HomeMy WebLinkAbout03-21-2017 Item 01 - Development Agreements Meeting Date: 3/21/2017
FROM: Derek Johnson, Assistant City Manager
Michael Codron, Community Development Director
SUBJECT: DEVELOPMENT AGREEMENTS
RECOMMENDATION
Receive a staff report and presentation about Development Agreements.
REPORT IN BRIEF
The purpose of this report is to provide an overview and opportunity for City Council discussion
related to development agreements. This report includes an overview of State Law and locally
adopted ordinance requirements.
In general, the evolution of the Development Agreement as a land use tool is a consequence of a
larger tension between increasingly complicated land use regulations, high degree of public
engagement, and developers’ and a community’s desire for certainty.
The development process begins with the City’s General Plan. The General Plan outlines
policies that guide projects and the City’s Zoning Ordinance along with other municipal code
sections, which establish the development standards, which implement those policies. From
there, a developer comes up with a vision and secures capital from lending institutions, hires
architects and engineers to formulate plans, and employs consultants to conduct various surveys
regarding the characteristics of the land.
A developer incurs substantial debt, often spending millions of dollars on the early development
entitlement phase. These costs and activities occur prior to the developer receiving the City’s
approval to proceed with the project.
The developer then runs the risk that the municipality will enact a subsequent zoning ordinance
that renders the development infeasible. There are some statutory provisions within the
Subdivision Map Act and Planning and Zoning Law which hedge this risk but those provision
are not absolute or fully protect a development proposal from a major change in policy or zoning
code changes. A Development Agreement is a solution to the inherent uncertainty in the
development process and a means by which developers can protect their investment, a
municipality can provide certainty about public improvements and financing and address other
issues that are outside the regulatory authority of a City. Lastly, a Development Agreement is a
contract between a municipality and a property owner/developer, which provides the developer
with vested rights by freezing the existing zoning regulations and other issues applicable to a
property in exchange for public benefits. This report outlines both state and local requirements
for Development Agreements in the City of San Luis Obispo.
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DISCUSSION
The purpose of this study session is to provide an overview of Development Agreements in the
context of state law and Municipal Code findings required by the City of San Luis Obispo. This
study session is being held now as some of the larger residential housing projects have requested
a Development Agreement to memorialize the commitments of both the developer and the City.
A Development Agreement is a contract between a developer and a City (or County) in which
the city provides the developer with vested development rights for a defined period. In exchange
for these extra benefits, the developer is required to provide “extraordinary” public or
“community” benefits that exceed what the City could otherwise constitutionally require through
the normal process of exercising its land use regulation authority (these are “police powers”
delegated to local government by the state) in establishing conditions of approval for a project.
Development Agreements are a unique planning tool authorized by statute pursuant to
Government Code section 65864 – 65869.5. In some circumstances, Development Agreements
can provide both greater flexibility and greater certainty in the development of large or complex
projects, particularly those projects where development occurs in phases over many years.
However, it should be noted that Development Agreements are legislative acts and subject to
referendum, so the flexibility afforded by the tool is limited by community norms and values.
Required Terms
According with State law, a Development Agreement must include the following terms:
1. Duration of Agreement
Depending on the scope of the development, Development Agreements typically have a term
of 10-20 years. Nothing in the authorizing legislation prohibits a shorter or longer term. It
may also include a provision that will extend the term in the event of litigation that seeks to
challenge the approval of the Development Agreement for the period equal to the length of
the time from initiation of litigation until final and non-appealable resolution. The duration
clause can also include a “stale date”, or a timeframe for commencing the Project, which, if
exceeded, results in expiration of the Development Agreement.
Developers will often seek as long a term as possible while the City’s interest is o ften in
incentivizing construction of the project as soon as possible. While it is important to be
flexible, the duration of a Development Agreement should generally equal an adequate time
for remaining pre-development efforts (e.g. engineering, design, financing, etc.),
construction, and marketing.
Accordingly, a large project that involves multiple phases such as Avila Ranch and San Luis
Ranch will likely proceed under a multi-year period of construction should have a matching
extended duration (e.g. 15 to 20 years). Setting an appropriate duration matched to a realistic
forecast of project development prevents developers from obtaining vested entitlements
solely for enhancing property value. Provisions for subsequently amending (lengthening) the
term can be included in the event of unforeseen circumstances, such as an intermittent or
persistent real estate market downturn.
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2. Permitted Uses of the Property
Development Agreements are not “regulatory documents”, they simply provide the
Developer with a vested right for the term of the Agreement to use the property for the
permitted uses, pursuant to adopted land use regulations (i.e., General Plan and zoning
regulations) subject only to the procedures for review of individual projects. Development
Agreements can both shorten or lengthen the term associated with entitlements.
3. Density/Maximum Height and Size of Buildings
Development Agreements provide the Developer with a vested right for the term of the
agreement to build to the approved density, height and size of buildings; subject only to the
procedures for review of individual building projects (i.e. ARC and CHC reviews).
Commonly, an adopted Specific Plan1 or other regulatory documents are included in the
Development Agreement by reference, which is the case of the larger pending housing
projects for Avila and San Luis Ranches.
4. Provisions for Reservation or Dedication of Land for Public Purposes
Development Agreements set forth the developer’s obligations to dedicate and/or improve
property for open space and community facilities. They typically describe all of the proposed
public land dedications and level of improvements and obligate the developer to improve the
land and dedicate it to the local government in accordance with a phasing plan.
Optional Terms
In addition, to the mandatory terms required by state law set forth above, Development
Agreements typically include terms regarding the following matters:
1. Infrastructure Required
Development Agreements typically describe the developer’s obligations for construction of
infrastructure2, including but also beyond those required by the subdivision map(s) such as
improvements for streets and sidewalks, parks and recreation facilities, stormwater
management and wetlands, grading and floodplain management, storm drain, sanitary sewer,
domestic and recycled water infrastructure, electricity, gas and telecommunications
improvements, and transit. In the case of the two pending developments, it will be important
that the Development Agreement clearly link not only required mitigations and policies, but
also delineate improvements being funded that are beyond the fair share requirements of the
developer and articulate when, how and if the developer will be reimbursed for these
supernumerary improvements.
2. Affordable Housing
Development Agreements typically set forth the developer’s obligation to provide affordable
housing and other public benefits. The Development Agreement can specify the percentage
of affordable and market rate units, the level of affordability, and tenure mix (rental vs. for
sale). Moreover, the Development Agreement can require the delivery of units in terms of
phases. Since the Development Agreement is voluntary, this can include inclusionary
requirements on residential rental units.
1 Both Avila and San Luis Ranches are areas included in existing or new Specific Plan areas.
2 This includes infrastructure required by policy, development standards or through environmental mitigation.
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3. Fees and Exactions
Development Agreements typically specify the types and amounts of fees and exactions that
will apply to the project and the terms related to updating of any such fees, i.e., will the
project be subject to such future increases or be “grandfathered”.
4. Infrastructure Financing
Some portion of the public improvements may be financed through land secured public
financing, such as formation of a Community Facilities District (CFD), use of Tax Increment
Financing (TIF), such as an Enhanced Infrastructure Financing District (EIFD), or other
sources of public investment. The Development Agreement typically includes a financing
plan as an exhibit that specifies the form and mechanism of public financing to be used and
the obligations of the local government and the developer to implement and use the sources
of public financing. Such provisions typically obligate the local agency to create and
administer the financing mechanism(s) and provide other funding sources as may be
specified.
5. Responsibility for CEQA Mitigation and other Mitigation Measures
Development Agreements typically incorporate all applicable CEQA mitigation measures
adopted by the local government in conjunction with the project approvals. Other mitigation
requirements, for example any measures adopted to offset any negative fiscal effects of the
project can be included in a Development Agreement.
Terms Involving the Development Process
1. Phasing
Development Agreements typically require the developer construct certain improvements (in
addition to those “in-tract” improvements required pursuant to the subdivision map(s) and
they commonly include plans for phasing pursuant to which the developer agrees to provide
the identified infrastructure and community facilities concurrent with the discrete phases of
the project. The required phasing of private development and public improvements is
typically monitored and enforced through the subdivision map process, whereby tentative
map applications would have to be consistent with the approved phasing plan, infrastructure
plan and development standards and guidelines.
It is also the case that project phasing can be arranged such that aspects of the project desired
by the local government are “deferred” until a latter phase of the project, raising questions
about whether there will be the motivation to actually complete this later phase. Remedies
may need to be included to address a potential outcome that could limit desired public
benefits.
2. Subdivision Maps
Development Agreements may allow subdivision map approvals associated with the project
to extend through the full term of the Development Agreement, particularly if the developer
obtains a “master subdivision map” with subsequent phased tentative and final maps. Any
special terms related to such extensions can be included.
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3. Subsequent Approvals
Development Agreements typically set forth the approval process for individual projects.
For example, all individual projects could be required to submit a final package of materials,
including a site plan, building location, floor plans, exterior materials and colors, overall
vertical dimension, hardscape and landscape concepts, vertical dimensions and fenestration
for review pursuant to adopted design standards and guidelines.
Other Standard Terms and Conditions
Development Agreements typically include a common set of terms that are not expressly
required by the State law, these include:
1. Assignment and Transfers
The developer may transfer the property (or portions of the property) and the rights and
responsibilities of the Development Agreement will “run with the land”. However, at the
same time, the Development Agreement should require the original owner to remain fully
responsible for all developer obligations under the Development Agreement (e.g.,
construction of infrastructure and obligation for public benefits), unless the local government
is satisfied that the new owner(s) can meet these obligations. Typical assignment clauses give
local agencies the right to review and approve such assignments, based on its qualifications
and experience of the assignee.
2. Annual Review
By law, Development Agreements must require an annual review of the developer’s
compliance with its obligations under the Development Agreement, which may be at an
administrative level, or at a public hearing.
3. Indemnification
Development Agreements typically indemnify the local agency from any legal action taken
by a third party against the project at any time and for any reason, saving negligence by the
local agency.
4. Vested Rights
Development Agreements may provide that the local government will not enact any
ordinance, policy, rule, regulation, ballot initiative, or other measure applicable to the Project
which would adversely affects the rate, type, manner, timing or sequencing of the
development or construction of the Project or which would otherwise conflict with the scope
of the Project set forth in the Agreement. It may also provide that the local government’s
regulations governing the permitted uses, design, and construction standards and
specifications applicable to the development will be those in force as of the adoption date of
the Development Agreement. However, uniform building codes, typically resulting from
state law, will always be those in effect at the time of approval of the applicable building,
grading or other construction permits.
5. Investor and Mortgagee Protection
Development Agreements typically include terms for the benefit of any equity investors or
commercial lenders that may be involved in the project, such as the right to notice of defaults
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and an ability to cure defaults.
6. Public Benefits
The public benefits offered by the developer or sought by the City will ultimately bear some
relationship to the value of the project; the developer will need to rationalize the additional
cost of these public benefits into their overall project economics. However, as a general
measure, the public benefits offered should meet or exceed the estimated value of the vested
entitlement to the developer combined with the estimated City cost of any terms conferring
additional benefit to the developer (e.g. fee relief). Because of varying financial
circumstances including such factors as the developer’s basis in the land, current economic
conditions, and site assembly and preparation costs the financial feasibility will vary.
Stronger, more feasible projects will have greater capacity and willingness to fund public
benefits while less feasible projects, including those with considerable merit, will have a
lesser ability to fund extraordinary public benefits. Accordingly, there can be no precise
generalized metric regarding “ability to pay”. While the following factors can help frame the
matter and assure that the City’s request for public benefits are at least “in the ball park”, the
amount of public benefit will always result for analysis of the particular case and the related
negotiation with the developer.
a. Overall project value
The extraordinary public benefits required as a part of a development agreement will
ultimately be a project cost, in one fashion or another. As such, they will affect project
economics in the same way as development impact fees and other project mitigation costs
that may be imposed on the project. Generally, a “rule of thumb” or industry standard is
that aggregate infrastructure and off-site mitigation costs should not exceed 15 percent of
total project retail value.
Under certain circumstances, this percentage could be a bit higher, but there are also
circumstances where it may be too high. In order to do this calculation, it is necessary to
compute the total aggregate burden of impact fees, other infrastructure costs, and other
mitigation and compare the result with estimated project retail value. If there is some
remaining capacity, it can provide an indicator of what may be reasonable in terms of
negotiating public benefits. The City is currently evaluating these factors in the current
Development Agreement being negotiated for the San Luis Ranch and Avila Ranch
Projects.
7. Enforcement
Enforcement is a key element of a Development Agreement in the event of non-performance
by either the Developer or a City or County. Accountability and enforcement terms can
include bonding requirements, encumbrances of title, mechanisms in the event of default,
including reverter clauses, and other contractual cure provisions. Enforcement provisions are
a critical component of a Development Agreement and should be required if the project does
not proceed as planned and approved.
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Locally Adopted Requirements
The City adopted Municipal Code Chapter 17.94 in 1989 to establish procedures and
requirements for development agreements for the purposes of specifying 25 policy areas largely
related to application requirements, findings, public hearing requirements, administration, and
relationship to other approvals and entitlements. The primary purpose is to codify local
requirements related to Development Agreements to compliment the state framework that
established the statutory authority for Development Agreements.
The City has approved one Development Agreement that was overturned by referendum along
with other entitlements related to the San Luis Ranch Property. The City does not have any
current Development Agreements and the codified framework provides a useful foundation for
the local processing of any agreements.
The approval process for Development Agreements is established by the City’s Municipal Code.
The process requires the Planning Commission to make a recommendation to the City Council,
in consideration of the following findings:
A. The proposed development agreement is consistent with the general plan and any
applicable specific plan;
B. The proposed development agreement complies with zoning, subdivision and other
applicable ordinances and regulations;
C. The proposed development agreement promotes the general welfare, allows more
comprehensive land use planning, and provides substantial public benefits or
necessary public improvements, making it in the city’s interest to enter into the
development agreement with the applicant; and
D. The proposed project and development agreement:
1. Will not adversely affect the health, safety or welfare of persons living or working
in the surrounding area;
2. Will be appropriate at the proposed location and will be compatible with adjacent
land uses; or
3. Will not have a significant adverse impact on the environment.
(Ord. 1134 § 1 (part), 1989)
It should be noted that Draft Environmental Impact Reports are being circulated for both Avila
Ranch and San Luis Ranch for public review. Both reports conclude that there will be significant
adverse impacts on the environment even after all reasonable and feasible mitigation measures
are implemented. These two pending projects both propose to use Development Agreement in
order to coordinate the extensive financing, phasing, and environmental mitigations associated
with these projects. The inability to use a Development Agreement would be a significant
drawback for the City in terms of addressing the complicated planning and financing issues that
are associated with these projects.
The City’s municipal code requirements that projects not have a significant adverse impact is
significantly more constraining than required under state law and will otherwise limit a very
useful planning tool to coordinate the extensive planning, infrastructure and financing issues that
are generally within the scope and purpose of a Development Agreement. To that extent, Staff
is requesting direction if the City should pursue ordinance changes to require any project
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associated with a Development Agreement to mitigate impacts to the maximum extent feasible
as required under CEQA.
Questions for City Council direction
Does the City Council support the use of Development Agreements?
1. Does the City Council conceptually support the use of Development
Agreements as outlined in this report?
2. What specific concerns or issues does the City Council have with
Development Agreements?
3. What are examples of public benefits that the Council believes are
generally required to support the use of a Development Agreement?
4. Are there any other details related to Development Agreements that the
City Council wants Staff to consider when negotiating?
Municipal Code requirements
1. Does the City Council want staff to return with any recommended changes
to the City’s Municipal Code to facilitate the use of Development
Agreements for complex housing projects that may have remaining
adverse impacts; even after all reasonable and feasible mitigation
measures have been imposed?
2. Are there any other changes to the City’s Municipal Code that the Council
wants to make in order to address any concerns?
CONCURRENCES
The Public Works and Utilities Departments support the use of Development Agreements to
specify fair share responsibilities and to ensure that infrastructure phasing occurs in conjunction
with planned development.
ENVIRONMENTAL REVIEW
No action is being requested and Development Agreements for individual projects are subject to
environmental review under the California Environmental Quality Act.
FISCAL IMPACT
There is a variety of financial objectives related to including a Development Agreement as part
of the entitlement package for any project. A primary purpose is to clearly articulate both the
City and developer’s financial responsibilities and because a Development Agreement is
voluntary in nature, it provides a mechanism for the City to require improvements or other
remuneration that is not otherwise required by policy, development standard or any required
mitigations.
Development Agreements should be evaluated within the City’s financial policies and
appreciation for comprehensive fiscal impacts. If infrastructure financing is sought as part of a
Development Agreement, comprehensive debt capacity should be viewed as shared resource by
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all of the local governments serving the development area.
ALTERNATIVES
The City Council could decide not to use Development Agreements as a planning tool. This is
not recommended since there are currently two projects moving forward: Avila Ranch and San
Luis Ranch. The projects should be evaluated based on the General Plan and public
infrastructure financed through the City’s fiscal policies, which include land based financing.
The City Council also adopted a Major City Goal to continue to implement the City’s Fiscal
Responsibility Philosophy with a focus on economic development and responsiveness,
structurally balanced fiscal outlook, unfunded liabilities, and infrastructure financing. Through a
Development Agreement, land based financing will be evaluated in accordance with the City’s
financial policies.
Attachments:
a - Council Reading File - Development Agreement
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Outline
Development Agreements
Derek Johnson, Assistant City Manager
Michael Codron, Community Development Director
City Council Meeting
March 21. 2017
1. Recommendation
2. Discussion
3. Background
1. Required Terms
2. Optional Terms
3. Terms Involving the Development Process
4. Other Standard Terms and Conditions
4. When is a Land Development Agreement a Good
Idea?
5. Local Considerations
6. Questions for City Council Direction
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Recommendation
Receive a staff report and presentation about
Development Agreements
Discussion
A Development Agreement is a contract between a
city or county and developer with the intent to provide
security for both sides
Development Agreements area unique planning tool
authorized by statute pursuant to Government Code
section 65864 — 65869.5
s Development Agreement must be approved via City
Ordinance, and therefore are subject to the
referendum process
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Background
Required Terms
■ According with State law, a Development
Agreement must include the following terms:
1. Duration of Agreement
2. Permitted Uses of the Property
3. Density, Maximum Height and Size of Buildings
4. Provisions for Reservation or Dedication of Land
for Public Purposes
Background
Optional Terms
■ In additional to the mandatory terms required by
State law set forth previously, Development
Agreements typically include terms regarding the
following matters:
1. Infrastructure Required
2. Affordable Housing
3. Fee and Exactions
4. Infrastructure Financing
5. Responsibility for CEQA Mitigation and other
Mitigation Measures
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Background
Terms Involving the Development Process
Phasing
Subdivision Maps
3. Subsequent Approvals
4. Reimbursement for
infrastructure costs
Background
Other Standard Terms and Conditions
Development Agreements typically include a
common set of terms that are not expressly
required by the State law, these include:
1. Assignments and Transfers 4k
2. Annual Review O is �r
3. Indemnification 5
4. Vested Rights y
5 Investor and Mortgagee Protection
6 Public Benefits — e.g. Overall Project Value
7 Enforcement
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MF
en is a, Land
Development
Agreement a
Good Idea?
* Large complex projects that require significant public
and private investment.
* If developers are expected to make large front-end
investments in infrastructure.
To deal with tricky problems involved with timing and
sequencing to lock in assurance that a particular mix
will occur.
■ To bring together small developers to fund large public
improvements.
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Local Considerations
■ The City adopted Municipal Code Chapter 17.94 in
1989 to establish procedures and requirements for
Development Agreements.
a The primary purpose is to codify local requirements
related to Development Agreements to compliment
the state framework that established the statutory
authority for Development Agreements.
■ Staff roles
■ Assistant City Manager — Business considerations
■ Community Development Director — Regulatory oversight
Development Agreements in SLO
■ City Ordinance Requires:
M Pre -Application review requirement (e.g. Council
authorization to proceed)
E Planning Commission hearing and recommendation
* Required Findings
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Required Findings
■ 17.94.100 D:
D. The proposed project and development
agreement:
Will not adversely affect the health, safety or welfare of
persons living or working in the surrounding area;
Will be appropriate at the proposed location and will be
compatible with adjacent land uses; or
Will not have a significant adverse impact on the
environment. (Ord. 1134, 1989)
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'Tevious ExperienceSIS
■ Dalidio Marketplace Project
City Council Ordinance #1452 (2004) approved a
development agreement for the project
N General benefits received by the City
Implementation of General Plan goals
Acceleration of infrastructure deliveryinkcounciL
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54.7 acre conservation easement for ag
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Sales Tax and TOT
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Open space funding
Sl f: REFP.RPN PEOOONS REGARDING DAI IO -SAN LUIS ORISPO
Affordable housing
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CAO RECOMENDAnON
Historic preservation
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Previous Experience
■ Chevron Development Agreement
Authorization
■ On September 20, 2011, Council directed staff to pursue
agreement to facilitate early installation of infrastructure
■ Negotiations unsuccessful because of Chevron
requirements for reimbursement guarantee, which would
have put the General Fund at risk and did not meet public
benefit requirement
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San Luis Ranch
■ April 1, 2014
■ City Council authorized staff to initiate
discussions with applicant for a
Development Agreement
■ Development of a "term sheet" to be
presented to the City Council for
ell.
consideration is under negotiation'
■ "Term sheet" will be considered along with
project entitlements
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Questions for C'i ly Council direction
Dom the City Council support the use of Development Agreements?
1- Does the City Council conceptually support the use of Development
AWee menls as uuthntxl m this report?
2. What specific concerns or issues does the City Council have with
�
Develupment Agtecments?
3. Whitt are examples of public benufm that the Council believes are
generally required to support the use of Development AgmemenVI
4. Are there any other details relawd to Dcvctopmcnl Agnacmenta that the
C OX Council wants 5taftto consider when ne otwlin 7
Municipal Cotte requirements
I. Does the City Council ►+ram statl'to return with any recommended vIianlcs
to the City's Municipal Code to titcifitale the use of Development
Agreements for complex housing proheets that may have retraining
adverse imp:at.Ks. even after all reasonable and fbasible mitigation
measures have been imposed?
2. Are there any either changes to die City's Municipal Cafe that the Council
►canis to make in order to address any concerns?
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