The Surplus Land Act: Help or Hindrance for Cities Pursuing Community Development?

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July 25, 2023

By Mark Sawicki, Director

The original purpose of the Surplus Land Act (“SLA”) was to provide affordable housing developers with notification and opportunity to acquire land from cities and districts where the local agency had no use for the land. Three years ago, the SLA was amended to restrict the definition of “agency use” so that cities could no longer dispose of property for office, retail, or entertainment use, nor for the purpose of investment or revenue generation for the city. In other words, SLA now makes it very difficult for local agencies to acquire and dispose of land for economic development purposes, even though this activity is authorized elsewhere in the Government Code. Whereas government officials once promoted jobs, jobs, jobs, understandably the mantra is now housing, housing, housing. We believe successful community development should promote both, and that more housing is needed for all income levels.

The SLA was also amended to create categories for “exempt surplus land” that includes disposition for specific thresholds of affordable housing. It set up very specific processes for agencies to follow for all dispositions (including “exempt surplus”) under the oversight of the California Housing and Community Development Department (“HCD”), which has issued further rules and guidelines for cities to follow. While these restrictions and oversight are intended to create greater opportunities for affordable housing developers to acquire land from cities, in our experience these changes have led to burdensome delays and uncertainty. In one case, a housing authority borrowed funds to acquire surplus property in 2020 from another public agency for affordable housing, only to have to go through the entire SLA process again when they were ready to initiate the disposition and development process. Today, the site remains unsold due to environmental and development feasibility issues that could have been addressed sooner had it not been for the SLA process holding it up. In another case, a city purchased more than two dozen acres of land for a mixed-use community amenity. However, the amended SLA does not provide a pathway for selling and developing parcels over time for any use that does not include affordable housing.

We have found that although agencies do have the ability to acquire property for housing, many of our clients are increasingly reluctant to do so, citing the slow, unnecessarily restrictive process, as well as the uncertain outcome whereby HCD must evaluate and approve an exemption or designation. It is unfortunate that cities with the opportunity and ability to acquire land and reposition it for economic and community development purposes are seemingly prohibited from doing so. How far we have come from the era of redevelopment in California!

This struggle over the legitimate use of land acquired and sold by local agencies can be seen in two bills in the current Legislative session: AB 480 (Ting) would add further restrictions to the SLA, including requiring covenants for affordable housing on any land sold by a local agency; and SB 747 (Caballero) which seeks to preserve a pathway for economic development land uses, at least for special districts focused on investment in community revitalization.

If you have questions or want to learn more, please contact Jim Simon, RSG Principal, at [email protected].