Scott Fina, Ph.D.
Santa Maria, CA 92455
RE: Public Comment for the February 7, 2023 City Council Meeting:
Consideration of a Development Impact Fee Deferral Program (Ordinance) for Affordable Housing
Greetings City Council Members:
Santa Maria City Council recently approved a “Disposition and Development Agreement” with Vernon Property Group, for a revitalization project at Main Street and Broadway. The project involves the creation of new commercial space and 88 rental apartments, a majority to be leased at market rate. It also involves $1.25 million in financial incentives from the city for the Vernon Property Group in paybacks and fee waivers.
Bradley Vernon, owner of the Vernon Property Group, may be a talented developer, and the project at Main and Broadway may be a good one. The $1.25 million in incentives Vernon Property Group has been promised, however, warrants a second look, given the city’s pressing need for affordable housing.
In comparison, consider an affordable rental housing project developed and constructed by nonprofit Peoples’ Self-Help Housing (PSHH), the Los Adobes de Maria III (LADM), while Mr.
Vernon was suing Guadalupe.
LADM III has 34 apartments varying from 1 to 3 bedrooms, occupied by low-income, farmworker families. No family pays more than 30% of their income in rent. The complex includes a courtyard with a playground, a community center, and laundry facilities. PSHH provides free after-school and summer tutoring for children at LADM III, and workforce readiness programs for adults.
PSHH leveraged funding from numerous sources for LADM III. More than half of the project financing came from the Low-Income Housing Tax Credit program (LIHTC). LIHTC is a federal program governed by the IRS through Section 42 of the Internal Revenue Code. (https://www.irs.gov/pub/irs-utl/IRC_42.pdf) It was created as part of the Reagan Tax Reform Act of 1986, enjoying bipartisan support ever since, as a facilitator of public-private partnerships. (https://www.novoco.com/notes-from-novogradac/lihtc-celebrates-three-decades-bipartisan- support-success)
LIHTC has become vital for developing affordable rental housing in the U.S. It is administered by state agencies, which allocate tax credits to housing developers, who in turn sell the credits to commercial investors. These commercial investors obtain “equity interest” in the housing complexes. They then claim annual federal income tax credits for 10 years.
LIHTC is a good deal for all involved: private capital, counties and municipalities, and developers. There are some catches, however. One, is that developers must guarantee the rental housing will remain affordable for at least 55 years.
A second, is that the tax credits are distributed by State Tax Credit Allocation Committees competitively, through a scoring process. A key scoring measure is public investment in the housing project. Herein lies a promising affordable housing development incentive; one that Santa Maria could readily employ and benefit from without giving money away to developers.
Cities require housing developers to pay substantial development impact fees to offset related infrastructure costs. They typically do so upfront, in the project development process.
For example, PSHH paid nearly $500,000 in these fees to Santa Maria before the city issued a building permit for LADM III. Deferring such fees (delaying their payment), is recognized as public investment by the California Tax Credit Allocation Committee, especially if the deferral is for 15 years after the construction of the project (a period of time that benefits the developer, but is also reasonable for the city or county). If Santa Maria were to adopt a development impact fee deferral program for affordable housing projects (build it into the city’s municipal code), it would draw more affordable housing developers (and projects) who will gain an advantage in winning tax credits.
Indeed, research published by the Lewis Center for Regional Policy Studies at UCLA (https://www.lewis.ucla.edu/research/reducing-development-costs-with-impact-fee-deferral/), found that deferring development impact fees will boost housing development and save costs to developers (even if they pay interest on the fees), without a significant reduction in public benefit. In other words, a city like Santa Maria has little to lose, but much to gain in deferring these fees for affordable housing.
Given the city’s affordable housing crisis, I urge City Council to adopt a development impact fee deferral program (ordinance) for affordable housing.
Thank you for you for your consideration and generous public service.