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Years of Defying State Affordable Housing Law Gets Encinitas Sued, Again

The state's density bonus law allows private developers to build more homes on a property than city restrictions allow if they agree to build some low-income homes in their project. Encinitas residents want to rein in growth, and city leaders have routinely said finding ways to disobey the law is one of their top priorities.

Dozens of Encinitas residents packed the house for a five-hour City Council meeting back in July 2014. They came to upbraid city officials for letting developers use a state law meant to increase low-income housing in Encinitas.

The two parties defending the law might seem like an odd couple: a representative for private, for-profit developers, and a low-income housing advocate.

The Encinitas residents were determined to end the imposition from the state that was undermining their preference to rein in growth in Encinitas. Many of them have lived in the city for decades and don’t want new developments or density to change the Encinitas they know and love.

At issue is the state’s density bonus law.

Originally passed in 1979, it allows private developers to build more homes on a property than city restrictions allow if they agree to build some low-income homes in their project. It also lets them build less parking, taller buildings or other deviations from city restrictions that make the project more profitable in exchange for building low-income homes.

That’s why both affordable housing advocates and developers like the law: It lets private developers make more money if they build homes for poor people.

The city of Encinitas has spent years trying to get around this law.

In the past several years, the city has been sued multiple times for manipulating the law on individual projects that tried to use it, and with citywide policies that would make it harder for developers to consider it as an option. The city passed some of these restrictions even after officials were presented with evidence they may be violating state law.

City leaders haven’t been bashful about their attempts to circumvent the law. They’ve routinely said one of their top priorities is finding ways to disobey it.

Encinitas is unique in its defiance, according to people throughout the state. While other cities may have issues with the state density bonus law, no other city has tried so hard to evade it.

For instance, in both 2014 and 2015, city staffers listed this among their top legislative priorities at the state level for the year: “Seek opportunities to regain local control over state-imposed density bonus law.”

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Kristin Gaspar, the mayor of Encinitas and a candidate for county supervisor, said one reason the issue comes up so much is because the city’s development policies are already so restrictive that the state law is one of the only ways to make new projects profitable.

Encinitas hasn’t seen much new, low-income housing built in recent years. But most of the affordable homes developers have built were a direct result of the state’s density bonus law. Since 2008, developers built 53 total homes reserved for low-income people; 39 of those were due to density bonuses.

“In many respects, Encinitas is the poster child for why density bonus law exists,” wrote David Meyer, a local developer, in a letter to the City Council in October threatening to sue over the city’s implementation of the affordable housing law.

Meyer followed through, and is suing the city over policies he says are aimed at undermining state law. The city was previously sued by a development-industry group in 2014, causing it to drop some of the policies that lawsuit challenged. Meyer’s suit is over the remaining restrictions not included in that settlement.

Meyer said the San Diego Volunteer Lawyer program reached out to him about possibly intervening in the lawsuit. The organization also contacted Community Housing Works, a nonprofit, low-income housing developer, last week to help find prospective plaintiffs—low-income residents of the county that need affordable housing.

Residents are hostile to new development in Encinitas, density bonus or otherwise.

The city has down-zoned property since the 1980s, making it difficult to build more, smaller homes. It is the only city in the county that is still out of compliance with a separate state law that requires cities to show where they’ll allow new affordable housing to be built. Even a plan to have residents convert existing granny flats into low-income housing units flopped.

That night in July 2014, the city was about to pass restrictions that would make it nearly impossible to use the law in the first place, instead of having to fight every project that tried to take advantage of the law.

“Why are you doing this?” said Michael McSweeney, the San Diego Building Industry Association’s senior public policy adviser, of the proposed restrictions that passed that night. “Density bonus is basically the one tool left in the toolbox to provide affordable housing.”

His comments evoked laughter from the residents – to them, it was absurd that the density bonus law could result in anything positive, and they doubted the BIA’s sincerity in its concern for affordable housing.

“Now, now,” Gaspar told them. “I know it’s late at night and we’re all a little grumpy. But let’s be respectful.”

Laura Nunn, policy director at the San Diego Housing Federation, a nonprofit that advocates for low-income housing, also spoke at that meeting.

“It’s important to note that the people that these units are built for are the people that are contributing to your economy and your community by working here, and by providing even one unit for somebody who is not fortunate enough to be able to afford here without a little bit of assistance, you’re helping to make a better and more diverse community,” Nunn said.

The Council didn’t listen. It approved the new restrictions. Now it’s being sued for the second time.

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Both City Council members and residents who want to make the law impossible to use in Encinitas say the measure just doesn’t work in expensive, coastal cities without much land.

In places like downtown San Diego, where developers can build larger projects, the use of density bonus can result in dozens of extra affordable homes at a time. But in Encinitas, where parcels of developable land are small and various restrictions ensure developments will be small, that means the low-income components of those projects will always be minimal.

“The intent of the density bonus law is to provide affordable housing, but that’s not the way it works,” said Gerald Sodomka, an Encinitas resident, at an August 2015 Planning Commission hearing on the new density bonus ordinance. “The builder uses that bonus to build market-rate housing, so we’re not getting affordable units out of this law.”

But that argument misses the point, according to a February report from the nonpartisan California Legislative Analyst’s Office. The report said the state needs more new market-rate units – in addition to more low-income housing – to help with the housing affordability crisis. As these new homes age, they will become more affordable in the future, the report said.

The shortage of market-rate units also means high- and middle-income families will move into lower-priced housing, since there isn’t much available in their price range. That pushes people with lower incomes out of neighborhoods, according to the report.

That night in July 2014 was Encinitas’ first attempt at passing policies to limit the law’s use.

Many elements of the policy mimicked strategies laid out in a letter a few months earlier from the lawyer of a group of residents who opposed a specific project that used a density bonus.

The lawyer accused the city of misapplying the state density bonus law. He called for a “complete audit and overhaul” of the city’s density bonus regulations.

The Council proposed changing the way it calculated how many additional homes a developer could build under the law—it would have meant allowing developers to build fewer units. It also required that developers prove to the city that each and every incentive requested was necessary for the project to financially pencil out.

The city tried to decrease the amount of land within a property that developers could actually build on by putting additional environmental restrictions on properties. It also required the low-income units to be either 75 percent the size of the often million-dollar, market-rate homes in the project or have a minimum of 1,500 square feet, 3-bedroom, 2-bathroom and 2-car garage – whichever is bigger.

San Diego’s Building Industry Association sued. That lawsuit was settled at the expense of $350,000 to city taxpayers. After the lawsuit, several of the policies limiting the laws use were dropped.

But the city refused to give in on two of them.

In October 2015, the city enacted a new density bonus ordinance that still contained the provisions that changed the calculations for how many affordable homes could be built, and that required developers to show the city their finances for density bonus projects.

There are multiple calculations done to figure out how many additional homes the developers can build, and the end number is often a fraction. Encinitas decided to always round down on these calculations. This “rounding down” issue has been a part of three lawsuits against the city since 2009.

The difference in rounding down for one density bonus project, Desert Rose, would have been building 15 homes instead of 16 homes.

In his lawsuit, Meyer says state law is unequivocal on this matter.

“All density calculations resulting in fractional units shall be rounded up to the next whole number,” the law reads.

But Encinitas City Council members say they think the law is unclear.

The city even asked its lobbyist to clarify the law up in Sacramento. When policy and legal counsel told them they should round up, the city still decided to round down.

“In short, legislative counsel doesn’t see any ambiguity in the law related to how density is calculated,” Jonathan Clay, the city’s lobbyist, wrote in an email.

Time and again, city officials have been told that the law says their calculations should result in more homes. Time and again, the city has done the opposite.

In 2009, the city was sued for rounding down the calculations for a density bonus project. This was the first time the city was sued for not properly implementing the state law. The city settled, agreeing to round up for that project. That same year, the city’s own planning department issued a memo, saying the city’s policy should be to round up for all density bonus projects – something that has been ignored by the current City Council.

Not only did the Council continue to ignore that policy, Councilman Tony Kranz said during a March 2014 Council meeting that the law was very troubling.

He said the city should “figure out a way to discourage people from invoking the density bonus law.”

The city also decided to make developers prove they needed additional incentives for things like lower parking minimums for the project to work financially.

This “density bonus report” the city requires makes developers “demonstrate that any requested incentive results in identifiable, financially sufficient and actual cost reductions to the housing development and is required in order to provide affordable rents or affordable sales prices.”

A state agency sent a letter to the city of Berkeley in 2006 warning that it was illegal to ask developers for the financial information that Encinitas is now requiring.

“It’s certainly known throughout the industry that Encinitas is hostile,” said Meea Kang, president of Domus Development in Sacramento.

Kang worked on a bill last session with Assemblyman Ed Chau (D-Monterey Park) that included provisions to reduce parking requirements for density bonus projects and, at one point, included language clarifying that cities should round up.

The city of Encinitas lobbied against the bill and sent Chau a letter in June 2015, requesting that the bill give jurisdictions the ability to choose how to round the calculations.

“We had a provision in there that said round up and we had to take it out because in every meeting, the Encinitas lobbyist was in there yelling about it,” Kang said. “We ended up dropping it.”

Despite dropping the language, the state’s legislative counsel wrote Chau a letter in December, saying in its view, the policy would be to round up.

Former Encinitas Mayor Teresa Barth, in the same March 2014 meeting, said the California League of Cities, which also lobbied against Chau’s bill, had shown interest in Encinitas’ concerns with the law.

“But it seems like there aren’t many cities in the state that are as interested in this as us,” Barth said.

The city requested that the state attorney general weigh in, but the attorney general’s office ultimately decided not to because of Meyer’s lawsuit.

“Encinitas should just be ashamed,” said Kang. “I don’t think there is another city that is quite out there the way Encinitas is. There are a lot of communities that say ‘hell no’ to affordable housing. But they’re not saying, ‘You can’t follow state law in our city.’ That goes a little above and beyond.”

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