RESOLUTION NO. A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN JOSE APPROVING A NEW COUNCIL POLICY No ENTITLED SURPLUS SALES

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1 RD:PAD:LCP 1/20/2016 RESOLUTION NO. A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN JOSE APPROVING A NEW COUNCIL POLICY No ENTITLED SURPLUS SALES WHEREAS, the City of San José ( City ) has an interest in promoting affordable housing within the City; and WHEREAS, as a Charter City, the City is not required to follow the requirements of California Government Code Sections et. seq., which sections pertain to the sale of surplus property by a local agency, but has traditionally done so; and WHEREAS, changes to California Government Code Section went into effect on January 1, 2015; and WHEREAS, the changes to California Government Code Section strengthen the ability for affordable housing developers to acquire surplus land, and can be used as an additional tool to support the development of affordable housing that is important for addressing the housing crisis in the area, but the changes also may impact the value of property to be sold by the City and the impede the ability of the City to determine the future use of parcels to be sold; and WHEREAS, the protection of the value of City assets and the control of compatible land uses are both municipal affairs that are not subject to state legislation; and WHEREAS, the City Council desires to establish a new City Council Policy No entitled Surplus Sales, to formalize the implementation of surplus sale procedures that are generally consistent with the revised California Government Code Section with revisions as described in the memorandum to the City Council from Kim Walesh, T / doc 1 Council Agenda: Item No.: 4.1 DRAFT--Contact the Office of the City Clerk at (408) or for final document.

2 RD:PAD:LCP 1/20/2016 Director of Economic Development, and Jacky Morales-Ferrand, Director of Housing, dated January 11, 2016; NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF SAN JOSE THAT: A new Council Policy 7-13 entitled Surplus Sales, which policy is attached hereto as Exhibit A and incorporated herein by this reference as though fully set forth herein, is hereby approved. ADOPTED this day of, 2016, by the following vote: AYES: NOES: ABSENT: DISQUALIFIED: ATTEST: SAM LICCARDO Mayor TONI J. TABER, CMC City Clerk T / doc 2 Council Agenda: Item No.: 4.1 DRAFT--Contact the Office of the City Clerk at (408) or for final document.

3 City of San José, California COUNCIL POLICY TITLE PAGE POLICY NUMBER SURPLUS SALES EFFECTIVE DATE APPROVED BY COUNCIL ACTION 1 of 3 REVISED DATE 7-13 BACKGROUND On April 30, 2013, Council approved amendments to the Municipal Code that implemented certain processes to recognize differences between property types, including estimated value, size and marketability, to more appropriately match a sale process to a specific property. The goals were to achieve quicker results and more efficient use of resources. The revisions focused on the following areas: Creating three categories of properties for sale, with three (3) more appropriate sales requirements based upon the development potential and estimated market value. Establishing concurrent action steps, rather than the previous sequential steps. Decreasing the number of Council actions required for the selling of surplus City-owned property. Conducting Requests for Interest, instead of Requests for Proposal for prospective buyers. Expanding Staff s ability to negotiate directly on sites unlikely to have multiple offers. Authorizing Staff to receive unsolicited offers on City owned properties. Increasing the City Manager s authority to authorize sales of properties that are not developable with a market value that is less than $500,000. The Council also repealed the prior Council Resolution No Approving Recommendations for the Outreach and City Process for Sales of Surplus Properties and approved the Process for Determining Whether Property is Surplus, which was attached to the February 28, 2013 Council memo as Attachment A. Effective January 1, 2015, California Assembly Bill 2135 ( AB 2135 ) modifies the procedures with respect to the sale of surplus properties by a local agency. Prior AB 2135, State law required that any local agency selling surplus land provide notice to and negotiate in good faith to sell surplus property to entities that undertake affordable housing, parks, or school development (a Preferred Entity ). If the price or terms of a sale to a Preferred Entity could not be agreed upon within sixty (60) days, the City could sell the surplus land for fair market value to any interested party. The new law prioritizes affordable housing uses over park or school uses, and under various circumstances it requires specific types of disposed surplus property to be encumbered by certain covenants related to affordable housing. The California constitution grants charter cities plenary power over municipal affairs, while reserving to the State the authority to regulate municipal affairs. The sale of surplus land is a municipal affair that is not subject to regulation by the State, therefore the City of San Jose ( City ) is not required to follow the requirements of Government Code section et seq.

4 Nevertheless, in the past City staff has generally acted in a manner consistent with State law as it pertains to the sale of surplus land. PURPOSE This policy will guide the City s process for identifying and disposing of surplus property. The policy will streamline the processes for selling City property thereby reducing the amount of time needed to sell surplus property and increase staff s ability to more effectively market City owned real estate. The benefit of AB 2135 is that it strengthens the ability for affordable housing developers to acquire surplus land, and it contains inclusionary housing requirements under certain circumstances. The law also affirms that surplus land can be sold by the City for a below market rate. Staff has analyzed Assembly Bill 2135 and has recommended that the City continue to generally act in a manner consistent with the revised State law because Council has provided direction regarding the importance of promoting affordable housing within the City. POLICY A. Determining Whether Property is Surplus 1. Real Estate staff shall confirm ownership, prepare various documents related to size and configuration of the property, develop a preliminary estimate of value, and identify any restrictions on use. 2. Real Estate staff shall communicate with internal stakeholders to determine if there is a current or intended future use of the subject property, in order to determine whether the property should be considered needed for, or adaptable to, City use. The City Council may also declare the property surplus based on a determination that the public interest would be served by a conveyance, but staff is not authorized to make a surplus declaration on such basis. 3. If a City use is identified for the subject property, the internal stakeholder advocating such use shall conduct a fiscal analysis thereof. During this internal review Real Estate staff shall also undertake their analysis of whether the subject property is independently developable and a good faith estimate of the market value thereof. 4. If no City use is identified, Real Estate staff shall post a sign on the property notifying the public of the City s intent to surplus the property, prepare notification letters to all parties that may want to use the property for affordable housing, open space, or educational use ( Preferred Entities ), and prepare notification to parties which have expressed interest in acquiring the property. 5. Real Estate staff shall evaluate public outreach efforts and reconsider potential for City use, and identify and negotiate with any interested parties that respond to the notification letter. 6. Real Estate staff shall prepare an informational memo to the City Council advising them of the results of steps 1 through 5 above, including identification of all internal stakeholders and outside parties with whom communications were had, and a summary of the basis for all conclusions reached, and, if applicable, staff s intention to proceed to surplus, market and dispose of the property.

5 7. Based upon the determination by Real Estate staff that the property: i) is not needed for or adaptable to City use; ii) is not independently developable; and iii) has a market value of less than $500,000, the City Manager may adopt their decision to declare the subject property surplus, which decision shall include a summary of the basis for all conclusions reached concerning subsections i, ii and iii, immediately above. Such decision shall be posted on the City s website, whereupon staff may proceed with disposition of the surplused property. Such decision will not be adopted any sooner than fourteen (14) days following the date of the informational memo described in step 6 above. If the subject property is not surplused by action of the City Manager as provided above, any decision to surplus must be taken to City Council for approval. 8. Real Estate staff shall prepare an informational report of properties declared surplus and properties sold for the City Council on a semi-annual basis. This report is intended, in particular, to highlight for the City Council those properties that staff intends to begin reviewing for the purposes of conducting a surplusing analysis, as well as those properties that have been declared surplus and sold without bringing the action to Council during the previous period. The informational memo described in step 5 above may be part of the semi-annual report prepared under this step The City Manager may modify the process described above from time to time in order to accommodate circumstances applicable to significant or unusual properties. B. Prioritizing and Negotiating with Preferred Entities 1. The City shall provide notice to Preferred Entities (entities that undertake affordable housing, park or school development) that City-owned surplus property is available for sale prior to making the surplus property available to the open market. 2. The period during which the City will negotiate with a Preferred Entity prior to making the surplus property available to the open market shall be ninety (90) days. 3. If the City and the Preferred Entity cannot come to agreement within ninety (90) days, the City s surplus property can be sold at fair market value on the open market. 4. If the surplus property is zoned for residential development, the City shall prioritize affordable housing uses over park and school uses. 5. In the event that more than one Preferred Entity makes an offer to purchase the surplus property, the City shall give first priority to the entity that agrees to comply with the affordable housing requirements or proposes to provide the greatest number of units at the deepest level of affordability. 6. If a Preferred Entity proposes to use the surplus property to develop low or moderate income housing, no less than twenty-five percent (25%) of the total housing units developed on the parcel(s) shall be available at affordable prices for rental or for-sale property to lower-income households for at least fifty-five (55) years. C. Developing Surplus Property 1. If surplus property is sold and the new owner proposes to use the property for the development of ten (10) or more residential uses, then the entity (or its successor-in-

6 interest) shall provide no less than fifteen percent (15%) of the total number of units developed on the parcel(s) at affordable prices for rental or for-sale property. 2. An affordable housing restriction documenting the total number of restricted units and the affordable prices shall be recorded against the surplus land at the time of sale. 3. If surplus property is sold for a use other than residential development, an affordable housing restriction documenting the total number of restricted units and the affordable prices for any future residential development on the parcel(s) shall be recorded against the surplus land at the time of sale. 4. Ownership housing units developed on formerly surplus land should be priced to be affordable to households with incomes at 100% of Area Median Income (AMI), with eligible buyers being households with incomes at or below 120% of AMI. 5. Rental housing units developed on formerly surplus land should be priced to be affordable to households with incomes at or below 60% of AMI. 6. This affordable housing restriction shall run with the land for fifty-five (55) years, and shall be enforceable against any owner (or its successor-in-interest) who violates the covenant or restriction. 7. Payment terms for surplus property sold for the development of low or moderateincome housing uses may exceed twenty (20) years. D. Exceptions and Exemptions 1. If a property is zoned for a use other than residential, the surplus property does not need to be sold for a housing use. 2. This policy not supersede the City s ability to designate land uses. 3. High-rise rental developments in the downtown shall be exempt from this policy if the developer obtains all necessary approvals from the Planning, Building, and Code Enforcement Department and applies for building permits by June 30, Surplus property that is undevelopable for housing and meets the criteria listed below shall be exempt from this policy: a. Less than five thousand (5,000) square feet in size b. Not adjacent to land developable for multi-family housing c. Is subject to environmental restrictions which prohibit development of the property for residential use. 5. Staff may request an exemption from this policy to meet another City goal and prioritize the sale of the surplus property for parks, schools, or other reasons, such as economic development. Any exemptions shall be approved by City Council.

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