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HomeMy WebLinkAbout2003-12-09 City Council (4)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL ATTENTION: POLICY AND SERVICES COMMITTEE FROM:CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE: SUBJECT: DECEMBER 9, 2003 PRESERVATION INCENTIVES FOR STRUCTURES CMR:555:03 CITY-OWNED HISTORIC RECOMMENDATION Staff supports the implementation of a City-owned Historic Building Incentive Program, as described by City Attorney in the attached memorandum. DISCUSSION At the request of the Director of Planning and Community Environment, Interim City Attorney Wynne Furth prepared the attached memorandum outlining the legal issues related to the implementation of a historic preservation incentive program for City-owned structures. The legal analysis concludes that the City can convey development potential inherent in City-owned historic structures. Staff recommends that the Policy and Services Committee members consider the following issues: Creating a Historic Preservation Incentive Program for City-owned structures is the first step in implementing a citywide program. Initiating the program specifically for City-owned structures will assist in issue identification that could streamline the implementation of the citywide program in the future. Transferring development potential should be limited to the Downtown Area and should remain within the floor area ratio cap. Downtown has the development pattern and infrastructure to accommodate development credit from outlying sites. Particularly with the recent increase in available public parking, transferring CMR:555:03 Page 1 of 2 development potential may ensure full utilization of the City’s investment in its Downtown infrastructure. o While the much of the City’s character rests in its historic buildings, the publicly- owned structures are especially valuable to the community as a whole. Leveraging resources to stabilize and enhance public historic buildings ensures that these structures remain as permanent fixtures in the City’s character. An incentive program, as suggested, is a creative means to increasing the City’s commitment to maintaining its infrastructure without sacrificing other necessary infrastructure improvements. ATTACHMENTS Attachment 1: Memo from Wynne Furth, Interim City Attorney, dated December 4, 2003 Prepared by: S(~phen Emslie, Director of Planning and Community Environment Department Approval:/S4FI~’~LpI_t~N E M)~’IE~- Director of Plgnnin~, and Community Environment City Manager Approval: HARRISON Assistant City Manager CMR:555:03 Page 2 of 2 Office Memorandum Office of the City Attorney City of Palo Alto DATE: TO: FROM: RE: December 4, 2003 Steve Emslie, Director of Planning and Community Environment Wynne Furth, Interim City Attorney,/ Preservation Incentives for City-owned Historic Structures In response to inquiries from the public, you have asked our office to look into possible expansion of the City’s existing historic and seismic preservation ~density bonus" program on a limited basis to City-owned historic structures, particularly those that are eligible for listing on the National Register of Historic Places. We have examined the City’s existing density bonus program, and the associated transfer (~TDR") program, relevant Comprehensive Plan policies, the South of Forest Area Coordinated Area Plan, and other City documents in order to make some preliminary recommendations to you. We have also consulted with members of the City’s planning staff and developers who have made use of the City’s existing program. Our goal was to suggest programs that are legal, relatively simple to adopt and administer, and supportive of the City’s adopted policy goals. Background Goal 7 of the 1998-2010 Comprehensive Plan is the "conservation and preservation of Palo Alto’s historic buildings, sites and districts." Among the implementing policies and programs are: Encourage public and private upkeep and preservation of resources that have historic merit. ... (Policy L-51) Encourage the preservation of significant historic resources owned by the City of Palo Alto. Allow such resources to be altered to meet contemporary needs, provided that the preservation standards adopted by the City Council are satisfied. (Policy L-52) 031204 syn 0091384 OFFICE MEMORANDUM, cont. Steve Emslie, Director of Planning and Community Environment December 4, 2003 Page 2 Preservation Incentives Structures for City-owned Historic Continue to use a TDR Ordinance to allow transfer of development rights from designated buildings of historic significance in the Commercial Downtown (CD) zone to non-historic receiver sites in the CD zone. Planned Community (PC) zones properties in the Downtown also qualify for this program. (Program L-60) Develop incentives for the retention and rehabilitation of buildings with historic merit in all zones. (Program L-57) Encourage and assist owners of historically significant buildings in finding ways to adapt and restore these buildings, including participation in state and federal tax relief programs. (Program L-64) Commercial Properties vs. City-Owned Properties As recognized in Program L-57, both the state and federal government have provided tax incentives which may cover a significant percent of the costs of historic rehabilitation for commercial structures. However, since the City pays neither income taxes nor real property taxes,I City-owned historic buildings cannot benefit from these programs. For example, the Mills Act, which provides a reduction in annual property taxes in return for a preservation covenant, is of no use when the properties are already exempt from real property taxes. Furthermore, this program reduces the general revenues of both the City and other local agencies, most notably the Palo Alto Unified School District. The tax credit programs sponsored by the federal government similarly are of little or no use to the income tax-exempt City. In areas such as the provision of low-income housing, public agencies can partner with for profit "tax credit investors." We have not located any comparable program for historic preservation. Even if it were feasible to lobby for such a new tax break, the City may not wish 1 When City property is leased, the tenant’s leasehold may be subject to real property taxes in some cases. 031204 syn 0091384 OFFICE MEMORANDUM, cont. Steve Emslie, Director of Planning and Community Environment December 4, 2003 Page 3 RE:Preservation Incentives Structures for City-owned Historic to do so at a some of significant budget shortfalls and deficit spending at both the state and federal leve!. Therefore, implementation of Program L-64 for City-owned historic buildings requires a different approach. Residential v. Non-Residential Buildings The vast majority of buildings in Palo Alto are single- family residences. Some of these are eligible for the National Register of Historic Places and a larger group is eligible for the California Register of Historic Resources. In 1999, after several years of study and interim ordinances, the City Council passed a comprehensive program for preservation of historic homes. This ordinance established a number of incentives for voluntary preservation of privately-owned historic buildings, including floor-area allowances greater than similarly sized lots without historic homes. However, the ordinance was rejected by the voters. Council gave instructions to the Planning Division to return with a program of voluntary preservation incentives. This memorandum does not try to address that much larger issue, focusing instead on the much smaller number of buildings owned by the City itself. Transfer of Development Rights Program In 1986, when rezoning the Commercial Downtown (CD) area, the City established a program to grant floor area bonuses to encourage seismic and historic rehabilitation of buildings. (Ordinance No. 3696). The size of the bonus was based on the size of the building: the greater of 25% of the existing above-ground floor area, or 2,500 square feet. In time, it became apparent that for many historic buildings, it would be better not to use the ~bonus floor area" on site. A transferable development rights ordinance was established in 1997 to permit buildings that were eligible for a bonus to transfer it, providing an incentive for rehabilitation of historic buildings that could not easily use a bonus on the same site. Prior to that, a TDR program existed in the Comprehensive Plan, but was not used frequently due to the cumbersome process required to transfer bonuses. The current program has been used several times. It permits bonuses to be transferred within the Downtown district and restricts the floor area ratio that may be achieved using bonuses to 2:1 in the CD-S 031204 syn 0091384 OFFICE MEMORANDUM, cont. Steve Emslie, Director of Planning and Community Environment December 4, 2003 Page 4 RE:Preservation Incentives for Structures City-owned Historic and CD-N districts, and 3:1 in the CD-C district. receiver sites are any Downtown non-historic site. Adapting the TDR Program to Historic Preservation of City-Owned Buildings Eligible If the City wishes to adopt a TDR program for preservation of city-owned historic buildings, among the issues to be decided are: i.Which buildings should be eligible "senders?" Any sender buildings must at a minimum be formally identified as historic resources. The most widely recognized method for doing this is listing a structure either on the Nationa! Register of Historic Buildings or the California Register of Historic Resources. Palo Alto also maintains its own inventory of historic buildings. Some City-owned buildings have been previously identified as eligible for listing through an environmental review process. For example, the Children’s Library was identified as a historic building during the Library Bond Measure planning process. A sender building must also be one that the City Council identifies as suitable for essentially permanent maintenance in a manner consistent with the Secretary of the Interior’s Guidelines. The fact that a building is listed on the National Register neither requires nor guarantees its preservation. Selling TDRS would change this. Therefore, the City Counci! must determine under what circumstances this substantial limitation on the City’s right to alter the building or use of the site in the future is appropriate. We believe this determination could be made by the City Council on a case-by-case basis, once the general program was adopted. Alternatively, the eligible site or sites could be part of the enabling ordinance. 2.What bonus formula is appropriate? The City’s existing formula has the advantage of being tested with previous use and generally understood in the development-community. We favor extending existing formulas rather than inventing new ones whenever appropriate. (See 2003 Auditor’s 031204 syn 0091384 OFFICE MEMORANDUM, cont. Steve Emslie, Director of Planning and Community Environment December 4, 2003 Page 5 RE:Preservation Incentives for City-owned Historic Structures Report.) However, further study by your department is advisable. The existing formula is intended to operate for private investors, not a public agency. A complicating factor is the recent creation of a new kind of TDR, the SOFA2 TDR, which can only be used to create housing. 3.Which sites should be eligible ~receiver" sites? The City’s existing TDR program identifies eligible receiver sites and will be amended to implement the provisions of the South of Forest Area Coordinated Area Plan Phase 2. A policy issue will be whether the same definition of eligible receiver sites is appropriate. Again, we favor simplicity. In the planning analysis of this proposal, a basic question issue is how many new TDRs should the City create so that it advances the goal of preserving important City-owned public resources without unintentionally jeopardizing its program for the preservation of private property. A related issue is whether these TDRs should carry parking exemption with them, be confined to certain areas, or be limited to certain uses, e.g. housing but not office. 5.How should these TDRs be marketed? Existing TDR transfers are private transactions and often involve two sites owned by the same person. This permits coordinated planning, since our rules require that the historic restoration work be done before the development rights transfer. However, this may not make sense for City-owned buildings. First, the proceeds of the TDR would be intended to fund the preservation or restoratio work and the City cannot borrow in the same manner as a private investor. Second, the City is a regulator, with the power to determine if TDRs can in fact be used on a particular site. The City’s existing TDR programs specify that the program can go away at any future time; there is no guarantee that the TDR can be used. This leads to the current practice of getting a ~development approval before paying for TDRs. If the City is to sell TDRs, it must be able to guarantee their future utility for some period of time. To do this, it would need to execute a development agreement with the TDR purchaser. In that case, it may 031204 syn 0091384 OFFICE MEMORANDUM, cont.- Steve Emslie, Director of Planning and Community Environment December 4, 2003 Page 6 Preservation Incentives for City-owned Historic Structures be important to identify a future site where their use is guaranteed. How would the City guarantee preservation of its own property as a historic resource? The current City council cannot bind the hands of future City Councils absent an agreement with a third-party. We require privately-owned sender sites to grant the City a conservation easement giving it the right to sue (and recover costs) if the property is not maintained in a manner consistent with the Secretary of the Interior’s Guidelines. The City cannot grant a conservation easement to itself. However, it can grant one to an independent nonprofit dedicated to advancing historic preservaiton. A similar approach is commonly used to ensure long-term preservation of publicly-owned open spaces. Next Steps Although we, and others, have devoted a significant amount of time to researching a City property TDR program, more legal research, as well as planing and fiscal analysis, is required if the City Council wishes to proceed. We would do further analysis of the fundamental legality of such a program as well as operational details. Our work to date suggests that such a program is feasible if the City Council wishes to proceed. WSF:syn 031204 syn 0091384