TO: ADAM PIRRIE, CITY MANAGER
FROM: ALISHA PATTERSON, CITY ATTORNEY
DATE: MAY 14, 2024
Reviewed by:
City Manager: AP
SUBJECT:
Title
CONSIDERATION OF TENANT PREFERENCE POLICY FOR AFFORDABLE HOUSING UNITS PURSUANT TO GOVERNMENT CODE SECTION 7061 (FUNDING SOURCE: GENERAL FUND)
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SUMMARY
To prevent the displacement of existing members of the community, the City of Claremont and many other cities have expressed interest in adopting tenant preference policies that give applicants with ties to the City of Claremont priority over other applicants for affordable rental housing. Effective January 1, 2023, Senate Bill 649 (2021-2022 Regular Session - Cortese) (“SB 649”) created a state policy that supports local tenant preferences for lower income households that are subject to displacement risk. At least six other California cities have adopted such policies - San Francisco, Santa Monica, Oakland, Berkeley, Santa Cruz, and San Joseì. Of those cities, Berkeley and San Joseì are the only ones that adopted their tenant preference policies after the passage of SB 649.
At its April 9, 2024 meeting, the City Council requested staff place this item on an agenda for an upcoming meeting and return with more information about potential tenant preference policies for the City Council’s consideration.
RECOMMENDATION
Recommended Action
Staff recommends the City Council provide direction to staff and the City Attorney on whether to draft an ordinance creating a local tenant preference policy pursuant to Government Code Section 7061 for consideration at a future City Council meeting and, if direction is to proceed, provide further direction on the “key decisions” outlined in this report.
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ALTERNATIVES TO RECOMMENDATION
In addition to the recommendation, there are the following alternatives:
A. Request more information from staff and/or the City Attorney.
B. Direct staff to “wait and see” how newly-adopted tenant preference policies in other cities are working and return to the City Council within a designated period of time (e.g., six months or one year) with a report on “lessons learned” and “best practices.”
C. Direct staff that the City Council does not wish to explore a tenant preference policy at this time.
D. Take no action.
FINANCIAL REVIEW
The City Attorney’s costs to research and prepare this report are estimated to be $5,000. The staff cost to prepare this report is estimated at $600 and is included in the operating budget of the Administrative Services Department.
If the City Council directs the City Attorney and staff to prepare a draft ordinance for the City Council’s consideration and/or conduct additional research and outreach, the anticipated costs of this additional work are $65,000 in staff costs, the costs to retain an expert consultant to prepare a disparate impact analysis (estimated $30,000-$50,000), and legal fees (estimated $30,000-$50,000).
If the City Council adopts a tenant preference policy, there will be ongoing operational costs that will depend on the amount of City oversight the policy requires and the amount of data collection and statistical analysis the City chooses to perform to monitor the effects of the policy. Staff anticipates the City would need to add at least one fulltime staff position to develop, implement, administer, and enforce the policy and an outside consultant to manage data collection and statistical analysis. The estimated cost of adding a new position is $123,390 per year (which includes salary and benefits).
ANALYSIS
Senate Bill 649 (2021-2022 Regular Session - Cortese)
To prevent the displacement of existing members of the community, the City of Claremont and many other cities have expressed interest in adopting tenant preference policies that give applicants who live and/or work in the City priority over other applicants for affordable rental housing. Historically, cities and housing providers have been hesitant to adopt these policies because they are vulnerable to legal challenges under state and federal fair housing laws. These fair housing laws generally require cities to affirmatively further fair housing, avoid discrimination based on an individual’s membership in a protected class (e.g., their race, religion, national origin, sex, gender, familial status, etc.), and provide equal protection to individuals.
Effective January 1, 2023, Senate Bill 649 (2021-2022 Regular Session - Cortese) (“SB 649”) created a state policy that supports local tenant preferences for lower income households that are subject to displacement risk (See Attachment A). SB 649 only applies when the local government and/or housing providers are using two specific kinds of affordable housing funds for rental housing: (1) low-income housing tax credits (LIHTC) administered by the United States Department of Housing and Urban Development (HUD); and (2) certain kinds of tax-exempt bonds (under subsection (d) of Section 142 of the Internal Revenue Code).
In Claremont, the following existing (i.e., already built; already occupied), entitled (i.e., approved, but not yet built), and pipeline (i.e., application submitted, but not yet approved) rental housing developments likely meet SB 649’s criteria:
|
Existing (built & occupied) |
Location |
# of Units |
|
The Villas |
690 W. San Jose Ave. |
154 units |
|
Claremont Village Commons |
957 W. Arrow Highway |
150 units |
|
Courier Place |
111 S. College Ave. |
74 units |
|
Total Existing |
378 units |
|
Entitled (approved, but not built) |
Location |
# of Units |
|
Larkin Place |
731 Harrison Ave. |
32 units |
|
Tri-City Mental Health & RNLA |
956 W. Base Line Rd. |
15 units |
|
Total Entitled: |
47 units |
|
Pipeline (application pending) |
Location |
# of Units |
|
Solid Rock Church & Mercy Housing |
1364 N. Towne Ave. |
74 units |
|
St. Ambrose Church/National CORE |
830 W. Bonita Ave. |
58 units |
|
Total Pipeline: |
132 units |
SB 649 does not apply to any for-sale housing nor other kinds of affordable rental housing, such as affordable units required by the City’s Inclusionary Housing Ordinance (CMC Ch. 16.036) and affordable units that are provided so that a housing provider can avail itself of the density bonuses, incentives, concessions, and waivers in the State’s Density Bonus Law (Gov. Code § 65915).
SB 649 did not amend any state or federal fair housing laws. Rather, SB 649 specifies that local tenant preference policies must be “consistent with other state and federal laws” and must “affirmatively further fair housing pursuant to Chapter 15 (commencing with Section 8899.50) of Division 1 of Title 2 [of the California Government Code], the California Fair Employment and Housing Act (Part 2.8 (commencing with Section 12900) of Division 3 of Title 2 [of the California Government Code]), the Unruh Civil Rights Act (Section 51 of the Civil Code), the federal Fair Housing Act (42 U.S.C. Sec. 3601 et seq.), and any implementing regulations thereunder.” (Gov. Code § 7061.)
Local tenant preference policies must be adopted by ordinance (as opposed to a resolution or administrative policy) (Gov. Code § 7061.1(a)(1)). Cities that adopt local tenant preference policies for affordable rental housing must post the policy on their websites and provide a copy of the policy to the California Department of Housing and Community Development (HCD) as part of their annual progress reports required by State Housing Element Law (Gov. Code § 7061.1(a)). HCD will use the annual progress reports to compile a list of jurisdictions with tenant preference policies that will be posted on HCD’s website (Gov. Code § 7061.1(b)). HCD’s website contains information about SB 649 (see https://www.hcd.ca.gov/planning-and-community-development/affirmatively-furthering-fair-housing/tenant-preference-policies), but it does not yet have a list of jurisdictions that have adopted tenant preference policies.
Unless extended or repealed, SB 649 will sunset January 1, 2033 (Gov. Code § 7061.2).
Disparate Impact Analysis
State and federal fair housing laws require cities to avoid discrimination that is both intentional and unintentional. Facially-neutral policies can sometimes result in unintentional discriminatory effects as a result of “benign neglect” or thoughtlessness. For this reason, cities must carefully assess both the intended and unintended consequences of their regulations and policies.
For example, New York’s “neighborhood preference” tenant preference policy resulted in a legal challenge alleging that that the policy perpetuates patterns of segregation (Noel v. City of New York, United States District Court for the Southern District of New York, Case No. 1:2015cv05236). To combat gentrification and reduce displacement of current residents, New York’s “neighborhood preference” policy required 50 percent of units in new affordable housing developments be set aside for residents of the neighborhood in which the units were developed. The plaintiffs alleged that this policy made it more difficult for people of color and other individuals in protected classes for move from segregated neighborhoods to more diverse parts of the City. After nearly ten years of litigation, the parties settled the lawsuit this past January.
Analyzing the potential discriminatory effects of a tenant preference policy typically requires specialized expertise that, based on current staffing, will require the City to retain an expert consultant. An example of a brief summary of the disparate impact analysis that the City of San Joseì recently performed is included as Attachment C.
Other Cities’ Tenant Preference Policies
Prior to the enactment of SB 649, at least four cities had tenant preference policies - San Francisco, Santa Monica, Oakland, and Santa Cruz. These cities first adopted these policies in 1998 (Santa Monica), 2008 (San Francisco), 2016 (Oakland), and 2018 (Santa Cruz). The City of Berkeley adopted a tenant preference policy on July 11, 2023, and the City of San Joseì (which was a sponsor of SB 649) adopted a tenant preference policy on March 26, 2024.
There is no record of any of these policies being challenged through litigation. In 2016, the United States Department of Housing and Urban Development (HUD) rejected San Francisco’s “neighborhood preference” policy, which sets aside 40 percent of new affordable units for qualified residents living within a half mile of the project. Information regarding these cities’ tenant preference policies is summarized in Attachment B and source documents are included with this report as Attachments D through K.
Phasing-In Existing and Pipeline Housing Projects
If the City Council ultimately adopts a tenant preference policy, it would need to make the policy decision of how to phase it in. Specifically, the City Council will need to determine which of the following types of affordable rental projects the policy applies to: (1) future projects that have not yet submitted applications for entitlements; (2) pipeline projects that have submitted applications for entitlements that are currently pending (e.g., Mercy Housing and National CORE); (3) entitled projects that have their approvals in place but have not yet been built (e.g., Larkin Place and Tri-City Mental Health & RNLA); and (4) existing projects as their affordable units turn over (e.g., the Villas, the Claremont Village Commons, and Courier Place).
Adoption of a tenant preference policy may require changes to these housing providers’ internal rental policies and/or may impact their ability to secure financing. Staff recommends that the City conduct outreach to affordable housing providers to determine how, if at all, adoption of a tenant preference policy will impact existing, entitled, and pipeline projects.
An entitled project was the impetus for the City of San Joseì’s sponsorship of SB 649. San Joseì’s newly-adopted tenant preference policy is effective immediately and applies to all new and renegotiated City-funded affordable housing developments in the pipeline and early in construction as of the designated effective date of the resolution creating the tenant preference policy (March 26, 2024).
Key Decisions
Staff is not providing a recommendation on whether to adopt a tenant preference policy. That is a policy decision for the City Council. If the City Council directs the City Attorney and staff to draft an ordinance that, if adopted, will create a local tenant preference policy, we request the City Council provide further direction on the “key decisions” outlined below.
KEY DECISION #1: Should the scope of the draft tenant preference policy align with the scope of SB 649 (i.e., should the policy be limited to affordable rental housing that received the two specific kinds of funds listed in SB 649 (Gov. Code § 7061): (1) low-income housing tax credits (LIHTC) administered by the United States Department of Housing and Urban Development (HUD); and/or (2) certain kinds of tax-exempt bonds (under subsection (d) of Section 142 of the Internal Revenue Code))?
Staff Recommendation: Yes.
Considerations:
• The State of California has not expressed support for tenant preference policies that are broader than the policies listed in SB 649.
• In California, the Cities of Santa Monica, San Francisco, Santa Cruz, and Berkeley currently have tenant preference policies that are broader than SB 649 (e.g., they apply to inclusionary units as well as affordable projects that received funding). The scope of the City of San Joseì’s policy is similar to SB 649. The City of Oakland’s policy is arguably narrower than SB 649, in that, it only applies to projects that receive a specific kind of “development assistance” from the City.
• Staff anticipates that it is the least complicated to implement and administer a tenant preference policy when 100% of the housing’s units are affordable (which is typically the case for affordable housing projects that receive LIHTC and tax exempt bonds). For density bonus and inclusionary housing units, only a fraction of the project’s units will be affordable and the rest will be market rate. Implementing and administering a tenant preference policy will create challenges for these kinds of housing.
KEY DECISION #2A: Should the draft tenant preference policy apply to pipeline affordable rental housing projects (i.e., projects that have submitted an applications but have not received approvals)?
KEY DECISION #2B: Should the draft tenant preference policy apply to entitled affordable rental housing projects (i.e., projects that have received approvals but have not been built)?
KEY DECISION #2C: Should the draft tenant preference policy apply to existing affordable rental housing projects (i.e., projects that have been built)?
Staff Recommendation: Before making this decision, staff recommends the City Council direct staff to conduct outreach to housing providers to gather information on how a tenant preference policy would impact their project.
Considerations:
• San José’s and Santa Monica’s policies and parts of San Francisco’s and Oakland’s policies apply to pipeline, entitled, and existing housing. (San Francisco and Oakland’s “neighborhood preference” policies only apply to units that have not yet been leased.)
• Claremont has a history of phasing in new development requirements on a going-forward basis so they do not impact pipeline, entitled, or existing development projects.
• Because lenders are concerned about fair housing challenges, tenant preference policies may impact a housing provider’s ability to procure financing and/or may deter housing providers from pursuing projects in Claremont.
• In Claremont, staff anticipates the following existing, entitled, and pipeline rental housing developments meet SB 649’s criteria:
o Existing: The Villas (154 units), Claremont Village Commons (150 units), Courier Place (74 units)
o Entitled: Larkin Place (33 units), Tri-City Mental Health/RNLA (15 units)
o Pipeline: Mercy Housing (74 units), National CORE (58 units)
KEY DECISION #3: Should the draft tenant preference policy include a “neighborhood preference” based on City Council district, a specified radius, or some other criteria? (e.g. income-qualified residents of City Council District 1 will receive preference for available affordable rental units in District 1.)
Staff Recommendation: No.
Considerations:
• Geographically and population-wise, Claremont is much smaller than cities that adopted neighborhood preferences (e.g., New York, San Jose, Oakland, and San Francisco).
• Neighborhood preferences reinforce existing segregation.
KEY DECISION #4: What factors should be considered when determining which income-qualified applicants are eligible for preference?
• Applicants who already reside in Claremont?
o How should the policy determine “residency” if an applicant is unhoused?
• Applicants who work in Claremont?
• Applicants who have one or more children/dependents in Claremont schools?
• Applicants who have other ties to Claremont? (e.g., family, previous residency, etc.)
• Applicants who have experienced displacement due to one of the events below?
o no-fault eviction
o destruction or inhabitability of residence
o code enforcement/condemnation
o Ellis Act or other removal of home from rental market
Staff Recommendation: This is a policy decision for the City Council.
Considerations:
• In order to perform a disparate impact analysis, staff will need clear direction on the proposed eligibility criteria. Changing or adjusting eligibility criteria later will require new or updated disparate impact analysis.
• The more broad the eligibility criteria is, the less likely it is to have a discriminatory disparate impact on applicants.
• The City Council can consider creating “tiers” of eligibility preferences, but the more complicated the criteria is, the more difficult it will be to administer and enforce.
KEY DECISION #5: Should staff conduct outreach to cities that have adopted tenant preference policies, affordable housing providers, tenants’ rights groups, and other stakeholders before developing an ordinance?
Staff Recommendation: Yes.
Considerations:
• Other than information that is publicly available online, staff and the City Attorney currently have very little information about how existing tenant preference policies are working in other cities and what would or would not work on Claremont.
• Meaningful outreach will take a significant amount of time (at least six months). For example, the City of San José spent over a year conducting outreach before it brought its proposed policy to the City Council. The City of Berkeley began studying tenant preference policies as early as 2016 and did not adopt its policy unit 2023.
KEY DECISION #6: Should the City Manager add one or more staff positions to develop, implement, administer, and enforce a tenant preference policy?
Staff Recommendation: If the City Council decides to adopt a tenant preference policy, staff recommends the City Council also direct staff to add one or more staff positions to develop, implement, administer, and enforce the policy.
Considerations:
• The other cities that have tenant preference policies all have dedicated housing divisions with one or more full time staff members devoted to implementation, administration, and enforcement of these policies.
• The City cannot implement, administer, or enforce a tenant preference policy without dedicated personnel.
• New personnel could also be dedicated to the City’s existing and future housing initiatives, such as the existing rental assistance program, and potential future programs addressing rent stabilization and anti-harassment protection for tenants.
• Adding one or more full time staff positions will require an adjustment to the budget that will require cuts to one or more other city services and programs. Staff anticipates the cost of one full time staff position will be $123,390 per year (which includes salary and benefits).
LEGAL REVIEW
This Agenda Report was prepared by the City Attorney’s Office.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
PUBLIC NOTICE PROCESS
The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Alisha Patterson
City Attorney
Attachments:
A - Senate Bill 649 (2021-2022 Regular Session - Cortese)
B - Table Summarizing Other Cities’ Tenant Preference Policies
C - City of San Joseì’s Disparate Impact Analysis Summary
D - City of San Joseì’s Webpage on Tenant Preference Policy
E - City of Berkeley Staff Report on Tenant Preference Policy
F - City of Santa Cruz’s Website Summarizing Tenant Preference Policy
G - City of Sana Cruz’s Resolution Adopting Tenant Preference Policy
H - City of Oakland Municipal Code Chapter 15.63
I - City of San Francisco Administrative Code Chapter 47
J - City of Santa Monica Webpage on Tenant Preference Policy
K - City of Santa Monica Housing Trust Fund Guidelines (Excerpt)