Last week the Vanguard reported that the city had backtracked and had restored the supplemental fees at 12,000 dollars for the Verona Subdivision, we however missed the fine print.
It turns out that while the city is removing the middle income affordable requirement, they are keeping those units at the lower rate, 6000 dollars per unit rather than the 12,000 dollars the rest of the units are subject to.
Why would the city do that? They are basically gifting the developer $100,000 for the privilege of developing 17 units at market rate and getting an addition $200,000 to $300,000 per unit. The developers are making a killing off this deal, why is the city giving up $100,000?
Moreover, with this new arrangement the developers would be able to go above the established density of the project, which has it at 83 units – a density that both Councilmember Sue Greenwald and Lamar Heystek opposed when they voted on the project in 2008.
The staff recommendation is to direct the applicant to submit a new application for the Lot “O” that incorporates up to 13 resident units for a total 96 units for the subdivision. Again, the neighbors were opposed to even 83.
Moreover, those thirteen additional units would only generate a supplemental fee of $3000 per market rate unit. That again would cost the city over $100,000 for that small project. Again, if the developers are poised to make several hundred thousand dollars per additional unit, why is the city giving back money that it should be entitled to?
As we re-read the staff report, this fact becomes more interesting. The staff report suggests that the Finance and Budget Commission Review proposed the modifications to the staff recommendation related to the fiscal impacts:
The Commission voted unanimously that:
The net annual fiscal impact to the General Fund of the project as proposed are slightly improved over the original project, approved in May of 2008; and,
The level of Supplemental Fee negotiated as part of the original development agreement is unnecessary to fiscal analysis performed to evaluate the project relative to the City Council’s goal of “fiscal neutrality” but rather represents one-time discretionary funding available to the City. As such, the City Council is in the best position to determine the appropriate level of supplemental fee to apply to this project.
Absent policy guidelines or a framework for Development Agreements, the Commission is not in a position to recommend a modification of the fees in place or other provisions of the document.
However, the staff report goes on to say, “Although the FBC and Planning Commission recommendation on fees differs, staff believes they are not necessarily in conflict. The FBC did not recommend specific supplemental fees levels, but acknowledged the fiscal improvement of the staff recommended revisions over the modestly negative fiscal impact of the approved project.”
The problem is that the Finance and Budget Commission did not really understand what had happened prior to their vote. It was only after their vote that they suddenly realized that the net annual fiscal impact to the General Fund was actually just a smoke screen as we reported on June 15, 2010. In actuality, what the city’s original financing did was take money that was non-restrict in the form of supplemental fees and converted it to Quimby Fees which are restricted and can only be used for parks.
When this was pointed out, the city apparently backtracked and restored most of the supplemental fees, but not all. The proposed plan calls for the city to essentially cede to the developers nearly $250,000 between the $6000 for the formerly middle income affordables and the 13 additional units. The city loses parkland in the trade off and the neighbors have to live with 13 additional units in their midst that was not originally agreed to.
From a fiscal perspective, there may be a modest benefit to the city, but why cede almost a quarter million? Especially since the two arrangements amount to a windfall for the developers in that they have 21 additional market rate units rather than affordables which are net losses to the developers AND they get to develop 13 additional market rate units on top of the reduction of affordables.
Based on this new analysis, we believe that the city should not set new precedents and renegotiate a new development agreement that it does have to develop. If they do, and the developers gain from the deletion of the middle income affordable requirement, then let the city collect the full supplementals.
—David M. Greenwald reporting
“They are basically gifting the developer $100,000 for the privilege of developing 17 units at market rate and getting an addition $200,000 to $300,000 per unit.”
How did you get the price differential?
The difference between market rate and the middle income affordable rate.
Business as usual for the city, and the taxpayer is the loser…
[i]”Business as usual for the city, and the taxpayer is the loser …”[/i]
That’s not completely true. By changing the units from “middle income” to market rate, even without any development fees the city’s coffers are much better off. Those home-owners will now pay full property tax, 11%* of which goes to the city.
Very often, people who generally oppose residential developments of any sort in Davis note that they are money losers for the city. The main reason* they are money losers, however, is not because they are residential. It’s because of the non-market rate units, which end up paying little or no property tax to the City of Davis. If fiscal sanity were a priority for our city, we would entirely get rid of the bogus low-income units. (A much better way to help the very poor is to give them direct rental aid, which could be funded by in-lieu developer fees.)
*I am not positive about that 11% figure. If I can find a source, I’ll post it later.
**The other big reason residential developments can be money-losers in the long-run is because the City has been in the habit of inflating employee compensation at an annual rate much higher than its expected rate of revenue growth. That, of course, can be solved by negotiating better labor deals.
I found the distribution of the property tax ([url]http://www.boe.ca.gov/proptaxes/pdf/pub29.pdf[/url]):
Counties — 17 percent;
Cities — 11 percent;
School districts and community colleges — 53 percent;
Special districts — 19 percent.
None of the property tax is directly retained by the state government. [quote]The state no longer relies on property taxes as its primary source of funds—since 1933, the only property tax directly levied, collected, and retained by the state has been the tax on [u]privately owned railroad cars[/u]. Currently, the state’s principal revenue sources are personal income taxes, sales and use taxes, bank and corporation taxes, and a series of excise taxes.[/quote] [img]http://www.petergreenberg.com/wp-content/uploads/2009/07/colonial-crafts.jpg[/img]
Rich: I see no reason for the city to simply give away a direct $250,000 for impact fees, particularly when the developer figures to make more than ten times that based on the changes to the developer’s agreement.
I agree with you, David. I don’t see the point of lowering the fees on those units, either. I am simply pointing out the fact that by getting rid of some of the non-market rate units, the city is much better off than it would have been had those units been retained. Plus, it was a good reason to post a nice train picture on this thread.
[img]http://daviscab.com/504711101_1dff5f5608.jpg[/img]
Here is the most troubling aspect of your report:
“The problem is that the Finance and Budget Commission did not really understand what had happened prior to their vote.”
This committee needs to get up to speed.
It is true that low income units do drag down tax revenues but its not necessarily the case that these units would pay for themselves even with no affordable units. The real problem with affordable units, especially owner occupied ones, is that they essentially constitute a windfall for a small number and, unlike claims made in some past campaigns, these folks are not primarily teachers or university employees, though no doubt a few are. (I am reminded of G.B Shaw’s discussion of the “deserving poor” in Pygmallion and made famous in My Fair Lady.)
I believe Davis must provide a certain number of these units anyway by law. The larger issue is, as E Roberts Musser points out above, that this is indeed business as usual. The Council seems more interested in helping the developer than the City. I hope and believe this will change with the new Council.
“I believe Davis must provide a certain number of these units anyway by law.”
I am curious as to what exactly the requirement is, because the current system is not providing low- or moderate-income housing, and simply invites these sorts of fee negotiations. If the city really wants to help make more affordable housing, they can change zoning. They can give priority to projects containing rental housing, multi-plexes, or mobile homes. What we have now is an affordable housing policy which doesn’t accomplish its goals, but which remains year after year because nobody has the will to change it. So the developers pay fees that don’t make sense, provide housing that isn’t (or doesn’t remain) affordable, and the rental market remains unhealthy. Those who can least afford it continue to pay inflated rents because the supply isn’t there.
This project might as well go forward under the current rules, and I hope the new council will review the agreement and bring it back for reconsideration if necessary. But I also hope they will ask a couple of commissions for ways to revise the affordable housing policies to actually provide affordable housing (ie., more rental units) and comply with state law, while remaining revenue-neutral in terms of overall fees paid to the city.
Dr. Wu: It was troubling, my take is that the commission was really not provided the full information. It was only at the end that Cathy Camacho mentioned that there was a difference in the supplemental versus the Quimby funds, before that it was treated as equivalent. It was only after the meeting that I raised the point with the Chair and Mr. Navazio that item No.1 was really not accurate. And Paul made the point that neither of those funds are technically general fund. But it turns out that’s misleading. And while it is true the supplemental is not “general fund” it can be used anywhere which is like a general fund. So I believe that the commission did not have all of the important information before they voted on that and I will likely raise that point tomorrow night.
The other troubling part is that now the neighbors will see a different project from what they ‘negotiated’. Will they even know to come, once again, to CC to plead their case?
[i]”I am curious as to what exactly the requirement is …”[/i]
[b]City of Davis Code 18.05.010:[/b] [quote]f) General plan implementing policies require that, to the extent feasible, [u]twenty-five percent[/u] of ownership units be affordable by very low income households, low income households and moderate income households.[/quote] [b]California Code 65915.b.1:[/b] [quote]A city, county, or city and county … when
an applicant for a housing development seeks and agrees to construct a housing development … that will contain at least any [u]one of the following[/u]:
(A) Ten percent of the total units of a housing development for lower income households, as defined in Section 50079.5 of the Health and Safety Code; or
(B) Five percent of the total units of a housing development for very low income households, as defined in Section 50105 of the Health and Safety Code; or
(C) A senior citizen housing development as defined in Sections 51.3 and 51.12 of the Civil Code, or mobilehome park that limits residency based on age requirements for housing for older persons pursuant to Section 798.76 or 799.5 of the Civil Code; or
(D) Ten percent of the total dwelling units in a common interest development as defined in Section 1351 of the Civil Code for persons and families of moderate income, as defined in Section 50093 of the Health and Safety Code, provided that all units in the development are offered to the public for purchase. [/quote] In other words, the City of Davis policy is now five times greater than required by state law. And the important point is that our policy does not help lower income people in general. It does help a small number of lucky individuals.
I agree with Don Shor that, if we really want to help all lower income folks, we need to increase the supply of for-rent apartments.
I think we should also give developers in Davis a choice: either build 25% low income; or build 5% very low income. If they choose the latter, then 75% of the extra money they make on those market-rate units which are not low-income should go into a low-income fund for the city. And that money could be spent to put up homeless people in housing for the night and to pay for other programs, such as food closets and health clinics, which directly benefit the poor.
[b]California Health and Safety Code Section 50079.5[/b] [quote] (a) “Lower income households” means persons and families whose income does not exceed the qualifying limits … pursuant to Section 8 of the United States Housing Act of 1937*.
(b) “Lower income households” includes very low income households, as defined in Section 50105, and extremely low income households, as defined in Section 50106. [/quote]
*The actual numbers are adjusted every year by the federal gov’t based on regional incomes.
A number of terms are being used interchangeably on this thread.
Rich Rifkin said:
“That’s not completely true. By changing the units from “middle income” to market rate, even without any development fees the city’s coffers are much better off. Those home-owners will now pay full property tax, 11%* of which goes to the city”.
And Dr. Wu said:
“It is true that low income units do drag down tax revenues but its not necessarily the case that these units would pay for themselves even with no affordable units”.
And Don Shor said:
” “I believe Davis must provide a certain number of these units anyway by law.”
1. The middle income units being discussed are not a requirement of any other entity except they were an additional layer created by the City of Davis. So there is no state or legal requirement to do these units.
2. These “middle income” units would pay regular property taxes as this type of unit is not entitled to any tax exemptions.
3. They are not low income units or rentals from a tax exempt nonprofit so are not exempt from property taxes.
4. The city actions appear to have created a windfall as they allowed the developer to remove price restricted units and make them market rate. The developer should be paying the $12,000. Unless I’m missing something the developer should be paying market rate fees for all 30 units (17 plus 13).
[i]”3. They are not low income units or rentals from a tax exempt nonprofit so are not exempt from property taxes.”[/i]
Points well taken. However, if they sell for a market-rate, their property tax bases will start out and remain much larger than they would as sub-market-rate units. If that differential is double, which I believe it is (on a sq. foot basis*), then the city will derive twice as much per year in property tax per unit by this change.
*That might be overstated, now, because the market-rate has come down by quite a bit. But during the Measure X campaign, my recollection is that it was roughly half the $/s.f. on “middle income” units.
Even if the middle income units pay property tax they will still be a net fiscal burden to the City. the same is true for rental apartments. Bottom line: Due to Prop 13 housing generally costs the City money and housing under ~$700-$800k loses money for the City w/o upfront fees. Developers of for housing units for sales can still make money and the City can still potentially break even due to the up front fees.
Rental housing, though, will not generate enough in taxes to offset additional costs. Maybe rental housing in conjunction with a large owner occupied development could work. WHR had rental housing (which I think is good) but the rates for low income rental housing were close to market rates, but effectively excluded people with higher income. I do agree with comments above that providing more rental housing would lower rents and provide more availability, but I am not at all convinced that Davis faces a tight rental market–I see “For Rent” signs all over the place especially in the larger apt complexes.
Davis is and will likely always be a community with higher income. Some people find this objectionable, but its a reality. I think its also a reality that the silent majority of voters in Davis want to keep it that way.
“… I am not at all convinced that Davis faces a tight rental market…”
It is true that the rental vacancy rate is at the high end of the historic range, at about 3%. But rents have still been increasing, whereas they have been dropping in every surrounding community. A sustained 5% vacancy rate would be healthy. The vacancy rate in 2005 was 5%, but rents continued to increase, and the vacancy rate dropped again. Usually it has been 1 – 2% or lower. UC enrollment is the biggest factor, and enrollment for fall 2009 was up 2.3%, to a record level. Even with West Village, vacancy rates will be relatively low and rents will be relatively high unless a few hundred rental units of one kind of another are added in the city.
My understanding is that fiscal model predicting that they city will break even has not been changed since the peak of the housing bubble, and assumptions could be quite dated.
There are a number of variances that need to be looked at when we consider the topic of property taxes and different levels of market and sub market rate housing.
I have seen quite often that the sub market rate homes are located on the less desirable areas of a sub-division at a higher density rate than the rest of the subdivision. Quite often the impact fees and property taxes paid by those sub-market ownership units is actually higher per sq ft of land used than the highest cost homes in the subdivision. When you look at the shorter amount of road, sidewalk, sewer and other infrastructure used by sub market rate housing relative to the impact fees they pay the story is no longer black and white.
For example the low income seniors living at nonprofit Eleanor Roosevelt
paid $14,000 in impact fees whereas the individual students living at
the market rate next door University Square paid $4,000 in impact fees.
So who is susidizing who?
There has been discussion of vacancy rates in Davis here is the last nine year outcomes.
TABLE II
UC DAVIS ENROLLMENT AND VACANCY RATE
HISTORICAL DATA TOTAL DAVIS VACANCY
YEAR ENROLLMENT APARTMENTS RATE
2000 26,094 8,228 0.5
2001 27,292 8,636 0.3
2002 29,087 8,600 0.2
2003 30,229 9,200 1.7
2004 30,065 8,790 3.3
2005 29,637 8,750 4.2
2006 30,475 8,740 1.8
2007 30,685 8,634 0.7
2008 31,426 8,469 0.8
2009 32,153 8,720 3.2
Sorry the table did not retain my settings. The vacancy rate is the last column on the right.
“ERM: “Business as usual for the city, and the taxpayer is the loser …”
rich rifkin: “That’s not completely true. By changing the units from “middle income” to market rate, even without any development fees the city’s coffers are much better off. Those home-owners will now pay full property tax, 11%* of which goes to the city.”
It is business as usual in terms of giving away developer fees that can find their way into the General Fund, when the city can’t pay for repairs to its streets. The city needs all the money it can get its hands on, so why should it renegotiate a developer contract in such a way that the city GIVES UP developer supplemetal fees it would otherwise be entitled to?
Let’s face it, as was alluded to in other articles on this subject, the city is hoping to gain funding from developer supplemental fees from Verona to pay for an EIR for a new sports complex it cannot afford to plan/build/operate. More business as usual… keep/create the frills while cutting basics. Why? Because to cut basics hurts, and will encourage citizens to agree to higher/more taxes.
Wait until the city institutes a new “city services” tax to pay for operating the new Sports Complex… arggggggggggghhhhhhhhhhhhhhh!