Cupertino spent affordable housing funds on lawsuit

Cupertino is scrambling to fix what city officials are calling an “accounting error” after discovering more than $100,000 in affordable housing dollars went to pay off fees from a housing lawsuit, drawing backlash from residents in a time of fiscal uncertainty.

The city used money from its below-market-rate housing fund to pay for a lawsuit filed last year by housing advocates Yes in My Backyard Law (YIMBY Law) and California Housing Defense Fund against the city’s noncompliant state-mandated housing plan, according to city documents and publicly available legal invoices acquired by a resident’s public records request. The fund, which has roughly $5.2 million and is funded by developer impact fees, is supposed to be used for affordable housing development.

Instead, the city used approximately $165,475 from the fund for lawsuit-related expenses, a San José Spotlight review found. City officials claim the misused funds sit at a little more than $100,000, but have not provided a specific amount.

Between 2023 and this year, the city used $150,475 to pay Oakland-based law firm Goldfarb & Lipman LLP, which the city contracted to fight the lawsuit. Officials used another $15,000 to cover housing advocates’ legal fees after Cupertino lost the judgment in January.

Deputy City Manager Tina Kapoor said the city plans to replenish the account, likely through the general fund, in addition to training employees on the fund’s uses and implementing an additional approval requirement before money is taken out. The city is also examining the past five years of money withdrawn from the fund to catch any other “accounting errors.”

“We understand that was an error,” Kapoor told San José Spotlight. “It’s not something that we were trying to hide or do something on purpose that would affect the community.”

Goldfarb & Lipman LLP did not respond to requests for comment.

The misallocation is drawing backlash from residents at a time when the city anticipates a roughly $15 million budget shortfall for fiscal year 2024-25, largely due to lost revenue from Apple’s sales taxes after an audit from California’s Department of Tax and Fee Administration.

Peggy Griffin, a Cupertino resident since 1985, said the mistake and money spent on the lawsuit is alarming in a city she feels lacks monetary transparency.

“With all the issues with affordable housing and the requirement to set aside money to help mitigate and provide affordable housing, to actually use money to pay lawsuits that go against that is just appalling to me,” she told San José Spotlight.

Cupertino is also struggling to get its housing plan approved by the state more than a year after the deadline — which led to the lawsuit from YIMBY Law and California Housing Defense Fund. Cupertino must build at least 4,588 homes by 2031 to meet state requirements, with 1,880 deemed affordable to low-income residents, according to its latest draft plans.

Sonja Trauss, executive director of YIMBY Law, called the misallocation sloppy and embarrassing. She said it raises concerns about whether it was a genuine error.

“They’re saying it’s an error, so I think we have to pretend that we believe that,” Trauss told San José Spotlight. “There’s another reality where it wasn’t an error at all and Cupertino looks even worse.”

A California Housing Defense Fund representative said the organization would hold off on commenting until it hears from the city.

Councilmember Kitty Moore said the mistake is a reminder that the city is accountable to the public.

“We are accountable to our community, and these are serious concerns. We must be transparent, make sure allegations are investigated and where substantiated, remedy them immediately,” she told San José Spotlight. “We are the stewards of the city’s public funds and must demonstrate we are prudent, responsible and accountable.”

Contact Annalise Freimarck at [email protected] or follow @annalise_ellen on X, formerly known as Twitter.