Connecting the Dots ~ Fred Allebach

Fred Allebach Fred Allebach is a member of the City of Sonoma’s Community Services and Environmental Commission, and an Advisory Committee member of the Sonoma Valley Groundwater Sustainability Agency. Fred is a member of Sonoma Overlook Trail Stewards, as well as Sonoma Valley Housing Group and Transition Sonoma Valley.


The market at work, against affordable housing

Posted on January 13, 2019 by Fred Allebach

The Sonoma Valley Hospital is a valued community resource and I in no way want to indicate here that I don’t support the hospital in its primary function. This piece is an analysis of the South Lot land sale from the perspective of someone who advocated for affordable housing on it from the start. 

The South Lot project (4th Street West and MacArthur) appears to be being rushed through so that the hospital will not have to make an end-of January debt payment. The hospital has been paying $100,000 a month on South Lot debt. Apparently, the end of January payment is more onerous, and hence the pressure to approve and vest the current DeNova housing project, which is primarily market rate housing, before the end of January.

The new city planning director, David Storer, has pulled out all the stops: exempt the proposed project from CEQA, vest the whole project including design review, in one fell swoop, get it done by the end of January, and before a new, possibly more liberal planning commission is seated, who might change or delay the outcomes.

So far, on 1/10/19, the Planning Commission exempted the project from CEQA by a 4 to 3 vote. The Planning Commission vesting hearing will be sometime in the fourth week of January, at which time, perhaps issues of lack of project affordable housing will be discussed. For the record, “affordable housing” means affordable to those who earn a range of the area median income, or AMI. For a family of two that is $68,000 a year. 

Take home point from current process 

The city’s ability to rush the process and help the hospital out also means, that should the city be inclined, a prioritization and rush for equitable housing can also take place. All this will take is for the new council to direct staff to “make it so”, as Captain Picard said. Three votes to get it on the agenda, three votes to make it so. Two years at least to act with the current majority. 

If Sonoma city staff was like a basketball team, the new planning director represents a player with a skill set above and beyond what a small market team would usually get. Sonoma can now score more points in different ways, and bring to bear different strategies in its game plans. Storer’s got game, with a fun, informal style. In this sports team metaphor, the team owners, i.e. the council, direct the General Manager (city manager), to enact desired team strategies. It is the General Manager’s job to do what the owners say, and to bring on board legal and other staff that support that vision. 

Who is the city working for? 

Many times it seems city staff and council appear to be about employed by the developers. No points are as assiduously defended from the side of citizen’s comments and arguments.  It seemed this way with David Goodison as well. Maybe what we are seeing is that planning staff goes to bat for every project, as the city mounted a strong defense of the SAHA project. 

There are those in town who feel city bureaucracy is a malign, rent-seeking force allied with a maladaptive, capitalist status quo. Arguments against staff of all stripes are common enough in public policy contexts. Lobbying and the Iron Triangle are known to be problems bureaucrats are susceptible to. My feeling is that everyone thinks they are acting in good will; the rub is in lack of desire to understand alternate positons. People get locked into purity stances, ideological, what is pragmatic, or otherwise, and discussion ends.

However, the way the pecking order should work, the city council directs, and if the new council sees fit to direct for a priority of equitable housing and an equitable society here with a balanced-rewards economy, then the city staff team is beholden to follow suit, especially with a clear majority. At the end of the day, this means taking business as usual and introducing an element of social responsibility to it. What the current hospital rush job shows, is that staff can get things done quickly, and it is not unreasonable to expect they can also get it done for affordable housing.

Just who the team of Sonoma is serving is a critical point. The citizens?  Tourists? The business community? The valley? The environment? All of the above? Assuming all of the above, the next step is for leaders and staff to articulate why a balanced, inclusive strategy is beneficial. This represents the introduction of intentionality into economic planning, steering, rather than letting no intention, no regulation, run the show. 

Maybe this always leads back to square one, and more purity stand-offs, but bringing reason to bear is a hope of mine and others, that springs eternal. 

Penciling out? 

The new standard line by housing developers and city planners is that market rate affordable projects do not “pencil out.” What this means is that land, labor, and materials prices are very high, especially in Sonoma. However, no objective proof or figures are given to back up the penciling out assertions. In order for the public to ascertain if penciling out claims are true, and not just take it anecdotally, a neutral accounting entity will have to show what all the figures are. Without neutral accounting and auditing, claims of not penciling out cannot be verified or seen as valid. 

It’s not likely such figures will be shared, as in the end, penciling out gets down to how much profit a developer builds in to their price. A certain amount of profit is necessary to be able to buy equipment and supplies, beyond that, a price simply represents how much all the various contractors and actors get paid. Presumably contractors are looking for profit as well, to buy their equipment and pay for insurance, office staff etc. Everyone wants to wet their beak a little. Everyone is looking to get their hands in the cookie jar. Penciling out issues, which are directly related to housing unit price point, are exactly centered in this area where more transparency, rather than less, is important for the public to know the truth. (Why are we not getting what we need from market rate developers?) Accounting, and penciling out issues are also where the greatest potential for cheating lies, hence the desire to hide and not come clean with the figures. What developer is going to open their books so the public can see if penciling out claims are true and why? Probably none. 

The public can see, however, the exact numbers for non-profit builders, the hospital, and for other local non-profits. Seeing the numbers lets the public know what appears reasonable or not.  Unfortunately, even if market rate developer books were opened numbers manipulation is par for the course. Recall Lehmann Bros and the 2008 mortgage bundling  fiasco… they all lie and cheat so as to keep all the beaks wet.  

Public numbers

The hospital paid $1,743,054 for the 4.1 acre South Lot property, keeping 1.27 acres for a parking lot. That is $425,135 an acre. The project land is 2.83 acres, so the value the hospital has in the current project land, to break even, is $1.2 million. 

DeNova, in its RFP agreement, projects to pay $4 to $4.5 million for the land, once the deal is vested with the city. For the project’s 2.83 acres then, the hospital stands to make up to $1.5 million dollar per acre that they paid $425,135 an acre for, up to a 200% profit margin! 

Millions and millions…..

Regardless of the exact number, monetarily, this is a matter of a couple-a-three million at best, and maybe a million at worst for hospital gains from the sale. This will be offset by whatever interest the hospital had to pay etc. It will be a handy profit in any case. 

These millions here and there are quite common around town. $7 million for the horse farm, $20 million for the current hospital fund raising campaign. Unfortunately, it just doesn’t seem anyone wants to lay any millions out for affordable housing, which is the community’s number one need. 

The millions are there to give, as we see the endless local fundraisers and appeals for money. The millionaires are great guys, I know some of them. The monetary resources to meet society’s needs are here, those in need just have to beg to get it. The need, i.e. systemic poverty enabled by unregulated financial jigging of the benefits, is addressed by hosts of non-profits who then represent a whole new layer of fuzzily transparent hands in the cookie jar. This pattern holds for the whole country. 

From the New Deal to the late 1970s it was a fairer tax rate, and government action that made for an equitable society. Today, the private sector has run off with all the money, and inequity has followed in this wake. Anyhow, the millions are there to give, they just need to be trickled down, as is supposed to happen. 

So, let’s see: hospital is raising $20 million now, and will get between one and three million for the South Lot. The horse farm is looking for $7 million and has $3 million. Sustainable Sonoma, with an explicit housing goal, is struggling to meet a $50,000 matching grant. How much for any affordable housing fund? Zero. Something is not right. We need the big guys to step up and address the greatest needs. 

The writing on the wall for affordable housing is the same as pointed out by the Sonoma Valley Fund’s Hidden in Plain Sight study, local philanthropy and non-profits are not getting the job done. The current hospital market rate project is Exhibit A. Together, philanthropy and non-profits are not focusing on the greatest needs, nor in the most efficient ways, continuing with the least efficient ways to raise funds, big events and parties that take up to half the money earned to pay for the event. 

Looking out for #1

What we are seeing now, with millions floating around but no serious affordable housing project on the South Lot or anywhere, is the continuation of a maladaptive status quo. The end result, lack of meaningful affordable housing on the South Lot, starts with the hospital. Unloading the South Lot property to avoid debt payments, and getting a high sale price for the land was top priority. The hospital could have gone for a better project housing-wise, but it didn’t.  

A local developer of good will dedicated to affordable housing, made a superior development proposal, which could have been made to work. The fact that the proposal was a bit late could have been finessed. So basically, for a bit more trouble, the hospital could have worked for what would have been a major valley-wide benefit, but it chose not to. In retrospect, the reasons why not do not seem compelling compared to the lost opportunity, and to the continuation of equity-damaging, market rate unaffordability in town. 

Planned Development? 

DeNova could have done a Planned Development and been granted more leeway in the project design, and gotten a higher density; it didn’t. The Planned Development extra fees could have been subsidized by the city, or by a benevolent donor; nothing there. The city gave $500,000 to the horse farm, gives millions to the Chamber and the Visitors Bureau; everyone knows affordable housing is a top need, yet no one stepped up to tip this project the right way.

This same pattern happened at the Gateway Project on Broadway and MacArthur.

DeNova and the hospital went for the money, and both use penciling out arguments for their own bottom lines as the main reason why. I can’t see that a Planned Development would have broken DeNova’s ability to make some money. DeNova could have taken less profit and done a Planned Development, but we will never know because books won’t be opened.  The actors in total did not look for what the greatest community need was, and apparently, no one from the city told them either. 

Where is the greater good from the free market? 

The hospital, DeNova, the neighbors, the city, donors concerned about AMI housing, all chose to not go for greatest overall good. All the actors basically wet their own beaks, and potential greater good was lost. Reciprocity to the community for parcel tax and other support was not given by the hospital, appeals from the school district for affordable housing were not heard. There could have been 50 plus affordable units, vs. 16 market rates with granny units that are not guaranteed to be rented, and only four inclusionary units. 

In a clear demonstration of beak wetting, the inclusionary units are only at 100% and 120% AMI. None at 60% and 80% AMI. So much for definition in the city development code that claim to prioritize “middle income households.”

The market at work

What I see is about a 100% sell out to a market rate stasis where critical actors claim there is nothing they can do because: the problems are too big, there is no money, land is too expensive, and things don’t pencil put. This is as much an echo chamber view as actual reality. There is plenty of marginal utility, or surplus money, it is just not being focused where most needed. 

This all adds up to the market at work. It is clear, the market alone does not meet the city and valley’s needs. What is needed is a reprioritization, and a more equitable and balanced economic plan, to guide actors and give a blue print and road map for what the valley and city is looking for in development projects. Government needs to put some backstop up to direct the market, to wet everyone’s beak. 

The owners of the team, the city council, and other upper echelon actors, Susan Gorin, need to lead and point the way, to integrating social responsibility into the system’s housing work plan. 


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