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Tuesday, March 19, 2019

CASA Opposed by Sunnyvale

Letter From Sunnyvale to MTC

In December of 2018 then-Mayor Glenn Hendricks wrote a letter to the then-Chairperson of MTC (Metropolitan Transportation Commission) in opposition to the "CASA Compact".  A photocopy of the letter in several images is below.  Click on any image to enlarge.

The letter is available for download from:

Link to this post for sharing is:

The letter points out that Sunnyvale has been building a lot of housing.  It goes on to point out several problems with CASA in regards to governance and taxation.

The letter shown below is a photocopy so as to include the official Sunnyvale letterhead.  Click on any part of it to enlarge it for readability.

Sunday, March 17, 2019

California SB-50 (2019) - I

The following is an edited version of a flier from Livable California.  Phone numbers and contact addresses at the end.

Web Site Here:

Link to this post for sharing is:

The California Legislature is considering a number of bills that affect housing.  The big one is Senate Bill 50 (SB-50).  While there are affordability issues in some parts of the state, the issue here is unregulated, profit-driven development that would be worsened by 2019 legislation.  Some have described SB-50 as not a "housing" bill but a "real estate" bill.

TIME FRAME: The bills are in their respective policy committees NOW. They must move out of committee by April 26. ACT NOW: Choose the options and frequency that work for you.

Livable CA has prioritized our efforts to oppose these bills.

SB-50 (overrides local planning) - allows anyone to put up a 4 to 5 story apartment in any residential neighborhood with either good schools, or lots of jobs, or near any form of transit - those terms to be defined at an unspecified time and by an unspecified agency.  Applies to entire state.

Text of SB-50 here:

SB-330 - Restricts the ability of jurisdictions to change several parameters of residential zoning.  Jurisdictions may not lower the density or limit the number of residential units. And, most importantly, may not alter any requirements in appearance or features that would be more costly than those effective January 1, 2018.

This last point means that cities cannot require new apartments or condos to have things like cisterns to conserve water or be net-zero energy or to have solar panels above 3 stories.  Nor can cities or counties require that new housing construction be fully electric (i.e., not connected to natural gas).  This means cities can not ask for reductions in GHG emissions due to housing.

Text of SB-330 here:

AB-725 (attack on single family homes)
No more than 20% of "above moderate income" housing intended to satisfy "Regional Housing Needs Allocation" (RHNA) can be single family homes.  In other words, 80% must be apartments or condos.  The number of "above moderate income" housing units for RHNA is determined by the CA "Housing and Community Development".

Text of AB-725 here:

EMAIL or CALL your State Senator and Assembly Members about bills coming out of MTC-initiated CASA Compact, which lacked transparency and representation from 97 of 101 cities. Personally or collectively urge opposition to the bills that are an assault on local control and democratic principles. Find your state rep here: Follow the prompts.

EMAIL or CALL the SENATE Housing Committee.

Scott Wiener, Chair....(916) 651-4011
Mike Morrell, VC........(916) 651-4023....
Anna Caballero          (916) 651-4012
Patricia Bates..............(916) 651-4036...
Maria Elena Durazo   (916) 651-4024...
Mike McGuire............(916)
John Moorlach           (916) 651-4037
Richard Roth..............(916) 651-4031...
Nancy Skinner           (916) 651-4009
Thomas Umberg........(916) 651-4034...
Bob Wieckowski        (916) 651-4010

Tuesday, March 5, 2019

LAO on Housing - I

"A Rising Population ...
...makes competition for land fiercer, which in turn leads to an increase in land rent everywhere and pushes the urban fringe outward.  This corresponds to a well documented fact stressed by economic historians.  Examples include the growth of cities in Europe in the 12th and 19th centuries as well as in North America and Japan in the 20th century or since the 1960s in Third World countries."
(From page 83, section 3.3.2: Economics of Agglomeration:... by Fujita, Thisse).
Florence, Italy in 1493
(link to this post for sharing: )

A 2 page condensed version in Word is available here:


California's oft-stated 3.5 million housing "shortage" does not exist.  The plans of Governor Newsom and others to fill that non-existent "shortage" will reallocate needed housing funds from the poorest groups and areas to the more affluent population.

That 3.5 million number is a mis-interpretation of the Legislative Analyst Office's (LAO) 2015 report on housing.  The LAO argues that if there had been 3.5 million more housing units built over 1980-2015 then housing costs would have been lower.  If housing costs were lower, they hypothesize, more people would have moved to California to fill those 3.5 million housing units.  Those who hypothetically might have moved to California did not move here then so they are not here now - hence, no shortage.

They might not have moved to California anyway because during those 35 years there were recessions, lay-offs, etc. in the US and California.  A California company goes on a hiring spree for a while and people move to California for the new jobs.  Housing prices rise during the hiring spree.  Then as markets cool, it stops hiring so people stop moving in.  The LAO is reversing "cause and effect" assuming people would always move to California at a steady pace regardless of all other economic conditions.

If (magically) 3.5 million new homes (a 25% increase of the existing stock) were to appear in California they would be empty and remain so.  California has seen a net loss of native population through domestic out-migration for many years.  In-migration from other countries has masked this - until now.

Perhaps through a misunderstanding of HCD's "Regional Housing Needs Allocation" (RHNA) numbers there is a view that there is a "housing crisis".  RHNA numbers are planning for potential growth.  If the growth does not happen, those numbers mean nothing. They are not requirements. Thirteen rural CA counties lost population.  They did not “make their RHNA numbers” because there was no need for new housing.  That does not constitute a “crisis”.  We are currently in a housing bubble similar to that of 2008 which will not last much longer.  Cf,

The LAO advocates increasing density in the already densest, most geographically constrained job centers.  This ignores the most essential tenet of "Urban Economics" going back centuries - "increased density increases the cost of housing".  If increased density lowered the cost of housing, then Lower Manhattan and Hong Kong would be the cheapest places in the world.  They aren't.

The LAO's prescription for lowering housing costs by building more densely in already dense areas will actually raise housing costs.  That, in fact, is what is happening and has been happening for decades.  More density, more traffic, and housing prices increase.
Silicon Valley has been increasing housing since it's beginning and the prices keep rising.
So we should build more housing to make prices go down!
We see it everywhere - gentrification and displacement.  It has caused increasing out-migration of companies and population who cannot afford the increased prices or cannot stand the increased traffic.

The obvious alternative is to direct business expansion (and thus population increase) to the less dense metro areas in California with more buildable land such as Sacramento and Riverside.  The population growth is naturally happening there, anyway.


Governor Newsom has proposed some re-allocations of state funds for housing.  The Legislative Analyst Office's (LAO) looks at those proposals in "The 2019-2020 Budget: Considerations for the Governor’s Housing Plan" (CGHP) by Gabriel Patek dated February 2019 available at:
Considerations for the Governor's Housing Plan - CGHP
As CGHP refers to the 2015 LAO document "California’s High Housing Costs: Causes and Consequences" (CHHC) we also address the references and conclusions from that document available at:

California’s High Housing Costs: Causes and Consequences" (CHHC)
This post is an analysis of the above two documents.

Summary of LAO Documents:

The CGHP (2019) focuses on Governor Newsom's stated strategic concepts on housing .

In particular, discussion centers on the proposed allocation of more state funds for middle class residents.  The LAO is essentially arguing that if more state money is allocated to housing for middle income housing then there will be less for the lowest income.  They appear to argue that since it is the lowest income group that suffers most from high housing costs, funds should then continue to be directed to those groups.  In addition, I would add that the highest housing costs are in the highest income areas (not unrelated facts).  Sending more state money to the highest cost areas would be a transfer of wealth from all areas - including the poorest - to the richest areas.

However, the LAO continues on with an argument they have advanced for years that the cause of California's high housing costs (relative to the US average) is a failure to build enough housing in dense urban areas along the coasts.  The LAO also argues that it is necessary to increase density to lower housing costs.  This contradicts basic theories of "Urban Economics" going back hundreds of years as taught in popular Urban Economics texts both undergraduate and graduate as well as countless academic papers.  No specialist in Urban Economics disputes that increased density increases housing prices.


There are 3 points:

Point 1.  A "Shortage" of housing units is not the prime cause of high housing-cost-burdens.
Point 2:  More "Housing Units per Household" Does NOT Correlate with Affordability.
Point 3:  LAO's statistical model is flawed.

Point 1.  A "Shortage" of housing units is not the prime cause of high housing-cost-burdens.

Figure 1 in CGHP (below) is comparing California - a state dominated by a few highly urbanized metro areas - with the entire US.

Figure 1

Comparing California with the entire country includes North Dakota, West Virginia and many other rural and semi-rural states.  Such a comparison renders the graph almost meaningless.  Comparing urban areas in California to other major urban areas on a housing-cost-stressed metric is far better.  This is done in the following graph from U. of Southern California (via Slate).  This graph shows that it is not the cost of housing but the incomes which are the determining factors in cost burdens.

Figure 2: (click to enlarge)
LA, Riverside, San Diego on left of "West" group.  San Jose & SF-Oak. on right of "West" group.
This is important in examining LAO's thesis that California communities have restricted housing and that is the reason prices are high.  In figure 2, above, the US Census' "SF-Oakland" metro area is near the low end of "cost-burdened" metro areas in the "West" group even though housing prices there are the highest in the US in absolute dollar terms - as are salaries (hint, hint).

Continuing with figure 2, renters in the communities in other metro areas such as Miami, New Orleans, and Orlando are cost-burdened as much as, or even more than, the California coastal cities (left bars under "West").  It is hard to argue that Miami and Orlando have restricted housing construction.  One of Florida's main industries is constructing housing for new Floridians.

Figure 2, above, shows Cleveland as having the most cost-burdened renters in the Midwest yet Cleveland's housing costs are some of the lowest in the country in absolute dollar terms.  Cleveland's population during the period 2000-2017 actually declined 4.2%.  Cleveland thus has a surplus of housing.

A Harvard study considers "residual income" - what is left over after the rent is paid.  For example, a couple making $300,000/year could pay 50% of their income for housing and have a $150,000 "residual" - more than enough for other expenses.  On the other hand, a couple paying 30% of a $30,000/year income would struggle to get by with a "residual" of $20,000/year.  The standard 30% criterion for housing costs does not consider that and should only be used for the lowest income quintiles.  (Harvard paper here:

When you correct for "residual income", as the Harvard study shows, the difference between LA and Cleveland for lower income households diminishes to only 4% for a family of four.

The following bar chart (Figure 3) shows California is one of the top five states for housing costs as a percentage of income.  Florida and Hawaii are slightly higher.  Louisiana and New Jersey are slightly worse.

Figure 3: (click to enlarge)
Florida, Hawaii, California, Louisiana, and New Jersey the top 5 states in percent of income spent on rent.
California is in the red box.  Source:
SF-Oakland metro area less "Cost-Burdened" than Orlando or Las Vegas?  California less cost-burdened than Florida?  Clearly the LAO is wrong in their assertion that the reason for "California’s high housing costs, the significant shortage of housing..." page 1 of CGHP (2019).  We cannot argue against their evidence for that statement since they offer none.  Building more housing is not valid as a way to help cost-burdened households.  Other factors need to be considered.

Point 2: More "Housing per Household" Does NOT Correlate with Affordability.

From the US Census' "Quick Facts" (link below) we see that the US has over 137.4 million housing units for 118.8 million households for an average = 1.16 housing units per household (HupH).  This includes vacation homes, housing in transition, apartment vacancies, etc.  That is 11.6 housing units for every 10 households.

California has 14.2 million housing units for 12.9 million households = 1.10 HupH.  That is 11 housing units for every 10 households.  For California to reach the national average of 1.16 it would need only about 5.5% more housing units or 773,600 additional housing units.

Building 3.5 million more homes as Governor Newsom has pledged to do is an astonishing prescription.  If an additional 3.5 million housing units were added, the result would be a ratio of 1.37 HupH - almost 14 housing units for each 10 households - far higher than any other state. The following graph, figure 4, shows where California is now and would be under other scenarios:

Figure 4: (click to enlarge)

Data from US Census's "Quick Facts" eg,,ny,fl,tx,ca,US/HSG010217#HSG010217
Only 5 states, cities, etc. available at a time.  Delete one to add another.
California (green bar) is the lowest in HupH at 1.10 but not by much.  A 5.5% increase in housing would bring it to the national average (purple bar) while 3.5M more homes would put it way above all other states - the top orange bar.  None of this matters because when we compare these housing-to-household ratios in figure 4 (above) with housing prices in figure 5 (below) we see no correlation between "housing units per population" and home price.

Figure 5 (click image to enlarge):

Data from US Census's "Quick Facts" eg,,ny,fl,tx,ca,US/HSG010217#HSG010217
Affordability (as measured by "rent-burdened households") has no obvious correlation with "Housing Units Per Household".  Florida has low cost housing and very high Housing Units Per Household ratios.  Nonetheless, Florida's population is the most rent-burdened in the country.  Hawaii has more expensive housing than California yet has a higher HupH ratio than the national average.  It is hard to argue, as the LAO does, that housing supply is the principal factor in cost burdens.

Point 3:  LAO's statistical model is flawed.

The LAO model is described in the "Technical Appendix" at the end of CHPC (2015).  In the PDF version it starts on page 36.  The LAO's model concludes that if an additional 100,000 homes per year had been built, that would have kept housing costs lower and more people would have come to California, enough to fill 3.5 million homes.

We see this in the CGHP (2019) report in the grey box on the bottom of page 2:
"This suggests an aggregate of about 3 million additional housing units would have been needed between 1980 and 2010 to keep California’s housing cost growth in line with cost escalations elsewhere in the nation."
This is further elaborated on in CHPC (2015, top of page 4) stating that an additional 100,000 units per year would need to be added to mitigate housing costs.  This would add another 500,000 units during 2011-2015 for a total of 3.5 million by 2015.

There are several problems with their model and interpretation.

Problem 1: The most glaring is that it starts with the assumption that people will come to California at the same rate limited solely by housing costs.  What we see in actual data is that California's growth rate is highly variable and is declining as is the US's as shown in the graph below:
This assumption of constant growth rate is also part of their conclusion - that more people would have come to California if it were not for the high housing costs.  Basing your model on the assumption you wish to prove will always prove your assumption.

Problem 2: Even if that model were correct, it is still incorrect to say (as many have been saying), that there is currently a shortage of 3.5 million housing units.  Those that (hypothetically) would have come to fill the 3.5 million housing units (that didn't get built) would have since gone elsewhere - which they might have done anyway!  Housing is currently in approximate balance with population as shown previously.

Problem 3:  As mentioned in the beginning, the field of "Urban Economics" has shown repeatedly that increased density increases housing costs.  The figure below illu

Land further from major employment areas is less costly and so then is the housing.
From Paper "Spatial Distribution of Land Prices and Densities - The Models Developed by Economists"
A paper (2015) by Alain Bertaud at the Marron Institute of Urban Management at NYU discusses this.  He previously held the position of principal urban planner at the World Bank. His paper is available at:

Much more on the costs of housing vs. density here:

Development in the SF Bay Area is limited by the decisions (which I support) to not fill in the Bay and to protect open areas surrounding the populated areas.  Without these restrictions, more land would have been available to build on and prices and density would have been lower.  But, the SF Bay Area would then be immeasurably less attractive and, without the cooling effect of the bay, much hotter.

Excluding surrounding open space from development also limits the amount of land that can be built on.  The cost of remaining land is made more valuable because of it's resulting limited supply due to the restrictions on development in and around the bay.  This is seen in figure 6 below:

Figure 6:
The curves below show that as the distance, X, from the center of a metro area decreases the cost of land increases.  Reducing the available land raises the cost curve at all distances.

Cost vs. Density Curve
Cost vs. Density Curve from page 74 of "Lectures on Urban Economics" by Brueckner, 2011, MIT Press
Due to urban growth boundaries, "the resulting city has smaller dwellings and is more expensive to live in."
People who want larger dwellings at less cost will leave such areas.
This same cost vs. density "isoquant" curve is seen throughout basic Urban Economics. A standard undergraduate textbook used at UC-Berkeley is "Lectures on Urban Economics" by Brueckner. He points this out very well as shown in figure 6 above.

Brueckner is examining the effect of politically instituted "Urban Growth Boundaries" but the conclusion is the same whether the boundaries are imposed by laws or by geography.  This is stated by Brueckner as "in the presence of an open-space amenity, the socially optimal city is spatially smaller than the city generated by the free-market equilibrium."  ("Socially optimal" because the unfilled-in bay and the undeveloped open space are "social" goods making life "optimal".)

"Socially Optimal"
Golden Gate Park in San Francisco
Not "Socially Optimal"
Since less space is available, the space that is available becomes more valuable.  Dwellings become smaller to fit people into the remaining space.  Compare housing in Lower Manhattan with that in Peoria, Illinois.

This goes back to the "Law of Rent" from David Ricardo (1772 - 1823), and "Spatial Economics and Economic Geography" of Johann Heinrich von Th√ľnen (1783 - 1850) as described in many, many, many economics texts, papers and (of course) Wikipedia.

Problem 4:  The implicit assumption of the LAO is that urban areas can expand indefinitely. This flies in the face of many decades of economic theory and thousands of academic studies on "Optimal City Size" in Urban Economics.  Optimal city size is described as:
"Theories on the optimal city size indicate that, when a city has an optimal population size, the forces of agglomeration economies are offset by the forces of disagglomeration economies, resulting in locally constant returns to scale".  (from "The Optimal Size of German Cities An Efficiency Analysis Perspective" by Stephan Hitzschke - )

In simple terms, the above states that a city reaches its optimal size when the advantages of a big city equal the disadvantages.  Further growth after that is not possible.  A standard Urban Economics textbook (used at UCLA) shows this in the following graph:

Figure 7:

From "Urban Economics", 8th edition, by O'Sullivan
The cost of density rises slowly at first but at a certain point overcomes the advantages of density.
This is the equilibrium point when a city cannot grow without life deteriorating.
Where the lines of "cost" vs. "return" cross is the "equilibrium point".  At that point, the number of people who come for the advantages of big city life (better paying jobs, more opportunity, more cultural events) equals the number of people who leave because they can't stand it any more - traffic is too bad, taxes are too high, housing costs too much - life is too stressful. 

The cost of more bridges, highways, subways, etc., etc., starts to exceed the economic benefit of being in a big city.  The City has then reached it's "optimal size" and further growth relative to the population of the nation as a whole is very difficult.

Hence LA  metro area grew 8% from 2000-2017 while Charlotte grew 90%, Austin grew 69%, and Minneapolis grew 21% in the same time period.  See figure 7.

Figure 8: Click image to enlarge.
Top 50 Metro Areas population over 1 million grew 21% on average.
Only less dense areas in California exceeded that.
Data from US Census year 2000 and ACS 2017
More housing in the LA or the SF Bay areas will drive up rents, increase traffic, increase urban sprawl, require massive investment in new bridges, tunnels and freeways, requiring increased taxes.

For example - the Golden Gate Bridge has been at capacity for over a decade.  Further development in Marin County will either make the bridge impassable or require a second bridge or tunnel costing billions of dollars and increased taxes. Similarly for other parts of the SF Bay Area.

This will continue to drive corporations and individuals to other states.  Other people will come to replace those that left and at some point there will be equilibrium when the number of people entering California equals the number leaving - probably preceded by net population loss.

SF Bay Area with 50 Mile Radius around Silicon Valley
Geographically Constrained - Therefore Expensive
Houston with 50 Mile Radius around Center
NOT Geographically Constrained - Therefore Cheaper
If there is to be further growth in California it must come where there is space to expand and build the single family homes that most people desire. Sacramento and Riverside are seeing that growth already. Further state efforts at development, in order to succeed, must go where people desire to move.

What Not to Do:

As mentioned earlier, there is a net outflow of domestic residents from California.  See color-coded map from Harvard's "Joint Center for Housing Studies" (Figure 6) below:

Figure 9:  
Net Flow of Domestic Moves Between States.  
Red is "net Outflow".  Blue is "net Inflow".
Big states losing population.
It is only foreign immigration that keeps California's population growing.  If that immigration slows down, stops, or reverses (as it has for Latino immigrants) that outflow will lead to a surplus of housing.  State expenditures for middle class housing will be wasted.

Governor Newsom apparently campaigned on the LAO model of a 3.5 million housing deficit.  It may guide his thinking on housing budgets.  Other politicians have used that same 3.5 million to describe a shortage of crisis proportions.  But there are not 3.5 million households without housing.

This imagined "housing shortage" is being used to justify the anti-democratic over-riding of local control.  It is also being used to justify increased taxes, and building on open space and parks.  This increases congestion, and a feeling of being overwhelmed.  It is not healthy.  This lowered quality of life is increasing out-migration.

At $500,000 per housing unit, 3.5 million housing units is $1.75 Trillion!  For comparison, California's GDP is $2.9 Trillion.  That is a tremendous amount of money to satisfy a demand which does not exist now and may never have existed outside of the LAO statistical assumptions.

In thanking academics and others who helped them with their model, the authors of CHPC (2015) note that not everyone agreed with their conclusions.  It would have been nice to see the dissenting views in the report.

LAO Documentation Standards
(or lack thereof)

Throughout these two LAO documents and similar ones on housing, there are no sources given for any of the data.  No calculations are shown.  No references for economic theory justifying the assertions.

From the University of Colorado, Boulder:

"You must acknowledge the sources of all your information and any ideas or interpretations you have taken from other works...references are usually placed into notes, with a bibliography at the end of the paper that lists all works used

Above from Part D of:

The LAO document authors follow none of the above guidelines.

We are not talking about academic peer-reviewed research papers - just an ordinary paper attempting to summarize complex situations for executives with busy schedules looking for informative guidance.  Such documents need sources, references and supporting economic theory so they can be verified and serve as a starting point for further investigation.  Without reference to those sources and dissenting opinions those topics cannot be further examined for nuance or error.


The LAO has produced documents with claims deriving from fundamentally flawed models that ignore the long established tenets and observed results of centuries of economic research.  As a result politicians have taken these hypothetical and counter-factual theses to advocate and budget for seriously misguided policies - policies which will only make things worse for Californians.  This will cause more people to leave for states which actually listen to what residents want rather than what developers want.

For now this is...

Sunday, March 3, 2019

Three Mayors on Silicon Valley Housing

"Random Access"
Three Silicon Valley Mayors - 
Affordable Housing and Traffic Concerns
Video with Transcript 

Three mayors in Silicon Valley in a 14-minute video
round-table discussion on housing and transportation

Summary of video (above) and transcript (below):

(Link to this post for sharing is:

The difficulty of getting funding for low-income housing is discussed.  The possibility of bankruptcy of some less financially secure SF Bay Area cities is mentioned.  CASA's proposed 20% (for starters) taking from future property tax increases is discussed with regard to the potential impact on schools and public safety.

(Transcript available for download at:

(Additionally, Mayor Silfeth talks about CASA & SB-50 here: )

Transcript of above video below:

Lynette Lee Eng:      Welcome to "Random Access".

Lynette Lee Eng, Mayor of Los Altos

My name is Lynette Lee Eng. I am the mayor of Los Altos.  Joining me is Mr. Eric Filseth, the mayor of Palo Alto and Mr. Steven Scharf, the mayor of Cupertino. Today we're here to talk about housing and transportation. So why don't we start?

Eric Filseth:      Yes, we're in favor!

Eric Filseth, Mayor of Palo Alto
Okay, one of the first things that's in our mind right now is, as of a couple weeks ago, we approved our first affordable housing development in Palo Alto in seven or eight years. So that was a big high-point for everybody because it's been a while and the Palo Alto Housing Corporation, which brought the project to us, the neighborhood came out in support for it. It was a really good thing.

But it cost ten million dollars out of our affordable housing fund and that fund is now depleted. And so, if we want to do some more of these, we’ve got to find some more money to put it back.  And I think that brings up one of the essential challenges of at least below-market and affordable housing, as opposed to market-rate housing, which is you have to fund it somehow, and that's been an ongoing challenge.

Steven Scharf: In Cupertino, my first year on the council we funded a 19-unit affordable housing project - 100% for seniors. It's almost done.
Steven Scharf, Mayor of Cupertino
The applications, it's being applied for now.  But it's only 19 units.  It's not enough.  We have six million dollars in our affordable housing fund.
Senior Housing Project - Cupertino
We're expecting another 47 million from one large development that should be moving forward hopefully soon.  We’ve got forty-seven plus six.  That sounds like a lot of money: fifty-three million dollars. The reality is with the cost per-unit upwards of $500,000 that's still only around 100 units of affordable housing.

Eric Filseth: How big are your affordable housing impact fees on commercial space?

Steven Scharf: I don't recall the per-square-foot amount.

Lynette Lee Eng: But there's no doubt we're all supportive of affordable housing.  But, what's happening to affect our cities is going to impact how we provide services – the quality of life for our residents.  So, not only are we all concerned about housing and affordable housing, it's about also preserving what we have in each of our cities that make it unique. 

So, I think we should talk about that. We have CASA [1] that is going to come up. We have SB-50 [2] that's going to come up. And I think we need to really talk about how these will impact our cities.

[Notes: 1.  CASA refers to The Committee to House the Bay Area: a multi-government plan to apply state-level control to force local communities to build more housing.  Sunnyvale City Councilman Michael Goldman looks at CASA in
2.  California 2019-2020 Senate Bill 50 is titled “Planning and zoning: housing development: equitable communities incentive”. ]

Eric Filseth: Well CASA has a number of things in it. I think one of the provisions you mentioned is that they want to divert existing pools of money.  

So, they've speculated that maybe they'll take 20% of future property tax increases, for example.  Those property taxes are how we pay for our city operations. So, our largest revenue source is actually residential property taxes and that's how we pay for police and fire and everything else.  If we don't have that, we're not going to be able to pay raises to our labor groups in the future.  

Property taxes pay for the equipment and salaries of fire and police safety workers.
CASA proposes to take 20% (for starters) of increases in property tax to give to housing developers.
But more fundamentally it's sort of moving existing pots of money around when you'd start talking about that kind of stuff.  I thought the governor [California Governor Newsom] was much more on target when he called for a new revenue sources and from Sacramento and particularly for industry.

I mean the engine of the valley [Silicon Valley] has produced enormous wealth since the recession, and investment in housing and transportation hasn't kept up, and that's the real problem. 

Because unless you invest in housing and transportation those costs are not going to be picked up, they're going to get dumped on communities and it's going to result in reduced services which we see.  And it's disproportionately dumped on the low- and mid-wage earners, as opposed to the top of the pyramid which has actually done pretty well in California and Silicon Valley over the last 10 or 20 years.

Steven Scharf: It's true. Some of the proposals for revenue generation for CASA are extremely regressive. 

They're talking about large sales tax increase which always falls on the least affluent the most.  They're talking about the property tax; taking twenty percent of new property tax. 

To be honest, with the recent corporate tax cuts, tremendous amounts of money have flowed into large corporations that would normally go to the federal government and would hopefully turn around and come back to the states, counties and cities. That money isn't there anymore. 

Instead, it's in the bank accounts of some of these companies that really need to step up and help solve this housing and transportation situation. Just because that's where all the money is.

Lynette Lee Eng: Sadly, I do want to agree with you, because like you said the 20% [of future increases in tax revenue] that'll be taken from small cities like ours. It'll greatly impact our cities because that's how we provide our services. 

Not only that, it'll affect the quality of our schools because our schools are basic aid, so that funds the majority of our education system for our schools. So that'll affect our schools, it will affect our services, so we have that coming and it's going to be hitting us hard.

Property taxes pay for schools and teachers.
CASA's proposed 20% cut of increase in property taxes gives that money to developers.
Eric Filseth: So the Silicon Valley Grand Jury, I don't know if you remember last year, you know they produced a fairly thick report [3], but one of their conclusions was you could solve the entire housing problem in the South Bay, all of it for everybody, for $30 billion, or $20 billion if you put it in Gilroy - which is actually kind of interesting.  

But I mean that's a lot of money. But on the scale of high-speed rail for example it's not that… - the state was talking about until recently. Fortunately, I think cooler thinking has prevailed. But talking about $20 billion dollars for “twin tunnels” [4], for water diversion tunnels under the Delta, surely that can be better invested in the economy of Silicon Valley.

But the reality is that we have this kind of money. So, in 2016 and 2017 those two years the market capitalization of the Silicon Valley 150 increased one and a quarter trillion dollars. I mean that's a lot of money.

If you took one percent of that, one percent of that would be $12 billion, and that in itself is 10 times what “Measure A” raised for affordable housing right, and that's over a 30-year time frame.
So, we have the money to do this. The question is, “Can we shift the battleship a little bit to try to re-tune the engine a little bit so that its funding housing and transportation?” That's the real issue.  

People think they're going to do this with zoning changes, I think we're not going to get a five- or six-hundred percent increase in housing production off of height limits and setbacks and bridge tools.

[Notes:  3. Civil Grand Jury of Santa Clara County’s report “Affordable Housing Crisis: Density is our Destiny”  4. Sacramento/San Joaquin Delta water conveyance system ]

Steven Scharf: It's true. But I don't think that money is there for us to take. It's how it's held in equities which of course are not going to be transferred.

Eric Filseth:         Of course, but as a region we need to step up and do this.

Lynette Lee Eng: Well, he's asking for a redirection.

Steven Scharf: Yes.

Lynette Lee Eng: So, I think that's what's happening is we in leadership positions can change the conversation. It's up to us to make sure that we let our state legislators know that we have some ideas that introducing bills without including us in the conversation does not benefit the city or the state at all.

Eric Filseth: Well I think it's divisive actually, it's going to pick a big fight with voters at a time when we're going to go asking for voters for confidence in Sacramento. I think it's going to be a picking a big - and some of those zoning provisions and of CASA and so forth and SB 50, at a time when you want voters to have confidence in Sacramento. It's going to pick a big fight - which is a needless distraction.

Lynette Lee Eng: And then here are you have like [CA State] Senator Weiner.  Many of the problems exist in San Francisco, the big cities. You have San Francisco, Oakland, San Jose.  Then they're introducing legislation, they haven't fixed the problems in their cities and they're thinking they're going to fix the problem for the state. Now that's problematic and that's worrisome.

Steven Scharf: And I would say we're in three pretty well-managed cities. We've been able to manage our pension costs. There's a lot of cities in the state - if you took twenty percent of their property tax away and you made them fund pensions to the level of a realistic rate of return, they would go bankrupt. They just don't have the resources or the reserves to weather the slightest recession. And we need to think of those cities other than the wealthy cities in Silicon Valley, and what they're going to do if some of these costs of funding provisions went through - because it would be extremely bad for them.
Vallejo, California went bankrupt in 2008
Eric Filseth: Well I think that's a whole other issue. If you're not budgeting your finances based on an expected rate of return of 6.2%, which nobody is, you're not fully funding your future pensions. I'm sure your pension costs are going to continue to rise, and so that's just reality.

Steven Scharf: I think everything is inter-related here. Once I was at a meeting where they were discussing CASA, and someone asked where's the transportation part of it. The answer from the woman from MTC  was CASA doesn't consider transportation, it's only housing. 

And it's very hard to separate those two because you have so much land in places you could build a lot of the kind of housing that people actually want, which is single-family home for the yards, but there's no good way to get to Silicon Valley from Tracy or Lathrop or Manteca or Merced. Transportation has to be an integral part of the solution.

Lynette Lee Eng: And single-family residential units with yards, that's what we have here and that's what they're trying to take away from us. You have all this legislation that's going to turn single-family residence to multi-family units, so all that people are desiring is no longer going to be able to exist. 

The other thing is you have MTC - who is trying to put CASA forward - they can't even properly manage transportation. 
MTC manages transportation in the SF Bay area.
With CASA, they want to manage housing development...
...without considering transportation.
So, I see problems there. And I don't know if you see the problem, but I also see that they are failing to really look at what the big picture is, what the problem is in order to fix it.

Eric Filseth: Well, I kind of like the governor's remarks when he announced his budget and later his State of the City discussions.  I sort of liked some of the directions he took. First of all, a much more ambitious scale of funding for these kinds of things, and I think it's going to take a lot of money. 

I mean the Valley produces jobs five or six times faster than dwelling units. No community can keep up with that without massive external investments. And that's the kind of the scale that the governor was talking about. 

The other thing that the governor said that I thought was actually quite interesting was that to look at encouragement and instead of trying to have somebody in Sacramento to decide for you this size building on that corner in Menlo Park, and that size building on another one. The governor came out and said, “Look, we need financial incentives and disincentives.” And I think that makes a lot of sense.

Particularly if you look at - he was talking about transportation funding - but if it's done right, I think that can be very valuable, actually.  I mean, you should spend a lot of money where we're putting in a lot of housing and transportation, and maybe less in other places. 

The reality is, I mean, I think the real answer to this problem is we’ve got to get smart about this. We need more money. But we’ve also got to get smart about geography.  

And the costs of housing and transportation in the mid-Peninsula are vastly higher than they are, for example, in San Jose where there is much better transit: they’ve got BART, they’ve got [Santa Clara County] Light Rail, significantly lower-cost housing, a big workforce that actually is the only one in the Bay Area that leaves during the daytime because they commute to other places.

Lynette Lee Eng: Okay, you've made some great points. 

So, I want to thank everyone for this conversation here today. 

So, once again, we have Eric Filseth, Mayor of Palo Alto; Steven Scharf, Mayor of Cupertino; and myself, Lynette Lee Eng, Mayor of Los Altos. 

Thank you.