Memorandum

To: Christine Dietrick, City Attorney

City of San Luis Obispo
From: Best, Best & Krieger LLP
Date: March 27, 2018
Re: University Expansion, Housing and Community Wellness Solutions Analysis

INTRODUCTION

The purpose of this legal memorandum is to outline the legal relationship between the City
of San Luis Obispo (“City”) and California Polytechnic State University, San Luis Obispo (“Cal
Poly”) and provide an analysis of potential solutions to identified housing and neighborhood
wellness concerns, especially those potentially impacted by future expansion of the Cal Poly
campus.

Specifically, the City has faced ongoing concerns from the community regarding recent
and increasing expansion of Cal Poly and the actual and anticipated impacts of intensified
university operations and student activities on the City. Some of the most prominent concerns and
impacts identified by the City include lack of available, affordable rental housing and workforce
opportunities and impacts on parking, traffic, noise, and public services, including police, fire,
water and wastewater. As a part of our firm’s engagement for the City, the City requested we
produce a memorandum addressing the issues raised that would be suitable for public distribution
outlining the City’s legal authority and reviewing tools utilized by other university host
communities, as well as suggestions from your community’s residents for addressing and/or
mitigating university impacts on the City. 1 This memo outlines a variety of legal issues pertaining
to the relationship between Cal Poly’s statutory authority to the City’s police and local land use
powers, including issuance of building permits or other land use approvals, application of taxes,
fees, and assessments to Cal Poly property, and mitigation requirements pursuant to the California
Environmental Quality Act (“CEQA”), particularly in the context of Cal Poly’s ongoing Master
Plan Update (“Master Plan”). This memo also outlines possible avenues to help mitigate some of
the impacts felt within the City that are attributable to Cal Poly and the student population.

In summary, Cal Poly, as a state agency, is often exempt from City regulation. However,
Cal Poly is subject to CEQA and bears an obligation to adopt and implement feasible mitigation
measures to address CEQA impacts from its projects. Actively participating in the CEQA process
may help achieve mitigation on numerous issues, as discussed below, including traffic, air quality,
1
In Ms. Dietrick’s letter to Best Best & Krieger LLP, dated October 13, 2017, the City’s relationship with Cuesta
Community College is also briefly mentioned. This memo focuses on the City’s relationship with Cal Poly, but
many of the same legal options and limits apply to the Community College system as well.
-1-
82508.00011\30354692.9
water supply, wastewater, green house impacts and other similar physical impacts. In addition,
participation in long range planning with Cal Poly can help start to address housing needs and
deficits, use of commercial facilities by the campus, as well as other areas where Cal Poly can
provide on campus facilities or reach agreement with the City to jointly work on mitigation. The
City can also regulate in areas such as rental inspections, zoning, noise, parties and similar
activities that may assist in addressing the complaints of residents within the City. Finally, where
the City will be asked to provide services to the Campus, existing agreements may provide a
platform to address current or anticipated impacts. None of these avenues provide a “cure-all” for
all anticipated impacts, but together they may provide avenues to mitigate some of the impacts and
to create a process to jointly address issues between the City and Cal Poly.

QUESTIONS PRESENTED

1) Does the City have authority to review, regulate and approve Cal Poly building projects,
through the issuance of building permits or other zoning and land use restrictions, when
Cal Poly buys or leases property in the City in furtherance of its Master Plan?

2) Does Cal Poly have an obligation to pay property taxes, assessments, or other fees and
taxes to the City when Cal Poly buys or leases property in the City?

3) Does the City have authority to regulate Cal Poly expansion projects, or otherwise impose
conditions on Cal Poly to mitigate future impacts of Cal Poly expansion?

4) Can the City obtain mitigation measures for potential adverse impacts of proposed Cal Poly
Projects through the CEQA review of campus projects?? What is the scope of Cal Poly’s
obligations under CEQA with respect to impacts of its projects and providing mitigation in
the City?

5) In light of the City’s existing contractual relationships with Cal Poly, what are some tools
the City might be able to employ to mitigate adverse impacts?

6) What are some tools that the City may use to address current or anticipated impacts created
by student occupancy and conduct in the City’s neighborhoods?

SHORT ANSWERS

1) Cal Poly is exempt for City land use and building regulations and fees. This exemption
applies for properties owned by Cal Poly and for properties rented by Cal Poly during the
rental period. Application to Cal Poly affiliated non-profits would require a case by case
analysis of the nature and scope of the transactional relationship and property use. These
exemptions apply when Cal Poly acts in its governmental capacity and for educational
purposes. The scope of this exemption is discussed below.

-2-
82508.00011\30354692.9
 2) Cal Poly is exempt from payment of property taxes on property owned by Cal Poly and
properties rented by Cal Poly during the rental period. If Cal Poly rents property it owns
to a private party, the private party may be required by pay possessory interest tax on the
leasehold, assuming that the private lease is for private purposes, as opposed to furthering
Cal Poly’s educational purposes. If Cal Poly were to purchase or rent property with
existing special assessment liens on the property, Cal Poly would be required to continue
to pay these special assessments. In the event that the City establishes a new assessment
district, under Proposition 218, Cal Poly would no longer be exempt assuming Cal Poly
received benefit from the improvements financed by the assessment.

3) The City does not have the authority to condition or deny a Cal Poly project that is proposed
within the City. Unlike private land use project proposals, Cal Poly is exempt from City
zoning and building code requirements and approvals. Thus, the City cannot condition Cal
Poly expansion on the satisfaction of any City imposed mitigation requirements or
development conditions. .

4) The City can (and does) actively engage in the CEQA review of Cal Poly expansion
projects to ensure that the university adequately identifies, evaluates and proposes
sufficient mitigation for environmental impacts of university project impacts in the City.
The City has the right to participate in the scoping process for environmental review, file
comments in environmental documents, appear at public hearings, advocate for adequate
mitigation measures and, if the City deems it appropriate, challenge Cal Poly project
approvals through court actions. Under current law, as discussed below, like other public
agencies, Cal Poly must comply with CEQA and must determine and adopt feasible
mitigation measures to mitigate the significant adverse impacts of its projects. However,
Cal Poly’s purchase or lease of existing property developments within the City does not
necessarily constitute a “project” subject to CEQA review and mitigation.

5) More and more, universities and Cities are negotiating cooperative and/or cost sharing
agreement on key services and infrastructure. Reaching agreements on shared services is
recognized as a best practice. The City can negotiate new agreements or pursue
amendments to existing agreements with Cal Poly to achieve greater cost recovery or
broaden the agreements to cover housing, phasing of increased student enrollment, CEQA
mitigations or other issues. Examples of current agreements that have been reached
between the City and Cal Poly are those governing the provision of City water, wastewater
and fire/emergency response services to the campus. Of course, using existing agreements
to negotiate enhanced measures to address future impacts is dependent on both parties
reaching agreement.

6) Within the City, the City has the ability to utilize its police power to adopt regulations to
address many of the current or potential impacts that might occur with individual and group
residential occupancies and adverse behaviors within the City. These measures would
-3-
82508.00011\30354692.9
 address defined behaviors and impacts regardless of whether caused by students or non-
students. The City has implemented many of the measures utilized by other similarly
situated university host communities, including noise and amplified noise ordinances, party
house regulations, rental inspection ordinances, ordinances to address large gatherings in
the City on event days and similar regulations. To the extent these measures already exist
in City ordinances, review of enhances penalties and enforcement mechanisms may also
be effective.

ANALYSIS AND BACKGROUND

A. Statutory Powers of the CSU Trustees

California State University (“CSU”) was created by the California Legislature and is
subject to it full legislative control. Unlike the University of California, which was created in the
State Constitution, CSU, as a creature of statute, has only such autonomy as the legislature grants
by statute. The CSU Trustees (“Trustees”) are granted the power and responsibility to administer
the CSU, which broadly includes “full power and responsibility in the construction and
development of any state university campus, and any buildings or other facilities or improvements
connected with the California State University.” (Educ. Code, §§ 66600, 66606.) The Trustees
may accept gifts of land, may accept and expend gifts of money for the purchase of land, and may
enter into negotiations and contracts for the purchase of land for a future state university site in the
vicinity of the CSU’s Master Plan. (Educ. Code, § 66606.) The Trustees are expressly authorized
to enter into agreements with any public or private agency “for the performance of acts or for the
furnishing of services, facilities, materials, goods, supplies, or equipment by or for the trustees.”
(Educ. Code, § 89036.)

The Trustees are also granted broad authority to perform real and personal property
transactions, “without prior approval of any other state department or agency, when necessary to
carry out the purposes of the CSU.” (Educ. Code, § 89048.) This authority includes the power to
acquire easements or rights-of way and to lease any real or personal property for the use of the
CSU. (Id.) If the Trustees acquire real property with revenues generated by the parking and
housing programs of the CSU, the acquisition “shall include relocation assistance, when
appropriate.” (Id. at subd. (g)(2).) Regarding student housing specifically, student housing
facilities may be established and maintained at any CSU for the accommodation of students.

While there does not appear to be many, if any, cases interpreting these statutory grants of
power, it is generally understood that the CSU Trustees’ possess autonomy and broad authority to
perform any act, acquire property, and enter into agreements as necessary to carry out the mission
and purpose of the CSU. For example, the CSU has been described as “a constitutionally
authorized ‘state agency created by the Legislature in the field of public higher education which is
charged with the management, administration, and control of the State college System of
California.’” (City & Cty. of San Francisco v. Regents of Univ. of California (2017) 11
-4-
82508.00011\30354692.9
Cal.App.5th 1107, 1112, (review granted Sept. 13, 2017, No. S242835) quoting Cal. Const., art.
XX, § 23.)

B. Application of City’s Local Regulatory & Land Use Authority to Cal Poly

1. Cal Poly Is Generally Exempt From Local Zoning and Building Regulations
and Fees

As a general rule, the CSU’s authority as a state agency of “public higher education”,
including its authority over the purchase, lease, and development of real property and projects for
educational purposes, preempts local regulation. In Regents of the University of California v. City
of Santa Monica (1978) 77 Cal.App.3d 130, the court held that the UC Regents was exempt from
local building codes, zoning regulations, and the payment of local permit and inspection fees,
regardless of whether the property was owned or leased by the university. (City of Santa Monica,
at 136-138.) When the UC, as an extension of the state, “engages in such sovereign activities as
the construction and maintenance of its buildings … it is not subject to local regulations unless the
Constitution says it is or the Legislature has consented to such regulation.” (City of Santa Monica,
at 136.) This same reasoning generally extends to the CSU. (See, e.g., Hall v. City of Taft (1956)
47 Cal.2d 177 [construction of public school buildings exempt from building regulations of
municipal corporation]; Board of Trustees v. City of Los Angeles (1975) 49 Cal.App.3d 45 [local
regulations do not apply to CSU if acting in governmental as opposed to proprietary capacity];
City & Cty. of San Francisco, supra, [applying reasoning of Hall v. City of Taft to both UC and
CSU].) The CSU is also exempt from paying plan-check and inspection fees pursuant to
Government Code section 6103. (See also 62 Ops.Cal.Atty.Gen. 443 (1979) [AG Opinion finding
CSU Trustees act on behalf of the State as “statewide body with plenary, statutorily granted
powers” falling within exemption of Gov. Code § 6103.)

2. Cal Poly’s Exemption Only Applies to Educational Purposes Within Its

Enumerated Statutory Powers

Despite this broad exemption, the important caveat is that the CSU must act within its
statutory powers and authority. Where Cal Poly acts in a “proprietary” capacity, it may be subject
to local permitting requirements and regulations. (Board of Trustees v. City of Los Angeles, supra,
49 Cal.App.3d at 50.) In Board of Trustees v. City of Los Angeles, the court determined that a
CSU’s lease of university-owned property to a private company to conduct a circus was not exempt
from local permit requirements, because circus activities conducted by private operators “have no
relation to the governmental function of the university.” (Id.) Quoting a similar case that analyzed
whether the State’s sovereign immunity extended to conducting a fair, the City of Los Angeles
court stated: “[t]he state is acting in a proprietary capacity when it enters into activities . . . to
amuse and entertain the public. The activities of the board do not differ from those of private
-5-
82508.00011\30354692.9
enterprise in the entertainment industry.” (City of Los Angeles, supra, 49 Cal.App.3d at 50,
quoting Guidi v. State of California (1953) 41 Cal.2d 623, 627.) This same governmental versus
proprietary distinction was recently reaffirmed and applied to the CSU Trustees in City & Cty. of
San Francisco v. Regents of Univ. of California (2017) 11 Cal.App.5th 1107 (review granted Sept.
13, 2017, No. S242835.) The appellate court in that case held that the UC and CSU operation of
paid parking lots within the City was not proprietary in nature, but rather within the bounds of the
universities’ powers and needs, and therefore the UC and CSU were not subject to the City’s
parking taxes. The parking lots were available to “students, faculty, administrators, guests,
patients at certain medical facilities, and with a few exceptions, members of the general public….”
(Id. at p. 1111.) There was a dissenting opinion that argued that the San Francisco tax fell on the
people parking their cars and that the universities were merely required to collect the tax. The
California Supreme Court has granted review in this case. 2 This case may prove significant in
interpreting similar issues as applied to other types of CSU operations in the City, such as parking
lots provided for student housing located in the City.

As applied to Cal Poly, any expansion of its facilities to provide additional student and
faculty housing is most likely going to be considered beneficial to its educational purposes as a
modern university. The exception, in which local regulations may apply, is if Cal Poly leases its
own property to a private third party for purely commercial, “proprietary” purposes, like a fair,
circus, or other form of public entertainment. These activities are generally seen as purely revenue-
raising rather than for educational purposes.

C. Cal Poly’s Tax-Exempt Status

1. General Exemption from Property Taxes

The California Constitution, article XIII, sections 3(d) and 3(e), exempt from property
taxation, “property used exclusively for public schools, community colleges, state colleges, and
state universities” and “[b]uildings, land, equipment, and securities used exclusively for
educational purposes by a nonprofit institution of higher education.” Article XIII, section 5 further
provides that the exemption applies “to buildings under construction, land required for their
convenient use, and equipment in them if the intended use would qualify the property for
exemption.”

Importantly, this exemption applies even to the CSU’s possessory interests (i.e., leases).
This means even privately-owned property that is leased to Cal Poly is exempt from property
taxation during the life of the lease. Additionally, CSU-owned property that is leased to private
individuals exclusively for educational purposes is also exempt from property taxation.

2
Generally cases in the Supreme Court require at least one year to get to a ruling.
-6-
82508.00011\30354692.9
 By way of example, when faced with student housing shortages, some UCs have bulk-
rented private apartments or hotels. This has resulted in the private apartments or hotels coming
off the property tax roll for the leased period, and, for the hotels, no generation of transient
occupancy taxes. Similarly, when some universities have needed additional lab or office space,
they have similarly leased business park space for university purposes. When leased to further the
educational purposes of the university, these properties also come off the property tax roll for the
period of the lease.

2. Special Rules Regarding Special Assessments and CFDs

The above constitutional provision exempting the CSU from property taxes historically has
been interpreted to implicitly immunize state-owned property from special assessments imposed
by local governments, “except as authorized by the Legislature.” (City of Marina v. Board of
Trustees of California State Univ. (2006) 39 Cal.4th 341, 353; see also City of Inglewood v. County
of Los Angeles (1929) 207 Cal. 697, 702.) Accordingly, the Legislature has established certain
special exceptions to this exemption regarding the payment of special assessments. For example,
the Legislature enacted a law commonly referred to as “the San Marcos Legislation” 3 to
specifically authorize any public agency to impose a capital facilities fee on a public educational
agency receiving public utility services, expressly including the CSU and any community college
district, pursuant to certain restrictions. (Gov. Code § 54999 et seq.)

Proposition 218, adopted by the voters in 1996 to add Article XIII D to the California
Constitution, specifically provides that parcels within an assessment district which are owned or
used by any agency, including the State of California, are not exempt from assessment unless the
agency can demonstrate by “clear and convincing evidence” that the publicly-owned parcels
receive no special benefit to justify the assessment. (Cal. Const. art. XIII D, § 4(a).) In other
words, Prop. 218 specifically provides for assessment of public agencies, unless there is evidence
that those publicly-owned properties receive no special benefit.

Despite Prop. 218, not all assessments are automatically enforceable against the CSU.
Rather, State property may be assessed within the parameters of Prop. 218, but the enabling
legislation authorizing the underlying assessment may only require payment by the State after the
Legislature has made an appropriation of funds for payment. (See Sts. & High. Code §§ 5320-
5325, 10206; see also Proposition 218 Implementation Guide, prepared by the League of
California Cities, pages 33-36.). Accordingly, the City would need to evaluate each independent
assessment to determine if Cal Poly was responsible for paying it.

One important exception to this general rule applies to special assessments secured by
bonded indebtedness. Both Proposition 218 and its implementing legislation exempt from the

3
The legislation was enacted in response to the California Supreme Court case San Marcos Water Dist. v. San
Marcos Unified School Dist. (1986) 42 Cal.3d 154.
-7-
82508.00011\30354692.9
Prop. 218 requirements assessments which are exclusively used to repay bonded indebtedness, “of
which the failure to pay would violate the Contract Impairment Clause of the Constitution of the
United States.” The prohibition against impairing the obligation of contracts stems from the
federal constitution, section 10, article I, and applies to the contractual relationship created
between bondholders and a taxing entity. (Consolidated Fire Protection District v. Howard Jarvis
Taxpayers’ Association (1998) 63 Cal.App.4th 211, 221.) Accordingly, bonded indebtedness
which existed prior to the CSU’s acquisition of property still carries an obligation of payment and
is constitutionally protected.

There are also special rules regarding bonded indebtedness related to Community Facilities
Districts (“CFDs”) which generally require the CSU to pay the special tax despite its general tax
exemption. For example, the Mello-Roos Community Facilities Act of 1992 specifically states
that properties or entities of the state are exempt from the special taxes levied by a CFD, unless
the property falls within the parameters of Government Code section 53317.3. (Gov. Code §
53340(c).) In summary, the CSU is generally exempt from special taxes levied by a CFD, unless
the CSU acquires private property subject to an existing assessment – in which case the assessment
remains enforceable against the CSU – or unless the CSU leases its exempt property to a non-
exempt entity – in which case the nonexempt entity must pay the assessment.

D. Cal Poly’s Responsibilities Under CEQA

CSU, like other state and local agencies, is required to comply with CEQA prior to
approving any projects. (Pub. Resources Code, §§ 21063, 21080.09; City of San Diego v. Board
of Trustees of the California State Univ. (2015) 61 Cal.4th 945, 961-962.) Examples of projects
include approval of campus long range development plans and approval of new buildings or other
physical projects on or off the campus. Whether CSU is required to adopt and implement
mitigation measures for off-campus impacts has been the subject of controversy and litigation.
However, , with the rulings discussed below, it is our opinion that CSU must mitigate the off
campus and on campus adverse impacts of its projects.

CSU originally asserted that it was not permitted to mitigate off-campus impacts.
However, the California Supreme Court has held that the CSU Trustees may not disclaim
responsibility for measures necessary to mitigate the university’s off-campus environmental
effects caused by an expansion of its campuses. (City of Marina v. Board of Trustees of California
State Univ. (2006) 39 Cal.4th 341.) Specifically, the Court held it was an abuse of discretion to
certify an EIR that only mitigated effects occurring on the campus itself, but left remaining,
unmitigated substantial environmental impacts off-campus. The Court also rejected CSU’s
arguments that it was not feasible to mitigate those off-campus impacts without specific funding
appropriations from the Legislature. (See also City of San Diego v. Board of Trustees of the
California State Univ. (2015) 61 Cal.4th 945.)

-8-
82508.00011\30354692.9
 In City of Marina, the off-campus environmental impacts at issue included drainage, water
supply, traffic, wastewater management, and fire protection, with the CSU wholly refusing to
contribute to improvements in roads and fire protection to mitigate the significant environmental
impacts identified in its EIR. In City of San Diego, the CSU again declined to contribute its share
of the cost of mitigating the significant traffic congestion created by its proposed construction
projects. In both cases, the Supreme Court ultimately held that the CSU must comply with
CEQA’s standards and procedures just as any other public agency – not that any particular
mitigation or contribution was required. In responding to the CSU’s arguments that mitigation
was infeasible on economic and legal grounds, or alternatively that compelled payment for
mitigation measures pursuant to CEQA were unlawful assessments under the San Marcos
legislation, the Court focused on the voluntary nature of an agreement with third party agencies to
pay for mitigation. Because payment did not arise due to a charge, “but because CEQA requires
the Trustees to avoid or mitigate, if feasible, the significant environmental effects of their project,”
payment to a third party (such as the City) to perform the necessary acts to mitigate off-campus
impacts is a feasible alternative that is not compulsory and therefore is not a prohibited assessment.
(City of Marina, p. 359-360.)

Using the case law as examples, the types of mitigation that may be required of Cal Poly
are adequate consideration and either physical or financial mitigation for impacts to drainage,
water supply, traffic, wastewater management, and fire protection. 4 Cal Poly’s responsibility to
mitigate impacts extends to the areas necessarily impacted by its projects, not just on-campus needs

4
In City of Hayward v. Board of Trustees of the California State University (2015) 242 Cal.App.4th 833, the First
District Court of Appeal held that need for additional fire protection and emergency services is not a physical
environmental impact that CEQA requires a project proponent to mitigate, and noted that responsibility for adequate
fire and emergency medical services is the responsibility of local governments imposed by the California
Constitution. However, the Court also acknowledged that social or economic impacts that have resultant adverse
physical change may be considered in determining whether the physical impact is significant. Ultimately, the Court
in City of Hayward held that substantial evidence supported the CSU’s finding that its master plan would not result
in a significant impact on the environment because the new fire station needed to serve the campus was less than an
acre and the impact to fire services were social/economic impacts.

While the City of Hayward ruling appears in conflict with City of Marina and City of San Diego, it is worth noting
that the legal questions under review differed in those cases. In City of Marina and City of San Diego, the CSU
wholly disclaimed responsibility under CEQA for certain off-campus environmental impacts, based on the theory
that the responsibility landed solely on other agencies and/or the CSU was restricted or prohibited from paying for
those mitigation measures. The Court found those grounds invalid legal arguments and, therefore, directed the CSU
to properly consider whether off-site impacts were significant adverse impacts and then determine whether there
were feasible mitigation measures, including whether alternative, voluntary mitigation measures were feasible. In
City of Hayward, the CSU analyzed impacts on fire protection and emergency medical services, but nevertheless
found that they did not result in a significant effect on the environment. Second, and in our view more important, is
that CSU East Bay was inside the corporate boundaries of the City, while Cal Poly is outside the boundaries of the
City and provides fire and emergency service pursuant to a contract. In our opinion, since Cal Poly is located
outside the City, the City (unlike Hayward) does not have an obligation to provide fire service to the campus.

-9-
82508.00011\30354692.9
for public services. (City of Marina, p. 359.) As applied to the Cal Poly Master Plan, Cal Poly
must consider and contribute its fair-share of costs of mitigating environmental impacts caused by
proposed expansion projects – regardless of its otherwise autonomous decision-making or funding
sources. This may include impacts caused off-campus within the City, for example traffic
congestion or other physical environmental impacts.

In our opinion, the best way to establish the actual fair share obligations and other
mitigation obligations (together with any other negotiated items) is to enter into an agreement
between Cal Poly and the City setting forth the fair share and other mitigation obligations of the
CSU and the use of the funding by the City. The City of Santa Cruz and City of Berkeley have
settlement agreements that address mitigation. The City of Davis did not sue UC Davis, but did
enter into an MOU regarding fair share obligations. 5

E. Obligations & Opportunities Derived From Contractual Relationships

The City and Cal Poly have a long history of entering into service and other agreements
with each other. It is worth noting that nothing prevents the City from attempting to negotiate
agreements with Cal Poly to address actual and anticipated impacts in the City caused by Cal
Poly’s expansion, including needs to address housing, workforce opportunities, nuisances, noise,
and community outreach, which fall outside the bounds of CEQA or the strict corners of an Master
Plan. The Trustees are expressly authorized to enter into agreements with any public or private
agency “for the performance of acts or for the furnishing of services, facilities, materials, goods,
supplies, or equipment by or for the trustees.” (Educ. Code, § 89036.) Negotiated agreements to
establish joint duties and obligations of the City and Cal Poly regarding various services and
facilities which will benefit Cal Poly fall firmly within both the City’s and Cal Poly’s respective
authority. Obviously, such agreements are subject to mutual assent and funding to support the
obligations on which the parties can agree.

The history of agreements between the City and Cal Poly may bode well for a discussion
during the Master Plan process for a fair share agreement. Based on that history, issues that may
be considered include traffic improvements and any housing issues or phasing that may be
amenable to agreement, as well as amendments to current agreements to address increased service
needs or expansion impacts to water and wastewater service, fire/emergency response, and mass
transit. There may also be additional services or programs that the City and/or Cal Poly provide
that could be modified or expanded to the benefit of both parties via mutual agreement that would
provide offsets for other costs to the City. In other jurisdictions negotiated agreements have

5
The MOU between Davis and UC Davis is attached to this memo as Attachment A; however, the MOU is very old
and will most likely be redone during the LRDP process that is currently in process.
- 10 -
82508.00011\30354692.9
achieved enhanced mitigation and community benefits to address university expansion concerns
and impacts without prolonged litigation. 6

F. Housing Issues Created by Cal Poly Expansion

From the materials you sent, one of the critical issues that appears to be facing the City is
housing. This issue appears to be a combination of (1) the provision of on campus housing,
academic and research facilities (2) the impacts of student rentals on residential neighborhoods,
(3) the impact of student rentals on the price of for-sale housing and (4) rental inspections and code
enforcements (5) spill over parking and the impacts of increased student enrollment on housing
supply and the potential for induced growth in the City if housing does not keep pace with
enrollment and (6) other opportunities for housing.

The amount of on-campus housing, and its impact on surrounding cities, has been a major
issue up and down the state. Although outside the scope of this memo, different campuses within
the UC system have committed to different percentages of on campus housing. One worthwhile
example to review the Irvine Long Range Development Plan (LRDP), among others. Involved in
this issue is whether on-campus housing is sufficient for freshman only, freshman and sophomores
or some other configuration of the student population, as well as the type(s) of housing that will
be provided on the campus.

Recently, the City of Davis has received applications for multifamily housing in the City
that mirror dormitories and are intended to be rented by the bed rather than by the unit. The City
has approved one project and the other will be going to the Council in early 2018. It is the City of
Davis’s belief that these projects are a reaction to incredibly low vacancy rates and lack of adequate
dormitory space on campus. This type of housing raises policy issues, as the housing is not set up
for non-single occupancy, housing units. These projects likely cannot be prohibited outright unless
they violate the City’s zoning regulations regarding multifamily housing in the City.

If the City has not already done so, the City may wish to address on campus housing in
follow up to its comments on the Master Plan and attempt to work out a housing plan and phasing
commitment linked to enrollment similar to the Santa Cruz agreement. Some campuses have
established projects under which campus property is leased to a private company who then builds
housing for use by variety of campus-related people, including undergraduates, graduate students
and their families, faculty and staff. This land lease type of program is sometimes more attainable
as it does not rely on public funds to the same extent as housing built directly by Cal Poly. Note

6
Of note, we believe that UC Santa Cruz and the City engaged in mediation (after a court case was filed by the City)
that culminated in the Santa Cruz settlement agreement. This agreement includes phasing and commitments for
building on-campus housing.

- 11 -
82508.00011\30354692.9
that such housing projects, if owned or leased by Cal Poly and reserved exclusively for Cal Poly
students, are exempt from taxation under the Mann and Connolly cases discussed in Part C(1) of
this memo (i.e., used exclusively for educational purposes). However, long-term, privately-held
leasehold interests improved with homes owned and occupied by university employees are not
entitled to tax exemption under the same line of cases, even if the lease requires that the property
be used as the employee’s primary place of residence and that the person remains employed full
time by the University. (See Connolly, supra, 1 Cal.4th at 1117.)

Both Cal Poly (on campus) and the City (off campus), may want to investigate workforce
housing, including faculty and staff housing. Whether there are funds available for these types of
projects would need to be investigated, and recent law related to development of workforce and
student housing is discussed in more detail below.

Review of Proposed Solutions in “Maintaining Balanced Neighborhoods” Report

Regarding the impacts of student housing on existing neighborhoods, aside from

code enforcement addressed in part below, the impacts on home pricing does not have any
ready answer. We reviewed the paper entitled “Maintaining Balanced Neighborhoods,”
dated July 18, 2014, and want to provide comments on the potential solutions listed in that
paper as some of the suggestions, in our opinion, are not permissible under current
California law.

1. More On-Campus Housing. Providing additional on-campus housing for

students is a preferred solution to the increasing concentrations of students living in nearby
low-density residential neighborhoods. As the report notes, Cal Poly can implement
policies and goals aimed at increasing the availability of on-campus housing – both
dormitory style and apartment style arrangements – and reducing the impact on
surrounding neighborhoods and traffic. And of course, the City can try to work with Cal
Poly to jointly prioritize certain policies and opportunities and to reaffirm the need for more
on-campus housing.

Finally, if the City is experiencing a large number of new and larger houses in
certain neighborhoods or large additions, the City may wish to look at its zoning standards
for single family housing, including front yard setbacks, parking, greenspace and
landscaping, and other physical zoning standards that address the size and bulk of
structures to see if the standards still meet the City’s needs. The character of a
neighborhood may be maintained by addressing the physical requirements for new housing
or additions.

A different example of new standards or mitigation style conditions for multi-

family housing that incorporate parking associated with individual units is to investigate
whether the parking should (1) be an additional cost to the tenants and (2) whether it is
- 12 -
82508.00011\30354692.9
 possible to structure the parking charges, or a portion of the charges, to discourage use of
the cars. For example, there could be an exit fee imposed on tenants utilizing the parking
lot as opposed to a monthly fee for parking to discourage frequent or unnecessary use of
vehicles. An exit fee may also promote use of transit or alternative modes of travel and
reduce the number of car trips from the development. This type of arrangement was
recently incorporated into some housing projects in Davis, however, the project with this
requirement is not yet completed so we do not know whether an exit fee will be effective. 7.

2. Neighborhood Stabilization Program. The suggestion in the Maintaining

Balanced Neighborhoods report to establish a neighborhood stabilization program is an
interesting and creative proposal, but would need a significant amount of funding. If you
believe that the City would have the funding to consider this, we are happy to review the
fair housing and owner-occupancy issues of implementing such a program in greater detail.
As a general rule, it can be difficult to legally impose and enforce owner-occupancy rules
on housing development, as owner-occupancy restrictions have often been held to serve as
unreasonable and legally invalid restraints on alienation. However, it is our belief that for
housing developments in which the City has a direct financial interest or investment in the
project, such restrictions may be permissible. (See City of Oceanside v. McKenna (1989)
215 Cal.App.3d 1420.) In City of Oceanside, the City purchased certain residential
waterfront housing for $1.1 million and then sold it to a developer for $300,000 in order to
construct replacement dwelling units for persons of low and moderate income in
accordance with the City’s Housing Plan. In return for the reduced sale price, the developer
agreed to, among other things, covenants, conditions and restrictions (CC & Rs) that
required owners to occupy the dwelling units as their principal place of residence and
prohibited renting or leasing the units at any time for any reason for a period of ten years.
In upholding the restriction, the Court focused on the fact that the project was a publicly-
subsidized housing project for the provision of low and moderate income persons, in
accordance with State law requirements for a City’s housing element and general public
policy of the State.

Other than the City of Oceanside case discussed above, there is little published
California case law on this topic. However, the Sixth District Court of Appeal cited City
of Oceanside favorably in the case Alfaro v. Community Housing Improvement System &
Planning Assoc. (2009) 171 Cal.App.4th 1356. That case similarly dealt with an
inclusionary housing development project approved by the County of Monterey and
developed subject to a permanent deed restriction that the properties remain affordable to
buyers with very low to moderate income. First-time homeowners could participate in a
homebuyer program mortgage subsidy with the County, in which homeowners made a

7
We would note that at the hearing on this project, neighbors objected to reduced parking requirements because it
was felt to merely move parking problems to adjacent residential areas, but the exit fee seemed to address the
purpose of reducing the use of the cars without significantly impacting on street parking.
- 13 -
82508.00011\30354692.9
 promissory note to the County and the County had a first option to purchase properties at
fair market value if the owners wished to sell. The Court cited the reasoning of City of
Oceanside and found that a continuing affordability requirement was not unreasonable and
was in keeping with public policy of the State.

Our opinion is thus that a Neighborhood Stabilization Program could be a viable

legal option for the City, so long as the City was financially involved or invested in the
project in a way that adequately justified any ongoing owner-occupancy or affordability
requirements.

3. Opportunities to Create Faculty and Staff Housing. This suggestion also is

achievable under current California law so long as the properties and financing are
available. There are numerous examples of work force housing throughout the state. In
addition to the San Mateo example cited in the paper, UC Davis completed a project called
Aggie Village comprised of small houses and cottages. The project is on a land owned by
UC Davis and land-leased to the to the owners of the houses. The owners are UC faculty
and staff and the ownership and affordability requirements are maintained through the land
lease. With workforce housing generally, it is also possible for the City, Cal Poly and other
public agencies to partner on projects to achieve certain workforce housing development.
Again, the difficulty comes in acquiring the land and financing for the project(s).

In addition, the State legislature enacted two bills in 2017, Senate Bill 540 and
Assembly Bill 352, related to the development of workforce and student housing.
Regarding workforce housing, SB 540 authorizes a local government to establish a
“Workforce Housing Opportunity Zone” by preparing an EIR pursuant to CEQA and
adopting a specific plan subject to certain statutory requirements. (Gov. Code § 65621.)
Once the zone is adopted and for five years thereafter, a City shall approve housing
development projects within the zone – without need for further environmental review – if
the projects meet certain criteria, such as satisfying certain minimum density ranges for
multifamily housing and affordable housing ratios. 8 As incentive for establishing a
Workforce Housing Opportunity Zone, local governments may apply for a grant or no-
interest loan from the Department of Housing and Community Development to help
develop the specific plan and EIR for the zone. According to the legislative findings, the
intent of the law is to help local governments feasibly commit to workforce housing
development through advanced planning and environmental review, with financial
assistance from the State.

8
Specifically, Government Code section 65623 allows approval of a housing development within the adopted zone
without preparation of an EIR if the housing project, among other things, restricts 30% of the total units to persons
of moderate or middle income; 15% of the units will be sold or rented to lower income households; and at least 5%
of the units are restricted for a term of 55 years for very low income households. No more than 50% of the total
units shall be sold or rented to persons and families above moderate income.
- 14 -
82508.00011\30354692.9
 Regarding development of student housing, Health and Safety Code section
17958.1 allows cities, by ordinance, to permit “efficiency units” for occupancy. Efficiency
units are generally defined in the California Building Code and state statute as dwelling
units with only one habitable room for occupancy by no more than two persons, which
have a minimum floor area of 150 square feet and which may have partial kitchen or
bathroom facilities. (Health & Safety Code, § 17958.1(a); Title 24, Part 2, Chapter 2, of
Cal. Code of Regs.) AB 352 amended the law to expressly prohibit a City, county, or City
and county from 1) limiting the number of efficiency units in an area zoned for residential
use and located within one-half mile of public transit, or where there is a car share vehicle
located within one block of the efficiency unit; or 2) limiting the number of efficiency units
in an area zoned for residential use and located within one mile of a UC or CSU campus.
This directly impacts the City’s ability to respond to, limit or restrict new development of
efficiency units, but may also result in additional student housing development near
campus. It is worth noting that the law expressly holds that “any requirements related to
density, setbacks, lot coverage, or height restrictions established by local ordinance are not
considered a limit on the number of efficiency units.” (Health & Safety Code, §
17958.1(c)(3).) These types of indirect, design-related regulations, including possible
parking requirements, are discussed in more detail near the end of this memo.

4. Evaluate Occupancy-Restrictions to Avoid Overcrowding. Beyond the

proposed owner-occupancy restrictions for new development discussed above, the
Maintaining Balanced Neighborhoods report also suggests imposing occupancy
restrictions to avoid or mitigate single-family residential overcrowding. The examples in
the report, for example restricting occupancy to one “family” or up to four unrelated
persons, are illegal under well-established California law. California law does not permit
zoning based on the size of a “family” or restrictive definitions of “family” (See City of
Santa Barbara v. Adamson (1980) 27 Cal.3d 123; City of Chula Vista v. Pagard (1981)
115 Cal.App.3rd 785.) The California Supreme Court has expressly held that drawing a
distinction between related and unrelated persons, or alternatively requiring a permit for a
household that does not conform to the definition of “family,” violates the right of privacy
guaranteed by the California Constitution. (Adamson, supra, 27 Cal.3d at 131.)

Additionally, the California Uniform Housing Code already imposes legal

occupancy limits for residential housing applicable to residential development in the City.
Current housing code regulations require every residential unit to have at least one room
that is at least 120 square feet, and any room used for sleeping must increase the minimum
floor area by 50 square feet for each occupant in excess of two. While cities may enact
different occupancy standards or building code requirements than those set forth in the
uniform codes, that authority extends only to measures reasonably necessary because of
local climatic, geological, or topographical conditions pursuant to Health and Safety Code
section 17958.7. (Briseno v. City of Santa Ana (1992) 6 Cal.App.4th 1378, 1382.) As

- 15 -
82508.00011\30354692.9
 applied to restrictive occupancy standards, the Briseno court noted it would be “highly
unlikely, if not impossible” for the City of Santa Ana to make the necessary findings in
order to justify different occupancy requirements. (Id. at fn. 3.) As a result, we do not
recommend imposing any occupancy restrictions – based on family size or definition – that
exceed or differ from existing standards set forth in California cases and regulations. 9

5. Rental Inspection Program. As noted above, the City cannot regulate

occupancy in the manner proposed. However, the City can choose to implement a rental
inspection program that focuses on housing and building code compliance and zoning
compliance to ensure safety and welfare of residents and mitigate potential nuisance
properties. This could include a review of whether there are occupancies in areas that are
not authorized for occupancy under the Housing Code, the Building Code or the Zoning
Code, for example properties that are not zoned for residential dwelling or that have
illegally constructed add-ons to existing buildings. However, in our opinion, the City
cannot inspect for the number of occupants or whether the adult occupants are related, as
discussed above, and therefore a rental inspection program focused on enforcing
occupancy restrictions is not likely to be legally defensible. We understand that the City
previously implemented a rental inspection program, which was not well received by the
community and was ultimately repealed. Thus, while a legally viable option to address
many of the concerns at issue, such a program may not appear to be feasible from a policy
and community acceptance standpoint in San Luis Obispo.

6. Work With Common Interest Development On Restrictive Leases. Again, the

legality of imposing owner-occupancy restrictions or otherwise restricting or prohibiting
rentals is likely dependent on the nature of the development project, financial involvement
of the City, and particular justifications for the requirements. The reference in the report
to Civil Code section 711 and the City of Oceanside case is the same as that discussed
above. That is, as a general rule, it can be difficult to legally impose and enforce owner-
occupancy rules on housing development without being construed as an unreasonable and
invalid restraint on alienation. 10 However, it is our belief that for housing developments
in which the City has a direct financial interest or investment in the project, such restrictions
may be permissible. Additionally, we are aware of developers that have voluntarily
proposed and agreed to certain owner-occupancy conditions or affordability requirements.
These requirements are typically imposed through CC&Rs or other deed restrictions
voluntarily agreed upon with the developer during project approval. To be legally
defensible, the general rule is that the greater the restraint on alienation, the stronger the

9
San Luis Obispo Municipal Code Chapter 17.93 imposes high-occupancy residential use regulations applicable to
occupancies in excess of six or more adults in the R-1 and R-2 zones. It is our understanding that these
requirements are currently being reviewed as part of the City’s efforts to update the zoning code.
10
In fact, Civil Code section 711 states in its entirety: “Conditions restraining alienation, when repugnant to the
interest created, are void.”
- 16 -
82508.00011\30354692.9
 justification required to support it. (See City of Oceanside, supra, 215 Cal.App.3d at p.
1427; Alfaro, supra, 171 Cal.App.4th at p. 1377.) Limiting the scope of the restraint, such
as imposing restrictions only for a set period of time until transfer or sale to subsequent
purchasers, will generally be more defensible as narrowly tailored to the needs and
conditions giving rise to the restriction. City-initiated mandatory restrictions that prohibit
the ability to lease property, imposed as a purely regulatory or zoning control measure in
which the City does not have any financial stake in the project, is likely ripe for legal
challenge and, in our opinion, an invalid restraint on the property owners’ rights.

G. City’s Regulatory Options Regarding Off-Campus Student Conduct

Despite the CSU’s authority to undertake campus expansion projects, the City still retains
its police powers to adopt and enforce regulatory measures that directly and indirectly address off-
campus student conduct impacting the City’s residents and neighborhoods. In the City’s Civility
Working Group Research Paper dated July 18, 2014, some of the issues identified as resulting
from high concentrations of student renters living in low-density residential neighborhoods
include: intensified issues with partying, noise, public drunkenness, vandalism, crime, property
maintenance issues and parking shortages. There is also a high degree of interest and focus on the
impact of increased student populations on rental costs, neighborhood diversity, and availability
of affordable housing options. Based on our initial review of the City’s Municipal Code, many of
these issues are already addressed to some degree through various regulatory controls on partying,
noise, public consumption of alcohol, public urination, zoning and nuisance abatement.
Nevertheless, some additional or enhanced regulatory options the City may consider are outlined
below.

Partying & Noise Controls:

Chapter 9.12 of the City’s Municipal Code contains restrictions and requirements for noise
control in the City. Some of these controls include prohibiting noise from radios, television sets,
musical instruments and amplified sound in such a manner as to create noise disturbances between
the hours of 10 p.m. and 7 a.m., and establishing exterior and interior noise standards. Violations
are punished as misdemeanors, through administrative citations, or abatement orders, with
property owners subject to additional administrative action or citation if subsequent violations
occur within nine months of a prior noticed violation.

Chapter 9.13 of the City’s Municipal Code also prohibits “unruly gatherings,” defined to
mean gatherings of twenty or more persons on private property that disturbs the quiet enjoyment
of private or public property, such as causing noise disturbances, public drunkenness, littering and
vandalism, and similar unruly conduct.

Additional regulatory controls could include harsher penalties for repeat-offenders,

including defining “chronic nuisance properties” as those with repeated violations within a one-
- 17 -
82508.00011\30354692.9
year period. Because the City’s ordinances already largely address some of the conduct-oriented
issues related to student occupancy, we recommend a more thorough review the City’s existing
enforcement measures and administrative citation procedures to determine if more or different
enforcement mechanisms could improve the effectiveness of existing ordinances. 11

The City may wish to more actively utilize and promote a program of restorative justice or
neighborhood mediation that would seek to reduce noise, partying, and other complaints that cause
friction between people within neighborhoods. It is possible to promote neighborhood mediation
as an alternative to fines and penalties. For example, it appears that the City has already instituted
a partnership with Cal Poly, Cuesta College and Creative Mediation to fund free conflict resolution
services to all City residents, which are available to address things like landlord/tenant disputes
and complaints related to noise, parking, trash and other neighborhood issues. The City’s Police
Department also provides a variety of resources to educate and assist residents regarding
neighborhood regulations and code violations, such as outreach through the Neighborhood Officer
Program and education through Respect SLO. Enhancing the scope, availability and outreach of
these existing resources may help ensure they provide accessible and realistic solutions for the
community and promote understanding of different views and needs within neighborhoods. . The
City may utilize “good neighbor” brochures, town hall meetings, and other public outreach on a
more frequent or rotating basis to facilitate ongoing communication and positive rapport between
student populations and the surrounding neighborhoods.

Other university cities have similarly adopted ordinances aimed at curtailing disruptive
partying and noise, which may provide additional resources and ideas for the City to expand its
existing regulations. For example, the City of Berkeley adopted an ordinance that establishes
operating standards for all “mini-dorms” in the City, defined to mean residential properties
occupied by six or more adults. While similar to the City’s “Unruly Gatherings” ordinance and
high occupancy requirements, it is structured to operate more like operating and event standards
as opposed to zoning and permitting restrictions on occupancy. For example, each “mini-dorm”
must designate a “Responsible Resident” responsible for providing contact information to
surrounding property owners and advance notice of events, and owners of properties rented to
more than 15 residents must designate a property manager authorized to respond to complaints
and responsible for notifying new tenants of the regulations. (See Berkeley Municipal Code
Chapter 13.42.) The difficulty with any such ordinance is effective enforcement, as performance
standards are usually enforced via nuisance abatement and/or administrative citations already
available to the City. These types of regulations may also be enhanced through a “good neighbor”
policy and public outreach referenced above, which can annually provide for a “refreshment” on
City rules and requirements for things like events and large social gatherings. Continued focus on
cooperation and collaboration with the Cal Poly interfraternity council or other student
associations to conduct education and outreach regarding City regulations and available resources
may also help enhance effectiveness of City ordinances. However, beyond focusing on noise,

11
We are happy to assist with reviewing existing ordinances and enforcement measures.
- 18 -
82508.00011\30354692.9
trash, and alcohol, it is very difficult to impose any legal and workable restriction on general
“social gatherings” unless they rise to the level of creating a public health and safety hazard.

Entertainment Events & Public Drunkenness:

One way to indirectly address public drunkenness is to focus on the commercial

establishments that cater to student populations. In cities such as Sacramento and Davis, many
popular daytime restaurants transform into late-night bars and clubs popular among students living
both on and off campus within the City. Both cities adopted ordinances requiring an
“entertainment permit” for businesses that provide or permit entertainment to the general public,
including bars and restaurants that permit dancing to live or recorded music. While certain special
events and otherwise permitted entertainment (such as events lawfully conducted at a City park)
are exempted from the entertainment permit requirement, the ordinances establish minimum
operating requirements for entertainment establishments to help mitigate calls for service due to
obviously intoxicated persons and disorderly conduct on streets and sidewalks at closing time. The
entertainment permits are separate and distinct from the establishments’ use permits, as they apply
only to the conduct of entertainment. Significantly, the permit requirement also means that
businesses failing to obtain or maintain a valid permit cannot provide or permit entertainment.
(See Sacramento City Code, Chapter 5.108; Davis Municipal Code Chapter 11.)

Another enforcement option related to large events, entertainment, and public drunkenness
is to adopt an ordinance that authorizes Council to designate certain geographical areas at certain
dates and times as subject to enhanced penalties and fines. The City already utilizes this process
for certain events, such as for Mardi Gras, St. Patrick’s Day, and Halloween, but it may be
worthwhile to utilize in more targeted areas and times related to student activity and university
events.

Please let us know if you have any questions.

HARRIET STEINER
ASHLEY ZAMBRANO

- 19 -
82508.00011\30354692.9
 ATTACHMENT A

[MOU between Davis and UC Davis (1989)]

-1-
82508.00011\30354692.9