Ludwig thinks that’s illegal, and on Jan. 27, he sued the city seeking to have the fees thrown out. In addition to city councilman, Ludwig is an attorney and real estate developer.
Ludwig’s company, Asset Enhancement, owns a 16,500-square-foot property at 391 First Ave. N. in downtown Ketchum. The lot sits at the corner of First Avenue and Fourth Street across from Perry’s restaurant. Asset Enhancement is the plaintiff in the case.
Ludwig wants to develop a 37,000-square-foot building that would contain mostly residences, along with space for an art gallery.
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He said in an interview that he purchased the property last year, and then sat down with city Planning Director Micah Austin to discuss his development plans. The conversation went as far as the $840,000 in fees, Ludwig said.
“My first statement is, ‘Micah, this is unconstitutional,’” he said. “This is an illegal tax.”
Ludwig said he wants the Idaho Supreme Court to review the constitutionality of inclusionary zoning laws such as Ketchum’s community-housing ordinance.
Ketchum Mayor Nina Jonas defended the ordinance on Tuesday. In an interview, Jonas said the ordinance was put in place in 2006 during a building boom.
Providing affordable housing was a community priority at that point, and it’s been reaffirmed since then, Jonas said. The city’s comprehensive plan update, adopted in 2014, reflects that.
“It’s important to remember all these ordinances come from community values,” Jonas said. “Every time (the comprehensive plan) is updated, these same issues are reinforced.”
Ketchum requires developers to provide community housing in exchange for allowing them to build above the city’s height limits or outside setback requirements.
In downtown, near the Warm Springs and River Run base areas and in residential neighborhoods, the city’s code gives developers an allowed floor-area ratio, which measures the size of the building compared to the size of the property.
A one-story building that blankets the property has a floor-area ratio of one. A two-story building that takes up half the property also has a floor-area ratio of one.
That’s the permitted gross floor-area ratio in downtown, according to city ordinance.
Developers such as Ludwig want to construct larger buildings than that. In a trade-off, the city code extracts a public benefit for community housing.
City Administrator Suzanne Frick said that historically, most buildings in Ketchum have been between a one and 1.4 floor-area ratio.
The building that houses Mountain West Bank at the corner of Sun Valley Road and Leadville Avenue has a 2.25 floor-area ratio. But, it also has on-site community housing units, Senior Planner Brittany Skelton said.
City ordinances started focusing on affordable housing in 1965, but only started allowing floor-area ratios as large as 2.25 in 2006 in exchange for community housing, she said.
“We’ll give you a density bonus, but we want you to produce affordable housing,” Frick said.
The city requires that developers take 20 percent of the increase in floor-area ratio and devote that to on-site community housing.
Or, developers have the option of converting that requirement to a fee, or buy units elsewhere and make them affordable.
The fees can quickly tally up to huge sums. The Auberge Resort Sun Valley hotel project, for example, paid the city $1,072,000 in affordable-housing fees. The developer of that hotel is also required to construct employee housing in Ketchum.
In 2015, the developers of the new Thunder Spring condominium units on Valleywood Drive agreed to pay the city $773,800 to settle outstanding requirements, including housing.
In the past, Jonas said money from the in-lieu fund has been loaned to the Ketchum Urban Renewal Agency to purchase property. She said the city is developing ideas for how to spend the expected influx in fees, including buying existing units and rehabilitating them.
Ludwig is targeting that system with his lawsuit.
The fees can be a source of ire in the business and real estate community in Ketchum, as developers argue that the policy makes projects financially infeasible.
Ludwig’s lawsuit argues that it conflicts with Idaho law, saying the fee is “in effect a tax and not a regulation and said tax is beyond the scope and jurisdiction of the authority granted to the city of Ketchum by the State of Idaho, and as such is unconstitutional.”
In support of his argument, he cites a 2008 lawsuit that the Mountain Central Board of Realtors filed against the city of McCall, and a 2006 lawsuit against the city of Sun Valley.
In Valley County, the city of McCall adopted two ordinances similar to Ketchum’s, and the Realtors sued within months of its adoption. The McCall ordinances differed from Ketchum’s in that they applied to all applications for subdivisions, not just in exchange for going beyond the permissible building sizes.
Still, 4th District Judge Thomas Neville ruled in favor of the Realtors, and threw out the city’s ordinances and fees.
“The city of McCall is attempting to have growth in McCall pay for growth,” Neville’s ruling stated. “Essentially, landowners and developers are being charged a premium, by way of either subsidy or a fee, to live in the city of McCall. ... The lack of affordable workforce housing is a problem for which the public should bear the cost to remedy rather than imposing the burden on a few landowners.”
Sun Valley’s ordinance was also struck down, after homeowners in the Lane Ranch subdivision filed a lawsuit. Phil and Lynn Schaefer sued, and Fifth District Judge Robert Elgee ruled in their favor in 2007.
As a result of the ruling, the city had to refund the Schaefers $11,989 for in-lieu fees they had paid. Sun Valley also refunded all $363,000 that it had collected under the ordinance since implementing it in 2005.
Ludwig said he believes affordable housing is a communitywide issue, and Ketchum’s ordinance has a negative impact on affordable housing because projects that include housing never get built.
“I’m actually a little surprised that this ordinance hasn’t been attacked,” he said. “I’m not trying to come in with blazing guns. There’s a real chilling effect on development in Ketchum because of this. This is about whether there’s an illegal tax.”