Examiner Editorial: Revive construction by changing building fees
July 2, 2009
If the proposed 308-unit rental project at 333 Harrison St. is ever built, present rules would require the developers to pay The City an extra $16.5 million in impact fees before they were allowed to break ground. Those multimillion-dollar development-impact payments are in addition to the $700,000 in standard municipal permit and filing fees, plus 18 percent of total construction costs. The fees are for schools, parks, transit and other public services near the projects.
With large-scale construction financing at a near standstill in the ongoing economic slump, ambitious projects such as 333 Harrison St. can only inch forward, hindered even more by The City’s burdensome development fees. Other pending projects have even been canceled, with developers placing substantial blame on the front-loaded costs.
The plan to replace a long-shuttered Cala Foods market at the corner of Haight and Stanyan streets with a new Whole Foods topped by 62 units of rental housing has been dropped. Developer Mark Brennan publicly blamed the “prohibitive”
$5 million to $6 million in impact fees he would have been required to pay before starting the project.
Runaway development-impact fees are a comparatively recent phenomenon. Some fees are imposed citywide, such as the requirement to pay into an affordable housing fund unless 15 percent of a project’s units are sold or rented at below-market prices.
But the newest and costliest fees were passed for specific areas or neighborhoods penciled in for dramatic upgrades. Extra-fee areas include high-density Rincon Hill near the Bay Bridge; the former freeway acreage around the intersection of Market and Octavia streets; and the 2,200 acres opened last year by the San Francisco Planning Department’s Eastern Neighborhoods Plan.
However, the dismal state of local construction has finally inspired city officials to begin crafting new legislation to allow development-impact fees to be paid after construction instead of before. This would be a powerful and politically feasible incentive for renewed development, at a time when local unemployment in the building trades is some 20 percent.
Right now, The City desperately needs every increased dollar of property- and sales-tax revenue it can get. This goal is not being helped by retaining development-impact fees locked in during a construction and real estate boom that ended abruptly late last year. San Francisco political realities would not allow cancellation of these onerous development fees — but they must at least be deferred quickly so that The City’s construction benefits have a fighting chance to revive.
