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Can Seattle legally force developers to fund affordable housing?

Last spring, as the clock ran down on Seattle Mayor Ed Murray’s affordable housing task force, tensions built around proposals to require developers to help fund housing for low-income residents.

Although the meetings were hidden behind closed doors, e-mails and interviews suggest a frustrated, 28-member group — the Housing Affordability and Livability Agenda (HALA) task force, made up of developers, housing advocates and policy wonks — and an increasingly impatient mayor.

On one side of the debate were task force members who wanted those profiting most from Seattle’s building boom to pony up for the less fortunate among us. On the other side, developers who threatened to sue if the city tried to require too much.

“There were guns under the table,” said Alan Durning, HALA member and executive director of progressive advocacy organization Sightline Institute.

According to Durning, the developers said they’d end the standoff if their opponents offered a better deal. The result is what Murray calls the “Grand Bargain” – an unlikely agreement between the city, affordable housing advocates, non-profits and developers to either add or fund affordable housing while steering clear of the courtroom.

But although the developers in the room signed an agreement to not sue, there are no guarantees that lawsuits won’t come from elsewhere, with potentially complicating results.

The measures agreed to in the Grand Bargain would add 6,000 affordable units over ten years. That’s 30 percent of the mayor’s 20,000-unit goal. If pieces of the bargain are weakened, it could further destabilize a plan that has already been undermined by roiling public controversy.

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At the center of the HALA report’s recommendations is an acknowledgement that Seattle will not get the affordable housing it needs without help from developers. “One of the things HALA recognized,” said co-chair David Wertheimer, “was that affordable housing needs can’t be met entirely by affordable housing developers. We’re talking about 20,000 new units. The HALA recognized we can only achieve that through a partnership with non-profit, for-profit and the city.”

The city has long offered developers tax exemptions and extra height in exchange for affordable housing. But the time, it seemed, had come to actually require developers to provide affordable units or pay up.

To that end, the Grand Bargain uses two main tools. The first is “commercial linkage fees,” which are charged to commercial developers on a per square foot basis, and used to fund affordable housing.

Housing advocates pushed for linkage fees on residential development, too, but that led to the standoff with developers. Instead, the HALA committee shifted to a second tool, “mandatory inclusionary housing,” which requires residential developers in certain parts of the city to make 5-7 percent of their units affordable to low-income residents or pay a fee. In exchange for those units, developers may add extra height to their buildings, which means more units and, theoretically, more money.

These two measures alone are slated to add 6,000 affordable units over 10 years – about 3,500 through inclusionary housing and 2,500 from the funds earned through commercial linkage fees.

The question is, how confident can the city be that these important parts of the HALA recommendations will withstand legal challenges?

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Legally speaking, mandatory inclusionary housing requirements are fairly easy to defend, according to Durning and land use lawyer (and occasional Crosscut contributor) Chuck Wolfe. State law allows such mandates as long as they come with an upzone — in this case, an extra floor (or floors in downtown and South Lake Union). Kirkland, Federal Way and Redmond all have similar measures in the works.

Durning says that commercial linkage fees, on the other hand, are on more tenuous footing.

To get a little lawyerly, several U.S. Supreme Court cases, one from the ’80s, the other the ’90s, say that linkage fees must be related and proportional to the impact the developments have on the community. In the case of Seattle, the impact, as defined by the City Council in 2014, derives from the added commercial space. This in turn means more jobs, which means more people, which means more need for housing.

Until 2013, proving impact was fairly simple. That year, another Supreme Court case, Koontz v. St. Johns River Water Management District, made it more difficult. The ruling, which generally favored the developer, has been used several times to fight linkage fees in court.

In San Diego, where linkage fees have been on the books for nearly 30 years, the city council was considering a 400 percent hike in the fees in 2013. A coalition of business advocates threatened a lawsuit, citing Koontz v. St. Johns River. It never went to court, but the coalition used the leverage to negotiate the fee hike down to a much more modest increase with a long list of exemptions.

In Oakland, several people threatened a lawsuit against linkage fees to fund public art, citing the same Supreme Court case.

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The best legal defense for Seattle are the upzones that will occur in commercial areas. Linkage fees will be tied to the value of the additional height and floor area, varying by market and construction type. This, like mandatory inclusionary housing, gives commercial linkage fees the feel of proportionality — value conferred for value taken.

The approach makes a blanket lawsuit less likely. But it does open up the city to individual lawsuits – developers arguing that their specific project has no impact on housing, or that the fee is not proportional to that impact.

According to Durning, “Lawyers place the odds at middling” that the city could win these lawsuits. “On the face of it,” he said, “it’s a somewhat curious statement that creating jobs is an impact that we must mitigate. ‘You can build it I guess, but you’re going to have a pay a tax for that.’”

If lawsuits are brought, the city would have to do a bit of risk assessment, as San Diego did. Are officials confident enough to risk a court battle, or do they negotiate?

After all, while the “developer community” that participated in the HALA process agreed to not sue, Wertheimer said there was no guarantee that a developer from elsewhere would withhold a lawsuit. “This is America,” he said. “Anybody can sue anybody for anything.”

The city council is expected to take up the topic of commercial linkage fees before the new council takes over in January. The sooner they’re passed, supporters reason, the more money the city stands to gain.

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