Court of Appeal Affirms California's Interest in Housing Can Override Laws of Charter Cities

For decades, the California State Legislature has enacted numerous laws that limit the authority of local governments to constrain the supply and affordability of housing. These include the Housing Element Law, which requires cities to plan for their fair share of regional housing needs; the Housing Accountability Act (HAA), which limits cities' discretion to deny affordable and zoning-compliant development projects; and the Density Bonus Law, which requires cities to grant additional density and other modifications to qualifying affordable housing projects. In recent years as the housing crisis intensified, the Legislature amended these laws and enacted new measures including Senate Bill (SB) 35 of 2017, which creates a streamlined ministerial approval process for qualifying housing-rich development projects. (See Holland & Knight's previous alerts, "California's 2020 Housing Laws: What You Need to Know," Oct. 18, 2019; "California's 2019 Housing Laws: What You Need to Know," Oct. 8, 2018; and "A Closer Look at California's New Housing Production Laws," Dec. 6, 2017.)

In response, some charter cities have argued that these and other state housing laws do not apply to them. Under the California Constitution, cities governed by their own charters are exempt from complying with conflicting state laws, but only "with respect to municipal affairs."¹ The constitution does not define "municipal affairs," but it lists the conduct of city elections and employment of city officials as among the illustrative examples.² Numerous published opinions have held that housing, by contrast, is a statewide concern and that various state housing laws constitutionally apply to charter cities.³ Despite these precedents, charter cities have argued that they are exempt not only from complying with newer housing laws such as SB 35 but also exempt from much older statutes including the nearly 40-year-old HAA.

The ramifications of this debate are profound. As the Legislature found as long ago as 1990, "[t]he excessive cost of the state's housing supply is partially caused by activities and policies of many local governments that limit the approval of housing, increase the cost of land for housing, and require that high fees and exactions be paid by producers of housing."⁴ However, about one-fourth of California's cities, including all of the 15 largest cities in the state, are charter cities. If the Legislature were unable to enact state laws that conflict with charter cities' local ordinances and policies, the State of California would be essentially powerless to address this critical aspect of the statewide housing crisis.

The Anderson Decision

In Anderson v. San Jose, the Sixth District Court of Appeal considered the City of San Jose's claim to be exempt from complying with the Surplus Land Act (SLA). The SLA, enacted first in 1968 and amended numerous times in recent years, aims to address the "shortage of sites available for housing for persons and families of low and moderate income" by providing that "surplus government land, prior to disposition, should be made available for that purpose," by requiring a minimum percentage of units to be made available at specified affordability levels when surplus land is sold or leased to develop low- or moderate-income housing, or for general residential development of 10 or more units.⁵ In 2016, San Jose took the position that as a charter city it was not required to comply with the SLA, and the city adopted policies for the disposition of city property which did not comply with requirements of state law. After low-income households and housing advocates sued, a Santa Clara County Superior Court judge agreed with San Jose.⁶

The Sixth District Court of Appeal reversed that decision, holding that "while a city's process for disposing of surplus city-owned land is typically a municipal affair, San Jose's policy here must yield to the state law."⁷ The court applied the Supreme Court of California's four-element inquiry to determine whether state law constitutionally overrides the local law of a charter city: 1) to consider whether the city's local law or policy relates to a municipal affair, 2) to consider whether state law conflicts with the city policy, 3) to consider whether the state law relates to a statewide interest, and 4) to consider whether the state law is reasonably related to resolution of the statewide concern and narrowly tailored to avoid unnecessary interference in local governance. If "the subject of the state statute is one of statewide concern and ... the statute is reasonably related to its resolution, then the conflicting charter city measure ceases to be a 'municipal affair' pro tanto ... ."⁸

The parties did not dispute, and the Sixth District Court of Appeal concluded that the first two elements were met, and so the court proceeded to determine whether the state had the authority to "advance[] state land use policy objectives," and specifically "to address shortage of sites available for low- and moderate-income housing in California."⁹ The court concluded that this was clearly a matter of statewide concern. In so doing, it distinguished the California Supreme Court precedents on which San Jose relied, because these opinions recognized only that charter cities had exclusive authority over the expenditure of their own public funds and over the ability to license taxes on businesses within their jurisdiction.¹⁰ In contrast, the Sixth District Court of Appeal noted that numerous published opinions "have recognized the statewide dimension of the affordable housing shortage ... ."¹¹ The court emphasized that "the regional spillover effects of insufficient housing demonstrate 'extramunicipal concerns' justifying statewide application of the Act's affordable housing priorities."¹²

Finally, the court concluded that the SLA was "sufficiently tailored to its purpose."¹³ In conducting this analysis, the court did not put the state to the burden of proving that its law was the least restrictive means that could possibly be imagined to accomplish the statewide purpose. Instead, the court cited other recent Court of Appeal authority for the proposition that to survive constitutional scrutiny, a state law need only "be reasonably related to the issue at hand and limit the incursion into a city's municipal interest."¹⁴ Here, the court held that the SLA primarily imposed "generally applicable procedural standards" that "impinge[] less on local autonomy than ... substantive obligations."¹⁵ As the court noted, "[w]hether land is deemed 'surplus' is entirely within the local government's discretion," and the SLA only imposes requirements upon those lands which the city has chosen to designate.¹⁶ The court recognized that the SLA also imposes substantive obligations, but concluded that while "the substantive measures are significant in their narrow spheres," they "do not dominate the generally applicable procedural standards" and further noted that many other "substantive" requirements have been upheld as validly applicable to charter cities.¹⁷ Accordingly, the SLA constitutionally supersedes contradictory local laws adopted by charter cities.

Conclusion and Takeaways

The Anderson decision only directly addresses the constitutionality of the SLA, and it is possible that other state laws could be assessed differently. However, the opinion provides strong support for the constitutionality of many other state housing laws for several reasons, including:

• The SLA deprives charter cities of authority over a core municipal power: the power to decide how they will dispose of their own property. Nonetheless, the SLA was held constitutional in light of the statewide interest in affordable housing. Other housing laws, which do not affect local control over municipal property but merely limit local police power authority over private property, should stand on even stronger constitutional footing.
• By emphasizing that state laws are "sufficiently tailored" if they merely impose procedural obligations, the opinion provides strong constitutional support for laws that limit the ability of local governments to impose excessive procedural roadblocks to housing approvals. Just as the SLA leaves the ultimate decision about whether to designate land as surplus to the city, laws such as the HAA and SB 35 leave to cities the ultimate decision about where housing is to be permitted and at what scale. These laws merely impose procedural limitations on cities' ability to deny or delay development projects that comply with the zoning rules the cities have put in place.
• At the same time, the opinion also recognized that state laws can still constitutionally apply even if they do impose appreciable substantive requirements on local governments, which provides useful defense to the constitutionality of laws such as the Housing Element Law and the Density Bonus Law.

The court's emphasis on the "spillover effects" of constrained housing supply is a welcome understanding of the need for statewide housing policy. Indeed, housing policy is the classic example of a collective action problem: many local jurisdictions would prefer, if permitted, to shift the burden onto others to meet the statewide need for more affordable housing. However, as the Anderson court recognized, the Constitution does not prohibit the State of California from stepping in to ensure that each locality contribute its fair share.

For more information or questions regarding state and municipal housing laws, as well as the effect the Anderson decision may have on current lawsuits and development projects across California, contact the author.