1. Termination of Nonconforming Land Uses Agenda Item 3 Public Hearing Planning Commission Meeting August 19, 2013

2. Introduction & Legal Basis George H. Eiser, III Attorney at Law Meyers Nave

3. Purpose of Hearing To request that the Planning Commission make two recommendations to the City Council: 1.Order the termination of two nonconforming land uses. 2.Establish a reasonable amount of time in which the land uses must be terminated.

4. Two nonconforming uses are the focus of the requested action: 1.Steve’s West Coast Automotive 1732 Coolidge Avenue 2.Jose’s Auto Electric 108 West 18 th Street

5. Nonconforming Use Occurs when a land use that was lawful before a zoning regulation was enacted or amended becomes prohibited after the regulation is enacted or amended.

6. Generally, a nonconforming use can continue indefinitely unless terminated by the user.

7. Because the goal of a zoning enactment or amendment is to accomplish a change in land uses, it is reasonable to expect that a nonconforming use could be terminated by affirmative action of the city.

8. The courts have recognized the authority of a city to accomplish the affirmative termination of a nonconforming use through amortization.

9. Amortization The method of determining the useful life of a nonconforming use or structure and prohibiting continuation of that use or structure no later than the expiration of an amortization period.

10. In order for the amortization period to be considered reasonable & legally valid, it is not necessary that the nonconforming use be exhausted at the end of the amortization period. The determination of a reasonable amortization period requires a weighing of public gain against private detriment.

11. In 2006, the City Council added Section 18.11.100 to the Municipal Code, titled “Affirmative Termination By Amortization,” providing that the City Council may order a nonconforming use to be terminated within a reasonable amount of time, upon recommendation of the Planning Commission.

12. Section 18.11.100 provides that in making its recommendation to terminate a nonconforming use, and in recommending a reasonable amount of time in which that use must be terminated, the Planning Commission shall consider the following factors:

13. a)The total cost of the land & improvements b)The length of time the use has existed c)Adaptability of the land & improvements to a currently permitted use d)The cost of moving & re-establishing the use elsewhere e)Whether the use is significantly nonconforming

14. f) Compatibility with the existing land use patterns & densities of the surrounding neighborhood g) The possible threat to the public health, safety, or welfare h) Other relevant factors

15. Westside Specific Plan Raymond Pe Principal Planner

19. Permitted Uses Example MCR-1 Zone Multi-family Residential Auto Parts & Accessories Sales Auto Sales and Leasing (CUP) Restaurant Convenience Goods & Services Shopping Goods & Services Hotel, Motel, & Related Services Office, e.g. Finance, Insurance Schools, Studios, and Colleges CL Zone Auto Parts & Accessories Sales Auto Sales and Leasing (CUP) Restaurant Convenience Goods & Services Shopping Goods & Services Hotel, Motel, & Related Services Office, e.g. Finance, Insurance Schools, Studios, and Colleges

24. Ranking Process Mike Garcia Principal Tierra West Advisors, Inc.

25. Preparation of the Ranking Criteria City worked with the Environmental Protection Agency and its consultant to prepare the criteria and process used for analyzing nonconforming uses. The EPA and its consultant created an objective process by which criteria will be measured exactly the same for all non-conforming uses. Values and weights of values determined by staff, with input from stakeholders.

26. Ranking Process Value of land and improvements Time the use has existed Adaptability of land and improvements Significance of the nonconforming use Compatibility with residential uses and densities Threats to public health, safety, or welfare Factors ValueTime in UseAdaptabilityNonconformance Compatibility Threat

27. Neighborhood Impacts Factors and Sub-Factors

30. Amortization Periods Brian P. Brinig, JD, CPA, ASA Brinig & Company, Inc.

31. Reasonable Amortization Periods Steve’s West Coast Automotive Jose’s Auto Electric Brian P. Brinig, J.D., C.P.A. Brinig & Company, Inc.

32. Basis of analysis: –N.C. Municipal Code Section 18.11.100: “The City of National City may order a nonconforming use to be terminated within a reasonable amount of time…” –Metromedia, Inc. v. City of San Diego: “The California cases have firmly declared that zoning legislation may validly provide for the eventual termination of nonconforming uses without compensation if it provides a reasonable amortization period commensurate with the investment involved.” [emphasis added]

33. National City Municipal Code Section 18.11.100(D)(1) …requires consideration of 8 factors, including: –A. The total cost of Land and improvements; –B. The length of time the use has existed;…. –H. Any other relevant factors.

34. The total cost of Land and improvements –The businesses do not own the land and improvements –They are subject to leases –This factor is not relevant to the businesses

35. The length of time the use has existed –Steve’s – since 2004 –Jose’s – since 2008 –Both businesses have operated longer than the period necessary to recover the investment in them

36. Any other relevant factors –What is “Amortization”? –Is there a financially logical way to quantify a reasonable amortization period?

37. The Concept of Amortization –Amortization is a cost allocation method by which the cost of an asset is applied to the asset’s useful life. Through amortization, the cost is applied to the benefit period Stated alternatively, the cost is “recovered” during the benefit period (against the benefits derived).

38. Recovery Period of an Asset or Investment –The time that it takes to recover the cost (or value) of the asset against the benefits derived. –The recovery period is the amortization period, the time period over which the owner recoups the investment in the asset.

39. Sec. 18.11.100 – [allows] “…nonconforming use to be terminated within a reasonable amount of time….” Metromedia case: [termination without compen- sation is allowed]…”if it provides a reasonable amortization period commensurate with the investment involved.” [emphasis added]

40. How to determine a Reasonable Amortization Period

41. Price to Earnings Ratio of a Business –“P/E Ratio” –The relationship of the Price of the Business (its VALUE) = “P” to: –The annual Earnings of the business = “E” –Stated as a multiple (of year’s earnings)

42. Price / Earnings Ratio –The number of year’s earnings embedded in the price of the business –Or – –The number of years of earnings that it takes to recover the value of the business –Or – –The “payback period” for the value of the business

43. Application of P/E Ratio to determine Reasonable Amortization Period –Determine the appropriate P/E Ratio for the size and type of business under consideration –Use the P/E Ratio to estimate a “payback” or “recovery” period for the business –The range of reasonable “payback” or “recovery” periods defines a reasonable amortization period.

44. Steve’s West Coast Automotive –General automobile repair –Owned by Mr. & Ms. Vasquez since 2004 –NAICS Code 811111and SIC Code 7538

45. Jose’s Auto Electric –Specialized auto repair – tune ups and brake repair –Operated by Mr. & Ms. Ramirez since 2008 –NAICS Code 811118 and SIC Code 7539

46. Determination of P/E Ratio for Each Business Sources: –PrattStats – M&A database with acquisition details of over 19,400 transactions –BizComps – collection of financial data on 12,000 private sales of businesses –IBA Market Database – Institute of Business Appraisers database contains financial information on over 37,000 business sale transactions

49. Conclusions of Reasonable Amortization Periods –Steve’s West Coast Automotive: Reasonable Amortization Period from 1.69 to 2.19 years. (1 year, 9 months to 2 years, 3 months.) –Jose’s Auto Electric: Reasonable Amortization Period from 1.64 to 2.77 years. (1 year, 8 months to 2 years, 10 months.)

50. Amortization Factors Mike Garcia Principal Tierra West Advisors, Inc.

51. Steve’s West Coast Automotive and Jose’s Auto Electric History of Municipal Code violations. Work conducted in public right of way (Steve’s West Coast). Oil stains and hazardous material storage represent threats to stormwater runoff. Proximity to sensitive uses - Kimball Elementary, Paradise Creek Educational Park and Paradise Creek. Major rehabilitation would be required to adapt to uses allowed in the new zoning.

52. Factors Used for Amortization Schedule A) The total cost of the land & improvements B) The length of time the use has existed C) Adaptability of the land & improvements to a currently permitted use D) The cost of moving & re-establishing the use elsewhere E) Whether the use is significantly nonconforming F) Compatibility with the existing land use patterns & densities of the surrounding neighborhood G) The possible threat to the public health, safety, or welfare H) Other relevant factors

53. Factors considered for Jose’s Auto Electric A) The tenant has a 6-year lease term with two (2) additional years for renewal. B) This business has been operating as a business on 18th Street for over 7 years, which is longer than the number of years of income indicated in its price/earnings ratio range of 1.64 to 2.77 times net earnings. C) The land and improvements would require major rehabilitation to convert the building to a retail or office use, and flooding issues might necessitate a building built above parking with flood channels to protect the parking areas from flooding.

54. Factors considered for Jose’s Auto Electric D) An estimate to relocate this business is $7,200 and an estimate to reestablish this business is $5,900. E) The use is significantly nonconforming in the Limited Commercial zone. F) The use is compatible with other nonconforming uses. G) The use stores hazardous materials, which is a threat to sensitive uses nearby (Kimball Elementary and Paradise Creek Park. H) This business is located immediately adjacent to Paradise Creek, which can be affected by oil and brake dust runoff during the flooding that occurs periodically during the rainy season.

55. Summary for Jose’s Auto Electric The use presents significant threats to the public health, safety, and welfare, such as the on-site storage of hazardous waste, which is a threat to the nearby sensitive areas of Kimball Elementary School, and Paradise Creek Park, to which it is immediately adjacent. However, the longer amortization period of 2.77 years is recommended for the following reasons: The significant cost to convert the building in which the use is located to a type suitable for a use allowed in the zone. The significant cost to relocate and reestablish the business.

56. Factors considered for Steve’s West Coast Automotive A) The term for the lease agreement with Steve’s Auto Electric ends in February 2014. B) The current use has existed at the site according its business license application date since 4/26/2004, which is longer than the number of years of income indicated in its price/earnings ratio range of 1.69 to 2.19 times net earnings. C) The land and improvements would require major rehabilitation costs to convert the building to a mixed use residential over retail or office use.

57. Factors considered for Steve’s West Coast Automotive D) An estimate to relocate this business is $15,600 and an estimate to reestablish this business is $9,300. E) The use is significantly nonconforming with uses allowed in the Mixed Use Commercial Residential Zone. F) The use is compatible with other nearby nonconforming uses, but incompatible with uses that are allowed in the current Zone. G) It has been noted that cars have been parked on sidewalks causing students to walk into the street when walking to Kimball Elementary. H) Other than those analyzed in the report of Brinig & Company, no other relevant factors were considered for this business.

58. Summary for Steve’s West Coast Automotive The use is in close proximity to residential uses and to an elementary school, and presents significant threats to the public health, safety, and welfare, such as the on-site storage of hazardous waste, and the parking of cars in the public right of way, which forces elementary school children to walk in the street when going to school. However, the longer amortization period of 2.19 years is recommended for the following reasons: The significant cost to convert the building in which the use is located to a type suitable for a use allowed in the zone. The significant cost to relocate and reestablish the business.

59. Recommendation Brad Raulston Executive Director

60. Recommended Amortization Schedules Brinig and Company report was used to prepare a recommended amortization schedule. Considering all eight (8) factors in Municipal Code Section18.11.100(D)(1)(a)-(h) the recommended amortization periods are as follows: Jose’s Auto Electric – 2.77 years Steve’s West Coast Automotive - 2.19 years

61. Recommendation to City Council 1. That the City Council order the termination of the nonconforming uses doing business as Steve’s West Coast Automotive and Jose’s Auto Electric. 2. That the time period within which Steve’s West Coast Automotive be ordered to cease its current operations is 2 years and 69 days after the date of final action by the City Council. 3. That the time period within which Jose’s Auto Electric be ordered to cease its current operations is 2 years and 281 days after the date of final action by the City Council.

62. Next Steps Commission Recommendation to Council Council Final Action