Supes, Mayor Get Developers to Pay Nearly Full Tax for Transbay Rail

Developers agreed to pay nearly the full property assessment rates to help fund transportation projects in the Transbay Transit Center District, under an agreement announced by the Board of Supervisors yesterday. Supervisors and Mayor Ed Lee stood their ground against the developers, who hired former mayor Willie Brown as a lobbyist to try to lower the rates on the special infrastructure tax district, known as a Mello-Roos District. The move threatened to cut funds from the extension of Caltrain and high-speed rail downtown into the Transbay Center under construction.

A rendering of the Transbay Transit Center and surrounding high-rise development to come, via TransbayCenter.org

The SF Chronicle reports:

Under the agreement, the city will still collect up to $1.4 billion in taxes from property owners around the new transit center for the Caltrain, and possibly high-speed rail, connection. But the revenue would come in over 37 years instead of 30 after city officials agreed to extend the life of the tax district to make it more palatable for the property owners.

Even though the rates hadn’t changed from 0.55 percent of property values, developers complained that the skyrocketing value of real estate in downtown had increased the maximum project revenues in the district from $400 million to $1.4 billion.

The Board of Supervisors won’t vote on final approval of the agreement for another two weeks while the details are worked out, but members said it looks solid at first glance. Supervisors Scott Wiener and Jane Kim lauded the agreement, and credited Mayor Lee for standing firm against the developers’ attempts.

“I’m not referring to this as a compromise, because the [Transbay Joint Powers Authority] is getting all the money that we were seeking,” said Wiener.

Mayoral spokesperson Christine Falvey told the Chronicle on Monday, “The city believes that the special tax rates that the developers are being asked to pay are more than fair considering they are taking advantage of a very significant increase in height limits for their buildings offered under the transit center district plan.”

The developers apparently backed down on their threats to sue the city if it didn’t assess the property values at their 2007 rates rather than current ones. Before the agreement was reached in a closed session, Wiener said, “If [a lawsuit is] what has to happen, so be it. I don’t think we should cave in.”

“I don’t think much of the legal claim that’s being asserted,” said Wiener. “I think it’s pretty clear that the valuation was not going to be at the bottom of the recession.”

As former D6 Supervisor Chris Daly recalled in an SF Examiner op-ed this week, one of the biggest developers, Hines, previously pulled a “bait-and-switch” in the bidding process to build the Transbay Transit Center and tower:

In September 2007, a jury evaluated a collection of international proposals to design and build the Transbay Transit Center and the then-associated tower, now named the Salesforce Tower. The unanimous winner, the team of Hines and Pelli Clarke Pelli, was chosen based on two defining characteristics — the inclusion of the rooftop park and the highest financial offer of $350 million ($50 million of which was to be dedicated to the park).

During the TJPA board of directors’ selection of Hines, the losing bidders — including Boston Properties, which has since partnered with Hines on the Salesforce Tower — warned the board that Hines’ offer was a bait-and-switch. When I pressed Paul Paradis of Hines on this issue, he assured us that this was not the case.

Much to our disappointment, during a difficult negotiation, Hines pulled that bait-and-switch — lowering the bid by $75 million and eliminating the capital contribution to the rooftop park, the distinguishing factor in its selection.

Wiener noted that in more recent years, transit advocates have stepped up to hold Transbay developers and City Hall officials accountable. Since Streetsblog broke the story about the latest battle on Friday, it gained coverage in other major media outlets, and transit advocates organized supporters to urge the board not to give in on the deal.

“I’ve been very impressed…  with the activation of our transit advocacy community,” said Wiener. It has “really come into its own in really holding policymakers accountable for our decisions.”

More than a dozen people spoke at yesterday’s hearing to put pressure on the board to uphold the original Mello-Roos agreement, including representatives from labor groups, the SF Transit Riders Union, Livable City, Friends of Caltrain, the SF Bicycle Coalition, as well as east SoMa residents involved in the planning of Transbay projects.

No representatives of the developers spoke at the hearing, but reps from the Chamber of Commerce and the Building Owners and Managers Association called for a delay on the vote.

“This is a bellwether of what’s going to happen in the future to San Francisco private-public partnerships,” said Thea Selby of SFTRU before the agreement was announced. “This is a contract that cannot be broken.”

  • Mario Tanev

    Well, it might not be a big one, but it’s a compromise. Time is money (consider inflation) and it certainly more than paid for Willie Brown’s wages. But I don’t understand what issue the developers had with the previous agreement, so I can’t complain.

  • Jeffrey Baker

    The issue appeared to be that properties they already own are 4x more valuable than expected. Which, seriously, cry me a river.

  • Mario Tanev

    So perhaps the problem is that it’s not a realized gain (kinda like what motivated Prop 13). Maybe the prolonging of the term to 37 years is supposed to account for that (7 more years to turn it into realized gain)?

  • BBnet3000

    “developers complained that the skyrocketing value of real estate in downtown had increased the maximum project revenues in the district from $400 million to $1.4 billion.”

    Isn’t that the whole point of value capture? Anyway, the tax is taking .55% of the skyrocketing value, and the property owners are keeping the other 99.45%.

  • voltairesmistress

    Hi Aaron, it is “bellwether” — a tough word to spell. It comes from the practice of hanging a bell on a castrated male sheep, a “wether” so that the others would follow him and be more easily kept track of by the shepherd.

  • Jeffrey Baker

    These are commercial properties valued on the basis of their forward revenue streams. You can bet your last dollar they are charging market rates to their tenants. This is one reason why taxing rent makes more sense than taking property value.

  • RoyTT

    Exactly, Mario. Almost all taxes in America are based on transactions and not wealth. The problems with taxing wealth are obvious. First, there is no guarantee that the allegedly wealthy person or entity actually has the cash to pay the tax, which is part of the reason behind Prop 13, as you note.

    Second, valuations are volatile, speculative and fluctuate massively up and down, and so computing the tax is a difficult task. So, OK, real estate has been doing well recently. But what if we have another downturn? Will the city then be happy to take less in tax?

    So yes, the extra seven years relieves the pressure on the developers and gives them more time to ride out market cycles. And hopefully means they won’t have to skimp too much on the construction.

ALSO ON STREETSBLOG

Supes Stand Up to Transbay Developers, Approve Original Rail Funding Deal

|
The Board of Supervisors yesterday unanimously approved the original agreement to fund Transbay District transportation upgrades, like the downtown rail extension to the Transbay Transit Center, through development charges. Although supervisors had announced a compromise agreement two weeks ago, some developers apparently backed out of it. City Hall officials decided to move forward with the original agreement, […]

Board of Supervisors: Vote on Transbay Transit Center Development Tax

|
Developers who are building towers around the Transbay Transit Center in SoMa are fighting to reduce a special property tax that will be levied on developments in the area. The biggest loser could be the downtown rail extension to bring Caltrain and California high-speed rail into the terminal, as funds for the regional rail hub and other long-term projects would disappear. […]

This Week: Tell Supes to Hold Developers to the Transbay Plan

|
Tomorrow, the Board of Supervisors is expected to approve a development tax to help fund the Caltrain/high-speed rail extension to the Transbay Transit Center, but could reduce the rate for developers and slash revenue for the project. You can help ensure this crucial regional transit connection gets completed by telling the supes to stick with […]

Facades, Shakeups and Loans: Transbay is Officially Off Track

|
Streetsblog readers have probably seen the stories in the Chronicle, Examiner and others that San Francisco is preparing to loan money for the completion of the Transbay Transit Center (TTC), which is now facing a $260 million construction deficit. This is all coming as the Transbay Joint Powers Authority Board of Directors reportedly decided to remove Maria Ayerdi-Kaplan, the […]