Inclusionary Housing: The Napa Experience

1. HISTORY LEADING TO THE ADOPTION OF THE INCLUSIONARY ORDINANCE:

A. The 1991 General Plan Provision; the 1992 "Nexus" Study; and the 1992 Napa County Ordinance.

B. The Rancho Las Flores Project

C. The Affordable Housing Task Force and Subcommittee.

2. THE INCLUSIONARY ORDINANCE CHRONOLOGY:

A. The City Council conducts the first public hearing on the draft ordinance proposed by the Task Force subcommittee on March 3, 1999; after a lengthy hearing, the Council continues the matter and directs staff to work with all "stakeholders" on a "consensus" ordinance;

B. The community "consensus" group meets on several occasions over two months, and agrees on most—but not all--issues; unresolved issues include exemptions (including "floor" amount below which projects will not be subject to the ordinance), phase-in period, whether in-lieu fee option will be available, the amount of the fee, and other issues.

C. The April 27, 1999 hearing; Council directs further meetings with the community "consensus" group to resolve all issues; indicates its desire to accede to all concerns raised by builders and developers.

D. On July 20, 1999, the Council conducts another public hearing on a revised ordinance setting forth the "consensus" group’s recommendations, including all issues urged by builders/developers. Most local opposition to the ordinance has disappeared, and support for the ordinance among all local stakeholders is widespread.. However, a Home Builders Assn. representative appears and urges Council not to adopt the proposed ordinance, arguing it would constitute a taking. Following the hearing, the Council adopts the ordinance and accompanying fee resolution.

3. THE FEATURES AND REQUIREMENTS OF THE NAPA ORDINANCE:

A. The ordinance adopts the following findings in support of its requirements:

(1) The City’s Rural Urban Limit ("RUL"), which denotes the limits of urban development and acts as an agricultural buffer, leads to a limited supply of available land for development;

(2) New market-rate housing absorbs the remaining supply of land available for development within the RUL;

(3) By absorbing available land, new market-rate housing limits the supply of affordable housing;

(4) By absorbing available land, new market-rate housing also inflates land prices;

(5) New market-rate housing further aggravates the affordable housing crisis by increasing demands for new commercial goods and services, thereby creating new local employment at low wage levels for workers who then cannot afford housing within the city;

(6) Housing price increases are outpacing incomes and have made housing unaffordable to low income households; and

(7) Workers and long-time residents are being forced to reside outside the City due to housing costs, with attendant traffic and pollution impacts.

B. The ordinance requires that ten percent (10%) of all new residential dwellings be affordable. (The ordinance is at Napa Municipal Code chapter 15.94, which may be accessed on-line at www.cityofnapa.org.)

C. The ordinance authorizes developers to satisfy the requirement by an "alternative equivalent," including the dedication of land or the construction of units off site, if the alternative will result in equal or greater affordable housing opportunities. This is a matter of right for developers of single family housing; it is subject to discretion of Council for multi-family projects.

D. Developers may also satisfy the requirement by paying an in-lieu fee. Again, single family projects have this option as a matter of right, while multi-family projects can apply to the Council upon a showing of financial infeasibility and overriding conditions. Fees are deposited into a Housing Trust Fund, and may only be used to increase and improve the supply of affordable housing.

E. The ordinance allows for a variety of incentives and concessions to offset the burdens of the ordinance. These include expedited processing, fee payment deferrals, marketing assistance, waiver of building standards having impacts on development costs, and density bonuses. All incentives, except for the financial assistance and density bonuses, are available as a matter of right for those developers who meet the basic 10% inclusionary requirement. Financial assistance and density bonuses are available in the City Council’s discretion.

F. The ordinance also has a commercial component under which commercial development is charged a "linkage fee."

4. THE LITIGATION:

A. The Home Builders Assn. of Northern California, represented by the Pacific Legal Foundation, asserts four initial theories in challenging the ordinance on its face, not in its application to any developer. Their arguments were as follow:

(1) The ordinance constitutes a "taking" in violation of the federal and California constitutions. This is because, whether reviewed under "heightened" (Nollan/Dolan) or deferential (Agins) scrutiny, the ordinance fails to substantially advance a legitimate governmental interest. Even if there is an affordable housing crisis, the development of market-rate housing in no manner exacerbates that crisis, and in fact ameliorates it.

(2) The ordinance’s in-lieu fee requirement violates California’s Mitigation Fee Act (Cal. Government Code section 66000 et seq.), because the City failed to – and could not – adopt findings setting forth a "nexus" between the development of market-rate housing and the inclusionary/in-lieu fee requirement.

(3) The ordinance’s fee requirement violates two California constitutional and one California statutory limitation on taxation without voter approval (Propositions 13, 62 and 218).

(4) The ordinance’s inclusionary requirement, and specifically the long-term affordability limits on rents of the 10% affordable units, violates substantive due process "fair return" requirements because owners of those units could not charge sufficient rents to cover operating expenses.

B. The Superior Court and Court of Appeals Reject All Challenges:

(1) The ordinance on its face is not a "taking."

(a) Heightened scrutiny under Nollan/Dolan does not apply because the ordinance was imposed legislatively, and made applicable citywide to all developers, and did not require any dedication of land. (The latter point concerning dedication of land is one we are asserting before the U.S. Supreme Court; the California Supreme Court applies heightened scrutiny to fees, as well as land dedication requirements, that are imposed on an ad hoc, case-by-case basis as a condition of a permit, and that are not authorized by a legislatively-imposed, generally applicable ordinance.)

(b) Under traditional, deferential review (Agins), the ordinance does substantially advance the legitimate governmental interest in providing for adequate affordable housing. The Court of Appeal does not squarely address whether the ordinance’s core inclusionary requirement, or its in-lieu fee alternative, constitutes an exaction, and as such also must mitigate one or more adverse impacts created by the development of market-rate housing. The recent decision in San Remo Hotel v. City & County of San Francisco suggests not.

(c) A facial challenge requires that the ordinance cannot be applied constitutionally under any circumstance, and will be rejected as premature if there is any single conceivable application that would not violate the constitution. Given the ordinance’s financial incentives and waiver provisions, plaintiff’s facial challenge was premature. This part of the Court’s decision, although not so expressly stated, likely goes to the second "prong" of Agins’ takings analysis, namely, whether the regulation deprives the owner of substantially all economic value.

(2) The ordinance does not violate the Mitigation Fee Act. (This part of the Court of Appeal’s decision was not certified for publication, and thus is not of precedential value.)

(a) Plaintiff failed to properly brief or present this argument to the Appellate Court, and thus waived it. (This point was not certified for publication.) Plaintiff also failed to comply with certain procedural requirements under the Act. (This latter point was briefed only, but not decided by the Court.)

(b) No fee required—optional at developer’s choice. (This point was briefed only, but not decided by the Court.)

(3) The ordinance does not constitute a tax requiring voter approval under Propositions 13, 62 or 218. (This part of the Court’s decision concerning Proposition 218 was not certified for publication; Plaintiff waived its arguments under Propositions 13 and 62 at the Court of Appeal stage after the Superior Court rejected them.)

(a) Fee not imposed, but is optional at developer’s choice.

(b) The procedural and substantive limits under Proposition 62, a statute, do not implicate a matter of statewide concern, and thus do not apply to charter cities such as Napa which derive special, broad powers over "municipal affairs" under the California Constitution (Art. XI, §5).

(4) The ordinance does not violate substantive due process "fair return" standards.

(a) The City’s inclusionary requirement is land use regulation, not rent or price control. It restricts only 10% of land, in the context of an overall land use development approval, and is no different in concept from side yard or set back requirements. Fair return standards have never been applied in this context.

(b) Given the ordinance’s waiver and incentive provisions, and its regulatory agreement requirement, it is premature for purposes of a facial constitutional challenge to determine that the ordinance cannot be applied constitutionally even if fair return standards did apply. (Pennel.)

5. LESSONS:

A. Involve all stakeholders and seek community consensus to achieve a locally sensitive approach to inclusionary housing before adopting ordinance.

B. Create financial incentives, with as many as possible allowed as a matter of right. Consider allowing the in-lieu fee option, but also consider whether that will impede your ability to actually build the affordable housing.

C. Create a waiver/reduction allowance as a "safety-valve."

D. Adopt findings setting forth the affordable housing crisis, as well as the bases for the inclusionary requirements.

Author and Copyright Information

Thomas B. Brown
Napa City Attorney
(707) 257-9516
tbrown@cityofnapa.org