November 2004 .gov



March 2005

The Honorable Don Perata

Senate President pro Tem

State Capitol, Room 205

Sacramento, CA 95814

Dear Senator Perata:

The Senate Cost Control Commission first studied California’s affordable housing problem over a decade ago (“Toward a More Effective Housing Policy,” August 1991). We recently reviewed this report and subsequent studies and conducted research of our own. Regrettably, we have found that nothing significant has changed, since our first report, to turn the housing crisis into a success story. In fact, the same problems exist and have frequently broadened, while new problems have been added to the mix. There have been hundreds of studies, seminars, and task forces illuminating the obstacles to producing more housing and offering recommendations to overcome them. But the fact remains that it will take nothing short of a clear commitment and determined resolve from the state’s leadership if anything is to change.

California’s population is projected to grow from its current 36.1 million to approximately 45.5 million by 2025. Accommodating and preparing for that growth is the greatest single public policy challenge facing the state. And a critical part of the debate must center on how we can produce enough housing to meet the diverse demand while protecting those values that make California a unique place to live.

Housing has become a complex issue. Local governments face conflicting pressures from constituents and the state and resist regionally coordinated housing policy. As a result, it is critical that the Governor and his administration commit to developing a statewide land use master strategy with clear objectives that coordinates housing production with future infrastructure, transportation, agriculture, and environmental policy. Each of these pressing issues can then be addressed in relation to the state’s growing population and short supply of

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March 2005

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housing. Only then can policymakers determine how to streamline the process, what form housing development should take, and where it should occur, to address the needs of our workforce and residents, which will continue to increase with or without a statewide strategy. Local governments can be required to follow these statewide goals and guidelines in adopting detailed and specific housing and land use plans that reflect the need to develop housing in each region.

Environment Goals and Policy Report (EGPR) – Thirty years ago Governor Reagan signed a bill requiring that the Governor’s Office of Planning and Research (OPR) prepare an EGPR and update it every four years. Following legislative review and the Governor’s approval, it was intended that the report provide clear goals and objectives through a framework that contains a 20- to 30-year overview of growth, land use, population growth and distribution, development, natural resources conservation, and air and water quality. Only two reports were completed, the first in 1972. The last report was produced in February 1978 when Governor Jerry Brown approved “An Urban Strategy for California,” which remains intact as a document only. Implementation of this law might address many of today’s issues, but it still would not provide leverage, such as tying transportation funds to implementation, and the state must still find a mechanism to realize key policies and goals. As written, the current EGPR will only “serve as a basis for judgments about design, location and priority of major public programs, capital projects and other actions . . .” Moreover, while the state has virtually ignored this law for 26 years, local officials have been left to develop their own vision for growth through local general plans.

Land use decisions today are made in an unsystematic, often unstrategic, manner. California relies on over 530 local governments to plan for and to supply housing. Local officials, in turn, make housing decisions amid conflicting state guidelines, uncertain financial pressures, stringent state environmental and labor regulations, and an electorate determined to stop growth in some cases for fear that it threatens our unique quality of life. Yet, local officials, given enormous responsibility, do not have total authority–or often the will-power–to meet the varied challenges that would enable them to make good public policy choices. They do not have an incentive to look comprehensively at the needs and requirements of the region within which their city or county is located.

We can see the impact of our localized, short-term oriented approach to planning for housing expansion in various ways:

Hon. Don Perata

March 2005

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• An overall land use crisis as developers emphasize larger single-family homes, devouring agricultural lands and open space alike without providing more workforce housing.

• An agricultural crisis as farmland is converted into residential and commercial development.

• An environmental and transportation crisis as population and vehicle use increases and workers move farther from their jobs, requiring longer commutes, straining existing transportation corridors, and resulting in increased air pollution.

• An energy crisis where population increases and longer commutes consume more gasoline.

• A local government crisis as cities and counties face challenges in managing conflicting pressures.

• A population-related crisis as California continues to grow but is unable to house or employ new residents at current quality-of-life standards.

• An economic crisis as employers move out of the state because their workforce cannot afford somewhere to live and residents must spend more and more of their income on housing.

• A budget crisis as the economy suffers from less than optimal employment and business opportunities, restraining growth in the tax base.

• And, a crisis of poverty as more affordable housing is converted to market rate and the price of moderate housing escalates, depriving low- and moderate-income families of the opportunity to build financial security through home ownership and affordable rent.

The Cost Control Commission interviewed numerous stakeholders. All pointed to the same issues–CEQA, neighborhood fear of development, the initiative process, prevailing wage laws, and fall-out from Proposition 13–as the major constraints to producing an adequate supply of housing.

Hon. Don Perata

March 2005

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Environmental Review – Californians care about the quality of the state’s natural environment, and its unparalleled scenic beauty is a primary aspect of our quality of life and housing values. California’s environmental review laws are the most stringent in the nation. Land use planners and housing advocates alike point to the uncertainties in ceqa as a major blockade to building housing– especially low- to moderate-income housing and high density projects.

The 1970 environmental review law that provided more openness in land use decisions has, over three decades later, become an important and effective tool for slowing development. CEQA was not meant to limit or stop housing production. But that has been the outcome in many cases. Local residents, developers, and planners have suffered from an unpredictable CEQA review process. Projects that have met all local requirements and are years down the road in terms of process have been stopped and abandoned because a CEQA challenge is mounted. There are credible alternatives and changes that can be made while still maintaining the integrity and goal of the law. For example, focusing ceqa on the development of specific and strong long-term local plans that meet regional and statewide goals, through a process that includes the participation of all stakeholders, will make the planning process predictable and reliable and streamline the review of individual projects. But it will take determined state officials to make those changes.

Neighborhood Opposition – Neighborhood fears of new development–the NIMBY, or “not-in-my-backyard,” movement–is one of the most compelling reasons for the state to develop a master land use plan and to set overall goals to accommodate the state’s growth well into the future. There are anti-NIMBY laws that prohibit a local government from disapproving a low-income housing development or imposing conditions to make the development unfeasible. But local officials are under enormous pressure to respond to their most influential constituents, leading many to avoid their housing obligations. Cities argue that state leaders need to address community concerns of inadequate and aging infrastructure, increased traffic and congestion, loss of open space, and overcrowding that lead to a diminished quality of life within their neighborhoods. As part of any overall land use master plan, these issues must be addressed, and local governments should be given the tools they need–including financial–to move forward while responding to each community’s concerns.

Ballot Box Zoning – A result of neighborhood activism is that land use and fiscal policy have become the center of local citizen advocacy. Local growth limits complicate the affordable housing picture. Because the initiative process reduces

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March 2005

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policy to either “yes” or “no,” the more complicated aspects of policy development are often ignored, and the debate hardens around simplified “no-growth” or “pro-development” positions.

Such simplifications prevent local, regional, and statewide authorities from addressing the broad need for a diverse and integrated housing policy in California. No community should stand alone–either by promoting housing while its neighbors do not, or by denying the housing that is essential for every Californian.

A study by the Solimar Research Group found that between 1986 and 2000, 671 local land use measures were put on ballots in California, including 61 on the November 2000 ballot alone. With no-growth sentiments playing an increasing role in land use decisions, residents’ concerns cannot be ignored by the state. Californians want certainty. They want to know where growth will occur and what plans have been made to handle it. Much more effort must be given to educating and reassuring people where a plan is in place and that housing growth can be achieved while maintaining neighborhood integrity and quality of life.

Prevailing Wage Law – Studies conducted by the California Institute for County Government and the U.C. Berkeley Institute of Business and Economic Research estimate increases in wage rates of about one-third to one-half and increases in overall project costs from 9 to 32 percent under the new prevailing wage law that went into effect in January 2004. Since federal and state housing money has declined, the state must rely more heavily on private developers to deliver housing. Because of the uncertainties in the current planning process, many developers threaten to abandon the affordable housing market because of the addition of this law–saying that those projects will no longer be economically feasible. This is another case of conflicting goals and priorities. By requiring developers to pay workers prevailing wages on many construction projects not previously covered, many developers argue that without a balanced and predictable approach to developing a diverse housing supply, projects will no longer be financially possible.

In fact, many developers and housing advocates see this law as the final “nail in the coffin” for the already troubled affordable housing market. This is another example of an issue seemingly unrelated to land use strategies but one that can hugely impact the housing market. The prevailing wage law should be studied by the Administration’s land use planners in the context of its impact on the state’s goal to provide a diverse housing supply for all residents. The law’s merit should

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March 2005

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then be evaluated, along with the other issues affecting land use, when developing a statewide land use master strategy for the state’s future.

Fiscal Uncertainty – California’s local government revenue structure favors commercial development over housing–especially affordable housing which does not generate a high tax base. In addition, during the past several years, the state has “borrowed” or reduced local revenues to local governments to help the state deal with its own budget crisis. This fiscal uncertainty has led to the “fiscalization” of land use decisions and less incentive for communities to respond to issues on a regional basis. A recent study by the San Diego Association of Governments showed that cities can get 11 times more revenue from commercial development.

For example, cities can get significantly more revenue from the combined sales and property taxes derived from a WalMart or auto dealership than property taxes derived from housing. And in the case of affordable housing, the city does not get any property tax because of exemptions.

Respondents to a League of California Cities survey rated the desire for sales tax revenues at the top of a list of motivations guiding development decisions–above such factors as job creation and affordable housing. Until economic pressures and fiscal uncertainties are resolved, local governments will continue to be forced into making its decisions based on their budget needs. The passage of Proposition 1A in November 2004 may temper some of this monetary pressure by giving cities and counties bigger shares of property tax revenues. But without clear state policy and sanctions to back up state housing production goals, the lure of the sales tax dollars will remain.

Conclusions

Some communities across California and elsewhere have developed local processes and projects that address many of these concerns. We can look to strong high density and diverse development projects in San Jose and San Rafael or the model of urban housing development crafted and implemented in Portland, Oregon and Vancouver, British Columbia–housing models that are currently under consideration by many of our state’s urban local governments. Such approaches to housing diversity, mixed density, and regional needs point to the need for a systematic and predictable housing program, with the state providing focus and goals so that private, public-private partnerships, and public efforts can succeed in meeting the demands of our housing market.

Hon. Don Perata

March 2004

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The Administration and the Legislature must plan better for the inevitable increase in the state’s population during the coming decades. It is time for the state to develop a vision for how it wants to see California grow. State agency decisions, interagency coordination, and state funding should then be consistent with those policies to ensure that the state’s vision is carried out. The current piecemeal approach to solving problems, along with new laws and regulations that adversely affect larger state goals, must be looked at in their entirety. The challenge for California is to develop a statewide land use strategy to accommodate the significant geographical, economic, environmental, cultural, and political differences across the state. And the plan should be specific enough that all stakeholders in each community, from government officials to residents, from developers to consumers, from housing advocates to non-profits, can anticipate, plan for, and encourage the growth necessary to house our population.

Sincerely,

JACKI BACHARACH Fredric S. Freund

Commission Chair Housing Task Force Chair

JB:sg

cc: Members, California State Legislature

Attachments

Senate Advisory Commission on Cost Control in State Government

_______________________________________________________________________________________________

Task Force on Housing

Witnesses

Geoff Brown, President

U.S.A. Properties Fund, Inc.

Dave Butler, Senior Vice President

Regional Policy and Development

Sacramento Metro Chamber of Commerce

Daniel Carrigg, Legislative Representative

League of California Cities

Gregory Chew, Consultant

Sacramento Area Council of Governments

Cathy Creswell, Deputy Director

Housing Policy Development

California Department of Housing and Community Development

Peter Detwiler, Chief Consultant

Senate Committee on Local Government

Steven L. Eggert, President

St. Anton Partners/Developers

Art Evans, President

A.F. Evans Company, Inc.

Oakland, CA

Beverly Fretz-Brown

Director of Policy & Planning

Sacramento Housing & Redevelopment Agency

Judy Nevis, Chief Deputy Director

California Department of Housing and Community Development

William Pavao, Deputy Director

Community Affairs

California Department of Housing and Community Development

Mark Stivers, Chief Consultant

Senate Committee on Housing and Community Development

Senator Tom Torlakson, Chair

Senate Committee on Local Government

Heidi Tschudin, Planning Consultant

Tschudin Consulting Group

Senate Advisory Commission on Cost Control in State Government

_______________________________________________________________________________________________

Task Force on Housing

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