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By Douglas Moran

SB35: Taking power from the people

Uploaded: Aug 31, 2017

Who would ever think that the way to increase affordable housing would be to make it more expensive? That what the backers of California Senate Bill 35 (SB35) would have you to believe. It is expected to be approved by the State Senate tomorrow or next week. So who is it really intended to benefit? Construction trades unions and developers. Who are the losers? People needing affordable housing, taxpayers and other residents.

Note: The discussion here is based on reading multiple summaries. Not being a lawyer, I don't have the skills to translate legalese into ordinary English (words, phrases and syntax can have distinct meanings).

SB35 would require housing projects built under this mandate to pay the "prevailing wage" for all work, including subcontractors. This will raise the costs of all units in those projects, both Market-Rate and Below-Market-Rate (BMR).(foot#1) So how are those more expensive units to be made affordable? Higher subsidies from taxpayers. And with higher subsidies per unit, there will be fewer units that can be subsidized. Note: These subsidies cannot be made directly and explicitly -- that is prohibited by state law. The usual method of laundering public subsidies is to provide the developer with a valuable benefit in exchange for the developer using part of that to lower the rent/sales price of the BMRs. The convention in Palo Alto (and many other places) is that the benefit given by the government to the developer greatly exceeds the value of the public benefit produced in return.

So why would a developer choose to have higher building costs? There has to be much more money to be made elsewhere in such projects. SB35 makes it "worth their while" by taking away from cities and their residents much of their ability to limit the negative impacts of projects on their immediate neighbors and the larger community. What could possibly go wrong with having "the fox guarding the chicken coop"?

The California Environmental Quality Act (CEQA) is one of the targets of SB35, and has been the target of bills in the state legislature for quite some time. It requires governmental bodies to perform an analysis of the impacts of a proposed project and means of mitigating them, and to include that in the public decision-making process. It includes impacts on the urban/built environment as well as the natural environment. For example,
- Would the proposed location of a driveway create traffic problems, such as creating unnecessary congestion or routing its traffic toward a park, elementary school or other area frequented by small children?
- Are the proposed buildings designed to benefit occupants by moving noisy facilities to the periphery and directing the noise at the neighbors. ("Beggar thy neighbor").
One of the frequent complaints about CEQA is that it is exploited in questionable lawsuits that use our dysfunctional legal system to block projects or to "extort" developers with the threat of delays. Notice that it is CEQA that gets blamed, not the legal system. Funny, I don't hear people making those same arguments for eliminating laws against murder.

Without a hint of irony, one of the major provisions of SB35 would be to open up cities to more abusive lawsuits. SB35 would make a city into a target if doesn't meet its Regional Housing Needs Allocation (RHNA). These numbers are set by the State through regional bureaucracies such as this region's ABAG-MTC (Association of Bay Area Governments - Metropolitan Transportation Authority). (Aside: The names and acronyms are provided for your web-searching pleasure.) These regional governments set "allocations" that are unobtainable -- they seem to operate under the delusion that anything that can be done in spreadsheets can be done in the real world.

Details: Housing goals are subdivided into multiple categories, with 4 levels of BMR ("affordable") housing. Most of the BMR housing built in Palo Alto comes from inclusionary zoning (acronym-less). The city's zoning code specifies that larger housing developments include a certain percentage of BMR units that are roughly equivalent to the Market-Rate units. Depending on your view of market dynamics, either the market-rate units are made more expensive because they are effectively subsidizing the BMRs or the subsidies come from the developer's profits or a combination of both. Unsurprisingly, most of the BMRs built under inclusive zoning are for the uppermost level of BMR: They require the least subsidy.

The lower three levels of BMRs are built primary with funds from the state and federal governments and fees and taxes collected by the local government (developers can pay into this fund in lieu of including BMRs). There isn't enough funding available from these sources to build more than a small fraction of the targets. Consequently, cities will be perpetually in violation of their RHNA numbers. And should a city somehow meet those numbers, the next round of RHNA numbers will put them back into violation. In the fantasy world of Sacramento and the ABAGs (regional governments), meeting these numbers in one round is taken as evidence that the city can produce even more housing in the next round, rather than understanding that meeting the numbers used up the best locations for housing and that less should be expected in the next round. Remember that this is a state government that claims that zoning changes that make a property more valuable won't increase its price.(foot#2)

SB35 is yet another in a long line of bills by Democratic Party state legislators to transfer power from the citizenry to remote bureaucrats and corporations.(foot#3) The California League of Cities successful opposed a similar bill last year, and is opposing SB35. However, this is likely to be an ongoing battle: Over 100 bills on this topic were introduced at the beginning of the current Legislative session (according to news media stories). Why was SB35 the one that made it to this point? I haven't seen any explanations, nor expect to (deal-making in the Legislature tends to be kept out of sight).

If you want to oppose SB35, you need to quickly contact your State Senator--Jerry Hill for Palo Alto and nearby cities. In the process, add in your State Assembly member (Marc Berman)--because the Assembly will be the next step--and your local officials. The online addresses of these officials as well as a sample letter can be found in an online copy of a message by Palo Alto Council member Lydia Kou.

Another analysis: "Scott Wiener's housing straw man" by Calvin Welsh -, 2017-05-02.

1. "Affordable" vs "Below Market Rate (BMR)":
BMR has very specific meaning and is defined in relative to the Area Median Income (AMI). "Affordable" is often used as a synonym for BMR, but it is also used for housing for those whose incomes are far above qualifying for BMRs, for example, a couple with high paying jobs in tech with an income 3-4 times the BMR cut-off.

2. Economic illiteracy in State government:
The notion that one can increase value without a consequent change in price can be found in the report "California's High Housing Costs: Causes and Consequences" by the Legislative Analyst's Office and dated 2015-03-17. I mentioned this in an earlier blog "California Democrats seek to revive the Republican Party: Republicans expected to resist" (2017-07-16) in the section State policy on development. There are many other gems of bias and deception in this report if you know how to spot them. For example, it claims in subsection Why DO Coastal Areas Not Build Enough Housing?: Community Resistance to New Housing: Environmental Reviews Can Be Used to Stop or Limit Housing Development that "...approving fewer housing units than the developer proposed. ... Over two-thirds of cities and counties in California's coastal metros have adopted policies (known as growth controls) explicitly aimed at limiting housing growth. Many policies directly limit growth--for example, by capping the number of new homes that may be built in a given year or limiting building heights and densities." (emphasis added) Notice that it classifies a city as resisting new housing if it has any limits on growth, for example, if it caps building height at 20 stories. It implies that concerns about carrying capacity of the infrastructure--schools, streets...--are not legitimate, but rather measures to "stop or limit" housing development.

3. Taking power from the people:
In the 2012 Presidential campaign, Republican Mitt Romney famously said "Corporations are people too", and was widely criticized by Democrats. Clearly, corporations need to be treated as superior to people.

An abbreviated index by topic and chronologically is available.

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