Bring Back Blight, Sprawl; evict CDBG to Fix Affordable Housing

October 18, 2018 By Wayne Lusvardi 1 Comment

HousingWhen you were a child did you ever try walking down the upward side of an escalator at a mall? It can be dangerous and often results in bringing you back to where you started.

Howard Husock’s recent “How to build a Housing Ladder: Lessons From, and For, Silicon Valley” (Oct. 3, 2018) is an analogous backwards attempt to solve the Silicon Valley affordable housing crisis.

Husock’s solution is to build new “middle housing” (2-to-9-units), in areas where there is a lack of developable land:

  • As part of mixed commercial-residential developments
  • Elevated above parking lots in air rights projects
  • Converting open space in office parks
  • Small multifamily housing projects on “greenfield” (unzoned) land

From 1979 to 1985, I implemented every one of Husock’s above policy prescriptions with negligible results when I worked for the LA County Community Development Block Grant program:

  • A study for a 1,000-unit multi-family housing air rights project proposed to be built over a bus yard in West Hollywood (never built)
  • Funding a land-write down for a 100-unit Section 202 high-rise senior housing project on commercial zoned land adjacent to a shopping center in West L.A.
  • Soliciting a design-build contract for a 12-unit energy-efficient multi-family housing project on infill land in East Los Angeles
  • Relocating and rehabilitating new freeway construction removal houses to vacant sites for affordable housing,

* From 1985 to 2014, I played a role at a utility district in selling surplus land for housing development on “greenfield” (raw, unzoned land) sites.

Similarly, HUD CDBG policies have yielded insignificant results in the Palo Alto Peninsula as unaffordability and homelessness have only increased.

CDBG Housing Funding Drawdown Failure

CDBG is a federal HUD flexible revenue sharing program that can be used at the local level for housing and infrastructure improvements in lower-income target areas. The drawdown rate for CDBG funding for housing for California is the worst in the country at $4.83 unexpended for every $1 allocated (or 17% expended-see here, page 39).

In my experience, CDBG functions much as Steven Malanga of the Manhattan Institute states:

“Local officials quickly betrayed the CDBG’s ostensible antipoverty mission, using the grants to supply patronage jobs and set up nonprofits run by their allies….a Brookings Institution report noted that communities viewed the federal largesse as “free money.” One federal investigation found that nearly one-third of the operatives in Boston mayor Kevin White’s political machine worked for the city as CDBG coordinators” (“Let’s Kill the CDBG”, City-Journal, Autumn 2017).

Depreciation Creates Affordable Housing

The term “housing ladder” used by Husock is a misnomer.

The term refers to buying a cheap home in an older area and building up equity and then selling and moving up to a tier of higher priced housing as family income increases (e.g., moving up the ladder). Cheaper rental housing does not provide an upward ladder of social mobility from home equity loans, renovation or appreciation.

Moreover, the housing ladder concept should also not be confused with the term “neighborhood filtration.” Older housing “filters” down to first-time buyers.

In other words, all affordable housing by definition is older housing. Only in California is there a policy that lower income households are entitled to brand new, luxury housing by inclusionary housing policies and building new apartments with redevelopment funds.

Redevelopment as Demolisher of Affordable Housing

Further compounding this problem is the rampant redevelopment found in California where older housing districts are demolished for brand new, greater property-tax-generating commercial retail and hotel development.  But affordable housing units don’t even nearly keep up with demolitions. Only 20% of the increased property taxes generated go toward low-income replacement housing.

In 2011, Gov. Brown abolished redevelopment agencies during the 2009-2012 budget crisis. In 2017, Assembly Bill 1568 restored redevelopment for affordable housing using sales and use taxes in addition to property taxes.

The political Right objected to redevelopment mainly because of the use of eminent domain for private purposes.  The Left objected because it would end the purported supposedly reduce low-income housing, and along with it, political patronage jobs.

But neither objected to the goal of redevelopment in the first place: getting rid of “urban blight”; and along with it, market-produced housing affordability. And older homes that weren’t in a redevelopment district were eligible for CDBG low-interest rehabilitation loans and outright grants, again to reduce “blight”. “

Redevelopment and CDBG functions to build back up the property tax base lost from California Proposition 13 by effectively making older (affordable) housing stock unofficially a non-conforming use of property. Prop. 13 reduced the base property tax rate from 4% to 1%. Redevelopment is a sort of reverse Prop. 13.

A 1999 report, “Banking on Blight,” indicates a large proportion of the land area of cities in California are designated redevelopment project areas, notably the City of Long Beach with 54% or 26 square miles. A glance at a map of the redevelopment project areas in the Cities of San Jose in Silicon Valley and in working class Oakland shows a similar magnitude of the extent of redevelopment (see here and here).

Urban Sprawl Reduced to Crawl

With the demolition of thousands of blighted, older, but affordable, housing units in urban California by redevelopment, the only other housing option for first-time buyers is to find market affordable housing at the urban fringe, but California’s social engineers even deterred this.

In 2008, Gov. Schwarzenegger signed Senate Bill 375 – “Redesigning Communities to Reduce Greenhouse Gases”, as an anti-urban sprawl policy.  SB 375 would divert new development to cities as opposed to the urban fringe purportedly to reduce carbon footprints and promote “smart growth”.

Affordable Housing as a Social Problem

Tom Sowell has aptly stated “someone once defined a social problem as a situation in which the real world differs from the theories of intellectuals.” In the case of housing affordability, this would apply to both the Right and the Left’s solutions to the affordable housing crisis in California.

Ergo, if you want affordable housing, eliminate redevelopment and anti-urban sprawl transportation and housing policies; and zero-out the federal CDBG program, as Trump advocates.

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Tesla Planning Aggressive California Expansion

October 17, 2016 By James Poulos 3 Comments

teslaHigh-flying clean-energy industrialist Elon Musk has doubled down on his production plans in California. Tesla, his auto company, “took a major step toward its ambitious goal of one day building 1 million cars a year by seeking to double the size of its Fremont, Calif., assembly plant,” the Los Angeles Times reported. “Under a long-term zoning proposal submitted to Fremont’s Planning Commission, the electric car maker wants to eventually add 4.6 million square feet of space to its factory’s existing 4.5 million square feet.”

Musk “told analysts this spring that the Palo Alto-based automaker hopes to ramp up annual production to 500,000 vehicles in 2018 and build 1 million vehicles by the end of 2020,” the paper added. “The 2018 goal alone is nearly a tenfold increase from the 50,580 vehicles that Tesla produced last year in Fremont. The automaker has forecast this year’s deliveries at 80,000 to 90,000. Quality problems and production delays plagued the plant early this year and threatened sales plans. But the company said last week that those problems are behind it and that it expects to come close to its forecast for 2016.”

Broad deals

Musk has not hesitated to link up with government resources and opportunities in order to advance his business interests. This month, he aligned SpaceX closely to take advantage of President Obama’s call to use private industry to help bring Americans to Mars. “Within the next two years, private companies will for the first time send astronauts to the International Space Station,” Obama announced. “One of those private companies tasked with ferrying astronauts to the ISS and who will essentially return human spaceflight to American soil in late 2018 is SpaceX,” the Observer noted.

And last month, Musk inked a deal to change the way California backstops its energy needs. “Tesla Motors Inc. will supply 20 megawatts (80 megawatt-hours) of energy storage to Southern California Edison as part of a wider effort to prevent blackouts by replacing fossil-fuel electricity generation with lithium-ion batteries,” Bloomberg reported. “Tesla’s contribution is enough to power about 2,500 homes for a full day, the company said in a blog post on Thursday. But the real significance of the deal is the speed with which lithium-ion battery packs are being deployed,” the site added — “months not years.”

Outracing critics

As Musk has accelerated his increasingly ambitious plans, however, he has attracted a greater share of criticism toward the mechanics of his business operations. “The pressure is now on Tesla for a smooth launch of the relatively affordable Model 3. A quality product pumped out at low cost and high volume is essential to meeting the ambitious goals of the company and its investors, auto analysts say, whereas long delays could threaten the company’s reputation — and survival,” according to the Times.

Meanwhile, wariness has centered separately around SolarCity, a startup run by family members. “The Tesla-SolarCity deal looks so bad on paper that many investors worry it’s simply a bailout of SolarCity, which Musk co-founded and continues to chair,” the MIT Technology Review noted. “While SolarCity dominates the market for leasing, installing, and maintaining solar panels for residences and businesses, it’s racked up more than $2 billion in losses over the past five years. “

“Its business model requires it to raise huge amounts of capital to cover the up-front costs of providing panels for no money down to consumers on multiyear contracts. Since its inception, the company has accumulated more than $3 billion in debt against just $1.5 billion in revenue. Now it is having a harder time convincing people to lend it money.”

What’s more, Musk has had to contend with a rebellion among his own shareholders. “As of earlier this week, seven Tesla stockholders have filed lawsuits against Elon Musk over the proposed acquisition of SolarCity and alleged Musk was in breach of his fiduciary duties for not disclosing the proposed merger properly. Some of these stockholders are asking the judge for an injunction to prevent the merger from going through,” Recode reported. But the two companies have announced the merger is going ahead anyway. “The companies have set the date for their respective shareholders to vote on the $2.6 billion all-stock transaction for Nov. 17.”

This piece was originally published by CalWatchdog.com

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Palo Alto Demands $8 Million To Allow Business to CLOSE

December 10, 2015 By Joseph Vranich 2 Comments

Mobile home parkDid several business-hostile politicians leave Sacramento to take over over the city of Palo Alto? Seems that way to me. After all, who else would demand that a family pay $8 million to close its business over issues that the family had nothing to do with?

“No one should be forced to carry on a business that they want to close,” said Larry Salzman, an attorney with the Pacific Legal Foundation, which has filed a federal lawsuit against the city because of its demand on the owners of a mobilehome park.

“The city is treating the Jisser [family] as an ATM to solve a problem they didn’t cause — the lack of affordable housing in Palo Alto. That’s not just wrong, it’s unconstitutional,” said Salzman.

“The way to make housing affordable in Palo Alto is to build more housing,” Salzman noted. “The city has for decades refused to permit enough housing to be built to meet the skyrocketing demand, and it is now shamefully scapegoating the Jissers for its own failure.”

Palo Alto is ground-zero for California’s affordable housing crisis, where the median home price is a blistering $2.46 million dollars (compared to $448,000 statewide and $180,000 in the U.S.). A May 2015, report by California’s Legislative Analyst Office blames the state’s high housing costs on overly restrictive land use policies, particularly in coastal cities like Palo Alto.

The PLF is representing the Jisser family (Tim, Eva, and their son, Joe) in the lawsuit challenging Palo Alto’s unconstitutional demand that the Jissers pay millions for the right to close their business. The PLF announcement reveals more about the situation:

The Jissers immigrated to Silicon Valley in the 1970s. They made their living running a small grocery store and saved their money to buy the Buena Vista mobilehome park in Palo Alto in 1986. Since then, the Jisser family’s mobilehome park has provided some of the most affordable housing in Palo Alto for more than 30 years.

At age 71, Tim Jisser would like to retire, but the family has been mired in a highly publicized and often acrimonious dispute for years over their right to withdraw the property from the rental market and close their business. Earlier this year, the city gave the Jissers permission to close their business, but only on the condition that they first pay approximately $8 million to their tenants. The payments include rent subsidies for alternative housing for the tenants and the outright purchase of all of the Jissers’ tenants’ mobilehomes at prices reflecting the acute housing shortage in Palo Alto.

In effect, the Jissers are being forced to remain landlords – and to accept the permanent occupation of their land by their tenants – unless they provide their tenants with enough money to ameliorate the city’s notoriously high cost of housing. But it is the city itself that has created the housing shortage that makes it all but impossible for young families and people of modest means to live there.

Palo Alto is ground zero for California’s affordable housing crisis. It is the city that has refused to allow enough homes to be built to meet the skyrocketing demand during the last several decades, which has resulted in high prices.

Represented by PLF pro bono, the Jissers’ case charges that Palo Alto’s staggering financial demand is an unconstitutional condition on the Jissers’ property rights and a violation of the U.S. Constitution’s Takings clause. The Supreme Court has repeatedly said that individual property owners should not be forced to pay for public benefits that, in fairness, should be borne by the public as a whole.

Earlier, the Jissers had put together a relocation package for the low-income tenants that the city through early 2015 deemed adequate.

“It was really shocking—and frustrating, to say the least—that it would cost in the several millions of dollars to get out of the rental business,” the owner’s son, Joe Jisser, said.

More details about the case can be read here.

 is the Irvine-based Principal of Spectrum Location Solutions helps companies plan and select ideal sites for new facilities across the U.S. and internationally.

This piece was originally published by Fox and Hounds Daily

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San Jose joins forces with seven other cities to raise minimum wage

September 3, 2015 By Ramona Giwargis 1 Comment

As reported by the San Jose Mercury News:

SAN JOSE — Top officials from seven Bay Area cities will join Mayor Sam Liccardo on Thursday to announce an unprecedented joint venture to raise the minimum wage across the valley in a regional effort to close the growing gap between the rich and the poor in Silicon Valley.

The official announcement is expected in a news conference Thursday. The mayors of Campbell, Palo Alto, Cupertino, Milpitas, Morgan Hill, Monte Sereno and a representative from the city of Santa Clara are expected to announce their support for the initiative.

It’s the first time the region has seen such a large collective effort by multiple cities to raise wages. …

Click here to read the full story

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Palo Alto’s Proposed New Pension Tax – Oops, Hotel Tax

October 2, 2014 By Ed Ring Leave a Comment

Fungible – definition – “able to replace or be replaced by another identical item; mutually interchangeable.”

On November 4th, Palo Alto voters will be asked to approve Measure B, with only a simple majority required for passage. According to a summary compiled by the California Taxpayers Association, “2014 Local Elections,”Measure B “increases the city hotel/motel tax by 2 percent and extends the tax to apply to online bookings, to fund general city services.”

According to an article in the Silicon Valley Business Journal entitled “Palo Alto 2 percent hotel tax hike headed for November ballot,” “About $4.6 million would be generated annually through a combination of the potential tax increase and funds generated by several new hotels slated to open in the city.”

Analysis of raw data downloaded from the California State Controller’s website, and available for review on the spreadsheet produced by the California Policy Center “Palo_Alto_2012_Stats.xlxs,” the total employer pension contribution made by the city of Palo Alto to CalPERS in 2012 was $20.7 million. That includes $1.9 million of pension contributions that are supposed to be made by employees via paycheck withholding, but which the city helpfully pays for them. On the spreadsheet ref. tab “Palo Alto Payroll SCO 2012” column O, rows 2-12, “Employees Retirement Cost Covered” [by employer].

As documented here, and here, Palo Alto, like all CalPERS participants, will be required to increase their pension contribution by 50 percent between now and 2017, i.e., by around $9 million per year.

The hotel tax, if passed, will cover less than half of Palo Alto’s imminent contribution increases to CalPERS. Expect more tax increases, and fewer city services, or…

Palo Alto, like Watsonville, and nearly every other local entity that is asking voters to increase taxes this November, needs new taxes to help comply with the incessant, irresistible, escalating, insatiable demands of CalPERS. They can say the money is for anything they want. But money is fungible.

As Carl DeMaio, former San Diego council member and current congressional candidate, once famously put it, framing policy options as either involving higher taxes or fewer services is a “false choice.” The third rail of California politics, still deadly to any politician, state or local, who moves beyond rhetoric to action, is lower compensation and pensions. But it is an option. One more market downturn, and it will magically morph from an option to an imperative.

Here’s a summary of Palo Alto’s city worker average compensation:
–  Police – Base pay plus overtime $116,401, benefits incl. pension, $48,075, total $164,476.
–  Fire – Base pay plus overtime $132,011, benefits incl. pension, $49,326, total $181,337.
–  Other – Base pay plus overtime $90,306, benefits incl. pension, $36,140, total $126,446.

From the city website, here are highlights from Palo Alto’s “salaries and benefits:”
–  Fully paid employee and dependent dental and vision plan.
–  Fully paid life and disability insurance equal to annual salary and long term disability plan (not included in State Controller data).
–  Two to five weeks vacation, 12 holidays, and 12 paid sick days.
–  90 percent paid employee and dependent medical plan.

From data obtained by the California Policy Center’s Transparent California project, here are the average pension benefits for city of Palo Alto retirees since 2000 (i.e., since benefit formulas were enhanced):
–  For 30+ years of service, $91,348 per year.
–  For 25-30 years of service, $75,437 per year.
–  For 20-25 years of service, $53,946 per year.

To put this in perspective, while veteran employees of the city of Palo Alto are paying for 10 percent of their annual health care premiums, middle aged married couples working as private sector independent contractors with base incomes comparable to the average non-safety Palo Alto city worker are paying household premiums – either to individual health insurers or on the exchanges – including deductibles, of approximately $30,000 per year. Thirty thousand dollars. While their taxes then pay for 90 percent of these same premiums as they apply to their public servants.

To further put this in perspective, while someone working for the city of Palo Alto may retire after 30 years work with a pension that averages $91,348 per year, an independent contractor with comparable annual earnings will contribute 12.4 percent of their gross earnings to Social Security – more than virtually anyone in local government contributes to their pensions via withholding – in return for a projected Social Security benefit of around $25,000 per year beginning after 40+ years work. Yet their taxes are being increased to maintain these pensions for their public servants.

In Palo Alto, and in general throughout the Silicon Valley, the wealthy elites condone the public sector union greed that has lead to this abominable inequity. They are so rich they consider it churlish to question levels of compensation that to them, seem such a pittance. In turn, because their excessive compensation effectively exempts them from its consequences, public employees and their unions support the misanthropic policies of this elite – artificial scarcity in the name of environmentalism; causing higher prices for housing, land, energy and water.

The solution to the challenges of social equity is not higher taxes to benefit government workers. The solution is to lower the cost of living for everyone through resource development and capitalist competition. To do this, government workers and their unions will have to make common cause with ordinary private sector workers, instead of with the wealthy elites and their political cronies who reside in an insular and privileged world, filled with utopian visions and plans for everyone.

*   *   *

Ed Ring is the executive director of the California Policy Center.

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