Court Permits City To Build Housing On Former Caltrans Right-Of-Way

CP&DR Staff on
May 1, 2004

A state appellate court has refused to block the City of San Francisco’s plan to lease former state highway property to a nonprofit agency for development of an affordable housing project.

A First District Court of Appeals, Division Four, panel voted 2-1 to uphold a lower court’s ruling against project opponents, who contended the city plan violated state law that limited the use of the property.

In 1989, the Loma Prieta earthquake damaged the Embarcadero Freeway (Route 480), forcing the highway’s closure. Two years later, the state Legislature approved a bill that became Streets and Highways Code §72. It obligated Caltrans to demolish the damaged freeway, transfer the right-of-way to the city and jointly agree with the city on a new system of ramps and streets that would provide motorists with comparable access (see CP&DR Places, May 1997; CP&DR, February 1991). In exchange, the city was obligated to use the right-of-way — or the proceeds from sales of the right-of-way — for an alternate street system. In the years that followed, Caltrans gave the right-of-way to the city, and the city, state and federal governments developed a plan for a replacement street system known as the Mid-Embarcadero roadway project.

In January 1999, the Board of Supervisors adopted a resolution "approving in principle" the disposition of three parcels of the former right-of-way. The city designated one of those parcels for affordable housing development, with proceeds from the lease or sale contributing to the required streets. The city then began negotiating with Chinatown CDC, a nonprofit housing and community development corporation. In late 2002, the city approved a $10.1 million loan for development of the project, and Chinatown CDC soon signed an agreement to lease the property for 99 years for $10,000 per month, an amount that the city acknowledged was below market rate.

A group called Citizens for Better Streets filed a lawsuit attempting the block the project. The group contended that the fair market value of the property was more than $9 million and that the fair lease rate for a 50-year lease (the length originally proposed) was more than $700,000 annually. The group contended the city’s plan was a waste of property and money, and was not allowed by §72.

The city responded that the road project was essentially completed, in part with funds from the below-market lease. In March 2003, San Francisco Superior Court Judge Paul Alvarado declined to issue the preliminary injunction sought by Citizens for Better Streets. Judge Alvarado found that the group was unlikely to prevail in the suit because the city had complied with §72.

Citizens for Better Streets appealed, and the First District upheld the lower court’s decision.

The key to the case was the interpretation of §72, subdivision (b)(1), which states that the city shall "utilize the Route 480 right-of-way or the proceeds from the sales of that right-of-way for the sole purpose of constructing an alternate system of local streets …" Citizens contended that subdivision required the city either to build replacement streets on the property or sell the property at market value and use the proceeds for road construction.

But the First District ruled that the city did comply with the terms of §72. "Nothing in the statute requires a sale at market value, or on any other particular terms," Justice Patricia Sepulveda wrote for the court majority. "The city did not use the parcels as an actual site for the project, but it has adopted a resolution stating that the proceeds from their disposition will be applied to pay for the project. The city’s proposed actions therefore appear to comply with the letter of § 72."

Citizens also pointed to Article 19 of the state constitution, which limits the use of properties purchased with gasoline tax revenues. But the court said Citizens provided no evidence that the properties here had been acquired with fuel taxes.

In a dissenting opinion, Presiding Justice Laurence Kay, said that the city had complied with neither the spirit nor the letter of the law. "In effect," Kay wrote, "the majority reads into the section [§72] the right of the city to make a gift of the land to a developer for a purpose which, praiseworthy or not, is stunningly different from that purpose for which the land was conveyed to the city."

Kay also cited a 1993 report jointly prepared by seven city agencies that determined using the right-of-way for low-cost housing would "clearly conflict with the basic purpose of the land transfer." That conclusion was correct, Kay wrote.

Even though project opponents lost the case, their attorney Andrew Zacks asked that the opinion be published. Having the opinion published slightly increases the chances that the state Supreme Court will accept the case, said Zacks, who has filed an appeal based largely on the dissenting opinion.

The Case:
Citizens for Better Streets v. Board of Supervisors of The City and County of San Francisco, No. A102773, 04 C.D.O.S. 2596, 2004 DJDAR 3755. Filed February 26, 2004. Ordered published March 25, 2004.
The Lawyers:
For Citizens: Andrew Mayer Zacks, (415) 956-8100.
For the city: Andrew William Schwartz, city attorney’s office, (415) 554-4620.