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Land Use

By Alexandra Brown |

Roundtable-Land Use

Land Use

A roundtable with: Luce, Forward, Hamilton & Scripps

EXECUTIVE SUMMARY:

The current economic downturn, combined with the fallout of the banking and mortgage crises, has severely affected development projects across the state. However, these economic conditions, particularly when coupled with increased concern about global climate change, could present opportunities for more balanced and sustainable development, as well as smarter and increasingly comprehensive land use policy.
      Our panel of experts from Northern California discuss these trends, as well as the lessons learned from the recent decision in Yamagiwa v. City of Half Moon Bay. They are Steve Atkinson, David Franklin, Timothy A. Tosta and John Truxaw of Luce, Forward, Hamilton & Scripps. The roundtable was moderated by freelance writer Bernice Yeung and reported for Barkley Court Reporters by Krishanna DeRita.
     
      MODERATOR: How has the economic downturn affected your practice?
     
      TOSTA: We've really seen our worst concerns play out in the development industry. Construction has slowed precipitously. The sources of funding for new development have dried up. Plans that have been in the offing for years are being shelved. These conditions radically shift expectations in the development community, as well as in the communities where those projects were slated to be built.
     
      FRANKLIN: I was at a regional meeting of the International Conference of Shopping Centers in March and many people there were trying to make deals happen. They were looking for players who had the financial ability to perform. The few potential investors, developers, and retailers who were not relying on institutional financing, or who had established financing sources were very much in demand. So the economy is affecting retail: If the developer of the shopping center lacks the wherewithal to develop, it may have to joint venture with a retailer, for example, who can provide some of the financing to fund the development of the shopping center.
     
      ATKINSON: However, the severity of the impact has not been universal. In San Francisco, there has been a slowing, but we still have projects moving forward because there's the perception that the long-term housing demand is so great here. We are working with new developments where the product will be available in two or three years, when developers hope to sell in a different market than the one we are in now
     
      TOSTA: And there will be secondary impacts to the slowdown in development. Because it's not unusual for a developer to pick up the costs of infrastructure improvements or meet affordable housing obligations, the failure to invest in development has significant consequences for not only our clients, but also for local communities. Prop 13 has made local governments highly dependent on development dollars and city exactions to shore up local economies where they have essentially lost their tax base.
     
      TRUXAW: It's likely that developers are now going to say, "We can't afford that," or their customers are going to say, "We are not going to pay for it." In recent years, many public improvement costs have been passed down to homebuyers who have paid through Mello-Roos and other financing vehicles. That resource will likely be constrained in the next building cycle.
     
      ATKINSON: Some localities are now considering deferring payments of impact fees to help developers, and there is also legislation being considered in Sacramento. Under present rules, the fees are paid at the beginning of construction. Now, some local governments are considering deferring payment until certificate of occupancy.
     
      TOSTA: The economic downturn has produced another fundamental shift, which is that it's harder to be anti-development and anti-growth when your city services are not adequately funded. As a result, developers could be given more free rein in some product types such as hotels, big box retail, auto dealerships-things that throw off huge tax revenues.
     
      FRANKLIN: A big box retailer generates a lot of sales tax with 1 percent going back to the local community. But I haven't seen much increase in special treatment. Though the current economy may make retail use more attractive, local governments now need money to avoid financial problems or even bankruptcy, and they do not have funds to offer incentives to new businesses. Some localities are requiring new developments to front more than their fair share of infrastructure costs while other cities are deferring impact and other fees. The economic impact goes in opposite directions in different locations.
     
      TOSTA: And in some instances, to make these revenue generators possible, some governments are basically throwing out their general plan and zoning. What's fundamentally wrong is that cities don't have enough money for their infrastructure, or they don't have the funds to build things that would improve quality of life for its residents, such as parks. But they need to find a way to generate those funds independently of development. Otherwise, these communities will be designed by revenue, not by appropriate land use considerations.
     
      ATKINSON: And unfortunately, Prop 13 has taken away the ability of local governments to use some revenue sources. So local governments are stuck fiscalizing land use to attract retail, or they rely on development fees, which only works if you have the ability to develop.
     
      TRUXAW: Although none of these issues are necessarily new, the question before us now is: Will this massive change in the development economy bring about solutions? Could this slowdown of greenfield development actually promote urban infill? It's everybody's dream to do more urban infill, but it's been nearly impossible to accomplish.
     
      ATKINSON: That's right. People have recognized for a long time that urban infill avoids a lot of environmental problems. The problem is that the neighbor across the street might not like it, and statutes like CEQA [California Environmental Quality Act], for example, give NIMBYs tremendous power to stop or scale down any project.
     
      TOSTA: Perhaps the frightening prospect that global warming presents will induce smarter land use policy and legislation. Given the environmental concerns, it's likely that higher-level government impositions will be made on what will and what will not be allowable in terms of certain environmental consequences. It will also probably tend to move more transportation and water infrastructure decisions to another level of government, perhaps leading to the granting of greater authority to regional or state agencies. While not everyone necessarily wants more government involvement in the entitlement process, some environmental fundamentals do have to be addressed outside the provincial interests of local government.
     
      MODERATOR: What are your projections for future development, given these economic conditions, and in light of increased political and public interest in environmental protection?
     
      FRANKLIN: More retail developers are going green. Some seek LEED [Leadership in Energy and Environmental Design] certification, while others who are mindful of the high cost of certification implement aspects of the certification requirements that fit into their development budgets. Most retailers who develop their own locations are sensitive to the issue; a green image makes good business sense. The real key to building green, then, will be if the cost in the mid- to long-term is less than the cost of not building green. And I don't mean in regard to city fees or impositions; I mean in terms of spending more now for that high efficiency cooling system because it's going to save power and the resulting cost savings over the years will more than offset the extra cost.
     
      TOSTA: We saw the economic downturn coming. It will be very interesting to see how the current economic situation interacts with global warming concerns. We could potentially see a scenario where wonderful things can happen because some of those big issues can be put on the table. These down times are actually, in their own way, great opportunities for clearer thinking and formation of more intelligent policy. On the other hand, you could also see another scenario where economic conditions just cause a further breakdown of existing processes as cities go "dialing for dollars." This will lead to more ad hoc decision making for short-term gains. This could further exacerbate the existing system failure.
     
      ATKINSON: Study after study has said that the best thing that we can do for greenhouse gases and to reduce our energy consumption is to comprehensively develop and densify our cities in areas close to transportation and existing infrastructure, and yet there's no mechanism to ensure that happens. Everyone wants to talk about green technology, but that's really nibbling around the edges in terms of energy consumption. In addition, quality urban infill development can actually improve many communities in other ways. At the same time, it's not clear that most communities have the funds or the political will to do what makes the most sense in the long run.
     
      TRUXAW: This discussion again begs the question: Does the solution come from Sacramento or local governments? Ideally it would be a Sacramento solution if there were some leadership there to take up the issues, but with all due respect to the current Legislature, because of term limits, they never seem to be in office long enough.
     
      MODERATOR: What are some of the effects of the decision in Yamagiwa v. City of Half Moon Bay?
     
      TOSTA: From a land use standpoint, the challenge in Yamagiwa was that the City of Half Moon Bay had a significant turnover in city council members. It took actions that weren't fully informed or consistent. Secondly, there were different and conflicting environmental regulations governing this particular property. That is, the Army Corps of Engineers and the California Coastal Commission have differing definitions of what constitutes a wetland. And it's absurd to operate under multiple definitions, particularly when they have lost their grounding in science.
     
      TRUXAW: The case presents a larger question: Do you solve your environmental issues in an ad hoc fashion by, for example, taking marginal and isolated wetlands and allowing individual decisions regarding each one to control how coastal wetlands will be preserved? There are alternative approaches, such as the one that our client, in Riverside County, is supporting. The county has adopted a multi-species habitat conservation program in which it considers environmental issues comprehensively.
      Instead of looking at projects on an individual basis without any clear vision of environmental goals to be achieved, Riverside County first decided what its goals were, then it created a plan that will hopefully result in preserving many habitats and many species throughout the county. And by doing that, it also allows projects that have no detrimental impact on the plan to go forward without having to go through the process of individualized review. What we now know from the Half Moon Bay case is that the ad hoc approach can be extremely expensive and that it may not result in any positive change to the environment.
     
      TOSTA: In addition, city governments have historically had so much money that their approach to conflicts with private land owners was to see if they could outlast them in court. They are not in that position anymore. Right now, cities are going to have to make much more thoughtful decisions about whether or not they want to engage in litigation because they don't have the money to pay for it. Half Moon Bay, if nothing else, teaches us that cities ought to be more thoughtful in terms of the legal path it chooses to go down.
     
      ATKINSON: There is now an effort to resolve the Half Moon Bay case through a settlement, which would require a bill from the state legislature that would grant some exemptions from the wetland restrictions. In that scenario, the developer might get some development and the city could avoid all or much of its liability. It's tremendously controversial. And if it does work out, it's going to be a result that the parties probably could have negotiated five years ago at a substantial savings to the City of Half Moon Bay.
     
      TOSTA: The ultimate problem is that CEQA and the Endangered Species Act are dysfunctional, as we've come to better understand the environment. Some of the environmental legislation we are dealing with was poorly drafted, and the cure resides in a major overhaul of the legislative approach to the issues.
     
     
#261779

Alexandra Brown

Daily Journal Staff Writer

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