Supes vs. mayor: Fight breaks out on how to spend Prop I money

Board approves $64 million to acquire small apartment buildings against Breed’s wishes

A new front has broken out in San Francisco’s ongoing housing wars, pitting most of the Board of Supervisors against Mayor London Breed. The issue? How to allocate $64 million for acquiring small apartment buildings that would house tenants at risk of displacement.

The funds in question were generated by last year’s Proposition I, a measure that passed and now taxes high-end real estate transactions. It was marketed to voters as a way to fund an ambitious new “social housing” program for San Francisco, inspired by places like Vienna and Singapore. However, as currently written, Prop. I revenues flow directly into the general fund, making the money subject to contentious budget fights.

On Tuesday, the Board of Supervisors voted 8-3 to allocate $64 million raised from Prop. I, to the “Small Sites” program, which funds the acquisition of small apartment buildings housing rent control tenants. The vote was a repudiation of Breed, who lobbied hard for the board to hold off on this supplemental budget allocation. She and her allies argued the Small Sites program is broken, and the $64 million would be better off in The City’s COVID reserves until the regular budget process begins in the next few weeks.

While Breed signalled just before Tuesday’s Board of Supervisors meeting that she is committed to fixing the Small Sites program, the vote likely foreshadows more conflicts over this issue. Because of San Francisco’s “strong mayor” government, Breed can still choose to not execute the board’s directive in this case and withhold the $64 million, despite the fact that it was appropriated by a veto-proof majority of the Board of Supervisors.

Over the long term, The City will be faced with the ongoing question of what to do with hundreds of millions of dollars flowing into city coffers from Prop. I in the coming years. For the past few months, a group created by the proposition, known as the San Francisco Housing Stability Fund Oversight Board, has been planning for how the new tax money should be spent. The volunteer group, chaired by Shanti Singh, communications and policy director for Tenants Together, recommended to supervisors they use this initial tranche of money to quickly buy existing housing to protect vulnerable tenants.

“While we’re jump-starting a truly ambitious and hopefully wonderful social housing program that will eventually lead to new construction,” Singh said, “we also recognize that right now, there’s an opportunity to take a lot of these buildings off the speculative market, because right now we have a down market.”

The call was taken up by Supervisor Dean Preston, who authored Prop. I as well as the legislation to allocate the $64 million to the Small Sites program. At Tuesday’s hearing, he shared concerns that these discount apartment buildings will be snapped up by investors whose business model is predicated on evicting long-term rent control tenants.

“If we don’t act now, we will bear witness to the displacement and evictions that for years have ravaged our city and cleared out our long-term residents,” Preston said.

There are currently 117 buildings on the market with between three and 50 units. Most of the sellers are small-time landlords, and most of the buyers appear to be large corporate entities that specialize in “distressed” real estate, according to Preston.

Since its establishment in 2014, the Small Sites program has led to the purchase of 47 buildings containing 386 units. The new funds could more than double the number of units in the program, with purchases beginning as early as January of next year.

However, nearly every supervisor at Tuesday’s meeting acknowledged the program has major flaws. A cap on the per-unit subsidies provided by the program have functionally excluded more expensive areas like the Castro, the Marina, and West of Twin Peaks — despite the presence of vulnerable tenants there.

Bureaucratic rules mean it takes as many as nine months to approve a new tenant once a unit becomes vacant, putting nonprofit building managers at financial risk. The Mission Economic Development Agency, the nonprofit that owns the majority of the small sites acquired so far, has been pushed to the financial brink because of the program, Supervisor Myrna Melgar said, with several buildings under forbearance and millions of dollars lost.

Preston and Singh contend The City and housing nonprofits have known about these problems for years, but that the Mayor’s Office of Housing and Community Development has chosen not to act upon them.

Two of the no votes — Melgar, along with Supervisors Ahsha Safaí — have been working with Breed on a plan to address many of the issues with the Small Sites program identified in the meeting by March. Breed also pledged to spend an additional $10 million on the program.

“We are committed to working with our nonprofit partners to reform and strengthen this program so we can make impactful investments in our upcoming budget and support the long-term viability of the Small Sites program,” Breed said in a statement on the planned reforms.

Still, it remains unclear how these commitments from the mayor mesh with the board’s veto-proof vote to allocate the $64 million from Prop I. Breed has final authority on city spending, and she has been willing to subvert the will of the Board of Supervisors before, such as when she chose not to execute a unanimous vote to shelter more than 8,000 homeless people in hotels at the beginning of the pandemic. Breed’s office did not respond to a request for comment.

The Small Sites program debate comes as the board gets set to consider competing proposals for rezoning The City’s low-density residential neighborhoods to accomodate at least four homes per lot. Additionally, the state Department of Housing and Community Development has launched an investigation into whether the board’s recent decisions to delay two large developments violeted state law. During Tuesday’s meeting, Supervisor Catherine Stefani, the final no vote on Tuesday’s $64 million budget allocation, noted that one of those developments, at 469 Stevenson, “would have generated more units of new housing than this fund will be able to preserve.”

Meanwhile, Singh and her fellow oversight board members have big plans for Prop. I revenues, which could generate $100 million per year. “We’re not just talking about affordability, building by building. We’re talking about having an affordability portfolio of land and housing across The City that can also benefit The City financially, and be reinvested into new housing production,” she said. With San Francisco acting as landlord and developer, rents from wealthier tenants can directly subsidize those of poorer tenants.

But that vision will likely entail “internecine budget warfare” with a mayor whose “past statements about social housing suggest that she just doesn’t believe in the concept,” Singh said.

Those sentiments were echoed by Supervisor Rafael Mandelman, who was viewed as a swing vote on the budget allocation, but ultimately voted for it. “There remains a fundamental disagreement between most of the folks on this Board of Supervisors and the mayor’s office about how to think about Proposition I and what it did and what it meant.”

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