March 2013

Potrero Hill Could Tax Itself through an “Infrastructure Financing District”

Chris Roberts

Forget spending locally. That’s passe. For Potrero Hill, the future may be taxing locally. 

Finding an alternative to traditional public financing sources may be the only way Southside San Francisco will get the schools, parks, and other infrastructure improvements community members say the area needs, and that the coming tsunami of residents of just completed or under construction new condominiums and apartments expect.

Starting four years ago, development in Potrero Hill and many adjacent neighborhoods became subject to impact fees. But fee revenues aren’t enough to cover the cost of necessary improvements. And developers don’t pay a penny until shovel goes into ground; then they only pay 10 percent of the fees; the other 90 percent is paid when the project is completed. 

What’s more, fee monies paid by developers are meant to fund improvements for a vast swath of San Francisco. Too little money has to be spread too thin to make much of a difference on Third Street, 18th Street, or a local park or school that needs upkeep or a new building, City officials have told neighborhood activists. 

“They [Recreation and Park Department] told us flat-out that they don’t have the money for new parks,” said Janet Carpinelli, Dogpatch Neighborhood Association president. “There’s a lot of development,” she observed, “without a lot of benefits.”

Some projects, like the Live Oak School community garden, have taken a Silicon Valley-age approach to raising funds: asking for donations to “crowfund” green space. Others, led by the Potrero Boosters Neighborhood Association, are promoting a “Green Business Improvement District,” under which property owners in a select area would agree to pay a parcel tax, the revenues of which would go to parks. 

Another financing mechanism being considered is the development of “infrastructure financing districts” (IFD), in which local tax money that would otherwise be directed to the City’s general fund is diverted to community improvements, like parks and schools. The “lost” general fund revenue is then “recovered” through municipal bonds secured by the IFD. The bonds are, in theory, paid off in the future by an increase in property tax revenue brought on by the improvements. IFDs emerged as an option for San Francisco and other municipalities in 2010, when the State Legislature authorized them under a bill sponsored by Assemblyman Tom Ammiano. So far only one, at Rincon Hill, has been adopted. 

Best Things in Life Are Fee

At first glance, the plan sounded perfect: developers building in the Eastern Neighborhoods would pay for the roads, parks, and schools needed in those neighborhoods to serve their growing populations. The locally collected money would be expended locally, with a group of citizens tasked with telling City leaders — the Planning Department, Board of Supervisors, and Mayor — where to spend it.

The problem is, the Eastern Neighborhood development fee area is vast, encompassing much of South of Market, and nearly all of the area between the Mission to Dogpatch, extending from Guerrero Street to the Central Waterfront. “About 25 percent of the City,” said Tony Kelly, Boosters president. Development-crazy Mission Bay isn’t included in the giant fee impact area, since it was established as a redevelopment district, a separate, more lucrative, though now no longer available, infrastructure financing scheme. 

Fee revenues are vastly insufficient to pay for the infrastructure demanded by development, even by the City’s own math. Each square foot of residential development “costs” $21.21 in accompanying transit, child care, library use and other needs created by the associated population influx, according to a 2008 study. The top fee any developer pays for residential development is $16.48 per square foot, and that’s only if the building requires a 30-foot or more height increase. 

Although things started off slowly after the fee was introduced in 2009, over the last couple of years there’s been an emerging wave of development in the Eastern Neighborhoods. But fee revenue has been a trickle, with developers paying a total of $619,117 to date. In fiscal year (FY) 2011, the most-recent data available, nine developers, working on projects located from Natoma Street to Valencia Street and over to York Street, paid $134,924. “The impact fees are woefully inadequate to address all the needs,” said Keith Goldstein, owner of Everest Waterpoofing and Restoration and Potrero-Dogpatch Merchants Association president. “There’s just no money to make the improvements we think are needed.”

Nearly all of the money collected over the last four years remains unspent; all but $3,098 expended in FY 2009 on the Department of Building Inspection’s permitting program. “We haven’t collected enough money” to pay for anything, said developer consultant and Carpinelli’s partner, Joe Boss, who noted that the fees can be increased. A member of the Board of Supervisors merely needs to be convinced to take on developers — and his or her colleagues — to try and do it.

 Meanwhile, developers can build their way around the fees. Fully code compliant projects can avoid triggering fees. And wealthier builders can absorb fees by directly providing services, an “in-lieu” scheme. The developers of Potrero Launch, at 2235 Third Street, for example, dodged a $1.9 million fee by including in the building a child-care facility, which uses the space rent-free. 

Show Someone the Money

Potrero Hill residents have a direct say in how the fees are spent, or not a point. There’s an Eastern Neighborhoods Citizens’ Advisory Committee (CAC), but as the name states, its recommendations are advisory only, not binding. Spending is decided by the Planning Commission, subject to Board of Supervisors approval. 

Some see the CAC as too friendly with developers. CAC member Boss, for one, works for the developers of the Corovan site, which is slated to be turned into a Kaiser Permanente medical building and housing. Another member, Dan Murphy is a developer with a least one active project in the area, and who was involved with the original plans for Daggatt Place. 

That’s no conflict of interest, according to the CAC’s bylaws, which state that CAC members must avoid only a decision that would grant their own projects special treatment. According to Goldstein, himself a CAC member, members like Boss and Murphy, who may have developer connections, act for the good of the neighborhood, not an investor’s bottom line. “It’s a bunch of hard-working well intentioned people on there,” he said, adding that anti-development activists like Save The Hill, which is staunchly opposed to the Kaiser development on 16th Street, might “[expletive] hate Joe Boss for some reason, he doesn’t wear his developer hat when he’s working on the CAC.” 

Fighting City Hall

If Potrero Hill residents decide they want an infrastructure financing district, the neighborhood may have to fight City Hall to get it. City officials dislike IFDs, for the same reason a community member might prefer one: money that would otherwise go to the City and County stays local. “The City doesn’t like IFDs,” said Goldstein, who nonetheless heard municipal staff present information on IFDs at a CAC meeting last fall. “They like the money to go to the general fund so they can control it.”

Supervisor Malia Cohen, who represents the area following her 2010 election, declined to be interviewed by the View for this series. In a statement emailed from an aide, Cohen, while declining to address the possibility of infrastructure financing districts specifically, said she is “focused [on] ensuring that development proposals are mitigating their impacts.”

This is the last in a series of articles about development in Southside San Francisco.

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