Santa Maria needs options beyond developer paybacks to create affordable housing

The Santa Maria City Council recently approved a Disposition and Development Agreement with Vernon Property Group, for a revitalization project at Main Street and Broadway. The project involves the creation of new commercial space and 88 rental apartments, a majority to be leased at market rate. It also involves $1.25 million in financial incentives from the city for the Vernon Property Group in paybacks and fee waivers.

Readers may remember the owner of the Vernon Property Group, Bradley Vernon, from his dispute with nearby Guadalupe over the La Plaza Villas apartment complex. La Plaza Villas is Guadalupe’s second largest rental complex. It belonged to one of Mr. Vernon’s companies, the Olivera Street Apartments LLC. (It is now owned by the Vernon Property Group.) 

Mr. Vernon intended to sell La Plaza Villas to a farm labor contractor, who planned to convert the apartments into H-2A farmworker housing. The Guadalupe City Council found issues with this. One was the loss of the housing for permanent residents. Housing in Guadalupe at the time was in short supply, and remains so. 

The Guadalupe City Council passed an urgency ordinance, banning boarding homes from the city’s R3 (high density) residential zoning, in effect prohibiting H-2A housing at La Plaza Villas and impeding its sale.

Mr. Vernon responded by suing Guadalupe in the Santa Barbara County Superior Court. In 2017, the court ruled partially in his favor. The decision, however, was overturned in 2019 by the California Court of Appeal of the 6th District.  

One can question the extent to which affordable housing is a priority for Mr. Vernon. 

Affordable housing, however, is unquestionably a priority for the city of Santa Maria. Similar to Guadalupe, its lack of affordable housing has reached a critical level.

Mr. Vernon may be a talented developer, and the project at Main and Broadway may be a good one. The $1.25 million in incentives he has been promised, however, warrants a second look, given the city’s pressing need for affordable housing. In comparison, consider an affordable rental housing project developed and constructed by nonprofit People’s Self-Help Housing (PSHH), the Los Adobes de Maria III (LADM), while Mr. Vernon was suing Guadalupe. 

LADM III has 34 apartments varying from one to three bedrooms, occupied by low-income, farmworker families. No family pays more than 30 percent of their income in rent. The complex includes a courtyard with a playground, a community center, and laundry facilities. PSHH provides free after-school and summer tutoring for children at LADM III, and workforce readiness programs for adults. 

PSHH leveraged funding from numerous sources for LADM III. More than half of the project financing came from the Low-Income Housing Tax Credit program (LIHTC). LIHTC is a federal program governed by the IRS through Section 42 of the Internal Revenue Code. It was created as part of the Reagan Tax Reform Act of 1986, enjoying bipartisan support ever since, as a facilitator of public-private partnerships.

LIHTC has become vital for developing affordable rental housing in the U.S. It is administered by state agencies, which allocate tax credits to housing developers, who in turn sell the credits to commercial investors. These commercial investors obtain “equity interest” in the housing complexes. They then claim annual federal income tax credits for 10 years. 

This tax credit program is a good deal for all involved: private capital, counties and municipalities, and developers. There are some catches, however. One is that developers must guarantee the rental housing will remain affordable for at least 55 years. 

A second is that the tax credits are distributed by State Tax Credit Allocation Committees competitively, through a scoring process. A key scoring measure is public investment in the housing project. Herein lies a promising affordable housing development incentive, one that Santa Maria could readily employ and benefit from without giving money away to developers.

Cities require housing developers to pay substantial development impact fees to offset related infrastructure costs. They typically do so up front, in the project development process. 

For example, PSHH paid nearly $500,000 in these fees to Santa Maria before the city issued a building permit for LADM III. Deferring such fees (delaying their payment), is recognized as public investment by the California Tax Credit Allocation Committee, especially if the deferral is for 15 years after the construction of the project —a period of time that benefits the developer but is also reasonable for the city or county. If Santa Maria were to adopt a development impact fee deferral program for affordable housing projects (build it into the city’s municipal code), it would draw more affordable housing developers (and projects), who will gain an advantage in winning tax credits. 

Indeed, research published by the Lewis Center for Regional Policy Studies at UCLA found that deferring development impact fees will boost housing development and save costs to developers (even if they pay interest on the fees), without a significant reduction in public benefit. In other words, a city like Santa Maria has little to lose but much to gain in deferring these fees for affordable housing.

The city of Santa Maria should focus more on what ails it, and less on development that requires outright giveaways. It should adopt a development impact fee deferral program for affordable housing.

Scott Fina writes to the Sun from Orcutt. Send a letter for publication to [email protected].

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