DOWNTOWN LOS ANGELES - Two weeks ago, the California Supreme Court decided not to review a Downtown developer’s successful lawsuit challenging the city of Los Angeles’ affordable housing policy in City West.
Although it may at first glance seem to be an isolated or even inconsequential case, legal experts and city officials paint a far different picture — they say it has effectively torpedoed the centerpiece of Mayor Antonio Villaraigosa’s sweeping $5 billion plan to increase L.A.’s low-income housing stock.
The court’s ruling in favor of developer Geoff Palmer means Villaraigosa must overhaul the proposed Mixed-Income Ordinance. That and a similar, previous proposal, the Inclusionary Zoning Ordinance, have been worked on unsuccessfully by the mayor’s office and numerous council members for years.
Moving forward, experts and insiders say, the city has limited options.
“We can’t do what the City Council had intended to do, so we have to look at alternative ways of addressing the issues,” said Principal City Planner Jane Blumenfeld, who added that it would be premature to say what specific recommendations planning staff might make. “We’re meeting internally to map out how we can go back.”
City planning staff is expected to report to the City Council in the coming weeks on recommendations for revamping its proposal.
A Villaraigosa spokeswoman said the mayor and his staff are meeting with city departments about how to proceed, and are not prepared to comment on the issue.
Palmer, in an email last week, said, “All cities ought to be setting an example of following the law and rolling back these now decided illegal affordable and inclusionary housing mandates. I find it very disappointing to learn that instead, these civil servants are again attempting to get around the law in furtherance of their social engineering objectives.”
Making a Case
Palmer sued the city two years ago to avoid having to include below-market rate residences in his proposed City West apartment complex Piero II (which would not open until 2015 at the earliest). Under the 20-year-old Central City West Specific Plan, a development guide for the area created when officials anticipated a building boom just west of the 110 Freeway, Palmer would have had either to include 60 units for low-income tenants in the project, or pay the city $5.7 million in so-called “in lieu” fees to build the housing elsewhere.
Palmer won his case in 2007. The city appealed, and Palmer prevailed again in the state Court of Appeal earlier this year.
The decision was significant, because while the original ruling applied only to Palmer’s case, the appellate court outcome set a precedent throughout California. It allows challenges to affordable housing mandates throughout the state.
The city then asked the California Supreme Court to review the case. The panel denied the request on Oct. 22, making the appellate court ruling final and putting a dent in the housing proposal Villaraigosa had announced in September 2008.
Specifically, the Mixed-Income Ordinance would have required developers of large projects across the city either to include a certain percentage of below-market rate units in their buildings, or pay the city to build the residences elsewhere. It had been discussed by City Council committees this year, and in April, Council president Eric Garcetti told a lunch meeting of the Los Angeles Current Affairs Forum that he was “optimistic that we can do it this year.”
Garcetti has backed away from the proposal, since “the mayor’s office made it clear that they were taking the lead,” said a Garcetti spokeswoman. Other City Hall officials who championed the measure, however, are scrambling to figure out how to proceed.
“I’m very disappointed,” said First District City Councilman Ed Reyes, who also worked on the Inclusionary Zoning Ordinance, which died in 2005. Reyes said he might pursue changing the state law that Palmer built his case on.
“I’m dropping some seeds with some legislators,” he said.
Not everyone is disappointed by the recent rulings. Some in the business community see the judicial decision as an overdue end to an ill-conceived affordable housing measure. Though laws similar to the City West requirement are on the books in cities throughout the country, multiple attempts to create such a policy in Los Angeles have failed amid heated controversy.
“While the need for affordable housing in the city is clear, we always believed that we could produce more by incentivizing developers to do it,” rather than requiring it, said Central City Association President Carol Schatz. “We’ve provided the city with several recommendations that came from just about every major business organization in the city and we would encourage the city to take a new look at those.”
Reworking a Proposal
While Blumenfeld would not discuss specific alternatives planning staff might recommend to salvage the ordinance, she confirmed that the possibilities include creating an affordable housing requirement only for condominium projects, or a voluntary program based on incentives.
She noted that the city already has voluntary affordable housing programs in many areas, including Downtown.
A third option, legal experts say, would be for the city to impose a fee on large projects to fund affordable housing construction elsewhere. The assessment, unlike in lieu fees, would have to be calculated based on an estimate of the city’s affordable housing needs over the next several years and the cost of meeting them.
Santa Monica instituted that type of system in 1998, when it faced a lawsuit similar to the Palmer case, said Santa Monica senior land use attorney Barry Rosenbaum.
Some affordable housing advocates say that, like Reyes, they are starting to band together to push for changes to the 1995 statewide rent-decontrol measure that Palmer built his case on. The Costa-Hawkins Act entitles owners of apartment buildings constructed in the past 14 years to set the rents for new or vacant units.
“Going forward I think there will be legislation proposed to exempt inclusionary zoning ordinances from Costa Hawkins; that was the original intention of Costa Hawkins,” said attorney Michael Rawson, co-director of the nonprofit Public Interest Law Project. “There’s discussion going on among groups all over the state about what that would be and how it would be proposed.”
Still, that would not likely produce immediate results, said one legal expert.
“That’s going to be a legal battle, because the building industry and the realtors don’t love inclusionary [zoning],” said attorney Thomas B. Brown of the San Francisco firm Hanson Bridgett LLP, who wrote a letter on behalf of the League of California Cities supporting Los Angeles’ petition for the Supreme Court to review the Palmer case. In the short-term, he said, the Palmer decision “is going to require cities to rethink their strategies.”
Indeed, officials with other California cities are already grappling with how the Palmer case could affect their affordable housing laws.
The San Jose City Council is scheduled to vote on an inclusionary housing policy on Nov. 17, said San Jose Housing Department Assistant Director Jacky Morales-Ferrand. The measure, like the City West policy, would require developers of large rental and for-sale projects either to set aside below-market rate units or pay an in lieu fee.
If the measure is approved, said Morales-Ferrand, it would not take effect until mid-2013 at the earliest, because it includes a stipulation that it will only kick in when the housing market improves — a determination based on the number of building permits issued in the city. San Jose officials are hoping that by then, the Palmer case will be moot.
“San Jose is in a different court circuit than the L.A. case, so there is a potential that a case could be heard in our circuit where we would have a different decision,” said Morales-Ferrand. “We’re waiting to see if a ruling in our circuit comes, or if there’s a legislative fix.”
If neither of those things happens in the next four years, she said, “then we would strike the rental provisions of the ordinance.”
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