Did the City Lose $24,000,000?

On the agenda Tuesday night is Item 15 - Notice of Funding Availability (“NOFA”) focused on affordable housing for veterans. It comes from a motion by Scott Voigts and me made in November and accepted unanimously by the Council.

HOW MUCH MONEY IS AVAILABLE?

The staff report says that $3.7 million is available now and “the City is anticipating that an additional $2.4 million in In-Lieu Fees may be collected in the future…” So there may be nearly $6 million that could be spent.

HOW MANY UNITS CAN WE CREATE?

The City’s prior experience indicates that it costs about $500,000 to build/buy an affordable unit. So with $6 million in our piggy bank we can create 12 affordable units.

In June 2017 there was only 1 multi-family unit for sale in Lake Forest. It was on Saguaro Street and the sales price was $1.4 million for a 4-unit building. Adding in the costs of sales (10%) that’s a total cost of $1.54 million or $385,000 per unit. With $6 million in the bank, that’s 16 affordable units the City could purchase.

So we may be able to build somewhere between 12 and 16 affordable units with $6 million.

WHAT HAPPENED TO THE OTHER 60 UNITS?

Lake Forest (and the rest of California) has a shortage of affordable homes. When developers get permission to build new homes, cities often require that 15% of the new homes be “affordable” and built on site. But there is a loophole allowing developers to pay “in lieu” fees, give the money to the City for a special fund (the one with $6 million we’re talking about), and have the City build the homes somewhere else. The problem with using this loophole is that the fees paid by the developers end up producing less than a quarter of the homes that would be built if the developer built them on site. That means a big gain to the developers and short-change to the cities and ultimately to the residents who get fewer affordable homes this way, and the affordable homes they do get, end up being in less desirable areas.

My three colleagues (Hamilton, Voigts, Robinson) always vote to let developers get away with paying “in lieu” fees. That gives developers fat profits and with some of that money, they in turn support their campaigns. But the current Gang of 3 is not the first Council to be influenced by developer money. Since inception 25 years ago, developers have poured hundreds of thousands of dollars into Lake Forest elections to insure they always had a majority of developer friendly people making the decisions. What makes the current Gang of 3 so unique is that they have collected more developer money in a mere 6 years than all the previous years combined.

Though previous Councils did insist that some developers build affordable homes on site, this Council has never approved on site units. We have 466 new homes (Toll Brothers Parkside – 195, Brookfield -147, Meritage – 52, and Trumark – 72) where developers paid (or are paying) “in lieu” fees of nearly $5 million. Had the developers built the 15% affordable units on site we would have 70 affordable units in the City. Because they paid “in lieu” fees we have 0 affordable units right now, and $5 million to build new ones. The City’s prior experience indicates that it costs about $500,000 to build/buy an affordable unit. So with $5 million in our piggy bank we can create 10 affordable units. Combining the $5 million from Brookfield/Toll Brothers/Meritage/Trumark with the $1 million from past “in lieu fees”, we have the $6 million spoken about in the report.

Bottom line – By allowing developers to give the City “in lieu” fees the Gang of 3 added enough money in our affordable housing fund to buy about 10 affordable units. Had the developers been required to build the units on site (as previous Councils demanded), we would have 70 affordable units. So we lost 60 units.

HOW MUCH DID THE CITY LOSE?

If we lost 60 units by allowing developers to give us “in lieu” fees instead of building onsite, how much did the City lose in these deals. At $400,000 per unit, 60 units means we’ve lost the equivalent of $24,000,000.

That’s an incredible amount of money.

ARE THERE OTHER CONSIDERATIONS?

The Gang will tell you that developers don’t want to build affordable units. The developers who contribute so mightily to the Gang’s campaigns are high end and luxury home builders, and that’s a different business from the people who build affordable homes. Developers also don‘t like to build affordable homes onsite because it detracts from their highly priced homes. These are all legitimate reasons why developers don’t want to build onsite, but they aren’t legitimate reasons for city council members to let them do it.

By allowing developers to give us “in lieu” fees not only do we lose $24,000,000 in units that aren’t going to be built, we also lose time. No affordable units have been built by this Gang while hundreds of high priced homes have been built, sold, and occupied.

In addition, the spirit behind the affordable homes policies was to create neighborhoods that were diverse. Instead, by adopting the “in lieu” policy, this City and others begin to create ghettos where affordable homes are built, a practice that was found illegal by a Texas federal court.

SUMMARY

By allowing developers to give the city “in lieu” fees instead of building affordable homes onsite, the Gang of 3 have short-changed the City of more than $20,000,000 in affordable homes. In addition we have no homes being built to date.

WHAT CAN WE DO?

Going forward, we should

• Not allow developers to pay “in lieu” fees for affordable units, and require that all affordable units be developed onsite.
• Make creative use of the money in the existing affordable housing funds. For example, we might use these funds to create affordable units in new mixed-use homes/retail centers that could be developed close to the 5 Freeway. Or we might partner with any future development projects to incorporate affordable units into those plans.
• Avoid voting for anyone who accepts most of their campaign money from special interests. When it comes to a vote they will almost always vote for the special interests and not for what’s best for the City.

ABOUT THE AUTHOR

Dr. Jim Gardner is on the City Council for Lake Forest. You can check him out on LinkedIn and/or Facebook and you can share your thoughts about the City at Lake Forest Town Square on Facebook. His comments are not meant to reflect official City Policy.

Dr. Gardner has office hours every Tuesday from 4 pm to 6 pm at the City Hall. In addition, he holds a town hall meeting every quarter. Click here for a summary of the last one. The next meeting will be on Sept. 9 at 2 pm at the Foothill Ranch Public Library.