CALIFORNIA BUILDING INDUSTRY ASSOCIATION v. CITY OF SAN JOSE (AFFORDABLE HOUSING NETWORK OF SANTA CLARA COUNTY)Respondent’s Petition for ReviewCal.July 16, 2013$212072 ~~ cpr IN THE SUPREME COURTOF THE STATE OF CALIFORNIA No. CALIFORNIA BUILDING INDUSTRY ASSOCIATION, Petitioner, Vv. SUPREME COURT FILED Respondent. JUL 16 2013 CITY OF SAN JOSE, AFFORDABLE HOUSING NETWORK Frank A. McGuire Clerk ‘ OF SANTA CLARA COUNTY,et al., Deputy Intervenors. After an Opinion by the Court ofAppeal, Sixth Appellate District (Case No. H038563) On Appealfrom the Superior Court of Santa Clara County (Case No. CV167289, Honorable Socrates Manoukian, Judge) PETITION FOR REVIEW DAVID P. LANFERMAN, DAMIENM.SCHIFF,No. 235101 No. 71593 *ANTHONY L. FRANCOIS, Rutan & Tucker, LLP No. 184100 Five Palo Alto Square Pacific Legal Foundation 3000 El Camino Real, Suite 200 930 G Street Palo Alto, CA 94306-9814 Sacramento, California 95814 Telephone: (650) 320-1507 Telephone: (916) 419-7111 Facsimile: (650) 320-9905 Facsimile: (916) 419-7747 E-Mail: dlanferman@rutan.com E-mail: alf@pacificlegal.org Attorneysfor Petitioner California Building Industry Association TABLE OF CONTENTS Page TABLE OF AUTHORITIES ..........0. 0000 ccc ee ceeecceuecceee iii QUESTION PRESENTED FOR REVIEW ............0cc0cccceeeee 1 REASONSFOR GRANTING REVIEW ..............c00cccce eee 1 PROCEDURAL HISTORY...........0 00.0 c cece cece eee cceeeees 4 FACTUAL SUMMARY............. 0... c cece eee e een ecccee cece 5 ARGUMENT..... 0.0.ecee eenteeceeeees 7 I. CITY OFPATTERSONAND THE OPINION CONTRADICT EACH OTHER ON WHETHER SANREMO HOTEL APPLIES TO INCLUSIONARY HOUSING ORDINANCES ..... 7 A. City ofPatterson Holds That San Remo Hotel Applies to Inclusionary Housing Ordinances ................ 8 B. The Opinion Holds That San Remo Hotel Does Not Apply to Inclusionary Housing Ordinances ............. 9 II. INCLUSIONARY HOUSING ORDINANCES ARE A QUESTION OF SIGNIFICANT AND GROWING IMPORTANCEIN CALIFORNIA, AND THE COURT SHOULD GRANTTHE PETITION TO SETTLE THIS IMPORTANT QUESTION OF LAW ........... 14 Ill. THE UNITED STATES SUPREME COURT’S RECENT DECISION IN KOONTZ V. ST. JOHNS RIVER WATER MANAGEMENTDISTRICT UNDERMINESTHE OPINION, AND THIS COURT SHOULD GRANT THE PETITION TO ADDRESS THE IMPORTANT LEGAL QUESTION OF WHETHER DEVELOPMENT FEES SHOULD EVER BE REVIEWED AS MERE EXERCISES OF THE POLICE POWER ........... 16 CONCLUSION 2.0.00...enent eeeeeees 19 Page CERTIFICATE OF COMPLIANCE..........- 02s eee ee ee eee 20 DECLARATION OF SERVICE BY MAIL -ji- TABLE OF AUTHORITIES Page Cases Building Industry Association ofCentral California v. City ofPatterson, 171 Cal. App. 4th 886 (2009) .............. passim California Building Industry Association v. City ofSan Jose, 216 Cal. App. 4th 1373 (2013) ................ 1,4 Dillon v. Municipal Court, 4 Cal. 3d 860 (1971) .........00-0000000.. 5 Dolan v. City ofTigard, 512 U.S. 374 (1994) 2.0.0... cece eee eee ee 17 Ehrlich v. City ofCulver City, 12 Cal. 4th 854 (1996) .... 3, 11-12, 17-18 : Koontz v. St. Johns River Water ManagementDistrict, No. 11-1447, 2013 WL 3184628 (U.S. June 25, 2013)..... 3, 12, 16-19 Nollan v. California Coastal Commission, 483 U.S. 825 ( 1987) ....... 17 San Remo Hotel L.P. v. City & County ofSan Francisco, 27 Cal. 4th 643 (2002)...cece cee eee passim Sterling Park v. City ofPalo Alto, No. S204771 (filed Aug. 27, 2012) .....0000 00... c ccc eee cece ee 18 Tobe v. City ofSanta Ana, 9 Cal. 4th 1069 (1995) ................05. 5 California Statutes Gov't Code § 66020(a) ....... 0...cccc ceeee 18 § 66499.37cence cece ene eeeeeebtnenes 18 City Ordinances San Jose Municipal Code § 5.08.205 .. 0.0...0ce eee. 5 §5.08.310 2.ccc ccc ceee eet eceneeeee 5 - ili - Page § S.08.400(A)1) 2... cece eee eee tenet teen tees 6,9 § 5.08.400(A)(2) 2... eee cece eet eet ee teen ee ennes 6 § 5.08.470(B) .......Levee cee cee e cece eee e eee eee ee ee ennee 12 § 5.08.510 2... cece cee eee eee een nett e eens 6, 9 § 5.08.520(A) 0. occ cece eee teen eee nee teen eeas 6,9 § 5.08.520(B)(1) . 6. eeeeeeeee teen en ee es 6 SIO010) 6,9 § 5.08.550 2... cece eee eee teen ete ene es 6, 9 Rules of Court Cal. R. Ct. 8.264(b)(1)ooteentee eens 5 B.500(a(1)oeeee eee teen ent n nnn eens 1,5 B.500(D)\(1) 2... ec eee eee eee ene 2-3, 7, 14, 16, 19 0X00)(-) | @©aaa5 Miscellaneous Calavita, Nico, et al., Inclusionary Zoning: The California Experience, NHCAffordable Housing Policy Review 3(1), Feb. 2004, available at http://www.nhc.org/media/documents /IZ_CA_experiencet.pdf(last visited July 15, 201.)15 Cray, Adam F., The Use ofResidential Nexus Analysis in SupportofCalifornia’s Inclusionary Housing Ordinances! A Critical Evaluation, Goldman SchoolofPublic Policy, University of California, Berkeley, Nov. 2011, available at http://www.cbia.org/go/linkservid/06D3172D-35C3-4C71- 9A9098D439C63874/showMeta/0/(last visited July 10, 2013) ..... 1-2 -iv- Page Ellickson, Robert C., The False Promise ofthe Mixed-Income Housing Project, 57 UCLA L.Rev. 983 (2010) .... 2. ee, 14 Inclusionary Zoning: Legal Issues, California Affordable Housing Law Project, Dec. 2002, available at http://pilpca.org/wp-content/uploads/2010/10/ IZLEGAL _12.02.pdf(last visited July 10, 2013) ... 2... eee, 15 Inclusionary Zoning: Pro and Con, 1 Land Use Forum 1 (Cal. CEB,Fall 1991) woo. 15 Mandelker, Daniel R., The Effects ofInclusionary Zoning of Local Housing Markets: Lessonsfrom the San F:rancisco, Washington D.C., and Suburban Boston Areas, A.L..-A.B.A. Land Use Inst., Aug. 2008 .............0000.-0.., 15 Pursuant to California Rule of Court 8.500(a)(1), Plaintiff and Petitioner CaliforniaBuilding Industry Association (CBIA)hereby submits the following Petition for Review (Petition) ofthe published decision ofthe Court ofAppeal, Sixth Appellate District, filed on June 6, 2013, entitled California Building Industry Association v. City ofSan Jose, 216 Cal. App. 4th 1373 (June 6, 2013), a copy of whichis attached hereto as Exhibit A (Opinion). QUESTION PRESENTED FOR REVIEW Mustinclusionaryhousing ordinances which exactproperty interests or in-lieu development fees as a condition of development permit approval be reasonably related to the deleterious impact ofthe development on whichthey are imposed, as set forth in San Remo Hotel L.P. v. City & County of San Francisco, 27 Cal. 4th 643, 670 (2002)? REASONS FOR GRANTING REVIEW Inclusionary housing ordinances are legislative exactions, usually imposedbycities, which require builders of new homes, as a condition of permit approval, to set aside a numberof the new homes themselves, or pay the equivalent value throughin-lieu fees, for low income residents to purchase at below market prices. They are an increasingly common tool being implemented or considered by local governments in California to meet local needs for affordable housing. See generally Adam F. Cray, The Use of Residential Nexus Analysis in Support ofCalifornia’s Inclusionary Housing Ordinances: A Critical Evaluation, Goldman School of Public Policy, University of California, Berkeley, Nov. 2011, at 4.! Local governments, housing advocates, purchasers of affordable housing, developers, and purchasers of market-rate housing all need to have a clear legal standard to determine whethersuch ordinancesare constitutionally valid. This Court shouldgrantthe Petition under Rule ofCourt 8.500(b)(1) to secure uniformity of decision on whetherinclusionary housing ordinances must, as set forth in San Remo Hotel L.P. v. City & County ofSan Francisco, 27 Cal. 4th 643, 670 (2002) (San Remo Hotel), be reasonably related to any deleterious impacts of new residential developments on which they are imposed. This uniform rule oflaw is necessary because conflicting published opinions oftwodistricts of the Court of Appeal have now cometo opposite answers to that question. Building Industry Association of Central California vy. City of Patterson, 171 Cal. App. 4th 886, 898 (2009), holds that San Remo Hotel applies to inclusionary housing ordinances. The Opinion ofthe court below holds that San Remo Hotel does not apply to such ordinances. These two published decisions deal with materially identical inclusionary housing ordinances, and so cannot be distinguished on any principled ground. Trial ' Available at http://www.cbia.org/go/linkservid/06D3 172D-35C3-4C71- 9A9098D439C63874/showMeta/0/(last visited July 10, 2013). 2. courts and appellate courts will have no basis on whichto decide whether the facts of a challenged inclusionary housing ordinance are more like those in City ofPatterson or morelike those in the Opinion, because the facts in these two casesare materially the same. As a consequence,future courts will have to choose which case to follow, and the result will be a patchwork of legal standardsacrossthestate. This Court should also grant review to settle the important legal question of the extent to which the United States Supreme Court’s recent decision in Koontz v. St. Johns River Water Management District, No. 11- 1447, 2013 WL 3184628 (U.S. June 25, 2013) (Koontz), governs the judicial review ofin-lieu developmentfees in California. Koontz clarifies thatall in- lieu fees are landuse exactions, which calls into serious question the Opinion’s holdingthat in-lieu fees in inclusionary housing ordinances can be upheld as mere exercises ofa city’s police power. This Court should grant review under Rule 8.500(b)(1) to settle the important legal question of whether, under Koontz, in-lieu developmentfees in California must always be subject to the more rigorous standards ofjudicial review required by this Court’s decisions in Ehrlich vy. City ofCulverCity, 12 Cal. 4th 854 (1996), and San Remo Hotel. PROCEDURAL HISTORY CBIA commenced this action by filing its timely Complaint and Petition for Writ ofMandate on March 24, 2010 (Appellant’s Appendix (AA) 0001-0074), as a facial challenge to the City of San Jose’s Inclusionary Housing Ordinance, No 28689 (Ordinance), adopted January 26, 2010, and effective February 26, 2010. (AA 0017.) Following a benchtrial, the trial court issuedits Order Granting Plaintiff’ s Request for Temporary, Preliminary, and PermanentInjunctive Relief(Order) on May 25, 2012. (AA 3348-3354.) In the Order, the trial court applied San Remo Hotel, found that the City of San Jose (San Jose) had not identified any evidencethat the Ordinance was reasonably related to any impact ofnew market rate housing developmentin the city, and permanently enjoined San Jose from enforcing the Ordinance absent such an evidentiary showing in the future. (AA 3353.) The Court entered JudgmentAfter Trial on July 11, 2012, AA 3355-68, and Defendants appealed on July 18, 2012. (AA 3391-3395.) The Court of Appeal, Sixth Division,filed its published opinion, CBIA v. City ofSan Jose, 216 Cal. App. 4th 1373 (2013) (Opinion), on June 6, 2013. The Opinion reverses the Order and holds that San Remo Hotelis not applicable to the Ordinance, which is instead reviewableonly as an exercise of the City’s police power. Opinion, slip op. 16. The Opinion remands the case tothe trial court for further proceedings subjectto the revised standard ofreview. Opinion, slip op. at 19. Both Plaintiffand Defendantsfiled timely petitions for rehearing in the Court of Appeal on June 21, 2013, which petitions were denied on July 1, 2013. The Opinionis final in the Court ofAppeal as ofJuly 6, 2013. Cal. R. Ct. 8.264(b)(1). CBIA nowfiles this timely Petition in this Court under Rules of Court 8.500(a)(1) & (e)(1). FACTUAL SUMMARY This case is a facial challenge to the constitutional validity of the Ordinance. As such, the relevant facts are the provisions of the Ordinance itself. Tobe v. City ofSanta Ana, 9 Cal. 4th 1069, 1084 (1995)(citing Dillon vy. Municipal Court, 4 Cal. 3d 860, 865 (1971)). The Ordinance applies to all new, non-exempt residential housing developments of more than 20 units in San Jose. San Jose Municipal Code (SJIMC) § 5.08.310;? Opinion, slip op. at 3. The Ordinance defines “inclusionary units” as residential units affordable to buyers with from extremely low up to moderate incomes, SJMC§ 5.08.205, and requires that new for-sale developmentsset aside 15% oftheir units as inclusionary units, 2 The Ordinanceis codified in the San Jose Municipal Code (SJMC), Title 5, Chapter 5.08. Future section references are to the SJMC (available at http://sanjose.amlegal.com/nxt/gateway.dll/California/sanjose_ca/sanjosem unicipalcode?f=templates$in=defaulthtm$3 0$vid=amlegal:sanjose_ca). -5- id. § 5.08.400(A)(1).* Opinion,slip op. at 3. In the alternative, developers may substitute oneofthe following exactions: (1) Build inclusionary units offsite equal to 20% ofthe number of marketrate units, SJMC § 5.08.510. (2) Pay an in-lieu fee.* Id. § 5.08.520(A). City staffprojected that the in-lieu fee would be approximately $122,000 per inclusionary unit. AA 0944. (Attachment D to October 26, 2009 memorandum from Leslye Krutko, San Jose City Director of Housing, to Mayor and City Council, AA 0921- 0944.) (3) Dedicate landthat is suitable for construction of inclusionary units and whose valueis at least that of the applicable in-lieu fee. SJMC § 5.08.530(A). (4) Acquire and/orrehabilitate existing units for use as inclusionary units. Id. § 5.08.550. Thetrial court found that San Jose could point to no evidencein the record that any of these exactions are reasonablyrelated to any deleterious public impacts ofnew residential developments. Orderat 6, AA 3353. > A suspendedprovision, SIMC § 5.08.400(A)(2), requires that new rental developments set aside 20% oftheir units as inclusionary units. * The amount ofthe in-lieu fee is the difference between the mediansales price ofan attached marketrate unit in the prior 36 months and the affordable housingcost for a householdof2% persons earning no morethan 1 10% ofthe area median income. SJMC § 5.08.520(B)(1). -6- ARGUMENT I CITY OFPATTERSONAND THE OPINION CONTRADICT EACH OTHER ON WHETHERSANREMOHOTEL APPLIES TO INCLUSIONARY HOUSING ORDINANCES In the nine California counties that comprisethe Fifth District Court of Appeal(Fresno, Kern, Kings, Madera, Mariposa, Merced,Stanislaus, Tulare, and Tuolumne Counties), inclusionary housing ordinancesare subjectto legal review under the San Remo Hotel standard. Bldg. Indus. Ass’n ofCent. Cal. v. City of Patterson, 171 Cal. App. 4th 886, 898 (2009). In the four neighboring counties comprising the Sixth District Court of Appeal (Santa Clara, San Benito, Santa Cruz, and Monterey Counties), inclusionary housing ordinancesare not subject to legal review under the San Remo Hotel standard. Opinion, slip op. at 16 (“We thus conclude that the standard articulated in San Remois inapplicable here, and that the Ordinanceshould be reviewed as an exercise of the City’s police power.”). The inclusionary housing ordinances reviewed in each of these cases are materially indistinguishable, yet the decisions come to opposite holdings on the application of San Remo Hotel. This Court should grant the Petition under Rule of Court 8.500(b)(1) to resolve this conflict. A. City ofPatterson Holds That San Remo Hotel Applies to Inclusionary Housing Ordinances In City ofPatterson, the ordinance in question required developers of new residential housing to meet one of four requirements, as a condition of development permit approval, in furtheranceofthecity’s affordable housing policy: “(1) build affordable housing units; (2) develop senior housing within the project; (3) obtain a sufficient numberofaffordable residential unit credits from otherresidential developments within City; or (4) pay an in-lieu fee at the time the building permit is issued for a market rate housing unit.” City of Patterson, 171 Cal. App.4th at 890. The essential requirements of Patterson’s inclusionary housing ordinance are (1) providing affordable units as part of the development, (2) paying anin-lieu fee, or (3) offsite compliance(in this case, throughcredit transfers from other residential developments). These are the sameessential elements of the Ordinance, as demonstrated below. In City of Patterson, a home builder challenged the in-lieu fee requirement whenthe city increased the fee from $734 to $20,946 per new single family home. Jd. at 891, 893. The Court ofAppeal concluded in City ofPatterson that the ordinance in question was “not substantively different” from the housing replacementfee considered in SanRemo Hotel, and held that under San Remo Hotel, the ordinance in question could only be upheld ifit had a reasonable relationship to the “deleterious public impact of the -8- development.” City ofPatterson, 171 Cal. App. 4th at 897-98 (discussing San Remo Hotel, 27 Cal. 4th at 671). The Court ofAppealthen concludedthatPatterson’s in-lieu fee was not reasonably related to the impactofthe plaintiffs development, or any new development, because it was calculated on the number of affordable housing units allocated to Patterson by Stanislaus County, rather than any need for new housing caused by plaintiff's development or any of Patterson’s pending residential developments. City ofPatterson, 171 Cal. App. 4th at 899. B. The Opinion Holds That San Remo Hotel Does Not Apply to Inclusionary Housing Ordinances The Ordinance reviewedin the Opinion requires the developers ofnew residential projects of at least 20 units, as a condition of permit approval, to surrender one of the following exactions: (1) provide 15% ofthe units as inclusionary units (definedin termsofaffordability to those with moderate to extremely low incomes);° (2) pay an in-lieu fee of $122,000,° or dedicate land of an equivalentvalue,’ per required inclusionary unit; or (3) comply off-site through construction, acquisition, or rehabilitation of inclusionary units.® 5 SJMC § 5.08.400(A)(1). 6 Id. § 5.08.520(A); AA 0944. 7 SIMC § 5.08.530(A). 8 Id. §§ 5.08.510, 5.08.550 The court below considered whether San Remo Hotelapplies to the Ordinance,and heldthatit does not. Opinion,slip op. at 16. The Opinionfirst notes thatthe plaintiffs in SanRemoHotel werechallenging a developmentfee whose purpose wasto mitigate the loss of residential housing caused by the conversion ofresidential hotels to tourist use. Opinion,slip op. at 11 (citing San Remo Hotel, 27 Cal. 4th at 671, 673). The Opinion proceedsto observe that it was reasonable for this Court to require a reasonable relationship between the housing replacement fee and the hotel conversions in question because the fee was a mitigation fee for the hotel conversions. Opinion, slip op. at 11. The Opinion next concedesthat the Ordinance is not intended to mitigate any loss of affordable housing caused by new residential development, but then remarkably concludesthat“whether the Ordinance was reasonably related to the deleterious impact of market-rate residential developmentin San Jose is the wrong question to askin this case.” Opinion, slip op. at 11 (emphasis added). Byanalyzing San RemoHotelin this way,the court below goes beyond contradicting City ofPatterson,to vitiating this Court’s holding in San Remo Hotel. The Opinion reads San Remo Hotelas only requiring a reasonable relationship between a developmentfee andthe deleterious public impacts of the developmentin those (soon to be rare) cases where a local governmentis foolish enough to claim that the fee is to mitigate harm caused by the -10- development. Under the Opinion, local governmentsare free ofthe San Remo Hotelstandardifthey are savvy enoughto denythata legislative development fee has any relationship to any negative impacts of the development. This contradicts San Remo Hotel, which requires that all legislative monetary exactions bear a reasonable relationship, in amount and purpose, to the deleterious impacts of the development. 27 Cal. 4th at 670. The Opinion also makes a fundamentalerror whenit concludesthat the Ordinance should be reviewedas an exercise of the police power. Opinion, slip op. at 16. The only authority under which the Opinion could have applied this standard is Ehrlich v. City ofCulverCity, 12 Cal. 4th at 886, although the Opinion doesnotcite this case. Ehrlich held that a legislative developmentfee to fund public art was similar to conventional zoning ordinances that govern color schemes, landscaping, andarchitectural features. As such,the in-lieu fee was equivalent to an ordinary aesthetic or landscaping requirement enacted underthe police power and hencenotsubject to any heightened scrutiny. Jd. This Court has never extended this holding ofEhrlich beyond the context of aesthetic zoning regulations. But the Opinion provides noanalysis at all of whether the Ordinance has anything to do with aesthetic elements of residential developments, and makesno conclusionson that subject.’ Absent ° The Ordinanceis not an aesthetic zoning ordinance. It requires that the exterior aesthetics ofinclusionary units be the sameas marketrate units within (continued...) -ll- such a finding to support a conclusion that Ehrlich applies, the remaining option is that the Ordinanceis a legislative monetary exaction, subject to San Remo Hotel. Accord Koontz, 2013 WL 3184628, at *12 (in-lieu development fees are “functionally equivalent to other types of land use exactions.”). Despite these problems, the Opinion holds that San Remo Hotel does not apply to the Ordinance. As with Patterson’s inclusionary housing ordinance, the essential requirements of San Jose’s Ordinance are: (1) providing affordableunits as part ofthe development, (2) paying an in-lieu fee, or (3) offsite compliance (in this case, through building, buying, or rehabilitating offsite inclusionary units). Despite considering materially identical ordinances, the Opinion cameto the opposite holding as City of Patterson on whether San Remo Hotel applies to inclusionary housing ordinances. Opinion,slip op. at 16. As aresult, City ofPatterson andthe Opinion create a conflict between two districts of the Court of Appeal on whether inclusionary housing ordinances mustbe reasonably related to the impacts ofthe developments on which they are imposed (as City ofPatterson holds), or whether they may (...continued) a development, i.e., to the extent the Ordinance deals at all with design, it expressly imposes no different exterior aesthetic requirements. SJMC § 5.08.470(B). In any event, the in-lieu fee in the Ordinance has nothing to do with whatthe inclusionary units look like, only whatthey cost. -12- simply be reasonablyrelatedto any legitimate public purpose (as the Opinion holds). The Opinion attempts to distinguish City ofPatterson, Opinion, slip op. at 12, but fails to do so on anyprincipled basis that wouldlegitimately divide the two cases. The facts in these two cases are the same in all material respects, and the pertinent legal question is the same in both cases. Future courts will have no basis on which to determine whether the facts of a particular inclusionary housing ordinance are more analogousto the facts in City ofPatterson, or to the materially identical facts in the Opinion. Future courts will thus be left with the independent choice of which decision’s holding to follow, and will create a patchwork of different legal rules across the state. In arguing fora distinction, the court below notesthat City ofPatterson did not involve a facial challenge, and hencethe plaintiff in that case was not required to meet the burden of showing the ordinance to be unconstitutional in the “generality or great majority of cases,”the test San Remo Hotel applies for facial challenges. Opinion, slip op. at 12; San Remo Hotel, 27 Cal. 4th at 673. But that confuses the legal standard this Court established for legislative developmentfees in San Remo Hotel with the burden a plaintiff must meet when applyingthattest in a facial challenge. San Remo Hotelruled on both a facial and an as-applied challenge to the San Francisco Housing -13- Conversion Ordinance. See San Remo Hotel, 27 Cal. 4th at 672 (“Plaintiffs attack the housing replacementprovisions ofthe HCO bothontheir face and as applied to the San Remo Hotel.”). San Remo Hotel applied the same rule in resolving both the facial and as-applied challenges, by examining whether the in-lieu fees in question were reasonablyrelatedto loss ofresidential hotel units in general, and whether the San Remo Hotel’s calculated fee was reasonably related to the specific loss ofits residential units. Jd. at 672-74, 677-79. There is no basis for the Opinionto distinguish City ofPatterson’s application ofthe San Remo Hotelrule on the basis that City ofPatterson was an as-applied challenge. The Opinion and City ofPatterson directly conflict, and this Court should grant the Petition under Rule of Court 8.500(b)(1) to resolve this conflict. I INCLUSIONARY HOUSING ORDINANCESARE A QUESTION OF SIGNIFICANT AND GROWING IMPORTANCE IN CALIFORNIA, AND THE COURT SHOULD GRANTTHEPETITION TO SETTLE THIS IMPORTANT QUESTION OF LAW “The exaction of inclusionary housing from developers . . . is most prevalent in states where housing is exceptionally expensive, such as California ....” Robert C. Ellickson, The False Promise ofthe Mixed-Income Housing Project, 57 UCLA L. Rev. 983, 1020 (2010). In the 1980s, only -14- about 35 California cities and counties adoptedinclusionaryhousingprograms, some ofwhich mayhaveincluded voluntary programsrather than exactions. Inclusionary Zoning: Pro and Con, | Land Use Forum 1 (Cal. CEB,Fall 1991). By 1996, however, this number grew to 75 locally mandated inclusionary housing programs across California. Nico Calavita et al., Inclusionary Zoning: The California Experience, NHC Affordable Housing Policy Review 3(1), Feb. 2004,at 6.°° By 2002, the number was more than 100, and rising rapidly. Inclusionary Zoning: Legal Issues, California Affordable Housing Law Project, Dec. 2002,at 2."! Supporters ofinclusionary housing ordinancesconsider them to be “an important evolution in affordable housing policy” because they reduce the need for direct public payments for affordable housing. Daniel R. Mandelker, The Effects ofInclusionary Zoning ofLocal Housing Markets: Lessonsfrom the San Francisco, Washington D.C., and Suburban Boston Areas, A.L.L.- AB.A.Land UseInst., Aug. 2008. However, as this Petition and City of Patterson attest, inclusionary housing ordinances raise significant constitutional and legal issues which require uniform resolution. As California’s housing market recovers and housing affordability concerns '0 Available at http://www.nhc.org/media/documents/IZ_CA_experiencet.pdf (last visited July 15, 2013). | Available at http://pilpca.org/wp-content/uploads/201 O/1OIZLEGAL_12. 02.pdf(last visited July 10, 2013). -15- increase, manymore ofCalifornia’s 482 cities will likely consider inclusionary housing ordinances to advance affordable housing goals. In order to ensure orderly and effective consideration of such policies going forward, this Court should grant the Petition under Rule 8.500(b)(1) to settle the important legal question of whether San Remo Hotel applies to inclusionary housing ordinances. Tit THE UNITED STATES SUPREME COURT’S RECENT DECISION IN KOONTZ V. ST. JOHNS RIVER WATER MANAGEMENTDISTRICT UNDERMINESTHE OPINION, AND THIS COURT SHOULD GRANTTHE PETITION TO ADDRESS THE IMPORTANT LEGAL QUESTION OF WHETHER DEVELOPMENT FEES SHOULD EVER BE REVIEWED AS MERE EXERCISES OF THE POLICE POWER The Opinion holds that in-lieu fees under inclusionary housing ordinances are subject to the most lenient standard of judicial review, that applicable to the exercise ofthe police power, under which the Ordinance may be deemed valid if it has a substantial and reasonable relationship to a legitimate public interest. Opinion,slip op. at 16. Subsequentto the filing ofthe Opinion, and while CBIA and San Jose’s petitions for rehearing werepending,’ the UnitedStates SupremeCourt issued * CBIAfiled a Notice of Supplemental Authority with the court below on July 1, 2013. -16- its decision in Koontz v. St. Johns River Water ManagementDistrict, 2013 WL 3184628, which holds in relevant part that a government’s demandfor property from a land use applicant mustsatisfy the requirements ofNollanv. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994), even when the demand is for money. Koontz, 2013 WL 3184628, at *16. Koontz discusses the relationship between exactions ofinterests in real property and in-lieu fees, finding in-lieu fees to be commonplace and “functionally equivalent to other types of land use exactions.” Jd. at #12. The connection between a demand for money and a specific parcel of real property in the context of a development permit application is the essential factor in whether Nollan and Dolan apply to monetary exactions. Jd. at **12-13. Koontz’s statementthat all developmentin-lieu fees are simply a type of land use exaction undermines the Opinion’s holding that developmentfees such as those in inclusionary housing ordinances can be reviewed under the deferential police powerstandard. This Court has applied higher standards of review to adjudicatory developmentfees,inEhrlich, 12 Cal. 4th at 859 (Nollan andDolan scrutiny apply to adjudicatory developmentfees imposed to replace recreational zoned land rezoned for development), and an intermediate standard of reviewto legislative development fees in San Remo Hotel. By makingclear that all developmentin-lieu fees are exactions, Koontz indicates -17- at the least that these are the only two options for California courts to apply, and that in-lieu fees in California are always subject to the standardsofeither Ehrlich or San Remo Hotel.” The Court is currently addressing a related question in the case of Sterling Park v. City ofPalo Alto, No. S204771 (filed Aug.27, 2012). In that case, the issue is whether an action challenging a city’s imposition of conditions on a developmentproject undera local ordinanceis subject to the 90 day statute of limitations of the Subdivision Map Act, Gov’t Code § 66499.37, or the 180 day statute of limitations of the Mitigation Fee Act, which is applied whenchallenging the imposition of “anyfees, dedications, reservations,or other exactions.” Gov’t Code § 66020(a). The ordinance in question in the Sterling Park caseis similar to the inclusionary housing ordinancesconsidered in City ofPatterson and the Opinion, andboththetrial court and the court of appeal in Sterling Park ruled that these ordinances are not “other exactions”within the meaning ofthe Mitigation Fee Act. In Sterling Park, this Court will resolve the statutory question of whether inclusionary housing ordinances impose exactions for purposes of judicial review underthe Mitigation Fee Act. Granting reviewinthis casewill '3 Koontz also casts doubt on the continuingvalidity ofthis Court’s ruling in Erlich that Culver City’s “art in public places” fee was an ordinary aesthetic zoning requirement under the police power and not subject to heightened scrutiny. Ehrlich, 12 Cal. 4th at 886. -18- allow the Court to resolve the broader constitutional question of whether inclusionary housing ordinances are exactions under San Remo Hotel and Koontz. This Court should grantthe Petition under Rule ofCourt 8.500(b)(1) to address the important question of law inherent in how Koontz applies to developmentin-lieu fees in California. CONCLUSION This Court should grant the Petition under Rule ofCourt 8.500(b)(1) to resolve the conflict created by the Opinion and City ofPatterson over whether San Remo Hotel applies to inclusionary housing ordinances, and to settle the important legal question ofhow the United States Supreme Court’s decision in Koontz applies to in-lieu developmentfees in California. DATED:July 15, 2013. Respectfully submitted, DAMIENM.SCHIFF ANTHONY L. FRANCOIS Pacific Legal Foundation DAVID P. LANFERMAN Rutan & Tucker, LLP By iaC f Teesys ANTHONYL. FRANCOIS Attorneys for Petitioner California Building Industry Association -19- CERTIFICATE OF COMPLIANCE Pursuant to California Rule of Court 8.204(c)(1), I hereby certify that the foregoing PETITION FOR REVIEWis proportionately spaced, has a typeface of 13 points or more, and contains 4,227 words. AL/SCCet £O 5S ANTHONYL. FRANCOIS DATED: July 15, 2013. - 20 - -21- Filed 6/6/13 CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT CALIFORNIA BUILDING INDUSTRY H038563 ASSOCIATION, (Santa Clara County Super. Ct. No. 1-10-CV167289) Plaintiff and Respondent, V. CITY OF SAN JOSE, Defendant and Appellant. AFFORDABLE HOUSING NETWORK OF SANTA CLARA COUNTY,etal., Interveners and Appellants. Respondent California Building Industry Association (CBIA)broughtthis action for declaratory and injunctiverelief against the City of San Jose, the City Council, and the mayor(collectively, "the City") to invalidate the City's "Inclusionary Housing" _ ordinanceonits face. The superior court granted the requestedrelief, on the ground that the City had failed to demonstrate a nexus between the challenged ordinance and the "deleterious public impacts ofnew residential development." The City appeals. Also separately appealing are several nonprofit entities that intervened in the action. We find the appellants’ arguments to be well taken. Accordingly, we must reverse the judgment and remandthe matter for further consideration. Background Repeatedly throughoutTitle 7 ofthe Government Codethe Legislature has highlighted the "severe shortage of affordable housing"in this state, "especially for persons and families of low and moderate income." (Gov. Code, § 65913, subd. (a).)! In the Housing Accountability Act the Legislature stated that the lack of housing "is a critical problem that threatens the economic, environmental, and social quality oflife in California." (§ 65589.5, subd. (a)(1).) The Legislature further recognizedthat "California housing has becomethe most expensive in the nation." (§ 65589.5, subd. (a)(2).) Accordingly, the Legislature has expressly declared that the availability ofhousing for every Californian is "of vital statewide importance." (§ 65580.) To that end, local governments are chargedwith the responsibility of facilitating the provision of housing for "all economic segments of the community." (Jbid.) Eachlocality, however,is acknowledgedas "best capable of determining what efforts are required by it to 1 All further statutory references are to the Government Code unless otherwise indicated. 2 “The Legislature finds and declares as follows: [{] (a) Theavailability of housing is of vital statewide importance, andthe early attainment of decent housing anda suitable living environment for every Californian, including farmworkers,is a priority of the highest order. [{] (b) Theearly attainmentofthis goal requires the cooperative participation of governmentandtheprivate sector in an effort to expand housing opportunities and accommodate the housing needs ofCalifornians ofall economic levels. [{] (c) The provision of housing affordable to low- and moderate-income households requires the cooperation ofall levels of government. [{] (d) Local and state governments havea responsibility to use the powers vested in them to facilitate the improvement and developmentofhousing to make adequate provision for the housing needsofall economic segments of the community. [{] (e) The Legislature recognizes that in carrying out this responsibility, each local governmentalso has the responsibility to consider economic, environmental, and fiscal factors and community goals set forth in the general plan and to cooperate with other local governments andthe state in addressing regional housing needs." contribute to the attainmentofthe state housing goal," by addressing regional housing needs through the implementation of "housing elements"as part of the community's general plan. (§§ 65581, 65582.) Section 65583 delineates the components ofthose housing elements, including an assessment of housingneedsforall incomelevels, the identification of adequate housing sites, and a program thatassists in the development of such housing "to meet the needs of extremely low, very low, low-, and moderate-income households." (§ 65583, subd. (c)(2).) The housing elementis presumptively valid. (§ 65589.3.) The City's effort to implement thestate's policy took the form of Ordinance No. 28689,the Inclusionary Housing Ordinance (IHO or the Ordinance), which the city council passed on January 12, 2010. In the measure,the city council citedits "legitimate interest" in alleviating the shortage of affordable housing in San Jose for "Very Low, Lower, and Moderate Income Households." The "Inclusionary Housing Requirement" of the new law called for residential developments of 20 or more units to set aside 15 percent for purchase at a below-marketrate to households earning no more than 110 percent of the area median income, though theunits could be sold to households earning at most 120 percent ofthe area median income.? Theinclusionary housing requirement could also besatisfied by constructing affordable housing on a differentsite at specified percentages. However,incentives were availableifthe affordable units were constructed on the samesite as the market-rate units. 3 Nine percent ofthe total dwelling units were to be made available for rent by moderate-income households, and six percentto be available to "Very Low Income Households." "Moderate Income Household"for purposes of this provision was defined as a household earning no more than 80 percentofthe area median income. "Very Low Income Household" wasdefinedin the Ordinanceby reference to Health & Safety Code section 50105. This provision, however, wasto take effect only ifPalmer/Sixth Street Properties, L.P. v. City ofLos Angeles (2009) 175 Cal.App.4th 1396 became "overturned disapproved, or depublished by a court of competentjurisdiction or modified by the state legislature to authorize control of rents of Inclusionary Units." 2 The Ordinance provided an alternative to setting aside the "inclusionary units": developers could pay an "in-lieu fee." The fee was not to exceed the difference between the median sale price of a market-rate unit in the prior 36 months andthe cost of an "affordable housing"unit for a household earning no more than 110 percentofthe area median income. All in-lieu fees collected were destined for the Affordable Housing Fee Fund,to be used exclusively to provide affordable housing to the designated households. The housing requirementcould also besatisfied by dedication of land. A "waiver, adjustmentor reduction" provision allowed the developer to show, "based on substantial evidence, that there is no reasonablerelationship between the impact of a proposed Residential Development and the requirements of this Chapter, or that applying the requirements of this Chapter wouldtake property in violation ofthe United States or California Constitution." Respondent CBIA filed its complaint on March 24, 2010, seeking declaratory and injunctive relief and a writ of mandate to set aside the Ordinance. On May 9, 2011, two months beforethe July 11 trial, the court permitted a motion by several nonprofit entities and one individual to intervene in opposition to the complaint.4 In May 2012,after extensive briefing and oral argument revolving arounda setof stipulated documents, the superior court granted the relief CBIA had sought. In its July 11, 2012 judgmentthe court declared Ordinance No. 28689 invalid and enjoined the City from implementing it "unless and until the City of San Jose provides a legally sufficient evidentiary showingto demonstrate justification and reasonablerelationships between such Inclusionary Housing Ordinance exactions and impacts caused by newresidential development." The City and Interveners separately filed timely notices of appeal. + The interveners were Affordable Housing Network of Santa Clara County, California Coalition for Rural Housing, Housing California, Non-Profit Housing Association of Northern California, Southern California Association ofNon-Profit Housing, San Diego Housing Federation, and Janel Martinez. Discussion 1. Basis ofthe ReliefGranted In its complaint CBIA alleged that the City had adopted the inclusionary housing requirementsin the Ordinance "without demonstrating any reasonable relationship between the requirements imposed by the new Ordinance and any increased public needs for additional affordable housing caused by such new residential developmentor any reasonablebasis for the allocation of the burdensandpublic costs ofproviding additional affordable housing to such new residential developmentsubject to the Ordinance, and withoutsubstantial evidence in the public record purporting to demonstrate the necessary reasonable relationshipsto justify the IHO." These "actions," CBIA alleged, violated "controlling state and federal constitutional standards governing such exactions and conditions of developmentapproval, and the requirements applicable to such housing exactionsas set forth in San Remo Hotel L.P. v. City & County ofSan Francisco (2002) 27 Cal.4th 643 [San Remo], and Building Industry Association ofCentral California v. City ofPatterson [(2009)] 171 Cal.App.4th 886." In its trial briefCBIA elaborated onits position, contending that appellate precedenthadestablished that "cities seeking to establish inclusionary housing mandates such as the IHO must—atleast—provide an evidentiary showingthat the fees and exactions to be imposed on new developmentare ‘reasonably related’ andlimited to the city's reasonablecosts of addressing 'the deleterious public impacts’ caused by the new development." According to CBIA,the City had failed to show a "reasonable relationship between affordable housing exactions and demonstrable impacts ofnew development." The City Council staff reports endorsing the proposed ordinance lacked any "attempt to identify, muchless to quantify, any ‘deleterious public impacts' on City needs for affordable housing caused by new market rate development." The fixed percentages applicable to the set-aside requirements were "arbitrary" and the in-lieu fees rested on a "house of cards." Because these deficiencies could not be cured, CBJA argued, the Ordinance wasinvalid on its face. CBIA added thatit had no quarrel with the legitimacy and importance of the City's objective of making affordable housing available in the community. It repeatedly emphasized that "this is not a takings case." Indeed, during the hearing counsel explained that a taking would arise if a developer could not build his project because ofthe City’s permit conditions. But "[w]e don't get there because we're not looking at the impact on the individual developer." Even without such an individual impact, "there has to be a showingthatit's related to some impact caused by the developer." In defense ofthe IHO,the City posited two arguments: (1) CBIA's facial challenge could not succeed because CBIA could not show that the Ordinance could never belegally applied and (2) CBIA wasmisstating the law and relying on the wrong standard ofjudicial review. In the City's view, the Ordinance should be regarded asa landuse restriction similar to a zoning regulation adopted pursuant to the local government's police power. It thus must be accorded a "highly deferential standard of judicial review" and must be upheldif it "merely has a reasonable relation to the public welfare." The Interveners more precisely arguedthat the Ordinance was reasonably related to the legitimate governmentpurposeofcreating affordable housing andtherefore waswithin the City's police power. The Interveners also disputed CBIA's assertion that the inclusionary requirements werearbitrary, becauseit rested on "the false premise that inclusionary requirements are developmentfees or exactions." In any event, they argued, the percentage requirements werenotarbitrary; they were based on "extensive stakeholder outreach and analysis" to ensure that its goal ofproducing new affordable housing could be reached without overburdening developers. The superior court carefully considered the parties' respective arguments. In its ruling it stated at the outset that "[n]obody seriously disputes the proposition that the South Bay Area is an expensive place in whichto live." Nor was there any argumentthat "increasing the availability of affordable housingis a legitimate and important public policy objective" or that "inclusionary housing lawsincrease the availability ofhousing to people with lower incomes." Thecourt ruled, however, that the City was obligated to demonstrate "its legal ability to require that a developersell a homeat a level which may be potentially below its costs in building that home." After considering the parties' extensive arguments the court concludedthat"the challengedportion ofthe ordinancebearsno reasonable relationship to permissible outcomesin the generality or great majority of cases." > The court did not explain what outcomes would have beenpermissible, but it subsequently stated that the City had been unable "to demonstrate where in the record was there evidence demonstrating the constitutionally required reasonablerelationships between deleterious public impacts of new residential development and the new requirements to build and to dedicate the affordable housingor pay the fees in lieu of such property conveyances." Thus, the City had "adopted this ordinance in derogation of controlling state law without providing any evidence purporting to meet the legal standards required." 2. Standard ofReview Because CBIA's action is a purely facial challenge, we address "only the text of the measureitself, not its application to the particular circumstances of an individual." (Tobev. City ofSanta Ana (1995) 9 Cal.4th 1069, 1084; County ofSonomav. Superior Court (2009) 173 Cal.App.4th 322, 337.) The parties have posited different tests for facial invalidity, but we will apply the more lenient standard articulated in San Remo. > The court also cited the takings clauses ofthe state and federal Constitutions (U.S. Const., art. V, Cal. Const., art. I, § 19) and section 66001 ofthe Mitigation Fee Act (Gov. Code, § 66000,et seq.); but its ruling appears to be based exclusively on San Remo, supra, 27 Cal.4th 643. Accordingly, CBIA cannot succeed without a "minimum showing"that the ordinanceis invalid "in the generality or great majority of cases." (San Remo, supra, 27 Cal.4th at p. 673, italics omitted.)° That burden remains a heavy one, however. "A claimant who advancesa facial challenge facesan ‘uphill battle.’ [Citation.]'""A claim that a regulation isfacially invalid is [tenable only] if the termsofthe regulation will not permit those who administer it to avoid an unconstitutional application to the complainingparties." ' [Citations.]" (Home Builders Ass'n ofNorthern California v. City ofNapa (2001) 90 Cal.App.4th 188, 194.) 3. The Parties’ Positions on Appeal The City and Intervenersrestate the position they took below, characterizing the IHO as land use regulation adopted pursuantto the City's police power. As such, Interveners argue, the Ordinanceis valid if its terms are "reasonably related to purposes protecting or advancingthe public welfare." The City adds that the Ordinance may not © Our Supreme Court hasalsoarticulated a stricter standard: "[T]o support a determination of facial unconstitutionality, voiding the statute as a whole,petitioners cannotprevail by suggesting that in some future hypothetical situation constitutional problems maypossibly arise as to the particular application ofthestatute . . . . Rather, petitioners must demonstrate that the act's provisions inevitably pose a present total and fatal conflict with applicable constitutional prohibitions." (Pacific Legal Foundationv. Brown (1981) 29 Cal.3d 168, 180-181; accord, Tobe v. City ofSanta Ana,supra, 9 Cal. Ath at p. 1084; Arcadia Unified SchoolDist. v. State Dept. ofEducation (1992) 2 Cal.4th 251, 267; see also Sierra Club v. Napa County Bd. ofSup'rs (2012) 205 Cal.App.4th 162, 172-173.) Underthis more stringent standard,a plaintiff "cannot prevail by suggesting that in some future hypothetical situation constitutional problems may possibly arise as to the particular applicationofthe statute." (Zuckerman v. State Bd. ofChiropractic Examiners (2002) 29 Cal.4th 32, 39; American AcademyofPediatrics 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 no set of circumstances exists under which the Act would be valid.’ [Citation.]" (California Redevelopment Assn. 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.) Were weto adhereto this stricter standard, we would entertain the City's assertion that the waiverprovision of the Ordinance precludes a finding of facial invalidity. 8 be declaredinvalid unless it was “arbitrary, capricious, wholly lacking in evidentiary support, or [procedurally unlawful]." (See Fullerton Joint Union High SchoolDist. v. State Bd. ofEducation (1982) 32 Cal.3d 779, 786.) Both appellants rely primarily on Home Builders Ass'n ofNorthern California v. City ofNapa, supra, 90 Cal.App.4th 188 (Home Builders). There the City ofNapa passed an ordinance requiring 10 percent ofnew development units to be "affordable" as defined bythecity, with alternative provisions for compliance, including off-site construction and an in-lieu fee. Asin the instant case, the ordinancealso offered benefits to developers for complianceandincludeda procedure for requesting an adjustmentor waiverofthe conditions. Theplaintiff builders’ association sought invalidation ofthe Napa ordinanceonits face, calling it an unconstitutionaltaking. The First District, Division 5, rejected this challenge, holding that the ordinance would increase the supply of low- and moderate- incomehousing andthereby "'substantially advance’ the important governmentalinterest ofproviding affordable housing for low[-] and moderate-incomefamilies." (Id.at p. 195,)/ CBIA respondsthat the [HO imposes an exaction which cannot withstand analysis under San Remo, supra, 27 Cal.4th 643 and Building Industry Association ofCentral California v. City ofPatterson, supra, 171 Cal.App.4th 886 (Patterson). CBIA emphasizesthatthis is neither a zoning ordinancenora regulation ofthe use ofproperty; instead, it imposes a requirementthat a developer seeking a permit "dedicate or convey property (new homes)for public purposes,"or alternatively, pay a fee in lieu of "such 7 CBIA contends that the City's reliance on Home Builders is misplaced, in part because the association had brought a facial takings claim. CBIA omits mentioning that San Remo, whichit insists is the applicable authority in this case, was also a facial takings challenge. compelled transfers of property." It is "at its core" a dedication requirement which "clearly calls for the highest scrutiny." This alternative portrayalofthe inclusionary housing requirement missesthe mark. The IHO doesnot prescribe a dedication. A "dedication" typically means"the transfer of an interest in real property to a public entity for the public's use." (Fogarty v. City ofChico (2007) 148 Cal.App.4th 537, 543; cf. Branciforte Heights, LLC v. City Of Santa Cruz (2006) 138 Cal.App.4th 914, 927.) " "Dedication has been defined as an appropriation of land for some public use, made by the fee owner, and accepted by the public. Byvirtue of this offer which the fee owner has made,heis precluded from reasserting an exclusive right over the land now used for public purposes.’ " (Friends of the Trails v. Blasius (2000) 78 Cal.App.4th 810, 820.) "A dedication is said to have the characteristics of a contract, in that it requires both an offer and acceptanceandis not binding until there has been an acceptance. [Citation.] As in a contract, an expectation of performance is created—an expectation whichin its barest essentials means that the land dedicated will be put to the use contemplated." (Clay v. City ofLos Angeles (1971) 21 Cal.App.3d 577, 583.) Apparently retracting its own espousal of the "highest scrutiny" standard, CBIA nonetheless maintains, citing San Remo,that the City failed to provide "the required evidentiary justification" for the IHO by showing a reasonablerelationship between the burden ofthe asserted "exaction" and "identified public needs or impacts created by the development." We considerthis argumentfirst, as it was the one accepted by the trial court in its ruling. The San Remoplaintiffs asserted a constitutional foundation in their complaint: a taking in violation of the California Constitution. (Cal. Const., art. I, § 19.) Here, by contrast, CBIA continuesto insist that this is not a takings case; indeed,it faults the City for seeking to "apply inapt 'regulatory takings' defenses and argumentsto this case." 10 CBIA doesnot identify a specific constitutional infirmity or statutory violation. It nonetheless maintains that San Remoprescribesthe required analysis. Wedisagree. In San Remotheplaintiff hotel ownerschallenged a development impact "housing replacement" fee that was specifically designed to mitigate the loss of housing caused by the conversionofresidential units to tourist use. (San Remo, supra, 27 Cal.4th at pp. 673, 671.) The fee wasan alternative to replacementofthe lost units with new residential units "comparable to those converted." (Id. at p. 651.) The focusofthe Supreme Court's decision was the fee, not the housing replacement condition. The "reasonablerelationship" required by the Supreme Court in San Remo was between the developmentmitigationfee and the "deleterious public impactofthe development." (San Remo, supra, 27 Cal.4th at p. 671.) Thus, it was appropriate to require a connection between thein-lieu fee and the loss of housing—thatis, the "deleterious public impact" ofthe conversion. (/bid.) Unlike the mitigation fee challenged in San Remo, the Ordinanceat issue here does not appear to have been enacted for the purposeofmitigating housing loss caused by newresidential development. Its express purposes were to "enhancethe public welfare by establishing policies which require the development ofhousing affordable to households ofvery low, lower, and moderate incomes" and to promotethe use of available land for those households,therebyalleviating the demand for affordable housing. Thus, whether the Ordinance wasreasonably related to the deleterious impact ofmarket-rate residential developmentin San Jose is the wrong questionto ask in this case. The Supreme Court also madeit clear that it was not San Francisco's burden to make a showing ofthe requisite connection; it was the plaintiffs' obligation to show that the challenged fee provision wasnotreasonably related to housing loss through conversion. The plaintiffs failed to meet this burden. (San Remo, supra, 27 Cal.4th at p. 673; see also Building Industry Assn ofCent. California v. County ofStanislaus (2010) 190 Cal.App.4th 582, 591 [trial court improperly placed burden on county and Farm 11 Bureau to showfacial validity ofprogram designed to mitigate the loss of farmland. resulting from residential development].) CBIA alsorelies on Patterson, supra, 171 Cal.App.4th 886, butthat case, too, is inapposite. The action in Patterson was brought by a developer who wassubject to a development agreement that provided for an "affordable housingin-lieu fee." (ld. at p. 891.) The Fifth District applied the San Remotest to a provision in the development agreement that allowed the City to increase the in-lieu fee if "reasonably justified." (/d. at p. 889.) The appellate court interpreted "reasonably justified" to conform to the requirement ofSan Remothat the amount ofthe increase beara reasonable relationship to the deleterious public impact ofthe Patterson Gardens development. (id.at p. 898.) Notably, the city did not propose or advocate any different test. (Zbid.) The Patterson court went on to find no connection between the amountofthe increase and the "need for affordable housing associated with [the project.]" (dd.at p. 899.) The developerdid not assert any facial invalidity ofthe fee, and thusdid not assumethe formidable burden encountered bythoseattacking legislation on its face, such as the plaintiffs in San Remo. (Id. at p. 898 & fn. 14.) Furthermore, the court did not analyzethe issue by referenceto the city's stated objectives, but focused instead on its methodofcalculating the revisionsto the fee, in light of the terms providing for fee updates in the development agreement. (/d. at p. 895.) CBIA cites a numberofother decisions that have limited application to the facts presented here. Bixel Associates v. City ofLos Angeles (1989) 216 Cal.App.3d 1208, 1216, for example, involved a challenge to a fire hydrant fee which the plaintiffs alleged was a "special tax" in violation of the California Constitution. In Ocean Harbor House Homeowners Assnv. California Coastal Commission (2008) 163 Cal.App.4th 215 the plaintiff homeowners' association protested a fee the purpose ofwhich wasto mitigate the loss of an acre of beach resulting from the construction of a proposed seawall. This 12 court upheld the lower court's finding of a nexus between the Coastal Commission's fee condition and the "direct impact" of the seawall on recreational use. (Id. at p. 237.) Shapell Industries, Inc. v. Governing Board (1991) 1 Cal.App.4th 218 (Shapell) involved a schooldistrict's resolution authorizing a fee on new residential developmentto fund new schoolfacilities. The developer sought a writ of mandateto invalidate the resolution on the groundthat it was "arbitrary and capricious and without evidentiary support." (/d. at p. 228.) We held that while development fees were a valid exercise of police power, they could not exceed the cost of "increased services made necessary by virtue of the development." (Jd. at p. 235.) The test we applied, however, was drawn from California Hotel & Motel Assn v. Industrial Welfare Com. (1979) 25 Cal.3d 200, 212: "A court will uphold the agency action unlesstheaction is arbitrary, capricious, or lacking in evidentiary support. A court must ensurethat an agency has adequately considered all relevant factors, and has demonstrated a rational connection between those factors, the choice made, and the purposesofthe enabling statute." In Shapell the very purposeofthe school facilities fee was to accommodate a growing student population and reduce overcrowding of schools caused by new development. The fee was improperto the extent that the assessment was based on an estimated increase in student population overall rather than on the increase generated by the new housingitself. We declined to second-guessthe district's methods of deriving its supporting data, but we insisted that a "reasoned analysis" be conducted "to establish the requisite connection between the amountofthe fee imposed andthe burden created"by the development. (Shapell, supra, 1 Cal.App.4th at p. 235.) The district was required only to "make a reasonablechoice after considering the relevant factors." (Id. at p. 237.) Thus, it had to "demonstrate that development contributes to the need for the facilities, andthat its choices as to what will adequately accommodate the influx of students are reasonably based." (Id. at p. 239, italics added.) 13 Also inapplicable is City ofHollister v. McCullough (1994) 26 Cal.App.4th 289, an eminent domain action involving a required dedication ofa strip of the defendants’ land for sewer and drainage improvements. The dedication requirement, we concluded, wasnot supported by evidencethat it was reasonably related to the defendants' use ofthe property, or to any additional burdenson city services associated with the defendants’ proposed subdivision; instead,it reflected an objective to promote "general municipal objectives." (Id. at p. 298.) In so holding we followed Rohnv.City of Visalia (1989) 214 Cal.App.3d 1463, 1470, in which the Fifth District explained that dedications ofproperty for public use must be reasonably related to the landowner's proposeduse. If instead such conditions are "imposed by a public entity to shift the burdenofprovidingthe cost of a public benefit to one not responsible, or only remotely or speculatively benefiting from it, there is an unreasonable exercise ofpolice power." © Theparties are at odds overthe significance of Trinity Park, L.P. v. City of Sunnyvale (2011) 193 Cal.App.4th 1014, wherethis court consideredthe issue ofwhether the below-market housing requirement imposed by the City of Sunnyvale was subject to the limitations period established in section 66020,subdivision (d)(2), of the Mitigation Fee Act, which applied to protests over "fees, dedications, reservations, or other exactions to be imposed on a developmentproject." The city's below-market ordinance required Trinity Parkto sell five houses in the subdivision at below-market prices as a condition of developmentapproval. The parties agreed that this condition wasnota fee, a dedication,or a reservation; their dispute was over the meaning of "other exaction." After examining the relevant Mitigation Fee Act provisions, we determinedthat the 180— day limitations period was intendedto apply to "an exaction imposed for the purpose of 'defraying all or a portion ofthe cost ofpublic facilities related to the development project.'" (Id. at p. 1035, quoting definition of "fee" in § 66000.) Applying this definition, we held that the challenged condition in Sunnyvale wasnot an "other exaction" within the meaning of section 66020, because neither the languageofthe 14 ordinancenor even theplaintiff's complaint indicated that the city's purpose was to defray all or a portion ofthe cost ofpublic facilities related to the development project. (Cf. Barratt AmericanInc. v. City ofRancho Cucamonga (2005) 37 Cal.4th 685, 696 [section 66020 applies only to developmentfees that "alleviate the effects of development on the community and doesnotincludefees for specific regulationsor services"]; but see Williams Communications, LLCv. City ofRiverside (2003) 114 Cal.App.4th 642, 658- 659 [charge imposedfor license to install cable in city streets was “other exaction" within the meaning ofsections 66020 and 66021].) It is unnecessary to compare Trinity Park with the instant case, as CBIA did not contest the Ordinance as an "other exaction" under the Mitigation Fee Act. Cwynarv. City and County ofSan Francisco (2001) 90 Cal.App.4th 637, 663 is also ofno assistance to CBIA. That case involved primarily a takings challenge to an ordinancerestricting property owners from evicting tenants to allow the ownersto use the properties as a residence for themselves or their family members. The court held that the plaintiffs should have been permitted to prove that the restrictions did not "substantially advancelegitimate state interests." (Jd. at p. 663.) Although the United States Supreme Court later rejected this standard in regulatory takings cases (see Lingle v. Chevron USA Inc. (2004) 544 U.S. 528, 540-545 [125 S.Ct. 2074] (Lingle)),® the appellate court did not remove the burden from the property owners to make the requisite showing. 8 CBIA cites Lingle for the distinction between regulatory takings and land-use " ‘exactions! cases suchasthis." That was not the comparison the high court delineated. Lingle explained that governmentregulation ofprivate property will amount to a Fifth Amendmenttakingif it causes a “permanent physical invasion" ofthe owner's property or ifthe regulation completely deprives the owner of "'a// economically beneficial us[e]' of the property." (/d. at p. 538.) If it does not fall within one of "these two relatively narrow categories," then the takings challenge is governed by Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104 (98 S.Ct. 2646), which identified factors such as the economic impact of the regulation and the degree to which the regulation interfered with "investment-backed expectations." (Id. at p. 124.) Alternatively, a land-use 15 Wethus concludethat the standard articulated in San Remois inapplicable here, and that the Ordinance should be reviewedas an exercise of the City's police power. As wecaution below, however, this does not entail unthinking acquiescenceto the City's stated goals. A local government's police poweris derived from article XI, section 7 ofthe California Constitution, which provides: "A county or city may make and enforce within its limits all local, police, sanitary, and other ordinances and regulationsnotin conflict with general laws." "'We have recognized that a city's or county's power to controlits ownland use decisions derives from this inherent police power, not from the delegation of authority by the state.'"" (Big Creek Lumber Co. v. County ofSanta Cruz (2006) 38 Cal.4th 1139, 1151, quoting DeVita v. County ofNapa (1995) 9 Cal.4th 763, 782.) "A land use ordinanceis a valid exercise ofthe police powerif it bears a substantial and reasonablerelationship to the public welfare. [Citation.] It is invalid only ifit is arbitrary, discriminatory, and [without a] reasonablerelationship to a legitimate public interest." (Arcadia DevelopmentCo. v. City ofMorgan Hill, supra, 197 Cal.App.4th at p.1536.) "The core issue is whetherthere is any rational reason related to exaction can be a takingifit violates the standardsset forth in Nollan v. California Coastal Com'n (1987) 483 U.S. 825 (107 S.Ct. 3141) and Dolan v. City ofTigard (1994) 512 U.S. 374 (114 S.Ct. 2309). In the courseofits analysis, the court decided that the test for a regulatory taking -- whether the regulation substantially advancesa legitimate state interest—is "doctrinally untenable" and "has no properplace in our takings jurisprudence." (Lingle, supra, 544 U.S.at pp. 544, 548,italics omitted.) The case before us involves neither an asserted taking nor a land-use challenge governed by Nollan and Dolan. Our Supreme Court madeit clear in San Remo that those cases "involved the government's exaction of an interest in specific real property, not simply the payment of a sum ofmoney from any source available." (San Remo, supra, 27 Cal.4th at pp. 671-672.) Aside from an oblique suggestion that Nollan and Dolan are applicable by citing Lingle, CBIA doesnot attempt to reintroduce heightened scrutiny as a standard for measuringthe City's regulation. Likewise, its new vague suggestion that due process is a groundfor invalidation of a developmentexaction is of no consequence, as CBIA hasnot asserted any due processviolation here. 16 the public welfare for the restriction imposed." (Jd. at p. 1537; AssociatedHome Builders etc., Inc. v. City ofLivermore (1976) 18 Cal.3d 582, 607.) "In deciding whether a challenged ordinance reasonably relates to the public welfare, the courts recognize that such ordinances are presumedto be constitutional, and come before the court with every intendmentin their favor." (Associated Home Builders etc., Inc. v. City ofLivermore, supra, 18 Cal.3d at pp. 604-605.) Accordingly, a land use ordinancethatis asserted to exceed a municipality's police power will withstand constitutional attack "ifit is fairly debatable"that the ordinance "reasonably relates to the welfare ofthose whomit significantly affects," including the surrounding region if affected. (/d. at p. 606-607; see also Arnel DevelopmentCo. v. City ofCosta Mesa (1981) 126 Cal.App.3d 330, 339 [applying AssociatedHome Builders to rezoning ordinance].) Thus, a "[c]ity's exercise ofits constitutionally derived police power is subject to substantial deference from the judicial branch." (Arcadia DevelopmentCo.v. City of Morgan Hill, supra, 197 Cal.App.4th at p. 1536.) Consistent with the presumption of constitutionality, a trial court reviewing a local government's legislative function "does not inquire whether, if it had powerto actin the first instance, it would have taken the action taken by the local government. Rather, the court's authority is limited to determining whether the action wasarbitrary, capricious, entirely lacking in evidentiary support, or unlawfully or procedurally unfair." (Building Industry Assn. ofCent. California v. County ofStanislaus, supra, 190 Cal.App.4th at pp. 589-590.) "The burden rests with the party challenging the constitutionality of an ordinanceto present the evidence and documentation which the court will require in undertaking this constitutional analysis." (AssociatedHome Builders etc. Inc. v. City ofLivermore, supra, 18 Cal.3d at p. 609.) Nevertheless, as CBIA points out, a local government's police poweris not unlimited. "[J}udicial deference is not judicial abdication. The ordinance must have a real and substantial relation to the public welfare," and "[t]here must be a reasonable 17 basisin fact, not in fancy, to support the legislative determination." (Associated Home Builders etc. Inc. v. City ofLivermore, supra, 18 Cal.3dat p. 609; see also City ofLos Angeles v. County ofKern (2013) 214 Cal.App.4th 394, 422.) "[W]here the exercise of that powerresults in consequences[that] are oppressive and unreasonable, courts do not hesitate to protect the rights ofthe property owner against the unlawfulinterference with his property. In other words, the governmental poweris not unlimited, and a regulation ofthe use ofproperty must rest upon a reasonable exercise ofthe police power. [Citation.] Legislatures may not, underthe guise of the police power, imposerestrictions that are unnecessary and unreasonable upon the use ofprivate property or the pursuit of usefulactivities. [Citation.]" (Skalko v. City ofSunnyvale (1939) 14 Cal.2d 213, 215- 216.) Accordingly, "[i]f, in the opinion of the court, a statute or ordinance purporting to be enacted to protect the public health, safety, morals, comfort, convenienceor general welfare has noreal or substantial relation to any of those objects, it is the duty ofthe court to so declare." (McKay Jewelers v. Bowron (1942) 19 Cal.2d 595, 600-601.) To the extent that evidence supplied by CBIA is material andrelevantto its attack on the Ordinance, the trial court is entitled to review it under the proper standard. We will therefore remandthe matter for that purpose. We again emphasize, however,thatit is CBIA's burdento establish the facial invalidity of the IHO,not the City's to prove that it survives the challenge. (Cf. Building Industry Assn ofCent. California v. County of Stanislaus, supra, 190 Cal.App.4th at p. 590 [party attacking the regulation must demonstrate its invalidity]; see also Action Apartment Ass'n v. City ofSanta Monica (2008) 166 Cal.App.4th 456, 468[party asserting facial takings claim must demonstrate that its "mere enactmentconstitutes a taking"].) We thus leave it to the superior court to determine whether CBIA hasrebutted the presumption that the inclusionary housing conditions are reasonably related to the City's legitimate public purpose of ensuring an adequate supply of affordable housing in the community. 18 Disposition The judgmentis reversed, and the matter is remandedto permit the superior court to reconsider respondent CBIA's complaint in accordance with the appropriate legal standards. Costs on appeal are awardedto the City and Interveners. ELIA,J. WE CONCUR: PREMO,ActingP.J. MARQUEZ,J. Cal. Bldg. Industry Assn. v. City ofSan Jose H038563 19 Trial Court: Trial Judge: Attorneys for Defendants and Appellants: Attorneys for Interveners and Appellants: Attorneys for Plaintiff and Respondent: Santa Clara County Superior Court Hon. Socrates P. Manoukian Berliner Cohen and Andrew L. Faber and Thomas P. Murphy and Richard Doyle, San Jose City Attorney, Nora Frimann, Assistant City Attorney and Margo Laskowska, Sr. Deputy City Attorney Law Foundation of Silicon Valley Public Interest Law Firm and Kyra Kazantzis, James F. Zahradka II and Melissa A. Morris The Public Interest Law Project California Affordable Housing Law Project and Michael Rawson Wilson Sonsini Goodrich & Rosati and Colleen Bal and Corina J. Cacovean David Nefouse Sheppard, Mullin, Richter & Hampton and David P. Lanferman and James G. Higgins 20 DECLARATION OF SERVICE BY MAIL I, Barbara A. Siebert, declare as follows: I am a resident of the State of California, residing or employed in Sacramento, California. I am over the age of 18 years and am nota party to the above-entitled action. My business address is 930 G Street, Sacramento, California 95814. OnJuly 15, 2013, true copies ofPETITIONFORREVIEWwere placed in envelopes addressedto: DAVID P. LANFERMAN Rutan & Tucker, LLP Five Palo Alto Square 3000 El Camino Real, Suite 200 Palo Alto, CA 94306-9814 Telephone: (650) 320-1507 ANDREW L. FABER THOMASP. MURPHY Berliner Cohen Ten Almaden Boulevard, 11th Floor San Jose, CA 95113-2233 Telephone: (408) 286-5800 MARGO LASKOWSKA Office of the City Attorney City of San Jose 200 East Santa Clara Street San Jose, CA 95113-1905 Telephone: (408) 535-1900 CORINAI. CACOVEAN Wilson Sonsini Goodrich & Rosati, P.C. One MarketPlaza Spear Tower, Suite 3300 San Francisco, CA 94105-1126 Telephone: (415) 947-2017 MICHAEL F. RAWSON The Public Interest Law Project California Affordable Housing Law Project 449 15th Street, Suite 301 Oakland, CA 94612 Telephone: (510) 891-9794 MELISSA ANTOINETTE MORRIS Law Foundation OfSilicon Valley 152 North Third Street, 3rd Floor San Jose, CA 95112 Telephone: (408) 280-2429 L. DAVID NEFOUSE Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 Telephone: (650) 565-3812 COURT CLERK California Court ofAppeal Sixth Appellate District 333 West Santa Clara Street, Suite 1060 San Jose, CA 95113 Telephone: (408) 277-1004 COURT CLERK Santa Clara County Superior Court 191 North First Street San Jose, CA 95113 Telephone: (408) 882-2100 which envelopes, with postage thereon fully prepaid, were then sealed and deposited in a mailbox regularly maintained by the United States Postal Service in Sacramento, California. I declare underpenalty ofperjury that the foregoingis true and correct and that this declaration was executed this 15th day of July, 2013, at Sacramento, California. Baba OO Liber BARBARA A. SIEBERT
