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HEATHER L. KIMBALL 4�,.�,. HOLEK4 GORO INABA
COUNCIL CHAIR COUNCIL, MCR C I
Council District 1 `' '* Council District 8
Phone: (808) 961-8828 'r...... M* Phone: (808) 323-4280
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HAWAII COUNTY COUNCIL,
COUNTY OF HAWAII
25 Aupuni Street, Ste. 1402, Hilo, Hawai`i 96720
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DATE: January 26, 2023 -
TO: Members of the Hawaii County Council
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FROM: Heather Kimball, Council Chair
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Holeka Goro Inaba, Council Vice Chair -
SUBJECT: Bill 18
Attached please find the following for purposes of discussion in relation to Bill 18:
• Appendix G. Local Residency Requirement from the Maui County Comprehensive
Affordable Housing Plan(2021).
Thank you.
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Hawaii County is an Equal Opportunity Provider and Employer
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Appendix G. Local Residency Requirement
There are several legally permissible ways to give preference to area residents.
First Distinction: Current County Resident-- A county funded program for rental or for-sale housing can
give preference to County Residents.
Example: Kauai County resident requirement for affordable for-sale homes(both leasehold and fee
simple)since updating the affordable housing ordinance in 2007. Kauai County Ordinance No.860:
"Qualified resident" means a person who:
(a) Is a citizen of the United States or a resident alien;
(b) Is at least eighteen (18)years of age;
(c) Is a full-time resident of Kaua'i County;and
(d)Shall physically reside in the workforce housing unit purchased or
rented.
Other examples: San Francisco,San Diego, New York, DC,all have requirements that homes be
prioritized to people currently living in the counties. In fact, most counties have current resident
requirements for their affordable housing programs.
Second Distinction: Preference by Local Area--ie by Councilmember district or within half mile or other
radius of a new project.
Examples: San Francisco and New York City
San Francisco and New York City have very well established below-market for-sale programs and they
both have preferences for residents in the local area where housing is developed.San Francisco started
their inclusionary zoning program in 1992 and it has undergone four policy revisions. The New York
program started in the 1980's and has a community preference policy.
Legal Concerns: Fair Housing Act. Some concerns have been raised about if local area preferences
would violate the Fair Housing Act(FHA).The San Francisco Mayor's Office of Housing and Community
Development(MOHCD)said FHA concerns can be addressed by showing that a preference for nearby
residents will not result in unfairly excluding minority groups from certain neighborhoods.
FHA concerns can be addressed by showing that a preference fornearby residents will not result in
"disparate impact". For example a recent 2020 letter from MOHCD Director Eric Shaw,explains how
this analysis showed no negative impact by the Neighborhood Resident Housing Preference (NHRP):
"We conducted a disparate impact analysis utilizing application data from lease-
ups that occurred in 2019 for the two sites that received permission from HCD to
apply NRHP, Eddy and Taylor and 455 Fell.The analysis shows no disparate impact
when the NRHP is applied to 25%of the open lottery units."
San Francisco Local Area Preference: Up to 40%of housing units can go towards local area residents.
San Francisco, California,Administrative Code Chapter 47; "Preference in City Affordable Housing
Programs":
Sec. 47.2 Definitions:
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"Neighborhood Resident"shall mean any person who has a primary residence in
a certain Neighborhood at the time he or she applies for a unit or assistance.
MOHCD shall establish a process for a person to verify statu as a "Neighborhood
Resident" for a particular Neighborhood, which, at a minimum, shall require a
person to show:
(a)that he or she is listed on the lease for a unit in that Neighborhood; or
(b)other evidence sufficient to establish, in MOHCD's reasonable discretion,that
the person resides in a unit in that Neighborhood.
Sec. 47.3 Application of Preference:
(c)Third,to a Neighborhood Resident, who meets all of the qualifications for the
unit or assistance. Preference under this subsection (c)shall be given:
(1)for units located in the same Neighborhood as the person resides;
(2) only for any new residential development in that Neighborhood going
through the initial occupancy or sale process, and only to 40%of the units in such
development.
Disparate Impact Analysis Used to address Fair Housing Act:Two types of statistical analysis were used
by the San Francisco mayor's office of housing to show that a neighborhood preference policy would not
have a disparate impact on protected groups.These two types of analysis include 1) a z test and 2)a 4/5
test. In a letter to California Department of Housing and Community Development San Francisco City
Attorney Keith I. Nagayama states that San Francisco's Neighborhood Preference does not violate FHA:
"MOHCD has performed a statistical analysis to determine whether the
Neighborhood Preference will result in a significant disparate impact on any
particular racial group based on two common statistical methods used by courts:
(1) the "four-fifths" rules (Langlois v. Abington Housing Authority (D.Mass. 2002)
234 F.Supp.2d 33.) and (2) the standard deviation analysis or the "z-test"
(Castenoda v. Partida, 430 U.S. 482 (1977).). According to MOHCD, the results of
both analyses show that the Neighborhood Preference has not resulted in a
significant disproportionate disparate impact on any particular racial group."
Conclusion: Local area preference can be enacted but needs to address Fair Housing Act concerns with
a disparate impact analysis similar to the one used in San Francisco to avoid legal challenges.
Third Distinction: Durational residency requirements which require that a resident has lived in a
jurisdiction or area for a certain number of years. For example,the requirement that a resident live in
Hawaii for one year before being eligible for in-state college tuition rates.A durational residency
requirement has only been used with for-sale housing and not with rental housing,as rental housing
would be very unlikely to withstand a legal challenge,due to rental housing being considered a "non-
portable"benefit, unlike for-sale housing which is a more"portable" benefit. See further discussion
below.
Example: San Diego two-year requirement. As part of their inclusionary zoning program,the San Diego
Housing Commission offers below-market for-sale homes to people up to 120 percent of area median
income. Initially their program did not have a residency requirement,which prompted a significant
number of applications from out-of-state residents.Since this was not the intended purpose of the
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program,the San Diego Housing Commission updated the rules in 2017 to require two years of
residency in San Diego County,verified by three years of tax returns.The policy has remained in place
since then.
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Legal Considerations:Durational-Residency Requirements Could Be Challenged
A durational-residency requirement for a public benefit which requires that a person live in a place for a
certain length of time has generally been found by the courts to limit the "constitutional right to travel
from one State to another."The right to travel has been interpreted to refer to not just entering and
exiting another State but to the right to be treated like other citizens of that State.
For example;a California law attempted to limit welfare benefits for newly-arrived residents to the
amount paid by their previous state of residence for their first twelve months in California,at which
point they were entitled to benefits at the California rate.
In Saenz v. Roe',the U.S. Supreme Court invalidated California's restriction. However, courts have made
an exception to the general rule of disallowing duratio nal-residency requirements for"portable" benefits
that a nonresident could obtain and take out of the state 2. In-state tuition requirements are an important
example of a "portable"benefit.
"The state can establish such reasonable criteria for in-state[college tuition]status
as to make virtually certain that students who are not, in fact, bona fide residents
of the State, but who have come there solely for educational purposes, cannot
take advantage of the in-state rate S3.11
Applicability to For-Sale County Programs: One could argue that homeownership is a portable benefit
as compared to renting.An owner builds equity in their home,which translates into a profit that can be
taken out of the county when the owner sells. Even before the sale of a home, an owner can often
borrow money against the value of their home as a home equity loan.This benefit could be considered
portable since there is no restriction on where the funds,which can be significant,can be spent.
However,the home itself is not portable,only the equity accrued to the owner. Whether ownership is
considered a portable benefit similar to college tuition or a non-portable benefit more similar to welfare
has not yet been decided by the courts.
Analysis:The most conservative legal approach would be to require no specific length of time for
residency but simply that a person be a current Maui resident. Moreover, applicants to the County
program would need to be on a pre-approved buyer list before construction begins.They would likely be
waiting at least two years before construction is completed and they own a home.This reduces the
likelihood that a person would establish residency in Maui just for this program.
Fourth Distinction: Length of time preference. Provide some extra preference based on number of
years living in an area or length of time on the list.
'526 U.S.489,119 S.Ct.1518,143 L.Ed.2d 689(1999).
2 Martinez v.Bynum,461 U.S.321,332-33,103 S.Ct.1838,75 L.Ed.2d 879(1983).
3 Vlandis v.Kline,412 U.S.441,453-54,93 S.Ct.2230,37 L.Ed.2d 63(1973).
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Example: Washington D.C. Selected by lottery, prioritized by length of time on list
For the Washington, D.C. inclusionary zoning program (rent or for-sale),when a home becomes
available,there is first a lottery selection of a minimum of 4 and maximum of 10 eligible households
from a list of qualified renters or buyers. This selected pool of candidates is then ordered by length of
time on the waiting list and offered the available unit one at a time until a household selects the unit. If
the unit is not selected, a new lottery is held and the process is repeated.
Example: Vail,CO-Applicants who have been residents for at least 5 years receive extra lottery
tickets. In Vail,extra lottery tickets are given to residents who have either worked or lived in Vail for 5
years. All income eligible applicants receive 1 lottery ticket, but a person can receive a second lottery I
ticket if they have lived in Vail for 5 years or more,and a third ticket if they have also worked in Vail for 5
years or more. In this way a person is more likely to be selected if they have lived or worked in Vail for 5 i
or more years, but it is not exclusive and a newly arrived resident could also be chosen.
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Analysis: In both of these examples there is priority given to residents who have been in a district or on
a list for longer, but it is not a requirement. In comparing these two approaches the D.C.system would
seem to be more fair and less arbitrary.The Vail approach is somewhat blunt and inconsistent since a
five year resident could have three times the tickets as a four year resident,while a 15 year resident is I
given the same weight as a 5 year resident. A large distinction is created only between the four and five
year mark,with no further adjustment. In contrast the DC system by first selecting randomly and then
ordering by years on the list is able to provide everyone an opportunity,while also giving a consistent
preference to households on the list for longer. The same distinction is given between a household
waiting 3 years verses 4 years,as a household waiting 14 years verses 15 years. The household waiting
longer is given priority,whereas in the Vail system after 5 years there is no priority by length of time.
Recommendation: If some preference is desired based on length of time,the D.C. approach of selecting
randomly and then ordering by years on the list would seem more fair,while still allowing all eligible
households the opportunity to participate.
Fifth Distinction: Definition of"working" in a district. Requiring a certain percentage of income be
earned within a district,to ensure that program is benefiting residents who are living on local wages and
not wages earned elsewhere.
Examples: Vail,and Aspen,CO; Key West,FL
In both the Vail and Aspen programs an applicant is considered a full-time worker if at least 75%of their
income is earned with the local county. In Key West, a household or person must earn 70%of their
income from employment within the county.
Analysis: As more remote workers come to Maui,where they are living in Maui but receiving an income
based on wages from another state or location,a policy is needed to prioritize residents earning local
wages. Implementation of this policy would make a distinction between a remote sole proprietor
business where 75%of income is generated within the county verses a person working remotely for a
company outside of the county. This ensures that a housing program is targeted to residents living on
wages earned locally
Another approach: Artist or cultural practitioner preferences for LIHTC projects.This is a preference
which is allowable under federal law for housing projects which receive federal tax subsidies also known
as Low Income Housing Tax Credit(LIHTC) projects.
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According to LIHTC Rules under Section 42 of Internal Revenue Code: (IRC§42, Low-Income Housing
Credit(irs.eov) a preference is allowable for people engaged in "artistic or literary activities".
Clarification of general public use requirement.A project does not fail to meet the general
public use requirement solely because of occupancy restrictions or preferences that favor
tenants—
(A)with special needs,
(B)who are members of a specified group under a Federal program or State program or
policy
that supports housing for such a specified group, or
(C)who are involved in artistic or literary activities.
Under this provision tenants can be selected by an "Artist Interview Committee" made up of local
community members. Tenants who apply for the housing can be evaluated based on "The willingness
and ability to contribute to a cooperative/creative environment and show a commitment to engage in
the greater community."
Although this provision is not exclusive to long-time residents,the above criteria would likely favor
people who are active and involved in the local community.
Example: Ola Ka`Illima Artspace in Kaka`ako neighborhood of Honolulu. An Artist Review Committee
was used to select tenants for the recent Ola Ka 'Illima Artspace Lofts(link here),which opened in Feb.
2019 and had 72 units reserved for artists.The woman who administered the selection committee
process, Naomi Chu indicated that the process was very successful and they were able to find over 25
community volunteers to help with the selection committee.
Conclusion: A preference for local artists and or cultural practitioners is allowable for federally
subsidized housing and does not violate the Fair Housing Act. It would be logical to assume that an
artistic preference would also be allowable for any County funded housing which does not rely on
federal funds since the Fair Housing Act is a federal law and rules which are in compliance at a federal
level would therefore also be in compliance at lower levels of legal jurisdiction, i.e.the State or County
level.This type of preference would allow a selection committee composed of local area residents to
select housing members based on artistic activities,which can include expressions of the local
indigenous culture. t
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Summary of allowable preferences which do not violate the Fair Housing Act:
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1. County Resident Preference.
2. Neighborhood Area Preference with analysis to show it does not create a "disparate impact"
3. Length of time preference,either on a waiting list or number of years in an area.
4. Artist Preference
Preference which raises concerns with the constitutional right to travel but has not yet been legally
tested:
1. Durational Residency Requirement
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A durational residency requirement has been enacted in San Diego but has not yet been tried in court.
The most conservative legal approach would be to not have a durational requirement, however, it is
very possible that this requirement would survive a court challenge based on owner equity being
considered a "portable" benefit.
Recommendation. Update county ordinances 2.96,2.97,3.35 and other applicable affordable housing
policies for for-sale programs only,with the following definition for a"Qualified Resident".
A"Qualified Resident" is defined as a person who currently resides or is employed within the
County of Maui,for a period of at least 2 years prior to the filing of an Application for an
Affordable Housing Unit,with documentation,including but not limited to,three years of filed
income tax returns,W2s,or benefits statements confirming residency or employment within
the County of Maui,with at least 751 of a residents income generated within the County.
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