Contractor Craig Schusterick, left, stands in front of his three story, 2,860 square foot home on Balboa, replacing the previous cottage that was on the property before. (Don Leach, Daily Pilot / May 3, 2013)

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"We ended up with a great, diverse committee, and we started researching this whole thing, what it meant to property owners on the island."

Many said they found their limitations after they started exploring long-planned projects.

"We always thought we'd add an apartment over the garage for a caregiver," resident Suzanne Pitts, 61, said back in March, before the city toned down that steep drop in value.

Her husband, John Pitts, 62, said they were told they'd be able to do about $28,000 in work, but what they wanted to do would have cost $45,000, "on the low side."

If they'd known they could be subjected to such regulations, they might not have bought the house several years ago because they didn't want to move again, John Pitts said. And it would have been too expensive to level their 1937 cottage and start from scratch.

"What they've done," he said, "is reduced the marketability. It's condemnation without representation."

Since they brought their concerns to the city earlier this year, residents, including the Pitts, say staff members and Selich have been responsive.

And in late March, the city developed a new depreciation table — one that accounts for the condition of the house and caps depreciation at 20% for most. Furthermore, the values started at $300 per square foot.

John Pitts said for his and Suzanne's purposes, that "softens the blow tremendously," and he expected to be able to complete the work.

Still, some questioned the change in what they called an arbitrary policy.

"If someone made me take my house down, and I found out that not even three months later, guess what, we changed our mind … I mean there's nothing wrong with a new house, a big house, but that should be our choice," Gale said.

Jurjis said that an earlier building permitting administration hadn't laid out why exactly the depreciation scale was so severe, or why the skimpy $160 per square foot starting point was chosen. It didn't require action because it fell under the purview of the existing ordinance, he said.

FEMA officials said they didn't dictate a particular rate of depreciation — only that in order to comply with the city's NFIP enrollment rules, it should have one.

"The FEMA position is, 'We're not going to tell the community how to [determine market value],'" he said. "We do tell a community to do it based on what makes sense to you and your region."

The new one, Jurjis told residents and the council at a study session in April, was based on standard construction cost averages and a depreciation formula buried in a FEMA document online.

But the new scale may still not be enough, said Lyle Dawn, 65, who owns a vacation house on Balboa. He and his wife, Cynthia McGranahan, 59, plan to move into the 1930s Yale-style cottage on one of the island's most-coveted blocks full time within the next couple years.

Since they bought the place about 17 years ago, the couple have refinished the floors, added closet space and knocked down an "obnoxious 1970s fireplace" before hiring an expert mason to reconstruct a period-appropriate one.

When they moved in, they'd hoped to add more living space, and under the new depreciation scale, Dawn said, it might've been doable.

Recently, though, McGranahan was diagnosed with multiple sclerosis. The couple wanted to remodel their small bathroom to allow space for a wheelchair, in addition to adding an elevator for a second-story bedroom.

None of this is inexpensive, Dawn said, and it feels like punishment for putting love and care into an old house.