BILL ANALYSIS SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 2508 SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: caballero VERSION: 5/3/10 Analysis by: Mark Stivers FISCAL: no Hearing date: June 29, 2010 SUBJECT: Infill Infrastructure Grant Program and minimum densities DESCRIPTION: This bill allows a city or county to petition the Department of Housing and Community Development for an exception to the density requirements of the Infill Infrastructure Grant Program. ANALYSIS: In November 2006, California voters approved Proposition 1C, the $2.85 billion Housing and Emergency Shelter Trust Fund Act of 2006. Among other things, Proposition 1C included $850 million for grants for capital projects related to housing and housing-related infill development and for brownfield cleanup that promotes housing and housing-related infill development. Ultimately, the Legislature appropriated $790 million to the Infill Infrastructure Grant (IIG) Program, to be administered by the Department of Housing and Community Development (HCD). SB 86 (Budget Committee), Chapter 179, Statutes of 2007, established the statutory framework for the IIG Program, which offers gap financing grants to cover the costs of infrastructure improvements necessary for the development of infill housing. Under current law, to be eligible for an IIG grant, an infill project or infill area must meet the following criteria: Be located in a city or county that has an HCD-approved housing element. Include not less than 15 percent affordable units. Have an average residential density equal to or greater than the "Mullin densities" described below or greater than 10 AB 2508 (CABALLERO) Page 2 units per acre in rural areas. Be located in an area designated for mixed-use or residential development in a local or regional land use plan. Under housing element law, each city and county must adopt a housing element to its general plan that identifies and analyzes existing and projected housing needs, identifies adequate sites with appropriate zoning to meet its share of the regional housing need for each income group, and ensures that regulatory systems provide opportunities for, and do not unduly constrain, housing development. HCD reviews both draft and adopted housing elements to determine whether or not they are in substantial compliance with the law. For the purposes of housing element law, current statute uses density as a proxy for affordability. In order to show that it can accommodate lower-income housing, a city or county must show that is has sites zoned to allow higher-density multifamily housing in one of two ways: Provide an analysis demonstrating how the adopted densities accommodate lower-income housing, based on market demand, financial feasibility, or recent development experience. Meet or exceed the following default densities established in statute and known as the "Mullin densities": ? 30 units per acre for metropolitan jurisdictions, generally defined as any city or county (except for jurisdictions of less than 25,000 population) in a Metropolitan Statistical Area (MSA) with a population of 2 million persons or greater and any city or county over 100,000 population in any size MSA. ? 20 units per acre for suburban jurisdictions, generally defined as cities and counties in an MSA of less than 2 million persons (except for jurisdictions over 100,000 population) and jurisdictions under 25,000 population in larger MSAs. ? 15 units per acre for incorporated cities within non-metropolitan counties and for non-metropolitan counties that have micropolitan areas (i.e., Del Norte, Humboldt, Lake, Mendocino, Nevada, Tehama, and Tuolumne Counties). ? 10 units per acre for unincorporated areas in all non-metropolitan counties. This bill allows a city or county, with respect to the IIG Program only, to petition HCD for an exception to the Mullin AB 2508 (CABALLERO) Page 3 densities if the agency believes it is unable to meet this requirement. The petition shall include the reasons for the exception and provide information supporting the need for the exception. COMMENTS: 1.Purpose of the bill . Current law defines the City of Salinas as a "metropolitan" jurisdiction for purposes of the IIG, requiring projects to have an average density of 30 units per acre to be eligible for funding. According to the author, this designation is not accurate because Salinas in neither a central city nor an urban core. Moreover, the city "lacks the overall infrastructure to develop at a density of 30 units per acre." As a result, the author believes that the city cannot qualify for IIG funds and introduced this bill to establish a process for cities or counties to petition HCD to lower the density requirements applicable to IIG projects in their jurisdictions. 2.Salinas' status . While the MSA in which Salinas is located generally qualifies as a suburban region, the city's population of 153,948 (as of January 1, 2010) qualifies it as a metropolitan jurisdiction for purposes of the IIG Program, as does every other city in the state with a population of greater than 100,000. 3.No justification . According to the author, the city lacks the overall infrastructure to develop at a density of 30 units per acre. In its letter of support, the City of Salinas writes that while it is one of the most densely populated communities in the state, "with a few possible exceptions, the Salinas economy cannot support development at 30+ units to the acre. The infrastructure is insufficient; rent levels will not underwrite the development cost; a young populace needs more, not less, open space." Neither the author nor the city, however, has provided any evidence to back up these claims. Thirty units per acre is not a particularly high density and represents a typical four-story suburban apartment or condominium complex rather than a mid-rise or high-rise building. The IIG Program only requires that the individual project being proposed have an average density of 30 units per acre. As a result, even for a "metropolitan" city to participate, it must only locate one single infill site for a suburban-style development. In fact, the point of the IIG AB 2508 (CABALLERO) Page 4 density requirement is to incentivize cities and counties to push the envelope on densities in order promote more compact, sustainable forms of development. If a city or county wants state funding, it may have to reach beyond its comfort zone. In most cases, infrastructure capacity is a function of the number of units more than the density of development. If a city has sufficient water or sewer capacity to serve 1000 new homes, the density of the homes will not impact this capacity much. In fact, higher density development often requires less infrastructure, such as water for landscaping and road capacity, and allows for more open space by reducing the overall acreage of development. Given the high level of overall development in Salinas over the last decade, it is not clear that the city's infrastructure truly is insufficient to accommodate a single IIG project. Concerns about density often are political. Though refuted by numerous academic studies, neighboring residents often fear the impacts of higher-density development, making it politically unpopular for local elected officials. Most importantly, however, the IIG program was specifically created and designed to address infrastructure deficiencies and project financing gaps. The whole idea was that higher-density infill development is financially infeasible if there are significant infrastructure needs to overcome. The program provides significant public funding to improve infrastructure so that developers need not cover these cost alone, thereby making more projects feasible. Given the purpose of the IIG program to promote higher-density development, the lack of evidence that cities cannot accommodate a single project of 30 units per acre, and the fact that the IIG Program is specifically designed to fill infrastructure and financing gaps, the committee may wish to consider whether it is consistent with the intent of the IIG Program to allow cities and counties to petition for lower density requirements. 4.No money . Proposition 1C provides $790 million for the IIG Program. HCD has awarded all of the available funds. It is very unlikely that this program will receive additional funding in the foreseeable future, if ever. 5.No explicit effect . As currently written, the bill allows a city or county to petition HCD for an exception to the IIG AB 2508 (CABALLERO) Page 5 density requirement, but it does not require HCD to evaluate such a petition and does not expressly allow HCD to grant such an exception. Arguably, the bill allows a jurisdiction to submit a petition and nothing more. Because HCD has no new duties under the bill, Legislative Counsel has keyed the bill non-fiscal. 6.No standards . This bill allows a city or county to petition HCD for an exception to the density requirements of the IIG Program based on the jurisdiction's belief that it is "unable" to meet the requirements. The bill neither defines "unable" nor establishes any criteria by which HCD shall evaluate such a petition. As a result, HCD could grant exceptions for any reason or for no reason at all, possibly resulting in the effective repeal of the density requirement of the IIG Program. To the extent that the committee wishes to allow such petitions, it may wish to consider establishing some parameters for the granting of exceptions. Assembly Votes: Floor: 72-0 Local Gov: 9-0 HCD: 9-0 POSITIONS: (Communicated to the Committee before noon on Wednesday, June 23, 2010) SUPPORT: California State Association of Counties City of Salinas City of Watsonville League of California Cities OPPOSED: None received.