room is converted into a timeshare, it results in the incremental loss of that high Coastal Act and LCP priority public visitor-serving overnight accommodation offering. As such, LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

the Commission has historically found – and found here in certifying the City’s LCP originally in 2004 – that the primary coastal resource objective is to limit such ownership schemes by ensuring that bona fide visitor-serving overnight accommodations are not converted to timeshare/fractional ownership uses. The proposed amendment does not change this core provision, and in fact only strengthens it by adding additional enforcement and penalties associated with timeshare marketing, all of which is not only LUP consistent but also an improvement for coastal resource protection.

That the City intends to also ensure that the LCP covers the Pacaso form of coownership does not raise any sort of significant LUP coastal resource concern, and rather can be understood as addressing residential ownership issues generally outside the LCP’s coastal resource protection lens. Considering co-housing of this private residential nature as a type of timeshare in and of itself has no effect on coastal resources since it only addresses private residential ownership schemes, and it does not lead to any LUP coastal resource concerns. Further, to the extent that the amendment helps to further ensure that bona fide transient accommodations are not converted to this private co-housing model, that is a good thing under the Coastal Act and LCP. In the end, such co-housing models are private ownership structures that benefit the few individuals capable of buying into them7 (no matter the size of the scheme) and therefore such arrangements only benefit those few and not the public at large. Pacaso, as the main opponent of this LCP amendment, argues these ownership schemes are akin to short term rentals and therefore do maximize public access.

However, that is not accurate. A key difference between the two is that short term rentals are open to the general public to use, occupying a type of visitor-serving space in a residential context, whereas homes subject to the Pacaso model of ownership that would be impacted by the submitted LCP amendment represent private residential use of private residential stock that are not open to the general public to use. To the extent that Pacaso collaterally argues that the way in which their ownership model allows multiple parties to achieve homeownership status equates to achieving better public access and visitor serving outcomes for those people, and thus this is the manner that such ownership arrangements better maximize public access, Pacaso posits a false equivalency. Yes, those persons are members of the public for whom their access might be improved, but the general public does not achieve better access as a result of Pacaso’s efforts. In fact, for those not fortunate enough to be able to achieve residency in Carmel, including for those for whom such residency is simply prohibitively expensive, the Pacaso ownership model does not lead to any sort of public access improvement.

In short, the amendment’s continued prohibition on traditionally understood timeshares, and its prohibition – whether a continuing prohibition or not – on fractional residential ownership arrangements akin to the Pacaso model, simply does not raise any LUP consistency problems and/or coastal resource issues. And in terms of that Pacaso model, as discussed above, the amendment on this point appears to center around how 7 And, per Pacaso, where these residential properties typically cost seven times the average home sale, and where the median home sale in Carmel is some $3 million (where seven times that is $21 million, or split eight ways over $2.5 million each), there is only a very limited portion of the population to which these types of arrangements are marketed.

LCP-3-CML-23-0022-1-Part B (Timeshare Provisions)

property can be owned, with whatever issues associated with it falling within the broader regulatory authorities of the City and outside the LUP’s coastal protection lens.

Importantly, prohibiting the Pacaso ownership model in the City would be expected to lead to no LUP coastal resource concerns, and thus the amendment can readily be found LUP consistent on such points. Furthermore, as a general rule, and in the manner in which the proposed amendment actually affects coastal resources (i.e., in terms of timeshares as they relate to visitor-serving overnight accommodations), the amendment adds additional clarity to the LCP’s existing timeshare prohibition, including in terms of adding additional enforcement and penalties for potential marketing violations, and thus can be understood as a minor change to make an established LCP provision even stronger and clearer. The effect of the proposed amendment would be to continue to prohibit timeshares in the City, with similar LCP outcomes as a result as is currently the case. The Commission thus finds the proposed amendment consistent with and adequate to carry out the policies of the LUP.

C. California Environmental Quality Act (CEQA)
CEQA Section 21080.5(d)(2)(A) prohibits a proposed LCP or LCP amendment from being approved if there are feasible alternatives and/or feasible mitigation measures available that would substantially lessen any significant adverse effect that the LCP or LCP amendment may have on the environment. Although local governments are not required to satisfy CEQA in terms of local preparation and adoption of LCPs and LCP amendments, many local governments use the CEQA process to develop information about proposed LCPs and LCP amendments, including to help facilitate Coastal Act review. In this case, the City determined that the proposed LCP amendment is not subject to CEQA, arguing that it is covered by the general rule that CEQA applies only to projects which have the potential for causing a significant effect on the environment, and here the City determined that no possibility exists that the amendment may have a significant effect on the environment (citing to CEQA Section 15062).

The Coastal Commission is not exempt from satisfying CEQA requirements with respect to LCPs and LCP amendments, but the Commission’s LCP/LCP amendment review, approval, and certification process has been certified by the Secretary of the Natural Resources Agency as being the functional equivalent of the environmental review required by CEQA (CCR Section 15251(f)). Accordingly, in fulfilling that review, this report has discussed the relevant coastal resource issues with the proposal, has addressed all comments received, and has concluded that approval of the proposed LCP amendment is not expected to result in any significant environmental effects, including as those terms are understood in CEQA.

Accordingly, it is unnecessary for the Commission to suggest modifications (including through alternatives and/or mitigation measures) as there are no significant adverse environmental effects that approval of the proposed amendment would necessitate.

Thus, the proposed amendment will not result in any significant adverse environmental effects for which feasible mitigation measures have not been employed, consistent with CEQA Section 21080.5(d)(2)(A).

STATE OF CALIFORNIA — NATURAL RESOURCES AGENCY GAVIN NEWSOM, GOVERNOR

CALIFORNIA COASTAL COMMISSION

CENTRAL COAST DISTRICT
725 FRONT STREET, SUITE 300
SANTA CRUZ, CA 95060
PHONE: (831) 427-4863
FAX: (831) 427-4877
WEB: WWW.COASTAL.CA.GOV
F13b
LCP-3-CML-23-0022-1-PART B (TIMESHARE PROVISIONS)
OCTOBER 13, 2023 HEARING

EXHIBITS
Table of Contents
Exhibit 1: City’s Adopted Ordinance
Exhibit 2: Proposed IP Amendment (changes shown in strikethrough and underline) Exhibit 3: Opposition to Proposed IP Amendment
Exhibit 4: Correspondence from City (including history of correspondence with opposition)
Exhibit 1
LCP-3-CML-23-0022-1-Part B

Exhibit 1
LCP-3-CML-23-0022-1-Part B

Exhibit 1
LCP-3-CML-23-0022-1-Part B

Exhibit 1
LCP-3-CML-23-0022-1-Part B

Exhibit 2
LCP-3-CML-23-0022-1-Part B

Exhibit 2
LCP-3-CML-23-0022-1-Part B

Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728
is attached as Exhibit A on the Pink Sheet.1 We further request that the Commission hold an informational workshop to consider the precedential effects of this LCP Amendment and others on coastal resources and housing in the Coastal Zone.

A. The LCP Amendment Is Inconsistent with Carmel’s Land Use Plan and the Coastal Act
The Commission must evaluate an LCP amendment that proposes changes to an LCP’s zoning ordinances or implementation plan according to whether it conforms with or is inadequate to carry out the provisions of a certified LUP. (Pub. Resources Code, § 30513(b).) Further, a local government’s LCP and any amendments thereto must be consistent with the Coastal Act’s Chapter 3 policies. (See Yost v. Thomas (1984) 36 Cal.3d 561, 566; McAllister v.

Cal. Coastal Commission (2008) 169 Cal.App.4th 912, 931.) Here, the LCP Amendment fails on both scores, falling short of conforming to Carmel’s LUP and the Coastal Act.

1. The LCP Amendment Is Inconsistent with Carmel LUP Policy Regarding Timeshares
The Staff Report recommends that the Commission finds the LCP Amendment consistent with the Carmel LUP, citing only one LUP Policy in support of its recommendation (see Staff Report, p. 4):
• LUP Policy P4-64: “Continue to prohibit the sale of interests in and rights to use real property in the City on a timesharing basis.”
However, the Staff Report’s recommendation assumes that fractional ownership uses and time share uses are equivalent. They are not.

Carmel’s current Municipal Code exempts fractional homeownership from “time share uses” because fractional homeownership is “coupled with an estate in the [underlying] real property.” (See Carmel Mun. Code, § 17.70.020.) However, Carmel’s LCP Amendment now proposes to expand the definition of “time share use”’ to encumber uses “regardless of whether they are coupled with ownership of a real property interest.” (See Staff Report, Ex. 1 [emphasis added].) Further, the LCP Amendment, for the first time, adds “fractional interest uses” to the Municipal Code’s time-share prohibitions. The Municipal Code’s current silence on fractional interest uses and the LCP Amendment’s explicit inclusion of fractional interest uses for the first time underscore that time share uses and fractional interest uses are not equivalent under Carmel’s existing law. Thus, the LCP Amendment does not conform to LUP Policy P4-64 regarding time share uses.
2 1 Also enclosed with this letter are comments submitted by Pacaso to the City of Carmel regarding Carmel’s proposed time share ordinances.
2 In fact, the LCP Amendment does not attempt to define “fractional interest uses.” Instead, the LCP Amendment defines “fractional interest uses” as equivalent to a “time share use.” (Staff Report, Ex. 1.) This is nonsensical. If such uses were truly identical, Carmel would not need to reverse the language limiting time share uses to those “not Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728

2. The LCP Amendment Is Inconsistent with the Coastal Act and Parallel Provisions of the Carmel LUP
The LCP Amendment raises important questions about potential impacts to coastal access, recreational opportunities, visitor accommodations, and coastal housing markets. As explained below, by restricting fractional homeownership, the LCP Amendment is inconsistent with the Coastal Act and Carmel’s corresponding LUP policies. a. Coastal Act § 30210 and Carmel LUP Goal G4-1
Coastal Act § 30210 provides that “maximum access . . . and recreational opportunities shall be provided for all the people consistent with public safety needs and the need to protect public rights, rights of private property owners, and natural resource areas from overuse.” (Pub.

Resources Code, § 30210.) Similarly, Carmel LUP Goal G4-1 states that Carmel shall “[p]rovide for maximum public access to, and recreational use of, the shoreline consistent with private property rights and environmental protection.” (Carmel LUP, p. 4-7.) The Coastal Commission has recognized that varied forms of coastal home ownership and visitor accommodations facilitate coastal access for all potential residents and visitors.3 Indeed, “protect[ing] the public’s ability to recreate in and enjoy the coastal zone” is a “core goal of the Coastal Act” and is “particularly important for those not fortunate enough to live in coastal cities” on a fulltime basis.4
Every additional coastal accommodation and vacation home ownership opportunity benefits all potential coastal residents and visitors. The Commission has long acknowledged this ripple effect in the short-term rental context, where increased supply can “augment the stock of [all] overnight accommodations in coastal areas.”5 The Commission explained that, by “increas[ing] the range of options available” and “providing a wider selection of overnight accommodations,” expanded supply in any one accommodation or housing type can “increase public coastal access” overall.6 Fractional homeownership similarly expands total accommodations and coastal visitation opportunities for potential coastal visitors. Absent fractional coastal homeownership opportunities, individuals or families who cannot afford to purchase a fulltime coastal residence or vacation home may be excluded from the coastal real estate market entirely or may instead choose to occupy lower-cost short-term rental stock or coupled” with an estate in the underlying real property. These conflicting revisions undermine the Staff Report’s conclusion that the LCP Amendment conforms to LUP Policy P4-64. 3 Staff Report for City of Malibu LCP Amendment No. LCP-4-MAL-20-0083-2, (July 21, 2022), p. 2, https://documents.coastal.ca.gov/reports/2022/8/F10a/F10a-8-2022-report.pdf (“Malibu STR Staff Report”) 4 Staff Report for City of Newport Beach Major Amendment No. LCP-5-NPB-20-0070-3 (Sept. 30, 2021), p. 15, https://documents.coastal.ca.gov/reports/2021/10/W14b/W14b-10-2021-report.pdf. 5 Malibu STR Staff Report., p. 2.
6 Staff Report for City of Morro Bay LCP Amendment No. LCP-3-MRB-20-0050-1 (Aug. 20, 2021), p. 4, https://documents.coastal.ca.gov/reports/2021/9/Th15a/th15a-9-2021-report.pdf; Staff Report for City of Del Mar Major Amendment LCP-6-DMR-17-0083-3 (May 24, 2018), p. 28, https://documents.coastal.ca.gov/reports/2018/6/th14d/th14d-6-2018-report.pdf (“Del Mar STR Staff Report”).

Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728
hotel accommodations for longer periods, putting pressure on the supply of those accommodations available to others.

In fact, the Commission has rejected outright bans on particular types of coastal accommodations in the Coastal Zone, such as short-term rentals, stating that these bans would “restrict lodging opportunities” generally, “adversely impacting public access to beaches and shoreline areas.”7 The Commission explained that, as a policy matter, “blanket prohibitions have not been found to be consistent with the Coastal Act and certified LCPs because of the broad mandate to maximize coastal access and provide affordable accommodations and support facilities to ensure general public access and use of the coastal zone.” 8 Instead, the Commission
has endorsed more targeted regulation specifically designed to address the potential impacts of increased coastal visitation, such as noise and traffic.9 There is also no evidence that allowing fractional homeownership threatens coastal access by adversely affecting regional housing supply, long-term rental availability, or affordable housing. The Commission has repeatedly rebuffed claims that providing varied forms of coastal visitor accommodations endangers fulltime homeownership, long-term rentals, or affordable housing for coastal residents and visitors. For instance, in the short-term rental context, the Commission noted that short-term rentals are often “located in some of the most desirable areas . . . , where long-term rental would likely be out of reach for the vast majority of people even if those homes were made available that way.”10 “Such homes,” the Commission has made clear, “do not provide affordable housing.”11
Similarly, fractional vacation home ownership would not impact affordable housing because fractionally owned homes are often higher than the local median home price. In Carmel, the median home price has increased by 84% since 2019, to nearly $3 million, 12 which is out of
reach for most individuals and families. While such prices form a barrier to entry and limit coastal access, fractional ownership can expand coastal access and provide multiple individuals and families with the opportunity to co-own a second home in Carmel by aggregating their buying power. Instead of prohibiting fractional ownership in residential areas outright, the 7 Staff Report for City of Carpinteria LCP Amendment No. LCP-4-CPN-16-0024-1 (Nov. 17, 2016), p. 10, https://documents.coastal.ca.gov/reports/2016/12/th8b-12-2016.pdf. 8 Del Mar STR Staff Report, p. 21; see also Staff Report for City of Santa Cruz LCP Amendment No. LCP 3-STC17-0073-2-Part B (March 23, 2018), p. 3, https://documents.coastal.ca.gov/reports/2018/4/w20a/w20a-4-2018- report.pdf.
9 Del Mar STR Staff Report, p. 18.
10 Staff Report for City of Oxnard LCP Amendment No. LCP-4-OXN-20-0008-1 (June 18, 2020), p. 16, https://documents.coastal.ca.gov/reports/2020/7/F13a/F13a-7-2020-report.pdf. 11 Ibid.
12 See ECONorthwest, Housing Feasibility Study (Jan. 27, 2023, received by Carmel City Council on Feb. 7, 2023), p. 7, https://ci.carmel.ca.us/sites/main/files/carmel_housing_study_01_2023_final.pdf (“Carmel Housing Feasibility Study”).

Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728
Commission should study the effect of fractional ownership on housing in the Coastal Zone, and how fractional ownership can help reduce barriers to entry and promote increased coastal access.

By attempting to eliminate fractional homeownership wholesale, the LCP Amendment contradicts Section 30210’s policy and LUP Goal G4-1’s mandate to maximize coastal access for all.
b. Coastal Act § 30213 and Carmel LUP Policy P4-62
Both Coastal Act § 30213 and Carmel LUP Policy P4-62 provide that “[l]ower cost visitor and recreational facilities shall be protected, encouraged, and, where feasible, provided.” (Pub. Resources Code, § 30213; Carmel LUP, p. 4-15.) The Coastal Commission has recognized that a range of coastal home ownership and visitor accommodations facilitate access to the coast for potential residents and visitors, including those seeking more affordable accommodations and recreational opportunities. For example, in the short-term rental context, the Commission explained that short-term rentals should be viewed as “complementary lodging alternatives” to other types of coastal accommodations that enable enhanced public access beyond their target demographic.13 Therefore, instead of prohibiting fractional homeownership outright, the Commission must evaluate how fractional homeownership affects total available accommodations and coastal visitation opportunities, including those seeking low-cost recreation.

In fact, fractional homeownership helps to support lower cost recreational facilities by increasing property utilization and maximizing local revenue from non-fulltime residents. The Commission has recognized that vacation rentals are often likely to remain empty and unrented for several extended periods or even most of the calendar year.14 For instance, in Carmel, nearly 40% of houses are second homes.15 However, fractional homeowners of second homes contract to use their homes for specified periods throughout the year. Therefore, these fractional homeowners help drive more consistent year-round revenue for coastal businesses and community resources than short-term rentals or traditional second homes – including those that provide low-cost recreational opportunities for all visitors.

Therefore, the LCP Amendment is inconsistent with Section 30213 and LUP Policy P4-

62. The Commission should study these issues as part of a comprehensive review of homeownership and time share uses within the Coastal Zone statewide. c. Coastal Act § 30253
Coastal Act § 30253 establishes that “[n]ew development shall . . . [w]here appropriate, protect special communities and neighborhoods that, because of their unique characteristics, are 13 See Malibu STR Staff Report, p. 15.
14 See Staff Report for San Luis Obispo County LCP Amendment No. LCP-3-SLO-21-0027-1-Part F (Jan. 11, 2022), p. 11, https://documents.coastal.ca.gov/reports/2022/2/F16e/F16e-2-2022-report.pdf. 15 See Carmel Housing Feasibility Study, p. 8.

Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728
popular visitor destination points for recreational uses.” (Pub. Resources Code, § 30253.) Instead of recognizing the potential benefits of more frequent and consistent second home use by fractional homeowners, the Staff Report ignores that fractional homeowners hold a significant investment in the community where their home is located. They are fundamentally different from short-term coastal visitors because they intend to stay in the home multiple times throughout the year and, as a result, they integrate into and invest in the community.

Robust fractional homeownership supports Section 30253’s policy toward development that protects special communities because fractional homeowners are likely to engage in their communities over extended, repeat visits. Accordingly, the LCP Amendment prohibition of fractional homeownership uses in the Coastal Zone is inconsistent with Section 30253.

B. The LCP Amendment Would Prohibit Everyday Behavior Common to CoOwners of Coastal Properties The LCP Amendment also requires more careful study than Commission staff has conducted because it could directly restrict conduct that is common to individuals who co-own properties, regardless of the arrangement. By its plain terms, Carmel’s LCP Amendment does not differentiate between different types of co-ownership arrangements, leading to significant unintended consequences that impact all co-ownership uses in the City’s Coastal Zone.

The LCP Amendment defines “time share uses” with reference to a “time share plan.” A “time share plan” is defined as “any arrangement, plan, scheme, or similar device . . . whereby a purchaser, in exchange for consideration, receives the right to exclusive use of real property … for a period of time less than a full year during any given year. . . .” (Staff Report, Ex. 1 [emphasis added].) This broad definition effectively bans common coastal visitor uses based on everyday behavior that are far from “time share uses.”
For example, the LCP Amendment does not define “arrangement, plan, scheme, or similar device.” Any communication between co-owners of a property could be an “arrangement, plan, scheme, or similar device,” including an email chain between siblings or friends setting forth assigned weeks at a co-owned vacation home. The LCP Amendment also fails to define “right to exclusive use.” Essentially any agreement between a shared home’s coowners allowing one co-owner to use a property exclusively could fall within the scope of the LCP Amendment. Thus, an agreement among family or friends to annually allocate stays at a vacation home among different groups over Memorial Day, the Fourth of July, and Labor Day satisfies the LCP Amendment’s “time share plan” definition.

Finally, the LCP Amendment’s requirement that the use be for a “period of time less than a full year” is broad enough to capture various types of co-ownership arrangements. Like other second homeowners, co-owners of a shared vacation home likely do not intend to occupy the home at all times during the year. If they did, each purchaser would likely opt to instead purchase a vacation home for their sole use. Shared ownership offers to reduce payments, utilities, and upkeep costs for each purchaser in exchange for more limited rights to use the property during any given year. There is no difference between family, friends, or other types of co-owners purchasing and using a vacation home this way.

Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728
Therefore, as proposed, the LCP Amendment not only regulates fractional homeownership, but also other co-ownership arrangements, including those among family and friends. The Staff Report ignores these unintended consequences completely. The Commission must study the LCP Amendment’s potential consequences for all types of co-owners in the Coastal Zone.

C. The LCP Amendment Can Only Be Enforced Against Fractional Homeowners Arbitrarily
Because the LCP Amendment could be applied broadly to regulate a wide range of coownership arrangements, any application of the Amendment to fractional homeowners exclusively – but not to family and friends who co-own property – would be impermissibly arbitrary and discriminatory.

Carmel has no way to discover when friends or family co-owners enter an exclusive use arrangement for a home, as defined by the LCP Amendment. Local government records usually shed light only upon a property’s formal owner but shed no light on the organizational make-up of that owner or its internal agreements.16 Carmel could, however, monitor property listings by fractional homeownership companies to enforce time share restrictions against them. This approach is plainly arbitrary and impermissibly distinguishes among types of homeowners based solely on their identity. (See City of Santa Barbara v. Adamson (1980) 27 Cal.3d 123, 133 [“In general, zoning ordinances are much less suspect when they focus on the use than when they command inquiry into who are the users.”] [emphasis original].) Finally, the LCP Amendment ignores that anyone who co-owns a shared property can generate turnover and disrupt a community. Nothing stops a co-owner from treating a shared vacation home as a party house on holiday weekends, even if another is more respectful of community norms. There is simply no evidence that the type of fractional ownership use that Carmel is seeking to ban outright is more disruptive of a local community than any other coownership arrangement. The LCP Amendment inappropriately tackles the common problems of noise and crowded streets by targeting fractional homeowners simply because they are fractional homeowners, even though any co-owner can cause disruptions and traffic.17 If Carmel wished to impose stricter noise and parking regulations on fractional homeownership, it certainly could have done so.
16 See, e.g., City of Newport Beach, Newport Beach City Council Meeting: November 16, 2021, YouTube, at 41:28- 41:53, https://youtu.be/nk1QT25nAUQ?t=2488.
17 See College Area Renters & Landlord Assn. v. City of San Diego (1996) 43 Cal.App.4th 677, 686-687 (“Owners and tenants are similarly situated with respect to the overcrowding problem—i.e., both groups can overcrowd a neighborhood.”). “Noise . . . can be dealt with by enforcement of police power ordinances and criminal statutes.

Traffic and parking can be handled by limitations on the number of cars (applied evenly to all households) and by off-street parking requirements.” (Id. at pp. 687-688.) Exhibit 3
LCP-3-CML-23-0022-1-Part B

August 4, 2023

These materials have been provided to Coastal Commission Staff US-DOCS\143769728
Given the undefined line between types of co-ownership, the LCP Amendment’s singling out of fractional homeownership is completely arbitrary. The LCP Amendment’s selective and discriminatory enforcement against fractional homeownership deserves closer evaluation. _____
We appreciate the Commission’s consideration of Pacaso’s comments on the LCP Amendment. The LCP Amendment deserves thorough study in the context of a broader statewide approach to time share uses and homeownership in the Coastal Zone. Therefore, Pacaso respectfully requests that the Commission vote to extend the time it has to consider the LCP Amendment and continue the item to a future hearing.

Very truly yours,
Duncan Joseph Moore
of LATHAM & WATKINS LLP
cc: Kevin Heneghan, Pacaso Inc.

Purvi Doshi, Pacaso Inc.

Naseem Moeel, Pacaso Inc.

Susan McCabe, McCabe & Company
Anne Blemker, McCabe & Company
Natalie Rogers, Latham & Watkins LLP
Enclosures
Exhibit 3
LCP-3-CML-23-0022-1-Part B

EXHIBIT A
Exhibit 3
LCP-3-CML-23-0022-1-Part B

EXHIBIT A
ALTERNATIVE MOTION TO: EXTEND TIME LIMIT TO ACT UPON LOCAL COASTAL PROGRAM AMENDMENT LCP-3-CML-23-0022-1-PART B AND CONTINUE THE HEARING

TO A FUTURE MEETING
These materials have been provided to the Coastal Commission Staff Agenda Item Th11c
Pacaso, Inc. requests that the Commission extend the time limit to act on Local Coastal Program Amendment LCP-3-CML-23-0022-1-Part B and continue the hearing on this item to a future meeting.

To extend the time limit to act on Local Coastal Program Amendment LCP-3-CML-23- 0022-01-Part B, and continue the hearing on this item to a future date, the following Motion is in order:

Motion: I move that the Commission extend the time limit to act on City of Carmel-by-the-Sea Local Coastal Program Amendment Number LCP-3-CML-23-0022-1-Part B by one year, to September 14, 2024, and continue the hearing on this item to a future meeting.

Moving Commissioner’s Recommendation of Approval: I recommend a YES vote.

RESOLUTION TO EXTEND THE TIME LIMIT TO ACT ON LOCAL COASTAL PROGRAM AMENDMENT NUMBER LCP-3-CML-23-0022-1-PART B:

The Commission hereby extends the time limit to act on Local Coastal Program Amendment Number LCP-3-CML-23-0022-1-Part B by one year, to September 14, 2024, and continues the hearing on this item to a future meeting.

Exhibit 3
LCP-3-CML-23-0022-1-Part B

April 19, 2022
Brian A. Pierik
Burke, Williams & Sorensen, LLP
2310 East Ponderosa Drive - Suite 25
Camarillo, California 93010-4747
Dear Mr. Pierik:

We are in receipt of your letter dated April 7, 2022 on behalf of your client, the City of Carmel-by-the-Sea (“City”).

As an initial matter, we were very disappointed to receive your letter. Pacaso has had numerous conversations with City officials. We thought these conversations were productive and that City officials understood our co-ownership model and that we wanted to be a good partner in the community. It is even more disappointing that you have demanded a draconian solution, i.e., that Pacaso cease its current operations in the City. This is especially egregious when one considers that Pacaso is only managing a single home in the City and, to our knowledge, there has not been a single complaint regarding the home.

Background
Pacaso is a real estate service company that supports buyers who wish to co-own residential property together through a property-specific LLC. Co-ownership, whereby a small group of family members or friends co-own a second home together, is a common practice throughout California, the Monterey Peninsula, and in Carmel. According to our analysis, about 60% of the housing units in the City are not occupied on a full-time basis by their owners and over 2,500 of these are owned in an LLC or trust, which enable co-ownership arrangements.

While your correspondence characterizes our business as "timeshare,” there are several key differences between the Pacaso co-ownership model and traditional timesharing plans. Pacaso sells ownership interests in residential real estate, unlike traditional timesharing plans, which often give purchasers a contractual right to use a resort property. Just like family members who own property together, Pacaso co-owners together own 100% of the property and employ Pacaso as a service provider to assist them with scheduling, property management and expense management. If Pacaso co-owners no longer desire Pacaso’s services, they have the option to terminate Pacaso as a service provider; traditional timeshare owners typically do not enjoy that option. Furthermore, the co-owners can sell the home, dissolve the LLC and distribute the sale proceeds of the real estate asset to each co-owner on a pro rata basis. That is, they have all of the rights and optionality of any other single-family residence owners.

Pacaso Homes Are Not Timeshares
Turning to the application of the City’s timeshare ordinance, it is clear that the City’s ordinance does not apply to a Pacaso home. Section 17.28.010 provides that: “[t]imeshare projects, programs and occupancies are prohibited uses within all of the zoning districts within the City.” Exhibit 3
LCP-3-CML-23-0022-1-Part B

Times-hare project, program, and occupancy are defined in CMC Section 17.70.020 (emphasis added):

Time-Share Occupancy. An occupancy related to the situation wherein a purchaser receives the right or entitlement in perpetuity…for a period of time that has been or will be allotted from the use or occupancy periods into which the time-share project which is involved has been divided.”
Time-Share Project. A project in which a purchaser receives the right…to the recurrent, exclusive use or occupancy…for a period of time that has been or will be allotted for the use or occupancy periods into which the project has been divided.” Time-Share Program. Any arrangement for a project whereby the use, occupancy, or possession of real property has been made subject to a time-share estate, use, or occupancy, whereby such use, occupancy, or possession circulates among purchasers of the time-share intervals according to a fixed or floating time schedule on a periodic basis for a specific period of time during any given year, but not necessarily for consecutive years.

As you can see above, the definitions of timeshare occupancy, project, and program only apply when usage rights in a property have been divided into increments of time. A Pacaso home is not divided into increments of time. Rather, the home is owned in its entirety, in fee simple, by the LLC and the property has not been divided into increments by a timeshare plan or by a timeshare instrument. It is analogous to when friends or family members co-own a second home today and the friends or family members decide how to share ownership and use of the property. The negotiation and cooperation by co-owners regarding how they want to use their second home does not create a timeshare because the property is owned in its entirety and not divided into time increments. In short, Pacaso owners are not purchasing a use right for a specific period time, but rather are purchasing a co-ownership interest and agreeing to equitably use the home with their co-owners.

The co-owners of the Carmel home use their home for residential purposes, which is a permitted use of the property and is similar to the manner in which other second home owners own and use homes in the City. We presume it is not the intention of the City or the aim of the City’s zoning code to regulate who may or may not co-own a real estate together, or dictate the vehicle through which they elect to co-own real estate. As the City has acknowledged in its Housing Element of its General Plan, “Cities have limited ability to influence second home ownership and use.” The co-owners of the Carmel home have elected to co-own their home in a multi-member LLCs, which is an ordinary practice in real estate. The co-owners have agreed to engage Pacaso as a service provider to assist them with the management of the home. As such, the co-owners of the home in question are owning the home in a way that is permissible under the City code and is similar to the manner in which other owners of second homes own and use homes in the City.

In addition, any attempt by the City to enforce its current ordinance against the Carmel home would run counter to the Coastal Act, in that it purports to restrict access to the City’s coastal Exhibit 3
LCP-3-CML-23-0022-1-Part B

zone in a way that has historically not been restricted for similarly situated co-owners of residential properties in the City.

Pacaso Homes Help the City Achieve Housing Goals
We also note that the Pacaso model will help the City achieve two goals set out in the City’ Housing Element - “Preserve the existing housing stock” (Goal G3-1) and “Protect the stability of residential neighborhoods by promoting year-round occupancy and neighborhood enhancement” (Goal G3-4).

The sale of Pacaso homes in Carmel will help “[p]reserve existing housing stock” by giving second home buyers a better option than a whole home. (Goal G3-1.) Just one co-owned Pacaso home can remove up to eight buyers from local housing competition by pooling them into a single luxury home, since Pacaso makes use of one property that would have otherwise been eight separate second-homes. As a result, the City’s embrace of the Pacaso model could actually help preserve existing housing stock. In short, by decreasing demand for second homes in Carmel, the Pacaso model will allow the City to preserve existing housing stock, based on the basic laws of supply and demand.

The sale of Pacaso homes will also help “...[p]rotect the stability of residential neighborhoods by promoting year-round occupancy and neighborhood enhancement.” (Goal G3-4.) Second home ownership can be inefficient, exclusionary and wasteful, as second homes owned by just one family typically sit vacant up to 80% of any given year. Pacaso homes are different - the homes offer a more sustainable way to own and enjoy a second home. In return, Carmel and its neighborhood could benefit from the year-round occupancy that Pacaso homes provide which create a more vibrant community filled with families with a long-term connection to the community, not empty homes with the blinds closed. In addition, local Carmel businesses would benefit from year-end occupancy as Pacaso co-owners will frequent Carmel’s shops, restaurants, and coffee shops more frequently than a second home-owner who is only in town sporadically.

We look forward to being a good partner with the City and look forward to continuing our productive conversations with the City’s elected officials.

Sincerely,
Kevin Heneghan
Exhibit 3
LCP-3-CML-23-0022-1-Part B

Dear Honorable City Councilmembers,
My name is Andreas Madsen and I am the Chief Revenue Officer of Pacaso, a real estate company that manages residential property that is focused on co-ownership.

But more importantly, I was raised right here in Carmel. I grew up on Dolores street spending most of my youth at my parents restaurant (Creme Carmel), dancing at the Carmel Ballet Academy, and in the spring/summer you could always find me at Larson Field playing baseball. I have such tremendous pride being from Carmel, this community, and all the people that helped me along the way. I knew how special of a place I got to call home, and how important it is to preserve its character and sense of community.

After high school I left Carmel to play baseball and pursue hospitality management. Growing up in a restaurant has always stuck with me in how impactful a job can be with its primary focus of simply putting a smile on someone's face. That’s all I’ve ever wanted to do. That is why I helped start Pacaso, because I saw first hand how people’s lives were enriched when they made memories together as a family in their second home. When I speak to buyers who are interested in co-owning a home in Carmel, they all share a similar story: they love Carmel, have a deep connection to our town, and want to continue to make memories with their families and loved ones.

For Pacaso, we currently manage one home in Carmel. We work with local real estate agents to understand existing demand for second homes and find properties that a few families can own through an LLC. Owning homes through multi-owner arrangements such as an LLCs or trusts is extremely common in Carmel, and covers about 15% of the housing ownership in the city today.

Co-Ownership is a much more sustainable approach than for multiple families to buy individual homes and keep homes empty. The typical profile of a Pacaso homeowner is no different than that of a second homeowner in Carmel today: typically retired couples or middle aged business executives that want to spend more time with their families in this amazing place. These individuals act like owners, not renters (renting is NOT allowed), and care deeply about what it means to be a homeowner in Carmel like myself.

Earlier this year, Pacaso was served a cease and desist letter from the city without any previous code violations. Since then, representatives from our company attempted to work with the city on a regulatory framework for co-owned housing. After months of attempted outreach on our part, city staff recommended a modification to the city’s timeshare ordinance at the October 12th Planning Commission meeting. The proposed ordinance expanded the definition of “timeshare” in the city’s code to incorporate any fractional ownership arrangements by way of an LLC, trust, or similar vehicle. I am writing to you today to ask that you reject the proposed modifications to the timeshare ordinance passed by the Planning Commission and work with us (me) on a policy solution to address professionally managed co-owned housing in your community. It is our belief that working together, alongside Carmel’s residents, neighbors, business owners, and our real estate community will produce the best result for Carmel. I recognize we (Pacaso) should have been having these conversations much earlier in the process with each of you and the local Exhibit 3
LCP-3-CML-23-0022-1-Part B

community. That is a miss on our part, but please don’t let that impact the opportunity we have now to connect and communicate openly.

I am more than happy to make myself or any willing Pacaso homeowners available to further explain Pacaso’s business model and our approach to being good neighbors in communities like Carmel.

Thank you for your time and consideration.

Exhibit 3
LCP-3-CML-23-0022-1-Part B

Carmel-by-the-Sea Planning Commission Meeting
October 12, 2022
Dear esteemed members of the Planning Commission & Staff, My name is Naseem Moeel and I am Public Affairs Manager for Pacaso supporting the homeowners of the single home we manage in Carmel-by-the-Sea.

I am here today to respectfully request the commission meet with Pacaso to develop a robust policy framework that truly solves the concerns you have, rather than rushing into amending your timeshare ordinance with broad language that will sweep hundreds of co-owned homeowners into its dragnet and will create unintended consequences because of a single home we manage in town. We are in the middle of litigation with another California city over this exact issue, and we would rather partner with the City on a common-sense solution.

This is the first opportunity we’ve had to meet, and I believe it would be beneficial to ensure your staff has been given all opportunities to review our model before making policy recommendations. You’ve afforded others on tonight’s call the opportunity to present for consideration but when I called your office this week, I was denied an opportunity to publicly present to you during the public hearing.

While the staff’s report is an interpretation of our business model based on language from our website, Pacaso is not a timeshare. It is co-ownership and it’s been around for decades.

The LLC that holds title to a home does not limit the owner's use or access to the property. The owners delegate the coordination of the usage of the home to Pacaso and Pacaso uses our SmartStay technology in our app to enforce the stay limitations and ensure that the home is used equitably by the co-owners. Put another way, the stay limitations are not embedded in the Operating Agreement, but rather managed by Pacaso through the app. It is analogous to when friends or family members co-own a second home and the friends or family members use a Google calendar or a similar method to track who is using the home.

Brothers and sisters and family and friends have co-owned property together, self-managing all the hassles that come with owning a second home. Pacaso has simply modernized that approach, allowing families to enjoy more time together with less stress of managing the home.

That’s what we do. We professionally manage co-owned homes, and support homeowners in the communities they know and love. Carmel benefits from this higher utilization of second homes. Fractured and empty neighborhoods are revitalized with caring homeowners who make a large, long term investment to own a home here. Carmel also benefits by retaining primary, median homes for full time homeowners while Pacaso diverts demand for second home ownership into a luxury home instead. Downtown businesses see 10X more spending with Pacaso in a community, and store owners can shoulder the off seasons with consistently employed staff. Neighborhoods are revitalized with families, children and retiring couples looking to enjoy the twilight of their years in otherwise empty second homes.

Exhibit 3
LCP-3-CML-23-0022-1-Part B

Carmel-by-the-Sea Planning Commission Meeting
October 12, 2022
In closing, Pacaso’s co-ownership model is the inclusive, sustainable way to own a second home, revitalize empty neighborhoods and service the business districts year-round.

Esteemed members of the planning commission, once again I respectfully request that we meet in order to introduce you to our model and develop a regulatory framework to solve Carmel’s co-ownership concerns together.

Thank you for your time.

Exhibit 3
LCP-3-CML-23-0022-1-Part B

Exhibit 3
LCP-3-CML-23-0022-1-Part B

Exhibit 3
LCP-3-CML-23-0022-1-Part B

Pa c a s o home s pre s e nt a n opportunity for b e twe e n four to e ig ht ind ivid ua ls or fa milie s to c o- own a home tog e the r
○ A Pa c a s o home is owne d throug h a LLC tha t is owne d b y b e twe e n four to e ig ht ind ivid ua ls or fa milie s
○ Owne rs c a n ta ilor the ir fina nc ia l inve s tme nt b a s e d upon how muc h of the home the y wa nt to own a nd the ir e xpe c te d us e
Co- owne rs hip d oe s not impa c t a fford a b le hous ing s toc k ○ Pa c a s o home s a re a b out s e ve n time s more e xpe ns ive tha n the a ve ra g e home
Curre ntly, c o- owne rs hip is not re g ula te d und e r Coa s ta l Ac t, Ne wport Be a c h, or Ca rme l LCPs
2 What is the Pacaso Co-ownership model?
Exhibit 3
LCP-3-CML-23-0022-1-Part B

Ca rme l a nd Ne wport Be a c h s e pa ra te ly pa s s e d LCP a me nd me nts tha t tre a t a ll c o- owned home s like time s ha re s
○ Ca rme l’s a me nd me nt is a n outrig ht b a n on c o- owned homes ○ Ne wport Be a c h’s a me nd me nt limits c o- owned home to c omme rc ia l zone s As writte n, the LCP a me nd me nts b roa d ly prohib it a wid e ra ng e of c o- owne d home s within re s id e ntia l a re a s of the Coa s ta l Zone
○ Thous a nd s of home s up a nd d own the c oa s t a re c o- owned in LLC or trus t a nd would b e a ffe c te d b y the s e type s of re g ula tions
○ Ac c ord ing to Ne wport Be a c h’s own e s tima te s , 56% of single -family homes in Newport Beach are owned in LLC or trust
○ Ab out 15 % (5 8 5 ) of s ing le -family home s in Ca rme l a re owne d in LLC or trus t b y 3 or more c o- owners.
3 Carmel and Newport Beach Proposed LCP Amendments
Exhibit 3
LCP-3-CML-23-0022-1-Part B

The propos e d LCP a me nd me nts d o not d is ting uis h b e twe e n the Pa c a s o mod e l a nd and othe r co- owne rs hip a rra ng e me nts
○ The LCP a me nd me nts would prohib it any s hare d prope rty us e by any type of co- owners—inc lud ing a rra ng e me nts a mong fa mily a nd frie nd s :
■ Frie nd s purc ha s e a va c a tion home to s ha re a mong the ir fa milie s , a g re e ing to a s c he d ule for the home ’s us e
■ Sib ling s inhe rit a home , a nd one s ib ling s e lls the ir s ha re to the othe rs Give n the b roa d re a c h, a ny a pplic a tion of the LCP a me nd me nts to only the Pa c a s o mod e l would b e a rb itra ry a nd d is c rimina tory
○ Citie s c a nnot d e te c t whe n a c o- owned prope rty’s owne rs e nte r into a n a rra ng e me nt for the prope rty’s us e
○ Commis s ion d oe s not ye t ha ve d a ta a b out how ma ny home s c ould b e a ffe c te d 4 Unintended consequences
Exhibit 3
LCP-3-CML-23-0022-1-Part B

Co- owne rs hip promote s a numb e r of importa nt Coa s ta l Ac t polic ie s tha t the Commis s ion mus t s tudy
Coastal Access and Lower -Cost Visitor Facilities —home owne rs hip c a n ta ke ma ny forms , a nd the Commis s ion ha s re c og nize d how the s e va rie d forms promote c oa s ta l a c c e s s ○ In the s hort-term re nta l c onte xt, the Commis s ion re c og nize s tha t a wid e r ra ng e of hous ing options ha s the ripple e ffe c t of inc re a s ing pub lic c oa s ta l a c c e s s ove ra ll ○ Ab s e nt the c o- owners hip of home s , fa milie s ma y ins te a d c hoos e :
■ to oc c upy lowe r- cost s hort-te rm re nta l s toc k ■ to us e c oa s ta l hote l a c c ommod a tions for long e r pe riod s ■ to purc ha s e le s s e xpe ns ive c ond os /home s to us e a s s e c ond home s ○ In s um, c o- owners hip re lie ve s pre s s ure on va c a tion re nta l s upply a nd lowe r- cost hous ing s toc k – a d va nc ing c oa s ta l a c c e s s polic ie s 5 Co-ownership is consistent with Coastal Act
Exhibit 3
LCP-3-CML-23-0022-1-Part B

Preserving Coastal Community Character and Sustainability — co- owne rs a re inve s te d in the c ommunity a nd s e e k to ma ximize the ir home ’s us e ○ The Commis s ion ha s re c og nize d tha t va c a tion home s a nd re nta ls ofte n re ma in empty for e xte nd e d pe riod s or e ve n a ma jority of the c a le nd a r ye a r ○ The s e pe riod s of va c a nc y te nd to b e c onc e ntra te d in off-sea sons, c ompound ing the loc a l e c onomic impa c t
○ Co- owne rs hip is more like ly to:
■ d rive c ons is te nt ye a r-round re ve nue for c oa s ta l b us ine s s e s ■ a void e mpty home s a nd ne ig hb orhood s
■ provid e a more e ffic ie nt us e of re a l prope rty a nd re s ourc e s 6 Effect on the housing ecosystem
Exhibit 3
LCP-3-CML-23-0022-1-Part B

● The Commis s ion mus t e va lua te b a ns on c o- owners hip b a s e d on s ta te wid e polic y g oa ls ○ Ne e d to e va lua te d a ta – whic h ha s not b e e n d e ve lope d ○ Ne e d to c ons id e r hous ing , s hort-te rm re nta l a nd vis itor a c c ommod a tion “e c os ys te m”
○ Ne e d to provid e a uniform s ta te wid e a pproa c h to e ns ure c ons is te nc y a c ros s the Coa sta l Zone
● To inform tha t a pproa c h, the Commis s ion ne e d s more informa tion on s e c ond home owners hip a nd c o- owne rs hip in the Coa s ta l Zone 7 Need for more information and uniform approach
Exhibit 3
LCP-3-CML-23-0022-1-Part B

Propos e d LCP Ame nd me nts ra is e s ig nific a nt is s ue s a b out c o- owne rs hip tha t the Commis s ion mus t s tudy:
○ Coa s ta l a c c ommod a tions a nd s e c ond home s
○ Coa s ta l a c c e s s a nd s upport for vis itor-s e rving us e s ○ Ava ila b le hous ing s toc k a nd home owne rs hip ma rke ts ○ Ba rrie rs to a c c e s s
○ Community id e ntity
○ Arb itra ry e nforc e me nt
○ Cons is te nc y with the Coa s ta l Ac t a nd e a c h City’s LCP a nd LUP The Sta ff Re ports d o not a d d re s s the s e is s ue s in d e ta il a nd a pprova l would prohib it c oowne rs hip without a ny in- depth s tudy We re que s t the s e ite ms b e c ontinue d s o the Commis s ion c a n hold a works hop to c ons id e r the pre c e d e ntia l e ffe c ts of the s e Ame nd me nts throug hout the Coa s ta l Zone 8 Request for continuance
Exhibit 3
LCP-3-CML-23-0022-1-Part B

Exhibit 3
LCP-3-CML-23-0022-1-Part B

Exhibit 4
LCP-3-CML-23-0022-1-Part B

Exhibit 4
LCP-3-CML-23-0022-1-Part B

Exhibit 4
LCP-3-CML-23-0022-1-Part B

California Coastal Commission
c/o Kevin Kahn, Central Coast District Manager
September 5, 2023

4884-1130-9430v3
impacted by the LCP amendment in that its business model, based on “fractional ownership,” is somehow something different than a “timeshare.” This is fundamentally misleading, as there is no distinction other than in name only, and is branding by Pacaso to attempt to conceal that they are selling “time share” interests in residential properties. The Commission should recognize that Pacaso has admitted to the Department of Real Estate that it engages in offering of timeshares, but posited that it is not subject to oversight and regulation at the state level simply because it divides the ownership and use of property into fewer subdivisions than would trigger regulatory oversight by the DRE. (See Exhibit A, Correspondence Between Pacaso and DRE.) Furthermore, the City has already plainly informed Pacaso that its business operations in Carmel-by-the-Sea are already prohibited by local law and subject to the existing prohibitions. (See Exhibit B, Cease-And-Desist Letter By City to Pacaso; Exhibit C, Response Letter from Pacaso; Exhibit D, City Response to Pacaso.) Pacaso never provided a response to the City’s May 4, 2022 letter, indicating that Pacaso’s business model had to result either in a prohibited time-share use or a time-share estate under the City’s existing regulations.

Pacaso’s August 4, 2023 letter asserts that the LCP Amendment “could directly restrict conduct that is common to individuals who co-own properties, regardless of the arrangement.” This is also not the case. To be subject to the timeshare prohibition, the text of the LCP Amendment makes clear that there must be a “time-share plan” that divides the use of the real property. The prohibition is applicable when there is (1) a purchaser, (2) who in exchange for consideration [i.e. something of value], (3) under the terms of a formal instrument, such as a membership agreement, sale, lease, deed, license, right-to-use agreement, articles of organization or incorporation, operating agreement or bylaws, or similar, (4) receives the right to exclusive use of real property or portion thereof, according to a fixed or floating time schedule, for a period of time less than a full year during any given year, (5) on a recurring basis for more than one year, but not necessarily for consecutive years. Accordingly, Pacaso is plainly incorrect – the LCP Amendment would not apply to all individuals who co-own property, regardless of arrangement. For example, it would not prohibit joint tenancy or tenancy-in-common.

Family or friends who buy a property as joint tenants or acquire property as tenants-incommon normally acquire unlimited rights to use and enjoy the property for the entire year and can co-occupy the property as a matter of right, but will normally share the use of property through informal arrangements. Family or friends who jointly acquire a property do not necessarily pay for the right (i.e. purchaser in exchange for value) to exclusively use a property for a particular period. Other than recognizing that prohibited timeshares will occur whenever the right to exclusively occupy a piece of real property is established by a formal instrument and subdivided into scheduled periods of less than one year, the LCP Amendment has no effect on the rights of individuals to co-own property.

Exhibit 4
LCP-3-CML-23-0022-1-Part B

California Coastal Commission
c/o Kevin Kahn, Central Coast District Manager
September 5, 2023

4884-1130-9430v3
Lastly, Pacaso argues that the City’s ordinance will necessarily result in selective enforcement or be arbitrary. This is incorrect — as is plain to everyone, Pacaso’s business model involves the very public acts of marketing and sale of timeshare interests in real property that it calls “fractional ownership.” Just because Pacaso can’t continue to be lucrative in its business model without making its illegal conduct obvious (via marketing on its website and other means) does not in any way affect the legal ability of the City to adopt specific land use prohibitions when less obvious conduct by others would make violations more difficult to detect and punish. Pacaso’s arguments are akin to challenging the City’s legal ability to adopt an ordinance prohibiting fireworks during fire season, on the grounds that it would be too easy to enforce a fireworks prohibition against those who chose to light off fireworks every night, and somehow unfair to those same people if the City was not sending police officers to frisk every person in the city to ensure nobody else had fireworks that remain unlit in their pockets.

Furthermore, Pacaso’s comments assume that the City would not investigate and enforce alleged violations by others that are brought to the City’s attention — that assumption is wildly speculative.

In conclusion, the City disagrees with Pacaso’s assertion that the proposed amendment raises significant issues about its fractional ownership model that warrants further study. The reality is that its fractional ownership model is clearly a time share and the City already has regulations in place regulating time shares. The intent of the proposed amendment is merely to clarify and remove any ambiguity that exits in the City’s outdated definitions.

Sincerely,

BURKE, WILLIAMS & SORENSEN, LLP
Sergio A. Rudin
SAR:jc
Attachments:

Exhibit A, Correspondence Between Pacaso and DRE
Exhibit B, Cease-And-Desist Letter By City to Pacaso
Exhibit C, Response Letter from Pacaso
Exhibit D, City Response to Pacaso
cc: Brian Pierik, City Attorney
Exhibit 4
LCP-3-CML-23-0022-1-Part B

EXHIBIT A
Exhibit 4
LCP-3-CML-23-0022-1-Part B

CAUTION: THIS EMAIL ORIGINATED OUTSIDE THE DEPARTMENT OF REAL ESTATE! DO NOT: click links or open attachments unless you know the content is safe.

NEVER: provide credentials on websites via a clicked link in an Email.

Dear Mr. Aiu,
Yes, I confirm that Pacaso Homes are within that exemption. We sincerely appreciate your prompt response and attention.

All the best,
Andy Sirkin
SirkinLaw APC
+1-415-462-5925 (US)
On Jul 24, 2021, at 5:37 PM, Aiu, Joseph@DRE <[email protected]> wrote:

Dear Mr. Sirkin,
Thank you for your email response and explanation dated 7/21/21. Based on your response and explanation, we understand that your clients, Pacaso Inc. and Pacaso Homes, are selling time-share interests as defined in B&P Code section 11212(z), but are exempt from needing to file for a time-share public report since they fall below the reporting threshold of 11 or more units. Please confirm. Thank you.

Sincerely,
Joseph Aiu
Investigations & Compliance
From: Andy Sirkin <[email protected]>
Sent: Wednesday, July 21, 2021 2:28 AM
To: Aiu, Joseph@DRE <[email protected]>
Cc: Bruce, David@DRE <[email protected]>; Neri, Chris@DRE From: Andy Sirkin <[email protected]>
Sent: Saturday, July 24, 2021 10:19 AM
To: Aiu, Joseph@DRE <[email protected]>
Cc: Bruce, David@DRE <[email protected]>; Neri, Chris@DRE <[email protected]>; Patrick Abell <[email protected]>; David J. Willbrand <[email protected]> Subject: Re: Pacaso (DRE No. 121-0701-006)
Exhibit 4
LCP-3-CML-23-0022-1-Part B

<[email protected]>; Patrick Abell <[email protected]>; David J. Willbrand <[email protected]>
Subject: Re: Pacaso (DRE No. 121-0701-006)
Dear Mr. Aiu,
I received an email late yesterday from David Bruce saying that, since an investigation has been initiated by the Department, all correspondence should be routed to you. He also mentioned that I was welcome to “cc” him on that correspondence, so I will continue to do so.

Although you may already have a basic understanding of Pacaso’s business, I will begin with a brief explanation of the key elements. Pacaso only organizes group purchases of singlefamily residences. Each owner gets a 1/8th share along with the right to use the home for 1/8th of each year indefinitely. During each owner’s usage period, that owner has exclusive use of the entire house. All rentals are prohibited; only owners and their guests are permitted to use the house. Each owner pays regular assessments to fund the operating costs of the home and maintenance reserves. Once all eight ownership slots are filled, the eight owners own and control the house; Pacaso retains no ownership interest.

B&P Code Section 11212(z) defines “Time-Share Plan” as any "arrangement . . . whereby a purchaser, in exchange for consideration, receives ownership rights in or the right to use accommodations for a period of time less than a full year during any given year, on a recurring basis for more than one year.” This description matches exactly the arrangement among owners of a Pacaso home. Specifically, each purchaser gets the right to use the home for 1/8th of each year on a recurring basis every year for as long as he/she is an owner.

However, since each Pacaso offering involves only eight interests, each home is below the threshold for needing a Time-Share public report under Section 11211.5(b)(1).

B&P Code Section 11004.5(g) provides that "time-share plans . . . are not “subdivisions” or “subdivided lands” subject to this chapter.” Based on this language, I had always assumed that Time-Share offerings, regardless of size, did not require a subdivision public report under B&P Code Section 11000 et seq.; rather, large Time-Share offerings (more than 10 interests) require a Time-Share public report, and small Time-Share offerings (10 or fewer interests) require no public report.

Your communications suggest that Time-Share offerings too small to require a Time-Share public report instead need a subdivision public report. I am having difficulty understanding the logic of this position. As you may know, prior to 2004, California law required a TimeShare public report only for projects involving more than 12 interests. When the legislature enacted the Vacation Ownership and Time-Share Act Of 2004, it reduced the threshold from 12 to 10. This change shows that the legislature specifically considered the appropriate threshold for when a Time-Share offering needs a public report. The legislature did not choose nine, or eight, or six for the threshold; it specifically chose 10.

The idea that Time-Share offerings too small to require a Time-Share public report instead need a subdivision public report seems contrary to this legislative intent. What meaning could the 10-share threshold in Section 11211.5(b)(1) have if an offering below the threshold still had to obtain a subdivision public report?
Moreover, when the legislature enacted the Vacation Ownership and Time-Share Act Of 2004, the legislature could have said that Time-Share offerings require a subdivision public report under B&P Code Section 11000 et seq., and that the application for a Time-Share public report should be the same as the application for a subdivision public report. Instead, the legislature carefully specified the types of information it deemed appropriate for DRE to obtain and consider when “vetting” a proposed Time-Share offering. The application submittal for a Time-Share public report makes sense in the context of what a Time-Share offering is and what the purchasers buy.

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Exhibit 4
LCP-3-CML-23-0022-1-Part B

If, as you suggest, Time-Share offerings too small to require a Time-Share public report instead need a subdivision public report, it would mean that the public report application for a small Time-Share offering would ignore the carefully-crafted specifics of the Time-Share law (which make perfect sense in the context of a Time-Share offering), and instead comply with the public report application requirements for a subdivision (which make no sense in the context of a Time-Share offering).

To illustrate this point with just one of many examples, consider B&P Code Section 11234(c), under which a Time-Share public report requires “a description of the type of interest and usage rights the purchaser will receive” and "a representation about the percentage of useable time authorized for sale, and if that percentage is 100 percent, then a statement describing how adequate periods of time for maintenance and repair will be provided.” This requirement is perfectly logical for a Time-Share public report, since the fairness and adequacy of the usage assignment structure is absolutely critical from a consumer protection standpoint. So, why would the subdivision public report you suggest is needed for a small Time-Share offering not require this critical information? Is this information suddenly less important if the offering involves 10 or fewer Time-Share interests?
For all of these reasons, I respectfully suggest that Pacaso offerings do not require a Public Report. My assertion is based specifically on B&P Code Sections 11211.5(b)(1) and 11004.5(g), and on the legislative history and context of the Vacation Ownership and TimeShare Act Of 2004. To simplify your job when responding, you can ignore the other arguments made in my client’s letter of July 9.

Cordially,
Andy Sirkin
SirkinLaw APC
+1-415-462-5925 (US)
On Jul 17, 2021, at 1:28 AM, Aiu, Joseph@DRE
<[email protected]> wrote:

Dear Mr. Sirkin,
Your request for an extension to the deadline imposed in my “Notice to show cause was taken under consideration and you are granted an extension until July 23, 2021. Please note the following. The Department of Real Estate (DRE), investigates violations of the Real Estate Law (Licensees), the Subdivided Lands Act (Subdividers), the Vacation Ownership and Time Share Act (Developers), and endeavors to safeguard the public interests in real estate matters.

In your initial response, your letter alluded to 11001.[a](b)(2), 11004.5(g), 11212.5(b)(1), and Pacaso Homes purchases are resales. Please be aware that your marketing concept is also under consideration.

Sincerely,
Joseph Aiu
Investigations and Compliance
From: Andy Sirkin <[email protected]>
Sent: Friday, July 16, 2021 3:04 PM
To: Aiu, Joseph@DRE <[email protected]>
Cc: Bruce, David@DRE <[email protected]>; Neri, Chris@DRE <[email protected]>; Patrick Abell <[email protected]>; David J.

Willbrand <[email protected]>
Subject: Pacaso (DRE No. 121-0701-006)
Exhibit 4
LCP-3-CML-23-0022-1-Part B

Mr. Aiu,
Our office has been engaged by Pacaso in connection with your inquiry. Over the past four days, I have been corresponding with David Bruce about my analysis of the situation and potential options to move forward in a manner that would be satisfactory to DRE. I had hoped to provide a formal response to your email by this afternoon in accordance with your deadline. However, I have not yet received Davids's response to my most recent email (sent late yesterday), and I would very much like to get that before responding to you. Might I ask your indulgence in getting a short extension so that I might complete my interchange with David? I will commit to keeping you advised on the progress of that exchange.

Please be assured that resolving this matter to the satisfaction of DRE is Pacaso's highest priority. We are in no way interested in delaying a resolution; however, we want to make sure to proceed in the manner most likely to lead to a mutually acceptable outcome. Thank you in advance for your consideration.

All the best,
Andy Sirkin
SirkinLaw APC
+1-415-462-5925 (o)
+1-415-350-6296 (m)
---------- Forwarded message ---------
From: Aiu, Joseph@DRE <[email protected]>
Date: Fri, Jul 9, 2021 at 11:42 AM
Subject: RE: Pacaso response to DRE notice letter (DRE No. 121- 0701-006)
To: Patrick Abell <[email protected]>
Cc: David Willbrand <[email protected]>, Charlie Tanner
<[email protected]>, Aiu, Joseph@DRE
<[email protected]>
Dear Mr. Abell,
Thank you for your letter explaining the position of Paseo Homes as to its sales of “1/8th undivided interests in a residential homes.” The key phrase in our letter is the sale of undivided interest. Please refer to Section 11000.1 of the Code. Further, your letter appear to allude to the “Exemption” pursuant to Subsection 11000.1(b)(2), which requires satisfactory evidence presented to DRE – this has not been done. Hence, Section 11010 is applicable.

Please respond by July 16, 2021 as to whether Pacaso Homes and its affiliates will comply with applying for a Public Report, since advertising the sales must have a Preliminary Public Report.

Sincerely,
Joseph Aiu
Statewide Subdivisions
Investigations & Compliance
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Exhibit 4
LCP-3-CML-23-0022-1-Part B