City Council
Report
City Council Meeting: November 12, 2019
Agenda Item: 3.I
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To: Mayor and City Council
From: David Martin, Director, City Planning
Subject: Senate Bill 2 Budget Grant Authorization and First Modification of Agreement for Financial Feasibility Analysis
Recommended Action
Staff recommends that the City Council:
1. Authorize the City Manager to accept a grant awarded in the amount of $310,000 from the California Department of Housing and Community Development (HCD) SB2 Building Homes and Jobs Act for housing production related planning studies and implementation activities, and to accept all grant renewals.
2. Authorize the City Manager to execute all necessary documents to accept the grant and all grant renewals.
3. Authorize budget changes as outlined in the Financial Impacts and Budget Action section of this report.
4. Authorize the City Manager to negotiate and execute a first modification to agreement #10830 (CCS) in the amount of $179,000 with HR&A Advisors, Inc, a California based company, for expanded financial feasibility analysis and physical modeling of potential changes to development standards and project requirements. This will result in an amended agreement with a new total amount not to exceed $329,000, with future year funding contingent on Council budget approval.
Executive Summary
The State of California adopted Senate Bill No. 2 (SB2): the Building Homes and Jobs Act in 2017 to encourage the development of housing of various types in the face of a statewide housing shortage. As part of its adoption, the state started the SB2 grant program to provide funding and technical assistance to help cities prepare, adopt, and implement plans and process improvements that streamline housing approvals and accelerate housing production. In September 2019, the California Department of Housing and Community Development (HCD) awarded the City a total of $310,000.
This report seeks authorization to accept the awarded grants and execute all necessary documents associated with the grant.
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Grant funds would fund a range of economic analyses, physical prototype modeling around revised standards, and policy and program evaluation to provide the City with objective market information and prototype analysis to potentially adjust existing standards, regulations and project requirements as they pertain to facilitating housing production that is consistent with Santa Monica’s priorities and adopted plans. This work would also help staff plan for and address forthcoming requirements from HCD and the Southern California Association of Governments (SCAG) in the context of the 6th Cycle Housing Element. There is no local match requirement for the SB2 grant program; however, per HCD guidelines, grant funds may be subject to repayment if the plan or process improvement developed with grant funds is not ultimately adopted.
Background
In recent years, California’s ongoing housing shortage has underlined the need for local jurisdictions to revisit their regulatory frameworks governing housing production. In Santa Monica, where the development of housing, especially affordable housing has been a long-standing priority, the community and decision-makers have wrestled with a variety of local, regional and State-level factors that contribute to production, affordability, and equity.
From time to time, the City has made changes to rules and regulations related to housing in response to these factors. Two recent examples include the adoption of the Downtown Community Plan’s distinct project requirements for affordable housing, and the recent removal of the Extremely Low Income option from the list of options to satisfy the affordable housing obligation citywide. Further, on March 26, 2019, the Council authorized an expenditure to fund a feasibility study to analyze potential changes to the centerpiece of the City’s inclusionary housing framework, the Affordable Housing Production Program.
In 2017, Governor Brown signed a 15-bill housing package aimed at addressing the state’s housing shortage and high housing costs. This package included the Building Homes and Jobs Act (SB2, 2017), which established a $75 recording fee on real estate documents to increase the supply of affordable homes in California. Through the 3 of 11
subsequent SB2 grant program, $123M in funds collected from this fee have been set aside to provide funding and technical assistance to all local governments in California to help cities and counties prepare, adopt, and implement plans and process improvements that streamline housing approvals and accelerate housing production.
On June 11, 2019, Council authorized the application for SB2 grant funds in the amount of $310,000 from the State of California Department of Housing and Community Development. At that meeting, staff reported that the grant would be used to analyze incentives or changes to project requirements to stimulate housing production, which may include permit streamlining, height and floor area adjustments, fee reductions and modifications to affordable housing requirements in the Downtown and Citywide. Additionally, the grant funds could be used to study policies, programs and ordinances to protect and support tenants currently living in the city’s existing housing stock. This analysis would be used to propose changes to City housing policy and regulations, and may involve implementation through the citywide Zoning Ordinance and/or specific and area plans. Council discussed budget authorization for the grant funds, if successful, but did not vote to authorize expenditure of the funds due to concerns about the need to study Downtown’s project requirements.
Discussion
The City of Santa Monica submitted a successful SB2 grant application to HCD and was awarded a total of $310,000 in September of this year. Pursuant to the project description in the grant application, the funds are scoped for the following purposes, which conform to the State’s planning priorities:
1. Update Financial Feasibility Analysis on the Downtown Community Plan (DCP)
Downtown Santa Monica is where much of future mixed-use housing development is likely to occur. A recent monitoring report indicated that since Plan adoption, very few, if any, new housing projects have been submitted despite process incentives that expedite entitlements for housing projects. The proposed analysis would seek to provide decision-makers with an updated financial feasibility analysis on DCP project requirements to better inform the 4 of 11
regulatory framework that guides housing production in the City’s job-rich and transit-oriented center.
2. Explore Revised Development Standards and Incentives for Housing Projects on Boulevards and in the Bergamot Area Plan
The 2013-2021 Housing Element identified potential for over 2,700 units on the City’s major boulevards and over 1,000 units in the districts governed by the 2013 Bergamot Area Plan. This housing is not being produced as anticipated as less than a third of those potential housing units has been built or is under construction in these areas. This project would require physical modeling and financial feasibility analysis to identify the “tipping point” at which a housing developer will be incentivized to produce a housing development. Factors for evaluation/modification may include development standards such as height, floor area, and parking requirements, streamlined entitlement processes, and reduced permit and development fees for qualified housing projects.
3. Multi-Unit Districts Affordable Housing Fee and Density Study In Santa Monica’s Multi-Unit Districts (R2, R3, and R4) in recent years, developers often build below the allowable density, with replacement projects often resulting in a net loss of units citywide. This project contemplates two potential changes to the City’s existing zoning ordinance: 1) Evaluating the overall feasibility of residential development in the multi-unit districts and the associated municipal requirements in order to make recommendations on standards and incentives to support the City’s goals for housing production for a variety of income levels. 2) Based on the evaluation, explore “minimum density” standards in the multi-family districts to support the City’s housing production goals.
4. Protect Existing Tenants from Displacement *
The City has many policies and programs on housing affordability, access, and tenant rights. These include rent control rules, tenant protections, housing assistance, and other housing stabilization measures. These are administered by 5 of 11
several City departments, making it difficult to easily locate information. This antidisplacement project will result in a website and marketing materials with information about these programs by topic (not department). A communications campaign will reach tenants to assist them in situations that may threaten their tenancies.
*Note: SB2 guidelines allow for only 10% of grant award to be used for purposes of protecting existing housing stock. $31,000 is the maximum that can be awarded.
5. Enhancements to City of Santa Monica Electronic Permitting Software The City has instituted digital Building permit applications, yet some important and time-consuming Planning entitlements are not yet on this system. This project would enhance the City’s permit application software for the additional Planning applications, which will then be managed electronically. This process integration will improve efficiency by allowing applicants to submit online instead of at City Hall and will streamline the review process by allowing simultaneous review from multiple reviewers.
6. Illustrated Housing Development Process Guidebooks
The City currently lacks user-friendly materials to assist applicants proposing housing developments. The proposed guidebooks for Accessory Dwelling Units and Multi-family Housing will provide clear, concise and updated information on City housing policies, processes and development standards supported by graphics including architectural drawings that will illustrate the development and design standards.
7. Innovative Affordable Housing Financing Tools to Increase Production The high cost of land in Santa Monica makes deed-restricted affordable residences very expensive, and limited funding is a primary barrier to creating more units. This project will look at how innovative financing tools like a regional housing trust fund and infrastructure financing plans are used elsewhere and 6 of 11
how the City can best leverage these tools to enhance the production of affordable housing.
The above analytical activities will be complemented by a robust public engagement platform, which is accounted for in the budget developed for each activity described in the SB2 grant application. Grant funds must be used by FY 21/22, and are subject to potential repayment if no implementation actions result from grant-funded activities.
Interface with Other Housing-Related Activities (Local, Regional and State) 2019 has seen a tremendous focus on housing policy at local, regional and State levels owing to the widely-acknowledged and highly visible housing crisis. PCD and other departments have worked collaboratively to track State legislative actions aimed at increasing housing production, as well as regional discussions that are largely dominated by the emerging Regional Housing Needs Assessment 6th Cycle allocation.
Interdepartmental staff has also been active in addressing local housing policy issues at the request of the City’s Housing Commission and City Council. SB2 presents an opportunity to address the changing landscape of housing policy in California by exploring changes to existing standards and project requirements; however, staff notes that the work contemplated by the SB2 scope may not be adequate to address the totality of the required policy shift. Below are brief descriptions of the most pertinent issues developing in the housing landscape.
A. State Legislation of Key Interest to Santa Monica
A multitude of housing bills were signed by Governor Newsom that alters existing housing policy that govern processing of housing projects, rent control and rent caps, density bonuses, accessory dwelling units, and community investment.
Key highlights relevant to Santa Monica include:
State Housing Bills Status Description
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FASTER APPROVALS
Approved
SB330: Faster approvals for
housing and zoning changes.
Time-limited, Statewide ban on (A)
downzoning, (B) moratoriums on
housing development, (C) nonobjective design standards, and (D) limit on number of permits issued.
Approved
AB1485: Incentives and faster
approvals for moderate-income
housing built with prevailing (union)
wage labor.
Approved AB1763: 80% density bonus for
affordable housing.
Approved
AB101: By-right approval for
homeless shelters. AB101 also
includes $650 million in grants for
cities and counties to address
homelessness issues. It also
includes $250 million for local
governments and regional bodies to
measure housing needs and develop
plans for providing more housing.
TENANT
PROTECTIONS
Approved
AB1110: Longer notice require for
rent increases. 60 days for under
10%, 90 days for 10-15%, 120
days for 15%+
Approved
AB1482: Statewide limit to annual
rent increases. Statewide Just
Cause limits to evidence.
ACCESSORY
DWELLING UNITS Approved
SB13, AB68, and AB881: Further
removes barriers to ADU
productions
FUNDING
Vetoed
SB5: Creates new local funding
agencies for affordable housing,
infrastructure and community
investment.
Approved AB857: Allows cities to create
Public Banks.
B. 6
TH Cycle Housing Element and Regional Housing Needs Assessment The Regional Housing Needs Assessment (RHNA) is mandated by State Housing Law as part of the periodic process of updating local housing elements of the General Plan. The RHNA quantifies the need for housing within each jurisdiction during specified planning periods. SCAG is in the process of 8 of 11
developing the 6th cycle RHNA allocation plan which will cover the planning period October 2021 through October 2029. The final methodology is anticipated to be adopted by the Regional Council in January/February 2020, followed by an appeal period and final planned for adoption by SCAG in October 2020. SCAG has made a tool available online that allows cities to have an understanding of the possible allocation range in scenarios that are currently being proposed.
According to the tool, Santa Monica’s RHNA allocation is estimated to be approximately 4,800 units, which is substantially higher than in previous cycles (the 5th Cycle allocation was 1674 units) owing to the new requirement to address “existing housing need” (unmet existing demand) as well as “projected need” (based on a forecast of future population growth).
In parallel with the development of the RHNA, changes to state law (Government Code section 65583.2, Residential land inventory; definitions; inventory element; suitability for regional housing needs; densities) affect what may be counted as a suitable housing site to accommodate the RHNA in the Housing Element. Additionally, HCD has signaled that jurisdictions that do not meet their Housing Elements numbers would be subject to more severe consequences than in the past, including ineligibility for transportation and housing funding.
C. Local Housing-Policy Related Efforts
Interdepartmental staff are engaged in addressing local housing demand through a variety of measures that have been authorized recently by the Council. These efforts primarily relate to the Affordable Housing Production program, but bear influence on market-rate development across the city.
• Removal of the Extremely Low Income Option. On March 26, 2019 Council authorized a modification to the zoning ordinance to temporarily remove the option for providing extremely low-income (ELI) units to satisfy a project’s Affordable Housing Production Program obligation pursuant to SMMC Chapter 9.64. This action was taken due to a perception that an overuse of this option was placing an undue burden on the City to fund 9 of 11
affordable units to meet the voter-approved Proposition R target of 30% of all multifamily housing completed each fiscal year that must be affordable and occupied by low- and moderate-income households; and at least onehalf of the total affordable housing completed be affordable for and occupied by low-income households.
Council extended the temporary removal through November 2020 at its October 22, 2019 meeting.
• Affordable Housing Production Program Financial Feasibility Study. At its March 26, 2019 meeting, Council also authorized a contract with HR&A Advisors for financial feasibility analysis of potential modified affordable housing requirements for future Tier 2 mixed-use developments similar to those which were adopted in the DCP. Work on this effort is underway and is based on Council’s direction to only study existing development parameters. In the face of forthcoming adjustments to Santa Monica’s RHNA allocation, as well as a slew of State bills aimed at increasing housing production through potential upzoning activities and by-right approvals, questions have arisen as to the utility of this effort that uses existing development parameters.
Vendor Selection
Staff recommends HR&A Advisors, Inc. to provide financial feasibility analysis of:
• Update Financial Feasibility Analysis on the Downtown Community Plan (DCP) • Explore Revised Development Standards and Incentives for Housing Projects on Boulevards and in the Bergamot Area Plan
• Multi-Unit Districts Affordable Housing Fee and Minimum Density Study This recommended award is made as an exception to the competitive bidding process pursuant to Section 2.24.80(d). Competition does not exist because HR&A has 10 of 11
completed extensive feasibility analysis related to evaluating the feasibility of the City’s development standards, project requirements and fees including ongoing work on the AHPP, as well as financial feasibility on the recent Downtown Community Plan and 2015 Zoning Ordinance. Therefore, HR&A has the unique ability or capability to complete the abovementioned studies related to the SB2 grant. Completing a competitive procurement process is highly unlikely to produce cost-competitive proposals from other sources, given HR&A’s experience and knowledge with preparing modeling for the City. Future advertising and vendor selection for the remaining SB2- related activities will be forthcoming in the coming months as staff puts together a workplan and a process for engaging the community on these substantive issues.
Financial Impacts and Budget Actions
Staff seeks authority to accept a grant awarded in the amount of $310,000 from the California Department of Housing and Community Development (HCD) SB2 Building Homes and Jobs Act for housing production related planning studies and implementation activities. Award of the SB2 grant totaling $310,000 requires the following FY 19/20 budget changes.
FY 2019-2020 Grant Budget Changes
Establish Revenue Budget Appropriate Funds
Account Number(s) Amount Account Number(s) Amount
20700002.405570 $310,000 20700002.556420 $310,000
Total $310,000 Total $310,000
Future year funding is contingent on Council budget approval.
Staff seeks authority to approve a portion of the funding from the SB2 Grant to increase the amount of agreement #10830 with HR&A Advisors for expanded feasibility analysis and physical modeling services.
Agreement Modification Request
Agreement #
Current Authorized
Amount
FY 2019-20
Modified Request
Amount
Account # Total Revised
Contract Amount
10830 150,000 01160001.552010 150,000
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179,000 20700002.556420 179,000
TOTAL 329,000
Prepared By: Peter James, Principal Planner
Approved Forwarded to Council
Attachments:
A. June 11, 2019 Council Meeting (Web Link)
B. RHNA Proposed Methodology (Web Link)