Existing law authorizes the Department of General Services to dispose of surplus state real property, as defined, as authorized by the Legislature, upon any terms and conditions and subject to any reservations and exceptions the department deems to be in the best interests of the state. Existing law authorizes the Director of General Services, with the consent of the Department of Motor Vehicles, to lease or exchange for a term of years and for fair market value, all or portions of parcels of specified real property, including the property located at 3960 Normal Street, San Diego, that are acquired and used by the state for the benefit of the Department of Motor Vehicles, for the purpose of developing mixed public and private use facilities, subject to specified requirements.

This bill would delete the above authorization for the Director of General Services to lease or exchange the property located at 3960 Normal Street, San Diego, and would instead require the Department of General Services Services, in consultation with the Department of Motor Vehicles, to negotiate and execute a legally binding ground enter into good faith negotiations to lease for all portions of the property. property upon the terms and conditions and subject to those reservations and exceptions that the Department of General Services determines are in the best interest of the state on or before January 1, 2026. The bill would require the lease to be with a public housing authority, or the authoritys assignee, housing sponsor, as defined, and would require the lease to allow for the development of housing development projects, as defined, among other things. The bill would require the lease to be for a term of 55 years and executed by December 1, 2028. If the department fails to execute a lease of the property with a public housing authority by December 1, 2028, the bill would require the department to negotiate and execute a legally binding lease with any other local agency or affordable housing developer for the property for development consistent with the above-described requirements. projects. The bill would specify that these provisions do not require the department to lease the property if the department determines that it is not in the best interest of the state to lease the property to a housing sponsor. The bill would require the proceeds from the lease of the property be deposited into the Motor Vehicle Account in the State Transportation Fund and, upon appropriation by the Legislature, be available for expenditure by the Department of Motor Vehicles. The bill would require the Department of General Services to notify the Legislature, in writing, if the department determines that a lease of the property is not in the best interest of the state, as specified.

Existing law authorizes the Department of General Services to dispose of surplus state real property, as defined, as authorized by the Legislature, upon any terms and conditions and subject to any reservations and exceptions the department deems to be in the best interests of the state. Existing law authorizes the Director of General Services, with the consent of the Department of Motor Vehicles, to lease or exchange for a term of years and for fair market value, all or portions of parcels of specified real property, including the property located at 3960 Normal Street, San Diego, that are acquired and used by the state for the benefit of the Department of Motor Vehicles, for the purpose of developing mixed public and private use facilities, subject to specified requirements.

This bill would delete the above authorization for the Director of General Services to lease or exchange the property located at 3960 Normal Street, San Diego, and would instead require the Department of General Services, by July 1, 2026, Services to negotiate and execute a legally binding ground lease for all portions of that property that are not utilized for Department of Motor Vehicles facilities. the property. The bill would require the lease to be with a public housing authority authority, or the authoritys assignee, and would require the lease to allow for the development of housing development projects, as defined. The bill would require the lease to meet the requirements of, and be consistent with, specified provisions relating to state property. defined, among other things. The bill would require the lease to be for a term of 55 years and executed by December 1, 2028. If the department fails to execute a lease of the property with a public housing authority by July 1, 2026, December 1, 2028, the bill would require the department to negotiate and execute a legally binding lease with any other local agency or affordable housing developer for the property for development consistent with the above-described requirements, except as specified. requirements. The bill would require the proceeds from the lease of the property be deposited into the Motor Vehicle Account in the State Transportation Fund and, upon appropriation by the Legislature, be available for expenditure by the Department of Motor Vehicles.

Existing law authorizes the Department of General Services to dispose of surplus state real property, as defined, as authorized by the Legislature, upon any terms and conditions and subject to any reservations and exceptions the department deems to be in the best interests of the state. Existing law authorizes the Director of General Services, with the consent of the Department of Motor Vehicles, to lease or exchange for a term of years and for fair market value, all or portions of parcels of specified real property, including the property located at 3960 Normal Street, San Diego, that are acquired and used by the state for the benefit of the Department of Motor Vehicles, for the purpose of developing mixed public and private use facilities, subject to specified requirements.

This bill would delete the above authorization for the Director of General Services to lease or exchange the property located at 3960 Normal Street, San Diego, and would instead require the Department of General Services, by July 1, 2026, to negotiate and execute a legally binding ground lease for all portions of that property that are not utilized for Department of Motor Vehicles facilities. The bill would require the lease to be with a public housing authority and would require the lease to allow for the development of housing development projects, as defined. The bill would require the lease to require at least 25% of the total number of housing units be affordable to lower income households, as defined, and would require the right to develop the property be awarded to the entity that will provide the highest percentage of units affordable to lower income households. meet the requirements of, and be consistent with, specified provisions relating to state property. If the department fails to execute a lease of the property with a public housing authority by July 1, 2026, the bill would require the department to negotiate and execute a legally binding lease with any other local agency or affordable housing developer for the property for development consistent with the above-described requirements, except as specified. The bill would require the proceeds from the lease of the property be deposited into the Motor Vehicle Account in the State Transportation Fund and, upon appropriation by the Legislature, be available for expenditure by the Department of Motor Vehicles.

Existing law authorizes the governing board of a district maintaining a high school to provide for the instruction of pupils by means of courses of work-based learning or work experience education, as provided. Existing law encourages school districts to maximize the use of available resources for youth employment opportunities by coordinating work-based learning opportunities, as provided.

This bill would state the intent of the Legislature to enact future legislation to create paid internship-based learning opportunities for eligible pupils attending high school.

 THIRD READING  

Bill No: AB 1635

Author: Ward (D), et al.

Amended: 6/26/24 in Senate

Vote: 21

SENATE GOVERNMENTAL ORG. COMMITTEE: 12-2, 6/25/24

AYES: Dodd, Wilk, Alvarado-Gil, Archuleta, Ashby, Bradford, Glazer, Ochoa Bogh, Padilla, Roth, Rubio, Smallwood-Cuevas

NOES: Nguyen, Seyarto

NO VOTE RECORDED: Jones, Portantino

SENATE APPROPRIATIONS COMMITTEE: 4-2, 8/15/24

AYES: Caballero, Ashby, Becker, Wahab

NOES: Jones, Seyarto

NO VOTE RECORDED: Bradford

ASSEMBLY FLOOR: 70-0, 1/29/24 - See last page for vote

SUBJECT: Hillcrest property: leasing: housing development projects

SOURCE: Author

DIGEST: This bill requires the Department of General Services (DGS), in consultation with the Department of Motor Vehicles (DMV) to enter into good faith negotiations to lease the Hillcrest property, as specified.

ANALYSIS:

Existing law:

1. Establishes DGS, which is under the control of the Director of DGS, within the Government Operations Agency, and requires the director to perform various functions and duties with respect to property within the state, including entering into lease agreements.
2. Authorizes DGS, subject to legislative approval, to sell, lease, exchange, or transfer various specified properties for current market value, upon such other terms and conditions DGS determines are in the best interest of the state.
3. Authorizes DGS, with the consent of the state agency concerned, to, among other things, let for a period not to exceed five years, any real personal property that belongs to the state, unless otherwise prohibited or excepted.
4. Authorizes DGS, with the consent of the state agency concerned, to let for any period of time any real property or interest in real property that belongs to the state, when DGS deems the letting serves a beneficial public purpose limited to the development of housing, including permanent supportive or traditional housing and emergency shelters or park and recreation facilities. Under this section, DGS is authorized to enter into leases at less than market value provided that the cost of administering the lease is recovered. (Government Code 14671.2)
5. Requires DGS to create a digitized inventory of all excess state land, create screening tools for prioritizing affordable housing development on excess state land, and issue requests for proposals and select affordable housing developments on excess state land, as described.
6. Establishes criteria for state agencies to use in determining and reporting excess lands. A state agency must report land as surplus that is:
   1. Not currently utilized, or is underutilized, for any existing or ongoing programs;
   2. Land for which the agency cannot identify a specific utilization relative to future needs; and,
   3. Land not identified by the state agency within its master plan for facility development.

This bill:

1. Requires DGS, on or before January 1, 2026, to enter into good faith negotiations to lease the Hillcrest property upon the terms and conditions and subject to those reservations and exceptions that DGS determined are in the best interest of the state.
2. Requires the lease to be subject to all of the following conditions:
   1. The lease shall be with a housing sponsor.
   2. The lease shall allow for the development of housing development projects.
   3. The lease shall meet the requirements of and be consistent with, section 14671.2 of the Government Code which, among other things, requires that at least 20% of the housing units developed on this property shall be available for the term of the lease to, and occupied by, lower income households, of which at least 10% shall be available to, and occupied by, very low income households.
3. Provides that nothing in this bill shall be interpreted to require DGS to lease the Hillcrest property if the department, after good faith negotiations, determines that it is not in the best interest of the state.
4. Requires, if DGS determines that a lease of the Hillcrest property is not in the best interest of the state, the department to notify the Legislature, in writing, explaining the reasons supporting his determination.
5. Requires DGS to be reimbursed for any cost or expense incurred in the lease of the Hillcrest property by the DMV or from the proceeds of the lease of the Hillcrest property.
6. Defines “housing development projects” to mean a use consisting of any of the following:
   1. Residential units only.
   2. Mixed-use developments consisting of residential and nonresidential uses with at least two-thirds of the square footage designated for residential use.
   3. Transitional housing or supportive housing.

Background

Author Statement. According to the author’s office, “housing solutions are one of the top priorities for Californians, and it’s been said more than once that the State of California should do more to contribute land opportunities to these solutions. In 2007, SB 754 authorized the DMV to enter into agreements for multi-use development of the San Diego Hillcrest DMV site, to include a replacement facility for DMV operations, however re-development of the site remains unfulfilled.”

The author’s office further states that, “as we approach 20 years of authorization with no progress for the site, AB 1635 will update SB 754 to more specifically direct redevelopment to include middle- and lower-income affordable housing opportunities through partnership with a local public housing agency, integrate a replacement DMV facility already under consideration, evaluate potential shared parking scenarios, and include public plaza or other amenities permitting retention of use by a popular Sunday Farmer’s Market which will blend with incoming City-sponsored public space improvements.  This will allow a clearer picture for site program vision, maximize housing outcomes, and accelerate a timeline to complete what is becoming a hole in the revitalization of the surrounding neighborhood with shared State and local goals met.”

Hillcrest Property. The DMV at the Hillcrest property is a two-story, 14,319 square-foot building built in 1960. The site is 2.46 acres and includes approximately 170 parking spaces. The parking lot is often used for after-hours community events.

In 2007, SB 754 (Kehoe, Chapter 681, Statutes of 2007) authorized DGS to execute ground leases on three DMV sites, including the Hillcrest property DMV, to facilitate the development of mixed-use projects that would fund their rehabilitation. In support of SB 754, DMV wrote “SB 754 is designed to allow the DMV to replace three of its aging, state-owned field offices at no net cost to the state, while bringing considerable benefits to the local communities. The San Diego, San Francisco, and Rancho Cucamonga properties are outdated, undersized, and do not meet current standards for accessibility, energy efficiency, or safety.”

Since the passage of SB 754 in 2007, the Rancho Cucamonga facility was replaced with a new, stand-alone DMV. The San Diego and San Francisco DMVs continue to operate out of the same facilities identified in SB 754. On both sites, DMV has released proposed plans to replace the existing facilities with stand-alone DMVs, but has paused these plans based on community feedback seeking new housing on the sites. For the San Francisco site, DGS currently is in the process of using the authorization granted by SB 754 to allow for affordable housing at the site.

Current Process for Surplus Property. The DGS is currently responsible for the disposition of state-owned property that has been declared surplus to future state needs. The Legislature must declare the property to be surplus and must authorize the Director of DGS to sell, exchange, lease, or transfer the surplus property according to specified procedures set forth in law.

Generally, current law requires surplus property to be transferred or sold at market value, or upon such other terms and conditions that DGS determines are in the best interest of the state. Current law gives right of first refusal on any surplus property to a local agency and then to a nonprofit affordable housing sponsor, prior to being offered for sale to private entities or individuals in the open market. In addition, DGS is authorized to sell surplus property to a local agency or to a nonprofit affordable housing sponsor at a sales price less than fair market value if DGS determines that such a discount will enable housing for individuals or families of low or moderate income.

In 2019, Governor Newsom, issued Executive Order N-06-19 (EO) which reoriented DGS’s priorities to focus on facilitating conversion of excess property to affordable housing. Within the required three months, DGS reviewed over 44,000 parcels, and identified 92 properties potentially suitable for housing. As of March 2022, DGS had offered 19 of these properties for affordable housing development, each of which is proceeding through the planning, development, or construction phase. These properties are expected to provide approximately 1,700 units of affordable housing. The contents of the EO were later codified by SB 561 (Dodd, Chapter 446, Statutes of 2022) and AB 2233 (Quirk-Silva, Chapter 438, Statutes of 2022)

Additionally, current law, under Government Code section 14671.2 authorizes DGS, with the consent of the state agency concerned, to let for any period of time any real property or interest in real property that belongs to the state, when DGS deems the letting serves a beneficial public purpose limited to the development of housing, including permanent supportive or traditional housing and emergency shelters or park and recreation facilities.

DGS is authorized to enter into leases at less than fair market value provided that the cost of administering the lease is recovered. The ability to enter into a lease below fair market value is important as it provides the developer with valuable savings that the developer can pass on to the public in the form of affordable housing units. Under this authorization, the lease must include at least 20% of the housing units be for lower income households, of which, at least 10% shall be available to very low income households.

This bill simply requires DGS, in consultation with DMV, to enter into negotiations for the possible lease of the Hillcrest property in San Diego. The bill makes it clear that the department is under no obligation to enter into a lease if, after good faith negotiations, the department finds that entering into such a lease is not in the best interest of the state.

Related/Prior Legislation

SB 754 (Kehoe, Chapter 681, Statutes of 2007) authorized DGS, with the consent of the DMV, to lease or exchange, for a term of years as determined by the Director, the Hillcrest property, as specified.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, unknown costs to DMV, should a lease be entered into for a portion of or the entirety of the Hillcrest property. DMV notes that the current space would not be able to accommodate a full-service 22-terminal field office with the required number of parking spaces if a portion is leased.

If DMV would be required to vacate the space and build a new site, the department notes it would require approximately 4.26 acres of land in the San Diego area. Until construction of a new field office is completed, a temporary space may be needed to continue serving the public. Costs to acquire the land and for office construction are unknown, but DMV estimates range into the tens of millions of dollars.

If DMV would not be required to vacate the property, the department will still likely need a temporary space while construction on the property is completed. These costs are also unknown, but potentially range in the millions of dollars.

Additionally, unknown costs for DGS to facilitate the lease of the Hillcrest property (Property Acquisition Law Money Account). DGS’s expenses will be reimbursed from lease proceeds. While DGS does not have an estimate of potential lease revenues, the revenues may not be significant as the department typically leases properties for affordable housing development for a nominal amount.

SUPPORT: (Verified 8/14/24)

California Housing Partnership

Circulate San Diego

City of San Diego

San Diego Housing Commission

San Diego Regional Chamber of Commerce

OPPOSITION: (Verified 8/14/24)

None received

ARGUMENTS IN SUPPORT: According to the City of San Diego, “the Hillcrest site was identified fifteen years ago as a prime site for housing collocated on the excess property of the DMV facility. Its location near transit facilities and walkability within the urban core makes it perfectly suited for housing development. However, setbacks and bureaucratic obstacles have prevented the state from finalizing agreements to bring the project to fruition. AB 1635 will help make the City’s reforms a reality by providing much-needed real estate identified by the San Diego Housing Commission.”

ASSEMBLY FLOOR: 70-0, 1/29/24

AYES: Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Davies, Flora, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Addis, Chen, Megan Dahle, Dixon, Essayli, Vince Fong, Gallagher, Lackey, Jim Patterson, Sanchez

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

8/18/24 8:50:53

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 1635 (Ward) - Hillcrest property: leasing: housing development projects

Bill Summary:

AB 1635 requires the Department of General Services (DGS) to enter into good faith negotiations with a housing sponsor by January 1, 2026 to lease the Department of Motor Vehicles (DMV) property at the San Diego Hillcrest for the development of housing projects, subject to specified conditions.

Fiscal Impact:

• Unknown costs to DMV, should a lease be entered into for a portion of or the entirety of the Hillcrest property. DMV notes that the current space would not be able to accommodate a full-service 22-terminal field office with the required number of parking spaces if a portion is leased.

If DMV would be required to vacate the space and build a new site, the department notes it would require approximately 4.26 acres of land in the San Diego area. Until construction of a new field office is completed, a temporary space may be needed to continue serving the public. Costs to acquire the land and for office construction are unknown, but DMV estimates range into the tens of millions of dollars.

If DMV would not be required to vacate the property, the department will still likely need a temporary space while construction on the property is completed. These costs are also unknown, but potentially range in the millions of dollars.

• Unknown costs for DGS to facilitate the lease of the Hillcrest property (Property Acquisition Law Money Account). DGS’s expenses will be reimbursed from lease proceeds. While DGS does not have an estimate of potential lease revenues, the revenues may not be significant as the department typically leases properties for affordable housing development for a nominal amount.

Background:

The DMV at the Hillcrest property is a two-story, 14,319 square-foot building built in 1960. The site is 2.46 acres and includes approximately 170 parking spaces. The parking lot is often used for after-hours community events.

Proposed Law:

• Requires DGS, by January 1, 2026 in consultation with DMV, to enter into good faith negotiations to lease the Hillcrest property upon terms and conditions and subject to reservations and exceptions DGS determines are in the best interest of the state.
• Requires the lease to be subject to all of the following conditions:
  • The lease shall be with a housing sponsor.
  • The lease shall allow for the development of housing development projects.
  • The lease shall be consistent with Government Code Section 14671.2.
• Provides that DGS is not required to lease the Hillcrest property if it determines that it is not in the best interest of the state to lease the property to a housing sponsor.
• Requires all proceeds from the lease of the Hillcrest property to be deposited into the Motor Vehicle Account in the State Transportation Fund, and be available for expenditure by the DMV.
• Requires DGS to be reimbursed for any cost or expense incurred in the lease of the Hillcrest property by the DMV or from the proceeds of the Hillcrest property lease.
• Provides that if DGS determines a lease of the Hillcrest property lease is not in the best interest of the state, DGS must explain the reasons supporting this determination to the Legislature in writing.
• Defines:
  • “Housing sponsor” as any individual, joint venture, partnership, limited partnership, trust, corporation, limited equity housing cooperative, cooperative, local public entity, duly constituted governing body of an Indian reservation or rancheria, tribally designated housing entity, or other legal entity, or any combination thereof, certified by the California Housing Financing Agency (Agency) pursuant to rules and regulations of the Agency as qualified to either own, construct, acquire, or rehabilitate a housing development, whether for profit, nonprofit, or organized for limited profit, and subject to the regulatory powers of the agency pursuant to rules and regulations of the Agency.
  • “Hillcrest property” as 3960 Normal Street, San Diego.
• States legislative findings and declarations.

-- END --

SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Bill Dodd

Chair

2023 - 2024 Regular

Bill No: AB Hearing Date: 6/25/2024

SUBJECT:

DIGEST: This bill requires the Department of General Services (DGS) to negotiate and execute a legally binding ground lease, by December 1, 2028, for the Hillcrest property, located at 3960 Normal Street, in the City of San Diego, as specified.

ANALYSIS:

Existing law:

1. Establishes DGS, which is under the control of the Director of DGS, within the Government Operations Agency, and requires the director to perform various functions and duties with respect to property within the state, including entering into lease agreements.
2. Authorizes DGS, subject to legislative approval, to sell, lease, exchange, or transfer various specified properties for current market value, upon such other terms and conditions DGS determines are in the best interest of the state.
3. Authorizes DGS, with the consent of the state agency concerned, to, among other things, let for a period not to exceed five years, any real personal property that belongs to the state, unless otherwise prohibited or excepted.
4. Authorizes DGS, with the consent of the state agency concerned, to let for any period of time any real property or interest in real property that belongs to the state, when DGS deems the letting serves a beneficial public purpose limited to the development of housing, including permanent supportive or traditional housing and emergency shelters or park and recreation facilities. Under this section, DGS is authorized to enter into leases at less than market value provided that the cost of administering the lease is recovered. (Government Code 14671.2)
5. Requires DGS to create a digitized inventory of all excess state land, create screening tools for prioritizing affordable housing development on excess state land, and issue requests for proposals and select affordable housing developments on excess state land, as described.
6. Establishes criteria for state agencies to use in determining and reporting excess lands. A state agency must report land as surplus that is:
   1. Not currently utilized, or is underutilized, for any existing or ongoing programs;
   2. Land for which the agency cannot identify a specific utilization relative to future needs; and,
   3. Land not identified by the state agency within its master plan for facility development.

This bill:

1. Requires DGS to negotiate and execute a legally binding ground lease, by December 1, 2028, for the hillcrest property, located at 3960 Normal Street, in the City of San Diego.
2. Requires the lease to be subject to all of the following conditions:
   1. The lease shall be with a public housing authority or the authority’s assignee.
   2. The lease shall allow for the development of housing development projects.
   3. The lease shall meet the requirements of and be consistent with, section 14671.2 of the Government Code which, among other things, requires that at least 20% of the housing units developed on this property shall be available for the term of the lease to, and occupied by, lower income households, of which at least 10% shall be available to, and occupied by, very low income households.
   4. The lease shall be for a term for at least 55 years.
3. Requires, if DGS fails to execute a lease for the Hillcrest property by December 1, 2028, to negotiate and execute a legally binding lease with any other local agency or affordable housing developer for the Hillcrest property, as specified.
4. Requires all proceeds from the lease to be deposited into the Motor Vehicle Account in the State Transportation Fund and, upon appropriation by the Legislature, shall be available for the expenditure by the California Department of Vehicles (DMV).
5. Requires DGS to be reimbursed for any cost or expense incurred in the lease of the Hillcrest property by the DMV or from the proceeds of the lease of the Hillcrest property.
6. Defines “housing development projects” to mean a use consisting of any of the following:
   1. Residential units only.
   2. Mixed-use developments consisting of residential and nonresidential uses with at least two-thirds of the square footage designated for residential use.
   3. Transitional housing or supportive housing.

Background

Author Statement. According to the author’s office, “housing solutions are one of the top priorities for Californians, and it’s been said more than once that the State of California should do more to contribute land opportunities to these solutions. In 2007, SB 754 authorized the DMV to enter into agreements for multi-use development of the San Diego Hillcrest DMV site, to include a replacement facility for DMV operations, however re-development of the site remains unfulfilled.”

The author’s office further states that, “as we approach 20 years of authorization with no progress for the site, AB 1635 will update SB 754 to more specifically direct redevelopment to include middle- and lower-income affordable housing opportunities through partnership with a local public housing agency, integrate a replacement DMV facility already under consideration, evaluate potential shared parking scenarios, and include public plaza or other amenities permitting retention of use by a popular Sunday Farmer’s Market which will blend with incoming City-sponsored public space improvements.  This will allow a clearer picture for site program vision, maximize housing outcomes, and accelerate a timeline to complete what is becoming a hole in the revitalization of the surrounding neighborhood with shared State and local goals met.”

Hillcrest Property. The DMV at the Hillcrest property is a two-story, 14,319 square-foot building built in 1960. The site is 2.46 acres and includes approximately 170 parking spaces. The parking lot is often used for after-hours community events.

In 2007, SB 754 (Kehoe, Chapter 681, statutes of 2007) authorized DGS to execute ground leases on three DMV sites, including the Hillcrest property DMV, to facilitate the development of mixed-use projects that would fund their rehabilitation. In support of SB 754, DMV wrote “SB 754 is designed to allow the DMV to replace three of its aging, state-owned field offices at no net cost to the state, while bringing considerable benefits to the local communities. The San Diego, San Francisco, and Rancho Cucamonga properties are outdated, undersized, and do not meet current standards for accessibility, energy efficiency, or safety.”

Since the passage of SB 754 in 2007, the Rancho Cucamonga facility was replaced with a new, stand-alone DMV. The San Diego and San Francisco DMVs continue to operate out of the same facilities identified in SB 754. On both sites, DMV has released proposed plans to replace the existing facilities with stand-alone DMVs, but has paused these plans based on community feedback seeking new housing on the sites. For the San Francisco site, DGS currently is in the process of using the authorization granted by SB 754 to allow for affordable housing at the site.

Current Process for Surplus Property. The DGS is currently responsible for the disposition of state-owned property that has been declared surplus to future state needs. The Legislature must declare the property to be surplus and must authorize the Director of DGS to sell, exchange, lease, or transfer the surplus property according to specified procedures set forth in law.

Generally, current law requires surplus property to be transferred or sold at market value, or upon such other terms and conditions that DGS determines are in the best interest of the state. Current law gives right of first refusal on any surplus property to a local agency and then to a nonprofit affordable housing sponsor, prior to being offered for sale to private entities or individuals in the open market. In addition, DGS is authorized to sell surplus property to a local agency or to a nonprofit affordable housing sponsor at a sales price less than fair market value if DGS determines that such a discount will enable housing for individuals or families of low or moderate income.

In 2019, Governor Newsom, issued Executive Order N-06-19 (EO) which reoriented DGS’s priorities to focus on facilitating conversion of excess property to affordable housing. Within the required three months, DGS reviewed over 44,000 parcels, and identified 92 properties potentially suitable for housing. As of March 2022, DGS had offered 19 of these properties for affordable housing development, each of which is proceeding through the planning, development, or construction phase. These properties are expected to provide approximately 1,700 units of affordable housing. The contents of the EO were later codified by SB 561 (Dodd, Chapter 446, Statutes of 2022) and AB 2233 (Quirk-Silva, Chapter 438, Statutes of 2022)

Additionally, current law, under Government Code section 14671.2 authorizes DGS, with the consent of the state agency concerned, to let for any period of time any real property or interest in real property that belongs to the state, when DGS deems the letting serves a beneficial public purpose limited to the development of housing, including permanent supportive or traditional housing and emergency shelters or park and recreation facilities.

DGS is authorized to enter into leases at less than fair market value provided that the cost of administering the lease is recovered. The ability to enter into a lease below fair market value is important as it provides the developer with valuable savings that the developer can pass on to the public in the form of affordable housing units. Under this authorization, the lease must include at least 20% of the housing units be for lower income households, of which, at least 10% shall be available to very low income households.

Setting of Precedent and Impact on State Properties. AB 1635 is unique in a number of ways. First, the Hillcrest property is not surplus property as the DMV is currently utilizing the property and has not indicated to DGS that the department no longer has use for the property. Secondly, the bill does not simply authorize DGS to enter into a lease but rather requires DGS to enter into a lease. A requirement, rather than an authorization raises a number of concerns.

First, by requiring DGS to enter into a lease, the bill could diminish the ability of DGS to be able to obtain the best deal possible for the state. After all, if DGS must enter in to a lease by a certain date, the department could be forced to accept terms and conditions that they otherwise would not accept in order to meet the deadline set by this bill. Secondly, and maybe more important, the housing crisis in California is not unique to a particular region in the state, if this bill becomes law, it is realistic to believe that other public housing authorities and/or local agencies would look at property owned by the state as way to obtain valuable land that can be used for housing or other local needs. Under this scenario the state would constantly be required to continue to purchase new property to meet the state’s need. Given the rising cost of property, this could result in significant cost, not to mention a logistical nightmare for DGS and the State to continue to look for new office space for all state agencies.

Finally, even if this bill were to become law, the bill could actually become a hindrance to the development of affordable housing at the site. As mentioned previously, current law already authorizes DGS to enter into leases for the development of affordable housing. More importantly, current authorization allows DGS to enter into such leases at below fair market value. Again, this is crucial, as it allows developers with necessary savings that allows them to build as many affordable housing units as possible. Without the ability to enter into such a lease, which this bill does not seem to do, it raises questions as to whether any developer will in reality be able to build any affordable housing at this site given what likely to be an extremely high price, at fair market value.

Ultimately, DGS has a fiduciary responsibility to the citizens of California to effectively manage the overall business of the state. This includes a responsibility to ensure that taxpayer money is being managed in a cost effective manner and ensuring that the disposal of state property is done to obtain the best deal for the citizens of California. While there is no denying that using state property for the availability of affordable housing is a laudable goal, this committee may wish to seriously consider what it would mean to require DGS to enter into a lease, without providing DGS with the flexibility to negotiate the best deal possible for the state.

Suggested Amendments. As discussed above, the requirement that DGS enter into a lease for the Hillcrest property diminishes the ability of DGS to be able to effectively negotiate the best terms for the state and can negatively impact the ability of DGS to effectively manage state properties throughout the state. As such, the author has agreed to amend the bill as follows, to instead require DGS to enter into negotiations for the lease of the Hillcrest property, while maintaining flexibility for DGS:

(a) Notwithstanding any other provision of law, on or before January 1, 2026, the Department of General Services, in consultation with the Department of Motor Vehicles shall enter into negotiations to lease, upon the terms and conditions, and subject to those reservations and exceptions that the director determines are in the best interest of the state negotiate and execute a legally binding ground lease for the Hillcrest property.

(b) The lease shall be subject to all of the following conditions:

(1) The lease shall be with a public housing authority or the authority’s assignee. The lease shall be with a housing sponsor as defined in Section 50074 of the Government Code.

(2) The lease shall allow for the development of housing development projects.

(3) The lease shall meet the requirements of, and be consistent with, Section 14671.2.

(4) The lease shall be for a term of at least 55 years.

(5) The lease shall be executed by December 1, 2028.

(c) Notwithstanding subdivision (a), if the Department of General Services fails to execute a lease of the Hillcrest property by December 1, 2028, it shall negotiate and execute a legally binding lease with any other local agency or affordable housing developer for the Hillcrest property for development consistent with the lease requirements established in paragraphs (2) through (4), inclusive, of subdivision (b).

(#) Nothing in this section shall be interpreted to require the director to lease the Hillcrest property if the director, after good faith negotiations, determines that it is not in the best interest of the state to lease the Hillcrest property to a public housing authority or the authority’s assignee.

(d) (1) Except as provided in paragraph (2), all proceeds from the lease of the Hillcrest property shall be deposited into the Motor Vehicle Account in the State Transportation Fund and, upon appropriation by the Legislature, shall be available for expenditure by the Department of Motor Vehicles.

(2) The Department of General Services shall be reimbursed for any cost or expense incurred in the lease of the Hillcrest property by the Department of Motor Vehicles or from the proceeds of the lease of the Hillcrest property.

(e) A lease of the Hillcrest property shall not be subject to Section 11011.1 or Article 8 (commencing with Section 54220) of Chapter 5 of Part 1 of Division 2 of Title 5.

(#) If the director determines that a lease of the Hillcrest property is not in the best interest of the state, the director shall notify the Legislature explaining the reasons supporting this determination.

(f) For purposes of this section:

(1) “Director” means the Director of General Services.

(2) “Hillcrest property” means 3960 Normal Street, San Diego.

(3) “Housing development project” has the same meaning as defined in subdivision (h) of Section 65589.5.

Prior/Related Legislation

SB 958 (Dodd, 2024) authorizes DGS to sell or exchange, at fair market value, the property known as Camp Coombs in the County of Napa to the County of Napa or the Napa County Regional and Open Space District by January 1, 2026, as specified. (Pending in the Assembly Appropriations Committee)

SB 1336 (Archuleta, 2024) authorizes DGS, with the consent of the Department of State Hospitals, to lease to a nonprofit corporation or local government, seven buildings located at Metropolitan State Hospital in the City of Norwalk for the purposes of providing housing or facilities, including adult and youth interim housing. (Pending in the Assembly Appropriations Committee)

AB 349 (Ramos, Chapter 325, Statutes of 2023) authorizes DGS, with the consent of DSH, to lease a building at Patton State Hospital to a nonprofit corporation or local government for purpose of providing services to elderly persons and providing housing to homeless individuals and providing mental health services to those individuals.

SB 561 (Dodd, Chapter 446, Statutes of 2022) requires DGS, in consultation with the California Department of Housing and Community Development, to develop criteria to evaluate the suitability of excess state-owned parcels for affordable housing, as specified.

AB 2233 (Quirk Silva, Chapter 438, Statutes of 2022) requires DGS to prepare and report to the Legislature a streamlined plan to transition underutilized multi-story state buildings into housing, as specified.

AB 2385 (Ramos, 2020) would have authorize DGS to lease the PSH for the purpose of providing transitional housing services. (Never Heard in the Assembly Accountability and Administrative Review Committee)

SB 281 (Wiener, 2019) would have, among other things, required DGS, in consultation with the Department of Food And Agriculture, on or before January 1, 2021, to enter into negotiations to sell, at fair market value, upon those terms and conditions, and subject to those reservations and exceptions that DGS determines are in the best interest of the state. (Gutted and Amended to an Unrelated Issue)

SB 1120 (Wolk, Chapter 482, Statutes of 2016) authorizes DGS, with the consent of the California Department of Corrections and Rehabilitation, to renew an existing lease agreement with the Solano County Office of Education for the operation of the Irene Larsen Education Center for persons with intellectual disabilities on land located within the ground of the Medical Facility at Vacaville for a period not to exceed 50 years.

SB 528 (Pan, 2015) would have increased the maximum term for DGS to enter into lease agreements for the acquisition of property from five to 11 years without requiring Legislative oversight. (Never Heard in the Senate Governmental Organization Committee)

AB 166 (Gaines, Chapter 211, Statutes of 2015) authorized DGS, with the consent of CDCR, to enter into a long-term lease for land on the grounds of the California State Prison at Folsom for a non-state funded peace officers memorial and museum.

AB 1503 (Gaines, 2014) would have required DGS, with the consent of CDCR, to lease vacant real property on the grounds of Folsom State Prison to the Old Guard Foundation, Inc., or a similar and related nonprofit entity, for the construction and operation of a peace officers memorial and museum facility. (Vetoed by Governor Brown)

SB 754 (Kehoe, Chapter 681, Statues of 2007) authorizes DGS, with the consent of the DMV, to lease or exchange, for a term of years as determined by the Director, the Hillcrest property, as specified.

SB 1217 (Dutton, Chapter 707, Statutes of 2012) reauthorized a statute that expressly allows the Director of DGS, with the consent of the Department of State Hospitals, to lease a building located at Patton State Hospital to a nonprofit corporation or local government, for a period not to exceed 20 years, for the purpose of providing services to elderly persons.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT:

California Housing Partnership

Circulate San Diego

City of San Diego

San Diego Housing Commission

San Diego Regional Chamber of Commerce

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the City of San Diego, “the Hillcrest site was identified fifteen years ago as a prime site for housing collocated on the excess property of the DMV facility. Its location near transit facilities and walkability within the urban core makes it perfectly suited for housing development. However, setbacks and bureaucratic obstacles have prevented the state from finalizing agreements to bring the project to fruition. AB 1635 will help make the City’s reforms a reality by providing much-needed real estate identified by the San Diego Housing Commission.”

ASSEMBLY THIRD READING

ATR Bill Id:AB 1635

Author:(Ward)

As Amended Ver:January 22, 2024

Majority vote

SUMMARY

Requires, by July 1, 2026, the Department of General Services (DGS) to lease the Hillcrest Property for the production of housing.

Major Provisions

1. Defines the Hillcrest Property to be 3960 Normal Street, San Diego, excluding any land utilized for facilities by the Department of Motor Vehicles (DMV).
2. Requires DGS, by July 1, 2026, to negotiate and execute a ground lease on the Hillcrest Property, subject to the following conditions:
   1. The lease must be with a public housing authority;
   2. The least must allow the development of a project that is at least two-thirds residential;
   3. The lease must require at least 20% of the total number of housing units to be affordable to lower income households with 10% available to very-low income households;
   4. The lessor must award the right to develop the site to the entity that will provide the highest percentage of units affordable to lower income households;
   5. The lease shall be for a term of at least 55 years;
   6. The lease must be for all portions of the site that are not utilized by the DMV;
   7. The least must be for at least half of the site; and
   8. The lease must be for no less than fair market value based on the projected use of the property and upon terms and conditions that the Director of DGS determines to be in the best interest of the state.
3. Provides that if DGS fails to execute the ground lease with a local housing authority by July 1, 2026, it must negotiate and execute a legally binding lease with any other local agency or affordable housing developer pursuant to the terms contained in (2).
4. Provides that DGS and DMV must jointly report to the Joint Legislative Budget Committee the terms and conditions of any lease at least 45 days prior to entering into the lease.
5. Provides that the proceeds of the lease must go into the Motor Vehicle Account of the State Transportation Fund, and that DGS may be reimbursed from these proceeds for any costs incurred.
6. Provides that the lease of the Hillcrest Property is not subject to other laws that govern the disposal of state- and locally-owned surplus property.

Strikes DGS's existing authority to lease the Hillcrest Property.

COMMENTS

Converting Excess State Property to Affordable Housing: Addressing the state's housing crisis requires the development of approximately 2.5 million units of housing, including one million units affordable to lower income households, over the next eight years.^[1] To help facilitate the production of affordable housing, in January 2019, Governor Newsom issued Executive Order (EO) N-06-19, which ordered DGS and HCD to identify and inventory excess state-owned property for affordable housing projects.^[2] The State of California owns over 3,100 properties over 44,000 parcels totaling nearly seven million acres in size.^[3] Most of these are actively in use by the state's departments and agencies. However, when the controlling department or agency has determined that their land is in excess of its programmatic needs, then DGS works to dispose of the excess property.

Until recently, DGS's prioritization for this disposal was to transfer to other state agencies, sell to local governments, sell to affordable housing developers, or sell on the open market, in that order. During the period between 2010 and 2020, DGS disposed of 64 properties, of which seven were utilized for affordable housing.^[4] EO N-06-19 reoriented DGS' priorities to focus on facilitating the conversion of excess property to affordable housing. Within the required three months, DGS reviewed over 44,000 parcels, and identified 92 properties potentially suitable for housing. As of March 2022, DGS has offered 19 of these properties for affordable housing development, each of which is proceeding through the planning, development, or construction phase. These properties will provide approximately 1,700 units of affordable housing.^[5] The contents of EO N-06-19 were codified in 2022 by SB 561 (Dodd), Chapter 446, Statutes of 2022 and AB 2233 (Quirk-Silva), Chapter 438, Statutes of 2022.

Disposing of DMV Properties: The DMV operates 173 field offices in the state of California. Many of these facilities are aging and outdated. Some of these facilities are located in urban areas on sites that contain a substantial amount of surface parking that could be utilized for other purposes, including housing.

Recognizing this opportunity, in 2007, SB 754 (Kehoe), Chapter 681, Statutes of 2007 authorized DGS (which owns the land) to execute ground leases on three DMV sites to facilitate the development of mixed-use projects that would fund their rehabilitation. In support of SB 754, DMV wrote "SB 754 is designed to allow the DMV to replace three of its aging, state-owned field offices at no net cost to the state, while bringing considerable benefits to the local communities. The San Diego, San Francisco, and Rancho Cucamonga properties are outdated, undersized, and do not meet current standards for accessibility, energy efficiency, or safety. The bill would authorize the Department of General Services (DGS), with the approval of the DMV, to lease or exchange these existing properties to a developer for construction of mixed public and private use facilities that include space for a new DMV field office. The remainder of the facilities would be leased by the developer for retail, commercial and residential use. It is anticipated that tenants would generate additional tax revenues for local government, while the new facilities would create new jobs, valuable housing and retail space for the community."

Since the passage of SB 754 in 2007, the Rancho Cucamonga facility was replaced with a new, stand-alone DMV. The San Diego and San Francisco DMVs continue to operate out of the same facilities identified in SB 754. On both sites, DMV has released proposed plans to replace the existing facilities with stand-alone DMVs, but has paused these plans based on community feedback seeking new housing on the sites.^[6] For the San Francisco site, DGS currently has an Request for Qualifications for a mixed-use development to include a new DMV field office and affordable housing. Responses are due on January 16, 2024, and DMV anticipates making an award by March 2024.^[7]

The Hillcrest Property: The DMV at the Hillcrest Property is a two-story, 14,319-square-foot building built in 1960. The site is 2.46 acres and includes 172 spaces. The parking lot is often used for after-hours community events.

This bill would require DGS, by July 1, 2026, to execute a ground lease to develop housing on the site. DGS would be required to lease the project to the developer proposing the highest percentage of affordable units, and at least 20% of the units must be affordable to households earning less than 80% of AMI with 10% available to very-low income households earning less than 60% of AMI. DGS could also maintain up to half of the site for DMV facilities.

This bill requires the lease to be executed with a local housing authority. In San Diego, the local housing authority is the San Diego Housing Commission, an organization that advocates for and develops affordable housing. If DGS is not able to execute a lease with the San Diego Housing Commission by July 1, 2026, they must execute the agreement with a different public agency or affordable housing developer.

The amount of housing that could be developed on this site will depend on how much parking will be required by DMV, and if that parking can be consolidated into a multi-story garage. Presuming DMV requires the maximum amount of land allowed by the bill (which is half the site, or 1.23 acres), housing could be built on the remaining land. At densities of three to six stories found in the vicinity, the project could yield up to 100-200 units of housing.

According to the Author

"Housing solutions are one of the top priorities for Californians, and it's been said more than once that the State of California should do more to contribute land opportunities to these solutions. In 2007, SB 754 authorized the DMV to enter into agreements for multi-use development on the San Diego Hillcrest DMV site, to include a replacement facility for DMV operations, however re-development of the site remains unfulfilled. As we approach 20 years of authorization with no progress for the site, AB 1635 will update SB 754 to more specifically direct redevelopment to include middle- and lower-income affordable housing opportunities through partnership with a local public housing agency, integrate a replacement DMV facility already under consideration, evaluate potential shared parking scenarios, and include public plaza or other amenities permitting retention of use by a popular Sunday Farmer's Market which will blend with incoming City-sponsored public space improvements. This will allow a clearer picture for site program vision, maximize housing outcomes, and accelerate a timeline to complete what is becoming a hole in the revitalization of the surrounding neighborhood with shared State and local goals met."

Arguments in Support

Supporters of the bill argue that it will help create more affordable housing while meeting DMV's needs. According to the San Diego Housing Commission, a co-sponsor of the bill, "by pursuing a mixed-use redevelopment of an existing underutilized state property and requiring at least 25 percent of the total number of housing units to be affordable to lower-income households, AB 1635 will increase the supply of much-needed affordable housing while providing the DMV and general public a facility that better serves their needs."

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Assembly Committee on Appropriations: DGS indicates this bill does not appear to create new administrative costs for DGS, but notes the requirement to lease at least half the site will force some measure of integrated parking, as well as impact the ability and cost to construct a new DMV office, if DMV were to decide to build a new office on the unleased portion of the site. DGS roughly estimates $6 million in added costs to put parking spaces in a garage instead of on the surface lot.

VOTES

ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-0

YES: Ward, Joe Patterson, Kalra, Lee, Quirk-Silva, Reyes, Mathis, Wilson

ASM APPROPRIATIONS: 12-2-2

YES: Holden, Arambula, Wood, Calderon, Connolly, Mike Fong, Grayson, Haney, Hart, Lowenthal, Pellerin, Villapudua

NO: Dixon, Ta

ABS, ABST OR NV: Sanchez, Megan Dahle

UPDATED

VERSION: January 22, 2024

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0002608

1. HCD, March 2022, "California Statewide Housing Plan: A Home for Every Californian": https://storymaps.arcgis.com/stories/94729ab1648d43b1811c1698a748c136 ↑

2. https://www.gov.ca.gov/wp-content/uploads/2019/01/EO-N-06-19.pdf ↑

3. https://www.dgs.ca.gov/RESD/Resources/Page-Content/Real-Estate-Services-Division-Resources-List-Folder/Statewide-Property-Inventory/SPI-Summary ↑

4. https://www.auditor.ca.gov/reports/2021-114/index.html ↑

5. https://www.auditor.ca.gov/reports/2021-114/index.html ↑

6. See: https://www.sandiegouniontribune.com/business/growth-development/sd-fi-hillcrest-dmv-replacement-20181205-story.html and https://www.ktvu.com/news/proposed-affordable-housing-on-dmv-parking-lot-unanimously-approved-by-san-francisco-supes ↑

7. See Request for Qualifications: San Francisco DMV: https://www.dgs.ca.gov/en/RESD/Projects/Page-Content/Projects-List-Folder/Executive-Order-N-06-19-Affordable-Housing-Development ↑

1635Date of Hearing: January 18, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1635

Author:(Ward) – As Amended Ver:January 4, 2024

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires the Department of General Services (DGS) to lease the Hillcrest Property in the City of San Diego to a public housing authority for the production of housing.

Specifically, this bill:

1. Defines the Hillcrest Property as 3960 Normal Street, San Diego, excluding any land utilized for Department of Motor Vehicles (DMV) facilities.
2. Deletes DGS’s existing authority to lease the Hillcrest Property and instead requires DGS, by July 1, 2026, to negotiate and execute a ground lease on the Hillcrest Property with a public housing authority, subject to the following:
   1. The lease must be for a term of at least 55 years.
   2. The lease must allow development of housing projects and must require at least 25% of the total number of housing units to be affordable to lower-income households.
   3. The right to develop the site must be awarded to the entity that will provide the highest percentage of units affordable to lower-income households.
   4. The lease must be for at least one-half of the Hillcrest property and for all portions of the property not utilized by the DMV.
3. Requires DGS, if it fails to execute a lease with a local housing authority by July 1, 2026, to negotiate and execute a legally binding lease with any other local agency or affordable housing developer pursuant to the terms contained in 2, above.
4. Requires DGS and DMV to jointly report to the Joint Legislative Budget Committee the terms and conditions of any lease at least 45 days prior to entering into the lease.
5. Requires the lease to be for no less than fair market value based on the projected use of the property and upon terms and conditions the Director of DGS determines to be in the best interest of the state.
6. Requires the proceeds of the lease to be deposited into the Motor Vehicle Account in the State Transportation Fund, for expenditure by the DMV, and requires DGS to be reimbursed from these proceeds or by the DMV for any costs incurred in the lease of the Hillcrest property.

FISCAL EFFECT:

DGS indicates this bill does not appear to create new administrative costs for DGS, but notes the requirement to lease at least half the site will force some measure of integrated parking, as well as impact the ability and cost to construct a new DMV office, if DMV were to decide to build a new office on the unleased portion of the site. DGS roughly estimates $6 million in added costs to put parking spaces in a garage instead of on the surface lot.

COMMENTS:

1. Purpose. The author of this bill seeks to accelerate the timeline of a mixed-use redevelopment that includes housing on an existing state-owned DMV site in San Diego that has been authorized for multi-use development since 2007. According to the author:

In 2007, SB 754 authorized the DMV to enter into agreements for multi-use development on the San Diego Hillcrest DMV site, to include a replacement facility for DMV operations, however re-development of the site remains unfulfilled. As we approach 20 years of authorization with no progress for the site, AB 1635 will update SB 754 to more specifically direct redevelopment to include middle- and lower-income affordable housing opportunities through partnership with a local public housing agency, integrate a replacement DMV facility already under consideration, evaluate potential shared parking scenarios, and include public plaza or other amenities permitting retention of use by a popular Sunday Farmer’s Market which will blend with incoming City-sponsored public space improvements.

1. Background. Existing law (SB 754 (Kehoe), Chapter 681, Statutes of 2007) authorizes the Director of DGS, with the consent of DMV, to lease or exchange all or portions of parcels of three specified properties in use by the DMV, including the Hillcrest Property, for the purpose of developing mixed public and private use facilities that include space for a new DMV field office. SB 754 was designed to allow the DMV to replace three of its aging, state-owned field offices at no net cost to the state, while bringing considerable benefits to the local communities. According to the DMV at the time, “the three properties, [located in San Diego, San Francisco, and Rancho Cucamonga] are outdated, undersized, and do not meet current standards for accessibility, energy efficiency, or safety.”

Since the passage of SB 754 in 2007, the Rancho Cucamonga facility was replaced with a new, stand-alone DMV. The San Diego and San Francisco DMVs continue to operate out of the same facilities identified in SB 754. On both sites, DMV has released proposed plans to replace the existing facilities with stand-alone DMVs, but has paused these plans based on community feedback seeking new housing on the sites. For the San Francisco site, DGS has a Request for Qualifications for a mixed-use development to include a new DMV field office and affordable housing. Responses are due on January 16, 2024, and DMV anticipates making an award by March 2024.

The Hillcrest property is a 2.46 acre site that includes a two-story, 14,319-square-foot DMV building built in 1960, and 172 parking spaces. This bill would require DGS, by July 1, 2026, to execute a ground lease with a local housing authority, the San Diego Housing Commission in this case, to develop housing on the site, subject to specified conditions. DGS can continue to maintain up to half of the site for DMV facilities.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: January 10, 2024

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

Christopher M. Ward, Chair

ABPCA Bill Id:AB 1635 (

Author:Ward) – As Amended Ver:January 4, 2024

SUBJECT: Hillcrest property: leasing: affordable housing

SUMMARY: Requires, by July 1, 2026, the Department of General Services (DGS) to lease the Hillcrest Property for the production of housing. Specifically, this bill:

1. Defines the Hillcrest Property to be 3960 Normal Street, San Diego, excluding any land utilized for facilities by the Department of Motor Vehicles (DMV).
2. Requires DGS, by July 1, 2026, to negotiate and execute a ground lease on the Hillcrest Property, subject to the following conditions:
   1. The lease must be with a public housing authority;
   2. The least must allow the development of a project that is at least two-thirds residential;
   3. The lease must require at least 25% of the total number of housing units to be affordable to lower income households;
   4. The lessor must award the right to develop the site to the entity that will provide the highest percentage of units affordable to lower income households;
   5. The lease shall be for a term of at least 55 years;
   6. The lease must be for all portions of the site that are not utilized by the DMV;
   7. The least must be for at least half of the site; and
   8. The lease must be for no less than fair market value based on the projected use of the property and upon terms and conditions that the Director of DGS determines to be in the best interest of the state.
3. Provides that if DGS fails to execute the ground lease with a local housing authority by July 1, 2026, it must negotiate and execute a legally binding lease with any other local agency or affordable housing developer pursuant to the terms contained in (2).
4. Provides that DGS and DMV must jointly report to the Joint Legislative Budget Committee the terms and conditions of any lease at least 45 days prior to entering into the lease.
5. Provides that the proceeds of the lease must go into the Motor Vehicle Account of the State Transportation Fund, and that DGS may be reimbursed from these proceeds for any costs incurred.
6. Provides that the lease of the Hillcrest Property is not subject to other laws that govern the disposal of state- and locally-owned surplus property.
7. Strikes DGS’s existing authority to lease the Hillcrest Property.

EXISTING LAW: Authorizes the Director of DGS, with the consent of DMV, to lease or exchange for a term of years and for fair market value, all or portions of parcels of specified real property, including the Hillcrest Property, that are acquired and used by the state for the benefit of the DMV, for the purpose of developing mixed public and private use facilities, as specified. (Government Code Section 14670.22)

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s Statement: According to the author, “Housing solutions are one of the top priorities for Californians, and it’s been said more than once that the State of California should do more to contribute land opportunities to these solutions. In 2007, SB 754 authorized the DMV to enter into agreements for multi-use development on the San Diego Hillcrest DMV site, to include a replacement facility for DMV operations, however re-development of the site remains unfulfilled. As we approach 20 years of authorization with no progress for the site, AB 1635 will update SB 754 to more specifically direct redevelopment to include middle- and lower-income affordable housing opportunities through partnership with a local public housing agency, integrate a replacement DMV facility already under consideration, evaluate potential shared parking scenarios, and include public plaza or other amenities permitting retention of use by a popular Sunday Farmer’s Market which will blend with incoming City-sponsored public space improvements. This will allow a clearer picture for site program vision, maximize housing outcomes, and accelerate a timeline to complete what is becoming a hole in the revitalization of the surrounding neighborhood with shared State and local goals met.”

Converting Excess State Property to Affordable Housing: Addressing the state’s housing crisis requires the development of approximately 2.5 million units of housing, including one million units affordable to lower income households, over the next eight years.^[1] To help facilitate the production of affordable housing, in January 2019, Governor Newsom issued Executive Order (EO) N-06-19, which ordered DGS and HCD to identify and inventory excess state-owned property for affordable housing projects.^[2] The State of California owns over 3,100 properties over 44,000 parcels totaling nearly seven million acres in size.^[3] Most of these are actively in use by the state’s departments and agencies. However, when the controlling department or agency has determined that their land is in excess of its programmatic needs, then DGS works to dispose of the excess property.

Until recently, DGS’s prioritization for this disposal was to transfer to other state agencies, sell to local governments, sell to affordable housing developers, or sell on the open market, in that order. During the period between 2010 and 2020, DGS disposed of 64 properties, of which seven were utilized for affordable housing.^[4] EO N-06-19 reoriented DGS’ priorities to focus on facilitating the conversion of excess property to affordable housing. Within the required three months, DGS reviewed over 44,000 parcels, and identified 92 properties potentially suitable for housing. As of March 2022, DGS has offered 19 of these properties for affordable housing development, each of which is proceeding through the planning, development, or construction phase. These properties will provide approximately 1,700 units of affordable housing.^[5] The contents of EO N-06-19 were codified in 2022 by SB 561 (Dodd), Chapter 446, and AB 2233 (Quirk-Silva), Chapter 438.

Disposing of DMV Properties: The DMV operates 173 field offices in the state of California. Many of these facilities are aging and outdated. Some of these facilities are located in urban areas on sites that contain a substantial amount of surface parking that could be utilized for other purposes, including housing.

Recognizing this opportunity, in 2007, SB 754 (Kehoe), Chapter 681, authorized DGS (which owns the land) to execute ground leases on three DMV sites to facilitate the development of mixed-use projects that would fund their rehabilitation. In support of SB 754, DMV wrote “SB 754 is designed to allow the DMV to replace three of its aging, state-owned field offices at no net cost to the state, while bringing considerable benefits to the local communities. The San Diego, San Francisco, and Rancho Cucamonga properties are outdated, undersized, and do not meet current standards for accessibility, energy efficiency, or safety. The bill would authorize the Department of General Services (DGS), with the approval of the DMV, to lease or exchange these existing properties to a developer for construction of mixed public and private use facilities that include space for a new DMV field office. The remainder of the facilities would be leased by the developer for retail, commercial and residential use. It is anticipated that tenants would generate additional tax revenues for local government, while the new facilities would create new jobs, valuable housing and retail space for the community.”

Since the passage of SB 754 in 2007, the Rancho Cucamonga facility was replaced with a new, stand-alone DMV. The San Diego and San Francisco DMVs continue to operate out of the same facilities identified in SB 754. On both sites, DMV has released proposed plans to replace the existing facilities with stand-alone DMVs, but has paused these plans based on community feedback seeking new housing on the sites.^[6] For the San Francisco site, DGS currently has an Request for Qualifications for a mixed-use development to include a new DMV field office and affordable housing. Responses are due on January 16, 2024, and DMV anticipates making an award by March 2024.^[7]

The Hillcrest Property: The DMV at the Hillcrest Property is a two-story, 14,319-square-foot building built in 1960. The site is 2.46 acres and includes 172 spaces. The parking lot is often used for after-hours community events.

This bill would require DGS, by July 1, 2026, to execute a ground lease to develop housing on the site. DGS would be required to lease the project to the developer proposing the highest percentage of affordable units, and at least 25% of the units must be affordable to households earning less than 80% of the area median income. DGS could also maintain up to half of the site for DMV facilities.

This bill requires the lease to be executed with a local housing authority. In San Diego, the local housing authority is the San Diego Housing Commission, an organization that advocates for and develops affordable housing. If DGS is not able to execute a lease with the San Diego Housing Commission by July 1, 2026, they must execute the agreement with a different public agency or affordable housing developer.

The amount of housing that could be developed on this site will depend on how much parking will be required by DMV, and if that parking can be consolidated into a multi-story garage. Presuming DMV requires the maximum amount of land allowed by the bill (which is half the site, or 1.23 acres), housing could be built on the remaining land. At densities of three to six stories found in the vicinity, the project could yield up to 100-200 units of housing.

Arguments in Support: Supporters of the bill argue that it will help create more affordable housing while meeting DMV’s needs. According to the San Diego Housing Commission, a co-sponsor of the bill, “by pursuing a mixed-use redevelopment of an existing underutilized state property and requiring at least 25 percent of the total number of housing units to be affordable to lower-income households, AB 1635 will increase the supply of much-needed affordable housing while providing the DMV and general public a facility that better serves their needs.”

Arguments in Opposition: None on file.

Related Legislation:

AB 2323 (Quirk-Silva), Chapter 438, Statutes of 2022: Requires the DGS to develop a plan to facilitate development of affordable housing on state-owned excess land.

SB 561 (Dodd), Chapter 446, Statutes of 2022: Requires DGS, in consultation with the California Department of Housing and Community Development, to develop criteria to evaluate the suitability of excess state-owned parcels for affordable housing, as specified.

SB 754 (Kehoe), Chapter 681, Statutes of 2007: Allowed DGS, with the consent of DMV, to lease or exchange all or portions of parcels of specified real property, including the property located at 3960 Normal Street, San Diego, for the purpose of developing mixed public and private use facilities.

REGISTERED SUPPORT / OPPOSITION:

Support

City of San Diego (Co-Sponsor)
San Diego Housing Commission (Co-Sponsor)

Opposition

None on file.

Analysis Prepared by: Steve Wertheim / H. & C.D. / (916) 319-2085

1. HCD, March 2022, “California Statewide Housing Plan: A Home for Every Californian”: https://storymaps.arcgis.com/stories/94729ab1648d43b1811c1698a748c136 ↑

2. https://www.gov.ca.gov/wp-content/uploads/2019/01/EO-N-06-19.pdf ↑

3. https://www.dgs.ca.gov/RESD/Resources/Page-Content/Real-Estate-Services-Division-Resources-List-Folder/Statewide-Property-Inventory/SPI-Summary ↑

4. https://www.auditor.ca.gov/reports/2021-114/index.html ↑

5. https://www.auditor.ca.gov/reports/2021-114/index.html ↑

6. See: https://www.sandiegouniontribune.com/business/growth-development/sd-fi-hillcrest-dmv-replacement-20181205-story.html and https://www.ktvu.com/news/proposed-affordable-housing-on-dmv-parking-lot-unanimously-approved-by-san-francisco-supes ↑

7. See Request for Qualifications: San Francisco DMV: https://www.dgs.ca.gov/en/RESD/Projects/Page-Content/Projects-List-Folder/Executive-Order-N-06-19-Affordable-Housing-Development ↑