SANTA CRUZ >> At its meeting Tuesday, the Santa Cruz City Council approved a program that attempts to limit the size of developments in the city’s proposed Downtown Plan Expansion project and considered the displacement of residents caused by the project, often called the Downtown Expansion Plan.

The meeting began at noon and the council moved swiftly through its consent agenda, which included approving a request for proposals to begin the process of relocating a portion of West Cliff Drive where the pedestrian path was critically damaged during winter storms.

The City Council then heard from city staff who were tasked with finding a way to limit the size of potential developments in the proposed Downtown Plan Expansion project, which calls for the redevelopment of the 29-acre neighborhood south of Laurel Street to make way for a series of high-rise housing buildings and a new approximately 4-acre arena for the Santa Cruz Warriors.

Because of the public pushback of the Downtown Plan Expansion project, which included the formation of a citizen-led ballot initiative known as Measure M that ultimately failed at the polls in March, Santa Cruz Mayor Fred Keeley and Councilmember Scott Newsome tried to make the plan more palatable in early 2023.

The pair’s 2023 motion called to cap the total number of new dwelling units in the proposed expansion area at 1,600 units instead of the 1,800 originally proposed — adding a 20% below market rate requirement for developers in any given project — and reduce the original height limit of the proposed buildings in the expansion project from 175 feet or roughly 16 stories tall, to 12 stories.

However, because recent state laws allow developers to ignore local building standards such as building height if a certain number of affordable units are included in a project, the parameters put forth by Keeley and Newsome are not enforceable if a developer uses the density bonus. As the agenda report pointed out, “There can be no specific height limit in place for a project that uses the State Density Bonus.”

With that in mind, city staff were tasked with finding a way to achieve the three standards and subsequently devised the Downtown Density Bonus, which developers would have to voluntarily choose over the state’s density bonus in order for the city program to comply with state law.

“We received direction back in January of ‘23 to proceed with the Downtown Plan with an objective to meet three different standards,” said Santa Cruz Planning Director Lee Butler, who then outlined the three asks from the council. “We talked at the time about the state density bonus and how that has put limitations on our ability to achieve those goals that the council has set out for us, but we can still work towards those goals.”

The Downtown Density Bonus is offered in two ways depending on whether a project falls within an eight-story height limit, or a 145-foot or 12-story height limit.

Within those height limits, the developer has three options to qualify for the city’s bonus program. One pathway would require them to include more units in a project for those considered making moderate income, or a family of four earning $159,350 annually, to try and get the affordability percentage back up to 20%.

In the state’s density bonus law, the number of units that a developer promises to set aside as affordable are determined by the base plan set, not the bonus density design. When bonus density is applied and the number of units in a project increases, that percentage of affordable units is taken down to around 13% from the city’s inclusionary rate of 20%.

If that option is not appealing to a developer, they can also qualify for the city’s bonus program by promising to build 26.7% of the total units as below market rate units in a project built off-site from the expansion area but within certain areas of the city.

“In this instance, if you have 150 units on the project site in the Downtown Plan Expansion area, you could do (26.7%) of those off-site,” said Butler. “If they want to do off-site, it’s a higher percentage that they would need to achieve and that would get at the council’s goal of producing a substantial number of affordable units.”

The third option developers can choose to qualify for the city’s Downtown Density Bonus program would require them to pay an in-lieu fee to forego, including any affordable below market-rate units in a project. The in-lieu fee is $60 per square foot of housing units in the developer’s proposal.

“The in-lieu fees would go toward our affordable housing trust fund,” said Butler. “We have been talking with one development team and based on the numbers that they have been contemplating, if they were to choose that in-lieu fee option that would be about a $10 million contribution.”

The City Council voted to include the city’s density bonus program in forthcoming amendments to the Downtown Specific Plan as a part of the proposed Downtown Plan Expansion project in a unanimous vote.

To watch the meeting, visit cityofsantacruz.com.