CALIFORNIA BUILDING INDUSTRY ASSOCIATION v. CITY OF SAN JOSE (AFFORDABLE HOUSING NETWORK OF SANTA CLARA COUNTY)

Interveners and Appellants, Affordable Housing Network of Santa Clara County, Housing of California, California Coalition for Rural Housing, Non-Profit Housing Association of Northern California, Southern California Association of Non-Profit Housing, and San Diego Housing Federation, Answer Brief on the Merits

Cal.January 31, 2014

IN THE SUPREME COURTOF THE STATE OF CALIFORNIA No. 8212072 Petitioner, CALIFORNIA BUILDING INDUSTRY ASSOCIATION, SUBREMECCik: FILED vs. JAN 81 2014 CITY OF SAN JOSE, AFFORDABLE HOUSING NETWORK OF SANTA CLARA COUNTY,et al., Intervenors. Respondent. Frank A. McGuire Clerk Deputy After an Opinion by the Court of Appeal, Sixth Appellate District (Case No. H038563) On Appeal from the Superior Court of Santa Clara County (Case No. CV167289, Honorable Socrates Manoukian, Judge) APPELLANT/DEFENDANT INTERVENORS’ ANSWERBRIEF ON THE MERITS LAW FOUNDATIONOF SILICON VALLEY PUBLIC INTEREST LAW FIRM Kyra Kazantzis (Bar No. 154612) James F. Zahradka II (Bar No. 196822) Melissa A. Morris (Bar No. 233393) 152 N. Third St., 3rd Floor San Jose, CA 95112 Telephone: (408) 280-2401 Fax: (408) 293-0106 THE PUBLIC INTEREST LAW PROJECT CALIFORNIA AFFORDABLE HOUSING LAW PROJECT Michael Rawson (Bar No. 95868) 449 15th Street, Suite 301 Oakland, CA 94612 Telephone: (510) 891-9794 ext. 145 Fax: (510) 891-9727 WILSON SONSINI GOODRICH & ROSATI P.C. Colleen Bal (Bar No. 167637) Corina I. Cacovean (Bar No. 267573) One Market Plaza Spear Tower, Suite 3300 San Francisco, CA 94105-1126 Telephone: (415) 947-2000 Fax: (415) 947-2099 David Nefouse (Bar No. 243417) 650 Page Mill Road Palo Alto, CA 94304 Telephone: (650) 493-9300 Fax: (650) 493-6811 Attorneys for Appellant/Defendant Intervenors Il. Il. IV. TABLE OF CONTENTS Page ISSUE ON APPEAL...ceccecessescssesccsecceseeceecenesnesssessseesesnseaeeenesenees 1 INTRODUCTION AND SUMMARYOF ARGUMENT...eee 1 STATEMENTOF FACTS 0...cecsescseeeceeseeseeceeeeeseeesecstecsesssaeeneseeeees 7 . Local Governments ThroughoutCalifornia and the United States Have Long EmployedInclusionary Housing Lawsto Increase the Supply of Affordable Housing |in Their COMMUNITIES. 00... ecescesseeeesecesseesesencenstecesceeseeseaeesscessessesaenesesaeeeeesseeees 7 1. National History and Context...ccesscsssseteetececeserseessneeesees 7 2. Inclusionary Housing in California... eeeeeecccsnereeseeeerneees 11 3. Inclusionary Housing Has Substantially Increased the Supply of Affordable Housing in California Communities. 0.0.0... eeeeeseeeseeeeesseseeesseneeseeneseseseessessseesenteneneenenes 15 . San Jose Adopted a Balanced Citywide Inclusionary Housing Ordinance to Respondto Its Affordable Housing Crisis and to Further the Goals of Its General Plan...eeeeeeetscseesecreeneeeeeeneees 16 1. The Purposesofthe Ordinance......cccesescsesesestesescseeseeeeees 16 2. The Ordinance Was Adopted After a Long and Inclusive Public Process. ........cesscesssssssessssesessscssesesesesseessenssesseessasesseeees 17 3. The Ordinance Allows Developers to Choose From a Variety of Alternate Compliance Options............. eee seeeeeeeeee 19 4. The Ordinance Provides Substantial Benefits and Regulatory Reliefto Developers............ css cecsssesessseseeeseeeneeeees 19 5. The Ordinance Provides for Waiver ofthe Inclusionary Requirementif Its Application Would Produce an Unconstitutional Result. 0...escessecseecseessscesssssrserseseseeeees 20 PROCEDURAL BACKGROUND.......secs sesceeseeeeaseeesseacesseseeneees 20 ii V. STANDARD OF REVIEW ON APPEAL ceeccccccccccccssssssssssssvsssecesssese 21 VI ARGUMENTcecssssssscsscssssceccccsscesssnssveseesseosasanaaaeestusessestssistsetsesasasense 21 A. The General Standard of Review in a Facial Constitutional Challenge to a Local Legislative Action Is the Reasonable Relationship Test. ..........::csscssccsssccsscsssccesseccssscesesssssereceneesessssesessreenes 21 1. Local Legislative Bodies Have Broad Discretion to Enact Land Use and Development Regulations Under Their Police Power, so Long as Those Regulations Are Reasonably Related to a Legitimate GovernmentInterest....... 21 2. In A Facial Takings Challenge to A Law Enacted Pursuant to the Police Power, the Party Challenging the Law Bears the Burden of Proving the Law’s Unconstitutionality. 0.0... ccecsscccssccssscesssssecssrssseecsasessnsesssesnnes 24 B. None of the Cases Cited by CBIA Alters the Reasonable Relationship Test. ........ccesscsssssccsssssesseesssccesssssssessscssseesersseessneesssnseenees 27 1. San Remo Hotel Did Not Create a Heightened Standard Of REVIOW........ceseecccssccsscssseesceceseeecnsceesssessceenersneesseseesennersseaeenees 27 2. Patterson Did Not Apply a Heightened Version ofthe Reasonable Relationship Standard.«0.0.0...eeeseeeeeeneeeeesenees 30 3. This Court’s Recent Decision in Sterling Park Did Not . Alter the Standard of Review,.........::cssccssscssscstseseescsesenseeeeseenes 31 4. The High Court’s Koontz Decision Applied Nollan/Dolan Scrutiny to Ad Hoc Exactions but Did Not Extend It to Ordinances of General Application................006 36 | C. San Jose’s Inclusionary Housing OrdinanceIs a Valid Exercise of Police Power BecauseIt Is Reasonably Relatedto Its Legitimate PUrpOSeS.........:..ceeesecesseeeesesneesesseeecssesseeecsnesesseeesseeeeseeeeees 41 1. The Broad Purposesofthe Ordinance Are Legitimate Public PUrpOSes..........ssssssscsssesssceseessescseesesseesseeseeeseeeenseseeseeenees 4] 2. The Requirements of the Ordinance Are Reasonably Related To Its Purposes............essccsescecsreeseeeseceseeesseecsneeseeeeseeees 43 (a) The city-wide set-aside proportion............:csesssereeeteceneeeens 44 (b) The in-lieu fee and other alternative compliance OPLIONS 0... eeecesseceesceeseesseceeeenseseceserscecseecseessenseaeesseeaeeneeeeees 49 (c) The price restrictions.............sevesesecesssssscscsesessnsecsescavsseacareses 50 (d) The user restrictions ..........ccesscescessesescsseessesesscsesesssseeeesneees 51 3. The Requirements OfThe Ordinance Are Also Reasonably Related to the “Deleterious Public Impact” OfNew Development............:.cscsessesssestecssesseseeseseseessssnserseees 53 VIL. CONCLUSIONQu...eescsseseeeeceeesseseeeessesseeeeessevsssecessesssssssasenaees 56 iv TABLE OF AUTHORITIES Page(s) CASES 420 Caregivers, LLC v. City ofLos Angeles (2012) 219 Cal.App.4th 1316icsceescsscsesscsssssssescssssessessessesseseees 21 Action Apartment Ass’n v. City ofSanta Monica (2008) 166 Cal.App.4th 456ocececsseseesssesstsesesssseessseeees 15, 24, 25 Agins v. Tiburon | (1980) 447 US. 255eeeeseceseseseeseseetesscssessseseeeesseesseeseeseesnessees 24, 39 American Academy of Pediatrics v. Lungren | (1997) 16 CoChth 307 enuesesssvssoseesaessaesecscecesaceaseeeeeeensesenesenes 26 Arcadia Development Co. v. City ofMorgan Hill (2011) 197 CalApp.4th 1526 woeeeescssececessecssessesseseessecseesssseeees 26 Arcadia Unified School Dist. v. State Dept. ofEducation (1992) 2 Cal.4th 251 oeeeesseeseesesesscscsscssesssssesessssssseseseesssesssessens 26 AssociatedHome Builders, Inc. v. City of Walnut Creek (1971) 4 Cal.3d 633 ooescssccssseseeseesesssesssesseesessssesssessssessceseeeseeeeees 56 Associated Homebuilders ofthe Greater East Bay, Inc. v. City ofLivermore (1976) 18 Cal.3d 582 ooscseesectecsseeseseeeensensseseeenes 2, 22, 44-45, 49 Bruce v. City ofAlameda (1985)166 CalApp.4th 18 oo.eeeseseesecsseseesetsssssssssesseeeseseeseres 13 Building Industry Association of Central California v. City of Patterson (3009) 171 Cal. atRee ruralCalljornia v. Cityofseeseseseeeeees 30-31 Building Industry of Central California v. County ofStanislaus (3010) 190 al.App.4th 295 seeseesceneseeseeeceeseeseesaceasecnseseaeoneseess 24-25, 48 Cal. Bldg. Industry Ass’n. v. City of San Jose: (2013) 157 Cal.Reptr. 3d 813. oecscesceseecesesecseeceseesssseseees 21, 24-25 California Redevelopment Ass’n. v. Matosantos (2011) 53 Cal 4th 231 ooceecsecsecsecceerecssessscseesessssesssseessesesseenees 26 City ofSanta Barbara v. Adamson (1980) 27 Cal.3d 123 oeesesseseceenecseesecseessecscessenseessesssseeseesesseeeses 52 Dolan v. City ofTigard (1994) 512 U.S. 374.eeeceneeeeee 5-7, 22, 24, 27-28, 34-36, 38-40, 51 Ehrlich vy. City ofCulver City (1996) 12 Cal.4th 854 oes:4,7; 22-23, 29, 31, 33, 35-39, 56 Euclid vy. Amber Realty Co. (1926) 272 U.S. 365 oo. eecesscscsceeseteescesersnsssesseeessesenceeseesensensesseates 21 Fonsecav. City ofGilroy - (2007) 148 Cal.App.4th 1174...sceseenecenenteseceenenenennesnsaeensaesenens 13 HomeBuilders Ass’n. ofNorthern California v. City ofNapa (2001) 90 Cal.App.4th 188oeeeeeeceeeees 15, 20, 23-24, 41-42, 51 Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761 oeeecssessseecteceecesessescesensensesseeeeseeesnees 50-51 Koontz v. St. Johns River Water ManagementDist. (2013) US.133 S.Ct. 2586.0eeeseeeesteneeneeneeane 5-7, 36-40 Lingle v. Chevron U.S.A., Inc. (2005) 544 U.S. 528oeecccssecsnecseceeeeeceseessersnssseessesseesseentes 24, 39-40 Lockard v. City ofLos Angeles (1949) 33 Cal.2d 453 oiecesccescssscesssccseceeccsesssceteessecsnesesseserssenesenes 25 Mead vy. City of Cotati (N.D. Cal. Nov. 19, 2008) No. 08-3585 » 2008 WL 4963048 ..... ec eesscscetsesesetssestseeereeees 42 Miller v. Bd. of Public Works (1925) 195 Cal. 477 woececsssessccssececcseescesseceseessesecesesnessesseseneseneeaes 21 Nollan v. California Coastal Com. (1987) 483 ULS. 825eee 5-7, 22, 24, 27-28, 34-36, 38-40, 51 Pacific Legal Foundation v. Brown (1981) 29 Cal.3d 168 oneeecssessesseeesessseeseeseesseeeseeeseeessersseseerseeess 26 Palmer/Sixth Street Properties, L.P. v. City ofLos Angeles (2009) 175 Cal.App.4th 1396 0...ecsssecsessessssseesescsesssesesessseenes 52 Penn Central Transportation Co. v. New York City (1978) 438 U.S. 104.ceccssesseetectecssesseesesecsessasseeesssessseesessesseeees 40 Remmenga v. California Coastal Com. (1585) 163 Cal.App.3d 623 oo... ceeesscsescesceseessscecssescenecseceaeseseesnesnees 56 San RemoHotel L.L.P. v. City & County ofSan Francisco (2002) 27 Cal.4th 643 woeeeeeseees 2, 4-5, 27-31, 34, 36, 39, 49, 54 Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal4th 952oeessseseseeeseesseetesensees2, 25, 29, 41-42, 51 Sierra Club v. Napa County Bd. ofSupervisors 36 (2012) 205 Cal.App-4th 16 vi Southern Burlington County N.A.A.C.P. v. Township ofMount Laurel (N.J. 1973) 336 A.2d 713... ccccccscecscescetseseessessecsecscessnscsnssseseeseessseesers 9 Sterling Park, L.P. v. City of Palo Alto 2013) 57 Cal.4th 1193 oooeeeeeeeseseesecneeeceneeeseeseseneneenees 6, 31-36 Tobe v. City ofSanta Ana (1995) 9 Cal4th 1069 oo.essecesceecceeceseesecseesenseesessecesetaeearesseees 26 United States v. Salerno (1987) 481 U.S. 739eeeesescsssscceecesssscceseesesesessssensesesensessserseseeeeees 26 Zuckerman v. State Bd. of Chiropractic Examiners (2002) 29 Cal.4th 32ceceesseseseeeeseseceneeneeaceasenseesesseaecseenesseseneeses 26 STATUTES California Constitution, Article VID ..............cccccssscsssscscssssescsssssscessessseeeceeeees 2 CAL. CIV. CODE § 1954.50 ec cecssscsssccsesesesssessececssaccessescnscsenecessasesenesesseeers 52 CAL. HEALTH & SAFETY CODE, § 33000.........eseeeeeeeeceeececeeeceeeeeeeeeneceeennananess 47 CAL. HEALTH & SAFETY CODE, § 33413 .0.......cssscccsssesceessccssseesensateessanere 14, 47 CAL. HEALTH & SAFETY CODE, § 34173(b)........ecesesceesscsscessecestaeceereeeseaes 14 CAL. HEALTH & SAFETY CODE, § 50079.5 ..........ssccssssccesstesscesseeeeseseceseeeesssenees 7 Government Code, § 65008(€)(2).........scscccssresseseneccsseessessecssseseessenscsseeseaners 52 Government Code, § 65580 .0......ecesesseereeeeesVeeusceeesaneecssaesecessceseeeeeeeeaeeesenees 13 Government Code, § 65580(8).........scsescssscssssessecsscesnrsesseesecssessseeesasssaeesensees 13 Government Code, § 65580(d).....sssssscsssssssseessssssnseesseseeseesssnnneereessessnees 13 Government Code, § 65581(8)........eecsccsseesseeeeseseesneeseessseeseaeceeceaceaeeneeesnees 13 Government Code, § 65583 oo... .cccsscsssesssecssecessecsscessnessssssessaesennsessecsaeeeeneees 12 Government Code, § 65583(a)(1) ssssssssssssesecvaseuasesssasetnstsesesanseuaessvaane 12 Government Code, § 65584 ..........:cccssssessssecccsssscccsssssncecsssssseseecessensecesnes 12, 45 Government Code, § 65583(a)(Q) .....ccescsccessecesscsscessseeesssseesseescsessseesreeessnees 14 Government Code, § 65583(C)(2).......csscsssccssseeessscereseresssecsaeecseseseeseessneeeseenes 4] Government Code, § 65589.8 .......cesceesesseees“ececenaceeseeeeesausaceseaeeesssceeeseeeeeess 13 Government Code, § 65590 ..........cssccsssecssscccssncceserseessneesetsssecsseneesesseesneeseees 13 Government Code, § 65913.1 wo. .ecsccesccsssceccsssscssececescnsessassncesnseeersseesacesensees 14 Vii Government Code,§ 65913.1(D).........ccsccsssssccsssseenscecssetessseesseecesnsessneesseesees 14 Government Code, § 65918.8 ........cescsssscsssseccsssecssssecsescsseeesssesssneesseessaeesees 14 Government Code, § 66000 ...........ccecccsscsssessssssteesssseeescsasecseseneecessessteenesaees 31 Government Code, § 66020 .0........:cesscssssesessseeeseresssresesseeens seseece 31-32, 34-36 Government Code, § 66025 ...........ceseesseeeeessaceesseeeesseceeseeeescensaneessseessnesenees 31 MISCELLANEOUS Abbot, William W., et al., EXACTIONS AND IMPACT FEESIN CALIFORNIA,ch. 2, Defining the Terms (SolanoPress, 3rd CU. 2012)... .eeccescccsssecssscesecssceesscsseceseeesesseensesessesesseseesstessatesseeesseeneees 33 Burton, Carolyn, California Legislation Prohibits Exclusionary Zoning, Mandates Fair Share, Inclusionary Housing Programs Are Likely to Follow (1981) 9 San Fern, V. L. Rev. 19...cseeeseeseeeseeeseesseeeesneeseesaeenes 12 Calavita, Nico, Inclusionary Zoning: The California Experience, National Housing Conference (NHC) Affordable Housing Policy Review,vol. 3, issue | (Feb. 2004), available at ..........sceeeeeeseeeseeessceseecseeeseeseseeesstetseeetenes 8 Hollister, Timothy S., McKeen, Allison M. & McGrath, Danielle G., National Survey ofStatutory Authority and Practical Considerationsfor the Implementation ofInclusionary Zoning Ordinances, Homebuilders Ass’n of Buck/Montgomery Counties (June 2007), availableat .......ccsesssectecsssccessesseceessersetecesaeseeseseass 9,10 Mulvaney, Timothy M., The Remnants ofExaction Takings (Spring 2010)33 Environmental Law & Policy J. 189, 199 ween39 Non-Profit Housing Association of Northern California, Affordable by Choice: Trends in California Inclusionary ousing Programs (2007), available at oo. ceeeesesescerssesseseetesseeesWectessesvevsenseeseesecceses 8, 12, 15, 16 Vili Rothwell, Jonathon, Housing Costs,Zoning and Access to High-Scoring Schools, Brooking (Apr. 2012), available at U.S. Department ofHousing and Urban DevelopmentOffice of Policy Development and Research, Confronting _ Concentrated Poverty with a Mixed-Income Strategy (Spring 2013), available at — .......ccccsccccsssssssssesssessssssscssesssssssssvstsessenssssee ix R123 1 pdf> v.csccuscssssesssssessssesessssscve seoseeeees 10, 11 seseeeeneeseease 10 sesseessseesenes 33 seesenneeseeeoes 10 seeneeeeeeeseves 11 I. ISSUE ON APPEAL The question before this Court on appeal is: what standard of review applies in a facial challenge to a city’s inclusionary housing ordinance? Is the appropriate standard for evaluating inclusionary housing policies like San Jose’s the reasonable relationship standard for legislative decisions enacted pursuantto a local government’s police power, as applied by the Court of Appeal, oris it some heightened standard, as advocated by Petitioner California Building Industry Association (“CBIA”)?’ Il. INTRODUCTION AND SUMMARY OF ARGUMENT Intervenors are organizations of advocates and non-profit housing developers seeking to increase the availability of below-market-rate housing throughout California. They seek inthis litigation to affirm the powerof local governments to chart apath away from exclusionary land use practices by requiring future residential developmentto include units affordable to lower-income households, who comprise the workforce of much ofthestate. _ Over 170 communities, along with the State of California, have embraced ' CBIA’sattempted restatement ofthe issue on appealis inappropriate becauseit presumesthat inclusionary housing ordinances “exact property interests”—-a core question of dispute and definition amongthe parties. (See Petitioner’s Opening Brief [“POB”] at p. 1.) - 1 inclusionary housing programsasa critical strategy toward inclusionary communities and away from systemic segregation and sprawl. The threshold standard of review in a facial constitutional challenge of any local ordinanceis whether the ordinanceis a valid exercise of the police powers conferred by Article 7 of the California Constitution. The essential question is whether the requirements ofthe ordinance are reasonably related to a legitimate public purpose. (Associated Homebuilders ofthe Greater East Bay, Inc. v. City ofLivermore (1976) 18 Cal.3d 582, 604-605 [“Livermore’’].) This standard reflects the substantial deferencethat the judicial branch gives to a local government’s legislative function in accordance with the separation of powers. The standard is essentially the same whenlocal land use and developmentlegislation of general application is attacked as a taking. (San Remo Hotel L.L.P. v. City & County ofSan — Francisco (2002) 27 Cal.4th 643, 670 [““San Remo Hotel”].) If the attack focuses on price control, such as the price restriction aspects of inclusionary housing ordinances, then there is a reasonable relationship as long as the restriction provides the opportunity for a fair return on investment. (Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal.4th 952, 967 [“Santa Monica Beach”’].) Accordingly, the basic question regarding the below market-rate housing set-aside in San Jose’s Inclusionary Housing Ordinance (“Ordinance”) is whetherit is reasonably related to any legitimate governmental purposesarticulated in the Ordinance. The attendant question regarding the in-lieu fee provision is whether the fee is reasonably related to the underlying set-aside requirement. Answering these questions involves assessing the nature and purposeofthe specific requirements and applying the appropriate refinement of the threshold standard. Consistent with state housing goals and the City’s general plan, the overarching objective of the Ordinanceis to ensure that there will be a sufficient supply of housing dispersed throughoutthe city to meet existing and projected housing needsofall economic segments ofthe community as San Jose grows. The needsinclude those of current and future residents, the City’s workforce, and a share ofthe regional housing need, The Ordinance establishes that the 15 percent set-aside is reasonably related to that goal, and that its in-lieu fee is directly related to the set-aside. The Ordinance, therefore, is a valid exercise of the City’s police power, and the Court of Appealcorrectly reversed the trial court decision. Whether viewed a species ofland use regulation or a variation of development exactions as CBIA contends, the validity of the obligation ultimately turns on the sufficiency of the relationship between the obligation and its effectuation of the legitimate purposesit sets out to further. Petitioner CBIAasserts that the Court’s San Remo Hotel decision compels application of a heightened standard of review to so-called “exactions” placed on new developmentbylegislation of general application like San Jose’s Ordinance. But San Remo Hotel simply adapted the basic reasonable relationship standard to conditions imposed to mitigate the impacts of developmentin the context of a takings challenge. Drawing from its decisionin Ehrlich v. City ofCulver City (1996) 12 Cal.4th 854,cert. den., 519 U.S. 929 [136 L. Ed. 2d 218, 117 S. Ct. 299] (“Ehrlich”), this Court stated that “as a matter of both statutory and constitutional law” fees imposed for the purpose ofmitigating development impacts “must bear a reasonable relationship, in both intended use and amount,to the deleterious public impact of the development.” (San Remo Hotel, supra, 27 Cal.4th at 671.) CBIA turns the reasonable relationship test on its head. It asserts that San Remo Hotel requires the purpose as well as the “extent” of an inclusionary ordinance be “reasonably related to some negative public impact proximately caused by the new home projects. ...” (POBat p. 17.) In CBIA’s view,the only legitimate purpose of an inclusionary housing ordinanceis to mitigate the impact ofnew residential development. CBIA arrives at this contorted formulation based on its assumptionsthat inclusionary set-aside and in-lieu fee requirements are development exactions distinct from other land use and development conditions and that they are only permissible if related to the mitigation of development impacts. Arguing now forthe first time that the Ordinance constitutes a taking (whenit repeatedly disavowed a takings claim in all prior proceedings), CBIA mischaracterizes San Remo Hotel’s articulation ofthe reasonable relationship test as a different, “intermediate” standard of review akin to the heightened standard of review required by Nollan/Dolan (and now Koontz) for ad hoc land dedications and fees required from developers during an adjudicatory permit application process for an individual development. (Nollan v. California Coastal Com. (1987) 483 U.S. 825 [“Nollan”|; Dolan v. City ofTigard (1994) 512 U.S. 374 [“Dolan”]; Koontz v. St. Johns River Water ManagementDist. (2013) __ U.S. ___,133 S. Ct. 2586 [“Koontz”].) From this false premise it incorrectly concludes that the Ordinance’s requirements must be reasonably related, not to their stated purposes,but to the very narrow,singular purpose of mitigating the need for affordablehousing created by new market-rate residential developmentin San Jose. Neither this Court’s recent Sterling Park decision northe high court’s Koontz decision support CBIA’s position. The Court in Sterling Park, L.P. v. City ofPalo Alto (2013) 57 Cal.4th 1193 (“Sterling Park’) found that two aspects of the Palo Alto inclusionary housing ordinance—the in-lieu fee and the reservation to the City ofa first option to purchase—constituted “other exactions” for the limited purpose oftriggering the notice and protest provisions under the Mitigation Fee Act. (/d. at 1207.) As CBIA concedes, the Court expressly did not decide whether the underlying set-aside requirement constituted an impact mitigation exaction for purposes ofthe _ requirements of the Act. (POB at p. 26.) Because inclusionary housing ordinanceslike San Jose’s and Palo Alto’s are generally imposed for legitimate purposesother than the mitigation of impacts, application of the Act would be inappropriate except possibly to the in-lieu fee provisions, whichbytheir termsare directly related to the set-aside requirements. Likewise, Koontz does not compel the application of heightened scrutiny when testing an ordinance of general application that allows for paymentofa fee in lieu of compliance with a development condition. Koontz held the Nollan/Dolanessential nexus/rough proportionality standard of review applicable to fees in lieu of dedication of property that are imposed on an ad hocbasis as a condition of approval of a project (Koonziz, supra, 133 S. Ct. at 2600.) As this Court explained in Ehrlich, land use conditions imposedbylegislation of general application do not present the heightenedrisk of abuse of police power inherent in discretionary decisions of local permitting agencies in individual cases. (Ehrlich, supra, 12 Cal.4th at 868-869.) Accordingly, Koontz does not support extending the Nollan/Dolan heightened standard of review to local legislation like the Ordinance. Il. STATEMENTOF FACTS A. Local Governments Throughout California and the United States Have Long Employed Inclusionary Housing Lawsto Increase the Supply of Affordable Housing in Their Communities. 1. National History and Context Inclusionary housing, also knownasinclusionary zoning, generally refers to policies that require developers ofnew multifamily housing to include units that are designated .as affordable to lower- or moderate-income households.” In 1973,in responseto diminishing affordability of housing, Palo Alto becamethefirst California city, and one ofthe first in the country, to adopt an inclusionary housing ordinance. (Appellant’s Appendix (“AA”) Different inclusionary housing policies require different levels of affordability. Generally, affordability requirements refer to Department of Housing and Urban Development incomelimits, which are based on ercentages of area median income (AMI). Extremely low-incomeis up to 0 percent of AMI; very low-incomeis up to 50 percent ofAMI; low- incomeis te 80 percent ofAMI; and moderate-incomeis up to 120 percent of AMI. The term “lower-income”is usually usedto refer to extremely low-, very low-, and low-income. (See, e.g., HEALTH & SAF. CODE, § 50079.5.) 718 [Non-Profit Housing Association ofNorthem California, Affordable by Choice: Trends in California Inclusionary Housing Programs, at p. 9 (2007), available at (as of Jan. 30, 2014) (“Affordable by Choice’’)].) Orange County andthe City of Irvine quickly followed suit. (AA 718-719 [Nico Calavita, Inclusionary Zoning: The California Experience, National Housing Conference (NHC) Affordable Housing Policy Review,vol. 3, issue 1, at p. 5 (Feb. 2004), available at ) (as of Jan. 30. 2014) (“Affordable Housing Policy Review’’)].) Other major regions of the country, including the Washington D.C. metropolitan area and the State ofNew Jersey, adopted inclusionary housing programsshortly after these California jurisdictions. AA 719 [Nico Calavita & Alan Mallach, Inclusionary Housing in International Perspective, Lincoln Inst. of Land Policy, at pp. 22-24 (July 2010) (“Inclusionary Housing”)].) Montgomery County, Marylandenacted an inclusionary zoning policy in 1974 that has helped create over 15,000 affordable units over the past 35 years. (AA 719 [/d. at p. 23]; see also AA 719 [Chicago Metropolitan Agencyfor Planning, /nclusionary Zoning Strategy Report, at p. 4 (June 2008), available at (as of Jan. 30. 2014)].) A year later, the New Jersey Supreme Court ruled in Southern Burlington County N.A.A.C.P. v. Township ofMount Laurel (N.J. 1975) 336 A.2d 713 (“Mount Laurel”) that all municipalities have an obligation to provide fair share of current and prospective housing needs to low- and moderate-income families. (See AA 719 UUnclusionary Housing, supra, at p. 24].) As a result of the Mount Laurel decision and subsequent acts of the New Jersey legislature, nearly every municipality in New Jersey has an inclusionary zoning ordinance. (See AA 719 [Affordable Housing Policy Review, supra,at p. 1].) Thirteen states now haveinclusionary housing-enabling legislation. Seven morestates, including California, have municipalities that have adopted inclusionary housing programs,including communities as diverse and widespread as New York City; Boulder, Colorado; Santa Fe, New Mexico; and Chapel Hill, North Carolina. (AA 719 [Timothy S. Hollister, Allison M. McKeen & Danielle G. McGrath, National Survey ofStatutory Authority and Practical Considerationsfor the Implementation of * Only twostates expresslyprohibit inclusionary zoning by statute— Texas and Oregon. (AA 719 [Timothy S. Hollister, Allison M. McKeen & Danielle G. McGrath, National Survey ofStatutory Authority and Practical Considerationsfor the Implementation ofInclusionary Zoning Ordinances, Homebuilders Ass’n of Bucks/Montgomery Counties, at p. 2 (June 2007), available at ; . (as of Jan. 30, 2014)].) : Inclusionary Zoning Ordinances, Homebuilders Ass’n of Bucks/Montgomery Counties, at pp. 2, 6, 8, 37 (June 2007), available at [as of Jan. 30, 2014] (National Survey)]; see also AA 720 [Town of ChapelHill: Inclusionary Zoning, available at (as of Jan. 30. 2014)].) Nationwide, approximately 400 municipalities and counties have adopted inclusionary housing policies and laws. (AA 720 [National Survey, supra, at p. 49].) Most recently, a national study examining eleven inclusionary housing programs across the country, including ordinanceslong in place in Irvine and Santa Monica, found that inclusionary zoning programs generally — have been shown to provide significantly increased access to low-poverty schools and neighborhoods for lower-income households. (Heather L. Schwartz, Liisa Ecola, Kristin J. Leuschner & Aaron Kofner, Is Inclusionary Zoning Inclusionary? A Guidefor Practitioners, RAND Corporation,at p. 27 (2012), available at [as of Jan. 30, 2014]; see also Jonathon Rothwell, Housing Costs, Zoning andAccess to High-Scoring Schools, Brookings, at p. 1 (Apr. 10 2012), available at [as of Jan. 30, 2014].) 2. Inclusionary Housing in California Inclusionary housing is widely used in California, furthering state housing goals and required in the Coastal Zone and all redevelopmentareas. By 2003, 107 California jurisdictions had adopted inclusionary housing programs, comprising one-fifth of all localities in the state. (AA 720 [Affordable Housing Policy Review, supra, atp. 1].) In 2007, just four years 11 later, a study found that the numberoflocal communities with inclusionary programs had grown to 170, a 59 percent increase. (AA 720 [Affordable by Choice, supra, at p. 9].) While California has yet to adopt a statewide inclusionary housing law, California law encourages useofinclusionary policies by local jurisdictions. Since 1980, California’s Housing Element Law has required all local governments to adopt housing elementsto their local general plans that “make adequate provision for the existing and projected housing needs of all economic segments of the community.” (Gov. Code, § 65583.) Adopted on the heels ofNew Jersey’s Mt. Laurel decision, the statute requires each local government to accommodateits designated share ofthe regional need for affordable housing. (Gov. Code, §§ 65583(a)(1), 65584.) Indeed, the counsel for the state Department ofHousing and Community Development (HCD)opinedat the timeofthe adoption ofthe Law that inclusionary housing programs were a likely response. (See Carolyn Burton, California Legislation Prohibits Exclusionary Zoning, Mandates Fair Share, Inclusionary Housing Programs AreLikely to Follow (1981) 9 SanFern. V. | L. Rev.19.) | The Legislature has long provided the impetusfor local inclusionary policies, repeatedly declaring the importance and obligation of local 12 government to make adequate provision for affordable housing needs. Enacting the Housing Element Law in 1980,' it declared that “local governments have a responsibility to use the powers vested in them to facilitate the improvement and development of housing to make adequate provision for the housing needsof all economic segments of the community.” (Gov. Code, §65580(d).) The Law sets forth the state housing goal that the “availability of housingis of vital statewide importance, and the early attainment of decent housing anda suitable living environment for every Californian . . . is a priority of the highest order.” (Gov. Code, § 65580(a).) And the Legislature states its intent is to “assure that counties andcities recognize their responsibilities in contributingto the attainment of the state housing goal.” (Gov. Code, § 65581 (a); see Bruce v. City of Alameda (1985)166 Cal.App.4th 18, 21; Fonseca v. City ofGilroy (2007) 148 Cal.App.4th 1174, 1182). California law also requires that developments in redevelopmentareas and the Coastal Zone include affordable housing. (See Gov. Code, § 65590 [requiring that new housing developedin the Coastal Zone “provide housing. units for persons and families of low or moderate income” where feasible]; 4 Stats. 1980, ch. 1143 s 3 Gor, Code, §§ 65580 — 65589.8); Fonseca v. City ofGilroy (2007) 148 Cal.App.4th 1174, 1182. 13 HEALTH & SAF. CODE, § 33413 [requiring local redevelopmentareas to include affordable housing if housing is developed in the area].”) Three other state statutes expressly acknowledgethe use of inclusionary zoning by cities and counties. The Least Cost Zoning Law requires communities to zone sufficient land to meet the housing needsfor all incomelevelsas identified in the jurisdiction’s housing element. (Gov. Code, § 65913.1.) It provides that “nothing in this section shall be construed to enlarge or diminish the authority of a city, county, or city and county to require a developer to construct such housing.” (Gov. Code, § 65913.1(b).) The Housing Element Law requires the housing elements of municipal jurisdictions to include analysis of affordable housing units produced through local inclusionary programsifthose units are threatened with conversion to market-rate housing. (Gov. Code, § 65583(a)(9).) Finally, a developer may comply with a local inclusionary housing program by constructing rental units. (Gov. Code, § 65918.8.) The extensive use of inclusionary housing by California local governments did not face a serious legal challenge until 1999, where the ° Although ABX1 26 [Stats 2011, ch. 5] established a processthat dissolved redevelopment agencies and began winding down state financing of redevelopment, it did not repeal the California Redevelopment Law (CRL)including Health & Safety Code, § 33413 which requires thata portion of housing produced in a redevelopmentarea be affordable to lower andae income households. See CAL. HEALTH & SAFETY CODE,§ 14 Court ofAppeal upheld the City of Napa’s inclusionary housing ordinance against a variety of claims; in the published portionsofthe court’s opinion, the court held that Napa’s inclusionary housing ordinance wasa valid exercise ofthe city’s police powerand did not work a facial taking. (See HomeBuilders Ass’n. ofNorthern California v. City ofNapa (2001) 90 Cal.App.4th 188, 193 (“Home Builders”); see also Action Apartment Ass’n v. Santa Monica (2008) 166 Cal. App. 4th 456 (“Action Apartment Ass’n’”’) (rejecting a similar challenge to Santa Monica’s inclusionary housing ordinance.) 3. Inclusionary Housing Has Substantially Increased the Supply of Affordable Housing in California Communities. Faced with a daunting lack of housing affordable to lower-income households, municipalities’ use ofthe inclusionary zoning policies upheld in Home Builders has ensured the continued development and existence of affordable housing in California. Forty-four percentofall Californians— more than 16 million people—spenda disproportionate shareoftheir incomeon housing. (AA 721 [Affordable by Choice, supra, at p. 8].) Although nostate agency tracks the production of affordable housing in California, surveys of 91 California cities and counties revealed that inclusionary policies created an estimated 29,281 affordable units between January 1999 and June 2006 alone. (AA 722 [Id. at p. 5].) In the preceding 15 thirty years, an estimated 34,000 affordable units were developed as the result of inclusionary housing ordinances. (AA 722 [/d. at pp. 10, 36].) Nearlyall of these inclusionary units were built on-site, meaning they were integrated within or adjacent to a market-rate development. Specifically, 58 percent of inclusionary units were built on-site by a market- rate developer working alone. (AA 722 [/d. at pp. 14-16].) Another 32 percent were built on-site by a market-rate developer working in partnership with an affordable housing developer or a government agency. (/bid.) | B. San Jose Adopted a Balanced Citywide Inclusionary Housing Ordinance to Respond to Its Affordable Housing Crisis and to Further the Goals of ItsGeneral Plan. After an extensive public participation process,the City adopted an inclusionary housing ordinancethat addressedits critical ongoing shortage of affordable housing while accommodatingthe interests of the building industry and the City’s residents. The Ordinance provides several alternatives to an on-site set-aside of affordable units and affords developers significant incentives and benefits. 1. The Purposes of the Ordinance. The City adopted the Ordinance to address “a severe shortage of adequate, affordable housing for Extremely Low, Very Low, and Moderate Income Households. . .” and further its General Plan policies of dispersing affordable housing throughout the City “to enhance the social and economic 16 well-being of all residents. .. .” (AA 655-658 [San Jose Mun. Code,§ 5.08.010].) These purposesare consistent with the City’s Housing Element goals to protect the public welfare by fostering an adequate supply of housing for personsat all economic levels and maintaining economic diversity and geographically dispersed affordable housing. (/bid.) The specific purposes are discussed in moredetail in Section VI.C.1., infra. 2. The Ordinance Was Adopted After a Long and Inclusive Public Process. In developing and adopting the Ordinance, the City undertook a long and inclusive public review process. In December 2007, the City Council held a special study session to discuss inclusionary housing,and its potential benefits and impacts. (AA 922 [Memorandum from Leslie Krutko, Director of Housing, to Honorable Mayorand City Council (Oct. 26, 2009), p. 2 (“Krutko Oct. Memo.”)].) In early 2008, the City retained David Paul Rosen and Associates to conduct an economicfeasibility study concerning a citywide inclusionary housing policy. (AA 1570-1870 [City of San Jose Inclusionary Housing Analysis Executive Summary by David Paul Rosen & Associates to City of San Jose (May 12, 2008)].) The study was prepared using input from over 700 individuals, affordable housing advocates, developers, and community organizations; and it concludedthat inclusionary housing could be economically feasible in most product types, under better 17 economic circumstances and given certain developer incentives. (AA 922 [Krutko Oct. Memo.at p. 2].) Between June and December of 2008, the City Housing Departmentheld total of 56 meetings to discuss inclusionary housing. (AA 864 [Memorandum from Leslie Krutko, Director of Housing, to Honorable Mayor and City Council (Dec. 7, 2009), p. 2 (“Krutko Dec. Memo.”)]; 922 [Krutko Oct. Memo.at p. 2].) Two public meetings were held for the purpose of educating interested community members. (AA 883- 884 [Krutko Dec. Memo. Attachment B]; 922-923 [Krutko Oct. Memo.at pp. 2-3.) Forty one-on-one meetings were held with stakeholders, including businesses, homebuilders and laborassociations, affordable housing advocates, and community organizations, in order to solicit the concerns or positions of these groups. (/bid.) Finally, 14 community meetings were held throughout the City in order to give the public an opportunity to review and discusspotential policy options that might be includedin a draft ordinance. (/bid.) In City Council meetingsprior to the vote adopting the Ordinance, the City Council received extensive public comments from developer andreal estate industry representatives, affordable housing advocates, and others, as well as numerous documents,letters, and memorandarequesting modifications, and expressing objection to and support for the Ordinance. 18 3. The Ordinance Allows Developers to Choose From a Variety of Alternate Compliance Options. The Ordinance allows developers to choose from a menu of alternative means of compliance, including the paymentofa fee, off-site development and dedication of land. (AA 686-700 [San Jose Mun. Code, §§ 5.08.500-5.08.580].) The purpose of the alternativesis to facilitate the developmentofthe affordable homesthat thedeveloper elects to forego whenopting not to build inclusionary units. (Jbid.) The alternatives are discussed in more detail in Section VI.C.2.b, infra. 4. The Ordinance Provides Substantial Benefits and Regulatory Relief to Developers. The Ordinance provides various incentives for the production of on- site affordable housing. (AA 679-682 [San Jose Mun. Code, §5.08.450].) These include the provision of a density bonus (allowing the developerto build and sell a greater numberofunits than the zoning would otherwise permit) equal to the percentage inclusionary requirement, a reduction in parking requirements, a reduction in minimum setback requirements, and the permitting of alternative unit type and interior design standards. (AA 679- 681 [San Jose Mun. Code, § 5.08.450(A)(1-5)].) These incentives allow a 19 developerto profit from the construction of a greater numberofunits or a reduction in costs. (/bid.) 5. The Ordinance Provides for Waiver of the Inclusionary Requirementif Its Application Would Produce an Unconstitutional Result. ‘Similar to the Ordinance that was upheld in Home Builders, supra, 90 Cal.App.4th at 195, San Jose Municipal Code section 5.08.720 providesthat the requirements of the Ordinance may be waived,adjusted or reduced if an applicant can demonstrate that there is no reasonable relationship between the impact of a proposed development and the requirements ofthe Ordinance, or that applying those requirements would take property in violation of the United States or California Constitutions. (AA 706-707 {San Jose Mun. Code, § 5.08.720].) In summary, the primary goalofthe inclusionary requirement and the in-lieu fee alternative is not to mitigate deleterious impacts caused by the new developmentbut, rather, to ensure that future housing developmentin the City will include affordable housing units. IV. PROCEDURAL BACKGROUND Intervenors adopt the City of San Jose’s description ofthe procedural background ofthe case found in the City’s AnswerBriefon the Merits. 20 V. STANDARD OF REVIEW ON APPEAL | This appeal regarding the validity of San Jose’s Ordinance presents questions of law which are subject to de novo review. (See 420 Caregivers, LICv. City ofLos Angeles (2012) 219 Cal.App.4th 1316, 1331.) VI. ARGUMENT A. The GeneralStandard of Review in a Facial Constitutional Challenge to a Local Legislative Action Is the Reasonable RelationshipTest. UL Local Legislative Bodies Have Broad Discretion to Enact Land Use and Development Regulations Under Their Police Power, so Long as Those Regulations Are Reasonably Related to a Legitimate GovernmentInterest. The Court ofAppeal properly applied the reasonable relationship test in its analysis of the Ordinance. (Cal. Bldg. Industry Ass'n. v. City ofSan Jose (2013) 157 Cal.Reptr. 3d 813, 823-824, review granted Sept. 11, 2013, §212072 [“Opinion”].) Its holding is consistent with longstanding precedent regardingthe ability of local jurisdictions to enact land use regulations pursuantto their police power. Local governments have broad authority to imposerestrictions on the use and developmentof land in order to promote the public’s health, safety, and welfare. (See, e.g., Euclid v. Amber Realty Co. (1926) 272 U.S. 365 [affirming the power of local governments to establish zoning regulations]; Miller v. Bd. ofPublic Works (1925) 195 Cal. 477, 490 [acknowledging a year before Euclid a city’s authority underits 21 police powerto create zones that allow only single-family dwellings]. Local enactmentsare presumed to be a legitimate exercise of the City’s police powerso long as they are reasonably related to the locality’s interest in promoting the health, safety and general welfare. (Livermore, supra, 18 Cal.3d at 604-605.) In the context ofa takings challenge, in Ehrlich, this Court drew a distinction betweenlegislative enactments of general applicability and ad hoc exactions imposed as conditions of development. While both types of restrictions on development may be imposed for purposesrelated to the public health and welfare, the context oftheir.imposition determines the proper standard of review. For ad hoc exactions—whetherland dedications or monetary exactions—there is. heightened risk “that local governmentwill manipulate the police power to impose conditions unrelated to legitimate land use regulatory ends, thereby avoiding what would otherwise be an obligation to pay just compensation” becausethe jurisdiction exercises discretion over an individual project. (Ehrlich, supra, 12 Cal.4th at p. 869 [citing Nollan, supra, 483 U.S.at p. 825] (emphasis omitted).) For such ad hoc conditions, the essential nexus and rough proportionality tests laid out in Nollan and Dolan apply. (Ehrlich, supra, 12 Cal.4th at 868.) 22 In contrast, land use and development regulations of general applicability that are adopted through a legislative process to promote the public welfare, to protect the public’s health, or to further other legitimate public purposesare not subject to heightened scrutiny. (/d. at 886.) Such regulations “do not amountto a taking merely because they might | incidentally restrict a use, diminish the value, or imposea cost in connection with the property.” (/bid.) Instead, such legislatively imposed regulations need only be reasonably related to the legitimate public purpose they set out to further. (/bid.) Inclusionary housing ordinances of general application like San Jose’s are exercises of a city’s land use and developmentauthority pursuant to its police power. Thetest for evaluating the constitutionality of such ordinances, accordingly,is the reasonablerelationship test. The Court of Appeal in Home Builders properly appliedthis test to the City ofNapa’s inclusionary housing ordinance which,like San Jose’s Ordinance, required a certain percentage of homes in new multi-family housing developments to be madeaffordable to low- and moderate-income households. (Home Builders, supra, 90 Cal.App.4th at 188.) Thecourt held that meeting the housing needs of low- and moderate-income households wasa legitimate state interest. (Jd. at 195.) It went on to hold that the ordinance’s 23 inclusionary housing requirements substantially advanced’that interest and, as such, were a valid exercise ofthe city’s police power. (Id. at 195-197.) In the instant case, CBIA argued beforethe trial court and the Court of Appealthat the holding in Home Builders was inapplicable, primarily claiming that Home Builders was decided on takingsprinciples and that CBIA’s challenge to San Jose’s inclusionary housing Ordinance wasnot a takings claim. (See Respondent’s Brief on Appeal at p. 52; AA 3136 [Plaintiff's Closing Trial Brief at p. 19]; see also Opinion, supra, 157 Cal.Reptr.3d at 817-818.) Now, as CBIA contendsforthefirst time that the Ordinance constitutes a taking, it conspicuously makes no mention ofHome Builders in its opening brief. (See POBat p. 2.) Home Builders’ holding that a local inclusionary housing ordinanceis a valid exercise of a city’s police power, however, is directly on point. 2. In A Facial Takings Challenge to A Law Enacted Pursuantto the Police Power, the Party Challenging the Law Bears the Burden of Proving the Law’s Unconstitutionality. The Court ofAppeal properly allocated the burden ofproofin its remandto the trial court. Citing Building Industry ofCentral California v. ° The “substantially advances”test established in Agins v. Tiburon (1980) 447 U.S. 255 and referenced bythe Court of Appeal in Home Builders was later invalidated as a freestanding takings analysis by Lingle v. Chevron U.S.A., Inc. (2005) 544 U.S. 528 (“Lingle”). However, as noted in Action Apartment Associationv. City of Santa Monica, (2008) 166 Cal.App.4th 456, 470, the decision in Lingle did not create a newtest for facial takings challenges, nor did it make Nollan/Dolan: scrutiny applicable to facial - claims. 24 County ofStanislaus (2010) 190 Cal.App.4th 582, 587-588 (“Stanislaus’’) and Action Apartment Ass’n, the Court ofAppeal instructed thetrial court “that it is CBIA's burden to establish the facial invalidity of the IHO,not the City's to provethat it survives the challenge.” (Opinion, supra, 157 Cal.Rptr.3d at 825) [emphasisin original].) Here, CBIA bearsthe burden ofproving that the Ordinanceis not reasonablyrelated to its stated purposes. This Court has noted that, when analyzing regulations enacted pursuantto cities’ police powers, courts must exercise deference to the policy determinations ofthe legislative body: Courts have nothing to do with the wisdom of laws or regulations, and the legislative power must be upheld unless manifestly abused so as to infringe on constitutional guaranties. The duty to uphold the legislative power is as much the duty of appellate courts as it is of trial courts, and underthe doctrine of separation of powersneither the trial nor appellate courts are authorized to “review”legislative determinations. The only function of the court is to. determine whetherthe exercise of legislative power has exceeded constitutional limitations. (Santa Monica Beach, supra, 19 Cal.4th at 962 [quoting Lockard v. City of Los Angeles (1949) 33 Cal.2d 453, 461-462].) 25 In the type of facial challenge mounted by CBIAhere,this Court has held that “petitioners must demonstrate that the act’s provisions inevitably pose a presenttotal and fatal conflict with applicable constitutional prohibitions.” (Pacific Legal Foundation v. Brown (1981) 29 Cal.3d 168, 180-181; accord, Tobe v. City ofSanta Ana (1995) 9 Cal.4th 1069, 1084; Arcadia Unified School Dist. v. State Dept. ofEducation (1992) 2 Cal.4th 251, 267; see also Sierra Club v. Napa County Bd. ofSupervisors (2012) 205 Cal.App.4th 162, 172-173.) CBIA “cannotprevail by suggesting that in somefuture hypothetical situation constitutional problems may possibly arise as to the particular application of the statute.” (Zuckermanv. State Bd. ofChiropractic Examiners (2002) 29 Cal.4th 32, 39 [emphasis omitted]; see American Academy ofPediatrics v. Lungren (1997) 16 Cal.4th 307, 347; Arcadia DevelopmentCo. v. City ofMorgan Hill (2011) 197 Cal.App.4th 1526, 1535.) Instead, “the challenger must establish that noset of circumstances exists under which the Act would be valid.” (California RedevelopmentAss’n. v. Matosantos (2011) 53 Cal.4th 231, 278 (conc. & dis. opn. of Cantil-Sakauye, C.J.) [quoting United States v. Salerno (1987) 481 U.S. 739, 745].) 26 B. Noneof the Cases Cited by CBIA Alters the Reasonable Relationship Test. . CBIAargues that generally applicable land use and development conditionsthat constitute “exactions” on new development “can only be sustained if both its purpose and extent are reasonably related to some negative public impact proximately caused by the new homeprojects on which the exaction would be imposed.” (POB at p. 17.) CBIAessentially asks for a heightened standard of review similar to the test developed in Nollan and Dolan for ad hoc development conditions rather than the reasonable relationship standard applicable to policies enacted pursuantto a local government’s police power. However, none ofthe cases cited by CBIAsupportsits position. 1. San Remo Hotel Did Not Create a Heightened Standard of Review. CBIAarguesthat, in deciding San Remo Hotel, this Court articulated a special, “intermediate” standard for analyzing local polices placing certain conditions and fees on development. (POBat pp. 17-19.) However, CBIA misreads San Remo Hotel which, rather than creating a new standard of review, applied the reasonable relationship test to an ordinance whose express purpose wasto mitigate the “deleterious public impacts” of new development. (San Remo Hotel, supra, 27 Cal.4th at 671.) The case 27 addressed a challenge to the City and County of San Francisco’s Residential Hotel Unit Conversion and Demolition Ordinance (HCO), an ordinance that soughtto mitigate the loss of affordable residential hotel units by the conversion of those units to tourist use. (/d. at 649.) Theplaintiffs brought both facial and as-applied challenges to the HCO,arguing thatits in-lieu fee provision should be subject to heightened Nollan/Dolan scrutiny rather than the more deferential reasonable relationship test. (San Remo Hotel, supra, 27 Cal.4th at 664-666.) This Court rejected the plaintiffs’ argument, holding that the in-lieu provision of the HCO wasvalid becauseits calculation and use bore “a reasonable relationship to loss of housing” caused by conversion ofresidential hotels to tourist use. (/d. at 673.) Far from making a generalized statement that every ordinance regulating land use or development must be “reasonably related . . . to the deleterious public impact of the development,” this Court carefully examined both the stated purposesand the termsofthe ordinance. (/d. at 671.) Because the HCO’s stated purpose wasto mitigate the loss of residential hotel units, the Court analyzed whether its terms were related to that purpose and foundthat they were. (lbid.) CBIA argues that the Court of Appeal’s opinion in the instant case ignores the holding in San Remo Hotel because the court below held that a 28 legislatively imposed developmentfee need not be reasonablyrelated to “negative public impacts proximately caused by the development” unlessits purposeis to mitigate the deleterious public impact. (POBatp. 32.) However, the Court in San Remo Hotel distinguished the HCO’s feesas fees whose express purpose was to mitigate the impacts of new development: Norare plaintiffs correct that, without Nollan/Dolan/Ehrlich scrutiny, legislatively imposed development mitigationfees are subject to no meaningful means-end review. As a matter of both statutory and constitutional law, such fees[i.e., development mitigation fees] must bear a reasonable relationship, in both intended use and amount,to the deleterious public impact of the development. (San Remo Hotel, supra, 27 Cal.4th at 671 [emphasis added].)’ Because the developmentfees at issue were development mitigation fees, they had to be reasonably related to mitigation of the impact5 Therefore, a proper application ofSan Remo Hotel to the Ordinanceis not to force the ’ The statutory law referenced is theMitigation Fee Act. (San Remo Hotel L.P. v. City & County ofSan Francisco, (2002) 27 Cal.4th 643, 671.) * “Wedecline plaintiffs’ invitation to extend heightened scrutiny to all development fees, adhering instead to the distinction we drew in Ehrlich, supra, 12 Cal.4th 854, Landgate, supra, 17 Cal.4th 1006, and Santa Monica Beach, supra, 19 Cal.4th 952 between ad hoc exactionsandlegislatively mandated, formulaic mitigation fees.” (San Remo Hotel, supra, 27 Cal.4th at pp. 670-671 [emphasis added].) 29 Ordinance’s inclusionary requirements to be reasonably related to the - HCO’s stated purpose of mitigating the impact ofnew development, but, instead, to ask whether the Ordinanceis reasonably related to its own stated purposes. (See Section VI.C., infra., for a discussionofthe relationship between the Ordinance’s purposesandits terms.) 2. Patterson Did Not Apply a Heightened Version of the Reasonable Relationship Standard. CBIAcites Building Industry Association ofCentral Californiav. City ofPatterson (2009) 171 Cal. App.4th 866 (“Patterson”) for the proposition that CBIA’s interpretation ofSan Remo Hotelappliesto all inclusionary housing policies. (POBat pp. 19-21.). In Patterson, however, the court applied the reasonablerelationship test to a fee provision that was explicitly designed to address the impacts ofnew development in an as-applied challenge to the imposition ofthat fee on a particular project. (Patterson, supra, 171 Cal.App.at 891-892, 898-899.) Interpreting a provision of the development agreementthat required any in-lieu fee increase to be “reasonably justified” based on the impact ofthe proposed development, the Court of Appeal applied the reasonable relationship test as articulated by San Remo Hotel. (Patterson, supra, 171 Cal.App. at 898-899.) Because the fee was designed to mitigate the impacts ofnew development—andbecausethe city advanced noalternative interpretation of the standard—the court held 30 that the fee was invalid becauseit was not “reasonably related to the need for affordable housing associated with the project.” (Jbid.) As with San Remo Hotel, Patterson does not endorse heightened scrutiny for legislatively imposed development conditions or fees. Instead, it applied the well-established reasonable relationship test to the way in which a particular fee had been calculated and foundthat fee to be invalid where the amountofthe fee was not reasonablyrelatedto its stated purpose. 3. This Court’s Recent Decision in Sterling Park Did Not Alter the Standard of Review. CBIA’s proposed modification of the standard ofreview rests in part on an unsupported expansionofthis Court’s recent holdingin Sterling Park. In Sterling Park, the Court decided the meaning ofthe term “exactions” for the purpose of determining whetherthe notice and protest requirements of one section of the Mitigation Fee Act (Gov. Code, §§ 66000-66025}— Government Code section 66020—applied tocertain requirements of Palo Alto’s inclusionary housing ordinance. (Sterling Park, supra, 57 Cal.4th at 1207.) It did not decide, as CBIA suggests, that “other exactions” as defined by section 66020 call for a unique standard of review underthestate or federal constitution.’ (POB at p. 25.) Sterling Park did not address whether ” Just as Justice Kennard pointed outin her concurringand dissenting opinion in Ehrlich that there was no need to construe the Mitigation Fee Act because the case was brought underthe takings clause (Ehrlich, supra, 12 31 a heightened constitutional analysis is required for a development condition imposedthrough an ordinance of general application for legitimate purposes other than mitigation of the impacts of development. The Sterling Park court found that only two aspects of Palo Alto’s inclusionary ordinance were “exactions,” and only for the purposes ofthe application of section 66020. As used in that section, this Court held that “other exactions” “includes actions that divest the developer ofmoney or a possessory interest in property.” (Sterling Park, supra, 57 Cal.4th at 1204.) Applyingthis principle to Palo Alto’s ordinancethe court held: The imposition ofthe in-lieu feesis certainly similar to a fee. Moreover, the requirement that the developersell units below market rate, including the City’s reservation ofan option to purchase the below market rate units, is similar to a fee, dedication, or reservation. (dd. at 1207 [emphasis added].) The Court concludedthat the reservation by the City of the option to purchasethe set aside units was“a sufficiently strong interest in property” to qualify as an exaction under section 66020 of the Act and therebytrigger the notice and protest requirements. (/bid.) It did Cal.4th at 903 (conc. & dis. opn. of Kennard, J.), in Sterling Park there was no needto determine the constitutional standard because the Court addressed only the construction of the Act. 32 not decide whetheran in-lieu fee or below-market-rate set-aside requirement in an inclusionary housing ordinance of general application (whether denominated an exaction or something else) necessitated an elevated standard of review for purposesof a constitutional analysis. (/d. at 1209) Indeed, “exaction”is a perilously imprecise term, and its assignment to a developmentcondition does not serve as the touchstone for determining the constitutional standard of review for local legislation. As this Court pointed out in Sterling Park, courts have had to resort to dictionaries and the rule of ejusdem generis to parse the meaning ofthe term.'° (SterlingPark, supra, 57 Cal.App.4th at 1204.) The definitions providelittle guidance becausethe dictionaries narrowly define exactions as something not lawful. (Ibid.) Yet, the Mitigation Fee Act’s use of “exaction” does not imply that exactionsare per se unlawful. In fact, the purpose of the Actis to ensure that any exactions imposed on development are imposedlawfully. (/d. at 1205[citing Ehrlich, supra, 12 Cal.4th at 864].) ° Thetreatises are likewise uncertain regarding the meaning of the term. One explains: “The definition is expansive. It includes. . . [t]he process by which developers are required, as a condition of development approval, to dedicate sites for public or commonfacilities; construct or dedicate public or common facilities; . . . or otherwise provide other specifically agreed upon public amenities.” (William W. Abbot, et al., EXACTIONS AND IMPACT FEES IN CALIFORNIA, ch. 2, Defining the Terms, P. 15 (Solano Press, 3rd ed. 2012).) Another book from the same publisher indicates the term is generally used in the contest of property dedication or impact fee requirements. (Cecily T. Talbert, CURTAIN’S CALIFORNIA LAND USE AND PLANNING LAW,ch. [2, Exactions: Dedications and DevelopmentFees, p. 353 (Solano Press, 33rd ed. 2013).) 33 CBIAsuggests that, under Sterling Park, a legislatively enacted below-market-rate, unit set-aside is a form of exaction that must be held to a stricter standard than required for review ofother local actions exercised pursuant the police power. (POBatpp. 25-28.) According to CBIA,this class of development conditions must be reasonably related to the “deleterious public impact” of the developmentrather than any other legitimate purpose that undergirdedthe local legislation. CBIAis essentially attempting to achieve via another route what this Court rejected in San Remo Hotel —an extension ofthe Nollan/Dolan heightened standard of review to ordinancesofgeneral application any time a condition required by an ordinance can be deemed an “exaction.” (San Remo Hotel, supra, 27 Cal.4th at 670-671.) CBIAinsists that such a condition must have an essential nexus and rough proportionality to a direct impact ofthe development regardless of the purpose ofthe set-aside. (POBat pp. 25-28.) In makingthis assertion, CBIA incorrectly assumesthat an exaction within the meaning of section 66020 cannotpass constitutional muster unlessit is shownto be reasonably related to the impact of development. This Court in Sterling Park was careful to distinguish between the purview of the notice and protest requirements of section 66020 and the other | requirements ofthe Mitigation Fee Act. A development regulation may 34 constitute an “other exaction” for purposesoftriggering the notice and protest procedures of section 66020, but the Court refrained from deciding whetherall other exactions would haveto satisfy the nexus requirements of the Act, let alone the essential nexus/rough proportionality requirements of Nollan/Dolan. (Sterling Park, supra 57 Cal.4th at 1207.) As the Court explained in Ehrlich, it construed the Act’s reasonable relationship test as “consistent with the high court’s decisions in Nollan and Dolan so that a developmentfee imposedpursuantto the act,‘and thatsatisfiesits requirements, will not be subject to challenge on constitutional grounds.” (Ehrlich, supra, 12 Cal.4th at 867 [emphasis added].) “[T]he term “reasonable relationship” embraces both constitutional andstatutory meanings which,forall practical purposes, have merged fo the extent that the Dolan decision applies to developmentfees... .” (/bid. [emphasis in original].) The Ordinance authorizes the City’s inclusionary housing guidelines to include options to purchase, which wereheld in Sterling Park to be interests in property constituting exactions undersection 66020. (AA 700- 701 [San Jose Mun. Code, § 5.08.600(A)]; Sterling Park, supra, 57 Cal.4th at 1207.) But the Ordinance doesnotitself reserve a purchase option in the City or otherwise require divestmentof an interest in property. At most, if 35 the City were to require reservation of an option to purchase for approval of a specific development, the Sterling Park decision may require that the City follow section 66020 notice and protest procedures. "! 4. The High Court’s Koontz Decision Applied Nollan/Dolan Scrutiny to Ad Hoc Exactions but Did Not Extend It to Ordinances of General Application. CBIAarguesthat the U.S. Supreme Court decision in Koontz compels this Court to hold the in-lieu fee provision of the Ordinance to a heightened “intermediate” reasonablerelationshiptest, that, in CBIA’s view, the Court imposed in San Remo Hotel. (POBat p. 37.) CBIA suggeststhat, because Koontz extended Nollan/Dolan scrutiny to the ad hocin-lieu fees required by a water managementdistrict, the case casts doubt on this Court’s decision in Ehrlich that developmentfees of general application are not subjectto Nollan/Dolan scrutiny. However, Koontz said nothing to warrant '! CBIAalsoasserts that the Ordinance’s authorization ofthe City’s recording deedrestrictions and deedsoftrust to enforce the affordability restrictions on below-marketunits effectively conveys to the City a recorded lien. (POB at p. 29.) Nothing, however, is conveyed. The recorded instruments merely enforce conformance with the price and userestrictions validly imposed by the Ordinanceso that the owners of below-market-rate units to not reap a windfall by selling at market price. (AA 700-702 [San Jose. Mun. Code, § 5.08.600].) The restriction ensures the property will not be illegally conveyed without the restrictions (and is the standard mechanism for local governments to ensure conformance with a wide array of development conditions). (AA 702-706 [San Jose Mun. Code, §§ 5.08.610 , 5.08.710].) 36 overturning Ehrlich and extending heightened scrutiny to legislatively imposed development fees. (Koontz, supra, 133 S.Ct. at 2599.) In Koontz, the in-lieu mitigation fees at issue were not based on generally applicable local legislation but, rather, were imposedas a condition of a permit approval for one development. (/bid.) And, unlike the in-lieu fee in the Ordinance, whichis an alternative to a legislated set-aside requirement, the fee in Koontz wasan alternative to a demanded ad hoc dedication of land. (Ibid.) CBIAonceagain tenders an artificial distinction betweenits so-called “intermediate” standard that it contends applies to developmentfees and a lesser “police power standard.” (POBat p. 35) But, as Justice Mosk observedin his concurrence in Ehrlich after reviewing many kinds of legislated development fees, including taxes, aesthetic fees, impact fees and user fees: “[T]he degree of scrutiny is not appreciably different. Courts will for federal constitutional purposes, defer to the legislative capacity ofthe states and their subdivisionsto calculate and charge fees designated for legitimate governmentobjectives unless the fees are plainly arbitrary or confiscatory.” (Ehrlich, supra, 12 Cal.4th at 897 [conc. opn. of Mosk,J].) Koontz foundthat alocal waterdistrict’s discretionary demand of a paymentin lieu of a dedication of real property amounted to an 37 unconstitutional condition for issuance of a developmentpermittriggering the heightened intermediate scrutiny ofNollan/Dolan. (Koontz, supra, 133 S.Ct. at 2594-2595.) However, this has been the law in California since this Court’s decision in Ehrlich, which held that the Nollan/Dolantests apply to monetary fees imposed on an ad-hocbasis as a condition for approval ofa developmentapplication. (Ehrlich, supra, 12Cal.4th at 867-868.) Theinstant case is decidedly not a case of the imposition of ad hoc unconstitutional conditions. San Jose’s Inclusionary Housing Ordinance provides for a non-discretionary in-lieu fee as one alternative to its 15 percent below marketunit set-aside requirement. Aslegislation of general application rather than an individualized fee imposed on a developer on an ad-hocbasis after the developer has applied for a permit, as was the case in Koontz, Nollan, and Dolan, the Ordinance does not present the same possibility of abusive leveraging of the permit powerto unconstitutionally condition permit approval on a previously undisclosed fee. Justice Alito explained in Kooniz that the central concern ofNollan and Dolan was “the risk that the government may useits substantial power and discretion in land-use permitting to pursue governmental ends that lack an essential nexus and rough proportionality to the effects of the proposed new use ofthe specific property at issue, thereby diminishing withoutjustification the value 38 of the property.” (Koontz, supra, 133 S.Ct. at 2600 [emphasis added]; see also Dolan, supra, 512 US. at 385 [noting that “the city made an adjudicative decision to condition petitioner’s application for a building permit on an individual parcel”].) Similarly, in Ehrlich, this Court notedthat Justice Scalia’s concern in Nollan wasthat “such a discretionary context presents an inherent and heightenedrisk that local governmentwill manipulate the police power to impose conditions unrelatedto legitimate land use regulatory ends. ...” (Ehrlich, supra, 12 Cal.4th at 868 [emphasis in original]; see also San Remo Hotel, supra, 27 Cal.4th at 666-667.) As some commentators have pointed out, Nollan/Dolan heightened scrutiny for discretionary land dedication and fee requirements arose in part out of a concern that an application of the reasonable relationship test by itself to such requirements could dilute the means-end requirements of the “substantially advance”test set out in Agins v. City ofTiburon (1980) 447 U.S. 255, 260. (See Timothy M. Mulvaney, The Remnants ofExaction Takings (Spring 2010) 33 Environmental Law & Policy J. 189, 199, 204- 205.) The concern wassimilar to the purported concern of CBIA here—that the basic reasonable relationship test would be usedto substitute a police powerobjective for the actual purpose of effectuating a regulatory taking without compensation. (/bid.) Lingle v. Chevron U.S.A., Inc. (2005) 544 39 US. 528 (“Lingle”), however, abrogated the focus on the means-end analysis by dispensing with the substantially advance test;'* instead, the court held a regulatory takings challenge to the application of a local ordinance is subjectto the test laid out in Penn Central Transportation Co. v. New York City (1978) 438 U.S. 104 (“Penn Central’), which places a greater burden onthe party challenging the ordinance. Under Penn Central, a litigant attacking legislation as a regulatory taking must demonstrate the law causesa severity of economic harm that is confiscatory given the particular circumstancesofthe case. (/d. at 124-125.) Neither Lingle nor Koontz did anything to extend the Nollan/Dolantestto facial attacks on development regulations of general application. In contrast to the in-lieu fee considered in Koontz, San Jose’s Ordinance provides no discretion to the City to increase the in-lieu fee on an ad hoc basis. As an ordinance adopted through the legislative process, moreover, it necessarily discloses the formula for determining the fee in advance of the permitting process. The in-lieu fee is determined based ona calculation of the cost of developing the affordable units otherwise required '* And as the Court pointed out, means-end scrutinyalso carries stron potential for abuse by plaintiffs. “[S]erious. practical difficulties” ensue 1 courts must conduct “heightened means-end review of virtually any regulation of private property.” (Lingle, supra, 544 U.S.at 544.) 40 by the Ordinance’s set-aside provision. (AA689-692 [San Jose Mun. Code § 5.08.520].) (See also section VI.C.2. c., infra.) C. San Jose’s Inclusionary Housing OrdinanceIs a Valid Exercise of Police PowerBecauseIt Is Reasonably Related to Its Legitimate urposes. 1. The Broad Purposesof the Ordinance Are Legitimate Public Purposes. The threshold question in determining whethera legislative enactment is a valid exercise of the jurisdiction’s police power is whether the purpose underlying the law is a “legitimate state interest.” (Home Builders, supra, 90 Cal.App.4th at 195.) There is no serious debate as to whether the purposes of San Jose’s inclusionary ordinancepassthis threshold. Asthis Court has held, the assistance of low and moderate-income households with their housing needsis recognized in this state as a legitimate governmental purpose. (Santa Monica Beach, supra, 19 Cal.4th at 970 [citing Gov. Code, § 65583(c)(2)].) Asnoted in Home Builders ... ... creating affordable housing for low and moderate income families is a legitimate state interest. Our Supreme Court has said that the “assistance of moderate-income households with their housing needsis recognized in this state as a legitimate governmental purpose.” This conclusion is consistent with 41 repeated pronouncements from the state Legislature which has declared that “the developmentofa sufficient supply of housing to meet the needsofall Californians is a matter of statewide concern,” and that local governments have “a responsibility to use the powersvested in them to facilitate the improvement and developmentofhousing to make adequate provision for the housing needsofall economic segments of the community.” (Home Builders, supra, 90 Cal.App.4th at 195 [citing, inter alia, Santa Monica Beach, supra, 19 Cal.4th at 970]; see also Meadv. City ofCotati (N.D. Cal. Nov. 19, 2008) No. C 08-3585 cw, 2008 WL 4963048,at *10, aff'd (9th Cir. 2010) 389 Fed. Appx. 637, cert. denied (2011) 131 S. Ct. 2900 [finding that the purposes of Cotati’s inclusionary housing ordinance were legitimate public purposes within the police power. The purposes included encouraging the developmentofaffordable housing,offsetting the - demandon housing created by new development, mitigating environmental and other impacts from development by protecting the economic diversity in the City’s housing stock, reducingtraffic, promoting jobs/housing balance and implementing policies of the housing element of the general plan].) Indeed, CBIA has repeatedly concededat trial and on appeal, as well as in its Opening Brief to this Court, that “increasing the supply of affordable 42 housing”is a “valid public purpose.” (POBat p. 11.) San Jose’s Inclusionary Housing Ordinance’s purposesfit squarely within this legislative mandate. By its terms, the Ordinance seeks “to enhancethe public welfare” and further the City’s General Plan goals by ensuring that the City can accommodateits need for housingforits workforce, accommodateits need for housing its lower-incomeresidents, and assist in addressing the regional need for housing. (AA 765-770 [San Jose Mun. Code, §§ 5.08.010, 5.08.020].) The Ordinance endeavorsto accomplish these objectives without over-concentration of affordable housing in one or a few areas of San Jose in order to achieve a more racially and economically balanced community. (Ibid.) 2. The Requirements of the Ordinance Are Reasonably Related To Its Purposes. The City established a substantial factual basis linking requirements of the Ordinanceto the important and legitimate purposes described above. CBIA focuses on the below-market-rate unit set-aside requirement and alternative in-lieu fees. The Ordinance, like most other inclusionary housing ordinances, however,is a blend ofdifferent types of local regulations and fees. These ordinances regulate the use, users, and price of a proportion of all new residential developments; and they contain alternatives that include off-site development,in-lieu fees, acquisition of existing units, rental 43 assistance for existing units and land dedications. (See AA 686-700 [San Jose Mun. Code §§ 5.08.500 — 5.08.570].); see also section III.A.1-3, infra. San Jose’s Ordinancehasall ofthese features, and all are reasonably related to the broad purposes ofthe Ordinance. (AA 686-700 [San Jose Mun. Code, §§ 5.08.500 — 5.08.570].) CBIAhasnotoffered any evidence contradicting the factual basis for the Ordinance, choosing instead to rest on its argumentthat the facts do not demonstrate a link to any “deleterious public impact” of new residential development. (a) The city-wide set-aside proportion In Livermore, this Court described the standard of review and process to determine whethera land use ordinancefalls within the authority of the police power, It began its analysis by reaffirming “the established constitutional principle that a local land use ordinancefalls within the authority of the police powerif it is reasonably related to the public welfare.” (Livermore, supra, 18 Cal.3d at 607.) Livermorearticulates the general rule that ordinances are presumed to reasonably relate to the general - welfare’ifit is “fairly debatable” that the requisite relationship exist. (/d. at '° Livermore determinedthat for the land use measuresatissue, the appropriate public welfare to consider wasthe “regional welfare” because the measures’ effects went beyondmunicipal boundaries. Livermore, supra, 18 Cal.3d at 609-610; As discussed infra, one purpose ofthe 44 605.) The Court explained that a reasonable relationship is established if there is reasonable factual basis for the relation to the public welfare. (id. at 609.) It is the burden ofthe challenging party, however, “to present the evidence and documentation” showing the lack offactual basis. (Ibid.) The Ordinance provides clear factual basis for its requirementthat 15 percent of for-sale units developed throughout the City be affordable to very low-, low- and moderate-income households. The Ordinancefirst establishes that 60 percent of the City’s share of the 2007-2014 Regional Housing Needs Allocation (RHNA)for new housing assigned by the Association of Bay Area Governments (ABAG)pursuant to Government Code §65584 is for housing affordable to extremely low-, very low-, low-, and moderate-income households. (AA 765-768 [San Jose Mun. Code, § 5.08.010].) The findings indicate, moreover, that the this allocation represents a substantial increase from the previous (1999-2006) planning period, with the low-income and very low-income need increasing by 45 percent and 121 percent, respectively. (/bid.) The Ordinance continues along these lines, finding that 46 percent of San Jose homeowners and 48 percent ofthe city’s renters are overpaying for housing. (/bid.) Finally, the Ordinancespecifies that “nearly 27,000 Extremely Low Income, 23,000 Ordinanceis to address San Jose’s share of the regional need for housing. 45 Very Low Income, and 20,000 Lower Income Households” wereeither paying more than 30 percent of their income for housingor living in overcrowded conditions or both.'* (Ibid.) These findings providea solid factual basis for the need for the 15 percent requirement. Onthese facts, the City could have justified a higher percentage. The City, however, also consideredthe effect of the set-aside requirement on the economics of development, It settled on the 15 percent proportion after extensive analysis and stakeholder feedback, which included input from market rate housing developers and their advocates. (See AA 1577-1578, 1604-1605, 1762-1774, 1819-1859, 1956-1957, [Rosen Report, supra, analyzing advantages and disadvantages of various percentage requirementsat variouslevels of affordability].) In fact, the City rejected a 20 percent inclusionary housing requirement in response to stakeholder feedback. (AA 1199-2000 [Attachment B to the Memorandum from Leslie Krutko, Director of Housing, to Community and Economic Development Committee (Nov. 19, 2008), at pp. 5-6 of Chart titled Comments Received During The Public Outreach Process (detailing stakeholder feedback on the proposed inclusionary housing policy)].) '* The findings in the ordinance explain that “[p]roviding decent housing at affordable costs allows households to utilize their resources for other necessary pursuits, such as education, food, investment, and saving for retirement.” (AA 765-768 [San Jose Mun. Code, § 5.08.010].) 46 The Ordinance’s base inclusionary housing provision requires affordable units to be included in each market rate unit development and thereby directly furthers the purpose of the San Jose 2020 General Plan that affordable housing will be dispersed throughoutthe city “in order to avoid concentrations of low income households and encourage racial and economic integration.” (AA 661 [San Jose Mun. Code, § 5.08.110]; see also AA 657-660 [San Jose Mun. Code, §§ 5.08.010 -5.08.020].) The requirementhelps ensure that future developmentwill not (deleteriously) exacerbate existing patterns of segregation and will contribute to creating more inclusive neighborhoods. The 15 percent obligation finds further support in the statewide inclusionary housing requirementof California’s Community Redevelopment Law (CRL). (HEALTH & SAF. CODE, §§ 33000 et seq.) Underthe CRL,at least 15 percent of all housing developed in a redevelopment area must be affordable to very low, low and moderate income households. (/d. at § 33413.) Ifa local redevelopmentagency is involved in a residential development at least 30 percent of the units must be affordable. (/bid.) Stanislaus offers a helpful comparison in assessing the reasonableness of the 15% set aside. The County’s agricultural element of its general plan 47 included a policy to preserve its limited supply of agricultural land that was critical to its economyby requiring 100 percent replacementofagriculture land rezoned for development. (Stanislais, supra, 190 Cal.App.4th at 587- 588.) Like CBIA here, the BIA did not question the legitimacy of the public interest served. (/d. at 592.) Like CBIAhere, the BIA arguedthat requirement did not demonstrate a reasonable. relationship to the public interest goal. (bid) The court found, however,that on its face the 100 percent replacement requirement wasreasonablyrelated to the legitimate public purpose ofpreserving farmlandto protect the County’s agricultural economy. (/d. at 593.) Here, the City determined that future residential developmentof land throughout the City must include affordable housing to meetthe needsof its low- and moderate-income households and workforce. It enacted an ordinance requiring future residential developments to include only 15 percent affordable housing or provide anin lieu fee related to the - cost of developing that housing elsewhere in the city. The 15 percent requirementis reasonably related to the purpose of ensuring the City’s limited supply of developable land will include affordable housing to accommodate existing and future residents and workers. Accordingly, the basis for the 15 percent obligation is adequately demonstrated in the San Jose’s IHO and supportedby the record. In the 48 words ofthe Court in Livermore, the point cannot even besaidto be “fairly debatable.” (See Livermore, supra, 18 Cal.3d at 605.) (b)The in-lieu fee and other alternative compliance options In San Remo Hotel, this Court found the in-lieu fee for San Francisco’s residential hotel conversion ordinance reasonably relatedtoits purposebecauseit was set by formula and proportionalto the cost of replacing the converted residential rooms. (San Remo Hotel, supra, 27 Cal.4th at 668-671.) The San Jose in-lieu fee is likewise formulaic and proportionalto the cost of the affordable units. The Ordinance providesthat the fee is directly related to the cost of developing the forgone below market-rate unit and must be used for that purpose: the fee “shall be no greater than the difference between the median sales price of an attached Market Rate Unitin the prior thirty six (36) month reporting period specified in the Inclusionary Guidelines and the Affordable Housing Cost... .” (AA 689-692 [San Jose Mun. Code, §§ 5.08.520}.) The fee is redetermined by the City Council annually based on analysis of current costs of construction and administration. (AA 691 [San Jose Mun. Code, § 5.08.520(C)].) Finally, the fee must be used for the developmentofaffordable housing. (AA 692 [San Jose Mun. Code, § 5.08.520(F)].) 49 The otheralternative compliance optionsare similarly reasonably related to both the Ordinance’s stated purposes and its underlying inclusionary housing requirement. Eachis designed to be a meaningful and comparable substitute for the affordable units that the developer has opted to forego. The land proposed for dedication for below market-rate unit developmentin the alternative to on-site development must have a valuethat is equivalent to the amountofthe in-lieu fee alternative and must comply with the City’s Affordable Housing Dispersal Policy or be located near transit. (AA 692-694 [San Jose Mun. Code, § 5.08.530].) Surplus inclusionary unit credits, acquisition and rehabilitation of affordable units, and HUD restricted units must be related to the underlying on-site unit requirement. (AA 694-699 [San Jose Mun. Code, §§ 5.08.540 -5.08.560].) The Ordinancealso permits a developer to combine alternative methods providing maximum flexibility. (AA 700 [San Jose Mun. Code, § 5.08.570].) (c) The price restrictions “In the context of price control, which includes rent control, courts generally find that a regulation bears ‘a reasonable relation to a proper legislative purpose’ so long as the law does not deprive investors of a ‘fair 999return’ and thereby become ‘confiscatory.’” (Kavanau v. Santa Monica 50 Rent Control Bd. (1997) 16 Cal.4th 761, 771 (citations omitted); Santa Monica Beach, supra, 19 Cal.4th at 967.) After discussing the Court’s analysis of the proper application of the Nollan/Dolan standard of review in the context of rent control, the Court in Santa Monica Beachrejected the plaintiff's contention that Nollan/Dolan scrutiny applies to rent control ordinances. “Rather, thestandard of review for generally applicable rent _ control laws mustbeat least as deferential as for generally applicable zoning laws and other legislative landuse controls.” ‘(Santa Monica Beach, supra, 19 Cal.4th at 967.) The Ordinance consequently ensuresthat its price restrictions on the set aside units may not deprive developers of a reasonable return on investment. Just as in the City of Napa’s ordinance (HomeBuilders, supra, 90 Cal.App.4th at 194), the San Jose ordinance providesthe City the ability to waive, adjust or reduce the requirements imposed by the ordinanceif application ofthe requirements would result in a taking in violation of the United States or California Constitutions. (AA 706-707 [San Jose Mun. Code, § 5.08.720].) (d)The userrestrictions The Ordinancerestricts the purchasers or renters of the below market- rate units to households meeting the requisite income category for which 51 those units were developed. (AA 700-702 [San Jose Mun. Code, § 5.08.600].) Ordinancesare generally held to a higher standard “when they commandinquiry into whoare the users.” (City ofSanta Barbara v. Adamson (1980) 27 Cal.3d 123, 133.) The Court made that statement, however,in the context of a zoning law that prohibited more than five unrelated persons from living together in certain zones. (Id. at 127). Adamsonheldthat the prohibition interfered with the right to marriage and the family derived from the right to privacy. (/d. at 129-130.) No right to privacy issue is implicated here because the ordinancelimits users of the below market units by income, not implicating any fundamental right. Instead, California law expressly authorizes local government to extend “preferential treatmentto... residential developments or emergencyshelters intended for the occupancybypersons and families of low and moderate income... .” (Gov. Code, § 65008(e)(2).)"* 'S Intervenors also note that nothing in Palmer/Sixth Street Properties, L.P. v, City of Los. Angeles (2009) 175 Cal.App.4th 1396, 1410-1411, prohibits local jurisdictions from restricting occupancy of a portion of new development to lower and moderate income households. Palmer held onl that the Costa-Hawkins Rental Housing Act (CIV. CODE §§ 1954.50 et seq. preempted the powerof local governmentto place rentrestrictions on below market units in new rental housing developments. It did not prohibit Los Angeles from enforcing limiting the occupancy of those units to the households with the targeted incomes. 52 3. The Requirements Of The Ordinance Are Also Reasonably Related to the “Deleterious Public Impact” Of New Development. In one sense, the debate over whether the reasonable relationshiptest requires a relationship between some“deleterious public impact” ofmarket rate housing developmentandthe inclusionary set-aside is more about the nature of the impactrather than the presence of an impact. CBIA arguesthat the new development must be shown to cause the need for the specific set- aside, whereas one goalofthe City for the set-aside is to ensure that new residential development does not negatively impactits ability to make adequate provision for its existing and projected affordable housing needs by failing to include affordable housing. CBIA provides no authority compelling the level of causation it seeks for ordinances of general application. As explained above,thereis no serious dispute that ensuring the inclusion of affordable homesin a community’s housing stock as that housing stock developsis a legitimate public purpose. New residential developmentthat uses the community’s finite land resources butfails to include below-marketrate housing, therefore, will have a negative impact on that legitimate purpose. Viewed in this light, the Ordinance’s set-aside and 53 in-lieu fee option meet the reasonablerelationship test as articulated specifically for impact mitigation ordinances in San Remo Hotel. The purposes ofthe Ordinance, in fact, encompassassisting in the alleviation of “the use of available residential land solely for the benefit of householdsthat are able to afford market rate housing ... and... the impacts of the service needs of households in new market-rate residential development by making additional affordable housing available.” (AA 659- 660 [San Jose Mun. Code, § 5.08.020].) They also include encouraging “the | geographic dispersal ofaffordable housing throughoutthe City to enhance the social and economic well-beingofall residents ....(AA 655--660 [San Jose Mun. Code, §§ 5.08.010, 5.08.020].)'® Market-rate development occurring without inclusionary affordable units compromisesthe City’s ability to meet its policy goals as set forth in its general plan and elsewhere, negatively impacts the City’s ability to meet its share of regional housing needs, and exacerbates an existing shortage of workforce housing. (See, e.g., AA 655-658 [San Jose Mun. Code, § 5.08.010]; AA 2175-2176 [City of San Jose General Plan, pp. 50-51]; AA 2723-2724 [Five-Year Housing Investment Plan FY 2007 — FY 2012, pp. 16-17].) '® This dispersal policy is found throughout the San Jose 2020 General Plan andrelated policies. (AA 655-658 [San Jose Mun. Code, §5.08.010].) 54 The Ordinance’s stated findingsreflect these purposes: _ 1. Rising land prices have been a key factor in preventing development of new affordable housing. New market-rate housing uses available land and drives up the price of remaining land. New development without affordable units reduces the amount of land development opportunities available for the construction of affordable housing. 2. New residents of market-rate housing place demands on service provided by both public and private sectors, creating a demand for new employees. Some ofthese public and private sector employees needed to meet the needs of the new residents earn incomes only adequate to pay for affordable housing.. . . (AA 658 [San Jose Mun. Code, §5.08.010(F)(1)-(F)2)]-) In summary, the Ordinance andthe record establish that both the existing and future need for affordable housing in the City is unmet and that future housing development must necessarily include below-market-rate housing if the City hopes to surmountits goal to overcomethiscritical exclusion. The Ordinance put in place a limited, economically feasible set- aside for affordable housing thatis actually lower than the existing and projected needs would justify. The Ordinance, therefore, is reasonably 55 related to alleviation and avoidance of the negative impacts ofnew residential development. VII. CONCLUSION AsJustice Mosk said when considering the validity ofpark land dedication requirementin the seminal Associated Home Builders v. City of Walnut Creek: Wesee no persuasive reason in the face of these urgent needs caused by the present and anticipated future population growth on the one hand and the disappearance of open land on the other to hold that a statute requiring the dedication of land by a subdivider may be justified only upon the ground that the particular subdivider upon whom an exaction has been imposed will, solely by the developmentofhis subdivision, increase the need for recreational facilities to such an extent that additional land for such facilities will be required. (Associated Home Builders, Inc. v. City of Walnut Creek (1971) 4 Cal.3d 633, 639-640; see also Remmengav. California Coastal Com. (1985) 163 Cal.App.3d 623, 628.)'’ Likewise, there is no reason in the face ofthe '’ Twenty-five years later Justice Mosk in his concurrence inEhrlich, supra, 12 Cal.4th at p. 897, succinctly explained the narrow application of test for an impact fee: “Jfthe fee is imposed to mitigate the impacts of 56 urgent existing and projected need for affordable housing and the scarcity of land to hold that San Jose’s inclusionary housing ordinance may bejustified only upon the groundthat the particular developerwill, solely by its development, increase the need for affordable housing. This Court should affirm the opinion of the Court of Appeal. Dated: January 31, 2014 Respectfully submitted, WILSON SONSINI GOODRICH & ROSATI Professional Corporation By: olleen Ba Corina I. Cacovean David Nefouse LAW FOUNDATIONOF SILICON VALLEY PUBLIC INTEREST LAW FIRM By: Whbe Ayy/ Kyra Kazantzis James F. Zahradka II Melissa A. Morris development, thenit will be upheldifthere is a reasonablerelationship between the fee and the development impact.” (Emphasis added.) 57 THE PUBLIC INTEREST LAW PROJECT CALIFORNIA AFFORDABLE HOUSING LAW PROJECT wv [Aledba Attorneys for Appellant/Defendant Intervenors Affordable Housing Network of Santa Clara County,et al: 58 CERTIFICATE OF WORD COUNT Pursuant to California Rules of Court Rule 8.204(c)(1), counsel for Appellants and Defendant Intervenorscertifies that exclusive of this certification, the Appellant/Defendant Intervenors’ AnswerBriefon the Merits contains 12,181 words, as determined by the word countofthe computer program used to prepare the brief Dated: January 31, 2014 WILSON SONSINI GOODRICH & ROSATI Professional Corporation » DILp= David Nefotise 59 DECLARATIONOF SERVICE BY MAIL I, TammyBell, declareas follows: I am a resident of the State of California, residing or employedin Palo Alto, California. I am over the age of 18 years and am nota party to the above- entitled action. My business address is 650 Page Mill Road, Palo Alto, California, 94304. On January 31, 2014, true copies ofAPPELLANT/DEFENDANT INTERVENORS’ ANSWERBRIEF ON THE MERITSwere placed in envelopes addressedto: Damien M.Schiff Anthony L. Francois Pacific Legal Foundation 930 G Street Sacramento, CA 95814 Telephone: 916.419.7111 - Andrew L. Faber Thomas P. Murphy Berliner Cohen Ten Almaden Boulevard, 11th Floor San Jose, CA 95113 Telephone: 408.286.5800 David P. Lanferman Rutan & Tucker, LLP Five Palo Alto Square 3000 El Camino Real, Suite 200 Palo Alto, CA 94306 Telephone: 650.320.1507 Margo Laskowska Office of the City Attorney City of San Jose 200 East Santa Clara Street San Jose, CA 95113 Telephone: 408.535.1900 Michael F. Rawson The Public Interest Law Project California Affordable Housing Law Project 449 15" Street, Suite 301 Oakland, CA 94612 Telephone: 510.891.9794 Melissa Antoinette Morris Law Foundation ofSilicon Valley 152 North ThirdStreet, 3Floor San Jose, CA 95112 Telephone: 408.280.2429 Nick Cammarota California Building Industry Association 1215 K Street, Suite 1200 Sacramento, CA 95814 Telephone: 916.443.7933 Paul Campos Building Industry Association of the Bay Area 101 Ygnacio Valley Road, Suite 210 Walnut ‘Creek, CA 94596 Telephone: 925.274.1365 James Higgins | Shepard Mullin Richter & Hampton, LLP Four Embarcadero Center 17" Floor San Francisco, CA 94111 Telephone: 415.434.9100 Court Clerk California Court of Appeal Sixth Appellate District 333 West Santa Clara Street, Suite 1060 San Jose, CA 95113 Telephone: 408.277.1004 Honorable Socrates Manoukian Santa Clara County Superior Court Old Courthouse 191 North First Street San Jose, CA 95113 Telephone: 408.882.2310 which envelopes, with postage thereon fully prepaid, were then sealed and deposited in a mailbox regularly maintained by the United States Postal Service in Palo Alto, California. I declare under penalty of perjury that the foregoingis true and correct and that this declaration was executed this 3 1s day of January, 2014, at Palo Alto, California. ' ‘|(gmnmy Bell