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

5:39 PM PDT on September 24, 2014

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, since those developers threatened to file a lawsuit either way.

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

The disagreement arose after Transbay developers began to fight the establishment of a special property tax, called a Mello-Roos tax district, which they had agreed to in 2012 to help fund local infrastructure projects, like the extension of Caltrain and California high-speed rail to the Transbay Center. The developers, who still must approve the Mello-Roos agreement in a vote, hired former Mayor Willie Brown to lobby for a lower tax rate, since property values (and thus projected taxes) have skyrocketed in recent years.

"Kudos to the Supervisors for supporting the original Mello-Roos agreement, rather than delaying the vote again or agreeing to further concessions," said Livable City Director Tom Radulovich. "Any project of this size is going to be subject to lawsuits and threats of lawsuits. Shame on these developers for seeking to reap all the benefits of the Transbay project, their beneficial re-zoning, and San Francisco's booming land values, without any portion of this enormous windfall going towards the public good."

Under the compromise agreement announced two weeks ago, the developers would have paid the same maximum of $1.4 billion in taxes, but spread over 37 years instead of 30. Supervisor Scott Wiener said this would have retained "every penny" of the original deal, but some said the economics would've worked out in the developers' favor. The SF Chronicle penned an editorial on Sunday blasting the "unwarranted tax break to developers" and "huge giveaway":

The extra time matters, because of the concept of “net present value.” That means, basically, that the dollar you earn today is worth more than the dollar you’re going to earn in the future...

The city’s public finance department noted that the exact amount that could be collected depends on when the properties are assessed, though director of development Ken Rich admitted that the city will get less money every year under the compromise.

The Chronicle also said that the lawsuit threat should be disregarded, since "the city fights expensive lawsuits all the time," and that City Attorney Dennis Herrera said the original agreement was "legally enforceable."

At the hearing, Wiener asked Rich if the city has recourse against a potential developer lawsuit, and Rich confirmed that city agencies could withhold various permits. Even if the lawsuit is struck down, it could delay Transbay transportation projects, but Wiener said developers shouldn't feel like their "bludgeon" of a tactic will be taken lightly.

"I think it's very important... that we are clear that there will be consequences for developers who try to undermine this district," said Wiener.

Read more coverage of the issue at the SF Chronicle and the SF Examiner.

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