State-approved Workbench project will be Scotts Valley’s first affordable housing development in decades. City leaders don’t want it.

For the first time in decades, Scotts Valley is set to welcome a new, entirely affordable housing complex within its city limits. Yet, while the first-of-its-kind, 100-unit project will help make a significant dent in the city’s state-mandated housing obligations, local leaders are being dragged into accepting the development kicking and screaming. 

The project, a partnership between local developer Workbench and San Diego-based CRP Affordable Housing, proposes a three-story complex at 4575 Scotts Valley Dr., along one of the city’s main thoroughfares. All units, a mix of one-, two- and three-bedrooms, will be reserved for low-income tenants. 

Although city councilmembers and the city manager say they are “enthusiastic” about building more affordable housing in a city that has seen almost none of it this century, they have called the project “a mistake” and the “bizarre result” of a process that has largely left out city officials and the public. 

The mistake, according to City Manager Mali LaGoe and Councilmember Derek Timm, is the tradeoff the state and the developers are forcing Scotts Valley to make. 

The project will demolish an existing 42,000-square-foot office building, originally built as an international data center for tech company Seagate Technology. The building, Timm said, is one of the few office buildings the city has that is capable of attracting tech tenants, as it’s built with steel and includes a powerful backup generator system, data center cooling mechanisms and fiber optic cables.

Artificial intelligence company Tanzle.ai now leases the building, but the company’s in-office footprint has shrunk since the pandemic. Although the building is nearly 40 years old, local officials say it hasn’t yet outlived its useful life. 

Workbench and CRP submitted the proposal using Assembly Bill 2011, a state law passed in 2022 that opens up certain commercial zones to affordable housing projects. It also allows qualifying projects to skip the public process of planning commission and city council approvals. The proposal is the first 100% affordable housing development in California to take advantage of the law.  

Scotts Valley’s leaders fear the project and the use of this law come at a great cost, especially for a city that prides itself as a tech company incubator and is desperate for economic investment.

The city has been home to some major companies over the years that have then grown and moved on. Aside from Seagate, Netflix had its first campus in Scotts Valley before moving to Los Gatos. Borland Software Corporation, the synthesizer company E-mu Systems and action sports gear outfit Sessions have also called Scotts Valley home. Today, the rising star is the business-to-business digital payment company Paystand. When Paystand relocated from downtown Santa Cruz into Borland’s old campus in 2015, CEO Jeremy Almond highlighted the building’s high-tech capabilities as central to the decision to come to Scotts Valley. 

“We’re enthusiastic about meeting our new housing obligations,” Timm told Lookout, noting three other projects with more than 360 units working their way through the approval process. The three projects all contain some affordable units. “I just wish the developer could have worked with the city to find a location that didn’t require the destruction of a high-quality commercial building. It’s a bizarre result.” 

Yet, housing advocates and state officials say the law is working as intended by creating opportunities for affordable housing in communities that have historically failed to produce it. Tim Gordin, CEO and founder of Workbench, told Lookout he was “disheartened” by what he perceived as Scotts Valley trying to block the project. 

“Most of the time, jurisdictions are happy to see affordable housing projects,” Gordin said. “It is interesting to see a jurisdiction that maybe doesn’t want affordable housing.” 

The project was approved Wednesday in the arcane halls of the California Debt Limit Allocation Committee in Sacramento. Although the three-member committee was voting on whether to award low-income housing tax credit allocations to 29 projects — a critical funding variable in affordable housing development — it marked the only opportunity for members of the public to weigh in on the project.

What is typically a quick review and vote turned into a 20-minute public comment period, almost entirely focused on the Scotts Valley proposal. Timm, LaGoe and Gordin all showed up in person, as did labor union representatives supporting the project, with others calling in remotely. The extent of the public comment surprised the committee members. 

“This is a high-tech building that shouldn’t be torn down,” LaGoe told the committee. “It’s not financially prudent, it’s not a good use of taxpayer dollars, nor is it supported by the local community.” Timm, who acknowledged it was the first project of its kind under AB 2011, warned the committee about “getting off on the wrong foot” in using the new law.

Rafa Sonnenfeld, a Santa Cruz resident who works with YIMBY Law (yes in my backyard), a statewide organization that lobbies for pro-housing legislation, said the project was “desperately needed” in Scotts Valley. 

“It’s shameful that the city is trying to undermine an affordable housing project such as this one,” Sonnenfeld said at the meeting.

Gustavo Velasquez, director of the state’s Department of Housing and Community Development, issued a strong warning to the Scotts Valley representatives and other local jurisdictions that might try to slow down affordable housing projects. He emphasized that the state was ready to send its “very capable and effective” enforcement team to any jurisdiction putting up hurdles to affordable housing development. 

“We are on your side, developers,” Velasquez said. “We are going to make sure localities comply with state law.” 

The committee unanimously approved the project funding around noon Wednesday. By 4 p.m. that day, the Scotts Valley planning department notified Workbench and CRP that their project application had been deemed complete. 

Gordin told Lookout on Thursday morning that he planned to try to smooth things over with Scotts Valley’s leadership. As part of receiving the low-income housing tax credit, the developer must break ground on the project within six months. 

“Even though we do have the power of the state behind us, which is very much needed, we still want to be good community partners,” Gordin said. “It doesn’t feel good for the city to be on a different page than the state.” 

Timm called the development a mistake but said there were no other routes for the city to take. 

“It’s not worth getting sued by the state over this, we did what we could,” he said. “It’s frustrating. I know that if you sat people down and explained this situation to them, they would agree this is a bizarre result. But, sometimes laws can be used in ways that produce bizarre results.” 

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