Organized Labor

Package Will Expedite Development, Generate Construction Jobs

San Francisco Mayor Gavin Newsom and Supervisor Bevan Dufty signed legislation to stimulate development on May 25 in front of One Rincon Hill. The Development Impact Fee Reform and Deferral legislation will help expedite development and generate construction jobs by allowing developers to defer up-front city development impact fees. The 2-part impact fee reform legislation re-designs how and when development impact fees are paid.

“The fee deferment legislation will radically simplify the collection, enforcement and notice procedures for all city development impact fees,” said Mayor Newsom. “Deferring upfront costs for developers will speed local economic recovery, generating construction jobs and general fund revenues.”

The legislation would infuse a cumulative total of $894 million in spending and almost 4,800 construction-related jobs into the local economy. Furthermore, if start dates are accelerated by two years, the City would receive over $22 million of additional General Fund property tax revenues that would otherwise be lost due to later start-times and lower property values.

The Development Impact Fee Reform & Deferral Program allows developers to defer payment of 80 percent of their impact fees from the beginning of construction to just prior to completion, between 10-30 months. The fee deferment decreases the amount of up-front costs to be financed through debt or equity, and in turn reduces the amount of interest paid over the construction period.

The legislation also streamlines impact fee collection and enforcement – creating a “one-stop” fee payment shop in the city’s Department of Building Inspection (DBI) and improves public notice and transparency.

An independent study commissioned by the San Francisco Office of Economic and Workforce Development (OEWD) concluded that the combined economic benefits of the Fee Deferral Program and the Affordable Housing Transfer Fee program (pending at the Board), would accelerate estimated construction start dates by 6 to 30 months and decrease construction interest carrying costs by 8 percent to 22 percent. Many projects have stalled as a result of developers being unable to obtain financing with lenders tightening up access to credit during the economic downturn.

A third component of the economic stimulus proposal that would enable developers to reduce the City’s affordable housing requirements on new projects by 33 percent in exchange for a permanent 1 percent transfer fee was tabled by the Board of Supervisors. Michael Yarne of the Mayor’s Office of Workforce and Economic Development said that amendments were being worked out that would limit use of the Affordable Housing Transfer Fee to just high-rise or Type One projects. He said that affordable housing adcovates and some Supervisors had expressed concern that because smaller, low-rise projects usually include affordable units on site, allowing them to reduce the number of units built to be affordable would have a negative impact and reduce the number of affordable units built. The larger, high-rise projects generally pay into a fund to have affordable units built off-site. Funds would still be generated for the city from the development in the form of a transfer tax paid by the buyers or renters of condominiums or retail and office units.

Yarne said that the Development Impact Fee Reform & Deferral Program would go into effect July 15. He said the program is a significant improvement that will enable developers to begin projects sooner, but is still just one part of a bigger effort by the city to help speed development and create jobs.

The mayor’s office also announced the introduction of the next phase of stimulus legislation that will create a Citywide Mello-Roos Community Facilities District (CFD) to finance Infrastructure Impact Fees. The legislation would reduce the upfront costs of new development by allowing developers to finance infrastructure-related development impact fees with tax-exempt bonds. It would also streamline the process for annexing into a Citywide CFD. Joining a CFD allows developers to spread the cost of infrastructure over the life of their project, thereby removing these costs from up-front private financing and improving each project’s access to equity.

Building Trades union members had rallied March 1 and March 15 at San Francisco City Hall to express support for 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 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. Both proposals were crafted with input from city agencies and public stakeholders from the affordable housing, real estate development, building trades and urban planning community.

A series of case studies of previously-entitled projects showed that the development stimulus package could speed up financing and start times by as much as two years. The four projects studied 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 controller’s office estimates that “if developers elected to use these options, the combined effect of the two pieces of legislation could stimulate the construction of as many as 75-80 housing units per year, over the next 20 years. This development will expand the city’s economy by an average of $250 million per year, and create an average of 330 jobs, across all industries.”