Yesterday, I posted the text of a letter signed by a group of respected land use lawyers concerning linkage taxes. They thought linkage was illegal and said so in a very bold statement. But how do their comments apply to the Mandatory Inclusion Zoning (MIZ) element in the Grand Bargain. I’ve gone through the letter to see if there might be some connections worth drawing. Maybe, by extension, the same legal views expressed by the lawyers about linkage also apply to the MIZ element of the Grand Bargain. I am not a lawyer. I’m just going through this using logic and what’s rubbed off on me over the years about land use law. Hardly worth very much. These questions will get answered one way or another either through the legislative process or eventually, when MIZ gets challenged in court, by judges. My comments are all inset and in italics. 

October 10, 2014

Via Email

Councilmember Mike O’Brien
Chair, PLUS Committee
Seattle City Council

Re: Legality of Proposed Development Tax in “Linkage Fee” Resolution

Dear Councilmember O’Brien:

As members of Seattle’s land use legal community, we have serious concerns about the Council’s rush to adopt the resolution without significant public discourse regarding the legality of a new tax on development–one which has never before been utilized in Washington State.

Sounds a lot like what’s happening with the Grand Bargain. While the Mayor says the adoption of HALA recommendations will take years, there seems to be a great deal of urgency coming from non-profit housing developers, “urbanists,” and Vulcan to rally lots of support for HALA. There is an effort to characterize any skepticism of the Grand Bargain, just one of 65 HALA recommendations as rejection of HALA. It isn’t. It’s healthy skepticism by people who will have to build thousands of units using a still undefined and vague mandate. There certainly feels like there is a “rush to adopt” without “significant public disourse.”

It is likely that this tax, as the centerpiece of the City of Seattle’s “affordable housing strategy,” will actually increase the cost of housing.

We’ve said this about Mandatory Inclusionary Zoning (MIZ) consistently throughout the whole discussion of how to address the “crisis” in housing. We’ve pointed out again and again that efforts to force rent restricted units as part of new housing will either make those projects infeasible, meaning they don’t get built and thus lower supply which adds to price pressures or to be feasible, projects will have to raise rents in other units. In any case, none of this has a salutary effect on price. On the contrary, as these attorneys point out, it will “actually increase the cost of housing.”

Seattle should not be so motivated to follow San Francisco’s lead, where housing prices continue to skyrocket either in spite of, or because of, similar square footage taxes.

Again, something we’ve pointed out and called the San Francisco Death Spiral when local governments impose inflationary interventions in the name of lowering prices, and when prices don’t go down but predictably go up, the redouble their efforts with more inflationary measures blaming developers for being “greedy” and workers for having too much money to spend on housing. Seattle is careening headlong in this direction, all the while singing campfire songs about supporting HALA. However, the reality is nobody is answering the question about the impact on overall housing prices of the Grand Bargain.

In our collective experience practicing land use law in Washington, we fail to find any legal authority for this tax on development. We urge the Council to slow down, fully consider this significant policy shift and its implications, and ultimately choose a course that complies with the law. This letter provides a brief overview of some of our legal concerns.

Ummm. Yeah. We urge everyone slow down too, recognize the difference between HALA recommendations and the Grand Bargain and answer the many questions that remain about how the Bargain will work. Even the Mayor seems poorly briefed on his own proposals saying at one point in a public meeting that developers would pay “penalties” if they didn’t build affordable housing. That’s very close to pushing for an exaction, something that is illegal based on State law. Those comments would be helpful in a future lawsuit to establish that what City policy really intended to do was tax new development. He needs better briefing from his staff.

The consultants advocating for the development tax have relied heavily on their California experience, but have failed to note the key difference between the states. California has a state law that allows this type of tax. Washington does not. In fact, Washington explicitly prohibits cities from imposing taxes, fees, or charges, either direct or indirect, on development: RCW 82.02.020.

In my last post, I pointed out the outlines of how California has informed the City’s efforts to squeeze money and value out of new development without triggering due process challenges or running into problems with Washington State law. The lawyers set out to describe the issues in Washington law that makes linkage problematic. Do these issues apply to MIZ in the Grand Bargain?

None of the few exceptions to the prohibition, discussed below, applies to the proposed development tax.

• Growth Management Act (“GMA”) Impact Fees: The exception for GMA impact fees only applies to the statute’s list of “public facilities,” which does not include affordable housing. Therefore, the GMA impact fee exception does not apply.

This is something of an apples and oranges comparison since making developers build housing isn’t exactly an impact fee. Fees aren’t allowed except where they pay a pro rata share of public infrastructure needs created by and benefiting new development. As I have pointed out before, impact fees aren’t a freewheeling penalty for building new housing that can be transferred to the general fund.

But would imposing a housing requirement with a fee be a violation of this exemption? Maybe. There is no provision for fees that cover housing, even with the absurd claim that building new housing creates the need for subsidized housing. So if a builder doesn’t want to build then she can pay the fee, but maybe she could challenge the fee itself on GMA grounds offered here.

• Voluntary Agreement: Developers may make voluntary payments in lieu of a dedication of land or to mitigate direct impacts. However, the proposed tax is not voluntary, there is no dedication of land, and the nexus study establishes only indirect impacts (and no project-specific impacts). The tax is not a voluntary agreement.

Fees, however, can be charged if part of a voluntary program. The idea is that there is some exchange of value. A developer works with the City to offset impacts by giving something voluntarily to the public in exchange for increased zoning, for example. But it’s difficult to understand what part of “Mandatory” inclusion of rent restricted housing units is voluntary. Maybe I’m missing something, but I don’t think applying for a building permit can be construed as volunteering to pay a fee or build housing. This seems like a big weakness in the Bargain.

• Incentive Zoning Provisions: The City’s existing incentive zoning program is based on RCW 36.70A.540, which allows cities to incentivize private development of affordable housing. As the Council’s public documents repeatedly note, however, there is no incentive component to the proposed development tax. It simply adds a cost to development while providing nothing in return. Thus, the tax is not incentive zoning.

Again, a bit of apples and oranges. This bullet is addressing a straight up, per square foot tax or fee on everything built with no exchange of value whatsoever. City lawyers (and lawyers for the companies that signed the Bargain) might argue that the additional zoning is the incentive. But is it if it makes a project infeasible or the in lieu fees make it infeasible? Doesn’t it become and exaction under state law making it illegal? I don’t know, I’m not a lawyer and certainly not a judge. But it’s hard to see how the MIZ scheme in the Bargain is either voluntary in the common sense of that word or an incentive in the common sense of that word. In fact, from our perspective, the Grand Bargain is both mandatory and a disincentive to build; that’s bad housing policy and probably illegal too.

The City of Seattle’s general zoning authority cannot override the state’s prohibition of taxes, fees, or charges on development. Washington courts have read RCW 82.02.020 broadly and we believe will not hesitate to strike down the new tax, if adopted. If the City believes an exception to that prohibition does apply, then that needs to be explained in public, with a meaningful opportunity for comment.

So this was, at the time, a very sure and certain statement from lawyers who usually always, as they should, hedge. “We believe will not hesitate to strike down” sounds like something they were willing to take to the bank, so to speak. Where are the legal pronouncements on the Grand Bargain? We haven’t seen any other than the Mayor implying the other day in a phone town hall that lawsuits wouldn’t happen here as they have in California because developers agreed not to sue.

But, officially there isn’t a single for profit developer signature on the Grand Bargain document. Not one. There is one representative of Vulcan, one developer, but that’s it. How that represents a Grand Bargain with the development community is beyond me.

Even if the City could establish that the tax is allowed under RCW 82.02.020, however, the development tax raises serious constitutional concerns. And, to be clear, according to the rules set forth in Washington cases, this is a “tax,” not a “fee,” because its primary purpose is not to regulate development, but to raise funds to accomplish a desired public benefit. The Washington State Constitution prohibits cities from adopting taxes without express legislative authority, and the legislature has not authorized this tax. This tax also raises Federal Constitutional concerns under the United States Supreme Court’s recent decision in Koontz v. St. John’s River Water Management District.

Using simple logic, not legal logic, it would appear this is also an exposure for the MIZ scheme. What is the in lieu fee for? Arguably, the scheme is supposed to regulate development. But the harder the City argues makes that argument it pushes the more toward something more like an impact fee, not a method of generating housing units. The scheme would have legislative authority, so maybe that would solve this issue. But still, it’s puzzling how MIZ regulates development without including a penalty (like there would be for failing to meet inspection, for example); but what rule has the developer broken by opting out of the requirement to build? I won’t go much further, but it’s odd.

Our state courts have a history of protecting constitutional rights, and have invalidated City ordinances on constitutional grounds. The legal foundation of this development tax is at least as flawed as that supporting the City’s 1980’s-era housing preservation ordinances the Washington Supreme Court struck down in multiple decisions, and we fear the Council is rushing to adopt California policy that will fare just as poorly in Washington courts.

The affordable housing shortage presents a major challenge for the City, and we look forward to working with the Council to find creative, lawful solutions that actually deliver more housing to the hardworking women and men who make our City function. However, as the Washington Supreme Court has written, the shortage of affordable housing is a societal burden to be borne by society at large. There is no legally supportable justification for imposing this tax on those who seek to develop the housing, office, and commercial space necessary for our City to grow and thrive. We strongly urge the Council not to adopt the proposed development tax resolution as its significant policy shift deserves a much closer and more deliberative review.

I can’t find anything to disagree with in the last two paragraphs, and they perfectly describe my views about the Grand Bargain. I wonder why the attorneys that signed this letter about the linkage tax have gotten so quiet about similar concerns with the Grand Bargain. Who knows. I guess time will tell.

Sincerely,

 

 

 

 

 

 

 

 

 

 

 

 

 

cc:        Councilmember Sally Bagshaw (sally.bagshaw@seattle.gov)

Councilmember Tim Burgess (tim.burgess@seattle.gov)

Councilmember Sally Clark (sally.clark@seattle.gov)

Councilmember Jean Godden (jean.godden@seattle.gov)

Councilmember Bruce Harrell (bruce.harrell@seattle.gov)

Councilmember Nick Licata (nick.licata@seattle.gov)

Councilmember Tom Rasmussen (tom.rasmussen@seattle.gov)

Councilmember Kshama Sawant (kshama.sawant@seattle.gov)
Ketil Freeman (ketil.freeman@seattle.gov)

City Attorney Peter Holmes (peter.holmes@seattle.gov)