Developers claim increasing S.F. transit fees would be crippling

A fight is brewing between developers and lawmakers over how much the builders should pay to support the city’s transit system.

Developers argue that a plan to increase a proposed transit fee would cripple housing development in San Francisco, already among the most expensive cities in which to build. But a majority on the Board of Supervisors counters that the development community can and should pay more to improve a transit system increasingly overwhelmed by people working and living in the dozens of new towers popping up around the city.

In July, Mayor Ed Lee’s administration announced a plan to leverage the city’s housing boom to help bankroll $1.2 billion in transit improvements over the next 30 years. The proposed transportation sustainability fee targets new market-rate condominium and apartment projects and would add $14 million to the $24 million a year already collected from other types of developments.

Under the proposal, market-rate residential developers, who currently pay nothing, would be charged a fee of $7.74 per gross square foot. Commercial developers, who currently pay $14 a square foot, would see that jump to $18 a square foot. New industrial space would stay about the same, inching up from $7.46 to $7.61.

How fee was set

The fee was set by determining how much development impacts transit in terms of cost, then balancing it with the conclusions of a study that looked at what level a fee would discourage development.

The proposal comes at a time when 60,000 units of housing are either under construction or at some stage of the approval process. The Association of Bay Area Governments expects the city to add 190,000 jobs and 100,000 households by 2040. A 2013 task force convened by the mayor estimated the city would need to invest $10 billion in transportation infrastructure by 2030.

“We crafted a fee structure that reflects the needs and demands that new development creates,” said Planning Director John Rahaim, who worked on the plan with the San Francisco Municipal Transportation Agency, the mayor’s office and other agencies.

At the Board of Supervisors land use committee this week, Supervisor John Avalos said he would propose that the fee stay at $7.74 for smaller developments, but jump to $8.98 per square foot for projects of 51 to 99 units and to $10.21 for developments of more than 100 units.

Under Avalos’ proposal, the transit fee paid at a 100-unit apartment development would be $10,200 per unit, compared with $7,400 under the city’s proposal. The fee on commercial development would also be tiered, jumping to $28.85 per square foot for office buildings over 100,000 square feet. That means that the transit fee on a 500,000-square-foot office tower would be $14.4 million, compared with $9 million under the city’s proposal.

Hospitals would pay

Avalos also suggested hospitals, currently exempt from the fee, also pay. That might be a difficult sell: A transit fee proposed in 2012 was shot down because hospitals and nonprofits were included.

“The deal the mayor and the developers’ community agreed upon in the mayor’s office doesn’t come close to paying for the true impact that these buildings have on our transportation system,” Avalos said.

Developer Oz Erickson of the Emerald Fund, who is building about 1,000 residential units near the Civic Center, said he strongly supports the proposed transit fee “even though it represents a significant increase to the cost of housing.” He said that with current fees, land prices and construction costs, a single rental unit in a central city neighborhood costs $790,000 to produce and has a market value of $900,000.

Cut to profit margin

That’s a narrow profit margin that would be cut even more if interest rates rise.

“We are right on the edge. We accept the idea of (the fee) as proposed, but I would strongly urge you not to increase it,” he said. “You should not be institutionalizing any more costs. This is not a Christmas tree that you can continually put decorations on. You will kill the goose that is producing the affordable housing, transportation and many other things for the city.”

Residential Builders Association President Sean Keighran said the transit tax needs to be considered in the context of other fees, including community impact and affordable housing fees, which average about $114,000 per unit in downtown areas.

Fees’ cumulative impact

“They all want a dollar here or a dollar there, but it is the cumulative impact of all the fees and burdens that has us close to the tipping point,” Keighran said.

Tim Colen of the pro-development Housing Action Coalition, said the increased fees would just be passed on to the renter or home buyer, making the nation’s most expensive city even less affordable.

“We think new development should pay for transit infrastructure, but in this climate where costs are insane, we don’t think you can increase the fees willy-nilly without justifying it,” Colen said.

The proposed fee underscores what has become a hot-button issue around the city: Complaints that the high-end residential towers proliferating in neighborhoods such as Dogpatch, SoMa and Rincon Hill have not been accompanied by adequate improvements in open space and transit, not to mention sufficient levels of affordable housing.

The money would be spent on expanding the Muni fleet with new buses and railcars, improving reliability on the busiest routes, retrofitting existing trains, investing in the electrification of Caltrain, and making streets safer for bicyclists and pedestrians.

Supervisor Jane Kim, who represents the development-heavy South of Market and Civic Center, said she is “very interested in examining what it would be like to raise some of the fees” from the original proposal.

“The current fees are far below what the city should be gathering from our private projects,” she said. “We are a city that is growing quickly, and we want to make sure all our partners help us provide the transit services needed to make sure this is a city that can continue to move.”

Supervisor Scott Wiener, who has been the main advocate for a transit fee over the last five years, suggested he was open to higher fees — to an extent.

‘A gigantic step’

“Even though we are always going to quibble over the details, (the transit fee) is a gigantic step forward,” said Wiener. “We want to make sure everyone is paying for transit, but not impeding the feasibility of the projects, which is not in anybody’s interest.”

The matter will be before the land use committee again on Monday for further consideration.

Transit fees

Mayor’s proposal

Market-rate residential developers would pay a fee of $7.74 per gross square foot.

Supervisor John Avalos’ proposal

Residential projects up to 50 units: $7.74 per square foot

Residential projects of 51 to 99 units: $8.98 per square foot

Residential projects of 100 units or more: $10.21 per square foot