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CD Challenges to Housing Development____________________________________________________________________________________ FOR CITY CLERK ONLY Council Meeting: 09/03/2019 Disposition: Accepted report and recommended future workshops Agenda Item No: 6.b Meeting Date: September 3, 2019 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Community Development Prepared by: Paul A. Jensen, Community Development Director City Manager Approval: ______________ TOPIC: CHALLENGES TO HOUSING DEVELOPMENT SUBJECT: INFORMATIONAL REPORT ON THE CHALLENGES TO APPROVING AND DEVELOPING HOUSING; CASE # P18-010 EXECUTIVE SUMMARY: On August 20, 2018, the City Council was presented a comprehensive, informational report on housing. In response to the housing report information, the City Council directed staff to follow-up on four, specific housing topics and issues. One of these four topics/issues is the challenges to the approval and development of housing in San Rafael. Essentially, the Council requested staff to identify what changes could be made to facilitate housing development. This task included: a) interviews with numerous stakeholders; b) reviewing practices and actions by other cities/towns that have been successful with approving and developing housing; c) gathering data and pertinent information; d) reviewing and critiquing the City’s inclusionary housing requirements and entitlement process; and completing an air rights study of seven (7) City-owned lots. As a result, staff has identified 11 key challenges to the approval and construction of housing in San Rafael. As an informational report, there is no recommendation for formal City Council action other than to accept the report. However, as outlined in the Analysis section below, staff has identified 13 recommended measures to facilitate the approval and development of housing. Some of these recommended measures are underway, some are being implemented, and some require further study and future action by the City Council. Staff is seeking feedback and direction on the list of challenges and the recommended measures. RECOMMENDATION: Accept report and provide direction on staff recommendations for follow-up actions. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 BACKGROUND: Introduction The booming economy coupled with the Bay Area housing crisis have triggered many actions and activities surrounding housing and housing need. The housing crisis has directly affected San Rafael in a number of ways. San Rafael is currently experiencing: skyrocketing real estate prices (median price for a single-family residence in San Rafael is approximately $1.1 million; source: Zillow); a homeless population in need of housing; an underrepresented community of lower-income residents paying record- high rents; and an aging population. The City is faced with a lot of issues and decisions around housing. Every year, the City conducts a community survey. Historically, the survey results placed traffic as the top concern and problem facing the City. The 2019 community survey conducted this spring included the question: “What is the single largest problem facing the City of San Rafael?” The results of the 2019 survey placed affordability of housing as the largest problem facing the City, followed by homelessness and traffic congestion. Comprehensive Report on Housing On August 20, 2018, Community Development Department staff presented a comprehensive report on a broad range of housing topics and issues. The following is a summary of several key topics and issues covered in the August 20, 2018 report, which have been updated: 1. Housing Production Housing production is tracked and reported through the Regional Housing Needs Allocation (RHNA) process. The RHNA process tracks housing approvals and construction in an eight-year cycle. During the 2007-2014 RHNA cycle (mostly during the Great Recession), 324 housing units were approved but only 171 units were built. The following tables present: a) the City’s RHNA obligation for the current 2015-2023 cycle; and b) the approved and built housing numbers for the current 2015-2023 RHNA cycle (through the end of 2018): 2015-2023 RHNA Obligation for San Rafael Housing Need Total Extremely & Very Low- Income Households Low-Income Households Moderate- Income Households Above Moderate- Income Households Average Yearly Need 1,007 1 240 148 181 438 125 2015-2023 RHNA Cycle – Approved and Built Housing Approved 2015-2018 Very Low Income Low Income Moderate Income Above Moderate Total Units Single-family Residential - - - 28 28 Multiple-family residential 10 10 2 141 163 ADU - 43 - 27 70 Total units approved: 10 53 2 196 261 Built 2015-Present Very Low Income Low Income Moderate Income Above Moderate Total Units Single-family Residential - - 1 28 29 Multiple-family residential 1 8 6 73 88 ADU - 17 4 3 24 Total units built: 1 25 11 104 141 1 The General Plan 2020 Housing Element demonstrates that suitable sites in San Rafael are zoned to accommodate the development of up to 2,500 additional residential units. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 We are halfway through the current eight-year RHNA cycle and only 26% of the San Rafael housing need has been met. While housing production for market rate units (above moderate) has been fairly- steady, production in the very low-income range has been extremely low. The City has fared better with housing production in the low-income range, which is largely attributed to Accessory Dwelling Unit (ADU) activity. As reported in August 2018, ADU applications and approvals continue to be very active and represent a strong percentage of the housing start-ups. 2. Current Housing Activity and Interest While housing production in the past 10 years has been low, in the past several years there has been an increased housing development activity in Downtown and on sites close to SMART and public transit. At present, there are numerous housing development projects (including assisted living facilities) that have been approved or are currently under review. A handful of housing projects totaling about 360 housing units are approved for construction. All are market rate projects that include a percentage of below-market rate units. In addition, the City has also approved two senior living projects that would provide about 177 assisted living units; one is under construction (Oakmont Assisted Living, 3773 Redwood Highway). There is no shortage of interest in developing housing in San Rafael. At present, the City has a number of housing projects that are currently in the Planning review process that total over 300 units. They include, among others, the Whistlestop/EDEN Housing project in Downtown San Rafael, which proposes 67 units that would be 100% affordable to low-income seniors. There are also several sites where housing is being considered and are in the early planning stages. Please see the attached table and maps, which describes these projects and potential housing sites (Attachment 2). The table and maps have been updated since the August 20, 2018 report. 3. Statewide Housing Legislation. Major efforts have been made at the State level to promote housing production through new legislation. In 2017, 16 State and Assembly Bills focusing on housing were signed by Governor Brown and are now State law. This momentum has carried forward into 2018. By the end of 2018, the Governor signed 17 State and Assembly Bills on housing, many of which are revisions and modifications to the 2017 legislation. A summary of the 2018 housing legislation is presented in a table, which is provided as an attachment to this report (Attachment 3). The table summarizes: the purpose of each bill; the current status (outcome); how the resulting legislation impacts the City; and required follow-up action by the City. One of the key Assembly Bills signed in 2017 was Senate Bill 2 (SB 2). Referred to as the “Building Homes and Jobs Act,” this law establishes a permanent, on-going source of funding dedicated to promoting and facilitating affordable housing development. The source of funding is secured through a fee that is imposed at the time of the recording of every real estate instrument, paper or notice for each single real estate transaction on a parcel of property. The recording fee ranges from $75.00 to $225.00 depending upon the nature and scope of the property transaction. Sales transactions for single-family homes are exempt from this fee. Effective January 1, 2018, the fee is collected by the County Recorder, who, in turn forwards (quarterly) the fee revenues to the State Controller. The fee is projected to generate $200 million in annual revenue statewide. For this first year (2019), 50% of the revenue is allocated to a Planning Grant Program, while the other 50% of the revenue is administered to the counties for homeless programs. This spring, State of California Department of Housing and Community Development (HCD) launched the SB 2 Planning Grant Program process, which provides local jurisdictions with a source of funds for planning to promote housing development and production. For 2019-2020, the City of San Rafael is eligible for up to $310,000 in grant funds for planning. On April 15, 2019, the City Council was presented with a report on SB 2, which was SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 4 accompanied by a list of eligible projects for which the City will pursue funding. The SB 2 Planning Grant application has been completed and submitted to HCD. It is important to note that about 90% of the new legislation directly impacts or places the burden and pressure of housing production on the local jurisdictions. One example is the “by right” housing legislation (SB 35), which mandates a local, ministerial review process for housing development projects meeting certain conditions. This legislation limits the local jurisdiction’s discretion to the review of such projects for compliance with a list of adopted “objective planning and design standards.” The Planning Division staff has prepared a draft ministerial review process and standards, which was presented to the Design Review Board (DRB) at its July 16, 2019 meeting (link to DRB report here). The DRB will be refining these “objective planning and design standards” before they are forwarded to the City Council for adoption. It is expected that the City Council will review this process and standards in the early fall. The momentum on new housing legislation has continued through 2019. Senate Bill 50 (SB 50; Senator Weiner) was introduced in late 2018 and was recently revised to incorporate parts of Senate Bill 4 (Senators Bell and McGuire). The combined bills now address “by right” housing legislation in two categories: a) counties with a population of over 600,000; and b) counties with a population of under 600,000. Although the two categories have different housing allowances and mandates for housing projects around transit, the greater impact of the bill is the “by-right” development allowance of a four-plex (four units in a single building) in all zoning districts. The by-right four-plex allowance would be applicable to all cities/towns statewide, regardless of size. A summary of latest revision to SB 50 is included in Attachment 3. On May 16, 2019, SB 50 was made a two-year bill and will be considered in January 2020. In response to the August 20, 2018 housing report, the City Council directed staff to follow-up on the following four, specific housing topics and issues: • Renter protection; • Short-term rentals; • Housing for an aging population; and • Challenges to the approval and development of housing. To date, there has been follow-up on the topics of renter protection and short-term rentals. Regarding renter protection, in late 2018, the City Council adopted an ordinance prohibiting source of income discrimination. In spring 2019, the City Council adopted an ordinance requiring mandatory mediation when tenant rents are increased by more than 5% in a twelve-month period, as well as just cause eviction requirements. Further, a comprehensive report on short-term rental was presented to the City Council in early 2019; a draft ordinance setting forth regulations for permitting short-term rentals was presented to the City Council on August 5, 2019. The first reading of the short-term rental ordinance is scheduled for fall 2019. Challenges to Housing Development At the August 20, 2018 meeting, the City Council expressed concern that while the City has strong policies encouraging the housing for all population groups (see Attachment 1), there are obvious challenges that impede the development of housing. The August 20, 2018, City Council report (link provided above) includes detailed information and data that is pertinent to the issue of challenges to housing development. Information and data pertinent to this specific issue include, among others: State housing mandates (Regional Housing Need Allocation – RHNA); the City’s housing policies and affordable housing requirements; and statistics on affordable housing in San Rafael. The City Council SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 5 directed staff to identify and study these challenges and return to the Council with an informational report and suggested steps moving forward. In preparation for this informational report, staff completed the following tasks and research: 1. Interviewed six (6) local and regional developers. The results of these interviews were supplemented by the results of similar interviews conducted in Spring 2019 by a Mill’s College graduate student. 2. Interviewed representatives from the San Rafael Chamber of Commerce and Marin Builders Association, as well as an attorney specialized in housing development and law. 3. Interviewed staff and consultants from other Bay Area cities where housing has been successfully developed. 4. Completed a report entitled, Surface Parking Lot Air Rights Study - City of San Rafael, prepared by Allison Giffin (June 1, 2019), of seven (7), City-owned sites in the Downtown area for potential air rights development. General Plan 2020 Housing Element Program H-14d encourages the City to take an active role in evaluating the feasibility of air rights development, and possible incentives for such development. Further, Program H-14d encourages developers of affordable housing to utilize air rights above public parking lots. The feasibility study was sponsored and funded by Opening Doors, a public-private coalition. 5. Collected data and information. This task included information on inclusionary housing requirements gathered by and provided to the City by a Mill’s College graduate student. Further, this task included a re-visiting and review of the 2017 Marin County Civil Grand Jury Report entitled, Overcoming Barriers to Housing Affordability. Based on the interviews, the findings of the housing needs report and research/data collection, the following have been identified as the key challenges to the approval and construction of housing: 1. City Planning and Entitlement Review Process. The City’s planning and entitlement review process has multiple layers and can be time consuming and costly. For larger projects, the sequence of and steps in the review process require a public forum with the Design Review Board (DRB), Planning Commission, and often the City Council. Given the limited City staff to administer the current, multi- step process and practices for all projects, applicants often experience delays. At a countywide level, the 2017 Marin County Civil Grand Jury Report entitled, Overcoming Barriers to Housing Affordability identified the planning process throughout Marin County as one of the barriers that stifles the development process. 2. Design Review Board (DRB) Process. The DRB provides an advisory role to staff, the Planning Commission and City Council. As design is subjective, at times, DRB review results in differing and conflicting opinions, which can be frustrating to the applicant and the project architect. Further, the public can get frustrated with the DRB review step in the planning process. As the DRB provides the first public forum for public comment on a project, it is common for the public to want to comment on higher-level policy topics that are outside the DRB’s prevue and purpose (e.g., concerns over land use, density, environmental issues). This approach places the DRB in an awkward position to defer to the Planning Commission or comment on such issues, which is frustrating to the public and the applicant. Lastly, while hiring a good design professional aids in smoother review, it is not unusual for the DRB to require design revisions resulting in several follow-up meetings with the DRB, which adds cost to the applicant and time to the process. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 6 Several of the developers that were interviewed suggested that the DRB be dissolved to streamline the Planning permit review process for all development. One developer indicated that the City of Mill Valley dissolved its Design Board over a decade ago. In this case, the design review process was delegated to the Planning Commission; design professionals were added to the Planning Commission membership. 3. CEQA/Environmental Review Process and Practices. In reviewing all housing development projects, the City is required to comply with the California Environmental Quality Act (CEQA). Applicants are required to commission and fund technical studies and reports (e.g., costly traffic studies), which often disclose no new findings or recommendations, or merely confirm findings that are already known. Similarly, the direction and process of environmental review can be influenced by the extent of public controversy and the concern or threat of litigation. If it is determined that the preparation of an Environmental Impact Report (EIR) is needed, a minimum of one-year is added to the planning and entitlement review process. 4. City Affordable/Inclusionary Housing Requirements: According to the for-profit developers that were interviewed, the City’s current inclusionary housing requirements are too high. Further, while allowed as the lowest priority option, historically, the City has not supported or encouraged payment of the fee in-lieu of on-site construction of inclusionary units in market-rate housing projects. For-profit developers reported that paying into the affordable housing fee fund would: a) significantly reduce the construction cost of the market rate housing project; and b) boost the fund balance so that it can be more effectively used to subsidize the construction of affordable units at another location. The City has required and administered inclusionary housing policies and regulations since 1986. Initially, the inclusionary housing provisions required that 10% of the units in a market-rate project be set aside for below market rate sale or rental. Over time, this requirement has increased to 20% for housing projects containing more than 21 units. In brief, the City’s current affordable housing are as follows: • Affordable housing units are required in new housing development projects. For projects containing 2-10 housing units, the inclusionary requirement is 10%.2 For projects containing 11- 20 housing units, the requirement is 15%, and for projects with 21 or more units, the requirement is 20%. • The policies and regulations favor on-site construction so that the inclusionary units are integrated into the project and throughout the community. Construction of on-site inclusionary units is first priority. If such units cannot be constructed on-site, off-site construction of the required affordable units is second priority. Payment into the City’s affordable housing in-lieu fee fund (Fund # 243) is the lowest priority.3 • The required affordability levels vary by type of housing, with rental (very low- and low-income mix) versus ownership (low- and moderate-income mix). • The affordable housing units are required to remain affordable for the longest feasible time or at least 55 years. • Non-residential development projects are also subject to the affordable housing requirements of SRMC Section 14.16.030. A nexus study was conducted in 2005 to support the linkage of housing 2 An exemption from this requirement is allowed for smaller projects. 3 Affordable Housing Fund #243 has a current balance of $1.3 million SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 7 need with employment and workforce. The code provisions include a formula to determine housing need based on non-residential use type and size. While the intent is to encourage the development of inclusionary housing in non-residential development projects, housing may not be an allowed use on some commercial or industrial sites. Therefore, most non-residential development projects pay into the affordable housing in-lieu fee fund. One good example is the Target store project in southeast San Rafael. This project was required to contribute $774,000 to this fund. 5. Downtown Property Constraints and Zoning Limits. As an urban center with access to public transit, Downtown provides the greatest opportunity for new housing development in San Rafael. However, there are several constraints that have stifled larger residential development in Downtown. First, Downtown San Rafael presents a grid street pattern with small lots/parcels that are individually owned. To create a feasible footprint for development, lots/parcels must be assembled, which is costly and challenging (some long-time property owners are not willing to sell). Further, the City no longer has a Redevelopment Agency (RDA) to facilitate property assemblage. Another Downtown constraint identified by developers is the residential density limits that are set under the current zoning structure. The developers that were interviewed suggested that density limits in Downtown be either increased or eliminated. It was acknowledged that while building height limits (including the height bonus allowed for housing) and floor area ratio (FAR) allowances are generous, the residential density limit coupled with off-street parking requirements heighten the challenges to achieving feasible residential development. Most recently, the zoning density limit has been the greatest challenge with the housing development proposed for 703 3rd Street at Lincoln Avenue (Seagate Properties). This 120-unit housing project is proposed on a site where the zoning limits residential development to a maximum of 41 units. A very substantial density bonus (166%) has been requested by the developers (Seagate Properties), but the project proposes a modest number of inclusionary/BMR units (20%) for the substantial bonus that is being requested. The substantial density bonus that is proposed for this project has raised policy issues about the City’s density bonus regulations. Lastly, Downtown San Rafael includes an abundance of older buildings with some identified as historic resources. Per the CEQA Guidelines, potential historic resources must be addressed with new development, resulting in individual site and building assessments requiring the preparation of an EIR. EIRs were prepared for housing projects at 809-815 B Street (41 units), 1600 Mission (Aegis Assisted Living) and 1200 Irwin Street (Carriage House Townhomes). The preparation of an EIR for these projects resulted in additional costs and a longer planning review process. 6. Parking Requirements. Parking requirements drive-up the cost of construction. Several developers suggested that the City’s parking requirements should be reduced and that cost-effective measures should be allowed. 7. Loss of Other Governmental Sources for Housing Subsidies. In 2012, the State of California dissolved all local RDAs. Historically, RDAs provided a source and/or conduit to money and funds from the state and federal level, which assisted in providing subsidies that were available to local developers, property investors and owners. RDAs also played a critical role in facilitating property assembly, which is critical in ensuring the feasibility of development. With the dissolving of the RDAs, subsidies are not as readily available. 8. Layers of Regulatory Requirements. Regulatory requirements at the federal, state and local level continue to increase. Most of the regulatory requirements are intended to address an environmental protection or climate change. Examples include, among others: a) green (CalGreen) building SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 8 standards; b) water quality requirements (storm water pollution prevention program); and c) water conservation requirements. Compliance with requirements add to the cost of construction. As regulatory requirements are typically mandated and administered by numerous State, County and local agencies, it is difficult to tackle this challenge. Further, some regulatory requirements conflict with others, which adds a layer of challenge for the both the developer and the local jurisdiction. 9. Development and Impact Fees. The City charges development and impact fees, which are applicable to new construction. Typically, the Citywide Traffic Mitigation Fee gets the most attention by applicants/developers. This fee is current charged at $4,246.00 per AM + PM per net new peak hour trip. Second, the Construction Vehicle Impact Fee is often questioned by applicants as it is often misinterpreted as a fee for traffic mitigation. This fee ($0.01 X the valuation of the construction project) is collected to cover the cost of maintenance and repair of public streets due to construction vehicle impacts. Both fees are required to be paid at the time a building permit is issued, which adds to soft- costs before construction commences. Developers have periodically requested that these fees be reduced or deferred. As an example, the City recently received a Building Permit application for the approved, 41-unit housing development at 809-815 B Street at 2nd Street. The following is a general estimate on several of the development and impact fees that will be charged to this project: • Traffic Mitigation Fee- $132,000 • Construction Vehicle Impact Fee- $100,000 • Parkland Dedication Fee 4 - $81,000 • Development Impact Fee 5- $8,400 In this past month, HCD released a long-awaited study detailing how much cities/counties in California charge developers to build housing. This fee study, entitled Residential Impact Fees in California – Current Practices and Policy Considerations to Improve Implementation of Fees Governed by the Mitigation Fee Act (August 5, 2019), finds that local fees charged for housing construction can amount to 6%-18% of the median home price. 10. Land and Construction Costs. At present, the Bay Area is the most expensive place to build in the world. The Bay Area region is 13% more costly to develop than second-place New York. The high cost is associated with high demand, labor shortage, steel tariffs and rapid economic growth. The average construction cost in the Bay Area is now $417.00 per square foot.6 Other secondary factors include: a. Availability of labor. Given the strong economy fueling increased traffic throughout the region, construction workers are less willing to travel long distances for work. b. Options for land purchase. Historically, developers would option land for extended periods of time to complete the planning and land use entitlement process. If the project is controversial, the entitlement review process is often delayed, sometimes for years. As a result, property owners/sellers are less likely to hold an option on their land for extended periods or will opt for an outright sale of the land with no contingencies. With these sale conditions, the developer is less likely to take a risk. 4 Parkland dedication fees are charged to for-sale residential projects only. This fee is not applicable or charged to rental residential projects. 5 Development impact fee covers the cost of the project’s impact on public facilities and services in the City. 6 Bay Area News Group article; New Bay Area Crown- Most Expensive Place in the World to build; April 25, 2019 SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 9 11. Public Controversy and Opposition. In interviewing the developers and other business stakeholders, public controversy and opposition to development surfaced as the greatest concern. At a countywide level, the 2017 Marin County Civil Grand Jury Report entitled, Overcoming Barriers to Housing Affordability identified community resistance as the top barrier to achieving housing affordability. When a housing development project is controversial, the entitlement review process inevitably becomes lengthy and costly, particularly if there is threat of or concern over potential litigation. The frustration of the applicant increases when the project has been designed to meet all basic zoning requirements, is consistent with the General Plan, and would result in minimal (if any) environmental impacts. Further, on occasion, appeals of actions on housing projects are filed with little supporting rationale/justification. Lastly, given the multiple parties involved in an appeal (applicant, appellant, design team, City staff), coordinating a City Council meeting date for an appeal hearing is challenging and such hearings are often delayed by months. All parties interviewed stated that there needs to be the political will of and a commitment by the decision-makers to support housing and change, even when there is heightened controversy and opposition. ANALYSIS: As this report is informational, there is no staff recommendation for a formal action. However, staff has identified a list of recommended measures and actions (below) for the City Council to review, consider and provide direction. As discussed below, some of the recommended measures and actions have already been implemented and have proven to be successful. However, some of the recommendations will require further study, and/or legislative or policy changes that will require formal City Council action. 1. Streamline the Planning/Entitlement Review & Design Review Board (DRB) Process. The following measures are recommended, and staff has commenced with implementing them: a. Adjust the Pre-Application review process. Pre-Application review is recommended for most in- fill and large housing projects. This process provides the applicant with early feedback from City departments and services. The Pre-Application process requires a filing fee of $1,191.00 and the submittal of schematic drawings and concept plans. The Pre-Application is discussed by City staff at the bi-weekly Development Coordinating Committee (DCC) meeting. Applicants do not attend the DCC meeting, unless it is requested. A summary of Pre-Application comments from all City staff are formally provided in writing by the Planning Division. The turnaround time for this process averages 30-60 days. The City of Santa Rosa offers a streamlined Pre-Application review process, which is less formal. Santa Rosa requires that an application be filed and accompanied by schematic drawings/concepts; however, no fee is charged. Pre-Application meetings (similar to our DCC) are held weekly and applicants are given verbal comments/feedback by City staff. Unlike San Rafael, City staff comments are not formalized and provided in writing. The turnaround time for this process is 7-14 days (as the meetings are held weekly). For our Pre-Application process, it is recommended that the fee be waived for all housing projects and that the more informal review employed by Santa Rosa be offered to all applicants. The Community Development Department has tested this less formal approach on several, recent housing projects. This approach was successful at providing quicker City staff feedback to the applicant. b. Shift the order of the public forum review process. As discussed above, the DRB typically provides the first public forum for public comment on a project. Therefore, it is common for the public to want to comment on higher-level policy topics that are outside the DRB’s purview and purpose (e.g., concerns over land use, density, bulk/mass, environmental issues). In two recent SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 10 housing projects (Northgate Walk and 703 3rd Street), the order of the public forum review was reversed. In shifting the order, the Planning Commission conducted the first public forum on these projects as a “study session.” The study session forum provided an opportunity for the Planning Commission to the address the major issues raised by the public (referenced above). Although the Planning Commission comments in this forum are non-binding, this review approach provided the applicants of the two projects referenced above with high level support and feedback on density, project bulk and size, and environmental review. The Planning Commission’s support and direction allowed the DRB to focus on the details of the project design. c. Refine the Design Review Board’s focus of review and other approaches. By shifting the order of the public forum review as suggested in 1.b above, less pressure is placed on the DRB to address major policy issues that are more appropriately addressed by the Planning Commission. As demonstrated in the DRB’s recent review of the Northgate Walk and 703 3rd Street projects, the focus on the project design details has facilitated a more efficient and swift review. The following are three more dramatic approaches: 1) Eliminate the DRB. Some local jurisdictions have eliminated their Design Review Boards/Committees (e.g., Mill Valley), redirecting design review authority to the Planning Commission and City staff. If this approach were considered, it would be prudent to structure the Planning Commission membership to include one or two design professionals to guide and advise the Commission at large on design matters. Staff does not recommend eliminating the DRB as it provides a valuable role and resource to the City. The DRB, mostly comprised of design professionals, does all the “heavy lifting” on technical design matters for the City, which cannot be duplicated. 2) Shift the role of the DRB. Some local jurisdictions (e.g., Novato and Palo Alto) have structured their Design Review Board/Committee as a decision-making authority rather than an advisory body. The DRB would have review and approval authority over Environmental and Design Review Permits, while the Planning Commission would continue to serve in decision-making authority on all land use, subdivision and legislative matters. This approach has its advantages and disadvantages, which depend upon the type, scale and complexity of the project. 3) Appoint a DRB liaison to review smaller housing projects. SRMC Chapter 14.25.070 (Environmental and Design Review Permit) sets forth the hierarchy of project types and applications that are referred to the DRB for review and a recommendation. Typically, nearly all Design Review Permit applications for housing development are referred to the DRB, unless they are small additions to existing improvements. One approach that would streamline the process would be to assign a DRB member (design professional) to provide review and input on smaller housing projects, which would be in-lieu of a review by the full DRB. For smaller housing projects (e.g., all projects under 10 units) the DRB liaison would work with staff and incorporate design recommendations on the permit action. In the event there are challenging design issues, the DRB liaison would have the discretion to refer the application to the full DRB for review at a noticed public meeting. Staff finds that of the three measures under 1.c., 1.c.3, which is appointing a DRB liaison to review smaller housing projects would be the least impacting to the current process and would effectively facilitate application streamlining. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 11 Required Action: No formal action would be required by the City Council to initiate measure 1.b. as it is currently being implemented by staff. The City municipal code provisions for an Environmental and Design Review Permit do not prescribe an order of permit review other than the advisory role of the Design Review Board. The waiver of the Pre-Application review fee for housing projects (measure 1.a.) would require the City Council to adopt a policy resolution. Eliminating, changing the authority, or changing the review of the DRB as outlined in measure 1.c. would require the adoption of an ordinance to amend SRMC Chapter 14.25 (Environmental and Design Review Permits). 2. Support a Form-based Code for the Downtown Precise Plan to Streamline the Planning and CEQA/Environmental Review Process. A Downtown Precise Plan is currently under way and it is the goal to adopt this plan concurrent with the adoption of San Rafael General Plan 2040 (late Spring 2020). Downtown provides the greatest opportunity in San Rafael (and the County) for development, particularly housing development, for numerous reasons. As previously reported to the City Council, the Downtown Precise Plan and supportive Environmental Impact Report are being prepared to include and/or cover the following, which will facilitate housing development review and construction: a. Establish a “form-based code” for Downtown development. Unlike conventional zoning which provides a list of development standards and requirements, a form-based code sets general site parameters for allowable building height and building floor area (FAR). A form-based code does not include a prescribed residential density cap/limit. The general parameters are accompanied by supportive graphics and a menu of architectural styles that are appropriate for the Downtown setting and character. This approach allows a property owner/developer the flexibility to “work within an allowable box” without being constrained by density. This code approach can also streamline the design review process if it structured to provide a menu of acceptable architectural styles that can be selected by the developer. Ultimately, housing projects like the 703 3rd Street development would not need to request a density bonus, and the City would not be placed in the position to negotiate over project concessions (waivers to regulations) or the BMR/inclusionary unit requirements. b. As part of the Downtown Precise Plan form-based code, consideration should be given to a modest increase in the Downtown building height limits. The current building height limits were established as part of the 1993 Downtown Vision process; these height limits are appropriate for Downtown development. Allowing building heights of up to 6-7 stories would still allow for wood- frame construction, which is far more economical for the developer than steel-frame or concrete construction. c. Incorporate State housing legislation that mandates a streamlined development review process for transient-oriented development. d. Incorporate the recommendations of the Downtown Parking & Wayfinding Study (2018). While some recent zoning code amendments were adopted to incorporate elements of this study, these amendments did not capture all of the study recommendations. Missing from this study are parking recommendations for residential use.7 The Downtown Precise Plan will include recommendations for changes in residential parking requirements and expansion of the Downtown Parking District. 7 Note: the 703 3rd Street housing development project is designed with an automated parking lift and stacking system, which was recommended in the Downtown Parking & Wayfinding Study and has been incorporated into SRMC Chapter 14.18 (Parking) SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 12 e. Address historic resources and streamline CEQA/environmental review. The Environmental Impact Report (EIR) that is being prepared for the General Plan 2040 will incorporate an updated historic resource inventory and provide a higher level of technical analysis and detail for the Downtown Precise Plan area. This higher level of EIR technical analysis for Downtown will permit development projects to “tier” from this EIR for CEQA/environmental review clearance. In most cases, new development will be exempt from or minimize the level of CEQA/environmental review. Required Action: It is requested that the City Council confirm support to proceed with a form-based code for the Downtown Precise Plan. Ultimately, when the Downtown Precise Plan is presented to the City Council for consideration, the Plan and form-based code will be codified through the adoption of an Ordinance and Resolution. The General Plan 2040 EIR is underway, which is scoped to provide an additional level of detail for the Downtown Precise Plan area. Therefore, no formal action is required at this time. 3. Streamline CEQA/Environmental Review Process and Practices. San Rafael contains very few remaining undeveloped sites that have potential development. Nearly all new development opportunities in San Rafael are urban in-fill (e.g., Downtown, Northgate, some areas of Southeast San Rafael). Environmental review for most new infill development projects can be streamlined and minimized by relying on the use of exemptions (e.g., “categorical exemptions”) that are permitted under the CEQA Guidelines. While a CEQA categorical exemption is common on small infill projects, the Planning Division staff has more recently recommended a categorical exemption for larger housing projects. Two, large housing projects that have benefited from this approach are: Northgate Walk (136 units at 1005-1010 Northgate Drive); and 703 3rd Street (120 residential units). Both projects qualified for CEQA Guidelines Categorical Exemption 15332 in that they are: a) on sites that are developed and located near transit; b) consistent with the General Plan 2020 and zoning; and c) supported by technical studies. The use of the CEQA categorical exemption for both projects significantly reduced the processing cost for the developer/applicant and eliminated several CEQA-prescribed steps that involve many months of processing time. Required Action: Encourage and direct staff to continue the practice of using the CEQA exemptions, where appropriate, to streamline the CEQA/environmental review process for housing projects. For the Downtown Precise Plan area. As noted in #3 above, the General Plan 2040 EIR is underway, which is scoped to provide an additional level of detail for the Downtown Precise Plan area. Therefore, no formal action is required at this time. 4. Reduce the Requirements for Certain Technical Studies. It is common practice and policy for the City to require the submittal of supportive technical studies with a new development application. The extent and type of technical studies vary by project type, size, location, and design. Issues such as geology/soil conditions, biological resources, traffic, historic resources, and drainage are critical and integral to the design and review of the development project. Therefore, it is not expected that this practice and policy will significantly change. However, there are certain topic areas that trigger technical studies that are costly and often result in delays in the process; traffic and historic resources fall in this category. One example is the approved, 41-unit residential development at 809-815 B Street project which was subject to a lengthy environmental review process because of potential impacts to historic resources. The following measures and actions are being pursued to ultimately reduce (or eliminate) the need for site-specific technical reports, which would reduce applicant cost and processing time: SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 13 a. As discussed in recommended measure #2 above, the inventory of potential historic resources is being updated for the Downtown area, which will be incorporated into the EIR that will support the Downtown Precise Plan. The inventory will include measures for mitigating potential historic resource impacts, which will allow development projects to “tier” from this EIR for project CEQA/environmental review clearance. b. On June 3, 2019, the City Council was presented a report on traffic methodologies for General Plan 2040. Per State law (SB 743), the City will be phasing-out the use of the level of service (LOS) methodology for assessing traffic for CEQA/environmental review. To comply with the State law, the City will be phasing-in a new traffic methodology, which is Vehicle Miles Traveled (VMT). However, the City has the option to retain and monitor LOS for local intersection management; it just cannot be used as a tool for CEQA/environmental review. One the options included in the June 3 report is to revisit the threshold for when a detailed traffic study is necessary to assess a new development project’s impact on the local street network. Staff recommends that individual traffic studies should be reserved for larger development projects that generate a specific number of new AM and PM peak hour trips, or projects necessitating a rezoning or General Plan Amendment. The intent is to exclude infill projects from such studies when they have been modeled within the General Plan forecast. This recommendation will be presented again to the City Council as part of the Council’s review of a white paper on VMT. Required Action: No formal action is required by the City Council at this time. The recommended measures related to historic resources and traffic are in the planning stages as part of the General Plan 2040 process. These measures would be incorporated into the General Plan 2040, Downtown Precise Plan and accompanying EIR, which will ultimately be considered by the City Council for action. 5. Consider Changes to the City’s Inclusionary Housing Requirements. The structure of the City’s inclusionary housing requirements is now over 30 years old. While the requirements have done well at yielding inclusionary/BMR units in market rate projects throughout the City, some changes to these requirements are warranted and timely. In responding to the current housing crisis, numerous cities in California have revisited their inclusionary housing requirements. The most significant action has been by the City of Sacramento, which recently placed its inclusionary housing requirements for market rate projects “on-hold.” In addition, to spur construction in the central city, the City of Sacramento went further by waiving fees for high-density, infill housing. More locally, the City of Novato offers the applicant/developer the option to either build inclusionary/BMR units on site or pay into its affordable housing fund; the latter option is often chosen by the applicant/developer. Consequently, the greater fund balance has been adequate to subsidize the construction of affordable housing projects throughout Novato (mostly at Hamilton Village). Facing a similar housing crisis in the State of Hawaii, in 2018, the City of Honolulu updated its affordable housing requirements. Honolulu offers a menu of options for the applicant/developer to select in meeting the affordable housing requirements. The menu offers, among others: off-site construction of inclusionary/BMR units; varying percentage requirements; varying depths/levels of affordability (e.g., moderate-income instead of low-income); varying time periods for which the units must be affordable (e.g., 30 years, 55 years); and providing other, defined public benefits. The following is a list of additional approaches that are worthy of consideration: • Lowering/reducing the BMR requirement from 20% to 15%. • Allowing a developer to meet the requirement by paying the affordable housing in-lieu fee. • Allowing a developer to meet the requirement with a combination of a lower on-site percent of inclusionary/BMR units and payment of the in-lieu fee. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 14 • Changing the current affordability range requirements (e.g., allow moderate income for rental projects, which right now requires that the BMR rental units be in the very low- and low-income category). • Temporarily lowering/reducing the BMR requirement to 10% to facilitate new housing construction. When new housing construction reaches a specified housing unit goal (e.g., 500 units), then reinstate the current requirements. • Placing a “pause” on the inclusionary/BMR requirements until new housing construction reaches a specified housing unit goal. There are advantages and disadvantages to each of the approaches. The “menu of options” approach taken by Honolulu offers the best opportunity for promoting housing construction, while still yielding new affordable housing units and other desired public benefits. There is one caution to reducing or changing the affordable housing requirements. As we are governed by the State’s Regional Housing Needs Allocation (RHNA) process, the type and amount of housing that is produced and reported to the State dictates our obligations and compliance with certain housing legislation. As noted above, while San Rafael housing production for market rate units (above moderate) has been fairly-steady, production in the very low-income range has been extremely low. Reducing or placing a temporary pause on the inclusionary/BMR requirements could further impact housing production in the lower income category. Required Action: Direct staff to return to the City Council with a “menu of options” approach to meeting the City’s inclusionary housing requirements. Major changes to the inclusionary/BMR requirements may require an amendment to the General Plan Housing Element and adoption of an ordinance to amend SRMC Section 14.16.030.8 However, interim changes or the approval of a “menu of options” can likely be approved through the City Council adoption of a policy resolution. 6. Consider Changes to the Use & Administration of the Affordable Housing In-lieu Fee Fund. The affordable housing in-lieu fee is addressed in SRMC Section 14.16.030. Adjusted earlier this year,9 this fee is $343,969.00 per unit. The fee is applicable to both residential and non-residential (commercial linkage) development projects and has been administered as follows: • As top priority, the City has always required the development of inclusionary/BMR units within a market-rate housing development project. Therefore, the in-lieu fee charge for residential developments is required to cover a fractional unit requirement in a new housing development. For example, if the inclusionary/BMR requirement for the housing project is 4.25 units, the developer is required to build four BMR units on-site and pay the in-lieu fee to meet the balanced requirement of 0.25 units. Based on the current fee per unit, the fee charged for 0.25 units would be $86,000. • The revenue for this fund is largely generated by new non-residential development (commercial linkage). For example, the Target Store project fee was $774,000. Two recently-approved assisted living projects (Oakmont and Aegis) will add approximately $1 million to this fund. The current fund balance is $1.3 million, which is not enough to fund construction of affordable housing unless is leveraged or largely subsidized by other sources. SRMC Section 14.16.030 8 Note: Changes in the inclusionary/BMR requirements will not require the approval or re-certification of the General Plan Housing Element by the State of California Department of Housing and Community Development. 9 The fee per unit is adjusted annually to account for inflation utilizing updated data on the median home sales price and building cost index. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 15 specifies that the fund can be used to: a) purchase property; b) fund construction of affordable units; c) buy-down BMR units when their affordability is due to sunset; d) buy existing market rate projects for conversion to 100% affordable units; and e) manage the City’s BMR rental program. Regarding the latter, this fund is currently used to pay the Marin Housing Authority to administer the City’s BMR rental program.10 Use of the fund for any of these purposes must be approved by the City Council. Recently, there have been inquiries by housing interests to request use of the fund for specific affordable housing projects. There is no formal process in-place to assess competing requests for this revenue. This fee is based on a Residential Nexus Study and Commercial Linkage Fee Study (David Paul Rosen and Associates) that was prepared in 2002. The fee needs to be updated as housing issues, data, and costs have dramatically changed since 2002. The City is partnering with the County of Marin to prepare an updated fee study, which is planned to be fully funded by the Senate Bill 2 (SB 2) Planning Grant Program (discussed above). It is expected that this updated fee study will be completed within the next year. The updated fee study will also be beneficial in addressing two housing issues: a. Senate Bill 743 (SB 743) requires that by mid-2020, all municipalities phase out the use of the Level of Service (LOS) traffic review methodology for CEQA/environmental review and phase-in a Vehicle Miles Traveled (VMT) traffic review methodology. The purpose of this change is to address the length of vehicle travel between home and work with the goal of reducing greenhouse gas (GHG) emissions. Mitigation for reducing VMT is to place housing close to employment. One of the mitigation tools is employing transportation demand management (TDM). Non-residential development projects will be largely dependent on the use of TDM. One of the more significant TDM mitigation measures is to require the developer of a non-residential project to either incorporate workforce housing within their development or pay a commercial linkage fee. The fee study will provide the City the opportunity to update the commercial linkage fee; and b. Currently, assisted living and similar residential care special uses are not addressed in the City’s inclusionary housing policies and the commercial linkage fee. There has been a longstanding issue as to whether such uses are residential or commercial (e.g., resident hotel with services). Staff recommends considering the following measures for use and administration of the affordable housing fund, which go together with recommended measure #6, above: a. To stimulate housing, eliminate the “fractional” fee that is often required for residential projects that provide on-site BMR/inclusionary units. b. When the affordable housing fund balance reaches a certain amount (e.g. $2 million), release a “Call for Applications” for City fund allocation to eligible housing projects. This approach will require projects to compete for funds with priority given to 100% affordable projects. c. Allow a developer (for a residential or non-residential project) to apply their required fee to subsidize a specific, off-site affordable housing project if acceptable to the City. This approach can foster a partnership between the developer and a non-profit housing developer. 10 The BMR Rental Program management agreement with Marin Housing Authority is for three years and will terminate in July 2020, with extensions to 2023. The annual cost to the City which is paid through Fund 243 is $16,000. The City no longer has a housing specialist on staff to manage this program. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 16 The City would be best served by having a housing specialist on staff that can: a) provide in-house administration of the BMR Rental Program and BMR Agreements; b) serve as the City’s ‘point person’ skilled in housing to negotiate with developers on inclusionary housing and/or payment of fees; and c) track and implement all housing legislation. Presently, there is no budget to create a housing specialist position. However, over the next year, the Community Development Department will be assessing staff needs and identifying potential opportunities for staffing adjustments. Required Action: Direct staff to return to the City Council with recommendations for changes in the use and administration of the City’s affordable housing fee fund. Major changes to the administration of the fund may require an amendment to the General Plan Housing Element and adoption of an ordinance to amend SRMC Section 14.16.030. 7. Consider Reducing or Temporarily Waiving Development & Impact Fees for Housing Projects. As noted discussed above, the development and impact fees charged for new development has been identified as a factor in the financial feasibility of housing development. The fee study recently released by the HCD (discussed above) reports that local jurisdictions levy fees and exactions to help fund the expansion of infrastructure needed to support housing. State-imposed policies that restrict local taxes (e.g., Proposition 13) leave local jurisdictions with limited means of raising revenue for infrastructure, so there has been a local reliance on imposing development fees. The fee study is based on a survey of 40 local jurisdictions in California, coupled with more in-depth case studies for 10 local jurisdictions. The fee study findings focus on recommended measures to incentivize different housing development types, which include the following: • Determine and disclose fees earlier in the development review process. • Require alternative multipliers for fees. For example, instead of setting the fee schedule on a “per unit” basis, use other multipliers such as basing the fee on unit size or grouping of units (multiple-family residential fee is lower than for a single-family residence). • Defer the timing of fee payment to later in the process (e.g., at time of project completion) or require incremental payments. Collecting the fee earlier in the process (e.g., at the time a building permit is issued) extends the length of time a developer must carry the cost of the fee. • Waive fees for Accessory Dwelling Units (ADUs) as they are located on property that is already developed and tapped into existing infrastructure. The following is a summary of the major fees and suggested measures to consider, which will reduce the burden on housing development: a. Citywide Traffic Mitigation Fee. As noted above, the Citywide traffic mitigation fee has been identified as a financial challenge to housing development. One of the work program tasks for the General Plan 2040 is to update the current list of needed transportation improvements and the Citywide traffic mitigation fee (Fehr & Peers, the City’s transportation engineering consultant will be completing this work). However, it is not likely that the traffic mitigation fee will be reduced as its purpose will be expanded to include funding needed for multi-modal improvements. This fee is paid prior to the issuance of a Building Permit. City Council Resolution 13364 (updated in 2012) sets forth the parameters for levying and exempting traffic mitigation fees. This resolution expressly exempts traffic mitigation fees for affordable housing projects (100% affordable) and Accessory Dwelling Units (ADUs). Recognizing the importance and purpose of the traffic mitigation fees, similar exemptions of subsidies for all housing projects should be carefully studied with the fee update. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 17 b. Construction Vehicle Impact Fee. The Construction Vehicle Impact Fee covers the cost of construction vehicle impacts on the roadway system. The fee, which was adopted in 2004, is a surcharge on the Building Permit fee and is paid prior to issuance of a Building Permit. The fee amount is based on the “valuation” of the project (permitting, construction and labor costs). The valuation approach to the fee amount has its challenges. For example, two development projects of similar size and type could be valued differently (resulting in different fees), even though the construction vehicle impacts on the roadways from the two projects are the same. For housing projects, the fee should be re-structured to charge on a per-unit basis, which would provide the developer with a specific fee amount at the front end of project planning and financing. The Construction Vehicle Impact Fee should be studied with the update of the Citywide Master Fee Schedule, which is scheduled for 2019/2020. c. Parkland Dedication Fee. The parkland dedication requirements and in-lieu fee are regulated through SRMC Title 15 (Subdivisions) and rooted in the Quimby Act. These requirements are old and were crafted during a time when large, tract subdivision development activity was at its peak and when parkland was dedicated as part of the subdivision mapping. On smaller, for-sale residential development, the in-lieu fee is charged and paid prior to the recording of the subdivision map (Final Map). The parkland dedication requirements and in-lieu fee are solely applicable to “for-sale” residential projects that include a subdivision map; the fee is not applicable to residential rental projects or non-residential development/subdivisions. The purpose of the fee is to purchase land for public park development to meet park needs for an increasing population. However, actual public park needs are not exclusive to new residents of for-sale residential units; the need equally applies to renters. Further, the City no longer purchases land for public parks; the current need is maintenance and safety upgrades. A detailed review of the dedication requirements and in-lieu fee is overdue and should be included in the update of the Citywide Master Fee Schedule. d. Development Impact Fee. The development impact fee is charged and collected prior to the issuance of a Building Permit. The fee covers the cost of new development impacts on public facilities and services. For new residential projects, the fee is $127.50 per bedroom, which is not significant. The following measures should be considered for fees charged to new housing development: • Allowing a housing developer to defer payment to prior to building occupancy; • Allowing a payment plan; and/or • Providing a fee reduction for market rate housing projects with inclusionary/BMR units. In 2018, City of Santa Rosa City Council adopted a Development Fee Incentive Program. This program authorizes sharply-reduced park and infrastructure impact fees for Downtown housing projects. The program is in-place for a five year-period as part of Santa Rosa’s Downtown housing strategy. As the City of Santa Rosa has not met its housing goals for their Downtown (Civic Center) area, the strategy is to substantially reduce developer fees as an incentive for construction. For housing projects capped at five stories in height, the fee reductions are as much at 40%. To boost housing projects that include affordable units, the City offers additional discounts of $2.00/square- foot each on park and infrastructure fees. According to the City of Santa Rosa staff, the reduction in the development fees has been an incentive to and has generated a lot of interest for new housing development. One recently-approved Santa Rosa housing project saved $600,000 in fees. A SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 18 temporary reduction (or waiver) in development impact fees for housing development projects is an option that can be considered by the City. However, the downside to reducing or waiving development impact fees for residential projects is that it reduces the funds available for infrastructure improvements and maintenance, which are needed to support new housing. As the need for infrastructure improvements and maintenance would continue, shortfalls in the special funds for these services may need to be subsidized by the General Fund. This off-set would have to be carefully analyzed before fee reductions or waivers are approved. Required Action: For changes in the amount, methodology and applicability of the four fees listed above, updated studies of these fees must be completed and adopted. For changes in the timing of fee payment method, expanding the list of exemptions from these fees, and/or authorizing a temporary reduction or waiver, the City Council can adopt a policy resolution. 8. Amend the Density Bonus Ordinance. SRMC Section 14.16.030 sets forth the City’s affordable housing requirements. This section also includes very lengthy and complicated provisions for administering and approving a “density bonus.” While this code section generally follows State law governing residential density bonuses, State law continues to change, so some of our local code provisions are obsolete. Further, the City’s density bonus provisions allow for a bonus amount that is above the State bonus cap of 35%. However, this additional bonus is fully discretionary and there is no specific guidance for City negotiation nor is there clear guidance of what is expected of the developer. This issue has been a challenge with the review and processing of the 703 3rd Street housing project, which proposes a 166% density bonus. The bonus request, coupled with the review of the developer “pro forma” required months of staff and applicant time, which significantly extended the length of the planning review process. A comprehensive update of the density bonus provisions in SRMC Section 14.16.030 is recommended. The provisions and requirements need to be simplified and brought into compliance with the State law. The update should: a) establish clear parameters and requirements for density bonus requests that exceed 35%; and b) incorporate a floor area ratio (FAR) bonus provision for Downtown, should the Downtown Precise Plan eliminate the current density limits.11 Required Action: Direct staff to return to the City Council with recommendations for City’s residential density bonus provisions. For programming the workload, this action should be done concurrent with implementing measures #6 and #7 above. 9. Adopt a New Accessory Dwelling Unit (ADU) Ordinance. As noted above, ADU activity has played a strong role in housing start-ups in the last two-three years. The City has been operating under the State regulations, which has been successful. Nonetheless, staff is proceeding with the completing of a new, local ADU ordinance in accordance with the State legislation. Moving forward with a local ADU ordinance has been purposely delayed because: a) State legislation for ADUs is constantly changing; and b) there have been on-going discussions with the Fire Department about ADU allowances and regulations in hillside and fire-prone areas with challenged access. A draft ADU ordinance has been prepared and is expected to be presented to the Planning Commission in early Fall. In addition to addressing the State regulations, the draft ADU ordinance discussion will present the following measures, which could further boost ADU approvals and start-ups: 11 Signed by Governor Brown in 2018, SB 2372 establishes new legislation establishing a “floor area ratio” bonus for housing projects in areas/zones that are not regulated by a density limit. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 19 a. To simplify administration and the permitting process for the customer, combine the current Junior Accessory Dwelling Unit (JADU) ordinance with the new ADU ordinance. b. Eliminate off-street parking for ADUs citywide (not just within ½ mile of public transit). The exception to this parking waiver would be for hillside areas served by narrow roads and limited on-street parking. Such areas are challenging for the Fire Department to serve so it is critical that travel lanes along the roads are kept clear for emergency services. c. Allowing “tiny homes” to be permitted on single-family residential lots. d. At present, ADUs are allowed in all residential zoning districts but this allowance is exclusive to properties developed with a single-family dwelling. One consideration is to expand this allowance to sites developed with duplex or multiple family residential use as a “bonus unit,” which is an approach that has been taken by the City and County of San Francisco. The bonus unit can be size-restricted and exempt from both off-street parking and owner occupancy requirements. Required Action: City Council adoption of a new ADU ordinance. 10. Support a City/Developer Partnership to Facilitate Housing. The City should promote and foster partnership opportunities to facilitate housing development. One partnership opportunity would be through air rights development. General Plan 2020 Housing Element Housing Element Program H-14d addresses air rights development, which reads as follows: H-14d. Air Rights Development. Take an active role in evaluating the feasibility of air rights development and consider possible zoning incentives for such development. Encourage developers of affordable housing to utilize air rights, such as above public parking lots or commercial uses Downtown. In addition, the General Plan 2020 Economic Vitality Element Policy EV-16 and Program EV-16a state: EV-16. Partnership for Infill Development. Encourage public/private partnerships as one means of redeveloping and revitalizing deteriorated or undeveloped areas. EV-16a. Public/Private Partnerships. Identify and pursue promising public/private opportunities for partnerships in infill development. As discussed above, City staff has completed Surface Parking Lot Air Rights Study - City of San Rafael assessing seven (7) Downtown San Rafael, City-owned site in entitled, Surface Parking Lot Air Rights Study- City of San Rafael (June 1, 2019). Sponsored and funded by Opening Doors, a public-private coalition, the feasibility study was prepared to determine the preliminary feasibility of deeding air rights of a City-owned lot to a housing developer as a strategy to increase the stock of housing in Downtown San Rafael. Seven lots were chosen for their location within or near the Downtown area. Except for the 519 4th Street lot (contains a one-story building; former temporary Fire Station #52), none of the lots contain permanent structures. The lots selected for study are selected City-owned sites are: • Site #1- 5th Avenue north of Lootens Place • Site #2- 3rd and Cijos Streets • Site #3- 2nd Street between D & E Streets SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 20 • Sites #4 and #5- 5th Avenue and Garden Lane • Site #6- Menzies Lot at 5th Avenue and E Street • Site #7- 519 4th Street The study conservatively assumes: a) the air rights would be deeded at no cost to the developer;12 b) public parking at grade would be retained and that no additional parking would be built for the residential units (essentially shared parking); c) the site would be developed with 100% affordable units; d) development would be within the zoning development limits (e.g., building height limit); and e) no density bonus. In addition to providing relevant descriptive data on the seven properties under study, the air rights study employs a “preliminary pro forma” analysis to assess how many units of what types of housing could be developed as raised structures above the study sites. The pro forma analysis tests a range of housing mixes (studio, one-bedroom up to three-bedroom) at varying affordability levels (very low- income and low-income) and estimated rent return for each of the seven lots. While the results from the analysis are not meant to represent a comprehensive financial assessment of net present value of all estimated costs and revenues, it offers a preliminary assessment of what types of developments are possible on the study sites given existing regulations, allowances, constraints, and other conditions. The results of the study are meant to: • Identify approximately how many residential units can be developed on each site; and • Approximate how much income per month for each site given standard, Marin County affordable rent levels. The study finds that there are housing opportunities on all sites. Site #3 (2nd Street between D & E Streets) would yield the least number of units (seven units), while Site #2 (3rd and Cijos Streets) would yield the highest number of units (33 units). Staff finds that the air rights opportunity for the public parking lot site is worthy of further study. Should the City Council concur with staff, the next steps would involve a more in-depth assessment of the sites and a formal pro forma analysis. The in-depth assessment would be presented to the City Council for consideration. Required Action: Direct staff to proceed with a further, in-depth assessment of air rights use of the seven City parking lots. 11. Pursue State Funding Opportunities As discussed above, with the State’s 2012 action to dissolve all local RDAs, major sources and/or conduits to funds for housing have dwindled. However, in response to the current, statewide housing crisis, new sources for funding have surfaced in the last several years through, among others, the passage of housing legislation. Staff is actively monitoring and pursuing (when available) the following funding opportunities: a. SB 2 Revenues. As discussed above, staff has prepared and submitted an SB 2 Planning Grant Program application to secure $310,000 in this program that has been allocated to the City of San 12 The cost of land represents 10-15% of the total project costs from land purchase through construction; the specific percentage amount is dependent upon the local market for land and property constraints (Libby Seifel, Seifel Consulting, Inc., July 2019) SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 21 Rafael. The grant application will include “by right” zoning for 100% affordable housing projects (discussed under recommended measure #13, below), which will streamline the process. In 2020, 70% of the SB 2 revenue will be distributed to local jurisdiction for subsidizing affordable housing construction. It is planned that this 70% revenue will be administered using the federal Community Development Block Grant (CDBG) formula that was used when CDBG revenues formerly distributed to local RDAs. At this time, the amount of revenue that will be made available to San Rafael is unknown. b. SB 3 – Veteran and Affordable Housing Bond Act. SB 3 was signed by the Governor in 2017 and successfully passed as a bond measure in the November 2018 Statewide ballot. Proceeds from bond sales would set aside $3 billion for affordable housing programs, as well as infill infrastructure financing and affordable housing matching grant programs. c. SB 5 – Sustainable Investment Program. SB 5 was introduced in 2019 by Senators Beall, McGuire, and Portantino, and has been reviewed by both the Assembly and Senate committees. If approved and signed by the Governor, this program will provide local jurisdictions with access to tax increment revenues to fund affordable housing, infrastructure and economic development projects. This program has been crafted similar to the tax increment financing that was once offered through the former RDAs. d. SB 102/AB 101 – Housing Development Financing. As part of the State of California 2019/2020 budget process, the California legislature approved an additional $2.5 billion in funding to address California’s housing and homeless crisis. This approved funding is summarized as follows: • Housing – The State budget includes $1.75 billion for various housing-related programs such as funding to assist renters, and repurposing housing production incentive grants to provide infill infrastructure funding for housing projects. To assist renters, the budget includes $20 million to provide legal aid for renters and assist with landlord-tenant disputes. Like SB 2, SB 102/AB 101 allocates an additional $300,000 to San Rafael for potential planning grants. In addition, other financial incentives and funding preferences will be awarded to local jurisdictions that HCD designates as “pro-housing.” To be designated as pro-housing, the local jurisdiction must adopt policies that: establish a local housing trust fund; reduce parking requirements; adopt a “by-right approval process; reduce permit processing time; reduce development impact fees; and establish a “Workforce Housing Opportunity Zone” or “housing Sustainability District.” San Rafael has already adopted (or is pursuing) several of these policies and practices, which makes us potentially eligible for the “pro-housing” designation. • Homelessness – the State budget includes $1 billion to combat homelessness. This total includes $650 million to local jurisdictions for homeless emergency aid. e. AB 73 & SB 540 – Housing Sustainability Districts & Workforce Housing Opportunity Zones. For local jurisdictions that have an adopted “specific plan” (e.g., Downtown Precise Plan), the AB 73 and SB 540 legislation would permit the establishment of a Housing Sustainability District or Workforce Housing Opportunity Zone. Within the specific plan boundaries, housing projects would be afforded full, CEQA/environmental review clearance and a “ministerial” review and action based on project compliance with a list of criteria. Funding to support the up-front planning would come from a revolving state loan fund available to local jurisdictions; loans would be repaid when development occurs. As discussed above, the Downtown Precise Plan will include a deeper level of CEQA/environmental review, so this legislation is worthy of further review and consideration. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 22 Required Action: Direct staff to continue to pursue state funding opportunities when they become available. San Rafael is already pursuing the SB 2 Planning Grant Program. When launched by HCD, direct staff to pursue the “pro-housing” designation program. 12. Adopt “By-Right” Zoning for Affordable Housing Projects. As discussed above, staff is preparing an SB 2 Planning Grant application to secure $310,000 in this program that has been allocated to the City of San Rafael. One of the projects in the grant application process is to fund the development of a “by-right” zoning process for 100% affordable housing projects. “By-right” zoning limits the City’s discretion to reviewing a housing development project for compliance with a list of “objective planning and design standards.” This process is envisioned to amend and be applicable to the City’s High-Density Residential (HR1) zoning district. While the process would be applicable citywide in the HR1 District, the requested SB 2 funding will include a “pilot” project to implement this process. The pilot project is Homeward Bound’s new emergency shelter and 32-unit housing development proposed for 190 Mill Street. Required Action: No action needed by the City Council. The SB 2 Planning Grant application has been authorized by the City Council and staff is pursuing the application. 13. Consider Raising the Appeal Fee and Changes in the Appeal Scheduling Process. Developers have commented that the current appeal fee on a Planning Commission action is too low, which, they believe encourage appeals to the City Council that can be unsubstantiated or intended to delay action on the project. The current fee for a San Rafael resident to file an appeal to the City Council is $350.00 ($300.00 for an appeal to the Planning Commission).13 This fee amount has been in-place for more than a decade. Appeal fees for residents are typically modest or kept low to afford the public with maximum access to the public review process. Staff has surveyed the other municipalities in Marin County and similar-sized cities in the Bay Area. In Marin County, resident appeal fees vary from a low as $100 (Novato) to $2,587 (Sausalito). For similar-sized cities in the Bay Area, resident appeal fees vary from $205 (Walnut Creek) to $2,668 (Redwood City). The Town of San Anselmo recently raised its appeal fees to $2,500 for an applicant appeal and $800 for an appeal by a non-applicant/resident. The appeal fee should be assessed and updated through completion of a nexus study. This task will be included in the Citywide Master Fee Schedule Update, which is budgeted for completion during this fiscal year (FY 19/20). There is some caution to raising the appeal fee too high so that is does not undermine the public review process. Therefore, the nexus study will be critical in demonstrating that a fee increase aligns with the service that is being provided by the City. Regarding the scheduling challenges, some municipalities set an appeal date for a City Council public hearing and action concurrent with or soon after the filing date of the appeal. To facilitate a quicker public hearing date for an appeal, it is recommended that the City Clerk, in consultation with the Community Development Director set an appeal date within five (5) working days of appeal filing. Required Action: Direct staff to assess and update the appeal fee as part of the next Citywide Master Fee Schedule Update. Should the City Council find that the changes in the appeal scheduling process is worthy to pursue, direct staff to prepare an amendment to SRMC Title 14 (Zoning). 13 The fee for an applicant or a non-resident is $4,834 and $4,475 for an appeal to the Planning Commission and City Council, respectively. This fee is a deposit, meaning once the fee amount has been drawn-down, the additional staff time to complete the appeal process is charged to the applicant (cost recovery process). SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 23 COMMUNITY OUTREACH: A public notice of this meeting was mailed to stakeholders, agencies and special interest groups 15-days prior to this meeting. Those noticed included, among others, all neighborhood associations, the Federation of San Rafael Neighborhoods, housing advocacy groups, and the San Rafael Chamber of Commerce. Upcoming public meetings and study sessions on selected housing topics and issued will involve ample notification to the public and stakeholders. FISCAL IMPACT: This item is an informational report, which has no direct fiscal impact on the City. The fiscal impact of subsequent projects, tasks or studies resulting from this housing discussion will be assessed and determined on a case-by-case basis. OPTIONS: The City Council has the following options to consider: 1. Accept and provide direction as recommended by staff; 2. Do not accept the report; or 3. Direct staff to return with more information. RECOMMENDED ACTION: Accept the report and provide direction on staff recommendations for follow-up actions. ATTACHMENTS: 1. Key Housing Element Goals & Policies 2. Residential development projects approved, currently under review and potentially-planned, table and maps; updated August 2019 3. 2018 Housing Legislation table; March 25, 2019/updated July 22, 2019 4. Public Meeting Notice