(Without Reference to File)

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 73

Author:(Chiu, et al.)

As Amended Ver:July 13, 2017

Majority vote

Original Committee Reference: L. GOV.

SUMMARY: Allows a city or county to create a housing sustainability district to complete upfront zoning and environmental review in order to receive incentive payments for development projects that are consistent with the district's ordinance.

The Senate amendments:

1. Revise the definition of "eligible location" to mean either of the following:
   1. An area located within one-half mile of public transit; or,
   2. An area that, by virtue of existing infrastructure, transportation access, existing underutilized facilities, or location, is highly suitable for a residential or mixed-use housing sustainability district.
2. Require a development that is affordable to persons and families whose income exceeds the income limit for persons and families of moderate income to include no less than 10% of the units for lower income households at affordable housing costs, as defined, unless the city or county has adopted a local ordinance that requires a greater percentage of units be for lower income households, in which case that ordinance shall apply.
3. Require, for projects for which any of the following conditions apply, certification to the approving authority that a skilled and trained workforce will be used to complete the project if the approving authority approves the project application:
   1. On and after January 1, 2018, until December 31, 2021, the project consists of 75 or more units that are not 100% subsidized affordable housing and will be located within a jurisdiction located in a coastal or bay county with a population of 225,000 or more.
   2. On and after January 1, 2022, until December 31, 2025, the project consists of 50 or more units that are not 100% subsidized affordable housing and will be located within a jurisdiction located in a coastal or bay county with a population of 225,000 or more.
   3. On and after January 1, 2018, until December 31, 2019, the project consists of 75 or more units that are not 100% subsidized affordable housing and will be located within a jurisdiction with a population of fewer than 550,000 and that is not located in a coastal or bay county.
   4. On and after January 1, 2020, until December 31, 2021, the project consists of more than 50 units and will be located within a jurisdiction with a population of fewer than 550,000 and that is not located in a coastal or bay county.
   5. On and after January 1, 2022, until December 31, 2025, the project consists of more than 25 units and will be located within a jurisdiction with a population of fewer than 550,000 and that is not located in a coastal bay county.
4. Specify that a project within a housing sustainability district that is subject to approval by the approving authority is exempt from any requirement to pay prevailing wages or use a skilled and trained workforce if it meets both of the following:
   1. The project includes 10 or fewer units; or,
   2. The project is not a public work for purposes of Chapter 1 of Part 7 of Division 2 of the Labor Code.
5. Provide that a project is not eligible for approval from the approving authority if it involved or involves the subdivision that is, or, notwithstanding this chapter, would otherwise be, subject to the Subdivision Map Act (Division 2 (commencing with Section 66410)) or any other applicable law authorizing the subdivision of land, unless either of the following apply:
   1. The project has received or will receive financing or funding by means of a low-income housing tax credit and is subject to the requirement that prevailing wages be paid pursuant to provisions in the bill; or,
   2. The project is subject to the requirement that prevailing wages be paid, and a skilled and trained workforce used, as specified.
6. Clarify that a housing sustainability district ordinance shall remain in effect for no more than 10 years, except that a city or county may renew the ordinance for an additional period not exceeding 10 years, before the date upon which it would otherwise be repealed.
7. Remove references to the Governor's Office of Planning and Research, thereby allowing the Department of Housing and Community Development to administer the provisions of the bill.
8. Provide that each provision of the act is a material and integral part of this act, and the provisions of the act or not severable. Specify that if any provision is held invalid, the entire act shall be null and void.
9. Declare that ensuring that all Californians have access to sustainable housing is not a municipal affair and is instead a matter of statewide concern, thereby applying the provisions of the bill to charter cities and charter counties.
10. Add language to deal with chaptering conflicts with SB 35.
11. Make other minor clarifying changes.

AS PASSED BY THE ASSEMBLY, this bill:

1. Defined the following terms for the purposes of cities and counties creating housing sustainability districts:
   1. "Approving authority" to mean an agency of a city, county, or city and county that is established in the city or county's housing sustainability district ordinance and designated to review permit applications for development within the housing sustainability district, as specified.
   2. "City, county, or city and county" to include a charter city, charter county, or a charter city and county [analysis will refer to "city or county" hereafter].
   3. "Department" to mean the Department of Housing and Community Development (HCD).
   4. "Developable area" to mean the area within a housing sustainability district that can be feasibly development into residential or mixed-use development, including land area occupied by or associated with underutilized residential, commercial, or industrial buildings or uses that have the potential to be converted for residential or mixed use, in accordance with the rules and regulations of the office, except for the following:
      1. Land that is already substantially developed, including existing parks and open space; or,
      2. Areas exceeding one-half acre that are unsuitable for development due to topographical features or environmental preservation.
   5. "Eligible location" to mean any of the following:
      1. An area located within one-half mile of public transit;
      2. An area of concentrated development; or,
      3. An area that, by virtue of existing infrastructure, transportation access, existing underutilized facilities, or location, is highly suitable for a residential or mixed-use housing sustainability district.
   6. "Mixed use" to mean that up to 50% of the square footage of a proposed development is designated for nonresidential use.
   7. "Office" to mean the Office of Planning and Research (OPR).
   8. "Project" to mean a proposed residential or mixed use development within a housing sustainability district.
   9. "Housing sustainability district" to mean an area within a city or county designated as specified, that is superimposed over an area within the jurisdiction of the city, county, or city and county in which a developer may elect to develop a project in accordance with either the housing sustainability district ordinance or the city or county's otherwise applicable general plan and zoning ordinances.
   10. "Housing sustainability district ordinance" to mean the ordinance adopted by a city, or county, as specified.
2. Allowed a city or county to establish by ordinance a housing sustainability district, upon receipt of preliminary approval by OPR, as specified.
3. Required the city or county to adopt the ordinance in accordance with the requirements of zoning regulations in state law.
4. Required an area proposed to be designated as a housing sustainability district to satisfy all of the following requirements:
   1. The area is an eligible location, including any adjacent area served by existing infrastructure and utilities;
   2. The area is zoned to permit residential use through the ministerial issuance of a permit. Other uses may be permitted by conditional use or other discretionary permit, provided that the use is consistent with residential use;
   3. Density ranges for multifamily housing for which the minimum densities shall not be less than those deemed appropriate to accommodate housing for lower-income households as set forth in Housing Element Law, and a density range for single-family attached or detached housing for which the minimum densities shall not be less than 10 units to the acre. A density range shall provide the minimum dwelling units per acres and the maximum dwelling units per acre;
   4. The development of housing is permitted, consistent with neighborhood building and use patterns and any applicable building codes;
   5. Limitations or moratoriums on residential use do not apply to any of the area, other than any limitation or moratorium imposed by court order;
   6. The area is not subject to any general age or other occupancy restrictions, except that the city or county may allow for the development of specific projects exclusively for the elderly or the disabled for assisted living;
   7. Housing units comply with all applicable federal, state, and local fair housing laws;
   8. The area of the proposed housing sustainability district does not exceed 15% of the total land area under the jurisdiction of the city or county, unless OPR approves a larger area, as specified;
   9. The total area of all housing sustainability districts within the city or county does not exceed 30% of the total land area under the jurisdiction of the city or county;
   10. The ordinance establishing the housing sustainability district provides for the manner of review by an approving authority, as designated by the ordinance, as specified, and in accordance with the rules and regulations adopted by OPR; and,
   11. Development projects in the area comply with requirements regarding the replacement of affordable housing units affected by the development.
5. Allowed the city or county to apply uniform development policies or standards that will apply to all projects within the housing sustainability district, including parking ordinances, public access ordinances, grading ordinances, hillside development ordinances, flood plain ordinances, habitat or conservation ordinances, view protection ordinances, and requirements for reducing greenhouse gas emissions.
6. Allowed the city or county to provide for mixed-use development within the housing sustainability district.
7. Provided that an amendment or repeal of a housing sustainability district ordinance shall not become effective, unless HCD provides written approval to the city or county. Allows the city or county to request approval of a proposed amendment or repeal by submitting a written request to HCD. Requires HCD to evaluate the proposed amendments or repeal for the effect of that amendment or repeal on the city or county's housing element. Provides that if HCD does not respond to a written request for amendment or repeal of an ordinance within 60 days of receipt, the request shall be deemed approved.
8. Required the housing sustainability district ordinance to do all of the following:
   1. Provide for an approving authority to review permit applications for development within the housing sustainability district, as specified;
   2. Require that at least 20% of the residential units constructed within the housing sustainability district be affordable to very low-, low-, and moderate-income households and subject to a recorded affordability restriction for at least 55 years, subject to c), below;
   3. For a city or county that includes its entire regional housing needs allocation within the district, the percentages of the total units constructed or substantially rehabilitated within the district shall match the percentages in each income category of the city or county's regional housing need allocation. States that nothing in this section shall be construed to expand or contract the authority of a local government to adopt an ordinance, charter amendment, general plan amendment, specific plan, resolution or other land use policy or regulation requiring that any housing development contain a fixed percentage of affordable housing units.
   4. Specify that a project is not deemed to be for residential use or it is infeasible for actual use as a single or multifamily residence;
   5. Require that an applicant for a permit for a project within the housing sustainability district do the following, as applicable:
      1. Certify to the approving authority that either of the following is true, as applicable:
         1. The entirety of the project is a public work for purposes of state prevailing wage laws; or,
         2. If the project is not in its entirety a public work, that all construction workers employed in the execution of the project will be paid at least the general prevailing rate of per diem wages for the type of work and geography, as determined by the Director of Industrial Relations, as specified. If the approving authority approves the application, then for those portions of the project that are a public work, all of the following shall apply:
            1. The applicant shall include prevailing wage requirements in all contracts for the performance of the work;
            2. Contractors and subcontractors shall pay to all construction workers employed in the execution of the work at least the general prevailing rate or per diem wages;
            3. The obligation of the contractors and subcontractors to pay prevailing wages may be enforced by the Labor Commissioner through the issuance of a civil wage and penalty assessment, as specified, except as provided for in (d) below;
            4. If all contractors and subcontractors performing work on the project are subject to a project labor agreement that requires the payment of prevailing wages to all construction workers employed in the execution of the project and provides for enforcement of that obligation through an arbitration procedure, then (c) above does not apply; and,
            5. The requirement that employer payments not reduce the obligation to pay the hourly straight time or overtime wages found to be prevailing shall not apply if otherwise proved in a bona fide collective bargaining agreement to cover the worker, as specified.
      2. For projects with a cost exceeding an unspecified dollar amount, certify to the approving authority that a skilled and trained workforce, as specified, will be used to complete the project. If the approving authority approves the application, the following shall apply:
         1. The applicant shall require in all contracts for the performance of work that every contractor and subcontractor at every tier will individually use a skilled and trained workforce to complete the project;
         2. Every contractor and subcontractor shall use a skilled and trained workforce to complete the project;
         3. The applicant shall provide to the approving authority, on a monthly basis while the project or contract is being performed, a report demonstrating compliance, as specified, and except as provided in 4), below. States that a monthly report shall be a public record under the California Public Records Act and shall be open to public inspection. Failure to provide a monthly report demonstrating compliance shall be subject to a civil penalty of $10,000 per month for each month for which the report has not been provided. Any contactor or subcontractor that fails to use a skilled and trained workforce shall be subject to a civil penalty of $200 per day for each worker employed in contravention of the skilled and trained workforce requirement. Penalties may be assessed by the Labor Commissioner, as specified;
         4. Specifies that 3), above, shall not apply if all contractors and subcontractors performing work on the project are subject to a project labor agreement (PLA) that requires compliance with the skilled and trained workforce requirement and provides for enforcement of that obligation through an arbitration procedure; and,
         5. Provides for relocation assistance for persons and families displaced from their residences due to development within the district.
9. Provided that this section shall not be construed to affect the authority of a city or county to amend its zoning regulations, as specified, except to the extent that an amendment affects a housing sustainability district.
10. Required the city or county to comply with the environmental review process pursuant to 44), below.
11. Allowed a city or county that has proposed an ordinance establishing a housing sustainability district to apply to OPR for preliminary approval of a housing sustainability district, and provides that OPR shall make a preliminary determination as to the eligibility of the proposed housing sustainability district for approval.
12. Provided that OPR shall approve an application for preliminary approval for a zoning incentive payment if it determines that the proposed ordinance meets the requirements of the bill's provisions and the city or county's housing element is in compliance. Requires OPR to inform the applicant of the deficiencies in its application, should OPR deny the application. Allows a city or county to reapply upon correcting those deficiencies.
13. Required OPR to transmit its determination to the applicant and to HCD.
14. Required an applicant city or county, to submit all of the following information with its application:
    1. A description of the boundaries of the proposed district;
    2. A description of the developable land within the proposed district;
    3. A description of other residential development opportunities within the city or county, including infill development and reuse of existing buildings within already developed areas;
    4. A copy of the housing element, as specified;
    5. A copy of the adopted housing sustainability district ordinance;
    6. A copy of the environmental impact report prepared pursuant to the streamlined environmental review process pursuant to 44), below;
    7. A copy of the city or county's design review standards, if any, as specified; and,
    8. Any other materials that establish the city or county's compliance with the prevailing wage and public work requirements listed in 8d), above.
15. Required OPR to confirm approval within 45 days of receipt, following preliminary approval of an application and upon receipt of acknowledgment that the ordinance has taken effect.
16. Required HCD, on or before October 1 of each year following the approval of a city or county's housing sustainability district by OPR, to issue a certificate of compliance if it finds that the city, county, or city and county has satisfied all of the following requirements:
    1. The city or county has in effect a housing sustainability district ordinance;
    2. The housing sustainability district complies with the minimum requirements of 4), above;
    3. The city or county has only denied a permit for a residential development consistent with its housing sustainability district ordinance, the provisions of its housing element, or the provisions of this bill; and,
    4. The city or county has not adopted a design review standard pursuant to 35), below, that adds unreasonable costs to a residential or mixed-use development, or impairs the economic feasibility of a proposed development, within the district.
17. Provided that if HCD finds that a city or county does not satisfy all of the requirements of 16), above, then HCD may deny certification of the district. Provides that a denial shall not affect the validity of the district ordinance or the application of the ordinance to a development or proposed development within the district.
18. Allowed HCD to require a city or county to provide any information it deems necessary to review the city or county's housing sustainability district, as required.
19. Specified that a city or county with a housing sustainability district approved by OPR is entitled to an unspecified zoning incentive payment, upon appropriation of funds by the Legislature for that purpose, based on the projected construction of new residential units. Prohibits replacement units from being considered new residential units.
20. Required OPR to issue the first half of the zoning incentive payment upon preliminary approval of the ordinance and issuance of the Environmental Impact Report (EIR). Requires HCD to issue the second half of the zoning incentive payment within 10 days of submission of proof of issuance of building permits by the city or county for the projected units of residential construction within the zone, as specified.
21. Allowed a city or county to incorporate provisions in its ordinance prescribing the contents of an application for a permit for residential development.
22. Allowed a city or county to charge an application fee to persons seeking approval of a project within the district, as specified.
23. Allowed the ordinance to provide for referral of an application for a permit to any officers, agencies, agencies, boards, or bureaus of the city or county for review and comment, and requires comments within 60 days of receipt.
24. Required the applicable provisions of the city or county's general plan and district ordinance in effect at the time an application is submitted to the approving authority to govern the application for the purposes of the following:
    1. The processing and review of the application;
    2. The pendency of any appeal of a decision of the approving authority;
    3. If the application is approved, for five years following approval of the application; and,
    4. If the application is denied, to any further application for the same proposed development filed within two years following the date of the denial, unless the applicant elects to proceed under the city or county's general plan and ordinance in effect at the time when he or she submits that further application.
25. Required the applicant to file an application for a permit with the clerk of the city or county and with the approving authority.
26. Required the authority to conduct a public hearing in accordance with the Ralph M. Brown Act, and issue a written decision on the application within 120 days of receipt of the application, unless extended by agreement between the approving authority and the applicant. Requires the authority to file a copy of its written decision with the clerk of the city or county.
27. Deemed an application approved if the approving authority fails to act within 120 days, or within the period agreed upon, and requires notice to any interested parties and the clerk of the city or county within 14 days of the application being deemed approved. Requires the notice provided to interested parties to specify that any appeals must be filed within 20 days.
28. Required the approving authority to issue to the applicant a copy of its written decision, as specified.
29. Required the approving authority to consider the requirements of the ordinance, and the requirement for replacement dwellings, as specified.
30. Allowed the approving authority to deny an application only for the following reasons:
    1. The proposed development project does not fully comply with the ordinance;
    2. The applicant has not submitted all of the required information or paid an application fee, as specified; or,
    3. The approving authority determines, based on substantial evidence in light of the whole record of the public hearing on the project, that a physical condition on the side of development that was not known and could not have been discovered with reasonable investigation at the time the application was submitted would have a specific adverse impact upon the public health or safety, and there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact, as specified. Provides that this is not intended to affect thresholds of significance of standards of review for any impact reviewed pursuant to California Environmental Quality Act (CEQA).
31. Required the clerk of the city or county to certify the following, as applicable, on a copy of the written decision of the approving authority:
    1. No appeal has been filed, or has been dismissed or denied, within 20 days of the issuance of the decision of the approving authority; or,
    2. The application is deemed approved by reason of the failure of the approving authority to issue a decision within 120 days of submission.
32. Allowed the applicant to appeal a decision of an approving authority by filing a complaint in the superior court. Requires appeals to be filed within 20 days after the approving authority has filed its decision to deny or conditionally approve the application with the clerk. Required the applicant to provide notice of the appeal and a copy of the complaint to the clerk. Required the applicant to, within 14 days of filing the complaint, serve written notice and provide a copy of the complaint to all defendants by certified mail. Required the court to dismiss the complaint if the applicant does not, within 21 days of filing, file an affidavit with the clerk certifying that the notices were provided.
33. Required the complaint to allege the specific reasons why the approving authority's decision does not satisfy the requirements of the district ordinance, the provisions of this bill, or other applicable law. Requires the complaint to name the approving authority as a defendant.
34. Required the approving authority to have the burden of proving that its decision satisfies the requirements of the district ordinance, the provisions of this bill, or other applicable law based on substantial evidence in light of the whole record.
35. Allowed a city or county to, in accordance with regulations adopted by OPR, adopt design review standards applicable to development projects within the district to ensure that the physical character of development within the district is complementary to adjacent buildings and structures and is consistent with the city or county's general plan, including the housing element.
36. Prohibited a design review standard from adding unreasonable costs to a residential or mixed-use development, or unreasonably impair the economic feasibility of a proposed development within the district. Provides that design review of a development shall not constitute a "project" for purposes of CEQA law.
37. Required design review standards to be adopted at the same time as the ordinance and submitted to OPR with the city or county' application. Specifies that any subsequent additional design review standards or amendment of existing design review standards to be subject to written approval by HCD, as specified.
38. Required, if a proposed development within a district includes any parcels being used for affordable housing at the time the application is submitted to the approving authority, the approving authority to condition its approval of the application on the applicant's agreement to replace those affordable housing units.
39. For purposes of 38), above, defined the following terms:
    1. "Affordable housing" to mean a parcel of property that meets any of the following criteria:
       1. The parcel includes rental dwelling units that are or, if the dwelling units have been vacated or demolished in the five-year period preceding the application, have been subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower- or very low-income;
       2. The parcel is subject to rent or price control through a public entity's valid exercise of its police power; or,
       3. The parcel includes a housing development that is currently occupied by low- or very low-income households.
    2. "Replace" to mean either of the following, as applicable:
       1. If any affordable housing units are occupied on the date of application, the proposed housing development shall provide at least the same number of units of equivalent size, to be made available at affordable rent or affordable housing cost to, and occupied by, persons and families in the same or lower-income category as those households in occupancy. If the income category of the household in occupancy is not known, it shall be rebuttably presumed that lower-income renter households occupied these units in the same proportion of lower-income renter households to all renter households within the jurisdiction, as determined by the most recently available data from the United States Department of Housing and Urban Development's Comprehensive Housing Affordability Strategy database. For unoccupied affordable housing units described in a development with occupied units, the proposed housing development shall provide units of equivalent size, or both, to be made available at affordable rent or affordable housing cost to, and occupied by, persons and families in the same or lower-income category as the last household in occupancy. If the income category of the last household in occupancy is not known, it shall be rebuttably presumed that lower-income renter households occupied these units in the same proportion of lower-income renter households to all renter households within the jurisdiction, as determined by the most recently available data from HUD's Comprehensive Housing Affordability Strategy database. All replacement calculations resulting in fractional units shall be rounded up to the next whole number. The replacement units shall be subject to a recorded affordability restriction for at least 55 years.
       2. If all affordable housing units have been vacated or demolished within the five-year period preceding the application, the proposed housing development shall provide at least the same number of units of equivalent size, as existed at the high point of those units in the five-year period preceding the application to be made available at affordable rent or affordable housing cost to, and occupied by, persons and families in the same or lower-income category as those persons and families in occupancy at that time, if known. If the incomes of the persons and families in occupancy at the high point is not known, it shall be rebuttably presumed that low-income and very low-income renter households occupied these units in the same proportion of low- income and very low-income renter households to all renter households within the jurisdiction, as determined by the most recently available data from HUD's database. All replacement calculations resulting in fractional units shall be rounded up to the next whole number. The replacement units shall be subject to a recorded affordability restriction for at least 55 years.
       3. For any dwelling unit specified in i), above, that is or was, within the five-year period preceding the application, subject to a form of rent or price control through a local government's valid exercise of its police power and that is or was occupied by persons or families above lower-income, the city or county may do either of the following, notwithstanding ii), above:
          1. Require that replacement units be made available at affordable rent or affordable housing cost to, and occupied by, low-income persons or families. If the replacement units will be rental dwelling units, these units shall be subject to a recorded affordability restriction for at least 55 years. If the proposed development is for-sale units, the units shall be subject to 39b), above; and,
          2. Require that the units be replaced in compliance with the jurisdiction's rent or price control ordinance, provided that each unit described in 39b)i), above, is replaced. Unless otherwise required by the jurisdiction's rent or price control ordinance, these units shall not be subject to a recorded affordability restriction.
       4. Defines the term "equivalent size" to mean that the replacement units contain at least the same total number of bedrooms as the units being replaced.
40. Required OPR to be responsible for the administration of the approval of a housing sustainability district and the award of the first half of the incentive payment. Requires HCD to be responsible for the continued compliance of a district with the bill's provisions and the award of the second half of the incentive payment, as specified.
41. Required HCD to conduct, or cause to be conducted, an annual review of the housing sustainability district program. Specifies that HCD may require participating cities and counties to provide data on districts within their jurisdiction as necessary to conduct this review and prepare the report.
42. Required HCD to publish a report on its Internet Web site not later than November 1, 2018, and each November 1 thereafter, and requires the report to include all of the following:
    1. The status of the program through the fiscal year prior to the publication of the report;
    2. An identification and description of cities and counties seeking preliminary determination from OPR;
    3. An identification of approved housing sustainability district and the incentive payments awarded;
    4. A summary of the land area within both proposed and approved housing sustainability districts and the purposes for which it is zoned;
    5. The number of projects under review by an approving authority, proposed residential units, building permits issued, and completed housing units as of the date of the report's publication; and,
    6. An estimate, for the current and immediately succeeding fiscal year, of the number and size of proposed new districts, potential number of residential units allowed in new districts, and anticipated construction activity.
43. Required the return of the incentive payment by the city or county if no construction has started in a district within three years of the date that the first half of the incentive payment was made. Requires amounts repaid to be used to further incentive payments.
44. Required a lead agency to prepare an EIR when designating a district to identify and mitigate, to the extent feasible, environmental impacts resulting from the designation. Requires the EIR to identify mitigation measures that may be undertaken by housing projects in the district to mitigate the environmental impacts identified by the EIR.
45. Specified that CEQA does not apply to a housing project undertaken in a district designated by a local government if all of the following are met:
    1. The lead agency has certified an EIR for the housing sustainability district, and OPR has approved the district, within 10 years of the lead agency's review of the housing project;
    2. The housing project meets the conditions specified in the designation for the district; and,
    3. The housing project is required to implement appropriate mitigation measures identified in the EIR to mitigate environmental impacts identified in that EIR.
46. Added housing sustainability districts to the section of law related to the reforms and incentives used to facilitate and expedite the construction of affordable housing, as declared by the Legislature.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. HCD would incur unknown, significant costs to implement and administer a program to review and approve HSD ordinances, annually certify compliance, and manage the issuance of incentive payments. HCD indicates that an initial basic program would require the addition of 7 PY of new staff at a cost of approximately $900,000 annually (General Fund). These costs could initially be lower, and increase in future years, depending on demand for local governments to establish HSDs and the availability of funding for incentive payments.
2. Unknown major cost pressures, potentially in the tens of millions annually, to provide zoning incentive payments to cities and counties that establish HSDs. Senate Appropriations Committee staff notes that the bill does not specify the amount of each incentive payment, but requires the amount to be based upon the number of new units constructed within the HSD. (General Fund)

COMMENTS:

1. Bill Summary. This bill provides local governments the option of creating "Housing Sustainability Districts," which operate as overlay districts to streamline the residential development process in areas with existing infrastructure and transit. These districts would be zoned at higher densities, near public transit, and an EIR on the district would be completed at the front end. Additionally, 20% of the housing in the district must be zoned at affordable levels. Any development affordable to persons and families whose income exceeds moderate-income shall contain no less than 10% units for lower-income households. Once zoning is complete, the housing sites within the district would be subject to ministerial approval and subject to prevailing wage. In exchange for creating Districts, localities receive incentive payments to encourage their establishment of these districts, at two stages:

a) First, local governments receive an incentive payment when they create Districts. This payment would be issued by the HCD upon preliminary approval of the district ordinance and issuance of the EIR.

b) Once a city permits housing units within a district and demonstrates it has received a certificate of compliance from HCD, it would receive a second incentive payment. This payment would be issued by HCD.

This bill seeks to expedite and streamline local housing development approval processes by exempting project-level environmental review. Additionally, this bill requires the locality to issue a written decision within 120 days of receipt of the application. This bill is sponsored by the author.

1. Author's Statement. According to the author, "California is facing a severe housing crisis which, if left unaddressed, will continue to threaten our economic competitiveness, our ability to achieve our climate change goals through proper planning, and the fundamental prosperity and success of our residents.

"California's poverty rate is 20th in the nation but, when housing is factored in, it jumps to number one. The lack of significant investment in programs to support construction of housing that is affordable has had a considerable impact on the growing inequity in our state. About 1.7 million low-income renter households (almost 14% of all households) in California report spending more than half of their income on housing. California now has an annual affordable housing gap that totals $50 billion to $60 billion. The housing shortage currently costs the California economy between $143 billion and $233 billion per year, an effect that will continue to worsen. According to the McKinsey Global Institute, at current construction rates, California will have a projected housing shortfall of 3.5 million homes by 2025.

"AB 73 spurs the creation of much needed housing on infill sites around public transportation by incentivizing local governments to complete upfront zoning and environmental review and rewarding them when they permit housing."

1. Arguments in Support. Supporters argue that this bill is a creative solution to help California address the housing crisis, similar to what Massachusetts has enacted called the Smart Growth Zoning Overlay District Act (commonly known as 40R). Supporters believe that the success of 40R indicates that incentivizing local governments to complete upfront zoning and environmental review and rewarding them when they permit housing will jumpstart the creation of much needed housing.
2. Arguments in Opposition. Opponents write that they believe a project-level CEQA review is necessary to protect California's environment and public health, rather than a community-wide review.

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958 FN: 0001279

 THIRD READING  

Bill No: AB 73

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 8-3, 6/27/17

AYES: Beall, Cannella, Atkins, McGuire, Mendoza, Roth, Skinner, Wiener

NOES: Bates, Gaines, Morrell

NO VOTE RECORDED: Allen, Wieckowski

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 4-2, 7/5/17

AYES: Hill, Lara, Skinner, Stern

NOES: Stone, Gaines

NO VOTE RECORDED: Wieckowski

SENATE GOVERNANCE & FIN. COMMITTEE: 5-2, 7/12/17

AYES: McGuire, Beall, Hernandez, Hertzberg, Lara

NOES: Nguyen, Moorlach

SENATE APPROPRIATIONS COMMITTEE: 5-2, 7/17/17

AYES: Lara, Beall, Bradford, Hill, Wiener

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 56-20, 6/1/17 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill allows a city or county to create a housing sustainability district (HSD) to complete upfront zoning and environmental review in order to receive incentive payments for development projects that are consistent with the district's ordinance.

ANALYSIS:

Existing law:

1. Requires the board of zoning adjustment or zoning administrator to hear and decide applications for conditional uses or other permits when the zoning ordinance provides therefor and establishes criteria for determining those matters, and applications for variances from the terms of the zoning ordinance.
2. Requires localities to prepare and adopt a general plan, including a housing element, to guide the future growth of a community. The housing element shall consist of an identification and analysis of existing and projected housing needs and identify adequate sites for housing, including rental housing, factory-built housing, mobile homes, and emergency shelters and to make adequate provision for the existing and projected needs of all economic segments of the community.
3. Requires localities within the territory of a metropolitan planning organization (MPO) to revise their housing elements every eight years following the adoption of every other regional transportation plan. Localities in rural non-MPO regions must revise their housing elements every five years.
4. Permits localities, after the adoption of a general plan, to prepare specific plans for the systematic implementation of the general plan for all or part of the area covered by the general plan. A specific plan shall include a statement of the relationship to the general plan, and a text and a diagram or diagrams which specify all of the following in detail:
5. The distribution, location, and extent of the uses of land, including open space, within the area covered by the plan.
6. The proposed distribution, location, and extent and intensity of major components of public and private transportation, sewage, water, drainage, solid waste disposal, energy, and other essential facilities proposed to be located within the area covered by the plan and needed to support the land uses described in the plan.
7. Standards and criteria by which development will proceed, and standards for the conservation, development, and utilization of natural resources, where applicable.
8. A program of implementation measures including regulations, programs, public works projects, and financing measures necessary to carry out paragraphs (1), (2), and (3).
9. Requires, under the California Environmental Quality Act (CEQA), a lead agency to prepare or cause to be prepared and certify the completion of an environmental impact report (EIR) on a project that it proposes to carry out or approve that may have a significant effect on the environment or to adopt a negative declaration for a project that may have a significant effect on the environment if revisions in the project would avoid or mitigate that effect and there is no substantial evidence that the project would have a significant effect on the environment.

This bill:

1. Permits a locality, upon receipt of preliminary approval by the Department of Housing and Community Development (HCD), to establish by ordinance an HSD. Defines “housing sustainability district” as an area within a locality that is superimposed over an area within the locality in which a developer may elect to develop a project in accordance with the sustainability district ordinance or the localities otherwise applicable general plan and zoning ordinances.
2. Defines “developable land” as the area within an HSD that can be feasibly developed into residential or mixed-use development. “Mixed-use” means that up to 50% of the square footage is designated for nonresidential use.
3. Requires an area proposed to be designated as an HSD shall satisfy specified requirements, including, but not limited to:
   1. The area is an eligible location, defined as either of the following: an area located within ½ mile of public transit or an area that, by virtue of existing infrastructure, transportation access, existing underutilized facilities, or location, is highly suitable for residential or mixed-use HSD.
   2. The area is zoned to permit residential use through the ministerial issuance of a permit. Other uses may be permitted by conditional use or other discretionary permit, provided it is consistent with residential use.
   3. Density ranges for multifamily housing shall not be less than those deemed appropriate to accommodate housing for lower-income households as set forth in Housing Element Law, and a density for single-family housing shall not be less than 10 units per acre.
   4. The area of the HSD does not exceed 15% of the total land area under the locality unless HCD approves a larger area. The total area of all HSDs in a locality shall not exceed 30% of the total land area in the locality.
   5. Development projects in the area comply with requirements regarding the replacement of affordable housing units affected by the development.
4. Requires the HSD to do the following:
   1. Provide for an approving authority to review permit applications for development within the HSD, as specified.
   2. Require at least 20% of the residential units constructed within the HSD to be affordable to very low-, low-, and moderate-income households and subject to affordability restrictions for at least 55 years. If a development that is affordable to persons and families whose income exceeds moderate income shall contain no less than 10% of the units for lower-income households, unless the locality has adopted an ordinance that requires a greater percentage, in which case the ordinance shall apply.
   3. If a locality includes its entire regional housing needs allocation within the HSD, the percentages of the total units constructed shall match the percentages in each income category of the localities regional housing need allocation.
   4. Requires an applicant for a permit to do the following:
      1. Certify that the entirety of the project is a public work or if the project is not entirely a public work, that all construction workers employed in the execution of the project shall be paid at least the general prevailing rate of per diem wages for the type of work and geographic area as determined by the Director of Industrial Relations.
      2. Provides that projects, for which specified conditions apply, certify to the approving authority that a skilled and trained workforce will be used to complete the project.
      3. Provides that these provisions do not apply to projects with 10 or fewer units.
5. Permits a locality that has proposed an ordinance for an HSD to apply to HCD for preliminary approval of an HSD. HCD shall make a preliminary determination as to the eligibility of the HSD for approval. Requires, on or before October 1 of each year following HCD’s approval of the localities HSD, HCD to issue a certificate of compliance if it finds that the locality has satisfied specified requirements.
6. Requires a locality with a HSD to be entitled to a zoning incentive payment, upon appropriation by the Legislature, HCD shall issue the first half of the zoning incentive payment to the locality upon preliminary approval of the HSD ordinance and issuance of the EIR. HCD shall issue the second half of the zoning incentive payment within 10 days of proof of issuance of building permits by the locality for the projected units of residential construction, provided the locality has also received a certificate of compliance.
7. Requires the applicant to file an application or a permit with the appropriate local official and the approving authority. The authority shall conduct a public hearing and issue a written decision within 120 days of receipt of the application. Failure to act within 120 days will result in an approval of the application.
8. Permits an approving authority to deny an application only for the following reasons:
   1. The proposed development does not fully comply with the HSD ordinance;
   2. The applicant has not submitted all the required information or paid an application fee;
   3. The approving authority determines, based upon substantial evidence in light of the whole record of the public hearing on the project, that a physical condition on the site of the development that was not known and could not have been discovered with reasonable investigation at the time the application was submitted would have a specific adverse impact upon the health or safety and that there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact. “Specific adverse impact” means a significant, quantifiable, direct, and unavoidable impact based on objective written public health or safety standards, policies or conditions, as in existence at the time the application is deemed complete.
9. Requires an approving authority to condition the approval of an application on the applicant’s agreement to replace affordable housing units if a proposed development includes any parcels being used for affordable housing.
10. Requires HCD to conduct an annual review of the HSD program.
11. Requires a lead agency to prepare an EIR when designating an HSD to identify and mitigate, to the extent feasible, environmental impacts resulting from the designation. The EIR shall identify mitigation measures that may be undertaken by housing projects in the HSD to mitigate the environmental impacts identified in the EIR.
12. Exempts a housing project in an HSD from conducting an EIR if all the following are met:
    1. The lead agency has certified an EIR for the HSD and HCD has approved the HSD within 10 years of the lead agency’s review of the housing project.
    2. The housing project meets the conditions specified in the designation for the HSD.
    3. The housing project is required to implement appropriate mitigation measures identified in the EIR to mitigation environmental impacts identified by the EIR.

Comments

1. HSDs. This bill provides local governments the option of creating "Housing Sustainability Districts,” which operate as overlay districts to streamline the residential development process in areas with existing infrastructure and transit. These districts would be zoned at higher densities, near public transit, and an EIR on the district would be completed at the front end. Additionally, 20% of the housing in the district must be zoned at affordable levels. Any development affordable to persons and families whose income exceeds moderate-income shall contain no less than 10% units for lower-income households. Once zoning is complete, the housing sites within the district would be subject to ministerial approval and subject to prevailing wage.

In exchange for creating HSDs, localities receive incentive payments to encourage their establishment of these districts, at two stages:

a) First, local governments receive an incentive payment when they create HSDs. This payment would be issued by the HCD upon preliminary approval of the district ordinance and issuance of the EIR.

b) Once a city permits housing units within a district and demonstrates it has received a certificate of compliance from HCD, it would receive a second incentive payment. This payment would be issued by HCD.

This bill seeks to expedite and streamline local housing development approval processes by exempting project-level environmental review. Additionally, this bill requires the locality to issue a written decision within 120 days of receipt of the application.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee:

• HCD would incur unknown, significant costs to implement and administer a program to review and approve HSD ordinances, annually certify compliance, and manage the issuance of incentive payments. HCD indicates that an initial basic program would require the addition of 7 PY of new staff at a cost of approximately $900,000 annually (GF). These costs could initially be lower, and increase in future years, depending on demand for local governments to establish HSDs and the availability of funding for incentive payments.
• Unknown major cost pressures, potentially in the tens of millions annually, to provide zoning incentive payments to cities and counties that establish HSDs. Senate Appropriations Committee staff notes that the bill does not specify the amount of each incentive payment, but requires the amount to be based upon the number of new units constructed within the HSD. (General Fund)

SUPPORT: (Verified 8/28/17)

Bridge Housing

California Apartment Association

California Association of Realtors

Disability Rights California

Judicial Council

Leading Age California

OPPOSITION: (Verified 8/28/17)

American Fire Sprinkler Association – California Chapter

Associated Builders and Contractors – Northern California

Council of Community Housing Organizations

Central Valley Chapter of Associated Builders and Contractors

Independent Roofing Contractors of California

Plumbing-Heating-Cooling Contractors Association of California

San Diego Chapter of Associated Builders and Contractors

Sierra Club California

Southern California Chapter of Associated Builders and Contractors

Western Electrical Contractors Association

ARGUMENTS IN SUPPORT: According to the author, California is facing a severe housing crisis which, if left unaddressed, will continue to threaten our economic competitiveness, our ability to achieve our climate change goals through proper planning, and the fundamental prosperity and success of our residents. California’s poverty rate is 20th in the nation but, when housing is factored in, it jumps to number one. The lack of significant investment in programs to support construction of housing that is affordable has had a considerable impact on the growing inequity in our state. About 1.7 million low-income renter households (almost 14% of all households) in California report spending more than half of their income on housing. California now has an annual affordable housing gap that totals $50 billion to $60 billion. The housing shortage currently costs the California economy between $143 billion and $233 billion per year, an effect that will continue to worsen. According to the McKinsey Global Institute, at current construction rates, California will have a projected housing shortfall of 3.5 million homes by 2025. This bill spurs the creation of much needed housing on infill sites around public transportation by incentivizing local governments to complete upfront zoning and environmental review and rewarding them when they permit housing.

ARGUMENTS IN OPPOSITION: A coalition of builders and contractors, writing in opposition, state that labor provisions provided in the bill would “eschew Fair and Open Competition and skew the general requirements that prevailing wage be paid on public works and that the Labor commissioner is empowered to enforce” prevailing wages. The Sierra Club is opposed to project-level CEQA exemptions because it is necessary to protect California’s environment and public health and, in their opinion, CEQA is not an impediment to housing development in the State.

ASSEMBLY FLOOR: 56-20, 6/1/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Eggman, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Travis Allen, Baker, Bigelow, Brough, Chen, Cunningham, Dahle, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte, Patterson, Voepel, Waldron

NO VOTE RECORDED: Acosta, Cervantes, Choi, Flora

Prepared by:

8/28/17 15:22:57

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

AB 73 (Chiu) - Planning and zoning: housing sustainability districts

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 73 would authorize a city or county to establish a housing sustainability district (HSD) that provides for ministerial approval of residential development projects with an affordable housing component, upon approval from the Department of Housing and Community Development (HCD) and after preparing an environmental impact report (EIR) to identify and mitigate impacts associated with an HSD, as specified. Cities and counties that establish an HSD would be entitled to a zoning incentive payment, upon appropriation of funds by the Legislature for that purpose.

Fiscal Impact:

• HCD would incur unknown, significant costs to implement and administer a program to review and approve HSD ordinances, annually certify compliance, and manage the issuance of incentive payments. HCD indicates that an initial basic program would require the addition of 7 PY of new staff at a cost of approximately $900,000 annually (General Fund). These costs could initially be lower, and increase in future years, depending on demand for local governments to establish HSDs and the availability of funding for incentive payments.
  
• Unknown major cost pressures, potentially in the tens of millions annually, to provide zoning incentive payments to cities and counties that establish HSDs. Staff notes that the bill does not specify the amount of each incentive payment, but requires the amount to be based upon the number of new units constructed within the HSD. (General Fund, see Staff Comments)

Background:

Existing law, the Planning and Zoning Law, requires cities and counties to prepare a general plan comprised of seven mandatory elements, including a housing element that includes an identification of existing and projected housing needs. The housing element must identify an inventory of adequate sites zoned for housing at all income levels and to accommodate a jurisdiction’s share of the Regional Housing Need Assessment (RHNA) over the planning period. Existing law also establishes a planning agency in each city and county, which may be a separate planning commission, administrative body, or the legislative body of the city or county itself.

Local agencies may also adopt specific plans that provide for the systematic implementation of a general plan in a particular area. Specific plans identify in detail permitted land uses and densities, the proposed distribution of infrastructure, standards, and a program of implementation and mitigation measures. Specific plans are often appropriate for larger infill development opportunities because they allow a community to determine the mix of uses, densities and development standards that are suitable to the site or sites but that may not be applicable to the jurisdiction as a whole. Because adopting specific plans can be relatively expensive for a local government, they currently are used less for up-front planning than to handle specific applications.

Existing law, the California Environmental Quality Act (CEQA) requires the state and local governments to study and mitigate, to the extent feasible, the environmental impacts of proposed projects. An agency that proposes to undertake a project that may have a significant impact on the environment must prepare an EIR to study the impacts and identify measures to mitigate those impacts. An EIR may be required at many levels of planning, including the adoption of a general plan, a specific plan, or zoning ordinance, or for an individual development project. CEQA also allows agencies to adopt a programmatic EIR, which is a more comprehensive EIR developed up front that can be used as the basis for more streamlined “tiered” EIRs for individual projects. If a local agency determines that a project subject to CEQA will not have a significant effect on the environment, it may issue a negative declaration.

The 1977 Permit Streamlining Act requires public agencies to act fairly and promptly on applications for development permits. Public agencies must compile lists of information that applicants must provide and explain the criteria they will use to review permit applications. Public agencies have 30 days to determine whether applications for development projects are complete; failure to act results in an application being "deemed complete." However, local governments may continue to request additional information, potentially extending the time before the shot clock begins running.

Proposed Law:

AB 73 would authorize a city or county, upon approval from HCD, to establish an HSD that would provide for ministerial approval of eligible housing projects without preparing a project-level EIR in a designated area in which the city or county has conducted upfront zoning and environmental review. Among other things, this bill would:

• Authorize a city or county to adopt an ordinance that establishes an HSD, upon receipt of preliminary approval by HCD, in an area located within ½ mile of public transit or that is highly suitable for residential or mixed-use development, and that satisfies specified requirements. An HSD must be zoned to permit residential use through ministerial issuance of a permit, must have minimum density requirements, must provide for replacement of affordable units, and may not exceed 15 percent of the jurisdiction’s total land area. The total area of all HSDs within a jurisdiction may not exceed a total of 30 percent of the total land area.
• Require the HSD to do all of the following:
  • Specify the procedures and requirements for permit review, as specified, including a ministerial permit approval process with a maximum permit application review period of 120 days before an application is deemed approved.
  • Require that at least 20 percent of residential units constructed within the district meet specified affordability restrictions, as specified.
  • Specify that a project that is not deemed for residential use if it is infeasible for actual use as a single or multifamily residence.
  • Require a permit applicant to certify compliance with prevailing wage requirements and the use of a skilled and trained workforce, as specified.
  • Provide that a project is not eligible for approval if it involves the subdivision of land, unless the project is subject to prevailing wage requirements, as specified.
  • Provide for relocation assistance to persons or families displaced as a result of development within the HSD.
• Limit the effective period of an HSD ordinance to 10 years, and provide that the city or county may renew the period for an additional 10 years.
• Require a city or county proposing an HSD ordinance to submit an application for preliminary approval to HCD that includes the following:
  • A description of the proposed HSD boundaries, a description of developable land within the proposed HSD, and a description of other residential development opportunities within the city or county.
  • A copy of the city or county adopted housing element, proposed HSD ordinance, and the EIR that identifies and mitigates the environmental impacts resulting from the designation of the HSD.
  • A copy of the city or county design review standards that may be developed for applicability within an HSD.
  • Any other materials that support compliance with the requirements for an HSD.
• Require HCD to make a preliminary determination of eligibility of the proposed HSD for approval, and require HCD approval if the ordinance meets the specified requirements and the jurisdiction’s housing element is in compliance.
• Require HCD to confirm approval within 45 days of receiving the application, following preliminary approval and upon receiving notification that the ordinance has taken effect.
• Require HCD to annually certify that an HSD is in compliance, if the department finds that the city or county has satisfied specified requirements.
• Specify that a city or county with an HCD-approved HSD is entitled to a “zoning incentive payment” based on the number of new residential units constructed within the HSD, upon appropriation of funds by the Legislature for that purpose.
• Require HCD to issue the first half of the zoning incentive payment upon preliminary approval of the HSD ordinance and issuance of the EIR, and issue the second half of the payment within 10 days of submittal of the issuance of building permits for the projected units of residential development within the zone, as specified.
• Require a city or county to return the full amount of zoning incentive payments it has received if it reduces the density of sites within the HSD from required levels.
• Authorize a city or county to charge an application fee on projects within an HSD to defray the costs of preparing, adopting, and administering the HSD plan, including costs related to preparation of the district-level EIR.
• Authorize a city or county to adopt design review standards applicable to projects within an HSD, as specified.
• Require an approving authority to condition the approval of an application for a project within an HSD that includes any parcels currently used for affordable housing upon the applicant’s agreement to replace affordable housing units, as specified.
• Require HCD to administer this program and authorize HCD to review, adopt, and repeal standards, forms, and conditions related to this program, and exempts the adoption from the requirements of the Administrative Procedures Act.
• Require HCD to annually review the HSD program and annually report specified program-related information from the prior fiscal year by November 1.
• Require a city or county to prepare an EIR when designating an HSD to identify and mitigate environmental impacts resulting from the designation. Housing projects undertaken within an HSD would be exempt from project-level EIR requirements if: (1) the lead agency has certified an EIR for the HSD and HCD has approved the HSD within 10 years; (2) the housing project meets HSD conditions; and (3) the project is required to implement appropriate mitigation measures identified in the EIR.
• Incorporate provisions to avoid chaptering conflicts with SB 35 (Wiener) pertaining to the section that amends findings and declarations related to affordable housing.

Related Legislation:

SB 540 (Roth), which is currently pending in the Assembly Rules Committee, would authorize a city or county to establish a Workforce Housing Opportunity Zone (WHOZ) by preparing an EIR to identify and mitigate impacts from establishing a WHOZ and adopting a specific plan. A local government must approve a housing development within the WHOZ that meets specified criteria. SB 540 authorizes cities and counties to apply to HCD for a no-interest loan or grant to support efforts to develop a specific plan and accompanying EIR within a WHOZ.

Staff Comments:

The bill establishes a new program that authorizes cities and counties to establish HSDs, upon approval by HCD. Local governments would be granted new authority to charge a fee on development projects within an HSD to defray the cost of preparation, adoption, and administration of the district, including costs of preparing the EIR. The bill would also entitle cities and counties that establish an HSD to a zoning incentive payment after establishing an HSD, but does not provide funding or specify a funding source for the payments, instead making funds available upon appropriation by the Legislature. The demand for local governments to establish HSDs and the amount of funding necessary for providing incentive payments is unknown.

HCD estimates that the state needs to build 180,000 housing units per year over the next decade to make up the shortfall in housing stock. If only 10 percent of these residential units were constructed in HSDs each year, and the incentive payments were set at a rate of $1,000 per unit, the General Fund cost pressures would be $18 million annually. It is unclear how HCD would structure the incentive payment amount, whether it would fluctuate each year depending on the amount of state funding made available for this purpose, and whether cities and counties would be waitlisted if no funds were available in certain years.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Planning and zoning: housing sustainability districts

Provides funding and streamlined environmental review processes to cities and counties that voluntarily establish Housing Sustainability Districts.

Background

Land Use Planning and Permitting. The California Constitution allows a city to "make and enforce within its limits, all local, police, sanitary and other ordinances and regulations not in conflict with general laws." It is from this fundamental power (commonly called the police power) that local governments derive their authority to regulate behavior to preserve the health, safety, and welfare of the public—including land use authority.

The Planning and Zoning Law establishes a planning agency in each city and county, which may be a separate planning commission, administrative body, or the legislative body of the city or county itself. Public notice must be given at least 10 days in advance of hearings where most permitting decisions will be made. The law also allows residents to appeal permitting decisions and other actions to either a board of appeals or the legislative body of the city or county. Cities and counties may adopt ordinances governing the appeals process, which can entail appeals of decisions by planning officials to the planning commission and the city council or county board of supervisors.

The Planning and Zoning Law also requires every county and city to adopt a general plan that sets out planned uses for all of the area covered by the plan. A general plan must include seven mandatory elements, including a housing element that establishes the locations and densities of housing, among other requirements. Cities’ and counties’ major land use decisions—including most zoning ordinances and other aspects of development permitting—must be consistent with their general plans. In this way, the general plan is a blueprint for future development.

A city or county’s housing element must identify adequate sites for housing at all income levels—very low, low, moderate, and above moderate income—and must include rental housing, factory-built housing, mobile homes, and emergency shelters. Each local jurisdiction must also ensure that its housing element makes enough sites available to accommodate its share of the regional housing need assessment (RHNA), which is an estimate for various regions in the state that is developed by the Department of Finance and the Department of Housing and Community Development (HCD) and further allocated amongst individual local jurisdictions. The housing element of a general plan must generally be updated every eight years, and the local government must identify an adequate number of sites throughout its entire planning period. Every city and county must submit a report to HCD and the Office of Planning and Research annually on its implementation and progress towards meeting its RHNA amount and removing governmental obstacles to housing development.

Local governments use their police power to enact zoning ordinances that shape development, including setting maximum densities for housing units, minimum numbers of required parking spaces, and setbacks to preserve privacy. These ordinances can also include conditions on development to address aesthetics, community impacts, or other particular site-specific considerations.

Some local ordinances provide “ministerial” processes for approving projects that are permitted “by right”—the zoning ordinance clearly states that a particular use is allowable, and local government does not have any discretion regarding approval of the permit if the application is complete. Local governments have two options for providing landowners with relief from zoning ordinances that might otherwise prohibit or restrict a particular land use: variances and conditional use permits. A variance may be granted to alleviate a unique hardship on a property owner because of the way a generally-applicable zoning ordinance affects a particular parcel, and a conditional use permit allows a land use that is not authorized by right in a zoning ordinance, but may be authorized if the property owner takes certain steps, such as to mitigate the potential impacts of the land use. Both of these processes require hearings by the local zoning board and public notice.

Some housing projects can be permitted by city or county planning staff ministerially or without further approval from elected officials. Projects reviewed ministerially require only an administrative review designed to ensure they are consistent with existing general plan and zoning rules, as well as meet standards for building quality, health, and safety. Most large housing projects are not allowed ministerial review. Instead, these projects are vetted through both public hearings and administrative review, including design review and appeals processes.

Local agencies may also adopt specific plans that provide for the systematic implementation of a general plan in a particular area. Specific plans are an optional way to provide for the implementation of the general plan for all or a portion of a community. Specific plans specify in detail permitted land uses and densities, the proposed distribution of infrastructure, standards, and a program of implementation and mitigation measures. As opposed to zoning ordinances which establish uniform standards for zones throughout a community, plans generally provide customized standards for a particular site or neighborhood.

Specific plans are often appropriate for larger infill development opportunities. They allow a community to determine the mix of uses, densities, and development standards that are suitable to the site or sites but that may not be applicable to the jurisdiction as a whole. Because adopting specific plans can be relatively expensive for a local government, they currently are used less for up-front planning than to handle specific applications. Planning does not happen until a developer shows up who will pay for it.

Environmental Review. The California Environmental Quality Act (CEQA) requires the state and local governments to study and mitigate, to the extent feasible, the environmental impacts of proposed projects. An agency that proposes to undertake a project that may have a significant impact on the environment must prepare an Environmental Impact Report (EIR) to study the impacts and identify measures to mitigate those impacts. An EIR may be required at many levels of planning, including the adoption of a general plan, a specific plan, or zoning ordinance, or for an individual development project. CEQA also allows agencies to adopt a programmatic EIR, which is a more comprehensive EIR developed up front that can be used as the basis for more streamlined “tiered” EIRs for individual projects.

Some projects are exempt from CEQA review, through either a statutory exemption created by the Legislature or a categorical exemption created by the Secretary of Natural Resources because a given type of project does not usually have a significant effect on the environment. Other projects are subject to CEQA but will not have a significant effect on the environment; in these cases, the agency responsible for environmental review issues a negative declaration. Most housing projects that require discretionary review and approval are subject to CEQA review, while projects permitted ministerially are not.

California’s Housing Challenges. California faces a severe housing shortage. In its most recent statewide housing assessment, the Department of Housing and Community Development (HCD) estimated that California needs to build an additional 100,000 units per year over recent averages of 80,000 units per year to meet the projected need for housing in the state. A variety of causes have contributed to the lack of housing production, but recent reports by the Legislative Analyst’s Office and others point to local approval processes as a major factor. The building industry points to CEQA review, and housing advocates point to a lack of a dedicated source of funds for affordable housing. The author wants to encourage local governments to permit new housing development that is affordable to most Californians by offering benefits in exchange for a streamlined approval process.

Proposed Law

Assembly Bill 73 allows a city, county, or city and county, including charter cities to establish a “housing sustainability district” within its jurisdiction upon approval from HCD, entitling the city or county to payments based on how much housing it permits in the district.

Housing Sustainability Districts and Ordinances. A city or county can create a housing sustainability district by enacting an ordinance that designates an area in the city or county where a developer can choose to develop a residential or mixed use development, where residential uses make up at least half of the square footage of the development, in accordance with a streamlined process established by the ordinance, or with the otherwise applicable general plan and zoning ordinances. The district must:

• Be zoned to permit residential use ministerially and at densities that allow for lower income households, as designated in the city or county’s housing element.
• Only cover areas that are: (1) located within one-half mile of public transit, (2) areas of concentrated development, or (3) highly suitable for residential or mixed-use development because of its location, existing infrastructure, transportation access, or existing underutilized facilities.
• Not be subject to any limitations or moratoria on housing development or age or occupancy restrictions, except that a district may allow for projects exclusively reserved for the elderly or disabled, or for assisted living.
• Comply with all applicable fair housing laws.
• Not exceed 15 percent of the total land area in the jurisdiction, and all districts in the jurisdiction must not exceed 30 percent of the area of the jurisdiction.

An ordinance establishing a housing sustainability district must:

• Establish a development approval process that conforms to the bill’s requirements.
• Require at least 20% of the units within the district to be subject to a deed restriction that keeps the units affordable to very low, low, or moderate income households for at least 55 years.
• Require each market-rate development within the district to make at least 10 percent of the units affordable to lower income households, unless the city or county has adopted a higher inclusionary zoning requirement.
• Match the percentages of the total units constructed in the district to the percentages for very low, low, moderate, and above moderate households contained in the city or county’s RHNA.
• Specify that a project is not deemed to be for residential use if it is infeasible for actual use as a single or multifamily residence.
• Provide for relocation assistance for persons and families displaced due to development in the district.

Developments in the district must be public works or subject to prevailing wage requirements or a project labor agreement. Projects that cost more than an unspecified amount must use a skilled and trained workforce.

The ordinance can describe the requirements of an application for development, impose a fee to cover the costs of establishing and administering the district, and provide for referral of an application to any officers, agencies, or bureaus of the city for comment. Those entities must provide any comments on the application within 60 days of referral.

AB 73 also allows a city or county to adopt design review standards for projects within the district, so long as they do not add unreasonable costs to a residential or mixed use development or unreasonably impair the economic feasibility of a project within the district. A city or county can apply uniform standards that apply to all developments in the district, such as parking ordinances and requirements to reduce greenhouse gas emissions.

Project Approval Process. AB 73 requires an ordinance to comply with any rules and regulations developed by HCD and requires the approval process to meet certain requirements. Specifically, the city or county must designate a body as an “approving authority” with the ability to approve applications for development projects within the district. Within 120 days of receiving an application, the approving authority must conduct a public hearing in accordance with the state’s open meetings law and issue a written decision on an application. If the approving authority does not act within that period, the application is deemed approved, and the applicant must notify the relevant official and interested parties within 14 days. For five years following approval of an application or two years following the denial of an application, the general plan and housing sustainability ordinance in force at the time of approval continue to govern the application.

An approving authority may only deny an application for one of the following reasons:

• The development does not comply with the housing sustainability district ordinance;
• The applicant has not submitted all of the required information or paid a required application fee;
• There is a physical condition at the site of the development that would create a specific adverse impact on the public health or safety and could not have been known with reasonable investigation at the time the application was submitted.

Any appeals of projects must commence within 20 days of notice of the written decision, or of the project being deemed approved. An applicant may appeal a denial to the superior court in the county, where the burden of proof is on the approving authority to demonstrate, based on substantial evidence in the record, that its decision was in compliance with the housing sustainability ordinance and the provisions of AB 73.

HCD Approval of Districts and Ordinances. A city or county that has developed a proposed ordinance establishing a housing sustainability district may apply to HCD for preliminary approval of the district. As part of the application, the city or county must submit:

• A description of the boundaries of the proposed district, and the developable land and other residential development opportunities within the proposed district.
• A copy of the city or county’s housing element, ordinance establishing the district, EIR for the district, design review standards, and other materials establishing the district’s compliance with the bill.

HCD must give preliminary approval to a district if the ordinance establishing the district meets the requirements of the bill and if the city or county’s housing element complies with the requirements in state law. If HCD denies the approval, it must list the deficiencies, and the city or county may reapply after it has corrected the deficiencies. Once an ordinance that receives preliminary approval has taken effect, HCD must confirm approval.

Annually by October 1, HCD must confirm that the district is in compliance with the requirements of the bill and that the city or county has not:

• Denied any development for reasons other than inconsistency with its housing sustainability ordinance, its housing element, or the provisions of the bill; or
• Adopted design review standards that add unreasonable costs to a residential or mixed use development or unreasonably impair the economic feasibility of a project within the district.

A city or county may only amend or repeal an ordinance establishing a district with approval from HCD, which must evaluate the effect of the proposed amendment or repeal on the city or county’s housing element. If the department does not respond to a request for approval within 60 days, the amendment or repeal is deemed approved. However, AB 73 provides that its requirements shall not be construed to affect the ability of a city or county to amend its zoning ordinances except to the extent that such an amendment modifies a housing sustainability district.

Zoning Incentive Payments. AB 73 provides, upon appropriation by the Legislature, a “zoning incentive payment” to a city or county that is certified as complying with the requirements of the bill and that permits new residential units within the district. AB 73 provides payments of unspecified amounts for projected construction of developments of 20 or fewer units, 21-100 units, 101-200 units, 201-500 units, and 501 or more units, based on the number of new units constructed in the district. These zoning incentive payments are paid in two installments—the first half is paid upon preliminary approval of the district by HCD, and the second half is paid within 10 days of the city or county proving that building permits for new units have been issued, as long as the city or county is in compliance with the requirements of the bill. A city or county must repay these payments to HCD if it reduces the density of sites within the district below densities suitable for affordable developments.

Replacement Housing Requirements. AB 73 requires a proposed development to replace any affordable housing units that would be lost due to the development, including units that are subject to an enforceable restriction or rent control, or occupied by very low or low income households. If the income of the occupants isn’t known, the lost units are presumed to have an income distribution equivalent to the distribution of renters in the jurisdiction. The replacement units must be included in the development, subject to an enforceable restriction for 55 years, and be of at least an equivalent size and number as those that were lost. The replacement units do not count as new units for the purposes of receiving zoning incentive payments.

Environmental Review. Instead of traditional CEQA review, AB 73 establishes a new process. AB 73 requires the city or county to prepare an EIR for the district to identify and mitigate, to the extent feasible, environmental impacts resulting from the district. The EIR must include specific mitigation measures. AB 73 exempts a specific project within a district from complying with CEQA if:

• The city or county has certified an EIR for the district within the last ten years;
• HCD has certified the district as being in compliance with the requirements of the bill; and
• The project meets the conditions required in the housing sustainability district ordinance and is required to implement mitigation measures as provided in the EIR.

Annual Report. AB 73 also requires HCD, by November 1 of each year, to produce an annual report on housing sustainability districts statewide that includes:

• The status of the program;
• The cities and counties seeking preliminary approval for districts;
• Approved districts statewide;
• Zoning incentive payments made;
• A summary of land area within proposed and approved districts;
• The number of projects under review, building permits issued, and housing units completed; and
• An estimate of future demand and unit construction in new districts.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. Increasing the supply of housing requires a commitment by both the state and local government. Local governments have an important role to play in permitting new development, but face constraints that make it challenging. They are subject to state environmental laws that can be used to hold up projects and constitutional restrictions on their revenues that make it challenging to pay for the services needed by new and existing development alike. City council members often hear from residents who vocally oppose new development, but those members can have difficulty highlighting the benefits that the development will bring. AB 73 helps local governments step up by establishing a process they can use to speed up permitting. It cuts out unnecessary steps in the approval process while retaining and enhancing mitigation measures to make sure that new developments don’t have significant environmental impacts and prevents unneeded delay by deeming approved projects if a local government fails to act within 120 days. Most importantly, it provides an incentive that has long been missing: direct funding to cities and counties that build housing through zoning incentive payments. At the same time, AB 73 ensures that the state gets its money’s worth: local governments are eligible for half the money up front and receive the second half once housing is built in the district. And it ensures that fair wages are paid so that construction workers who build new housing can also afford to live there. AB 73 is urgently needed to help local communities build more housing and make housing affordable to all Californians.

2. Where there’s a will, there’s a way. Numerous recent studies have laid the blame for California’s slow housing production at the feet of local governments, who ultimately control many of the planning approvals that determine whether or not housing is built. AB 73 provides an avenue for local governments to adopt a streamlined process for housing project approvals and get benefits in return. Yet local governments that want to approve housing can already set up a very similar approval process under existing law by (1) adopting a specific plan and (2) tiering off of a programmatic EIR. In addition, since projects that are approved ministerially are not subject to CEQA, it’s unclear whether the CEQA exemption provided by the bill provides any additional benefits. AB 73 also includes some disincentives to local participation. First, once a district is formed, the local government can’t amend or repeal the housing sustainability ordinance without approval from HCD. Second, it imposes costly conditions on developments that want to use the process in the district, such as prevailing wage and skilled and trained workforce requirements. By leaving the decision to form the district up to local governments (and creating downsides for those who do), AB 73 creates a process that may be underutilized by even those governments that want to permit housing—and the developers that want to build it. More substantial interventions may be needed to enable the construction of significant amounts of new housing, such as making the development of a housing sustainability district mandatory.

3. Fill in the blank. AB 73 adds a further carrot for cities and counties to adopt housing sustainability districts by paying them an unspecified amount—from an unspecified source—to build housing. But the bill faces a difficult tradeoff: set the amount too low, and local governments won’t have a strong enough incentive to overcome local resistance; set it too high, and the program becomes too expensive for the state to fund. HCD estimates that the state needs to build 180,000 housing units a year for the next decade to make up the shortfall in housing stock. At this scale, even a modest per-unit payment could be costly. For example, a payment of $10,000/unit would result in annual costs of $1.8 billion if all of the state’s housing were permitted in these districts. AB 73 must also consider how to structure the payments. Should local governments receive payment only for amounts over historical averages, or increasing payments for units as cities get closer to their RHNA numbers, so as to encourage construction? Should the payments be scaled in relation to some factor of affordability, such as rental costs relative to the statewide average? These questions may be more appropriately addressed through the annual budget process. The Committee may wish to consider amending AB 73 to remove the provisions spelling out payments for developments of given sizes and instead simply provide that payments may be made upon appropriation by the Legislature, and that the amount of payment provided to a city or county must be based on the number of new residential units constructed within the district.

4. Bulletproof. Some development processes allow property owners to receive vested property rights that freeze in place for a specified period of time the land use requirements in place at the time of approval. These processes include development agreements, under which the applicable rules that apply to the development are those that were in force at the time the agreement was executed, and vesting tentative maps under the Subdivision Map Act, which may grant vested rights for up to three years (although these maps are granted statutory extensions periodically). AB 73 provides vested rights for five years on projects that are approved, meaning that a developer could wait up to five years to use approvals that are secured through this process. The five year period is significantly longer than vesting maps under the Subdivision Map Act and may not provide sufficient incentive for developers to construct housing quickly. AB 73 also applies the rules and regulations in force at the time application is denied to any further applications for the same development over the next two years. It is unusual, if not unprecedented, to continue to apply previous rules and regulations to projects that are not approved. The Committee may wish to consider amending AB 73 to shorten the time period that the approvals remain valid and to eliminate the provision freezing rules and regulations for projects that are denied.

5. Timing is everything. AB 73 provides that an EIR for a housing sustainability district lasts for 10 years, but has no similar cap on the life of the ordinance establishing the district. In order to align these two provisions, the Committee may wish to consider amending AB 73 to provide that a housing sustainability district ordinance expires after 10 years unless renewed by the city or county.

6. Consistency. AB 73 is not the first bill heard by the Committee that establishes a ministerial approval process for new housing. SB 35 (Weiner) would establish a ministerial permitting process for housing developments that meet certain affordability requirements, pay a prevailing wage, and comply with a long list of other conditions. In particular, SB 35 requires a skilled and trained workforce to be used to complete projects that are not 100 percent subsidized affordable housing above an unspecified number of units. This differs slightly from AB 73, which requires a skilled and trained workforce for projects above an unspecified dollar amount. SB 35 also provides that all of its conditions are integral to the measure and that the entire measure is void if any portion is void. Finally, SB 35 excludes projects that require the demolition of affordable housing from the streamlined process. In order to ensure consistency among these measures, the Committee may wish to consider amending AB 73 to conform to these provisions of SB 35.

7. Let’s be clear. The Committee may wish to consider the following clarifying amendments:

• One of the criteria under AB 73 for where a district may be located is “an area of concentrated development.” This term is undefined, and may be captured by other criteria for these districts, such as that a certain location is highly suitable for residential development. The Committee may wish to consider striking this criterion.
• AB 73 requires design review standards to not add unreasonable costs to projects or unreasonably impair their economic feasibility. But it is unclear what standards would be unreasonable and which entities would be responsible for making the determination. Instead, the Committee may wish to consider amending the bill to recast these provisions to ensure that design review standards are objective and do not hinder the ministerial review of projects.
• AB 73 is unclear on which, if any, of its requirements apply to developments constructed within a district but that do not use the process established by the ordinance creating the district. So as to not discourage other development, the Committee may wish to consider amending AB 73 to specify that none of its requirements apply to developments that do not use the process established in the housing sustainability district ordinance.
• AB 73 specifies that projects must provide a prevailing wage to its workers pursuant to several sections of the Labor Code, but does not include adjacent sections of code that provide for enforcement by requiring payroll records to be kept and by allowing civil action. The Committee may wish to consider amending AB 73 to incorporate those provisions of the Labor Code as well.

8. Technicals. The Committee may wish to consider the following technical amendments:

• On p. 5, line 9, strike “Developable area” and insert “Developable land”.
• On p. 11, line 33, strike “and to the department”.
• On p. 15, line 2, strike “clerk” and insert “official designated for this purpose in the housing sustainability district ordinance”.
• On p. 15, line 22, strike “clerk’s” and insert “official’s”.

9. Charter city. The California Constitution allows cities that adopt charters to control their own “municipal affairs.” In all other matters, charter cities must follow the general, statewide laws. Because the Constitution doesn’t define “municipal affairs,” the courts determine whether a topic is a municipal affair or whether it’s an issue of statewide concern. AB 73 says that its statutory provisions apply to charter cities. However, it lacks the necessary findings to support this assertion. The Committee may wish to consider amending AB 73 to include findings that sustainable housing is not a municipal affair and is a matter of statewide concern.

10. Incoming! The Senate Rules Committee has ordered a triple referral of AB 73: first to the Senate Transportation and Housing Committee, which approved the bill at its June 27^th hearing on a vote of 8-3; then to the Senate Environmental Quality Committee, which approved the bill at its July 5^th hearing on a vote of 4-2; and finally to the Senate Governance and Finance Committee.

11. Related legislation. The Committee has heard several bills related to local approval processes for housing. AB 73 provides a voluntary model for promoting housing development that takes a similar approach to SB 540 (Roth), which the Committee approved at its April 5^th hearing with a 7-0 vote. SB 540 would grant local governments planning funding and streamlined environmental review in exchange for quicker residential permitting in specified portions of their jurisdictions. SB 540 is currently pending in the Assembly Natural Resources Committee. SB 35 (Weiner), which the Committee approved at its April 26^th hearing with a 4-2 vote, is currently pending in the Assembly Housing and Community Development Committee.

The Committee has also heard two bills that would provide funding for housing needs. SB 2 (Atkins), which the Committee approved at its March 15^th hearing on a vote of 5-2, would impose a $75 fee on real estate transaction documents, excluding commercial and residential real estate sales, to provide funding for affordable housing. SB 2 is currently awaiting referral in the Assembly. SB 3 (Beall), which the Committee approved at its March 22^nd hearing with a 5-2 vote, would enact the Affordable Housing Bond Act of 2018, which places a $3 billion bond before voters in the November 2018 ballot to fund affordable housing purposes. SB 3 is currently pending in the Assembly Housing and Community Development Committee.

Assembly Actions

Assembly Local Government Committee: 5-0

Assembly Natural Resources Committee: 7-1

Assembly Appropriations Committee: 12-5

Assembly Floor: 56-20

Support and Opposition

(7/7/17)

Support: California Apartment Association; California Association of Realtors; Disability Rights California Facebook; Leading Age California.

Opposition: California State Association of Electrical Workers; Sierra Club California.

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Wieckowski, Chair

2017 - 2018 Regular

Bill No: AB 73

SUBJECT: Planning and zoning: housing sustainability districts.

ANALYSIS:

Existing law:

1. Pursuant to the Planning and Zoning Law (Government Code §65000 et seq.):
   
   1. Requires a city or county to prepare and adopt a general plan, including a housing element, to guide future the growth of a community. The housing element must consist of an identification and analysis of existing and projected housing needs and a statement of goals, policy objectives, financial resources, and scheduled programs for the preservation, improvement, and development of housing.
      
   2. Requires the housing element to identify adequate sites for housing, including rental housing, factory-built housing, mobile homes, and emergency shelters and to make adequate provisions for the existing and projected needs of all economic segments of the community.
      
   3. After the adoption of a general plan, permits localities to prepare specific plans for the systematic implementation of the general plan for all or part of the area covered by the general plan. A specific plan must include a statement of the relationship to the general plan, and a text and diagram(s) specifying all of the following in detail:
      
      1. The distribution, location, and extent of the uses of land, including open space, within the area covered by the plan.
      2. The proposed distribution, location, and extent and intensity of major components of public and private transportation, sewage, water drainage, solid waste disposal, energy, and other essential facilities proposed to be located within the area covered by the plan and needed to support the land uses described in the plan.
      3. Standards and criteria by which development will proceed, and standards for the conservation, development, and utilization of natural resources, where applicable.
      4. A program of implementation measures including regulations, programs, public works projects, and specified financing measures.
         
   4. Requires localities, upon the approval of a general plan, to submit an annual report to the Office of Planning and Research (OPR) and the Department of Housing and Community Development (HCD), which includes the following:
      
      1. Status of the general plan and progress of its implementation.
      2. Progress in meeting its share of regional housing needs and local efforts to remove governmental constraints to the maintenance, improvement, and development of housing.
         
2. Pursuant to the California Environmental Quality Act (CEQA) (Public Resources Code (PRC) §21000 et seq.):
   
   1. Requires lead agencies with the principal responsibility for carrying out or approving a proposed project to prepare a negative declaration, mitigated negative declaration, or environmental impact report (EIR) for this action, unless the project is exempt from CEQA (CEQA includes various statutory exemptions, as well as categorical exemptions in the CEQA guidelines).
      
   2. Provides various statutory exemptions and streamlining provisions applicable to housing and infill development projects in CEQA, which do the following:
      1. Exempts from CEQA residential, mixed-use, and “employment center” projects, as defined, located within “transit priority areas,” as defined, that meets specified criteria. (PRC §21155.4)
      2. Establishes abbreviated CEQA review procedures for specified infill projects, where only specific or more significant effects on the environment which were not addressed in a prior planning-level EIR need be addressed. An EIR for such a project need not consider alternative locations, densities, and building intensities or growth-inducing impacts. Infill projects may include residential, retail, commercial, transit station, school, or public office building projects located within an urban area. Requires OPR to develop CEQA Guidelines to implement these infill provisions, including statewide standards to promote smart growth, reduction of GHG emissions, reduction in water use, energy efficiency improvements, and protection of public health. (PRC §21094.5).
      3. Requires metropolitan planning organizations (MPOs) to include a sustainable communities strategy (SCS), in their regional transportation plans, or an alternative planning strategy (APS), for the purpose of reducing greenhouse gas (GHG) emissions; aligns planning for transportation and housing; and creates specified incentives for the implementation of the strategies, including CEQA exemption or abbreviated review for residential or mixed-use residential “transit priority projects,” if the project is consistent with the use designation, density, building intensity, and applicable policies specified for the project area in either an approved SCS or APS. (PRC §21155 et seq.).
      4. Exempts residential housing projects that meet criteria established to ensure the project does not have a significant effect on the environment. (PRC §21159.20 et seq.). This exemption is available for the following:
         1. An affordable agricultural housing project not more than 45 units within a city, or 20 units within an agricultural zone, on a site not more than five acres in size;
         2. An urban affordable housing project not more than 100 units on a site not more than five acres in size; and,
         3. An urban infill housing project not more than 100 units on a site not more than four acres in size within one-half mile of a major transit stop.
      5. Provides streamlining provisions for a residential or mixed-use residential project that is consistent with the use designation, density, building intensity, and applicable policies for the project area in either a sustainable communities strategy or an alternative planning strategy. (PRC §21159.28).
      6. Defines “tiering” or “tier” as the coverage of general matters and environmental effects in an EIR prepared for a policy, plan, program or ordinance followed by narrower or site-specific EIRs which incorporate by reference the discussion in any prior EIR and which concentrate on the environmental effects which (a) are capable of being mitigated, or (b) were not analyzed as significant effects on the environment in the prior EIR. (PRC §21068.3)
   3. Provides various exemptions and streamlining provisions applicable to infill development projects in the CEQA Guidelines, including:
      1. Provides an exemption or limited environmental review to a project that is consistent with the development density established by existing zoning, community plan, or general plan policies for which an EIR was certified, except as might be necessary to examine whether there are project-specific effects which are peculiar to the project or its site. If an impact is not peculiar to the parcel or to the proposed project, then an additional EIR need not be prepared for that project solely on the basis of that impact. (CEQA Guidelines §15183).
      2. Provides a streamlined environmental review process for eligible infill projects by limiting the topics subject to review at the project level where the effects of infill development have been addressed in a planning level decision or by uniformly applicable development policies. No additional environmental review is required if the infill project would not cause any new site-specific or project-specific effects, or if uniformly applied development standards would substantially mitigate such effects. (CEQA Guidelines §15183.3).
      3. Exempts a residential infill project, as specified. (CEQA Guidelines §15195).
      4. Exempts a residential project pursuant to a specific plan, as specified. (CEQA Guidelines §15182).
      5. Provides for a more focused EIR for a project that is a multiple family residential development of 100 units or less or is a residential and commercial or retail mixed-use commercial development of not more than 100,000 square feet, and that meets specified conditions, including:
         1. Surrounded by immediately contiguous urban development;
         2. Previously developed within urban uses; or,
         3. Within one-half mile of an existing rail transit station.
      6. Provides a categorical exemption for new construction or conversion of small structures, as specified. (CEQA Guidelines §15303). For urbanized areas, examples include:
         1. A multi-family residential structure designed for not more than six dwelling units.
         2. Up to four commercial buildings not exceeding 10,000 square feet in floor area on sites zoned for such use.
      7. Provides a categorical exemption for an infill development project within city limits (CEQA Guidelines §15332), as specified.

This bill:

1. Permits a locality, upon receipt of preliminary approval by HCD, to establish by ordinance a housing sustainability district.
   
2. Defines “housing sustainability district” as an area within a locality that is superimposed over an area within the locality in which a developer may elect to develop a project in accordance with the sustainability district ordinance or the localities otherwise applicable general plan and zoning ordinances.
3. Defines “developable area” as the area within a housing sustainability district that can be feasibly developed into residential or mixed-use development. “Mixed-use” means that up to 50% of the square footage is designated for nonresidential use.
4. Requires an area proposed to be designated as a housing sustainability district shall satisfy the following requirements:
   1. The area is an eligible location, defined as any of the following: an area located within ½ mile of public transit; an area of concentrated development; or an area that, by virtue of existing infrastructure, transportation access, existing underutilized facilities, or location, is highly suitable for residential or mixed-use housing sustainability district.
   2. The area is zoned to permit residential use through the ministerial issuance of a permit. Other uses may be permitted by conditional use or other discretionary permit, provided it is consistent with residential use.
   3. Density ranges for multifamily housing shall not be less than those deemed appropriate to accommodate housing for lower-income households as set forth in Housing Element Law, and a density for single-family housing shall not be less than 10 units per acre.
   4. The development is permitted, consistent with neighborhood building and use patterns and any applicable building codes.
   5. Limitations or moratoriums on residential use do not apply to any of the area, other than any limitation or moratorium imposed by court order.
   6. The area is not subject to any general age or other occupancy restrictions, except projects exclusively for the elderly or the disabled for assisted living.
   7. Housing units comply with all applicable federal, state and local fair housing laws.
   8. The area of the housing sustainability district does not exceed 15% of the total land area under the locality unless HCD approves a larger area. The total area of all housing sustainability districts in a locality shall not exceed 30% of the total land area in the locality.
   9. The ordinance establishing the housing sustainability district provides for the manner of review by the approving authority, as designated by the ordinance, in accordance with the rules and regulations adopted by HCD.
   10. Development projects in the area comply with requirements regarding the replacement of affordable housing units affected by the development.
5. Requires an amendment or repeal of a housing sustainability district to be approved by HCD before becoming effective. If HCD does not respond within 60 days, the request shall be deemed approved.
6. Requires the housing sustainability district to do the following:
   1. Provide for an approving authority to review permit applications for development within the housing sustainability district, as specified.
   2. Requires at least 20% of the residential units constructed within the housing sustainability district to be affordable to very low-, low-, and moderate-income households and subject to affordability restrictions for at least 55 years. If a development that is affordable to persons and families whose income exceeds moderate income shall contain no less than 10% of the units for lower-income households, unless the locality has adopted an ordinance that requires a greater percentage, in which case the ordinance shall apply.
   3. If a locality includes its entire regional housing needs allocation within the housing sustainability district, the percentages of the total units constructed shall match the percentages in each income category of the localities regional housing need allocation.
   4. Requires an applicant for a permit to do the following:
      1. Certify that the entirety of the project is a public work or if the project is not entirely a public work, that all construction workers employed in the execution of the project shall be paid at least the general prevailing rate of per diem wages for the type of work and geographic area as determined by the Director of Industrial Relations.
      2. For projects with a cost exceeding an unspecified amount, certify to the approving authority that a skilled and trained workforce will be used to complete the project.
7. Permits a locality that has proposed an ordinance for a housing sustainability district to apply to HCD for preliminary approval of a housing sustainability district. HCD shall make a preliminary determination as to the eligibility of the housing sustainability district for approval. Following preliminary approval, HCD shall confirm approval within 45 days of receipt of the application.
8. Requires the locality that is proposing a housing sustainability ordinance to submit the following with its application to HCD: a description of the boundaries, developable land, and other residential development opportunities within the locality including infill development and reuse of existing buildings within already developable areas; a copy of the localities housing element, housing sustainability district ordinance, environmental impact report (EIR) prepared pursuant to the streamlined environmental review process described in (17) below, and the localities design review standards, if any; and any other materials, as specified.
9. Requires, on or before October 1 of each year following HCD’s approval of the localities housing sustainability district, HCD to issue a certificate of compliance if it finds that the locality has satisfied specified requirements.
10. Requires a locality with a housing sustainability district to be entitled to a zoning incentive payment, upon appropriation by the Legislature, in an unspecified payment schedule based upon the projected construction of new residential units. HCD shall issue the first half of the zoning incentive payment to the locality upon preliminary approval of the housing sustainability district ordinance and issuance of the EIR. HCD shall issue the second half of the zoning incentive payment within 10 days of proof of issuance of building permits by the locality for the projected units of residential construction, provided the locality has also received a certificate of compliance.
11. Requires the applicant to file an application or a permit with the appropriate local official and the approving authority. The authority shall conduct a public hearing and issue a written decision within 120 days of receipt of the application. Failure to act within 120 days will result in an approval of the application.
12. Permits an approving authority to deny an application only for the following reasons:
    1. The proposed development does not fully comply with the housing sustainability district ordinance;
    2. The applicant has not submitted all the required information or paid an application fee;
    3. The approving authority determines, based upon substantial evidence in light of the whole record of the public hearing on the project, that a physical condition on the site of the development that was not known and could not have been discovered with reasonable investigation at the time the application was submitted would have a specific adverse impact upon the health or safety and that there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact. “Specific adverse impact” means a significant, quantifiable, direct, and unavoidable impact based on objective written public health or safety standards, policies or conditions, as in existence at the time the application is deemed complete.
13. Permits a locality to adopt design review standards applicable to development projects within the housing sustainability district, as specified.
14. Requires an approving authority to condition the approval of an application on the applicant’s agreement to replace affordable housing units if a proposed development includes any parcels being used for affordable housing. Requires this provision to apply to a parcel of property that meets any of the following criteria:
    1. The parcel includes rental units that are or, if the dwelling units have been vacated or demolished in the last five years, have been subject to recorded covenants, ordinances, or laws that restrict rents to levels affordable to persons and families of lower or very low-income.
    2. The parcel is subject to rent or price control.
    3. The parcel includes a housing development that is currently occupied by low- or very low-income households.
15. Requires HCD to conduct an annual review of the housing sustainability district program. HCD may require participating localities to provide data on housing sustainability districts within their jurisdiction. HCD shall publish a report no later than November 1, 2018 and each November 1, thereafter.

1. If a locality reduces the density of sites within the district from levels deemed appropriate to accommodate housing for lower-income households as set forth in Housing Element Law, the locality shall return the full amount it has received. Amounts repaid shall be utilized for further incentive payments.
2. A lead agency shall prepare an EIR when designating a housing sustainability district to identify and mitigate, to the extent feasible, environmental impacts resulting from the designation. The EIR shall identify mitigation measures that may be undertaken by housing projects in the housing sustainability district to mitigate the environmental impacts identified in the EIR.
3. Exempts from CEQA, a housing project in a housing sustainability district if all the following are met:
   1. The lead agency has certified an EIR for the housing sustainability district and HCD has approved the housing sustainability district within 10 years of the lead agency’s review of the housing project.
   2. The housing project meets the conditions specified in the designation for the housing sustainability district.
   3. The housing project is required to implement appropriate mitigation measures identified in the EIR to mitigate environmental impacts identified by the EIR.
      

Background

1. Background on CEQA.
   
   1. Overview of CEQA Process. CEQA provides a process for evaluating the environmental effects of a project, and includes statutory exemptions, as well as categorical exemptions in the CEQA guidelines. If a project is not exempt from CEQA, an initial study is prepared to determine whether a project may have a significant effect on the environment. If the initial study shows that there would not be a significant effect on the environment, the lead agency must prepare a negative declaration. If the initial study shows that the project may have a significant effect on the environment, the lead agency must prepare an EIR.
      
      Generally, an EIR must accurately describe the proposed project, identify and analyze each significant environmental impact expected to result from the proposed project, identify mitigation measures to reduce those impacts to the extent feasible, and evaluate a range of reasonable alternatives to the proposed project. Prior to approving any project that has received environmental review, an agency must make certain findings. If mitigation measures are required or incorporated into a project, the agency must adopt a reporting or monitoring program to ensure compliance with those measures.
      
      If a mitigation measure would cause one or more significant effects in addition to those that would be caused by the proposed project, the effects of the mitigation measure must be discussed but in less detail than the significant effects of the proposed project.
      
   2. What is analyzed in an environmental review? Pursuant to CEQA, an environmental review analyzing the significant direct and indirect environmental impacts of a proposed project may include water quality, surface and subsurface hydrology, land use and agricultural resources, transportation and circulation, air quality and greenhouse gas emissions, terrestrial and aquatic biological resources, aesthetics, geology and soils, recreation, public services and utilities such as water supply and wastewater disposal, and cultural resources. The analysis must also evaluate the cumulative impacts of any past, present, and reasonably foreseeable projects/activities within study areas that are applicable to the resources being evaluated. A study area for a proposed project must not be limited to the footprint of the project because many environmental impacts of a development extend beyond the identified project boundary. Also, CEQA stipulates that the environmental impacts must be measured against existing physical conditions within the project area, not future, allowable conditions.
      
   3. CEQA provides hub for multi-disciplinary regulatory process. A CEQA exemption does not alleviate a project proponent from its obligation to obtain mandatory permits or adhere to specified regulatory programs. CEQA assists in moving a project through the multi-disciplinary, regulatory process because responsible agencies rely on the lead agency’s environmental documentation in acting on the aspect of the project that requires its approval and must prepare its own findings regarding the project. A variety of issues, many of which involve permitting and/or regulatory program requirements, should be coordinated and analyzed together as a whole. CEQA provides a comprehensive analysis of a project’s impacts in those subject areas.
      
2. Infill development. “Infill development” occurs in already built-up areas with existing transportation and utility infrastructure, often repurposes or replaces existing buildings, parking lots, or other impervious areas, and adds homes and/or businesses near the center of cities and towns. Examples of infill project locations include a disused parking lot, an old commercial property, or a former industrial site. Infill development is considered a vital strategy for efficient growth.
   
   Infill builds within an existing footprint of development, which can reduce development pressure on outlying areas, helping to safeguard lands that serve important ecological functions and preserve open space and prevent conversion of agricultural land; can reduce the amount that people drive, improving air quality and reducing GHG emissions; and can lead to the cleanup and reuse of formerly economically viable but now abandoned sites, including those contaminated with hazardous substances. Also, by locating new developments near population centers and amenities, communities can take advantage of existing water, sewer, and transportation systems, avoiding the cost of installing expensive new infrastructure.
   
   According to the US Environmental Protection Agency (US EPA), several trends point to a sustained increase in demand for infill development and a market opportunity for developers. Consumer preferences for the amenities that infill locations offer are likely to grow as changing demographics affect the housing market. In the next couple of decades, the needs and preferences of aging baby boomers, new households, and one-person households will drive real estate market trends – and infill locations are likely to attract many of these people. As more people choose to live in infill neighborhoods, employers are following, and vice versa. Many corporations are moving to infill locations, in part because they recognize the competitive advantages of being closer to the central city. (US EPA, “Smart Growth and Economic Success: Investing in Infill Development,” February 2014.)
   
   The Strategic Growth Council (SGC), as a part of its broader legislative mandate, has identified “infill” development as an important strategy for achieving AB 32 (Núñez, Pavley, Chapter 488, Statutes of 2006) greenhouse gas (GHG) emissions reduction targets. While contributing to reductions of GHG emissions, achieving infill development can confer a broad range of benefits, such as increased economic vitality of the state’s urban centers; decreased consumption of energy, water, and other natural resources; reduced conversion of farmland and natural habitat areas; and the opportunity for more efficient infrastructure investment and delivery of municipal services.
   
3. Infill development and CEQA. Several changes have been made to CEQA to encourage infill projects, including the following:
   1. SB 743. SB 743 (Steinberg, Chapter 386, Statutes of 2013) made several changes to CEQA for projects located in areas served by transit (i.e. transit-oriented development (TOD)). Among the changes, SB 743 directed the Governor’s Office of Planning and Research (OPR) to develop a new approach for analyzing the transportation impacts under CEQA. SB 743 also created a new exemption for certain projects that are consistent with a Specific Plan and eliminates the requirement to evaluate aesthetic and parking impacts of a project if the project is a residential, mixed-use residential, or employment center project located on an infill site within a transit priority area.
   2. SB 226. SB 226 (Simitian, Chapter 469, Statutes of 2011) establishes abbreviated CEQA review procedures for specified infill projects, where only specific or more significant effects on the environment which were not addressed in a prior planning-level EIR need to be addressed. An EIR for such a project need not consider alternative locations, densities, and building densities or growth inducing impacts. Any unmitigated effects specific to the project can be analyzed in an “infill” EIR that limits review only to those impacts without the need to analyze alternatives or growth-inducing impacts. SB 226 required OPR to develop CEQA Guidelines for purposes of this bill.
      
      In order for infill projects to qualify for the CEQA benefits in SB 226, they must meet statewide performance standards developed by OPR. The statute required that these performance standards promote the state’s GHG emissions reductions goals in AB 32 (Núñez, Pavley) and SB 375 (Steinberg), state planning priorities, water conservation and energy efficiency standards, transit-oriented development policies, and public health.
   3. SB 375. SB 375 (Steinberg, Chapter 728, Statutes of 2008) established the Sustainable Communities and Climate Protection Act of 2008. SB 375 directed the California Air Resources Board (ARB) to set regional targets for reducing GHG emissions, setting up a “bottom up” approach to ensure that cities and counties are involved in the development of regional plans to achieve those targets. SB 375 tied together the regional allocation of housing needs and regional transportation planning in an effort to reduce GHG emissions from motor vehicle trips. According to ARB, transportation accounts for approximately 40% of GHG emissions, with cars and light trucks making up a significant majority of those emissions (30% overall).
      
      SB 375 established a collaborative process between regional and state agencies to set regional GHG reduction targets, and provided CEQA incentives for development projects that are consistent with a regional plan that meets those targets. SB 375 has three major components: (i) Using the regional transportation planning process to achieve reductions in GHG emissions consistent with AB 32 goals; (ii) Offering CEQA incentives to encourage projects that are consistent with a regional plan that achieves GHG emission reductions; and, (iii) Coordinating the regional housing needs allocation process with the regional transportation process while maintaining local authority over land use decisions.
      
   4. SB 1925. SB 1925 (Sher, Chapter 1039, Statutes of 2002) exempts from CEQA specified residential housing projects which meet criteria established to ensure the project does not have a significant effect on the environment, including urban infill housing projects not more than 100 units on a site not more than four acres in size which is within one-half mile of a major transit stop.

Comments

1. Purpose of Bill. According to the author:

California is facing a severe housing crisis which, if left unaddressed, will continue to threaten our economic competitiveness, our ability to achieve our climate change goals through proper planning, and the fundamental prosperity and success of our residents.

California’s poverty rate is 20^th in the nation but, when housing is factored in, it jumps to number one. The lack of significant investment in programs to support construction of housing that is affordable has had a considerable impact on the growing inequity in our state. About 1.7 million low-income renter households (almost 14% of all households) in California report spending more than half of their income on housing. California now has an annual affordable housing gap that totals $50 billion to $60 billion.

The housing shortage currently costs the California economy between $143 billion and $233 billion per year, an effect that will continue to worsen. According to the McKinsey Global Institute, at current construction rates, California will have a projected housing shortfall of 3.5 million homes by 2025.

AB 73 spurs the creation of much needed housing on infill sites around public transportation by incentivizing local governments to complete upfront zoning and environmental review and rewarding them when they permit housing.

1. Streamlining provisions already available in CEQA applicable to housing and infill development.
   
   1. Streamlining provisions for housing and infill development. Several provisions in CEQA provide streamlined approaches, including:
      

• Master and focused EIRs; 

• Infill residential, mixed-use, and transit priority project streamlining (SB 375, Steinberg, Chapter 728, Statutes of 2008); 

• Special procedures for various types of housing projects (SB 1925, Sher, Polanco, Chapter 1039, Statutes of 2002); 

• Various litigation, mediation, tiering, and other revisions (SB 1456, Simitian, Chapter 496, Statutes of 2010); 

• Exemption for transit priority projects that are consistent with a previously adopted Specific Plan and the relevant regional Sustainable Communities Strategy (SB 743, Steinberg, Chapter 386, Statutes of 2013);
• Expansion of the statutory exemption for infill residential housing by increasing the allowable percentage of neighborhood-serving commercial uses within a project (SB 674, Corbett, Chapter 549, Statutes of 2014);
• Amendments to procedures relating to findings of overriding consideration (AB 231, Huber, Chapter 432, Statutes of 2010); 

• Infill project and other streamlining provisions (SB 226, Simitian, Vargas, Chapter 469, Statutes of 2011);
• Authorization to mediate a CEQA lawsuit (SB 894, Senate Local Government Committee, Chapter 699, Statutes of 2010); and, 

• Several categorical exemptions contained in the CEQA Guidelines. 

  
  1. This streamlining provision seems to fit the bill. In particular, CEQA Guidelines §15183(a) provides, “CEQA mandates that projects which are consistent with the development density established by existing zoning, community plan, or general plan policies for which an EIR was certified shall not require additional environmental review, except as might be necessary to examine whether there are project-specific significant effects which are peculiar to the project or its site. This streamlines the review of such projects and reduces the need to prepare repetitive studies.”
     
     The CEQA report, CEQA in the 21^st Century by BAE Economics and commissioned by the Rose Foundation for Communities and the Environment (August 2016), points to a case study of the use of the community plan exemption, stating, “Between 2013 and 2015, San Francisco received between 36 and 52 applications annually that were subject to review under CEQA. Most projects satisfied CEQA review through application of community plan exemptions. Of the 127 proposals subject to environmental review under CEQA during that three-year period, two were processed with a Negative Declaration and 33 were processed with Mitigated Negative Declarations. Only 14 of the 127 proposals were subjected to full EIRs. Furthermore, 74 projects were deemed exempt due to existing Community Plans, and four were subject to partial environmental review under community plan exemptions (CPEs). These CPEs apply to projects that qualify for infill streamlining or are exempt from environmental review because they are consistent with zoning standards and previously certified plans…In sum, this high utilization rate of CPEs in San Francisco reflects the City’s concerted effort to streamline CEQA review, underscoring how CEQA can be implemented effectively to support the contemporary development process.”
     
     If the goal is to provide expediency via an exemption, CEQA Guidelines §15183 (also referred to as a CPE) provides an exemption for projects such as those proposed in this bill. However, unlike this bill, §15183 provides a safety net to the CPE exemption so that if circumstances arise, such as environmental effects were not analyzed in the plan’s EIR, then the public agency shall limit its examination to those effects. As noted in §15183, “This streamlines the review of such projects and reduces the need to prepare repetitive environmental studies.”

As shown by the multiple options of streamlining available, a question arises as to whether current law already addresses streamlining at the project level for a housing development subject to this bill.

1. Is CEQA a major hindrance to infill development?
   
   1. From whose point of view? Ethan Elkind, Director of Climate Change and Business, with a joint appointment at UC Berkeley School of Law and UCLA School of Law, states, “[W]hen it comes to the big factors stopping infill, at least in California, CEQA ranks below a host of other barriers, such as local zoning codes that outlaw infill, lack of infrastructure investment, high construction costs, tax incentives that favor strip malls over housing, and poor neighborhood schools.
      
      “So why do infill developers make such a big deal about CEQA? My theory is that individual developers will be focused solely on their own projects, and if CEQA is a threat to their investment and risk-taking, they will understandably become CEQA haters. But perhaps this project-based focus distorts the view of the larger forces that stifle business opportunities throughout the state, such as in the suburb with the major rail line that won’t zone for more downtown development or the rundown neighborhood near jobs and services that needs new infrastructure. Ending CEQA tomorrow won’t magically lift these barriers and create new infill opportunities, and it won’t convince local communities to support new downtown development.” (Ethan Elkind, “Why Developers Shouldn’t Blame Environmental Review for the Lack of Infill,” Legal Planet: Insight & Analysis: Environmental Law and Policy, September 24, 2012).
      
   2. OPR survey shows CEQA is not a significant barrier to infill projects. OPR’s “2012 Annual Planning Survey Results” asked city and county planners to explain the primary barriers their jurisdictions have experienced to implementing infill projects.
      
      The chart (below) from the survey shows the relative unimportance of CEQA as a barrier to infill development. Instead, infrastructure constraints, lot issues, lack of funding, community opposition, and the economy, among others ranked higher.

Based on 238 responses, 25% of jurisdictions reported that infrastructure constraints were a primary barrier to implementing infill projects. Just under 25% reported that they had problems with assembling parcels of the right size and configuration for infill development. Only 4% of respondents identified CEQA as a barrier. CEQA ranked 12^th out of 16 primary infill barriers.

A variety of factors affect the production of infill development. Notable infill development constraints include market conditions, physical conditions, infrastructure (e.g., sewer, water, streets), and other community conditions (e.g., schools, public facilities). In places where market demand, physical conditions, existing infrastructure, and community conditions are problematic, current funding and financing options are commonly inadequate, which hinders local and regional agencies’ ability to implement infill development plans. For the assorted issues mentioned above that may hinder infill development, this bill would not alleviate any of them.

1. Is CEQA a major hindrance to building houses? The Construction Industry Research Board (CIRB) Report is a research service provided by the California Homebuilding Foundation and produces current and historical statewide building permit statistics.
   
   The following data is from the CIRB chart, Housing Production In California 2003-2017, and reflects the total number of housing units built annually for the past 15 years (including projected numbers for 2017):
   

According to the U.S. National Bureau of Economic Research, the Great Recession began in December 2007 and ended in mid-2009. The economy began to recover in June 2009 and has averaged 2.1% annual growth since then. Similarly, the table above shows that in 2007, total housing production was at 113,034 units; hit its low in 2009 with a total of 36,421 units; and has steadily increased since 2009. The number of housing units built each year seems to follow a similar trajectory as that of the economy. Meanwhile, CEQA has been a constant, as well as for decades prior. A question arises as to whether CEQA actually hinders the number of housing units built in the state or whether other factors, such as the economy, have a much greater influence.

1. Does CEQA make building affordable housing more expensive? According to HCD’s study, Affordable Housing Cost Study (2014), the major components of total development costs (excluding land cost) across 400 affordable housing development projects analyzed are as follows: construction (69%); demolition and site preparation (8%); development fees (7%); permits and development impact fees (6%); architect, engineering, and site surveys (4%); acquisition costs (1%); offsite improvements (1%); and “other costs” (4%).
   
   The Rose Foundation report notes of HCD’s affordable housing study that the “study did not identify CEQA compliance costs, so the issue of CEQA’s effect on development costs cannot be discerned. Indeed, few of the projects included in the study identified an EIR as part of their project. Information pertaining to the type of CEQA review required of a project was collected through a Developer Survey, which generated 330 useable responses. Just 31 responses (9% of all projects surveyed) stated that an EIR had been prepared or was anticipated.”
   
   For whom does a CEQA exemption make housing more affordable? For the developer or housing residents? Does reducing a developer’s costs with CEQA exemption translate into savings for the low-income resident? Rents and property values are generally determined by the market, not by the cost of a project. Or is this solely a cost reduction for the developer?
   
2. What do we lose with a CEQA exemption? It is not unusual for certain interests to assert that CEQA impedes on a project coming to fruition or that a particular exemption will expedite construction of a particular type of project and reduce costs. This, however, frequently overlooks the benefits of environmental review: to inform decisionmakers and the public about project impacts, identify ways to avoid or significantly reduce environmental damage, prevent environmental damage by requiring feasible alternatives or mitigation measures, disclose to the public reasons why an agency approved a project if significant environmental effects are involved, involve public agencies in the process, and increase public participation in the environmental review and the planning processes.
   
   If a project is exempt from CEQA, certain issues may not get addressed. For example:

• How can decisionmakers and the public be aware of impacts, mitigation measures, and alternatives of an exempt action?
  
• Is it appropriate for the public to live with the consequences of exempt projects where impacts are not mitigated and alternatives are not considered regarding certain matters, such as air quality, water quality, noise, cumulative impacts, and growth inducing impacts?
  
• Because adverse project impacts do not disappear when they are not identified and mitigated with an exemption, does the exemption result in a direct transfer of responsibility for mitigating impacts from the project applicant/developer to the public (i.e., taxpayers) if impacts are ultimately addressed after completion of the project?
  
• If taxpayers, rather than a developer, are ultimately responsible for mitigating impacts of an exempt project after project completion, what assessments or taxes will be increased to fund mitigation or pay for alternatives at a later date?

A lot of changes can happen in a community and environment over the course of ten years. Regardless of the ultimate goal of increasing housing quickly, the short-term, long-term, and/or permanent consequences of a project should be known by the decisionmakers, the project proponent, and the public before a project is approved, and mitigated or avoided if possible before it is too late – CEQA specifically provides for that informed and responsible decisionmaking.

Does bypassing CEQA potentially create more of a liability for those decisionmakers who should have known about potential impacts, but chose not to? Also, does the short-term benefit of expediency justify potentially long-term, permanent consequences/damages to the community?

1. CEQA litigation. It is not unusual for certain interests to blame CEQA lawsuits for causing problems to a project. However, it should be noted that the only tool for enforcing CEQA is civil litigation. So, attempts to eliminate the possibility of litigation means taking away the ability to enforce the law.
   
   Those citing CEQA litigation as a problem do not indicate the result of that litigation. For example, were significant impacts that were not evaluated in the initial document ultimately addressed? What would have been the result if those impacts had not been mitigated (e.g. flooding, exposure of people to hazards, inadequate public services, congestion)?
   
   Also, how prevalent is CEQA litigation? According to the CEQA in the 21^st Century report mentioned above, the number of lawsuits filed under CEQA has averaged 195 per year since 2002. Fewer than 1 out of every 100 projects reviewed under CEQA (that were not considered exempt) were subject to litigation. The estimated rate of litigation for all CEQA projects undergoing environmental review (excluding exemptions) was 0.7% for the past few years.
   
   To help put this in perspective, the total number of CEQA cases filed make up approximately 0.02% of 1,100,000 civil cases filed annually in California.
   
   Furthermore, the California Attorney General’s office conducted a case study of CEQA challenges in the City and County of San Francisco from July 2011 through December 2011 and found that 18 lawsuits were filed out of 5,203 projects considered under CEQA.
   
   According to the Natural Resources Defense Council, a review of CEQA challenges in the City of Los Angeles from January 2011 through July 20, 2012, shows that of 1,182 projects reviewed under CEQA, 18 were challenged, which is a litigation rate of 1.5%.
   
   Although certain interests believe CEQA litigation to be a swathing impediment to some projects, the numbers above indicate otherwise. The volume of CEQA litigation is low considering the thousands of projects subject to CEQA each year as well as the volume of civil litigation in general statewide. And if a project is the subject of litigation, perhaps the cause of action has merit and ensures compliance with the law.
   
2. Conclusion. California faces a housing shortage. HCD estimates that California needs to build an additional 100,000 units per year over recent averages of 80,000 units per year to meet the projected housing needs in the state. A variety of causes have contributed to the shortage including the local approval processes. Housing advocates point to a lack of dedicated sources of funds for affordable housing while the building industry blames CEQA.
   
   However, is CEQA delaying building? Anecdotal stories are common and focus on EIRs; in fact, people often mistakenly use the terms, “EIR” and “CEQA” interchangeably. But in reality, EIRs make up only a small portion of projects subject to CEQA – Most projects are subject to exemptions, negative declarations, or mitigated negative declarations. In addition, as shown in comment #4, perhaps other factors such as the economy are a greater influence in the production of housing units.
   
   CEQA compels public agencies, in a public setting, with public participation, to consider and decide on projects with full knowledge about the environmental conditions and consequences of their actions; and a CEQA environmental review document, which is the result of a meticulous and methodical process, compiles all of the necessary facts in one place.
   
   This bill is laudable in that it frontloads the environmental review at the planning level. The more that is known and planned for ahead of time can provide a strong foundation for the long-term as well as streamline the environmental review process at the project level. However, this bill provides an unnecessary trade-off by creating an exemption at the project level when current streamlining provisions in CEQA should already suffice.
   
   Considering the issues raised above, the Committee may wish to consider amending the bill to replace the project-level exemption for a housing project in a housing sustainability district with a provision stating that a lead agency may limit the environmental review for that project in accordance with §15183 of Title 14 of the California Code of Regulations (CEQA Guidelines).

TRIPLE REFERRAL: This measure was heard in Senate Transportation and Housing Committee on June 27, 2017, and passed out of committee with a vote of 8-3. If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Governance and Finance Committee.

Related/Prior Legislation

SB 540 (Roth, 2017) would authorize a city or county to establish a Workforce Housing Opportunity Zone (WHOZ) by preparing an EIR to identify and mitigate impacts from establishing a WHOZ and adopting a specific plan. A local government must approve a housing development within the WHOZ that meets specified criteria, and exempts from CEQA a housing development project within a WHOZ that meets specified criteria.

SOURCE:

Author

SUPPORT:

California Apartment Association

California Association of Realtors

Disability Rights California

Leading Age California

OPPOSITION:

Sierra Club California

-- END --

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2017 - 2018 Regular

Bill No: AB 73 Hearing Date: 6/27/2017

SUBJECT: Planning and zoning: housing sustainability districts.

DIGEST: This bill allows a city or county to create a housing sustainability district to complete upfront zoning and environmental review in order to receive incentive payments for development projects that are consistent with the district's ordinance

ANALYSIS:

Existing law:

1. Requires a locality to give public notice of a hearing whenever a person applies for a zoning variance, special use permit, conditional use permit, zoning ordinance amendment, or general or specific plan amendment.
2. Requires the board of zoning adjustment or zoning administrator to hear and decide applications for conditional uses or other permits when the zoning ordinance provides therefor and establishes criteria for determining those matters, and applications for variances from the terms of the zoning ordinance.
3. Requires localities to prepare and adopt a general plan, including a housing element, to guide the future growth of a community. The housing element shall consist of an identification and analysis of existing and projected housing needs and a statement of goals, policy objectives, financial resources, and scheduled programs for the preservation, improvement, and development of housing.
4. Requires the housing element to identify adequate sites for housing, including rental housing, factory-built housing, mobile homes, and emergency shelters and to make adequate provision for the existing and projected needs of all economic segments of the community.
5. Requires localities within the territory of a metropolitan planning organization (MPO) to revise their housing elements every eight years following the adoption of every other regional transportation plan. Localities in rural non-MPO regions must revise their housing elements every five years.
6. Permits localities, after the adoption of a general plan, to prepare specific plans for the systematic implementation of the general plan for all or part of the area covered by the general plan. A specific plan shall include a statement of the relationship to the general plan, and a text and a diagram or diagrams which specify all of the following in detail:
7. The distribution, location, and extent of the uses of land, including open space, within the area covered by the plan.
8. The proposed distribution, location, and extent and intensity of major components of public and private transportation, sewage, water, drainage, solid waste disposal, energy, and other essential facilities proposed to be located within the area covered by the plan and needed to support the land uses described in the plan.
9. Standards and criteria by which development will proceed, and standards for the conservation, development, and utilization of natural resources, where applicable.
10. A program of implementation measures including regulations, programs, public works projects, and financing measures necessary to carry out paragraphs (1), (2), and (3).
11. Requires, under the California Environmental Quality Act (CEQA), a lead agency to prepare or cause to be prepared and certify the completion of an environmental impact report (EIR) on a project that it proposes to carry out or approve that may have a significant effect on the environment or to adopt a negative declaration for a project that may have a significant effect on the environment if revisions in the project would avoid or mitigate that effect and there is no substantial evidence that the project would have a significant effect on the environment.
12. Requires localities, upon the approval of a general plan, to submit an annual report to the Office of Planning and Research (OPR) and the Department of Housing and Community Development (HCD). The report shall contain the following:
13. The status of the general plan and progress in its implementation.
14. The progress in meeting its share of regional housing needs and local efforts to remove governmental constraints to the maintenance, improvement, and development of housing.

This bill:

1. Permits a locality, upon receipt of preliminary approval by HCD, to establish by ordinance a housing sustainability district. Defines “housing sustainability district” as an area within a locality that is superimposed over an area within the locality in which a developer may elect to develop a project in accordance with the sustainability district ordinance or the localities otherwise applicable general plan and zoning ordinances.
2. Defines “developable area” as the area within a housing sustainability district that can be feasibly developed into residential or mixed-use development. “Mixed-use” means that up to 50% of the square footage is designated for nonresidential use.
3. Requires an area proposed to be designated as a housing sustainability district shall satisfy the following requirements:
   1. The area is an eligible location, defined as any of the following: an area located within ½ mile of public transit; an area of concentrated development; or an area that, by virtue of existing infrastructure, transportation access, existing underutilized facilities, or location, is highly suitable for residential or mixed-use housing sustainability district.
   2. The area is zoned to permit residential use through the ministerial issuance of a permit. Other uses may be permitted by conditional use or other discretionary permit, provided it is consistent with residential use.
   3. Density ranges for multifamily housing shall not be less than those deemed appropriate to accommodate housing for lower-income households as set forth in Housing Element Law, and a density for single-family housing shall not be less than 10 units per acre.
   4. The development is permitted, consistent with neighborhood building and use patterns and any applicable building codes.
   5. Limitations or moratoriums on residential use do not apply to any of the area, other than any limitation or moratorium imposed by court order.
   6. The area is not subject to any general age or other occupancy restrictions, except projects exclusively for the elderly or the disabled for assisted living.
   7. Housing units comply with all applicable federal, state and local fair housing laws.
   8. The area of the housing sustainability district does not exceed 15% of the total land area under the locality unless HCD approves a larger area. The total area of all housing sustainability districts in a locality shall not exceed 30% of the total land area in the locality.
   9. The ordinance establishing the housing sustainability district provides for the manner of review by the approving authority, as designated by the ordinance, in accordance with the rules and regulations adopted by HCD.
   10. Development projects in the area comply with requirements regarding the replacement of affordable housing units affected by the development.
4. Requires an amendment or repeal of a housing sustainability district to be approved by HCD before becoming effective. If HCD does not respond within 60 days, the request shall be deemed approved.
5. Requires the housing sustainability district to do the following:
   1. Provide for an approving authority to review permit applications for development within the housing sustainability district, as specified.
   2. Requires at least 20% of the residential units constructed within the housing sustainability district to be affordable to very low-, low-, and moderate-income households and subject to affordability restrictions for at least 55 years. If a development that is affordable to persons and families whose income exceeds moderate income shall contain no less than 10% of the units for lower-income households, unless the locality has adopted an ordinance that requires a greater percentage, in which case the ordinance shall apply.
   3. If a locality includes its entire regional housing needs allocation within the housing sustainability district, the percentages of the total units constructed shall match the percentages in each income category of the localities regional housing need allocation.
   4. Requires an applicant for a permit to do the following:
      1. Certify that the entirety of the project is a public work or if the project is not entirely a public work, that all construction workers employed in the execution of the project shall be paid at least the general prevailing rate of per diem wages for the type of work and geographic area as determined by the Director of Industrial Relations.
      2. For projects with a cost exceeding an unspecified amount, certify to the approving authority that a skilled and trained workforce will be used to complete the project.
6. Permits a locality that has proposed an ordinance for a housing sustainability district to apply to HCD for preliminary approval of a housing sustainability district. HCD shall make a preliminary determination as to the eligibility of the housing sustainability district for approval. Following preliminary approval, HCD shall confirm approval within 45 days of receipt of the application.
7. Requires the locality that is proposing a housing sustainability ordinance to submit the following with its application to HCD: a description of the boundaries, developable land, and other residential development opportunities within the locality including infill development and rese of existing buildings within already developable areas; a copy of the localities housing element, housing sustainability district ordinance, environmental impact report (EIR) prepared pursuant to the streamlined environmental review process described in (16) below, and the localities design review standards, if any; and any other materials, as specified.
8. Requires, on or before October 1 of each year following HCD’s approval of the localities housing sustainability district, HCD to issue a certificate of compliance if it finds that the locality has satisfied specified requirements.
9. Requires a locality with a housing sustainability district to be entitled to a zoning incentive payment, upon appropriation by the Legislature, in an unspecified payment schedule based upon the projected construction of new residential units. HCD shall issue the first half of the zoning incentive payment to the locality upon preliminary approval of the housing sustainability district ordinance and issuance of the EIR. HCD shall issue the second half of the zoning incentive payment within 10 days of proof of issuance of building permits by the locality for the projected units of residential construction, provided the locality has also received a certificate of compliance.
10. Requires the applicant to file an application or a permit with the appropriate local official and the approving authority. The authority shall conduct a public hearing and issue a written decision within 120 days of receipt of the application. Failure to act within 120 days will result in an approval of the application.
11. Permits an approving authority to deny an application only for the following reasons:
    1. The proposed development does not fully comply with the housing sustainability district ordinance;
    2. The applicant has not submitted all the required information or paid an application fee;
    3. The approving authority determines, based upon substantial evidence in light of the whole record of the public hearing on the project, that a physical condition on the site of the development that was not known and could not have been discovered with reasonable investigation at the time the application was submitted would have a specific adverse impact upon the health or safety and that there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact. “Specific adverse impact” means a significant, quantifiable, direct, and unavoidable impact based on objective written public health or safety standards, policies or conditions, as in existence at the time the application is deemed complete.
12. Permits a locality to adopt design review standards applicable to development projects within the housing sustainability district, as specified.
13. Requires an approving authority to condition the approval of an application on the applicant’s agreement to replace affordable housing units if a proposed development includes any parcels being used for affordable housing. Requires this provision to apply to a parcel of property that meets any of the following criteria:
    1. The parcel includes rental units that are or, if the dwelling units have been vacated or demolished in the last five years, have been subject to recorded covenants, ordinances, or laws that restricts rents to levels affordable to persons and families of lower or very low-income.
    2. The parcel is subject to rent or price control.
    3. The parcel includes a housing development that is currently occupied by low- or very low-income households.
14. Requires HCD to conduct an annual review of the housing sustainability district program. HCD may require participating localities to provide data on housing sustainability districts within their jurisdiction. HCD shall publicly a report no later than November 1, 2018 and each November 1, thereafter.

1. If a locality reduces the density of sites within the district from levels deemed appropriate to accommodate housing for lower-income households as set forth in Housing Element Law, the locality shall return the full amount it has received. Amounts repaid shall be utilized for further incentive payments.
2. A lead agency shall prepare an EIR when designating a housing sustainability district to identify and mitigate, to the extent feasible, environmental impacts resulting from the designation. The EIR shall identify mitigation measures that may be undertaken by housing projects in the housing sustainability district to mitigate the environmental impacts identified in the EIR.
3. Exempts a housing project in a housing sustainability district from conducting an EIR if all the following are met:
   1. The lead agency has certified an EIR for the housing sustainability district and HCD has approved the housing sustainability district within 10 years of the lead agency’s review of the housing project.
   2. The housing project meets the conditions specified in the designation for the housing sustainability district.
   3. The housing project is required to implement appropriate mitigation measures identified in the EIR to mitigation environmental impacts identified by the EIR.

COMMENTS:

1. Purpose of the bill. According to the author, California is facing a severe housing crisis which, if left unaddressed, will continue to threaten our economic competitiveness, our ability to achieve our climate change goals through proper planning, and the fundamental prosperity and success of our residents. California’s poverty rate is 20th in the nation but, when housing is factored in, it jumps to number one. The lack of significant investment in programs to support construction of housing that is affordable has had a considerable impact on the growing inequity in our state. About 1.7 million low-income renter households (almost 14% of all households) in California report spending more than half of their income on housing. California now has an annual affordable housing gap that totals $50 billion to $60 billion.

The housing shortage currently costs the California economy between $143 billion and $233 billion per year, an effect that will continue to worsen. According to the McKinsey Global Institute, at current construction rates, California will have a projected housing shortfall of 3.5 million homes by 2025.

This bill spurs the creation of much needed housing on infill sites around public transportation by incentivizing local governments to complete upfront zoning and environmental review and rewarding them when they permit housing.

1. Housing Sustainability Districts. This bill provides local governments the option of creating "Housing Sustainability Districts,” which operate as overlay districts to streamline the residential development process in areas with existing infrastructure and transit. These districts would be zoned at higher densities, near public transit, and an Environmental Impact Report (EIR) on the district would be completed at the front end. Additionally, 20% of the housing in the district must be zoned at affordable levels. Any development affordable to persons and families whose income exceeds moderate-income shall contain no less than 10% units for lower-income households. Once zoning is complete, the housing sites within the district would be subject to ministerial approval and subject to prevailing wage.

In exchange for creating Housing Sustainability Districts, localities receive incentive payments to encourage their establishment of these districts, at two stages:

a) First, local governments receive an incentive payment when they create housing sustainability districts. This payment would be issued by the HCD upon preliminary approval of the district ordinance and issuance of the EIR.

b) Once a city permits housing units within a district and demonstrates it has received a certificate of compliance from HCD, it would receive a second incentive payment. This payment would be issued by HCD.

This bill seeks to expedite and streamline local housing development approval processes by exempting project-level environmental review. Additionally, this bill requires the locality to issue a written decision within 120 days of receipt of the application.

1. Comparison of streamlining measures. This bill is similar to SB 540 (Roth), which was heard by this committee earlier this year. Both bills seek to streamline local housing approval processes by allowing locals to designate zones or districts for up-front environmental reviews and exempting project level environmental review, as specified. These two bills differ in several ways, however, including but not limited to the following:

1. Incentive payments. This bill requires HCD to provide incentive payments to localities that meet the specifications of a Housing Sustainability District. The bill specifies that the incentive payments will be paid for by an appropriation from the Legislature, but it is not clear how much would be needed or where that funding would come from.
2. Opposition. A coalition of builders and contractors, writing in opposition, state that labor provisions provided in the bill would “eschew Fair and Open Competition and skew the general requirements that prevailing wage be paid on public works and that the Labor commissioner is empowered to enforce” prevailing wages. The Sierra Club is opposed to project-level CEQA exemptions because it is necessary to protect California’s environment and public health and, in their opinion, CEQA is not an impediment to housing development in the State.
3. Triple-referral. This bill was also referred to the Senate Environmental Quality Committee and the Senate Governance and Finance Committee.

Related Legislation:

SB 35 (Weiner, 2017) — creates a streamlined, ministerial approval process for infill developments in localities that have failed to meet their regional housing needs assessment numbers. This bill is pending in the Assembly Housing and Community Development Committee.

SB 540 (Roth, 2017 ) — would permit a local government to create Workforce Housing Opportunity Zones. This bill is pending in the Assembly Natural Resources Committee.

Assembly Votes:

Floor: 56-20

Appr: 12-5

Nat.R: 7-1

H&CD: 5-0

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

POSITIONS: (Communicated to the committee before noon on Wednesday,

June 21, 2017.)

SUPPORT:

California Apartment Association

California Association of Realtors

Disability Rights California

Leading Age California

OPPOSITION:

American Fire Sprinkler Association – California Chapter

Central Valley Chapter of Associated Builders and Contractors

Independent Roofing Contractors of California

Plumbing-Heating-Cooling Contractors Association of California

San Diego Chapter of Associated Builders and Contractors

Sierra Club California

Southern California Chapter of Associated Builders and Contractors

Western Electrical Contractors Association

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