Court OKs Fee on Builders to Pay for Housing

In a closely watched case, a federal appeals court in San Francisco ruled Wednesday that the city of Sacramento can charge commercial builders additional fees to help pay for low-income housing when their developments bring an influx of new workers.

The decision provides a green light to a number of other cash-strapped California cities, including Los Angeles, that want to institute similar fees.

Land-use experts said the decision is particularly important in an era of limited government resources and will have an impact throughout the western U.S.

“There’s no doubt that cities feel strong pressure to raise revenue and at the moment” imposing such fees is “the path of least resistance,” said UC Berkeley law professor Joseph Sax.

He said the decision was “quite significant” because it allows California cities to raise funds for housing and other needs without raising property taxes--a move severely restricted since 1978 with the passage of Proposition 13.

In Orange County, affordable housing activists were optimistic that the decision will be an important tool in prompting developers and cities to provide low-cost housing in areas of new commercial development.

“It sounds like we got some good news tonight,” said Tim Carpenter, an organizer for the HOUSING NOW! Coalition. “It’s a real important decision that will hold business accountable.”

The organization led a failed effort in May to persuade the County Board of Supervisors to reject plans for a Hyatt hotel near Laguna Beach on the grounds that there would not be enough housing for low-wage workers.

Carpenter said the decision is likely to have its greatest impact in such areas as South County, where much of the new commercial development is occurring, but housing is beyond the reach of many in the lower tiers of the corporate world.

That is especially true in the Irvine Spectrum area, affordable housing activists said, where many lower-income workers commute either from central Orange, San Bernardino or Riverside counties.

Irvine Councilwoman Paula Werner, who earlier in the year backed a failed measure that was similar to the Sacramento plan, said she will urge the council to reconsider adding fees for affordable housing.

“We ought to reassess this issue again,” she said. “The council ought to look at all ways that we can provide affordable housing for our residents.”

But at least one commercial developer in Orange County criticized the decision, saying that it will add one more financial burden to developers, already strapped for cash in recessionary times.

“It’s basically a tax, any way you slice it,” said Donald M. Koll, chairman of the Koll Co., adding that his building firm already pays as much as $6 a square foot in fees for roads and other improvements.

“It seems silly for cities and states to tack on another tax that will ultimately force developers to move elsewhere,” Koll said.

Irvine Co. spokesman Larry Thomas said he could not comment on the decision, saying he had not studied the legal findings.

But, he added, “We (the Irvine Co.) have not been opposed as a company in the past to the approach” of funding affordable housing through developer fees.

Wednesday’s 2-1 decision stemmed from the controversy generated by the Sacramento City Council’s creation of a Housing Trust Fund Ordinance in March, 1989.

The law requires builders of a variety of non-residential property to pay fees ranging from 25 cents to 95 cents a square foot to assist in the financing of new low-income housing needed as a consequence of commercial development.

The underpinning of the ordinance was a finding by a Sacramento city task force that non-residential development is “a major factor in attracting new employees to the region” and the influx of new employees “creates a need for additional housing in the city.”

The Commercial Builders of Northern California challenged the ordinance in federal court in Sacramento. The builders argued that the fee program constituted an unlawful taking of their property in violation of the U.S. Constitution.

Federal Judge Edward J. Garcia rejected that argument and, in a 2-1 decision, his ruling was upheld by the U.S. 9th Circuit Court of Appeals.

The appeals court ruled that Sacramento’s ordinance “substantially advanced” the city’s legitimate interest in expanding low-income housing.

“It was enacted after a careful study revealed the amount of low-income housing that would be necessary as a direct result of the influx of workers that would be associated with the new non-residential development,” said Appeals Court Judge Mary M. Schroeder in her majority opinion.

Sacramento projected that the ordinance would raise about $3.6 million annually, about 9% of the $42 million estimated for the housing. Additional money is supposed to come from other sources, such as bonds and general revenues.

Schroeder said Sacramento’s ordinance complied with the requirements of a 1987 Supreme Court decision holding that such an ordinance must demonstrate that there is a clear connection between land-use restrictions and the purpose behind them. Judge John T. Noonan Jr. joined in the majority opinion.

The decision emphasized that Sacramento had conducted a detailed study that showed the relationship between new office development and an influx of low-income workers who would require housing.

Appeals Court Judge Robert J. Beezer issued a blistering dissent.

“The ordinance is nothing more than a convenient way to fund a system of transfer payments,” Beezer wrote. He said the city had failed to demonstrate a cause-and-effect relationship between commercial development and housing needs.

Beezer predicted dire consequences if the decision stands.

Nonprofit facilities such as churches and child-care centers are specifically exempted under the ordinance.