No free ride for developers

Pub date April 13, 2010

EDITORIAL The dumbest plan the Newsom administration has cooked up in a long time continues to make its way through City Hall. The mayor wants to defer fees for housing developers as a way to "stimulate" the economy — despite the fact that the city’s own economist concluded the plan would lead to the creation of a relatively tiny number of jobs and perhaps 40 or 50 new market-rate condos over the next two years.

And the cost would be staggering. Over the next 15 to 20 years, depending on how much the housing market picks up, $43 million worth of fees developers typically pay before they break ground could be deferred, an analysis by Fernando Marti, a member of the Eastern Neighborhoods Citizens Advisory Committee, shows. The city would get the money eventually — but buildings would go up before the cash to provide water and sewer service, public transportation, schools, parks, and other amenities is in the city’s accounts.

At the same time, information released by the city last week shows that the gap between the cost of the infrastructure needed for the Eastern Neighborhoods plan and the fees developers will pay is at least $100 million, and perhaps as much as $234 million.

The message is clear. Under Newsom’s approach, the current residents and businesses of San Francisco will have to put up millions of dollars to cover the costs created by market-rate housing developers. In fact, Newsom’s administration is already suggesting special levies on property in the impacted areas to make up the difference.

In underserved areas like the Eastern Neighborhoods, where transit and open space are already inadequate to meet current needs, the situation is particularly harsh. "They want to have the Eastern Neighborhoods pay higher taxes than anyone else to mitigate the impacts of new stuff that was supposed to pay for itself," planning activist Tony Kelly, who is running for District 10 supervisor, told us. "This is a non-starter."

The problem is nothing new — although a lot of pro-development activists have been denying it for years: new high-end housing development doesn’t pay its own way. If more than 40,000 new residents are going to live in the southeast part of town, San Francisco will have to build schools, police stations, firehouses, bus and rail lines, parks, and in some cases new roads. Then the city will have to hire (and train) cops, bus drivers, firefighters, gardeners, and teachers. None of that is cheap — in fact, the Eastern Neighborhoods Infrastructure Finance Working Group estimates that the actual cost of providing basic infrastructure would be about $22 for every square foot of new development.

The developers howl at that sort of number and insist they can’t afford it, so the city is prepared to charge closer to $10 a square foot. To make up the difference in the Eastern Neighborhoods, the working group suggested some form of tax-increment financing — that is, the city would borrow against the expected new property tax revenues from the new development and use that to build infrastructure. The mayor took that off the table, wanting any new revenue to go right to the General Fund.

And, of course, under the mayor’s current plan, the modest fees developers actually have to pay will be deferred for several years, making the problem even worse. So the only way to pay for the costs of new housing development is some sort of special property-tax district in the affected neighborhoods.

Add to this the fact that the mayor’s proposal would mean the immediate loss of at least 400 affordable housing units, and the whole thing becomes untenable.

The supervisors have amended the fee-deferral plan to make it a bit less awful, but the whole approach is still completely backward. City fees aren’t holding up housing construction; the weak market and tight credit are to blame for that. And when those conditions change, developers will be poised — as always — to make a vast amount of money selling overpriced condos for millionaires in San Francisco. And if they can’t pay their own way, the city shouldn’t allow them to break ground.