Organized Labor

Plan Could Expedite Construction on Several Major Developments by Two Years

Building Trades union members rallied March 1 at San Francisco City Hall in support of proposals by Mayor Gavin Newsom to restructure fees developers pay to the city as a way to expedite construction projects that have stalled. Newsom joined building trades leaders Feb. 24 at a press conference at Laborers Local 261’s union hall to tout the measures that aim to speed San Francisco’s local economic recovery, create jobs and spur construction in the city.

According to the Mayor’s office, the first stimulus measure, known as the “Development Impact Fee Reform & Deferral Program,” would radically simplify the collection, enforcement and notice procedures for all city development impact fees. A second proposal, the “Affordable Housing Transfer Fee Program,” would provide developers the option to reduce the city’s affordable housing requirements on new projects by 33 percent, in exchange for a permanent 1 percent transfer fee that would generate permanent revenues over the long-term for the city’s Affordable Housing Trust Fund.

San Francisco Building and Construction Trades Council Executive Secretary-Treasurer Mike Theriault said that according to developer Tishman Speyer, the measures together could move up construction of its project on Folsom across from its Infinity Towers project by as much as two years. “Other developers believe the measures will have a similar effect for their projects,” Theriault said.

A press release from the mayor’s office identified several previously-entitled projects, including 201 Folsom Street, the Rincon Hill Tower II, 1998 Market Street, and 2001 Market Street, whose start time could be accelerated by two years through these programs. “These four projects alone would employ approximately 700 union construction workers and they represent only 1,200 units of the more than 5,000 units already approved in medium to large multifamily residential projects waiting to be financed,” the mayor’s office reported.

“These proposals would speed local economic recovery to generate construction jobs and general fund revenues sooner rather than waiting until the economy is back up to full strength,” said Mayor Newsom. “The Board of Supervisors needs to move this package forward to get the building trades back to work and help San Francisco recover from the recession.”

A key component of the mayor’s legislation would defer fees developers now pay before construction starts – allowing them to begin construction in exchange for an additional surcharge later. Because of the economic meltdown of the nation’s financial sector in late 2008, many banks and lenders have held back on loans for construction projects. Developers and contractors have seen projects delayed or stopped after they started as a result of the tightened financial markets; even after the banks were bailed out with taxpayers’ dollars, many banks have held onto their funds. Many developers have been unable to obtain financing for construction projects. And while the recession and economic downturn that began under former president Bush has seen unemployment numbers rise to nearly 10 percent nationwide and over 12.5 percent in California, the construction industry has been hard hit, with many construction trades seeing unemployment approaching 30 percent.

At the Mar. 1 City Hall rally, Northern California Carpenters Organizer Jay Bradshaw said that between 25 and 30 percent of his union’s members were unemployed with many facing the loss of their homes after months of being out of work. He said that except for a handful of organizers at the rally, the bulk of the 200 plus Carpenters amassed on the steps of City Hall calling for “Jobs Now!” were unemployed rank and file carpenters. He made a strong statement in support of the mayor’s proposal: “The stroke of a pen can be the difference between losing your home and your job,” Bradshaw said. “But this isn’t just about carpenters or just construction workers – it’s about jobs, families and housing.”

Bradshaw pointed out that, “Union workers’ dollars will get spent and that will stimulate the economy and help the city.” He said construction unions were not asking for developer fees to be waived, just paid at the back end of the project. “The city will get its money,” he said.

Operating Engineers Local 3 organizer Chris Snyder said that as many as 1,100 OE3 members were out of work in Northern California, and that of those who are working are seeing their hours cut down. Other building trades unions have reported similar numbers, including Laborers Local 261, with about 400 members unemployed. The rally at City Hall was attended by many carpenters, along with smaller groups of operating engineers, ironworkers, pile drivers and laborers. SFBCTC’s Mike Theriault said that the rally was step two in a three-step process that would culminate with a rally Mar. 15 at City Hall when the Board of Supervisor’s Land Use and Economic Development Committee is scheduled to hold a hearing on the stimulus plan. Supervisors Sophie Maxwell, Eric Mar and David Chiu comprise the committee.

The Mayor’s plan would also streamline the development impact fee process and centralize it in the Department of Building Inspection, rather than the various agencies like the Municipal Transportation Agency or SF School District that developers currently go through. The proposal to give developers the option to cut 33 percent off the affordable housing fee they normally have to pay in exchange for agreeing to a permanent 1 percent transfer fee on the property has met some resistance from affordable housing advocates on the Board of Supervisors who fear it might delay the funding that would create affordable units.

Supervisor Chris Daly commented in a San Francisco Chronicle article that, according to an analysis by the city controller, “It would take (almost) 20 years in their projections to get the number of units” that would have been funded by developer fees paid up front. But the Chronicle noted that the analysis “found the stimulus effect of deferring fees would be ‘fairly significant during the current recession’ and create 20 to 25 housing units. Cutting a third off the affordable housing fee would create up to 50 units per year, the report said.”

Michael Yarne of the Mayor’s Office of Economic Development pointed out that, “It’s not to give away something now and never get it back. It’s to get more back in the future.” Under the proposal, the city would get 1 percent of the sales price for affordable housing every time the property is sold.

Newsom said that the proposals were crafted with input from city agencies and public stakeholders from the affordable housing, real estate development, building trades and urban planning community. He said the economic benefits to the city of earlier construction starts include earlier increases in construction jobs, property tax reassessments and transfer tax proceeds, all of which would benefit the city’s General Fund and budget.

Theriault pointed out that, “These proposals will cost the city nothing; there is no harmful effect on the general fund. It may delay slightly the public improvements that are required to mitigate the impacts of projects, but the impact fees can’t be spent anyway until the project is built.” The impact fees help fund community benefits like increasing or improving open space and parks, upgrading sidewalks, or improving access to public transit. Theriault said that if the projects aren’t built, the fees have to be refunded. “It’s just a question of timing of payments to the city and allows developers to start with less money up front. It helps developers get access to financing and drives down the cost of loans–and that translates into speeding up the start of projects and providing jobs for our trades.” He said that the trade-off for affordable housing funding could lead to increasing the number of affordable units built.

A fact sheet from the mayor’s office states that, “the economic benefits to the city of earlier construction starts include earlier increases in construction jobs, property tax reassessments and transfer tax proceeds, all of which would benefit the city’s general fund and budget.” By helping previously approved residential projects start six months to four years earlier than under current law, the proposed measures will enable jobs to return earlier and enable the city to capture millions of new property tax revenue that would otherwise be lost forever. The mayor’s office says that, “by improving the financial feasibility of projects on the margin, the stimulus should also increase overall housing production and construction spending by approximately $60 million per year, increasing property tax proceeds approximately $600,000 per year above the economic benefits of the existing approved project pipeline.”  

Ironworkers Local 377 Organizer Danny Prince said that there are many shovel-ready projects that have been held up and that many opponents of developments in their neighborhoods don’t make the connection that the delays in construction have an impact on workers and families. “We are seeing long term unemployment, not just the regular cycles of work and lay-offs, and members who are working are working less,” he said. “That has a devastating effect on families if people are on the verge of losing their homes that impacts their kids who might have to move and switch schools. It’s destabilizing.”

“This is a big deal,” Newsom told workers at the Feb. 24 press conference. Dozens of union members attended, including many who had been out of work for nearly one year. “We’re not waiting around for the federal government and ‘Stimulus II’ or ‘Job Programs II,’” Newsom said. “We’ve got to take responsibility locally.”

A San Francisco Business Journal editorial supporting the plan noted that, “A program of development-fee reforms is, frankly, more of a no-brainer. Allowing developers to defer building fees – with interest – until a project is completed, and to replace a portion of existing affordable-housing requirements with a new transfer tax dedicated to affordable housing already has its verdict from the city economist. It would, if modestly, stimulate construction, particularly of housing. As an added benefit, tying affordable fees more to sales than development would help smooth the supply of funds to the city between the booms and busts endemic to San Francisco housing. It would do so at no cost to the city: Over the long term, the city would in fact make money on the deal, though it would forego some revenue up front.

The human context surrounding this measure was illustrated at a public forum on the proposals as a procession of representatives from the building trades laid out their current plight: Unemployment at a Depression-era 30 percent or higher; hours cut by up to 60 percent for those still working.; members losing their homes and living in their trucks.