Our View: 'Payments in lieu' must be clarified by city

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The recent debate over Wildhorse Meadows exposes some weaknesses in the city of Steamboat Springs' inclusionary zoning ordinance for affordable housing.

In particular, the payment-in-lieu option needs refining, not only in terms of determining how much a developer should pay but also in explaining how those funds will be used to create an equal or greater amount of affordable housing.

The issue came to a head recently with Wildhorse Meadows, the massive mixed-use development planned for 47 acres near the Tennis Center at Steamboat Springs. The development would include more than 560 residential units.

Developers RP Steamboat LLC offered $1.4 million to the city "in lieu" of meeting the 15-percent affordable housing required by the inclusionary zoning ordinance on the Wildhorse Meadows site. City staff suggested a fee of $5 million.

City staff estimates the profit loss to a developer of building affordable units versus market rate units at about $24,200 per unit. So, for payments in lieu of building 15 percent affordable housing, staff recommends the developer pay $24,200 per unit on 18.75 percent of the units in the development. The additional 3.75 percent is a penalty for not building on site.

In Wildhorse Meadows, the staff's payment in lieu formula totaled a little more than $2.5 million. Since it will take an estimated 10 years to build the project, RP Steamboat wanted to discount the funds, arguing the cash value of a lump sum now is greater than payments made over the life of the project. Thus, $2.5 million became $1.4 million. City staff went the other direction, arguing the cost to the developer would increase through payments over time. Thus, $2.5 million became $5 million.

The impasse led RP Steamboat to reverse course, choosing to build 80 or more affordable units in the Wildhorse development. Those units will be added in phases over the next decade. In the end, the inclusionary zoning ordinance worked and this very large complex will include much needed affordable housing.

But the unresolved disparity between the city and RP Steamboat raises questions about what happens the next time the payment in lieu option comes before the council.

Foremost, the city needs to explain how the payment in lieu option, as structured, translates into more affordable housing offsite. Let's assume RP Steamboat gave the city $2.5 million as a payment in lieu -- that's only a fraction of the cost to build more than 80 affordable housing units.

Some City Council members theorize that money can be used for "land banking," or buying land now at current prices for use in large-scale affordable housing neighborhoods later. It's true that the price of land is the biggest obstacle in creating affordable housing. Still, the payment in lieu option should produce a net gain in affordable housing and we haven't figured out how the city is going to do that with its current formula.

Also, the gap between city staff's recommendation and RP Steamboat's offer shows the development community and the city are on different pages when it comes to this option. The ordinance gives the City Council broad discretion to decide; we think there needs to be clearer guidelines.

The need for affordable housing in the Yampa Valley cannot be understated, and we applaud what the inclusionary zoning ordinance already has achieved in addressing that need. But the Wildhorse case shows that the payment in lieu component -- a flexibility option we have supported in the past -- needs to be clarified. We urge the council to resolve this debate before the next project is on its agenda.

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