Ethan Blevins of the Pacific Legal Foundation (the Foundation) will join us this Thursday at the regular breakfast meeting of the Seattle Builders Council (7:30AM at the Blue Star Cafe in Wallingford). Blevins will talk about the Foundation’s work in land use and housing and talk about his thoughts on legal issues related to the so called, “Grand Bargain,” a scheme that would mandate the building of rent restricted units in exchange for small upzones in neighborhoods outside Downtown and South Lake Union. In those neighborhoods, developers will pay an old and lower incentive fee in lieu of building rent restricted housing. The Foundation has challenged a similar scheme in San Jose, California, arguing that it is unconstitutional.

The legal principles behind the City of Seattle’s efforts to extract money from new housing development are largely based on legal cases from California that have been litigated over the last decade. I pointed out a helpful document from Andrew L. Faber of Berliner Cohen that outlines why the City thinks it has a legally defensible position if challenged in the courts. Requiring “performance,” (i.e. building rent restricted units within City regulated, market rate housing) must,

1. Justify inclusion under the police power
2. Have a nexus study justifying inclusion under the San Remo standard or California’s Mitigation Fee Act(MFA)
3. Convert the inclusionary requirement to a fee and justify it under the MFA
4. Do a nexus study and adopt a commercial linkage fee

(paraphrased from Faber)

Number 1 is easy and courts historically have stayed out of land use disputes unless they have serious constitutional implications. In an old blog post based on an even older paper, we laid out why and how courts tend to defer to local government (the citations are all in the footnotes of the post).

Zoning ordinances have been challenged constitutionally on First Amendment and Fourteenth Amendment violations. Depending on the constitutional protection in question, ordinances have been upheld if they meet one of the following tests: strict scrutiny (narrowly tailored to meet a compelling government interest), intermediate scrutiny (narrowly tailored to meet a substantial government interest) or rational basis (rationally related to a legitimate government interest). In some cases, only the parts of an ordinance that violate a constitutional right are struck down, while the rest of the ordinance is upheld.

However,

Zoning ordinances regarding economic and social restrictions that do not involve fundamental rights have been held to be constitutional if they bear a “rational relationship to permissible state objectives,” but have been held to be unconstitutional if they violate constitutional protections, are “arbitrary and unreasonable.”

Hence, the nexus study commissioned by Councilmember O’Brien and completed by the music men of linkage taxes, David Rosen and Associates from, you guessed it, California. Consultants from California have fanned out across the nation to “help” local governments establish the nexus part of the California precedents, so that they can demonstrate when facing legal challenges that there is a “rational relationship to permissible state objectives.”

Check.

But what about number 3? Well the staff at the office housing have their green eye shades on and are building up the strength in their right arm calculating what builders would have to pay in terms of an in lieu fee, and escape from having to build the rent restricted units. The problem is that they have refused to tell us what those numbers look like.

Since the dial to “incentivize” building units is a super high fee (when given the choice between an infeasible fee and somewhat feasible inclusion, a builder will “perform” and build the rent restricted units), the battle lines on a fee will shape a significant part of the legal debate about whether the Grand Bargain scheme is an exaction, or a taking, illegal under our state law and under most interpretations of the both the state and federal constitutions.

The City will offer an in lieu option to builders all over the city, but (surprise) the signers of the Bargain (e.g. Vulcan Real Estate) not only have their rezones going through first, in 2016, but they also get a fee that is low enough to rationalize paying it rather than building inclusionary units. Everywhere else, it would appear that the fee to not build the housing will be set high enough to force builders to build rather than pay. Will that withstand legal challenge? Will the inclusion and fee both be infeasible enough to count as an exaction under state law and existing legal precedent? We’re asking lawyers that question and we’ll ask Blevins to talk about it.

So, on number 3, check. Sort of.

And the City has hustled through a commercial fee with a nexus already. But we found the math to be troubling there as well. Big downtown and South Lake Union developers would appear to be ready with their check books to pay and go. But what about everywhere else?

Smaller buildings pay less for the additional square footage. In zones with less capacity, the additional square footage costs less per square foot using these assumptions. Why? Is this intentional? In areas where incrementally there is more dense office and commercial space do we want a greater penalty for the construction and less elsewhere? Why?

Number 4, check. Again, sort of. It still remains to be seen how the commercial fee will be implemented. For example, what happens in mixed use buildings subject to the commercial in lieu fee and the Grand Bargain inclusion requirements? What kind of monster will emerge from that stitching together of new regulation and fees? Again, the City has it’s lips zipped. We just don’t have enough information either because they simply don’t know or they’re hoping their proposal will just roll through the process on sheer momentum.

The good news is that thanks to our ancient constitution (no, not that one) we have legal options. When the legislative process gets completely poisoned by hand waving staff carrying out the regulatory overreach of elected officials wishing to give every constituency a pony–or in this case a unicorn–we can appeal to the courts to address that overreach. It would be better if the City would just answer our questions.