Planning Commission - Regular Meeting

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April 16th, 2026 Planning Commission hearing. I'll call the hearing to order at 1 p.m. Ms. Carbin, can we please have a roll call?

Thank you, Chair Boss. I will begin with Chair Boss. Present. Vice Chair DiLuccio.

Here.

Commissioner Barnwell.

Here.

Commissioner Bauke.

Here.

Commissioner Peterson.

Here.

Commissioner Wardlow. Here. And Commissioner Wiscombe. Here. We have a quorum. Thank you.

Thank you. We'll get started with preliminary matters. The first topic on our agenda today is the requests for continuances, withdrawals, postponements, or ex-agenda items. Ms. Zarsaniaka, do we have any? Thank you, Chair Boss. We do not. Okay. And do we have any announcements or appeals?

Thank you, Chair Boss. We do have a couple of announcements. I wanted to bring your attention to the fact that short-term rentals ordinance was at ordinance committee on Tuesday, and that item was continued for further discussion and public comment. It will be returning next week. And then also the single-family streamlining ordinance was introduced at council on Tuesday as well. and that is set for adoption this coming Tuesday on April 21st.

Great, thank you. That takes us to item C, comments from members of the public pertaining to items that are not on today's agenda. Ms. Carman, do we have anyone in person or remote who would like to give public comment?

Thank you, chair boss. At this time, I don't have any speaker slips for in-person public comment under general. So I will move to virtual participation, which we don't have anyone online with us, but I will acknowledge that we received written correspondence from Lori Rafferty and give it back to you.

Thank you. We'll close general public comment and move on to new item 404 Moffitt place. The purpose of this hearing is to consider a local coastal program amendment and zoning amendment to change the zoning map and Title 29 airport zoning for a portion of the airport property. And we have staff here to provide a presentation who will introduce themselves during the presentation. Floor is yours.

Thank you, Madam Chair, and good afternoon, commission members. Jessica Metzger from the airport, airport planner. I also have with me.

Brad Cleansing, supervising engineer.

And we're here to present this item to you. As you heard, we're here for a local coastal plan program amendment and a zoning map amendment. The portion of the property is to the south of existing parking at the airport, denoted with a star here on that graphic. Previous actions, you have seen this item twice before to initiate the amendments. Airport Commission has also seen the item for the future parking that will be coming before you at a later date when those designs are more formal. This is a map of the site in question. Right now it's a vacant site for most of it with some dilapidated hangers on the east side and also contains some sanitary sewer equipment underground. We have the city of Goleta to the east and then the airport to the west and the north and the Goleta Slough to the south. When you look at doing an amendment to the general plan, you have to look at consistency with the general plan for the airport. Our general plan is actually the local coastal program of the airport and the Goleta Slough. The site in question is major public and institutional, and our proposition to change the zoning from airport aircraft approach area to airport facilities is appropriate in that land use of major public and institutional. Zoning map consistency is also required. You can see on this map the yellow is the AAO zone and the blue is the airport facilities or AF zone and that's what we're proposing to change the green SQUARE TWO FOR THAT ADDITIONAL FUTURE PARKING. WE DO HAVE TO MAKE ONE CORRECTION TO THE STAFF REPORT. IN THE STAFF REPORT WE SAID THAT THAT GREEN SQUARE WAS 1.18 ACRES. AFTER FURTHER REVIEW WE REALIZED WE HAD AN ERROR THERE AND IT'S .78 OF AN ACRE. The rationale for this zoning map amendment and LCP amendment is that we are consolidating airport parking near the airport. We currently have an economy lot off site that you have to take a shuttle to. This is inefficient for passengers, causes anxiety, and also is costly to run for the airport budget. The area in question is underutilized right now and would be better utilized as additional parking for long-term parking. We also have guidance from the Federal Aviation Administration that says airports of Santa Barbara Airport size should have parking consolidated close to the terminal. We were before you twice, as I said earlier, and it was requested that we look at expanding the scope of this additional parking and the zone change associated with it to include the parking area down more south, denoted here on the map as the Slough Viewing Overlook. That little parking area is actually an area that was created as mitigation from a planning process that happened in the early 2000s when we extended a runway. And as mitigation, it was made to be able to view the slough for people who are interested in experiencing the nature of the slough. Unfortunately, most of the slough is behind our airport fence, so regular people that don't have those authorities can't see it past the fence. It is also part of California Fish and Wildlife Department Ecological Reserve. That ecological reserve was created through an MOU between the city and CDFW in 1988. And changing that MOU would be very difficult and the reason of just creating more parking to take away that area that is currently the ecological reserve would most likely not be accepted by the California fish and wildlife. Um, we appreciate that the planning commission had the vision of extending for more parking because more parking at the airport is always better. But as staff, after review of this conditions, we maintain that our request is just the red square here on the map, our original scope area. And we can answer more questions about that if you wish during questions and answers. We also had environmental review of the project, and it falls under the exemption of 15265, which covers local coastal programs and zoning map amendments. And we're here recommending that the Planning Commission recommend amending both of those documents to City Council for approval. The next steps for this are a little different than normal. The City Council is not the final review authority on our local coastal program. It has to be certified by the Coastal Commission, who we are in regular conversations with about this and other local coastal program amendments that the airport has been actively working on. So this step is the first of the approvals, and it'll go to City Council for the zoning map approval, but California Coastal Commission for final certification. And with that, we're happy to answer any questions that you may have. Thank you very much.

Thank you, Ms. Mesker, especially for considering the expanded scope. I think that takes us to comments from members of the public pertaining to this specific item. Ms. Carman, do we have anyone in person or remote?

Thank you, Chair Boss. At this time, I don't have any speaker slips for in-person public comment for this item. We do not have any participants online with us, and we didn't receive any written correspondence for this item, so I'll give it back to you.

Okay, thank you. I'll open it up to my fellow commissioners for questions, and after we'll move to deliberations. And I am not seeing the screen that shows who's... Thank you. All right. Vice Chair DiLuccio.

Okay.

Commissioner Barnwell.

Thank you, Madam Chair. Thank you for the report, and I don't want these comments to be considered as my questions as being deal killers. They're not comments. They're questions. Can you go to the map that has the zoning on it? Yeah, well, right there. I don't know if my little thing is going to work. Just north of the Green Line, in what is still Green Area. Yeah, that stuff in there. For the last 12 or 15 years, the airport has parked trucks and used that as a staging area. I guess contrary to the ecological preserve zoning. In fact, three weeks ago, in fact, within the last couple of months, there were several tanks, not tanks, but barrels, oil barrels, as many as 50 or 60 that were stacked also in that green area. So my question to you is, how is it that the airport is able to use that as a staging area with that zoning, that green zoning?

Yes, through the chair. Thank you, Commissioner Barnwell for that question. So in the MOU that I'd be happy to provide the commission, we have the ability to use certain parts of the ecological reserve for airport operations, but operations are not the same as the airport facilities, which is what the parking would be included in for zoning. And so the airport operations, we have a gate there. We also have our vehicle service road, as you can see, runs through there. And we have been able to use those for certain staging areas.

Okay. Thank you. That answers my question. Thank you.

Thank you. Any other questions? Okay. We'll open it up for Commissioner deliberations or comments. Commissioner Barnwell.

This area that I had hoped we could expand and have a conversation about, I did not think in my comments at the prior meeting that it should be for parking. I just thought that it would be nice to include it in the study area and a zoning change for other uses besides parking. I never thought in my mind, and I'm sorry my comments may have misled you, but I never dreamt that we were gonna extend this proposed parking area down there. What my thoughts were is that there is that viewing area there, which I went to today. I've gone to it several times because I remember when it was formed. And it's sad now. No one maintains the display panels. There's three of them, and they're all covered over and hard to read. I don't know. If the Chumash have been consulted, they are typically consulted on these things right when we do airport work. Just across the street from that is that hill, that hump, which before the coming of the Europeans was the largest collection of Native American citizens in the entire state of California lived on that hill. And when the Marines came in, they cut it all down, spread it out over the airport to fill the airport in. Which is one of the reasons why when you dig anywhere on the airport property, you run into bones and important stuff. But that is, I'm not exaggerating when I say that is one of the most historical places in the entire state of California. And Mescalitin Island was By my calculations, I believe it was something like 10 acres, which is five or six city blocks. So why we aren't using the requirements of the coastal plan and expanding visitor-friendly sites, which is what this is, disturbs me. I think we should do more. And what we have done now is far less. So I'm sorry that this didn't get included, and I don't know how something like this does get included, because it is right in the middle of what the zoning is all about, which is outreach for the public. Anyway, I don't want that to get lost, that view of that area right down there, and why I had hoped it would be part of the study, not because it should be parking, but because it is a vitally important place for people to see the slew, which is part of the Pacific Flyway for the birds. It's just a rich, rich thing. It's just not being cared for. Thank you, Madam Chair.

Thank you. Any other comments?

Commissioner Wiscombe. Thank you, Madam Chair. I just want to say thank you for all your hard work on this. I know this is a more convoluted process than we're used to seeing, but I can certainly support the recommendations for the zoning amendment, the local coastal plan amendment, and also the CEQA determination. Thank you.

Thank you. Any other comments? Okay. If we can ask staff to go to, I think it was slide 10 with the recommended motion or action, and I'll open it up for a motion. Vice Chair DiLuccio.

I'd be happy to make a motion. Thank you for all the work you've done on this. Planning Commission recommends the amendment to the local coastal programming and zoning amendment for City Council approval.

Thank you. Do we have a second?

I'll second.

Great. Thank you. Any further discussion on the motion? Ms. Carmen, can we please have a roll call vote?

Thank you, Chair Boss. I'll begin with Commissioner Wiscombe.

Yes.

Commissioner Barnwell?

Yes.

Commissioner Peterson? Yes. Commissioner Bauke? Yes. Commissioner Wardlow? Yes. Vice Chair DiLuccio? Yes. And Chair Baas? Yes. Motion passes. Thank you.

Thank you. Next, we will move into a discussion item, inclusionary housing and in lieu fee study. I'll introduce it, but I want to explain we're going to go through this a little bit differently. We'll have the staff presentation. We'll have public comment. And then we'll start with an initial straw poll vote. So we'll be going through each of the recommendations, which I believe are A through J, and ask for a simple yes, no, or yes, but with revisions. After we do that initial straw poll vote, we'll open it up for questions and comments and deliberations. We'll do a second straw poll vote as needed, further discussion, and then get to a motion. So just wanted to give everybody fair warning. That's how it will flow. We'll start out with a straw poll before any questions or comments. But to introduce the item, the purpose of this hearing is to receive a presentation on the inclusionary housing and in lieu fee study and provide guidance on recommendations to amend the city's existing inclusionary housing ordinances. We have staff and consultants here to provide a presentation. They'll introduce themselves during the presentation. The floor is yours.

Thank you, Chair Baas. Good afternoon, Planning Commission. My name is Dana Falk. I'm a project planner in the Long Range Planning and Special Studies section. And as mentioned, I'm here to talk to you about the Inclusionary Housing and In-Lieu Fees Study. Just fair warning, this presentation might be a bit longer than normal. There's a lot of information we want to try and cover, so we can have a really good deliberation session afterwards to request that guidance from you on what recommendations from this study Staff should consider as we move forward to proposing a draft amendments to our inclusionary housing ordinance. I'm going to start off with a little bit of background on what our inclusionary housing program is, why we're here talking to you today, and a very brief overview of some of the residential trends we've been seeing over the last few years that all informed the study and the recommendations it includes. So inclusionary housing, it's a zoning standard that we have in multiple places of our zoning ordinance or municipal code. It requires units restricted at affordable rents or sale prices to households at very specific income categories as a percentage of our area median income. And those units must be part of a residential, all residential development. The housing element is the main reason we're talking about this because of program HE13 to evaluate our inclusionary housing ordinances. It is a two-part program and one of 32 programs that our housing element pushes forward as we're working towards our goal of housing for affordability and just general housing in general. The first phase is an evaluation that is inclusionary housing and in Luffy's study we have for you today the second part which will build off of what the study recommendations are and the guidance we receive will be zoning ordinance amendments. At a very high level, I'm going to review what our inclusionary housing requirements are. We have them for both ownership projects and rental projects. They've been in place for a while, but the ownership projects have been required for much, much longer since 2004 compared to 2019 for rentals. Ownership inclusionary is focused on the middle income and upper middle income categories of the AMI area median income. Middle income, as shown on the screen, is 120% to 160% of that AMI, whereas upper middle is 160% to 200%. Contrary to that, the rental is for moderate income. That's the focus for those affordable units. And the AMI there is 80% to 120%. I did note that these are in multiple places of our municipal code, and I've included the references here for anybody that wants to go read them. In a one slide overview, the ownership inclusionary requirements are for 15% of the total units in a project to provide either middle income if it's a condominium project or upper middle income units if it's single units on an individual lot. These requirements are fulfilled in different means depending on the size of the project being proposed. If the project is two to nine units, the project can meet these requirements either by providing an onsite inclusionary unit at these affordability levels or by paying an in lieu fee. If the project is over 10 units, a larger project, then they meet the requirements by providing onsite units. I do want to note the in lieu fee calculation for ownership is pretty complex. It requires for each project that requires an in lieu fee payment for staff to recalculate what that in lieu fee is. And there's quite a few variables that go into it, which is one of the reasons it's always recalculated and because it is based on the project size. So just note in lieu fee calculations for ownership. will be slightly different and something we'll talk about a little bit later. And I want to touch upon rounding requirements just briefly. For ownership units, it's, I will say, traditional rounding. If the inclusionary requirement ends up being a 0.5 or above, you would round up to another full inclusionary unit required on-site, whereas if it's 0.49 or below, you would round down. So a 2.49 requirement would round down to two on-site units, and a 2.51 would round up to three on-site inclusionary units. A similar quick overview of the rental requirements for these projects. It is 10% of the total units being proposed, and this is for projects utilizing the AUD program alone. So if you're not using AUD or you're in the coastal zone, these requirements do not apply to rental. The affordable units in these projects must be targeting moderate income households. And again, fulfilling these requirements does depend on the project size. So small projects of five to nine units can provide an onsite unit or has the option to pay an NLU fee. whereas the larger projects of 10 or more are required to provide an onsite unit, and then there is a potential fractional fee requirement because the rounding is slightly different for rental projects. When we look at these ones, again, traditional rounding applies, but rather than rounding down at .49 or below and providing just one unit versus two, you do one unit and a .49 fractional fee. I know these numbers are just made up, but I'm just trying to give you an example of how these differ because it is something we will touch upon a little bit later. And since I mentioned the in lieu fee calculations for ownership, I just want to briefly say the ones for rentals are much, much simpler. They are based on the project size, unit count, and total building square footage, and then a flat rate fee to do all the math. So it's a little bit simpler and more predictable for an applicant to know what that fee will be at the outset. Okay, we've talked what they are. What have they produced? So ownership having been in place since 2004, we've 45 deed restricted units that can be attributed to the inclusionary housing requirements and collected 933,000 in lieu fees from projects that paid a fee. For rental, having been in place since 2019, it's generated 13 deed-restricted units and almost $400,000 in in-lieu fees. I will mention, Carrie just walked in. If you have any questions, our housing and homeless services manager is here to talk about the in-lieu fees if you do have anything to talk about.

Sorry, Ms. Payne.

And then I'm gonna step back from what our inclusionary requirements are and what they've created to give an overview with a very high level of some of the production or housing production trends we've been seeing, focusing solely on our arena progress in our current housing element cycle. So these numbers are as of December 31st of 2025. These are the numbers that we prepare every year annually to submit to the state and are presented in the annual progress report, has been published and been to public hearing. So as you can see, we've got 863 total units. I want to just real quick note that about half of those are accessory dwelling units, and approximately the other half are in multi-unit developments. Those are residential projects of two or more. And since we're talking about inclusionary and they only apply to projects that are not ADUs in essence, I'm going to be focusing on the 21 projects that produced half of the units counted here. So the next slide, this is a bar graph showing just those multi-unit projects. Again, two or more units is the cutoff we used here. And these are every single bar is a project that has been issued a building permit in the period we're studying because this is our housing element cycle at present. The bars are colored based on the kind of unit that that project was permitted to have and taller bars mean more units. You can see we have the blue for market rate, the orange for affordable units, and the green for inclusionary units. Looking back to some of those terms I used when I talked about what the inclusionary requirements are, a small project is less than 10, so nine or below. There's been nine of those in, or sorry, 12, I got my numbers mixed, 12 small projects, sorry, in this spectrum. And then larger projects of 10 or more units, again, those are the ones that require an on-site unit for inclusionary, are the remaining nine to total these 21s that we're looking at. So just keep that in mind as we're working through the trends and we're looking at what these projects are and the sizes of them. Because you noticed there was an increase in orange and a decrease in green on that previous slide, which I was intrigued by. So I did a little bit of digging to see these projects that are getting permitted. How many of them are using our state density bonus law to provide more affordable units at income levels usually low or very low? Over time, again, same projects I just showed you in a different bar graph. Looking at them by projects that are utilizing or not utilizing state density bonus law. And I want to real quick call out there was an error in the legend for this. It's figure four in your exhibit E. The blue bar is not using state density bonus law. So that was an error I found when I was reviewing the slides. To note, projects that use state density bonus law are able to count the affordable units they provide towards our inclusionary housing requirements locally, which means we're getting more affordable units because of the state density bonus law utilization, but those units are not at the moderate or middle income categories that our inclusionary housing ordinances are focused on. So just keep that in mind as we're looking at trends and the utilization of state density bonus law in providing affordable units at these income categories. I'm finishing up the little background section here. I do want to note the public engagement we've done so far on this item. There were local practitioner interviews conducted by our consultant as we were working on the study to inform the assumptions and the recommendations. We did release a draft version of this study earlier this year and I want to say thank you very much to all of the people that submitted comments. We got 18 of them. They were very informative and we used them to revise the study which was published and is before you today. We also looked to The questions that we were getting and the comments that we were getting as we were putting together the staff report. So some of those topics are addressed there in the staff report. And we're trying to touch upon more of them in this presentation today. We are at public hearings here with you. And then we will be going to city council requesting guidance on which recommendations from the study we should move forward as we draft the ordinance. And there will be additional engagement as that ordinance is being drafted and then ultimately brought forward for adoption. So that's background. Let's talk about the study. I mentioned the housing element, and particularly HE13, the program that spurred all of this effort. That was one of the main drivers behind doing this study, but it wasn't the only objective we had while we were putting this together. We also look to align our disparate inclusionary housing requirements into a single program. I'd mentioned the rounding, I'd mentioned in LUFI and how they're calculated. So all these things are different. It can get a little bit complicated and they all depend, right? Every answer is it depends. So we're trying to figure out how can we say it depends a little bit less when we talk about inclusionary by aligning these programs. We did evaluate the existing program pretty extensively to inform what those changes should be as well as some other changes. which included analyzing the current in lieu fee rates to identify future in lieu fee rates. Part of that aligning was also talking about some of the administration challenges that we've experienced in the past with these two programs and try to address them in recommendations and ultimately communicate potential alternatives to the existing program, which we'll talk about. So with that, I will hand it over to Mr. Barker from BAE Urban Economics, the consultant that the city retained to put together this study. Mr. Barker.

Great. Thank you, Dana. Thank you, commissioners, for having me this afternoon. My name is Aaron Barker. I'm an associate principal at BAE Urban Economics. We're a land use and real estate advisory firm in Southern California. And so I just want to take you through kind of the methodology that we used for this inclusionary study. kind of a three-prong effort here so starting with the development prototypes we created residential development prototypes that are really as accurate representations as possible of the existing development that you have here in the city so really taking a close look at your pipeline your title sheets making sure we have a really good sense of what your circulation requirements are etc the second step we prepare static pro forma models Static pro forma models are kind of a form of financial feasibility analysis that developers would typically use at kind of the first phase of an analysis. It doesn't quite get at the level of detail that you would have at a cash flow analysis, for example, but it really does kind of provide a gut sort of go, no-go decision that we can kind of base our recommendations off. And then during the feasibility testing process, we're really kind of toggling different feasibility scenarios and affordability percentages and really trying to kind of get to the question of do existing requirements under the existing program pencil for a developer and would sort of a rational developer opt in to utilize the existing program given some of the other alternatives that they have? And if so, what can we do to kind of make enhancements to the program so we can sort of encourage utilization? So in terms of the approach that we use for development prototypes, we work very closely with the city to, again, sort of look at what a prototypical lot size would be in each of the various zones that you have. We have prototypes that are broken down by what we call baseline prototypes. So those are prototypes that do not avail themselves of density or height or open yard incentives that would be available via the state. They're really kind of staying within the lane of the AUD program. We also had a set of state density bonus prototypes that we used to say, you know, on a given lot, what would sort of an alternative build out be and how would that sort of financial feasibility compare? So just to take one brief example here, prototype four, we're looking at a 15,000 square foot lot in the priority housing overlay district, which entitles one to 63 dwelling units per acre. I do want to call out that you would, in theory, be entitled to producing 22 units under the AUD zoning. Looking at the data permit analysis, we found that it was very rare for an applicant to actually fully utilize the density to which they were entitled, maybe their site constraints, et cetera. So we wanted to model that accurately, and we sort of have dialed it back a little bit to have 20 units. We did some market sounding with our practitioner group, and we did sort of make the assumption that they'd want to have a tenentable building, and so we are sort of parking to a market standard of 1.2 spaces per unit. And as I mentioned before, this does comply with what we're calling the existing program. We have 20 rental units. There is a 10% moderate income requirement. and that is a very clean to moderate income units that would be provided onsite in this example. Next slide. Okay, so when we were analyzing financial feasibility, again, sort of the key question, to what extent are the existing or potentially updated inclusionary requirements financially feasible under current market conditions? We are utilizing static pro forma models that are structured to calculate residual land value. So residual end value is basically after accounting for project costs, project revenues, developer threshold return, how much is really left available to pay for land based on sort of what we look at our land comps to be based on underlying zoning. Just want to point out that ROV, residual land value, is definitely not the only metric that one can use to assess financial feasibility. In this case, it did provide some continuity with a study that we completed in 2021, the FAR study. So that was a metric that we used here. But we also sort of looked at return on cost, and we'll sort of illustrate the latter approach in a subsequent slide to show you how those numbers ended up shaking out. And some of the assumptions that drive or undergird the pro formas, we've got our project revenues. So our project revenues, depending on the tenure of the prototype, we're going to be using market rate rents in recently built multifamily projects. And for our ownership projects, we're going to be using sale prices per square foot in recently built condominium projects. Our project costs, so we're dividing those into hard costs and soft costs. Hard costs are the costs associated with basically the physical construction of the building, so all construction materials, labor, I will note non-prevailing wage labor. We're also including parking as a separate line item. And the soft costs, so those include design, legal, permitting. We're also including construction financing as well. We are not including impact fees, and we're not including any of the in lieu fees, so those are treated as a separate line item. And for profit so as corroborated during the you know interviews with local developers For multifamily we are assuming a 10% profit threshold granted there are Different opinions about this some developers will you know need a 12% threshold some will maybe go down to 8% We did do sensitivity testing and looked at sort of different thresholds Down to 8% for example, and we'll show you how that all played out as well on next slide Okay. And just very, very briefly, so residual land value versus return on cost, to the extent that anyone has a question about it, if we go down and look at residual value, what we're solving for, we're really solving for land costs. So our project valuation assumptions, our hard and soft cost assumptions, our land costs or our developer profit assumptions, those are going to be fixed. And again, we're sort of solving for what we can pay for land. Sort of the flip side of that coin, if we're looking at a return on cost lens, again, the project valuations are going to be fixed. The hard and soft costs are going to be fixed. We are going to be hard coding our land cost, and then we're going to be sort of calculating what our profit would be. One of the sort of advantages, I would say, to residual land value is that when you're in a sort of a built-out environment like Santa Barbara, where land is not trading very often and you have kind of few comps, it makes us a little bit less prone to wanna have that be a hard-coded input in our pro formas. So we're gonna be solving for how much we can afford to pay for land after a fixed return on cost threshold. But again, there's sort of multiple ways that one can look at this. Next slide. Okay, so this is sort of an overview of the feasibility analysis that we performed. That first column there, residual land value per square foot, is associated with each of the prototypes that we looked at. These are baseline prototypes, so these are complying with the existing program. They're not utilizing any development incentives. They are really just either providing the unit or the number of units that are obligated and any fractional fee. I will note that what we're saying is our threshold is $125 per square foot for ownership prototype one And rental prototype two, as you can see there, we're not getting anywhere near our threshold RLV value. And for prototypes two, four, and five, because we're in AUD priority overlay, we're entitled to higher densities. Land is going to be a little bit more expensive. Our threshold is even higher at $150 per square foot. And as you can see, we're not able to achieve our requisite RLV thresholds there as well. I did want to sort of allude to the fact that there is this other way that we can look at project feasibility, and that is return on cost. So basically, this is just sort of flipping that and inserting those land values into the pro forma itself. and just solving for the profit, which is how much is left over after your hard and soft costs. And none of our prototypes here even reach 3% of a profit. So you can kind of see where we're a little bit challenged here under the existing program. Okay, so in terms of rental prototype feasibility, what we found is that under existing market conditions, and this is sort of a point in time that we're looking at, we were not able to get financial feasibility under the existing program with that 10% moderate income requirement without any kind of density bonus. We really saw that feasibility was impacted by sort of the appealing alternative of state density bonus law, which we'll get into a little bit later. We had some funky maximum rent calculations that we would recommend updating as well. So instead of target AMI of 100%, aligning a little bit more with state density bonus law and having a 110% AMI be allowed. And of course, this is a perennial challenge in many coastal cities. It's just the cost of construction, hard costs, and debt. Next slide. Similarly, with the ownership prototypes, we were also challenged. Some of the reasons were similar, especially cost of construction. Some of them were different. So we did need to use a little bit of a higher feasibility threshold for condos. Applicants or developers that we spoke to find that these are a little bit more of a risky product type. We have our condominium defect liability law still in place. So there is kind of an extra risk that applicants will sort of take on when they're electing to produce this product type We were also challenged with some of our ownership prototypes because they were not able to achieve The same densities that rental prototypes were able to achieve under the AUD program They were still sort of would be competing with for land at that same residual land value threshold So that was another challenge for ownership Next slide Okay, so setting the in lieu fee rate. We know that there's an existing in lieu fee for rental projects. Right now it's $25. But we sort of, you know, are understanding that there's a need to sort of take a fresh set of eyes to this fee. How has it been sort of performing? What have we collected? What are some parameters that we sort of need to be looking at when we're deciding about setting an in lieu fee? And what are some parameters that are a little bit more, you know, are less sort of urgent but that should still be weighed. So the first thing is that the in lieu fee, let's start out with what we can't do. So we can't have an in lieu fee that exceeds the legal maximum from the nexus. So just as a reminder, the maximum nexus base fee was $91 and change per square foot on the rental side and $72 and change square foot on the ownership side. The in lieu fee should exceed the fee equivalent if we are going to go with a fee out option. So the fee equivalent, just to remind everyone, is what is the sort of hard coded fee on a per square foot basis that would have the same impact to a project return on cost as providing that unit? If that fee is set lower than what we call the fee equivalent, and the city wants to prioritize collecting on-site units, your fee will need to be set higher than that fee equivalent amount. Otherwise, an applicant is always going to go take the path of least resistance and provide the fee. So again, this is about your priorities, about whether you're prioritizing on-site units or fee collection. And so we take those two things, and then we layer in financial feasibility. So we really want to further calibrate how far up can we move the needle. if we are moving up in a significant way, what are some changes that we can potentially make to the program mechanics to make it a more appealing option over SDBL, for example. Next slide. So what we're doing here is, and this is sort of a continuation of that previous slide, our recommended fee rates here, $50 flat fee for ownership, large projects, 10 units or more. Similarly with the rental projects, 10 units or more. As you can see, complies with both of those criteria that we laid out earlier. We do also want to acknowledge the fact that small projects are challenged with respect to financial feasibility. And I think it would be really hard to maybe justify charging a similar fee that we're doing for a large project that has much better economies of scale than we would for a small kind of urban infill project. So A lot of cities that we're working with are kind of acknowledging that and dialing back the fee a bit when it compares to the large project. But as we'll sort of get into this, the $35 fee does help you account for inflation since 2019.

Thank you.

Thank you. We're going to jump into the recommendations of the study, but before we do, I wanted to give a high-level overview of the organization of how these are done. We did categorize each of these 10 recommendations in this study as either a program-related recommendation These were looking to update the existing program requirements, including the in lieu fee rates, the applicability of where this inclusionary requirement does exist across the city, and to recalibrate some of those requirements in the existing program. Then we have policy related recommendations. And these are questions that we really would like your feedback on today, because they're a little bit different than how the policy has been directing us to move forward as staff. So these policy related recommendations are focused on encouraging housing development and providing some options for in lieu fee payments. And then the final category of recommendations are administration related recommendations, and these are solely to simplify and clarify how this program is administered by staff. I'm gonna talk about the first recommendation here. It is a program related recommendation, but it honestly could also be considered an administration related recommendation because it's looking to apply the inclusionary housing requirements to all rental projects. So we're moving it solely from the AUD program and making it apply to projects not utilizing the AUD program, creating rental units as well as into the coastal zone. We felt that this would universally apply these inclusionary housing requirements for rental projects, similar to how they are applied for ownership. Ownership projects apply to any ownership project of two or more units, no matter where it's located or how it's being entitled. So we wanted to do the same for the rental to make it uniform across the city.

Okay. So we'll, um, continue on to recommendation B. So recommendation B, what we're recommending here is that you maintain your current inclusionary housing requirements, um, under the existing program. So just to recap, uh, projects with 10 or more units on the rental side would be a 10% moderate income. And on the ownership side, it would be 15% projects dedicated to middle income. So we did consider sort of higher percentage requirements. So for example, a 15% set aside for moderate income households. As we sort of alluded to previously, this would significantly decrease financial feasibility when we are sort of already acknowledging that it is challenged. So in the interest of really kind of maintaining the integrity of this program and its ability to generate moderate income units, which is very, very difficult. The state makes it very difficult through the SDBL because you can't get your moderate income units on the rental side until you've achieved that 50% for stackable bonus, that this is something that we think is going to keep folks actively participating in the program. We also considered sort of what would it mean to do a deeper affordability level, for example, 10% moderate. What if we did 10% very low? That gets you very quickly into state density bonus law. And the sort of the minute you are having an inclusionary requirement that sort of overlaps with some of the state requirements, you are in a completely different ballgame required to sort of offer incentives, concessions, and waivers, which is not sort of the focus of our effort here today. So that is kind of our sort of you know, what is underpinning our rationale for keeping the existing requirements as is. Okay, so our next recommendation is updating the in lieu fee. So we are recommending that the current in lieu fee of $25 per square foot be updated to $50 per square foot. This would be for fractional units. So, you know, we know for example that the $25 per square foot fee that was enacted in 2019 has not been updated and construction costs have increased quite rapidly since then. So this is sort of something that could kind of get you a little bit caught up. Again, it also sort of, alluding to those previous slides, it does sort of check off the boxes of it's within the legal nexus. It exceeds what it would sort of, in theory, cost the developer to provide the unit onsite. So again, sort of assuming that that is kind of your goal here to have onsite provision of units. This is sort of a fee that we felt was, while it is an increase, the mechanics of how it works in terms of fractional rounding, et cetera, it would really only have a pretty minimally marginal impact on financial feasibility. So for the example of prototype five, for example, we go down from $82 per site square foot to 80. So it's kind of a win-win in terms of getting some extra fee revenue and really not impacting feasibility. For ownership projects, it was wrapping our heads around really the existing methodology for calculating ownership caused a lot of brain damage for everyone. I think that we were all kind of looking for an opportunity to really kind of simplify and streamline the way that sort of this program is administrated. So what was nice about the way that the findings all laid out is that we could really speak to maximum nexus again in the context of this ownership recommended fee of $50 per square foot as well as the fee equivalent and sort of come out with a fee that is, you know, we know that ownership projects are a little bit more challenged compared to rental projects because they're not getting those same allowable densities. But I think that we sort of in the interest of kind of alignment and streamlining and having everybody sort of start on level footing that we're recommending that those two fees are commensurate, at least starting out of the gate. Okay, recommendation E. So we do want to acknowledge that large projects are important, but small projects are also important. Those are the projects that can be a little bit more challenging You don't get those economies of scale. You may have kind of an awkward site. So sometimes you're not really getting the robust profits that you want to get on a larger project. In light of that, we would recommend that you set sort of a lower in-lieu fee rate for those smaller projects, albeit one that still enables you to cover sort of a the inflation rate that we've seen since 2019. And what we're recommending here is a fee of $35 a square foot. Okay. So this sort of next phase here, these are recommendations that are, what's the category again? Administrative?

Policy related.

Policy related. Okay. So these recommendations here are, if there's a little cognitive dissonance about You know, why are we recommending a higher in lieu fee rate when we're showing that these projects are not penciling? There are things that one can do, proactive policy-related recommendations that really go a long way to enhancing feasibility of the AUD program. I think one of the most impactful ones here that we're looking at is counting the rental inclusionary units under AUD as bonus density. So you already do this for ownership prototypes. But for whatever reason, this is not something that is a part of your existing program for rental. So if we were to do this, for example, for prototype five, we would increase our RLV from $82 a square foot to $113 a square foot per site square foot. So it doesn't quite get us to feasibility, but it really does get you to a place that is a lot more close. SO THE SECOND POLICY RELATED RECOMMENDATION HERE IS EXPANDING THE OPTIONS FOR WHEN TO PAY IN-LUE FEES ON FRACTIONAL UNITS. SO THESE ARE MEANT TO BE STAND ALONE RECOMMENDATIONS, NOT AS A PAYER. ONLY ONE CAN BE IMPLEMENTED. SO WE'LL GO TO THE G-1 FIRST. THIS WOULD BE ALLOWING AN IN-LUE FEE PAYMENT TO BE MADE FOR ALL FRACTIONAL INCLUSIONARY REQUIREMENTS. So right now, if you are a rental project that has a fractional obligation of 0.5 or more, you are entitled or you're obligated to round up to provide that unit. This could, in theory, sort of influence developer behavior. So if, for example, they're in this category, it is going to push them into that unit where they're sort of rounding up. there could be a world in which they're sort of building underneath their sort of buildable envelope so that they're not caught up in that rounding calculation. So we think that expanding the opportunity for folks to pay an in lieu fee, irrespective of what the fraction ends up being, is really gonna sort of, you know, it won't sort of have the thumb on a scale of developer behavior. They will sort of choose the path that sort of benefits their RLV the most. And in this case, allowing that flexibility is going to go a long way to doing that. So this would apply to rental projects. It would also apply to ownership projects where currently there is no fractional fee payment allowed at all. And then option G2. So this is one that we don't see a lot in other jurisdictions. I understand that there was some desire to sort of take a look at this. So we're going to talk about it here. is that you would sort of allow an in lieu fee to be paid for any inclusionary requirement, and this would include a full onsite unit. So not just applying it to fractions, but applying to a full onsite unit. When we looked at peer jurisdictions, there doesn't appear to be many sort of case studies of this being an option, but to the extent that we do kind of feel like there is an opportunity to you know, collect additional revenue, give developers the sort of the opportunity or the flexibility to, you know, create the prototype that sort of best aligns with the parcel that they have and their sort of, you know, development goals. This would be an option that you might want to consider, albeit at the expense of, you know, you'd be getting additional revenue, but you would be sort of losing the onsite units. And again, this is all to the extent that a developer opts to go to the existing program and not SDBL. So that is a big caveat there. Okay, recommendation H, I think this is probably one that we can all get behind is simplifying the in lieu fee calculation for ownership projects. So this would use the same methodology as rental projects. So specifically on a fractional unit, there is a sort of you take what your obligation is at the fractional level you divide that by your full unit plus the fraction, and then you're multiplying that remainder by the in lieu fee to get your sort of all-in in lieu fee rather than going through and figuring out what the sale price of the most recent condo was over the most recent 12-month period, et cetera. So this would be a lot simpler for city staff. Recommendation I, implement automatic in lieu fee adjustments. So we would recommend, a lot of cities do this, to really just build in an easy sort of autopilot inflation adjuster every 12 months. We don't really have a strong opinion about sort of what that sort of benchmark is. We recommended CPI just because it's free and readily available, and it's something that is at least sort of aligns with labor, et cetera. But there is the California Construction Cost Index, which is a little bit more PEG to the construction industry. It looks at materials costs, labor costs, et cetera. And I believe when we checked recently, you did have to pay for it. It is free now. So that is something that you'll maybe want to think through in terms of what is the best fit for the city. But we do absolutely whatever. You do end up deciding that you sort of institute it on a yearly basis so you're not playing catch up like we are now. Recommendation J would be aligning the target AMI for moderate income households from 100% to 110%. This would sort of align you better with the state and other jurisdictions. It would also have a sort of a marginal impact on financial feasibility, sweetening the pot a little bit for developers to opt into your existing program rather than SDBL. And this is just sort of a little sample. We're taking one prototype, prototype four here, What is the kind of the cumulative financial feasibility impact on that prototype? This is the one that we started with at the beginning of the presentation. You know, what is the RLV per square foot under the existing program as it is? And then what would sort of the cumulative impact of A through J recommendations be? I think the germane ones here are counting bonus units as AUD density and having the target income increase from 100 to 110%. You can see that we're still kind of not likely, but we've improved significantly. You can see at the margins that we're able to get some improvement with those tweaks.

Perfect. Thank you. With that, I'm going to close this out. So something to consider is the balancing of competing interests as we're trying to update this program right as staff we're looking to the general plan and the goals and the policies within it including the housing element and our arena their regional housing needs allocation but we're also looking at what inclusionary units does this ordinance does this requirement provide what in lieu fees are being collected into the local housing trust fund that this can generate while also balancing right keeping residential development moving forward we looked at the state density bonus law and some of the comparable projects that could be built on a site using ours or State Density Bonus and just to see what would influence a developer as they're moving forward. So these are all things that staff was, and our consultant, thank you, was keeping in mind as we were bringing these recommendations forward to you and we advise you do the same as you're deliberating and giving us guidance on which recommendations to move forward. So with that, we will be taking this item to council, presenting the study and asking for guidance from them as well. Once we've received from you and from them direction, we will be drafting some proposed amendments and hope to bring this back to Planning Commission for the adoption process later this year. And I will close out to remind you that the purpose of today is to give you this very long presentation and to request your guidance on these 10 recommendations that we just walked through so we can draft ordinances going forward. I will end with a thank you.

Thank you. Appreciate the very thorough presentation. That takes us to comments from members of the public pertaining to this specific item. Ms. Cartman, I believe we do have a few folks in person, possibly online.

Thank you, Chair Buss. Yes, I do have three speaker slips for in-person public comment. The first speaker that I have is Lisa Sands.

Hi. I'd like to retract that. All righty. But thank you, counsel. You do great work. Thank you.

Then we'll move to Frank Thompson, followed by Rob Fredericks. You'll have three minutes.

All right, thank you for the opportunity to speak. Hello, my old friend and my new friends. So this is a very important topic and I've distributed a letter that you can look at later on. The general thing is that, louder, right, good, okay, thanks. The in lieu fees are a very important part of the Environment when people evaluate projects, especially particular types of projects my experience the course is mostly in a hundred percent Very low and low income housing so we would almost always take the in state density bonus Or many of the other new state laws that are even stronger in their incentives but looking at this Slice of the development that needs to occur in the city. I think that streamlining the The ordinance and making it more understandable, more predictable by itself will have a large positive impact. So most of the recommendations here I think would be helpful. Personally, I think that in that same way, the G2 recommendation for people to just pay a fee and opt out would actually be very popular and would raise money for the city, which could then be multiplied in the housing trust fund to even more projects. And so I don't know exactly what the right number is for the fee. I don't know that anyone does on a particular day because it goes up and down with interest rates and purchasing power in the marketplace. So those are things that you can observe, but you really can't predict. with the accuracy that we would like. So I would recommend that you adopt the $50 basic fee for units today. But one thing that's important is to set these off far enough into the future that people who are in the market today can respond. Otherwise, they feel like they're ambushed. So I wouldn't you know if you were to adopt this ordinance today there if the City Council goes forward quickly They should set off the effective date till January 1st or later So that it's predictable and can be taken into account in these projects. Otherwise, it's going to look like a tax Yeah, so the last thing I'll end with almost always these fees will get either absorbed or passed on to the landowner and So the developer won't wind up paying these fees except when the law changes in the short run and they can't account for it. So again, and land values, as you know, are very high in our city. They tend to ratchet really only upward, in my experience, over 40 years. Because people that own land will just wait until they get their price. So unfortunately, if they go to the cocktail party and someone got $289,000 per unit, they're going to wait until they get $289,000 per unit.

Thank you, Mr. Townsend.

Thank you.

Then we have Rob Fredericks.

Good afternoon, Chair, boss, and planning commissioners. I submitted written comments with the housing authority's recommendations. our letter from February 25th, and those recommendations haven't changed. But today, I want to focus on two things on my comments, how we define feasibility and how we avoid drawing the wrong conclusions from recent development trends. First on feasibility, What we're seeing in the study is one version of feasibility based on a specific set of assumptions for different prototypes. The study, as has been explained, relies on residual land value framework, which is useful, but it's important to understand what that actually does. Residual land value doesn't measure return. It estimates what you can afford to pay for land based on a fixed target profit. And because of that, it's highly sensitive to assumptions, especially the assumed developer return. By contrast, return on cost framework measures what matters on how a project performs relative to total investment, essentially what yield the project actually produces. It's more stable, more comparable across projects, and more reflective of how developers and lenders evaluate deals. And I was pleased to see that our consultants for the city did look at residual or return on cost, but I think you have to factor in all of the other issues that go towards a return. Residual land value doesn't factor in appreciation of land over time or long-term investment in cash flow return. on land. So if I were to ask, if I were in a position to ask, I would ask the staff and consultant to run additional scenarios on return on cost framework with alternative assumptions such as a 5% return on cost and 7% developer fee so you have a more complete picture of finalizing these. Second, I want to address the argument that I read in some letters that inclusionary housing requirements caused developments to stall in 2019. Developments did not seize, as is evident from new production to date. While there was a slowdown, the timing of implementation of the inclusionary ordinance coincided with a once in a century pandemic. Severe labor shortages, global supply chain disruptions, and dramatic increases in construction costs, and the fastest rise of interest rates in decades. We saw development slow across California and the country, not just here and not just in areas where inclusionary policies exist. The causation notion is like saying that in hot weather, more ice cream is sold and crime increases. There is a correlation in timing, but not a causation of increased crime because of the ice cream sales. Thank you.

Thank you, Mr. Fredericks. Thank you. With that, I don't have any more speaker slips for in-person public comments. So I will move to virtual participation. And we do have one participant with their hand raised. So Richard Applebaum, I'm going to give you permission to speak. And you should be able to unmute.

RICHARD APPELBAUM, I just did. Thank you very much for the chance to speak. This is my first time before the Planning Commission. So I am speaking as a board member of Clergy and Lady United for Economic Justice, which is a network of interfaith community leaders that brings, hopefully, a faith-based voice to the issues of economic justice. So we have a number of concerns with the in lieu fee recommendations, which range from $35 per square foot for smaller units to $50 for larger ones. This is way too low and will hardly guarantee the production of any significant number of desperately needed affordable housing. The city is on its way, once again, to falling far short of meeting its RENA requirements. It has so far permitted only 38 very low-income units, less than 2% of its RENA goal, and only 93 low-income units, less than 7% of its RENA goal. The city has an obligation, in my view, to collect the largest in-loof fees it can legally do, which, as Frank Thompson just mentioned, could be significantly leveraged for the local housing trust fund if it hopes to make any dent in these numbers. BAE, in fact, states that legally defensible maximum in-loof nexus-based fees of $91.41 per net square foot for rental units and $72.53 for condominiums that's legally admissible. These are reasonable, realistic numbers. We support the Housing Authority proposal which calls for $73 per square foot for projects that satisfy their inclusionary obligation through a combination of in-lieu fees and on-site affordable units, and $91 per square foot for projects that fully fee out with no on-site affordable units. I'd also point out that the Nexus analysis, which should be and is not front and center in your considerations, show that for every hundred new rental units built, 22 additional affordable homes are needed. Additional market housing has its own multiplier effects on the need for affordable housing. California's mitigation fee act gives the city clear legal authority to charge fees proportional to documented impacts. Finally, I'll briefly measure two other concerns with the study. It assumes a fixed 10% developer return on cost. Citi's earlier Kaiser-Marston study used a 5% return on cost. We urge the Commission to take a look at and provide you with feasibility results across a range of return assumptions from, say, 5% to 10%. And finally, this was actually mentioned in the presentation, We would urge that you use the construction cost index rather than the CPI. The Housing Authority updated it from 2019 forward, and it found that using the construction cost index, the current view would be about $41 per square foot, about $10 higher than CPI-based industry. So I'll just summarize.

Thank you, Mr. Appelbaum.

Okay, thank you very much.

Thank you. With that, we don't have any more participants online, though I will acknowledge that we received written correspondence from Rob Fredericks on behalf of the Housing Authority of Santa Barbara, Jessica DeLarp on behalf of Habitat for Humanity of Southern Santa Barbara County, Maricela Morales, Dick Flax on behalf of Santa Barbara County Action Network, CLU Santa Barbara Housing Justice Work Group, Lisa Carlos, Jennifer Berger on behalf of Santa Barbara Association of Realtors, and multiple submissions from Craig Minus on behalf of the Coastal Housing Commission and Patricia Saley, and give it back to you.

Great, thank you. So we are going to start out with a simple straw poll, and I think it might be helpful to have slides 27 and so on up on the screen. On the side That's okay. Perfect. Thank that work. Okay, I made special. Thank you So for the straw poll, we'll have miss Carmen do a roll call vote, but we'll ask you to respond in just yes No or with revisions after that We'll have questions comments and another straw poll before we get to a motion if needed so recommended Recommendation a would you like for me to read it or do you prefer in Spock?

I'll let you talk for a minute if you don't mind.

Okay. All right. Recommendation A is to apply inclusionary housing requirements to all rental projects with five-plus units. Expand rental inclusionary requirements beyond the AUD program. Ms. Carmink, we have roll call, please.

Thank you, Chair Boss. I'll begin with Commissioner Barnwell.

Well, thank you very much for that honor. I'm going to say yes with provisions.

Okay.

Commissioner Bauke?

Yes, with revisions.

Chair Boss? Yes. Vice Chair DiLuccio?

Yes.

Commissioner Peterson?

Yes.

Commissioner Wardlow?

Yes.

And Commissioner Wiscombe? Yes.

So that passes, two with revisions. Okay, thank you. Recommendation B is to maintain current inclusionary housing requirements, projects with 10 plus units, ownership 15% for a middle income, and rental 10% moderate. Ms. Carman.

Thank you. Just by the way, this is an alphabetical order, so you're going to be first every time. Commissioner Barnwell.

My name is Zachary Zink. You got that wrong. Well, the same thing with some revisions. I mean, all of these things are very good. I just think they need a little revision on them. So it's a yes with revision.

Commissioner Bauke.

No as stated.

Chair Baas? Yes, with revisions. Vice Chair DiLeggio?

Yes, with clarification.

Commissioner Peterson?

Yes, with revisions.

Commissioner Wardlow?

Yes, with revision.

And Commissioner Wiscombe?

Yes.

So five with revisions, one no, one yes. Thank you. Recommendation C?

to update the in lieu fee rate for rental projects with 10 plus units, increase the in lieu fee rate from 25 to 50 per square foot for fractional units.

Commissioner Barnwell. Thank you very much. I have a clarity question here. So we're bound to the 25 and the 50 unless we say.

You can say yes with revisions.

Okay, yes with revisions.

Commissioner Bauke.

If that's the definition, yes with revisions.

Chair Boss? Yes, with revisions. Vice Chair DiLuccio?

Yes, with revisions.

Commissioner Peterson?

Yes, with revisions.

Commissioner Wardlow?

Yes, with revisions.

And Commissioner Wiscombe?

Yes, with revisions.

All with revisions. All right. I can guess what those revisions will be.

Recommendation D is to set an in-lieu fee rate for ownership projects with 10-plus units. Set the in-lieu fee rate at $50 per square foot for fractional units. Ms. Carman?

Commissioner Barnwell.

She's moving me right along here as a good chair should do. Yes with revisions.

Commissioner Bauke.

Yes with revisions.

Chair Boss. Yes with revisions. Vice Chair DiLuccio.

Yes with revisions and clarification.

Commissioner Peterson.

Yes with revisions.

Commissioner Wardlow? Yes, with revisions. Commissioner Wiscombe? Yes, with revisions. All yes with revisions. Great.

Recommendation E, set a lower in lieu fee rate for small rental and ownership projects. For example, set the in lieu fee rate at $35 per square foot for projects with fewer than 10 units. Ms. Carman? Commissioner Barnwell?

Yes, with revisions.

Yes, with revisions. Good job. Yes, with revisions. Good job.

Chair Voss? Yes, with revisions. Vice Chair DiLuccio?

Yes, with revisions.

Commissioner Peterson?

Yes, with revisions.

Commissioner Wardlow?

Yes, with revisions.

And Commissioner Wiscombe?

Yes, with revisions.

All with revisions.

Okay. Recommendation F. Count rental inclusionary units as bonus density. Allow rental inclusionary units above allowed density similar to the ownership program. Ms. Carman?

Commissioner Barnwell? I'm just going to boldly say yes.

Commissioner Bauke?

Yes.

Chair Boss? Yes. Vice Chair DeLuccio?

Yes.

Commissioner Peterson? Yes. Commissioner Wardlow? Yes. And Commissioner Wiscombe? Yes.

All yes. All yes. Excellent. Recommendation G. For this one, is it easier if we say yes? G1 or G2 with revisions?

I would do a vote for G1 first. Okay.

Okay, thank you.

Correct.

Okay, so option G1, consider in lieu fee payment for all fractional inclusionary requirements, no rounding for on-site units, and $50 per square foot fee.

I would like to specify that you can vote for either or both. Either.

One or the other. Okay.

We would prefer that you only vote for one because at the end of the day, we can only move one of these forward. I understand maybe you support both, but pick the one that you would support more than the other, if at all possible.

So I'll begin with the vote for G1. If you're wanting to vote for G2, that'll be next. So Commissioner Barnwell.

So let me get this straight. I am one or the other here, right? I don't get to do both.

Can I maybe clarify? Because we're not doing the raising of hands, we're responding, would it be possible for you to say I support G1 or G2 and then if revisions as the yes if kind of thing? Okay.

So for this roll call vote, it will be G1 or G2. G2 and it could be G1 with revisions or G2 with revisions. Or no to both.

Does that make sense? Correct. There could be no change.

I am going with G1 with revisions.

Okay. Commissioner Bauke.

I'm having a problem with this because I don't see them as mutually exclusive.

So yes if for both?

I'd say revisions to both.

But support the idea, both revisions for both. So yes, if. Yes, if for both. OK, thank you.

Chair Blas, G2 with revisions.

Vice Chair DiLeggio?

I think I'm going to go with both for the moment.

The revisions to both? Yeah. Commissioner Peterson?

Yeah, I'm with Commissioner Bauke on this. for both, but with revisions.

Commissioner Wardlow.

Yes, both two revisions. I can explain. It seems like we should explain what the differences are here, but we can do that later, I guess. Yes, I'm with Commissioner Boppy on that.

Commissioner Wiscombe. G2 with revisions.

Madam Chair. If I may, I didn't get that option because I was forced into a corner. So I am 100% behind, you know, Mr. Bauke's vote, whatever that happened to have been. I couldn't quote it. Thank you. Both things with revisions.

We'll have more discussion on G going forward. We'll leave it at that. Recommendation H, simplify in lieu fee calculations for ownership projects. Use the same methodology as rental projects.

Commissioner Barnwell? I'm going to just say flat yes on this one.

Commissioner Bauke? Yes. Chair Boss? Yes. Vice Chair DiLuccio? Yes. Commissioner Peterson? Yes. Commissioner Wardlow? Yes. And Commissioner Wiscombe? Yes. Motion passes with all yes.

Great. Recommendation I, implement automatic annual in lieu fee rate adjustments and account for inflation and in lieu fee rates. Commissioner Barnwell?

Yes.

Commissioner Bauke?

Yes, with maybe a change in the index. Clarifications?

Good. Chair Boss? Yes, with change in index. Vice Chair DiLuccio?

Yes, with change in index.

Commissioner Peterson?

Yes, with change in index.

Commissioner Wardlow? Yes, with change in index.

And Commissioner Wiscombe? Yes, with change in index.

So mostly yes with revisions, six with revisions.

Okay, thank you. And recommendation J, adjust target AMI for moderate income rents from 100% to 110% and align calculation with state and other jurisdictions' methods.

I'm going to begin with Commissioner Wiscombe. I'm going to flip it.

Bless your soul.

So we're aligning with what the state does, right? Correct.

This is the way that state density bonus law, when you're doing modern income units, would be calculated. So we're just aligning our city method to what most other jurisdictions utilize as well as the state.

I'm a yes. Commissioner Wardlow.

Yes.

Commissioner Peterson.

Yes.

Vice Chair DeLeggio.

Yes.

Chair Boss. Yes. Commissioner Bauke.

Yes.

And Commissioner Barnwell. Yes.

This is where I should say no, right? Yes, yes.

All yes. Okay, so I want to make sure going forward, so I think we do not need further discussion on recommendations F, H, and J. Those are all straightforward yes. There are a couple of recommendations that I think I can guess where we're headed to get to a simple yes. Would it be okay if I stated those and got consensus. So for example, recommendation I, I believe we all said yes with revision.

That would help me.

Recommendation I slide is up. Yes. So for example for this one I think that the revision most of us are going to recommend is to use the California Department of General Services construction cost index instead of CPI Actually, I have more on that subject. I would like to ask the consultant about okay Then in that case, I'm not going to go down that path. We will go back to our we'll move on to questions and kind of comments now. So I will ask for commissioners to indicate if you have questions or comments, starting with Commissioner Wiscombe.

Yeah, I just wanted to clarify something. Recommendation A was a 5-2 vote, I think. You didn't mention that, I don't think.

I think there were a couple that were yes with revisions.

Two people, right?

Yes. So I think we wanted to hear if there were revisions that others would be amenable to.

Oh, okay. Okay. I didn't understand the procedure. I have questions on that one, too. That's why.

So let's stick with questions for now, and then we can come to comments in a straw poll again later.

Okay. I'm not quite ready to ask questions yet. Thank you.

Commissioner Bauke.

Okay.

I'll just start off and different process than we're used to. But I think I need to ask some very fundamental questions so we can wrap ourselves around this. First off, thank you to the consultant and the staff. You did a great job. There's a lot of information. In fact, this is quite a bit to read, quite a bit to analyze, and there's a lot of details. And I think I'd like to thank public also for their input is that they did a great job of giving us feedback i don't know i just i'll put this out there but i've been doing feasibility analysis since i got it and i worked my graduate studies in real estate development economics so i've been doing these studies and i i think We have a couple fundamental questions about just the methodology that we ended up using here and then a lot of detail. So please bear with me if I get into the weeds a little bit. But I want to start with sort of ask the big question is what is the city's objective for inclusionary housing? I just don't, I want to understand what we're trying to accomplish. because that sort of leads us to how to accomplish it. I'll give you two questions that sort of parallel that, which is, are we trying to mitigate, as noted in the analysis, what demands new development put on housing, like you have in Appendix D on housing? the chart there, table 26, but are we doing something else? Are we trying to capture the economics of development and trying to capture part of the private sector momentum towards development and trying to push some of it into particular economic categories? Or is it both? I'm trying to understand basically what that fundamental objective we're trying to do first.

Yeah, Commissioner Balfe, that's a great question. I'm going to point to a couple housing element goals, which unfortunately I do not have slides for, but they are included as Exhibit B in the staff report packet. So the housing element has a goal one to create new housing, as well as a goal two to prioritize affordable housing. So those were the two drivers that the inclusionary housing ordinances that we're evaluating today are trying to do, that we're trying to push forward from the housing element itself, there are additional policies within the land use element that point towards creating affordable housing consistent with the housing element, no surprise, and developing incentives for the creation of housing at large. We're also looking at community benefit housing. So there's quite a few policies that we're pushing forward in creating housing. I will say a lot of the conversation during the housing element and in the housing element is to create more housing and create more affordable housing. So that's one of the reasons that many of these recommendations we brought forward to you. And I had that great Venn diagram slide talking about all these different balancing priorities that we're trying to talk about. The general plan, those goals and policies are definitely part of that. but looking at the larger development of housing across the city was something we were trying to keep in mind, but noting that the general plan does more specifically call out affordable housing. Does that help?

That answers one of the, and the next question is, are we trying to address that comment that we got from a number of parties about that housing itself creates demand for housing, And is that in the calculations of what we're doing here?

It is in the calculations, most definitely, in such that we are maintaining, for example, recommendation B, right? We're recommending that we keep our 10% moderate income for rental and our 15% for ownership, because that is noting that there is development that is demanding more affordability units as well. So we want to make sure that we're still addressing that. And when we are looking at calibrating what the in lieu fee rates should be going forward, our recommendation was informed as Mr. Barker walked us through by what that residential nexus analysis stated as one of those balancing competing priorities that we were looking at as we were bringing this forward to you for your guidance.

Okay, thank you. All right, let's ask a few other questions. There currently is no inclusionary housing requirements in the coastal zone and AUD, back to that problem. Is that correct? We don't have an inclusionary?

Commissioner Bauke, that's partially correct. So we do have two inclusionary housing requirements. The ownership inclusionary housing requirements are in effect in the coastal zone. So any ownership development of two or more units anywhere in the city are subject to the inclusionary housing requirements. The rental, because it is within the average unit size density incentive program, right, AUD, we do that all the time. only applies to projects using AUD, which AUD is not in the coastal. So that's where there's a little bit of confusion on what kind of multi-unit residential development in the coastal zone would require inclusion. It is for ownership, but just because of the way they're structured, it is not at present. We're hoping that might change. Not at present in the coastal for rental.

Okay. And you mentioned something that just is on my list. I might as well get to it. One of them starts at five units. The other one starts at two. Why not just have them both start at two? They could. Just because that was one of the reasons for my thought process of not supporting what was on the screen. I'm looking for harmony and consistency. But if there was a distinction based on my experience, it's harder to do for sale stuff than it is to do rental on an economic basis. So if there's going to be a toggle one way or another, it'd be to lower or raise the rental and lower the for sale as far as inclusionary demands, because this is the economics. I just want to put that out there, and so that's another thing we can talk about. Moving on to my other questions. Actually, they cover that one. And I just covered that in my comments, so never mind on that one. You gave us a response as to the use of a static residual land value versus what Rob was talking about, which is a return on cost. And what I want to understand is, and maybe the appraiser up here might help me, because basically what I got out of your report is fundamentally there are land sales going on in this community that would be found to be uneconomic from a developer's point of view. Because I run these numbers all the time, and if the number doesn't match with the price, we go to the guy and go, hey, we'll give you this. And if they aren't gonna sell it for that, we move on to the next project. How do we ever solve the problem? There's people, like I think Rob made the comment, that there's people just await in a coastal city like ours that we're trying to solve housing problems and we've got people that are basically trying to solve things at numbers that don't work for any party. So do we have... What was your guidance? Because that's where I got the infeasibility. It was infeasibility because of the sale price. It wasn't infeasibility because you can get to a land price that projects work.

That's a great question, Commissioner. There's a couple things I think that are involved with that. We did see evidence of some land sales that traded above $150 a square foot. per site square foot when we did a little bit more digging into you know what those projects were those were projects that were utilizing state density bonus law so they were kind of able to capture some of the you know they were able to sort of pay the additional upfront cost that somebody using the AUD program would not according to sort of how the empirical pro formas played out so we were we were showing RLVs that exceeded $150 a square foot when we took a prototype that availed themselves of incentives that were offered by the state. So that, I think, is one thing that is going into, you know, when we do see evidence of something that's trading maybe at $168 a square foot, for example. But I agree, it is a big challenge to get... property owners who are probably who maybe been sitting on their on their asset for quite some time they probably got a pretty low tax basis for property tax thanks to prop 13 you know if it is generating any kind of revenue what is what is the sort of the impetus to sell I think we also saw examples of projects that were unique maybe wouldn't have penciled in a traditional pro forma sense but there may have been sort of another revenue-generating use on the site, like a self-storage facility or something along those lines. So there's no kind of one model or template that can encompass all the various decision points that can be made, but there certainly is a lot of variety in what we saw for that.

You just brought up another thing I had on my list, which is, How do we address, and from your experience, the state coming up with ideas like state density bonus law, which all it did at the end of the day is increase land values to the landowners throughout California, and actually created a bigger problem. Is there a... thought process that you've seen that cities have done to address and I'm thinking some cities have done land value capture processes that they actually will you know fine you're going to do this to us we will get something back that we can then take and put into a housing trust fund I know Hermosa Beach did something like that but they did it in sort of a strange fee based way, but how about doing some kind of value capture mechanism on projects that come through here? Yeah. It would get us to the same point.

Yeah. I, I, I entered the first part of your question about, you know, what's going through HCDs. I don't know, um, what their thought process is. Um, we're always kind of playing catch up with, with that organization, but, um, I do. Yeah, there are sort of a lot of different options on the table. I know some folks are doing transfer taxes. Some jurisdictions are doing transfer taxes on property sale that accrue to affordable housing. LA has a five and a half percent transfer tax that's generated a billion dollars for affordable housing. So obviously that's on a much larger scale, but there are ways that you can go about getting revenue. I think that you also need to be thinking of, from the landowner's perspective, that may not be the enticing approach for them to sort of dispose of their land if they're gonna be subject to a 5% transfer tax. So you do need to kind of weigh the pros and cons of who is ultimately kind of paying that tax and who it's going to end up kind of benefiting. So definitely a lot of complex issues to think through.

I know my fellow commissioners are tired of me slamming about doing some kind of value capture mechanism. I mean, our finance committee has talked about that. But, you know, it's a heavy lift, I understand that, if you want to establish and enhance infrastructure finance district. One thing that was in the alternatives that the city manager brought forward was, well, why don't we just allocate when we do AUD projects or do state density bonus that we just mark them in our budget, that any tax increment growth on those projects go into a trust fund. You can do it internally, but that takes time. You know, a council policy that, you know, hopefully would have some kind of ability to stay solid. Yeah. I'm looking for an answer because what I'm trying to find is inclusionary housing policies historically just we've had them for a long time and we just don't get. success per se, but at the same time, I see the developed community whining about the cost of inclusionary, but I don't know if you've done the testing, but I've done some testing before on moving the inclusionary requirement around and then playing around with finance costs and construction costs and all that. Where, in your opinion, Is the inclusionary, is it a small factor? Or are these other factors like the interest rates and financing costs and underwriting and all these other factors? I mean, we've got the cost of development up 40%, thank you, Mr. Trump. What do we do when all these other factors probably have more to do with the feasibility than...

Good question. I think the inclusionary rate, it informs. It doesn't drive the appetite to build. It's a little bit difficult to generalize too because every developer, every applicant has a different capital stack, has a different credit rating. They're all facing their own unique financial constraints and considerations. So I think you'd have to really talk to each of them individually. What we try to do is talk to as many people as possible and kind of triangulate around something that we can defensively say is more or less characteristic of the environment right now to the best of our ability and kind of just getting back to What we're trying to do for kind of the narrow lens here is making sure that the existing program, which is intended to create moderate and middle income units, remains an option that folks want to participate in. And I think that's kind of our main goal here.

Okay, I've got like one or two more questions. Let's start with this one. I think you did that one. Okay, it's on the cost index, okay. Most of the cities I've run across use the engineering news record index as the more accurate one and their fees are tied to that. I was wondering what the numbers if you had ran them would be for inflating our current fees using their index versus what's being suggested as the CPI or what Rob Fredericks has suggested as using the construction cost index. Where do these all fall out or is this something where you can come back with us? Because I mean, the fact that we don't have a subscription should be the last reason not to be tied to this index.

Commissioner Bauke, we did not run the inflation by the ENR, right? We only did it by CCI, but I believe the public comment letter by Housing Authority, or we did CPIU, sorry. I believe the Housing Authority letter had it by CCI. So we don't have that number for you today. I know the city does not have access to the ENR, which has been one of the problems and why we are suggesting using a publicly available inflation index. whatever one it may be, if you'd like to give us direction on that. So we don't have those numbers for you today, and I don't know if we can get them for you. Again, we don't have access to that ENR number.

The public works director doesn't have a subscription, really? I'm honestly very surprised.

I would have to ask my director.

Okay. You're right, but I'm surprised that the city engineer or the public works director does not. I mean, that's pretty standard. Okay, so anyway, so. That's all my questions. I'd love to see where we would end up on that chart with that index, all three indexes, and we can figure out which one's the right one. Because the thing I have seen historically in Luffy's is cities either don't update them or the indexes aren't accurate, and what they do is they fall behind.

We don't want to see that. I think our intent was to make it as, you know, it may not be the best, MOST PERFECT BAROMETER, BUT IT IS SOMETHING THAT IS KIND OF YOU CAN PUT ON AUTOPILOT. IT IS SOMETHING THAT YOU CAN PUT IN YOUR CALENDAR. YOU DO IT ONCE A YEAR. And you don't run into an issue where six years go by and and nothing's changed so really kind of relying on something that is Easy to access the math is easy and it roughly tracks inflation even if you know the building material and the labor might sort of have peaks and valleys across the The trend line, but okay.

Thank you Continue with questions Commissioner Weston

Thank you, Madam Chair. Thank you for your excellent presentation and report. I think it was really good. I want to go back to this fixed developer return of 10%. And I know, I think you said, Mr. Parker, you did some other calculations, but you had a lot of infeasible, infeasible, infeasible in your prototypes. I guess my question is, did you look at where they were feasible with a lower rate of return?

Yeah, so if we're just solving for the existing program and we're assuming that that prototype is providing the inclusionary unit at 10% and possibly a fractional fee, and we sort of have a land cost assumption baked into the pro forma, we are not achieving a return on cost that doesn't even get above 3%. So I know I've heard like 7% tossed out, 8%. We're not even approaching sort of that threshold if we're not doing anything to the program in terms of, you know, including bonus, adding bonus density. So we were very challenged when we looked at the return on cost approach as well.

Well, I'm talking more about the developer profit or whatever you want to call it, that 10%. Sure.

We reduced it to 8% and did some sensitivity testing around that. For prototype four, for example, we went from $97 a square foot to 112. Thank you, Dina. So we are still not quite getting to that $150. Presumably we could figure out what sort of that exact ROC hard-coded is that gets us to $150. I assume it would be you know, somewhere probably between 5% and 6%. We need to go back into the model. But, you know, that is extremely tight margin, and I don't think that that would be something that is sufficient to get somebody participating in the program as currently operating.

And what do you base that on? Just the developers that you talk to, or...?

Yeah, and we also kind of need to sort of, you know, what, if you were to park your money in a CD, for example, right now, what are you able, we've been in a really kind of a high inflation environment. There are places you can sort of invest your money where you're getting a pretty healthy return and not sort of taking on the kind of risk inherent in a development project that has, you know, multiple hearings and long timelines. It is a very, very risky endeavor. a lot of sunk costs at the front end, you know, you really do need to make sure that you're accounting for the fact that development is not the only sort of alternative folks have when they're sort of looking to move their money, you know, make money. So there are other options out there. if we're saying that we're okay with a 5% or 6% return on cost, I think we might run the risk of folks looking for other alternatives just based on kind of what we've experienced that we have working with applicants and other jurisdictions.

And how did you arrive at the, I think what most of us feel, I don't know, because it's with revisions, how did you arrive at the... the costs that you came up with. Which costs? I'm sorry, the in lieu fees that you came up with.

Oh, the in lieu fees, sure. So the in lieu fees, we're triangulating, right? So there's a starting point where we can't exceed the nexus, the maximum legal nexus.

Right, and that's because of the California Mitigation Fee Act. Is that right? Is that where those numbers that you quoted came from? That's the maximum defensible we can charge.

Yeah, so we're looking at sort of the worker households that are generated from a new market rate project and figuring out what the sort of affordability gap is for how much those folks can afford to pay for housing, and that sort of translates back into a dollar amount that you're trying to kind of work with there. But I will say that, you know, nexus analyses are not required by law anymore when we're doing inclusionary. We're, in fact, sort of, most cities are not sort of moving forward with that. HCD says that you are able to, within your sort of city powers, enact something that, as long as it's not above 15%, you just sort of don't need to prove that it's infeasible so I would say that you know again the Nexus analysis is something that we look at to inform the fees but it's not necessarily driving that ultimate $50 recommendation I think what's really important is that we need to make sure that if you are wanting to prioritize the provision of on-site units you need to as a starting point make sure that your fee is set and AT A RATE THAT IS HIGHER THAN WHAT WE CALL THE FEE EQUIVALENT. AND WHEN WE RAN THAT NUMBER FOR THE OWNERSHIP AND THE RENTAL PROJECTS, WE FOUND THAT THE $50 FEE EXCEEDS THE FEE EQUIVALENT FOR BOTH OF THOSE. AND SO WHAT THAT MEANS IS THAT IF WE HAD SET THE FEE, FOR EXAMPLE, AT $33 FOR A RENTAL PROJECT, THE COST OF PROVIDING 10% MODERATE INCOME UNITS ON THE SORT OF RESIDUAL LAND VALUE RETURN ON COST is going to be less than paying the fee. And so they're going to provide you with the units. If you set that fee lower, they're going to pay the fee every time, and you're not going to get any on-site units. So we're sort of bookended on those two fronts. And then we're kind of looking at financial feasibility. So we've got a $25 fee in effect right now. What sort of impacts would there be if we go straight up to 70, $72 a square foot? You're kind of, at that point, really kind of out of line with what we would call the peer jurisdictions. I think 68 or 70, I can't quite remember what, but that would be quite high and probably quite a shock to the development community in terms of how they're sort of planning their entitlement pipelines, looking at sort of what they're, you know, anticipating absorbing in terms of impact fee costs, it would be, I would say, pretty disruptive. So we're trying to kind of really strike that beautiful Venn diagram balance slide that Dana put up earlier, you know, sort of balancing all of these competing.

But you've got a group of developers basically telling you they'd rather pay the fee. So, I mean, that's, that's what they've always told us. I've been on this commission a long time. So that's the goal was get us in lieu fees so we don't need to build these units and manage them because we're not in the business of managing affordable units. So I understand that perspective, but I just find that these fees seem incredibly low to me. They seem like This is an incentive for the developers to deposit the money. And also, I think Mr. Fredericks has said in the past that these fees are not equivalent to what it costs to build a unit. So if they're not, then we, I mean, is your scenario that they're just going to walk away from development altogether if these fees go up?

I think that they would probably, if the fee goes up too high, we've already shown that state density bonus law is a very appealing option, even in the absence of kind of, you know, a do nothing scenario. If we raise the fee from 25 to 72 or whatever, I get the feeling that participation in this, you know, the important goal of producing moderate income and middle income units is going to be, you know, threatened perhaps if we move the needle too quickly on that fee.

Too quickly. Okay. Because we've been moving at a snail's pace. Yes, that's true. That's true.

Commissioner Wiscombe, I think part of the answer to your question actually goes back to Commissioner Bauke's question of what is the purpose of the inclusionary program? Is it to generate fees where we can then have someone else build affordable housing? Is it to get inclusionary units built on site and integrated into the development? And that's part of the overarching policy conversation that needs to happen. It was definitely very clear direction in the past that the city wanted the units built in the projects and on the ground within those developments. Maybe that sentiment has changed a little bit and so that's part of having this conversation now. So it is a larger policy conversation. And as Mr. Baker was mentioning, how you pull those different levers is going to incentivize developers to maybe do one thing or another, and so that's what we're trying to balance.

Okay, yeah. I won't beat that dead horse anymore then. Okay, thank you for that. So, I guess I'll add, there was in Clue's letter, they said that if you set the fees too low, then the city is essentially subsidizing market rate development because they're just gonna contribute the money to the housing trust fund. Okay, I wanted to ask, did you at all look at, in Habitat's letter, they talked about exploring the recommendation of developer land donation rather than in lieu fees. And I'm just wondering if you've considered that in your analysis or if you've.

Yeah, Commissioner, sorry. That is definitely an option. An alternative compliance is a path that we can move forward. There are more options in the ownership program at present. One of them is land donation. believe it requires planning commission or city council approval in order to utilize that path to fulfill requirements rather than paying onsite or the in lieu fees as they're required by the project sizes. That is something we could propose to move forward across both. It is not discussed here because if we're looking to align these programs, that would be something that as the ownership and rental came together, we would propose in the ordinance drafts to you, but you could bring it up as part of the kind of deliberation later to make sure that that is included if you would like us to include it.

Okay. And I guess I just want to, I felt like we had a tremendous amount of public comment and a lot of these letters from the the public comment period, which was basically in March, is that right? I think it was March. February. February, okay, yeah. It was like a five-week period or six-week period, something like that, yeah. Approximately, yeah. But we got a lot of resubmittals of letters from that period with updates, and most of the updates say, we didn't get our concerns from that answered. And I think our process is usually to respond to those letters. There were 18 of them, I think, and it was to respond to the comments. And many of the comments had the same thread, or the same exact comment. So I'm just wondering how we move forward to make sure that these people that are passionate about this subject have their questions answered and why we took the steps that we did and not, you know, other, you know, why we ended up here. Because most of them, I think, said that they felt that it wasn't in the, whatever they had said wasn't reflected in this draft document that we're seeing. So I know that's a tough question. It is a tough question, Commissioner.

I'm sorry. So as far as our usual practice for environmental impact reports, that is always the practice where you get the comment letters and you respond point by point. Studies like this or even with the housing element, it's an option to respond point by point to comments and post all that. When we have enough staff time and we can do it, it takes a tremendous amount of staff time to answer each comment that way. I do know that a lot of the comments are really policy choices that'll be discussed, so we couldn't really respond to them in the study. A lot of them were saying, why didn't you use this instead of this? And I think a lot of them were answered in that way in the staff report. And moving forward, the next phase will be drafting an ordinance. We'll go through the same process again, get lots of comments. we can attempt in the next phase to, if we have staff time to do it, be a little more responsive, comment by comment, but it's something again that just takes a lot of staff time and resources to do. This has been on a pretty moving forward schedule to keep up with our housing element obligations. And like I said, I believe what we could answer we did and made changes in the study itself, but a lot of them are policy choices need to be deliberated.

Okay. Thank you for that, Ms. Dicey. I appreciate that. I really wanted to bring it up because it seemed to be a source of frustration with a lot of people that spent time to write letters about this particular draft and the whole program. And it's not to take anything away from the work that staff has done and that you've done. I think it's excellent work. Thank you.

Thank you. Commissioner Wardlow.

Thank you chair boss, and thank you very much to all of staff and for your work on the study This has been really helpful as Commissioner Wiscombe was mentioning obviously we've gotten a lot of feedback And I have a number of different questions, so let me just get this pulled up so first I just want to start kind of on the level setting and I mentioned this to staff earlier Could we go back to the slide that pulls up the number of AUD projects that have been APPROVED COMPARED TO THE STATE BONUS DENSITY PROJECTS. I JUST WANT TO GET AN UNDERSTANDING AROUND SINCE THIS DISCUSSION IS REALLY ABOUT THE FEASIBILITY OF OUR POLICIES, I WANT TO UNDERSTAND WHAT'S ACTUALLY BEING BUILT AND UTILIZING THE AED POLICY NOW. OKAY. SO PROJECTS NOT USING SO THIS ASSUMES THAT IN 2022 THE MAJORITY OF THE PROJECTS WERE USING THE AED PROJECT POLICY. IS THAT CORRECT?

Not using state density bonus. That would be a more appropriate way to say that because this are not solely AUD. They're just multi-units. So they could have been using something else and without researching them each individually. Do we have an idea that maybe percentage that we're using?

Most, but not all. Okay. Most. That's helpful. And this says units in projects. Okay. Units issued. Does this mean that we know that the project was actually built? no it does not is there a way i think that this is really important because i think that when we're talking about what's happening in development we're hearing a lot and we've obviously seen this happen on the commission we review projects we all weigh in on them and then they don't actually get built and and so i think that if the goal is to build housing we need to be evaluating what's actually being built so is there a way that by the time this goes to council that this can include what actually has been built through these different projects versus just what permits have been given.

Yeah, I think we could definitely have that. I know Ms. Dicey has some information that she very hurriedly compiled for you. I so appreciate that.

So through the chair, uh, because you had asked that before the meeting started, I did, these are quick, um, calculations looking at our housing element, annual progress reports because they, the full report, the big spreadsheets. also report on certificates of occupancy. As you know, the RHNA numbers are just building permits. So I looked at anything that was two or more units starting in 2023. So I'll just give you raw numbers. 61 certificates of occupancy for multi-unit projects, 2023. 2024, 94. And 2025, 53. But we can expand on that for the next time we come back. This is super helpful.

I really appreciate this. So in summary of that data that you've just shared, under the current rules that we have, projects are moving forward and therefore they are feasible to an extent because they are happening.

Yes, projects are happening. They may have done their financing years ago, but they're happening.

And the financing aspects and the issues at that, that goes back to Commissioner Bauke's point that those are kind of external issues that are happening in the economy that obviously our city policies can't control. but that there is some level of feasibility based off the fact that this is happening. But I am concerned that when you see from 2022 to 2025, there seems to be a significant drop based and a more sort of more use of state bonus density law. Do we have an understanding of why that change has occurred?

Yes, I think there's a pretty clear correlation here. AB 2345, which sort of added the kind of the turbocharged, you're getting a lot more incentives and waivers and concessions. I believe that went into effect in 2023. So that pretty clearly shows to me that that is, you know, talk about external factors that impact development decisions. You're probably seeing that pretty clearly illustrated in that chart.

Thank you. And I think that brings up a really good point. So now the conversation kind of also shifts to how do we make our program attractive in light of the fact that the state bonus density law provides a lot of other incentives that we don't have. Okay. Well, this is helpful for me to just kind of understand. I think there's been a lot of discussion to jumping off Commissioner Wiscombe's point about, you know, the 10% threshold on a profit as the hurdle profit. I do think it would be helpful that before this goes to council that there are, you know, there's some type of examples of at various profit hurdles, just so that everybody's operating off the same set of understanding. I hear you and I appreciated your explanation that even if we were to go down to a 7% profit hurdle, that it doesn't materially change the impact, so we are where we are. Okay, so now I want to go into a little bit more of the kind of details, just so I better understand this. So can you please clarify that does the 10% return, like on the investment, does that include the total investment, so including the cost of the land, or does that not include the cost of the land because we're using the specific methodology?

Sorry, the 10% threshold is on hard and soft costs.

So no? No. So it doesn't include the cost of the land? Correct. Okay, so it's not a total return on investment? Okay.

Correct.

Okay. Well, that's helpful, and that makes more sense to me than why you use that number versus a different number, so thank you for clarifying that. Could you share a little bit, and is that why we didn't do any kind of calculation around the appreciation of the value of the land that once you add a development onto it, and how the developer would get the benefits of the increased value of the land? Or are those totally separate reasons?

Yeah, I think we are really sort of taking that first cut at what a developer would sort of, you know, we're calling it the static pro forma. It really is sort of a simplified version of go, no-go decision based on kind of hard costs, soft costs, you know, what they think they're going to get for land, what their threshold return is. What you're describing is absolutely something that would happen and needs to happen in sort of a cash flow analysis where you're sort of looking at your debt financing on the bottom end, and you're looking at sort of how many years you want to hold the asset, how many years you need to hold the asset until you start sort of coming, breaking even. That sort of timeline has there's a big range depending on sort of the developer capacity, et cetera. Most developers increasingly are not what we call merchant developers. So they're not building and flipping. They're building and really, you know, managing, holding on, you know, just because that is sort of their business model. I think that's sort of something that we see happening more and more. So there is certainly a if we're answering a different question, I think the cash flow and that sort of longitudinal analysis can really play a role in sort of understanding a little bit more nuance in what's happening on the ground. But when we're sort of looking at is sort of a rational actor going to participate in sort of the existing program as it currently operates now versus looking at some of the alternatives that are available via the state. You know, we want to sort of make sure that we're being intentional about what someone actually is going to end up doing. And I think that's what we're kind of seeing.

And that's what we're seeing on this graph. Okay. Just, and I apologize, just so I really understand. So when you say that we did not calculate the appreciation of the land value, yet we are talking about that the majority of developers are holding these properties as a long-term investment. I still don't really understand. Is that just a different kind of equation that we would do that? Because to me, I think that, you know, and this was noted in some of the public comment, that folks want to understand that if you're going through the process of building a significant development, that there is inherent value in the land and then owning that land. But it sounds like that wasn't calculated into this, but it seems that there was reasons why you feel that those are kind of a separate thing.

I think it would be hard to capture. I think that in a sort of a static, certainly if we were looking, if we were doing a cash flow analysis, we would be applying kind of an exit cap rate to a certain year from year zero. And that would kind of encompass sort of an assumed appreciation that is driven by rent increase, operating increase, et cetera. But for the purposes of what we were kind of trying to achieve here, our models don't really capture that sort of long-term appreciation at the static level.

Okay. Thank you for explaining that. I do really appreciate it. Another question kind of going on the line of questioning that Commissioner Wiscombe was mentioning, understanding that we are trying to make this a program that is attractive, understanding where the state is and what they're offering. If this commission moves forward based on the straw poll that we're thinking about increasing the in lieu fees, dramatically potentially more than what staff recommended while creating the flexibility that the developer now has the option to either not build it and just pay the in lieu fees or build it but on top of the base density which is to me a significant step kind of forward in creating flexibility for developers because currently we require them to you know, build those units and that eats into their base density. So given those changes from your perspective, is that, are we moving in the direction of being more competitive? Is this a substantial step forward? Or do you think that just by increasing the in lieu fees more than the recommended point that that shoots, you know, that you don't feel like this is helpful?

Yeah, I don't think we would feel comfortable recommending the kind of increases in in lieu fees that we're proposing if it weren't accompanied by the recommendations that we're that we're also proposing in terms of counting the inclusionary units as bonus density, aligning sort of the AMI with moderate at the state level. So I do sort of want to PREFACE ARE RECOMMENDATIONS THAT SUGGEST INCREASING THE UNLOW FEE, THAT THEY ARE SORT OF BRACKETED BY SOME OF THE OTHER RECOMMENDATIONS THAT WE'RE MAKING.

OKAY. THANK YOU. THAT'S HELPFUL.

IF YOU WOULDN'T MIND, IF I CAN JUST STEP IN REAL QUICK, I'm so sorry. Wardlow, you're both Ws, and I knew that. I am very sorry. Commissioner Wardlow, when we looked at these recommendations, the intention by staff is all of them will get supported, hopefully, and moving forward, because we were looking at what's the cumulative feasibility impacts. We don't know which ones planning commission and city council will ultimately support and give us guidance to include as amendments. So we did analyze them in the study as standalone recommendations and the impacts on feasibility. We hope they all move forward because there is a change to what the feasibility would be. And that's to, to Aaron's point. And we were talking about this, you know, increasing the in lieu fees, by also doing the bonus density for rentals recommendation F. Like, they all start to work together to update this program harmoniously. Just, like, keep that in mind as we're talking about these. We did calibrate them. where we could to work together, but also we're setting them up to be standalone if there are changes. But the numbers shown on the screen now are based on what the study is proposing, so any changes would impact what this ultimately would show.

Okay. Well, thank you. Switching gears a little bit to the NEXUS study, which I want to echo. I think Commissioner Wiscombe or one of my colleagues mentioned this. you know as this goes to council I think it's important that the nexus study is more highlighted at least in the executive summary that this is something that you know deserves significant attention um so just to kind of again level set so based on this study is this saying that for every 100 market rate units that we would need to build between 30 and 40 affordable units at varied income levels is that roughly the ratio we're talking about I think

I BELIEVE IT'S 21 TO 24 UNITS.

OKAY. SO WHEN I LOOKED AT ONE OF THE I THINK IT WAS TABLE 24 IN THE NEXUS STUDY, IT SHOWED IF YOU CUT OUT ABOVE 120 AMI, THERE'S I THINK FOUR INCOME CATEGORIES. SO EXTREMELY LOW. that when you would calculate for all of that, that it was like 37% or something. So I just wanted to make sure that I'm understanding how, let me put it a different way. If we were to pass an inclusionary requirement that fully mitigated the increased demand for all low-income categories, what would that percentage of inclusionary be?

It would be not feasible.

I agree with you. I'm not saying that we should do it. I just want to know what the number is.

Can we get, we'll get back to you on that. Yeah.

Okay. My understanding is it's somewhere between like 30 and 40, but maybe you're right. And maybe it's closer to 20.

It would be kind of hard to translate because they're expressed at different income levels. So we, you know, I think it's, it's, it's, it's a tricky question because we would want to kind of reverse it, engineer it to have it be, to the program that we're talking about now, but I think we can give it a shot. Okay.

I think that would just be helpful for council to know that like we have a general understanding of we're talking about 10% inclusionary and in lieu fees corresponding to that, but the reality of the kind of impact that market rate is having on affordable is more like 37% of what that would be like ideal scenario. Now, obviously that's infeasible and that's not happening, but I just want people to be aware of the figures that we're talking about. I did the math like on the back of a napkin and I got to 37 by like doing it based on that graph, but I think it'd be helpful if we know that number.

I found the answer. Great. It is in the document. I knew it was there. I just had to find the right page. So page 117 of your packet, the third paragraph on that page, it starts with the number of jobs. And there is buried in there for rental development of a hundred units, right? Not a rental project, but for a hundred rental units, it says 21 affordable for acutely low, extremely low, very low and low. And then ownership that same hundred units, the same income categories would be 23.

Great. I will look at this and I do think that we should all look at that number that is referenced there compared to what's referenced in the table 24, because I do think that that's different.

Because that includes a couple more income categories on it.

It includes more income categories, right? Correct.

It breaks it out beyond just the lower income.

There's one, yeah, the last category, I took that one out, and I did the math the other way. So they're just summing different values.

Okay. You were only going up to 120 AMI and stopping at 120 AMI.

Okay, then that makes sense. So this is helpful just to know, even at the numbers that we're talking about today, we're not meaningfully addressing the gap with what we need to do on affordable housing and how important it is that we find, not to say that this be the way to do it, but that as a community, we need to find an additional funding stream to address affordable housing as we continue to try and prioritize more development generally, that there has to be some type of, you know, we've got to figure that out. Okay. Somebody already asked this. Okay, great. Last question. Just in reading the study, it seems that, you know, if we were to increase density in specific areas and, you know, because obviously these are based on prototypes, but that if we increase density that the feasibility of this study could go up. Is that correct?

If you increase density alone? Are you talking about how the state density bonus prototypes are more feasible than the?

Yeah.

Yes, I think that is probably a fair characterization. I think the other thing to keep in mind is that we know that with the state density bonus, you're also able to take advantage of a concession or unlimited waivers of development standards and a certain number of concessions depending on the level of affordability that you provided. So the circulation efficiencies and the unit sizes that we're using for STBL are slightly larger because we're going to assume that you're able to get some kind of work around a weird curb cut or an open space, something that is probably not going to be available to you when you're using AUD, so we were also sort of benefiting from slightly increased circulation efficiencies, and we saw that in the title sheets that we reviewed.

Okay.

Yeah. Okay. So not just density, but, you know, sort of other factors.

The other components, too. Okay. I really appreciate you all answering my questions. I will let some of my other fellow commissioner go. I may have another one, but I'll hold for now. Thank you.

Thank you, and I'm hoping that we can get through questions and get to a break about 3.30 for a little stretch, but understand we can come back. Commissioner Barnwell.

A lot of my questions have been answered by my esteemed commissioners, so I don't want to rehash them. I would like to say one or two things associated. I think Mr. Balky mentioned that the ownership percentages should be lower and the rental percentages should be higher. because a rental project can cross-collateralize, et cetera, but on ownership, once you've sold it, it's out the door. So I would just suggest that we look at that. I know this may not be part of it, but it seems like in some executive summary we should be addressing to the community as well as to the council that we need additional funding streams for this larger project of housing and how are we going to do it. So when we look at this particular one in loo fees, we're only looking at one thing that's going to help us increase this. I think it needs to be said out loud that it is just one thing, and I believe that it's incumbent upon us to look at those other things, transfer tax, for example, or tax increment increase, or whatever those things may be. I want to be sure also that everyone understands, and I don't know if it gets in the report, but the onus of the costs really fall on the builder if he has to build the unit. And it's a dollar for dollar. Whereas if it's an in lieu fee and it goes to Rob, he has a four to one multiplier or more. So that dollar goes much, much farther. Now I realize it isn't targeting that missing middle that we're always trying to hit. But because the AMI is so high, it is targeting a lot of people. I mean, when I talk to my friends and they're thinking, well, low income is $15,000 a year. No, it's like, I don't know, $60,000 or $70,000 a year. So we have to realize that giving the money to Rob is still hitting the bartenders and the waitresses and the et cetera, et cetera, who form such a large portion of our community. And I would like to suggest to the staff that we have a discussion on these alternative ways of funding. I really appreciate this. It's taken us a long time to get here. But these other forms of funding need a collegial gathering where everyone can kick in their two cents and not have the barrier of this raised platform and everybody gets three minutes because there are a lot of people in the community who would like to be involved in a give and take discussion so that we can really wrestle this to the ground. I really appreciate everything you guys have done. It is excellent, but it is not getting us completely to where we need to be on our housing. But thank you very much. Thank you, Madam Chair.

Thank you, Commissioner Peterson.

Thank you, Madam Chair. I have some questions. So I think probably for the city attorney, are we allowed to add inclusionary fees to state density bonus law projects?

No.

Okay. So these things are separate. People are either developing under our local program or they're choosing state density bonus law?

Correct.

Okay. And on our slide that we saw, our local AUD program has created 19 affordable rental units since 2019. Is that correct?

13.

Oh, 13. Okay.

Am I hearing correctly that... Commissioner Peterson, sorry, I wanted to just clarify something to make sure I understood. So our AUD program and state density bonus... go together because our base density is based on AUD. So I just want to make sure that that was clear that they can work together or you can choose just to do AUD without state density bonus.

Okay. So those deed restricted units may have been created under state density bonus law, not just our?

Commissioner Peterson, no. These are all moderate income inclusionary units generated solely because of the 2019 inclusionary ordinance in the AUD program. They're I did not count in this slide the usually lower income affordable units that have been generated by projects utilizing state density bonus law. That is this slide. So you see, for example, 425 Garden in the orange.

Those are affordable units that are state density bonus law.

And in your exhibit E in your staff report, there is a bunch more information in this vein.

All right. Thank you. I kind of want to talk about state density bonus law. And I'm hearing it said, and what I'm trying to understand is that this program, as we're developing it with its in lieu fee options, would incentivize folks to use it rather than state density bonus law. With the changes that we're proposing here, do we think this is going to be more attractive than state density bonus law?

I don't know.

Let's see what the director has to say. Thank you, Commissioner Peterson. Probably not. Honestly, state density bonus law has gotten really incentivizing. So we do have kind of a separate project that involves updating the city's local density bonus program. It's difficult because you're not supposed to compete with state density bonus, we will be working on a local program separate from this, but I think just the reality is that no, this really, it's tough for this to compete just based on the density. This is gonna be much better than what we have now because the inclusion area would be bonus units. So it's getting us closer, but I don't know that it would get us all the way there.

So that's what I'm trying to figure out is how many folks are actually gonna take advantage of this rather than state density bonus law. And I think like that's, what we're wrestling with here and what we're trying to figure out. And so did I hear you correctly when you said that HCD does not require a nexus study to determine an in lieu fee amount anymore?

AB 1505 means that as long as you don't exceed, I think it's 15% requirement for, I don't remember,

You can exceed 15%, but then they'll sort of ask you for a feasibility analysis to show that it doesn't impact, that it's not likely to impact your development pipeline. So you can exceed 15%, but you need to sort of have the proof with the feasibility analysis. Okay.

So the, am I interrupting you? No. Okay. So the $91.41 per square foot maximum that you recommend in the study or based on the study is what's most feasible. It's not what's... No, we don't recommend that fee.

That is the absolute maximum you could charge. By virtue of the fact that we've done a nexus analysis, we can't bury it now. It's sort of out there in public and we probably couldn't charge, I mean, you would face legal challenges likely if you decided to charge more than $91.41 a square foot for rental. So that is sort of one bookend that we are sort of, that we're required to kind of acknowledge having gone through the exercise of completing a nexus study.

Okay. Yeah. I know I'm jumping around here, but going back to state density bonus law, is it more attractive in part because of the concessions and the bonuses that folks get, including overriding local density so they get more of a profit, essentially? They can build more units. That's one of the reasons, is it not? Yes. You know why they're using it.

Well, Commissioner Peterson, in essence, yes. We did a bunch of research into projects that are utilizing state density bonus law to see, you know, what is the quantity of units they're proposing. I will say that was kind of a separate effort from this. It just happened to be I was doing it at the same time, so I could speak to that, but I will say I don't have it memorized. But we did see that, you know, a lot of projects are utilizing state density bonus law, and they're using a variety of incentives. concessions and waivers that come because they're using state density bonus law as one of the incentives, one of the benefits of using it, and additional units is maybe not always the one that we're seeing the most used.

Yeah, and I would also say that when it comes to incentives and concessions, increased density does not count towards your one incentive and concession, so that is a freebie. And so you're sort of entering into a new world of open space, you know, setbacks, et cetera. And I think it probably does depend on the specific site, its configuration, its location. Does it have certain constraints that would require you requesting a certain incentive? Probably hard to generalize unless we have our data, you know, pulled.

Yeah, also not 100% the topic right now for inclusionary, but we are trying to shed light that this is an alternative path to entitlements that projects are utilizing here, and it's something we need to keep in mind as we're looking at the feasibility of projects that maybe aren't electing to use state density bonus law. What does that mean as we're calibrating the recommendations going forward to our local program? I mean, Director DeBusk mentioned some other work that's ongoing to look at other ways to incentivize development. So this is, you know, to all of your point, this is just one lever we can pull. This is only one method to generate funding for our local housing trust fund. It's only one path towards development. And there's all of these different things which we're looking at, as you can tell by all of our answers. And what does state density bonus law offer to a development that wants to use it? And how do we make sure we're cognizant of that? What are the benefits that maybe a developer is seeing and utilizing it because of? And how do we make sure we don't compete because we can't? with it but still meet some of our local needs which is why our inclusionary for middle and moderate didn't change as part of our recommendation B is there are these other tools out there generating these affordable units at different income categories but we've targeted middle and moderate in our existing programs and that's something we want to continue further so.

And thank you just to add on to that we've seen projects use density bonus that run the gamut Some use the full extra 50% of density. Some don't even meet our allowed maximum density. They're using it to get those other concessions. So we've really seen a wide variety.

All right, thank you. I guess why I think this is relevant is what I'm trying to figure out based on this chart where we see an increasing number of projects using SDBL, how we get folks to use our program and how we reap the benefits of that development, including perhaps like some real money that we can get into the housing trust fund to build affordable units by our housing authority. And so theoretically what I'm, maybe this is a calmer question, like how would we be able, what I'm interested in is what if we were able to build, and I hear we might be doing that, a kind of model or a mirror local state density bonus law program where we provide those some concessions or incentives. But what we get to reap is in lieu fees instead and try to get those as high as maximally allowed so that we can maximize the affordable housing development. Because this is the reality that we're in. I mean, this is the choice that we have. And so I hear there's a separate track that we're working on. I'm excited to see that. But in the meantime, I'll be supporting higher in lieu fees in this thing.

Thank you. Commissioner DiLuccio.

Okay. I'm not going to take too long because I know we've been going on and on. I'm glad we're doing the program, consolidating into a single program. I'm a little frustrated because this is so long overdue. I think it's a missed opportunity. Oh, just questions? How come this wasn't all put into effect like years ago, you know, this program. It just started with, I know, single-family homes. Why wasn't the whole program started, I know you guys haven't been here, many years ago, because wouldn't that have been the opportunity to realize a big return in new fees?

I know, but... Through the chair, I mean, I've been with the city for 12 years, and the ownership was started before my time, and I don't know the answer to that one.

Why? I just wanted to call that out as a question. But so the other question is, if we were to do just, I think was the second approach, where all the fees are in lieu fees, would that be more attractive in the sense that the traditional model has been correct, where it would be a combination of in lieu fees and building on site, so would you also, if we're recommending just to council to go with all in lieu fees, would that give us more dollars to go into the housing fund, I gather, correct, the dollars, and would that give us more money to leverage to build more housing, to take the money we get and leverage it to realize more funds and funds, et cetera, in order to build more housing?

Vice Chair DiLuccio, I wish I had a crystal ball and could tell you yes, but I can't. Allowing this option G2 for the inclusionary requirement to be fulfilled solely by paying an NLU fee would be a change in policy, which is one of the reasons we put it under the policy related questions to you all today. Yes, it could create more funding that would go into the Local Housing Trust Fund, but we're also seeing a lot of projects using State Density Bonus Law, so maybe they do that instead and then this wouldn't impact it. I can't tell you what a developer's thinking when we're doing this. This would offer them the flexibility to choose if they wanted to pay the in lieu fee or

develop units and if they did elect to pay an in lieu fee rather than develop units then yes there would be more funding in the local housing trust fund because of it but it would be at the expense of getting those units built on site within the developments so okay i'll just ask one more question for time's sake then i'll have comments later um looking at the other cities influence uh fees that the other cities uh charge they uh to me um have they look kind of low actually I mean, the county is at $68, and what you're proposing is more where Santa Monica is at $48.91, but the cities around us are in the 30s, and San Luis Obispo is $20. Have you done any further analysis why these are so low?

I think that every single one of these cities is weighing these very questions, and every city has kind of unique market conditions. when they sort of, if they choose to run a nexus analysis, there's probably different results that come out as a result of those. I would caution that these fee, rates that we're showing do not necessarily mean that they've been collected. Just because you said a fee rate doesn't mean that that means that the fee rate is feasible. So I just want to caution folks that when they see those fee rates that it could very well be that some of those jurisdictions are not necessarily collecting them or they're collecting them sort of on an ad hoc basis. But yes, the fee that we're proposing on fractional units would be slightly higher than the fee that is currently collected in Santa Monica, but lower than the county of Santa Barbara.

Okay, thank you. Thank you for all the work you've done on this. It's been tremendous, but to be continued, I guess, right?

Yeah, thank you. So we'll end questions now. We'll take a recess. We'll come back at 345, and we'll dive into recommendations then.

Thank you.

3.46. First a note that we do have a hard stop at 5 p.m. today, so if we do not get to a Motion and recommendations by then this item will have to be continued but what I'd like to do next is go recommendation by recommendation and ask the folks who said yes with revisions for those succinct revisions if we have consensus on those then we'll Move forward to the next recommendation. So starting back with recommendation a We had a yes with revisions from commissioners Barnwell and bow key Commissioner Barnwell what? Revision, did you recommend to recommendation a?

Thank you madam chair I'm I'm gonna say yes to it.

I'm gonna remove my my revision component commissioner about key I was looking to modify this down to two units so they're harmonious with the for sale and

Is there consensus? Can I get kind of nods?

Yes.

OK, consensus there. So if we have consensus, then at the end, I'll come back and formalize a motion as in recommendation A will be yes, but revised down to two plus units, for example. And we'll take a motion at the end. I think it's helpful to, or at least I'll summarize it at the end. OK. To two units, yes. Okay. All right. Recommendation B, we had a request for revisions from Commissioner Wiscombe, and we had a no from Commissioner Bauke. So we'll start with Commissioner Wiscombe.

Okay. Okay. Chair Boss, I had Wiscombe as a yes. I had Wardlow as an if.

Sorry. Ms. Carmen, what did you have? For B. For B? Oh, for B?

No, I'm good.

I'm good with B.

Okay, good with B? Okay. Did I say revisions?

No. I got revisions for five of you. Bauke was a no, and Wiscombe was a yes for B. For my notes, it sounds like... That's what I also have.

Then I'll ask differently. Did anybody have specific revisions for recommendation B?

Madam Chair? Yes. It seems like those percentages should be reversed. It seems like the lower percentage should be for the owner and the higher percentage. I think maybe Mr. Bauke said that.

That was exactly what I was looking for.

So if we were to reverse the percentages, meaning owner would be 10% and rental would be 15%, sorry, owner would be 10% moderate and rental would be 15% middle? Was that your intent, Commissioner Bauke?

Yes.

You're saying that you want to increase the inclusionary requirement in rental units to 15%?

Basically flip the numbers. And that's based on my experience of this with the economics between the two are.

And when you say middle versus moderate, you're talking about the AMI?

That's what your shorthand is, yes.

Correct, yes, it's middle income.

Thank you for clarifying. What is it right now?

This is the current requirements for an ownership project of two or more units. It's a 15% of the total units must be restricted for middle. There is a weird carve-out for upper middle. And then for rental, it's 10% of total units restricted for moderate income. And Commissioner Wiscombe, you had a comment there?

Yeah, I do. I just want to say this whole feasibility study that we've done is based on... Is predicated on these numbers as they are and continuing them forward.

So all of our feasibility analysis do not adjust either the percent of inclusionary units or the rents or sale prices that those units would be able to capture.

My point is that I think that since this whole... This whole study is based on what our current inclusionary housing requirements are. We should keep them where they are. Commissioner Wardlow.

Yeah, and I would agree with Commissioner Wiscombe. I think that part of the reason that we originally requested this study was the hope that the study would come back and it would say we could do a 15% inclusionary Clearly, that is not the case, and that's not feasible. I understand that Commissioner Bauke is suggesting a different AMI level on this, but I do think that given that the entire study is structured around these specific, you know, 10% for rental and 15% for ownership, I do not think that I could support, you know, increasing the inclusion rate at this point.

Commissioner Bauke, would you be comfortable keeping the percentages as is given those comments?

I'll just vote no.

Okay. All right. That's your problem. But it sounds like we had consensus from others to keep as is. Okay. Recommendation C, to update the in lieu fee rate, we all recommended with revisions. So I will start with myself recommending the maximum defensible.

And I'll support that. I'll support as well.

Yes, I'll support that.

Got consensus?

Me too.

Next, just to clarify. When is the maximum? Just to clarify, Chair Boss, it's...

The max rental was $91.91 per square foot.

And then for when we get down further, it's $72 for the other. Correct.

Yes. Okay. Okay. Recommendation D all begin with the same, so increasing to the maximum defensible, which is 72.53 per square foot. Do I have consensus on that? Okay.

Madam Chair, may I ask a question of the staff? Please. Is there any point, we had people speak in front of us on a number of occasions, is there any point in carving out these in lieu fees as being different when someone is repurposing an existing building.

Commissioner Barnwell, you have touched on a very near and dear topic to my heart, adaptive reuse. So last fall, this was adopted. We are seeing projects utilizing it, which is amazing. Part of the ordinance that was adopted by council back in October of 25 was a carve out for adaptive reuse projects. where they do not have to provide rental inclusionary units if they are under 40 units and within the central business district boundaries. That remains in place. That would probably meet what you're asking about. That's not getting changed. It's not something that's contemplating being changed. So that could be the carve out maybe you're talking about.

Yes. But the in lieu fees are always an option under this as opposed to building a

Not at present. So one of the reasons we're asking for Recommendation G, which is increasing the flexibility where an in lieu fee payment could be used to meet the inclusionary housing requirement, that doesn't exist at present unless you are under ten units. So projects of nine units have the option to put an onsite unit in their project or pay an in lieu fee, but your ten unit projects don't have the option not to provide that onsite unit and pay the in lieu fee. That doesn't exist at present. It is option G2 that we're bringing forward to you. The adaptive reuse projects, right now if they're 39 units or below, there's no in lieu fee payment for them in the central business district if they're a rental project. So that, there's a lot of these things overlay, I know.

Yeah, that makes it, I don't have a clear understanding of that right now. It seems to me that we do want to bend over for the people who are doing the adaptive reuse. We want to make that happen. I, as a real estate appraiser, can tell you in the last 14 months, 10 unit projects were approved and the builder only built nine to fall underneath some requirements that kicked in at the 10. And to go back to all this feasibility discussion, So I don't know if we're really, I don't know what we're getting with this. So this one right here.

Recommendation D?

We're on D, right?

Correct. Recommendation D is solely asking for ownership projects as they are currently structured, they have to provide an onsite unit for 10 or more. What we're saying is for the ones that right now, you know, It's a little bit convoluted because we're asking these are kind of flared, but we're just saying what should the in lieu fee rate be for these projects? If and when they're able to pay the in lieu fee, what should that number be?

Okay. All right. Thank you. I'm down with this. Yes, I understand. Right. I understand. Thank you.

Recommendation E is set a lower in lieu fee rate for small rental and ownership projects. I know we all recommended revisions here. I'll start with the maximum defensible, but understand that others may want something lower.

Are there other thoughts on revisions?

I would say $50.

I'm going to say the same thing. It just cries out for a lower number, and we're really just throwing a number at it.

Do we have consensus on $50?

I'm 50. I'm good.

Okay. I'm seeing nods. Okay. All right. Recommendation F, we don't, we already resolved. Recommendation, I'm going to skip G and come back to that in just a moment. You don't want to go there. Recommendation I was to implement automatic annual and lieu fee rate adjustments for The recommendation was to use CPI. I think a handful of us were willing to go with the California Department of General Services construction cost index, but Commissioner Bauke, you'd recommended another index.

Yes, which is the engineering news record one, which is noted in the report. And my comment is, unfortunately, we don't have the information of what all three of these would have generated if we just did them and I think it's hard to say, oh, we gotta pick this one, because I would want the most accurate one, regardless of whether it costs you a couple grand or a grand for a subscription, whatever's the most accurate we should use, and that's why I suggested, and I don't know between the one that Rob, and I've used those on some models, too, so it just, a lot of cities have that, it just, Performer and their development impact analysis. They use the engineering news record. So I Definitely would want to suggest that we consider it. I think the one that we could probably take off the tables of CPI Okay, agreed.

Is this something that there'd be consensus?

Give me one one moment. We've got a couple people in the queue Commissioner, Westcom Thank You madam chair.

I think you mentioned mr. Barker the The engineering one is a fee-based one, right? You have to pay for that one.

I believe so, yes.

Yeah, and I didn't like the CPI because it doesn't have really construction. It has housing in it, but not construction costs in it. And it is a measure of inflation. But I think that I would not want to go with something that the public or someone that wanted to look it up had to pay for. The CPI is well-advertised. and I assume, and you had mentioned that the general services, the California one, is now available to the public free of charge.

For now, yes.

Yeah, for now. Well, okay, yeah, until they need budget money. Sure, sure, exactly. No, but I would go with that one because I think that's most attuned to what this is trying to accomplish as a measurement, and it's right now readily available. to the public. So anyone could look that up. That's my two cents. Thank you.

Commissioner Barnwell and then Commissioner Peter.

I know that in lease documents where the CPI is included, it isn't an automatic one. And the landlord during hard times in the economy can change that number. And most other uses of a CPI will have a top limit or a bottom limit. In other words, there's an administrator that can step in at some point. Is that a thought process that we want to add to this, or do we want this to be just automatic?

That is something we are willing to take your direction on. If you want to provide that guidance to staff, we're listening.

I would like to add that as a thought, to include that as a thought, because I've gone through so many cycles of the economy where these absolute automatic things end up being a burden on somebody. But who would make the decision? I don't know what administrator that would be or how that is implemented, but I'm just offering that. Otherwise, I'm down with this. Yes.

Commissioner Peterson?

I support if there was a motion for staff to look at this, figure out what was most accurate and come back. I'm willing to wait.

Would we have consensus with forwarding this to council with their recommendation to consider the California Department of General Services Construction Cost Index and the ENR, can you say it? Can you name it again for me?

Engineering News Record, I believe is the...

Okay, Engineering News Record, thank you. Do we have consensus for forwarding it to council with analysis of both? Okay, thank you. All right, back to Gee. All staff, how do you want to handle this?

That is an excellent question.

And maybe I'll suggest it sounded like we had consensus maybe for G2. Okay, Commissioner Wiscombe.

I just want to, a couple of us met with Ms. Falk when before, you know, when she had made the kind invitation for us to meet and discuss this. And what we got out of G1 and G2, because I was like, why do we only have to pick one, was that G2 was the most flexible. I think you used the word flexible.

Correct. Commissioner Wiscombe, that would allow an applicant, a developer doing a project, the ability to choose, I want to pay the in lieu fee entirely, I want to build on-site units entirely, or I want to do a mix of both. So in terms of the developer perspective, yes, G2 would be the most flexibility in fulfilling our inclusionary housing requirements by giving them all those options and any combination that they would like.

Right. And would we change the $72 per square foot fee upward to what we are doing? The $91.

We would definitely suggest aligning it with the weekly defensible maximum if we're going to do them separate for ownership and rental. This was doing a kind of a blended to capture a flat rate for both. But yes, the rate amount that would be proposed could be set.

Yeah, I can support that then with the increase to the 91 and it being the most flexible. I think that's what we're trying to accomplish here is a program that is flexible and doesn't make developers walk away because for some reason, you know. Commissioner Wardlow.

Yes, I fully agree. I think that providing the most flexibility towards the developers is an important part as we pursue a higher in lieu fee. I think that this has been something that folks have been wanting to ensure that they have the option of either paying the fee or building the units, as well as ensuring that the units are now a part of an additional density, not eating at the base density, which I think is really critical flexibility for developers to make this program more successful.

Commissioner, I'll delete you. Vice Chair, sorry.

Yeah, I'm leaning toward option G2 also, but I have a clarification question. Did you say that this would be a blend? It could be a blended approach where some of the units you could pay for, say you could pay some of the in lieu fee and bill some on site?

We would never take away the option of somebody providing an affordable unit in their project.

If you're going to do that, I would be for that, but can you maybe articulate that better in the next round? We can, yes. Because that's what you're talking about?

Yes, we can.

Thank you.

And Commissioner Valky.

When this came before us at the start, I was thinking that this would definitely be at the top rate because basically you're giving them an administrative gift is the way I would describe this. And so the fact that we did that top rate on all of them is a whole other conversation, but that was where I was at to start with is that would be appropriate. Thank you.

Okay, I think we have consensus on all. Don't worry, we still have comments and kudos for you. But I'm going to read through them. If we can go back to starting at slide 20 or whatever slide it would be with the recommendations. So recommendation A was apply inclusionary housing requirements to all rental projects with five plus units. We said yes with a revision to two plus units. Recommendation B. And we'll do comments in a moment. Recommendation B was keep as is with Commissioner Bauke declining that one. Recommendation C, update the in lieu fee rate for rental projects. And this is yes with the revision to the $91.41 per square foot. Recommendation D for the ownership projects Yes, with the revision to $72.53 per square foot. Recommendation E was yes, but at the $50 square foot rate. Recommendation F, yes, as is. Recommendation G2, but to reflect the $72 or $91 and change, and Articulate that when it goes to council that it could be a mix of built on-site and and pay fees Recommendation H. Yes as is Recommendation I Yes with the Analysis from the California Department of General Services construction cost index and the engineering news record when it goes to council and Yes. Yes. And then recommendation J, yes, as is. And I have Commissioner Peterson.

Madam Chair, I just have a question. Recommendation G, can we repeat that, please?

Yes. Recommendation G was G2. If we can get that on the slide. And this would be 72 or 91, depending on whether it was rental or ownership. And when going to council, make sure that it's articulated that this is the maximum flexibility for developers, and it could be a mix of built on-site and paying the fractional fee.

The 91-41 being for rental? Or ownership, yes. Okay, all right. Thank you.

Did I get that right? Agreed. All right. Okay. So I think you have what you need, but you want to hear how much we appreciate your hard work. So we're going to go. Oh, I always do.

But I just want to make sure if there's anything we didn't capture in one of these 10 recommendations that you want us to continue to evaluate as we're going forward now into drafting these ordinances, we would really appreciate hearing that while we're beginning to draft those ordinances so we can incorporate them fully. Okay. We'll take additional comments now. So Commissioner Bauke.

First of all, I want to thank you for the hard work that you did on this. And this is very much a complex thing. And I appreciate it. Doing these static prototypes, you could have really gone down a rabbit hole and started doing 20-year actives and stuff on the rental, which is sort of what I do in my world, and don't go there, please, unless you have to. But I would want to see if there is thoughts of an additional recommendation to the council, which both Commissioner Barnwell and... My fellow Commissioner Mr. Benjamin down at the end have talked about some kind of discussion about other ways to get funding sources into the housing trust fund. May it be a value capture mechanism or transfer tax or other things. Those other items need to be put on the table, and we could start looking at those. So that's my suggestion.

Commissioner Wiscom. Thank you, Madam Chair. Thanks very much to all of you. It's really an incredible piece of work that's been a long time in the making and we're very happy to see it come to this point and move on. I did want to bring up one thing since we're talking about the local housing trust fund. I would like to make sure that when we get to the ordinance phase that the money for the in lieu fee money gets deposited in the local housing trust fund for use of developing affordable housing only. And Mr. Frederick is nodding. I second that. So I think that's a very important component of the ordinance. And so there's no question about where where this money is going. And other than that, I thank you all for your hard work and all your efforts. It's just been marvelous.

And I'm going to tag on to that before going to the next commissioner to clarify with an ordinance amendment that the in lieu fee funds be dedicated to the development of affordable housing. I know sometimes that can be combined with administration or consultant fees so that go to the direct development of affordable housing. Commissioner Barnwell.

Thank you, Madam Chair. I want to double down on Mr. Balke's comments about when we present this to the council, tell them that this is just one piece of the larger puzzle. And I would like to also add This came about as a result of one of the projects that we did on the cemetery. The idea that the city step in to organizing rental housing. By that I mean we stepped in through the Rental Housing Mediation Task Force at the request of the Superior Court to mediate troubles associated with that. I think the city could step in And I would like this offered to the council and I would like you guys to think about the idea of having someone, having all the builders be aware that their units could be purchased, correction, could be leased on a long term lease by small business owners who could then provide that unit for their people. What we're doing right now is we want the middle income people to be covered. And we're not doing it, we're still not doing that. But that cemetery project that we did, what they were gonna do was offer three units to the barbershop. And the barbershop guy was gonna say, you know what, I'll give you a 10 year guaranteed lease on those three units. And then the barbershop guy takes those three units back to his employees and offers them at whatever rate he wants as an inducement to work for my barbershop.

Commissioner Barnwell, we're getting a little off topic.

Okay. But I want, I'm just, thank you very much. I appreciate that. She always says that to me, but I, I would like some of these other options to be presented and be out in the open air, just like Mr. Bowie mentioned some of these tax incentives, et cetera, because there's so much we could do. Uh, and then I also want to say, I do this for a living and this report is tremendous and I can't imagine. how you held on to all these numbers without going crazy.

Thank you.

Commissioner Peterson.

Thank you. I want to add my support for the Barnwell-Bowkie. Policy recommendations that are going to counsel that conversation of how we create revenue create creatively for affordable housing and then adding my support to and I want to thank Commissioner wisdom for Reminding us and clarifying and potentially closing a little thing that we missed which was making sure that those in lieu fees go to Affordable housing and I would support it going directly to the housing trust fund If there's a consensus on that

Commissioner Wardlow. Thank you and thank you to staff and our wonderful consultants. Obviously this was a massive undertaking and we greatly appreciate the work that's been done. I'm excited with the progress that I believe that we have today. I think this is a really good step forward both in creating more flexibility for developers while increasing the amount of funding that can go towards affordable housing. I concur with my colleagues that the funding must go into the Affordable Trust Fund to be used specifically by the Housing Authority for the development of affordable housing. I do think that it's important for us to realize that this is one step forward. This is not a silver bullet. I think the slide that dictated that there's only been 13 moderate income units that have been produced in the AUD program shows that there's a lot more work that we still need to do to encourage development both in terms of you know ensuring that processes are streamlined having a real hard look at density and targeted areas that we want to see development and most importantly really looking at how do we identify an ongoing funding stream for the affordable Housing Trust Fund, because clearly what we are doing today still does not meet that demand. So there's still a lot of work to be done, but I'm really excited with the progress that we're making today, and I think this is a good step forward.

Thank you. Commissioner Deluccio, Vice Chair Deluccio.

I want to thank the Chair, first of all, for the way you ran the meeting today, and also the staff, the way you laid out the questions, and I'm glad we could come to consensus so we can move this on to Council. And a lot of the public has sent letters in. I know there were duplicate letters. If you can just maybe take another look at those letters, we'd appreciate it before it goes to council. And again, I think the bottom line here is the housing fund, getting dollars into the housing fund. And again, not to use them for administration, but to take those dollars and leverage those dollars to build on those dollars that go in so we can... help in getting much more affordable housing. Thank you.

Any other comments? Okay, I get the last word then. So I'll agree with the comments that other commissioners have stated and just thank you for your work on this. We've been talking about it a very long time. A couple of comments for council. I think it would be helpful to at least list the public comments that came in So I understand you received the emails, so just writing, you know, public comment received from, whether it was an entity or an individual, that way they have that record. And then second would be, I'm going to agree with the Santa Barbara Association of Realtors on their, I know, on their request for monitoring and periodic program review. It was one of their recommendations. So I think that would be helpful if it's not already built in. And then finally, I'll end with how Commissioner Bauke, I think, started. Just what is the goal of inclusionary housing? I think you've all heard me say this. I live in an inclusionary housing unit from the city's inclusionary housing ownership program. And I have for over a decade. and I wouldn't live here, and I wouldn't be doing what I think is good work in our community if this program did not exist. So I want a lot more of it. So we want to increase it, whether it's built units, whether it's rental, getting folks to the next step, changing the trajectory for their family or ownership so we have that stability and we can continue to contribute to the community. So just thank you for my housing, and I hope that we look forward to a lot more of this. Any final comments on this item? Okay, if not, then we'll close that item, and we will move on to our administrative portion of the agenda, committee and liaison reports. I think, Commissioner Deluccia, or Vice Chair, you have some great reports for us.

I have a staff hearing office report from yesterday, fresh off the press, and that was 335 South Milpus Street. That's a tri-county produce site. which had come before us a few years back for conceptual review. The staff hearing officer, that's Tess Harashy, did approve a coastal development permit, a secret determination that the project qualifies for an exemption from further environmental review, and a tentative subdivision map to allow the division of the one lot into two lots. Lot one will retain the existing tri-county produce market They're not going to demolish it. It'll still be there. They're going to expand on it and add some amenities. And on lot two, there'll be construction of a new 53-unit, four-story residential building with ground-level parking garage for 54 cars. The project's going to include three very low-income units and one moderate-income unit. This project has been scaled down since it came to us. They're originally proposing, I think, 99 units. and so now it's down to 53 units. I believe they listened to the neighborhood, and I know that careful consideration was given to this yesterday by the hearing officer. However, we are in a 10-day appeal period right now, which could be appealed to the Planning Commission. Otherwise, if it doesn't get appealed, the project will go on to the Architectural Board of Review for design, and I believe that the Community Development Director it needs to approve the state density bonus portion of it. So that's my report.

Thank you. And any other committee or liaison reports for today? Okay. It is now 4.19 p.m. That concludes our April 16th Planning Commission hearing. Our next meeting is tentatively scheduled for Thursday, May 21st. So we will miss you all for a few weeks. Thank you and have a great rest of your day.