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, 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 TransbayCenter.org

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.

  • Let’s send Willie Brown a bill for his share of this debacle.

  • Idrather Bebikin

    Kudos to the Board of Supervisors!

  • Bruce

    Well done supes.

  • Mario Tanev

    This has been a very confusing story, and no media outlet, including Streetsblog has covered it with clarity.

    For example:
    1. Wasn’t this a deal done several years ago? If so, what’s the point of approving the original deal if it was approved some time ago?
    2. It’s still not clear what the best argument from the developers is. Maybe they are making out with more money than they thought, but they only want to pay a crisis-level tax. But surely THEY would not use that as the argument (“We were going to pay 1 dollar when we earn 10, but we instead earned 100 so we still want to pay 1 dollar”). They could not consider themselves victims if they make out with an equal percentage additional gain.
    3. Why is a lawsuit even an option? Lawsuits only make sense when there is an unclear statute up to interpretation. Is that the case?

    This whole thing smells of politics. Of course, I want transit to get as much money as possible. But I fear that something is fishy about this whole thing and it will somehow surprisingly result in lack of funds a few years from now to finish the job.

  • shotwellian

    As far as I can tell, the developers have *no* even vaguely reasonable argument other than that they would prefer to pay less rather than more. I suppose they’re planning to charge rents in the new towers based on the going rates from 2007/8? This is simply an attempt to shake down the city for some $ with the threat of delaying the project.

    As both a progressive and an urbanist, I often find myself defending, in discussions with other progressives, arrangements that allow allow developers to make large profits while also providing housing, offices, and contributions to public projects like the Transbay Transit Center. At best, these can be win-win situations. In this case the developers threatening to sue are playing exactly into the role of “greedy developers” that at other times is a caricature.

    Great to see the BOS stand up to this, and not surprising that Ed Lee is apparently nowhere to be seen.

  • RoyTT

    I’m always suspicious of any story that is presented as being 100% good on one side and 100% evil on the other.

    It’s obvious here that both sides want this done but also that both sides need to feel good about it.

    If one side isn’t happy then isn’t the usual remedy to sit down and work it out?

  • shotwellian

    Yes, but as Scott Weiner and the other supervisors noted, any “compromise” on this simply means the developers paying less than they originally promised, while getting all the benefits (the upzoning for these very lucrative towers) that they were originally promised. There’s been no compelling reason presented that we as the public should agree to reduce the contributions that the developers, in the (apparently legally binding) initial agreement, promised the city.

  • Dave Moore

    If 48hills is correct http://48hillsonline.org/2014/09/24/2315/ then the “deal” is basically just an understanding. Nothing has been officially passed. To pass a Mello-Roos tax district those being taxed have to agree to it, and that hasn’t happened yet. If the district is not passed then the City has the ability to revoke the building permits, leaving SF with a big hole in the ground. It’s not clear to me how things got this far without the district being approved. Is that common, that there’s a stage after construction starts that both sides wait until before passing the legislation? In any event it appears the developers can walk away from the deal if they want. The city can say “take the deal on the table or no building”. The developers can say “give us a new deal or no building”. Both sides want the building. So it’s a game of chicken, or a deal could be brokered as it almost was. If it all falls through everyone starts suing everyone and the hole stays.

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