Rhode Island authorities have wrestled with the issues of managed growth and affordable housing for a number of years. In 1991, the State's General Assembly passed a law that enabled developers to request a streamlined review process for affordable housing applications. This law also allowed developers to appeal denied affordable housing applications to a State Housing Appeals Board. When this law failed to spur the development of sufficient affordable housing, the General Assembly amended it in an attempt to increase production. The resulting requests for development permits overwhelmed local governments so much that the legislature had to again amend the law. In this latest action, the General Assembly attempts to balance the need for affordable housing with the ability of the local and state governments to make effective, well thought-out land use decisions.

Original Act

The Low- and Moderate-Income Housing Act was enacted by the Rhode Island General Assembly in 1991. This Act was modeled after Massachusetts' 40B law, and it gave certain nonprofit developers of affordable for-sale and rental projects, as well as for-profit developers proposing affordable rental projects, access to an expedited review process known as comprehensive permitting. The law defined affordable housing as housing with federal or state subsidies, affordable to households with low and moderate incomes, and having an affordability period of at least 30 years. A minimum of 20 percent of the units in the proposed development had to be subsidized. In reviewing these comprehensive permitting applications, municipalities had only four (See Table 1) reasons to deny a request for a comprehensive permit. Even if denied, developers had the right to appeal directly to a newly created State Housing Appeals Board (SHAB).

Table 1:

This law also encouraged, but did not require, each municipality to reach a threshold of at least 10 percent affordable housing units. It allowed municipalities with 10 percent affordable units - or a plan to reach the 10 percent goal - the authority to use one or more of these four reasons as grounds for denying a comprehensive permitting application.

Early Results: Few Changes

According to Amy Rainone, Policy and Planning Manager with the Rhode Island Housing Finance Agency, the 1991 law did little to increase the production of affordable housing in the state and little to promote effective planning for new affordable housing. Roger Warren with the Rhode Island Builder's Association said that the 1991 law had no effect on affordable housing development. Scott Wolf, Executive Director of Grow Smart Rhode Island, said that there were three reasons for these results:

• The law did not make the 10 percent goal mandatory for municipalities. The state regularly approved local comprehensive plans whose housing elements did not clearly indicate how municipalities planned to meet the 10 percent goal. In addition, the law did not require the state to assist communities in planning for the 10 percent goal.



• Limiting projects to those with federal or state subsidies severely limited the projects that would be eligible for the program.



• The 1991 law's applicability was restricted to nonprofit organizations, which had limited development capacity.

2002 Revisions and Results

In 2002, the General Assembly revised the law to permit for-profit developers to use the comprehensive permitting process for applications linked to for-sale projects. Under this new law, however, local governments were inundated with new applications that they were not able to process within the mandatory time period. According to Wolf, many of these proposals contained requests for significant density increases, in the context of relatively large developments. Warren's position is that the amendments to the Act in 2002 released pent-up demand for housing in the state. He estimates that developers asked local governments for approval to construct approximately 5,000 units, of which approximately 1,000 would have been affordable. Warren estimates that this number was about 2½ times the number of housing units being built annually in Rhode Island but better represented the true demand for housing unfettered by local regulatory barriers.

Many communities were alarmed that the comprehensive permitting process did not provide adequate review for high-density residential developments that for-profit developers were submitting. They also believed that the process allowed for-profit developers to circumvent local zoning. Warren says that the law took away none of the local communities' land use regulatory authority and that they continued to be able to control the development process. After the 2003 General Assembly's efforts to amend the law failed, opponents called for various revisions, including eliminating the law altogether and removing for-profit developers from the comprehensive permitting process. In February 2004, the General Assembly passed a moratorium on new applications from for-profit developers until January 31, 2005. At the same time, the General Assembly required municipalities that had not reached the 10 percent affordable goal to develop detailed plans for achieving that goal by December 31, 2004.

Further Statutory Reform Efforts In 2004

The moratorium provided the General Assembly time to enact a new law in June 2004. This new law seeks to balance the local government's responsibilities to plan for affordable housing with the need for that housing. Some of the most significant provisions are described below.

New State Responsibilities

As part of a long-range solution, the June 2004 law strengthens state efforts to encourage planning for affordable housing. It charges the Housing Resources Commission and the State Division of Planning with developing a statewide strategic plan for housing. That strategic plan must include quantifiable goals and measurable steps toward meeting those goals. It also requires the Housing Resources Commission to recommend guidelines for higher-density development to address infrastructure demands, land capacity, and environmental protection issues. The law further requires the State Division of Planning to coordinate and oversee technical assistance to municipalities that are creating housing plans, and to provide data upon which municipalities can base their new plans. This makes the Rhode Island Housing Resources Commission responsible for developing housing; providing housing technical assistance; and for annually reporting on the number of applications issued, units constructed, and units planned for the following year.

New Municipal Responsibilities

The June 2004 law strengthened requirements that municipalities adequately plan for affordable housing. The law retains the requirement that all municipalities that have not achieved the 10 percent goal must complete an affordable housing plan by December 31, 2004. It also requires that the local review board report annually to the Housing Resource Commission concerning the plan's implementation status. Once the state's strategic plan is completed and adopted in 2006, the law requires municipalities to bring their local comprehensive plans (which includes housing plans) into conformity with the state strategic plan.

New Municipal Authority

The June 2004 law gives municipalities whose affordable housing plans are approved by the Housing Resource Commission the authority to determine the location and density of affordable housing, as follows:

• The new law extends the moratorium on for-profit applications to July 1, 2005.



• Once the moratorium is lifted, local review boards and the State Housing Appeals Board must use the local housing plan as the standard against which they will evaluate proposals.



• The law also clarifies the comprehensive permitting review process and makes it more consistent with reviews for conventional applications.



• The law increases the minimum number of affordable units required from 20 to 25 percent of the development.



• The law allows municipalities to require pre-application conferences for major projects. It clarifies what information developers should submit (See Table 2). It also authorizes a municipality with state-approved affordable housing plans to limit the annual aggregate number of units in for-profit comprehensive permit applications to 1 percent of the total year-round units in the municipality.



• The law allows municipalities to review applications from for-profit developers in order of receipt.

Table 2:

Conclusion

Rhode Island's recent experience with streamlined permitting has been mixed. Early in the program, restrictions led to too little development. Reforms in 2002, meant to encourage development, unleashed a torrent of development proposals. Further changes in 2004 placed additional demands on the development community, but also obligated the local governments to plan for and accommodate the development of affordable housing. Warren said that the new law should make it more difficult to avoid planning for more affordable housing. Warren stated that his association is part of an oversight group that will be monitoring the development and implementation of local affordable housing plans. He concluded by observing that, "The jury is still out [on the effectiveness of the new planning requirements], but I hope it will result in more affordable housing in Rhode Island." In future issues of Breakthroughs, we will revisit Rhode Island to determine if these new laws have adequately balanced the need for affordable housing and the need to appropriately plan for new development.

Response to "Notice to Cure" Article

In June 2004, the Regulatory Barriers Clearinghouse (RBC) published an article about legislation that would establish a process for settling disputes between homeowners and builders without expensive litigation. The article describes how states have enacted "notice to cure" legislation that has reduced the chances that those who develop and build affordable housing will be forced to increase prices and make housing less affordable. Divergent Views Shortly after publishing the article, we received a number of responses arguing that this "notice to cure" legislation creates a regulatory barrier to those who want to sue builders for unsatisfactory work. In an email from Nancy Seats, President of Homeowners Against Deficient Dwellings, Ms. Seats asserts that the recent claims against builders are a result of poor workmanship. She cites a recent Consumer Reports article indicating that up to 15 percent of all new homes constructed have serious problems. She states, "The existing process for settling disputes is laborious and costly, but is still preferable to the new process enacted in several states." Ms. Seats goes on to say that "Much of the new state legislation places strict limits on the amount of time homeowners have to notify builders of problems and to reply to builder responses." She concludes by saying, "If owners fail to meet those deadlines, then they lose the right to sue the builder." Opponents of "notice to cure" legislation cite Missouri Governor Bob Holden's recent veto message, which contains a number of specific reasons for his rejection of similar legislation, including: The bill places unreasonable obstacles that will prevent or delay homeowners from exercising their legal rights as a result of a homebuilder's mistake or malfeasance; It gives homebuilders unwarranted protections from lawsuits that tip the scales of justice against homeowners; and It may violate the open courts provisions of the Missouri Constitution's Bill of Rights. The governor's concern is that many new homeowners, especially those with low and moderate incomes, do not have the means to address construction defects, and the proposed legislation would further restrict their ability to rectify builder mistakes. For More Information Consumers Union discourages direct links to individual articles in Consumer Reports Magazine. However, for more general information on Consumer Reports, go to www.ConsumerReports.org. Governor Holden's veto message is available on the RBC database. Please remember that, as a government clearinghouse, RBC does not 'take sides' on issues such as this, but instead, makes a good-faith effort to present potentially divergent views on a given subject. We believe this affords our readers the opportunity of drawing your own conclusions, and fosters a healthy atmosphere of discussion and debate. Housing Task Forces Address Zoning and Property Tax Reform Back in October, we began a three-part series on how local governments are creating housing task forces to address regulatory reform. In the first article we described how task forces in Burlington, Vermont; Pasadena, California; Columbus, Ohio; Minneapolis-St. Paul, Minnesota; and Dallas, Texas are addressing issues such as administrative streamlining, building codes affecting rehabilitation and infill, and fees and exactions. This article describes how these same five task forces differ in their approaches to zoning and tax issues. In addition, two of these task forces have gone beyond the local setting and have asked their respective state governments for regulatory reform in the effort to promote affordable housing. Zoning All of the task forces under consideration in this series examine various land use development regulations and how they affect housing affordability. In most of the task forces' reports, the greatest number of recommendations and suggestions involve zoning and land use regulations. In Burlington, task force members offer a number of suggestions for reforming the city's zoning ordinance in ways that more actively promote the development of affordable housing. Their first recommendation is to enact reforms suggested by a prior (1990) task force. These earlier proposed reforms include: zero lot line zoning; performance-based zoning; and floor-area ratio zoning. The new task force also urges the city to consider other reforms, such as evaluating the impact of the inclusionary zoning ordinance on the production of affordable housing, and developing an in-lieu payment alternative as part of the inclusionary ordinance. The task force supports allowing accessory apartments if the apartment does not exceed 25 percent of the total square feet of the building. While the task force acknowledges the difficulty of implementing such an ordinance at the local level, they ask the city to explore creating a process to appeal restrictive zoning decisions at a higher level of government. Back on the West Coast, the Pasadena task force proposes that the city allow second unit or 'granny flats' on lots of at least 10,000 square feet. The task force also suggests strengthening the city's inclusionary zoning ordinance by increasing the inclusionary percentage near certain transit corridors, increasing the overall percentage for any residential development, and including commercial development in the ordinance. Meanwhile, the Columbus task force suggests that the city adopt a density bonus program for new construction projects that meet affordability and geographic targeting criteria. Task force members in Columbus have also created a list (See Table 3) of changes to the City's development standards. Table 3: Columbus Task Force Recommendations to Reduce Development Costs Increase the spacing between streetlights; Change waterline specifications; Reduce street width and right-of-way requirements; Change street specifications to a "performance" or asphalt base from Portland cement concrete; Increase maximum distance between sanitary sewerage manholes; Invoice inspection costs monthly instead of requiring a deposit; Conduct spot inspections on construction work; Eliminate the one-year sanitary punch list; and Reduce the left-hand turn lane requirement.   The Minneapolis-St. Paul task force encourages cities within the region to review their land use ordinances to ensure that they are assisting in (rather than hindering) the development process. One task force recommendation is that the local government require only a majority (rather than a supermajority) of the local governing body to approve increases in residential density. In addition, the task force describes a number of examples where local governments are reforming their land use ordinances. Dallas task force members recommend that the city should undertake a comprehensive review of zoning practices and building codes, and modify those which have a negative impact on affordable housing development. They urge the city to authorize a few projects that use innovative zoning approaches and to zone 40 to 50 percent of available residential land at higher densities as a means of encouraging affordable housing development. Taxes Another regulatory reform issue addressed by most of the task forces is the impact that the property tax has on housing affordability. Most of the task forces realize that tax policies have a direct impact on housing affordability, and so have made specific recommendations for revising or amending local tax laws in ways that promote affordable housing. For example, the Columbus task force recommends that the city set strict guidelines before granting property tax abatement. It suggests several types of abatement for new single-family homes located in the city's Neighborhood Revitalization Service Area (NRSA). Affordably priced properties would receive greater benefits for a longer period of time than would other types of housing. It suggests not counting part of the increased value that might result from improvements to owner-occupied homes in this neighborhood when the property is assessed for property tax purposes. It also recommends providing limited tax benefits to both affordable owner-occupied housing outside the NRSA and affordable multifamily housing. The Minneapolis-St. Paul task force cites previous accomplishments where the state changed the property tax class classification for rental properties from commercial to homesteaded properties. These rate changes reduced the operating costs for these properties and lessened the pressure on landlords to increase rents and, consequently, reduce affordability of rental units. The task force suggests supplementing this effort by increasing the amount of the mortgage registry and/or deed transfer tax to provide additional funding for affordable housing developments. In Dallas, the task force recommends that the city establish a nonprofit land bank to acquire and hold land for future housing development. Property owned by the land bank would be exempt from property taxes during the time the land bank holds title to the property. These tax savings could then be passed on to the new buyers of the property. State Issues The Burlington and Minneapolis-St. Paul task forces see a need for state reforms to coincide with local efforts, and so have requested their respective states to assist in promoting changes to local policies. Burlington authorities have requested that the State of Vermont implement recommendations from a 1990 task force. Recommendations include giving priority to communities that request HUD discretionary funds or transportation resources to revise their land use policies to promote affordable housing development. The task force also asks the state to address redundancies between local and state land use permitting and the lack of a predictable permit process. They also request that the state make it more difficult to appeal land use decisions in court in order to reduce the land use decision approval process and reduce development costs. Those in Minneapolis-St. Paul have requested that the legislature review the effectiveness of the allocation of private activity bonds and to increase the proportion of the tax cap assigned to affordable housing. Conclusion In the October, we identified a number of reforms that five local government task forces were examining in order to reduce regulatory barriers to affordable housing. In this issue, we've described how these five local task forces are addressing zoning and property tax reforms, and are promoting the development of affordable housing. We've also examined how two of these task forces are encouraging their respective states to support local reforms by changing state regulations. In our February issue, we will examine how these task forces intend to monitor implementation of the recommendations. If your community has undertaken similar reforms, we'd like to hear about them. Send us an email at rbc@huduser.gov and be sure to read our February 2005 issue to see how these groups suggest monitoring progress toward implementing these recommendations.