Local developers are reacting unhappily, often angrily, to a bill introduced into the City Council that would require builders of large commercial projects to construct or rehabilitate housing in the city.
Developers of commercial projects costing more than $20 million would have to spend an amount equal to 10 percent of their costs to build or refurbish condominiums, rental units or houses. Developers could do the work themselves, contract to have it done, or put the money into a special city fund.
A builder would have to submit a plan for meeting the requirement when he applied for a building permit. The bill says that the plan would have to contain "a completion schedule not to exceed 15 years for provision of this housing," and the builder could not obtain a certificate of occupancy for his commercial project until the housing requirement had been "satisfied by contract between the developer and the mayor. . . ."
The measure is modeled in part on a San Francisco program requiring developers to help build or rehabilitate a certain amount of housing or assist in its financing. One of the San Francisco program's objectives is to increase the supply of housing within reach of low- or moderate-income people.
The District bill does not target any income group, and does not require that the housing be provided in any specific part of the city. Aides to Charlene Drew Jarvis (D-Ward 4), who introduced the bill, said the measure undoubtedly will be revised after hearings and committee meetings.
"Effectively, the bill would create a tax based on the taxing and regulatory powers of the D.C. city government," said one local housing attorney.
Backers of the measure view it as a potential source of new housing funds at a time when federal subsidies have been declining sharply.
But developers claim the bill would discourage development in the District and chase it out to the suburbs, slashing tax revenues here.
"If developers flee the city, it'll be bad for tax dollars," said Oliver T. Carr, president of the Oliver T. Carr Co. and the city's leading developer. "It's a political cop-out. It's the wrong way to go about it."
"It's a damn good way to discourage development in the District," said G. V. (Mike) Brenneman, president of Brenneman Associates and immediate past president of the Washington Board of Realtors. "Since the District needs tax dollars so desperately, it's not a good thing to do." He said the plan was akin to asking Safeway to set aside 10 percent of its profits to feed the poor.
Developers say they are being made scapegoats for a sick economy, and that the burden of housing people should be shared. They say some developers would be forced into another business--housing development--in which they have no expertise.
"The party at fault is not housing developers. It's the national malaise," said Scott Ditch, vice president of corporate public affairs at the Rouse Co. "The bill picks on the wrong party. Developers are not in the financing business. It's like forcing a manufacturer of chocolates to do 10 percent of his business in diet pills."
"The bill treats the symptom, but not the disease," said Donald Slatton, executive vice president of the Apartment and Office Building Association of Metropolitan Washington, an organization of landlords and building managers.
"Housing is a social problem. Why should the developer shoulder it alone?" asked Brenneman. "It's a burden on society. . . . Many developers are not equipped to develop a shopping center, just as I am not equipped to develop a shopping center. I just wouldn't know what to do."
Madiene Hall, committee clerk of the Housing and Economic Development Committee, to which the bill has been referred, said that, if a developer doesn't know how to develop housing, he can contract with one who does. "The developer must assure the development of the housing," she said. The city fund would be used for loans, interest-rate subsidies and other purposes according to rules to be promulgated under the bill.
"It's unclear now how the fund will work. The law is silent on whether a developer will receive anything in return for his contribution," she said. The bill is called the Residential Housing Development Act of 1983.
"The bill needs a findings and purposes section," said Larry Weston, executive director of the Metropolitan Washington Planning & Housing Association, a private citizen advocacy group. "It needs some statement of why the bill is necessary."
The San Francisco program contains four pages on why such a program is needed. One reason: to preserve and increase affordable housing for low- or moderate-income people.
Weston said the District bill contains almost nothing suggesting that it would help low- or moderate-income people. But the bill does say that money that developers give to the city fund could be used for "below-market interest rates" for eligible buyers. "I don't want to look for a bogeyman, but it's conceivable the 'below-market interest rates' could be for wealthy people," he said.
Weston, a city planner who has worked on housing issues for 12 years, also said the bill should limit the per-unit construction cost so that rents and mortgages will be low. "If you build a luxury building, you have to charge luxury prices. Developers must be conservative in their frills," he said.
He said the bill should offer incentives to developers to build sorely needed multibedroom units. Lower-income people tend to have larger families and need more space. The San Francisco program allows a developer to count a three-bedroom apartment as three units, he said. "If the bill is supposed to follow the San Francisco program, it's not following it very well," he said.
The Los Angeles Times reported that the program exacted $17 million from developers and aided in the construction of more than 2,000 units in the first year. San Francisco's Planning Department estimated that the totals would double in the next year.
However, San Francisco remains one of the few relatively tight office markets in the country, while hundreds of thousands of square feet currently stand vacant here.
For years, local governments have exacted from developers a price for doing business in the community. The price often is in the form of sidewalks, paved streets, trees and parks. The courts have recognized this right, so long as it is reasonable, said local housing attorneys.
A price in the form of housing is legal because development attracts new employes needing a place to live, and who often prefer to live in the city, they said. It also takes up land and capital--both scarce in the District. "Developers are sufficiently unique that a tax on them is legitimate," said Bob Stumberg, co-director of the Harrison Institute for Public Law at Georgetown University's law school.
"Virtually anything a local government does in the area of land-use regulation is constitutional," said Rick Eisen, a local housing lawyer who has researched the topic. "As long as some reasonable profit can be made as, for example, under rent control, it's legal. Courts very rarely will substitute their judgment."
A pro-tenant lawyer who wished to remain anonymous said the government has the power to intervene in private property rights, especially if it's carrying out a legitimate public purpose. "It appears that a legislature can do just about anything," he said. "It's hard to write a bill that's unconstitutional. But if Jarvis said all property owners must turn over all their profits to the city, that probably would be unconstitutional," he said.
Developers say they are being penalized even though they and the companies and employes of their office buildings pay hefty amounts of taxes. "Why not tax the airlines?" asked Ditch of the Rouse Co. "They bring a lot of people into the city."
Eisen said developers have received a windfall profit in the form of Metro, the Convention Center and the efforts of the Pennsylvania Avenue Development Corp.--all paid for with public funds. "So the city should go as far as it can" in taxing developers, he said.
Brenneman termed that argument "garbage. We're all dipping into the public trough," he said.
A lawyer for Brenneman Associates said it's hard to say the bill violates the Constitution. But the practical arguments are better than the constitutional ones, said Abe Greenstein of Pohoryles, Greenstein, Goldberg, Forester, Staton & Harris. "The bill is a disincentive to development here. It's too easy for a developer to build outside the District. It's different from San Francisco. There, you have to cross the Bay to get into Oakland. Here, all you have to do is cross Western Avenue."
While all sides attack what they see as the bill's bad points, one person saw perhaps its most important aspect: "It's a great conversation piece," said Stumberg of Georgetown. "It'll make the city discuss who can afford to live in the District in the 1990s. Let's address that issue."