As we discuss and prepare for a sustained legal challenge of Mandatory Inclusionary Zoning (MIZ) or Mandatory Housing Affordability (MHA) as the City calls it’s program, I’ve been digging around for time I remember the City characterizing MHA. There are a fair number of what might be called “smoking guns” laying around in the public record. Here’s three examples that I have collected over the years. One is quite recent. In each instance, the City is attempting to explain what the MHA program is and how it works. And each time they expose a key weakness exposing the scheme to legal challenge. We’ll look at them one by one.

An Illegal Exaction 

In January of 2016 then Mayor Ed Murray held a meeting at City Hall at which, among other things, he tried to calm single-family neighbors worried about their neighborhoods being upzoned. This was something he clumsily suggested he was in support of then just as clumsily backed away from. The genie having been let out of the bottle, angry neighbors showed up in force to pounce on the Mayor to be sure his climb down from changing zoning in single-family zones stayed climbed down. In this effort to assuage the angry mob he said something very telling at minute 25:00 of this video (sorry I can’t get the code right to take you right there)

Here’s the text of what he said, and the emphasis is mine:

The heart of HALA is you don’t get to develop housing in this city, multifamily housing, unless you build affordable housing as part of it. That is the key piece to it. We have developed . . . Wait, wait, wait. . . We have grown as a city, but we have not grown affordably. What we are saying is, if you are going to build a multifamily unit in an urban village, you are going to build affordable housing, or you are going to pay penalties that will go into a fund for building affordable housing.

Now no legal challenge is going to be won with this video clip. However, it does help make the point that the guy at the top viewed the MHA program as a stick program: you do what we tell you to do or we’ll make you pay a fine. This is illegal under both Revised Code of Washington (RCW) 82.02.020 and 36.70A.540.

What RCW 82.02.020 allows is voluntary payments by developers but it specifically prohibits taxes and fess for the development of land or buildings. The notion of fining a property owner for not building housing priced at a certain level is certainly a form of rent control which is prohibited by state law (  ) But charging for development of land by the square foot for not building units at a certain price sure seems like a clear violation of RCW 82.02.020. In RCW 36.70A.540, the word “incentive” is clear before laying out the various conditions and rules for a program that could require performance (building price controlled housing) and charging a fee in lieu of that performance. But even more explicit is this in Section 1(c)

If a developer chooses not to participate in an optional affordable housing incentive program adopted and authorized under this section, a city, county, or town may not condition, deny, or delay the issuance of a permit or development approval that is consistent with zoning and development standards on the subject property absent incentive provisions of this program.

Even if you don’t think the word “mandatory” is antonymous of “incentive,” that section makes clear that a developer or builder is not required to “build affordable housing, or you are going to pay penalties that will go into a fund for building affordable housing.” The Mayor at a weak moment simply blurted out what he’d intended all along: punish builders with fines and pay off non-profits with the cash. That is illegal.

Inflationary: “A valid way to view the program.”

I feel sorry for Geoff Wendtland at the City. He’s a smart guy like most of the people who have been dragooned into the service of this boondoggle. What’s tough about smart people as opposed to politicians, is that they sometimes have a hard time spinning things. Smart people often just tell the truth. I was supposed to be on a panel with Wedtland and Faith Pettis, an attorney who makes profit from legal fees on non-profit housing and, in a blatant conflict of interest, served as chair of the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee. But she vetoed that. Her reason was that I might be involved in litigation with HALA. Well she is right about that.

So Pettis and Wendtland had their own panel, and when I prompted a builder in the audience to ask a pointed question about how and whether MHA would cause prices for housing to increase, here’s what Wendtland said:

How would [paying fees] not increase the rate of the, increase the price of the market rate units on that development? And that’s a great question. And it is, um, a trade off and I think part of the policy and it may be the case that the market rate units have to, to some extent subsidize the inclusion of the affordable units and that it is a valid way to view the program. But uh, the proposal and the fees that are being proposed and set are such that we feel pretty confident that development will still be feasible and we would work with the development community that we wouldn’t be over impacting feasibility (the full exchange is in this video starting at about 49:45)

So right there, in March of 2016, the City is making it clear that it plans on all housing prices going up to pay for inclusion and fees. While this admission itself doesn’t make the program illegal, it does point to a lack of nexus and proportionality. If making more housing causes an impact that requires more housing, how is boosting prices to pay for subsidized housing mitigating that impact? The notion that new housing itself raises prices of housing and thus requires City investment in subsidized housing is laughable, but it is especially so if the City is admitting it’s program actually raises prices.

Previous legal interpretations of programs like MHA have held that there must be some clear connection between the action, in this case building housing, and the requirement to offset that impact, in this case fees. If housing causes the need for more housing, how is more housing created under the MHA program going to offset the impact of housing, especially when the program will pay for all the fees and subsidies by boosting the cost of market rate housing.

“Developers are required to make a contribution for whatever they build.” 

Now there is a statement that would make even Don “An offer he can’t refuse” Corleone proud. A required contribution. This is also called “extortion.” But I’m getting ahead of myself. The quote is from somewhere in the City after I requested an account of all projects that have paid the MHA fees or that are subject to fees. I added that I wanted to know how much additional square footage or floor area ratio (FAR) the projects paying the fee were getting. Someone at either Seattle Department of Construction and Inspections (SDCI) or at the Office of Housing (OH) must have pushed back on the request when the person processing the disclosure request asked for it. Here’s what that person said:

The MHA program does not generate additional FAR for projects.  Developers are required to make a contribution for whatever they build; the contribution does not gain them extra floor area.  So we will not be able to provide that.

This struck me as yet another slip by a person working at the City. The City’s own “How MHA Works” document says this:

By enacting affordable housing requirements and increasing development capacity at the same time, MHA is consistent with a state-approved approach used in other Washington cities.

There’s a one sentence explanation or rationalization of why MHA is legal: it is an exchange of money for inclusion for additional “development capacity.” So why would the bureaucrat on the other side of the disclosure staff person say something in direct contradiction to state City policy?

My guess is that the way the City conceives of MHA is that zone X was upzoned to X+1 which is now Y zone. The Y zone has a performance requirement of 6% percent inclusion in their project of price controlled units. A developer doesn’t have to do that on site performance and can pay an in lieu fee instead. But to the bureaucrat, there is no way to do a before and after analysis because in zone Y there is no “extra floor area” granted.

This is subtle, but what it signals, I think, is the hazard of the City establishing the fee schedule separate and parallel to the zoning changes. That is, MHA is built with a fee schedule that links up to zones. But the fee schedule is not part of the land use changes, those are legislative upzones. The City is saying, “here is the fee schedule showing what we charge per square foot for the various new zones (the “Y zone”) we created. There is no additional development capacity granted. The fee, or “contribution,” is just part of a requirement of the zone.

If it is true that this is how the City views this, then it seems to make the violation of 82.02.020 and 36.70A.540 more obvious. The first lines of 36.70A.540 say:

Any city or county planning under RCW  36.70A.040 may enact or expand affordable housing incentive programs providing for the development of low-income housing units through development regulations or conditions on rezoning or permit decisions, or both, on one or more of the following types of development: Residential; commercial; industrial; or mixed-use.

But remember section I cited above, that the City “may not condition, deny, or delay the issuance of a permit or development approval that is consistent with zoning and development standards on the subject property absent incentive provisions of this program?”

Weirdly, whoever was reviewing my request is either sealed off from the bigger picture and is just looking at code compliance, or this is the City’s official position: these are just contributions to the cause of affordable housing, there is no exchange going on here. But that would mean it was a voluntary program. But it isn’t. In order to get a permit the city is conditioning that permit on making the “contribution.” Confused? So am I. I’ve asked for the identity of the person at the department responding and their full response. The point is, if there is no before and after picture of MHA then how does the City know what the “contribution” is worth? In other words, MHA is either a value exchange or it is a tax. If it is a tax with no incentive (more FAR) it is plainly illegal. If it is a value exchange, then the City seems obligated to know what the proportional value it is exchanging for the fee, er, um “contribution?