Developers lobby hard to slash payments promised to Transbay Terminal and high-speed rail

Will the San Francisco Board of Supervisors let developers of the biggest office towers proposed for San Francisco renege on promises to help pay for the Transbay Terminal reconstruction, extension of rail service to that site, and other public amenities? Or will Willie Brown successfully use politicians that he helped get into office — most notably Mayor Ed Lee and Sup. Jane Kim — to let the developers keep hundreds of millions of dollars in excess profits?

The answers to those questions will become clearer tomorrow [Tues/9] as the board considers a complex yet crucially important agenda item. It involves creation of a special tax district around the Transbay Terminal, where office tower developers have been awarded huge upzonings — including the Transbay Tower, which would be the tallest building on West Coast at more than 1,000 feet — in exchange for paying for public works projects to serve the area.

But those developers, including Hines, Boston Properties, TMG, and others (it’s not clear whether all six upzoned parcels are participating in the current lobbying effort and threatened lawsuit), are now objecting to paying about $1 billion in special taxes and seeking to get that amount lowered to about $400 million. And to do so, they’ve already paid Brown at least $100,000 just this quarter, kicking off a lobbying effort so intense that Brown has finally registered as a lobbyist after questionably resisting it for many years.

Leading the charge against that effort is Sup. Scott Wiener, who said the promised payments are crucial to paying for about $200 million in work on the Transbay Terminal and paying for the first $450 million of the $2.5 billion project of bringing high-speed rail and electrified Caltrain trains into the facility, as well as a promised public park on top of the terminal.

“The downtown extension is one of the most important transportation projects we will deliver in the foreseeable future. It’s a legacy project with huge benefits for San Francisco and the entire state,” Wiener told us. “We have to go to the mat to get it built, and a reduction in this assessment will significantly undermine our ability to deliver the project and get the train downtown. The last thing we need is a very expensive bus station with no train service.”

The developers and their spokespeople (including the San Francisco Chronicle’s Matier & Ross, who announced Brown’s involvement in the project this summer) argue that their fees have gone up substantially since the plan was first hatched in 2007 and fleshed out in the 2012 Implementation Document (which relied on 2007 land values).

That’s true, but that’s mostly because the value of the properties have shot up in recent years (incidentally, so have the costs of bringing the trains downtown), which also makes the projects far more lucrative for the developers. And Adam Alberti, who represents the Transbay Joint Powers Agency, notes that the tax rate hasn’t changed: it’s still the same 0.55 percent of assessed value that it’s always been.

“The rate is exactly the same, 0.55 percent, but the difference is the land valuations,” Alberti told us.

When the rates were formally set this year by the Rate and Method of Appointment (RMA) document, based on detailed studies of the properties and the district, it did charge the tallest buildings a little more than the shorter ones, under the logic that penthouses are more profitable (for example, the Saleforce lease of most of the Transbay Tower is rumored to be the largest commercial office deal in city history).

But the paper trail of documents and conditions for the four projects that have so far been awarded their entitlements always indicated such details would be hashed out by RMA. Indeed, when the city responded to the developers’ legal threats with a 14-page letter on July 14, it meticulously dismantled the convoluted claims by the developers that there’s been some kind of bait-and-switch here.

Still, the developers have been aggressively working the corridors of power in City Hall trying to get their fees reduced.

“Having not received any of the relief that the the Land Owner sought, the Land Owner is now forced to formally protest the formation of the CFD [Community Financing District], the levying of special taxes pursuant to the RMA, and the incurrence of bonded indebtedness in the CFD,” Boston Properties (which has not returned our calls for comment) wrote in a Sept. 2 letter to the city, which prompted Kim, the district supervisor, to continue the item for one week.

The decision to employ Brown upped the ante on this power struggle, given that Brown (who also didn’t return our calls) helped engineer Mayor Lee’s appointment to office in 2011 and worked behind-the-scenes to help Jane Kim beat progressive challenger Debra Walker the year before. Since then, Kim (who didn’t return our calls for comment) has helped do Brown’s bidding a couple of times and made misleading statements about their relationship.

Kim will be a central figure in this unfolding drama, given that it’s taking place in her supervisorial district. Her predecessor, Chris Daly — who says that he’s already been burned once by Hines (which also wouldn’t comment), which he said broke a promise for another $100 million in fees to the TJPA — said the current lobbying effort is essentially a raid on the public coffers that endangers an important project.

“The last redeeming thing about Willie Brown was his unwavering support for Transbay Terminal,” Daly told us, “and now that’s gone too.”

Unfortunately, the complexities of this deal might make it difficult for the general public to digest just how it changes, particularly as they are engineered by Brown, a legendary political dealmaker who spent decades as speaker of the California Assembly before becoming mayor of San Francisco.

But Daly said this project is crucially important for Kim’s district, and it’ll be intriguing to see what happens: “I don’t think she can make a bad vote, but behind the scenes, I’m not sure how much she can stand up to Willie Brown.”  

If the board approves the special tax district and the RMA tomorrow, then the affected property owners will vote on whether to create this Mello-Roos District in December, with a two-thirds vote required for passage. The projects can’t proceed with their current entitlements unless such a district is created, so the effort now is to slash the payments that such a district would require.

“Smart development means, among other things, making sure that development pays for supporting infrastructure,” Wiener told us. “The creation and upzoning of this district were explicitly linked to to funding the transit center and the downtown train extension. By upzoning these properties, we provided the developers with massive additional value and, in fact, the properties have exploded in value. The transit assessment needs to reflect those current property values, not values from the bottom of the recession.” 

[UPDATE: Sup. Kim returned our calls this evening and said this was a difficult issue, but that she wants to defend the city’s stance. “At this point we’re in a legal dispute, an impasse,” Kim told us, noting that she supports the fee structure from the RMA rather than earlier estimates. “The city was very clear those rates were illustrative.”

She said this isn’t simply about getting more money for the Transbay Terminal projects, but holding developers accountable for the upzoning they received. “The question isn’t what is the most money we can extract from the developer,” she said. “The question is: What did we agree to?”

Kim said she has met with Willie Brown about the issue, but she isn’t feeled pressured by him or the developers he’s representing. “Are they making threats? No,” she said. “I didn’t feel pressure at the meeting.”

But she did say she’d always be willing to hear out Brown’s side of the story. “He can just pick up the phone and call me,” she said.

Tomorrow’s meeting will include a closed session discussion of the issue, given its potential for legal actions. As for whether she and other supervisors may be swayed by the legal threat to settle on a lower fee amount, she told us, “That’s what the closed session is for.”

Kim indicated she intends to support the fees the parties originally agreed to. “I think the rates were set clearly,” she said. 

But we may have to take that promise with a grain of salt. Kim has sometimes talked tough, only to compromise later on, as she did with her Housing Balance legislation. After tomorrow’s closed session, we’ll see if her vote is as fiery as her rhetoric. ]

Joe Fitzgerald Rodriguez contributed to this report.