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UncategorizedDevelopers seek massive tax break at Transbay Center

Developers seek massive tax break at Transbay Center

Salesforce gets a spiffy new HQ. Boston Properties gets a signature building. What does the city get?
Salesforce gets a spiffy new HQ. Boston Properties gets a signature building. What does the city get?

By Tim Redmond

SEPTEMBER 9, 2014 — The Board of Supervisors will vote today on an item that seems incredibly dense and bureaucratic, and it took me almost two days to figure out what the controversy is about. But at stake in this deal are hundreds of millions of dollars in public money for transportation projects.

Here’s the language of the item:

Public hearing of persons interested in or objecting to the proposed Resolution of Formation for Special Tax District No. 2014-1, establishing the Transbay Transit CFD and determining other matters in connection therewith; Resolution determining necessity to incur bonded indebtedness for the CFD; and Resolution calling for a special election in the City and County of San Francisco to submit the issues of the special tax, the incurring of bonded indebtedness and the establishment of the appropriations limit to the qualified electors of the CFD.

 

There are a couple of other related items, but the bottom line is this: The city wants to move forward with a special tax district that will hit the developers of new highrise buildings in the Transbay Center area with an annual levy to cover $1.4 billion in news bonds.

And the developers who would pay the taxes are now balking.

The bonds would pay for the completion of the transit center, and possibly the extension of Caltrain tracks (and tracks for the someday high-speed rail project) into what will otherwise be a very fancy bus station.

The way this all works is byzantine, based on the state’s 1982 Mello-Roos Tax District law. The developers at the Transbay site – in exchange for getting some very nice benefits, including valuable land and the right to build far taller than any existing limits allow – agreed in principle some to accept a higher property-tax assessment.

Now they want to re-negotiate the deal – in large part because the city is basing the tax assessments, and the amount of money it can raise, on the current value of the property. Needless to say, the current value is pretty high compared to what it was a few years ago, when this was all first discussed.

Initially, Boston Properties, which owns most of the building that will house Salesforce and will be the tallest building West of the Mississippi, hired the law firm of Reuben and Junius to write long letters and complain about the higher taxes. The city wasn’t budging, so now the developer has brought on Willie Brown, who will get a huge paycheck in exchange for trying to cut the assessments and reduce the amount of bond money the city can raise.

Boston Properties is also represented by Platinum Advisors, and the play, sources tell me, is to get the supervisors to delay action and send the deal back to the Mayor’s Office (where Brown practically has a door key) for “renegotiation.” Even a small reduction in the tax rates could add up to a huge amount of money: The developers, for example, would like more than $600 million cut from the deal. If the city “compromises” and settles for half, that’s still $300 million that won’t go for transit projects.

Another interesting element: Under the Mello-Roos law, a majority of the property owners in the district have to vote to accept the new taxes. Part of the deal that gave the developers the right to build a tower more than 1,000 feet high included a promise to support the Mello-Roos vote. If they now decide to reject that, the whole project could be in a messy situation.

Except: Boston Properties isn’t the only property owner with a vote. In fact, the city, through the Transbay Joint Powers Authority, is the largest single landowner in the district. And part of what Brown, Reuben and Junius and the rest of the developer team will argue is that public agencies don’t get a vote.

That’s why part of the discussion at the board will include a closed session with City Attorney Dennis Herrera to discuss the potential for litigation.

So far, we don’t know where the mayor will come down on this. But it will be a defining moment for his administration: Back down on an agreement the city has carefully negotiated and reopen it to save the developers money – or stick it to Willie Brown and say no.

We will be watching.

 

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.
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16 COMMENTS

  1. Sam, regardless of the broader points you’re bringing up, this specific tax is about helping every participating property owner realize the area’s potential as a major new transit hub. These private parties bought in expecting to participate in the resulting benefits of that hub, and expecting to help pay this tax to get them.

    So, avoiding this tax now looks like an underhanded way to get all the excepted benefits while potentially pushing a larger percentage of the total transit development cost to taxpayers. It is also politically dumb if you truly care about getting pro-development measures passed this November. Just think about how this maneuver will be used to paint all developers as untrustworthy right when they need to look like the good guys.

    Of course, one could try to argue that the developers didn’t expect a Caltrain connection downtown to matter much, in the first place. But that is just silly on its face when you consider the long-term popularity of Caltrain, as well as job and population growth further south… as well as all of the other stats showing the success of developments near transit hubs around the world.

  2. Will the Supervisors turned down $600 million dollars from wealthy developers while asking the voters to take on an additional $500 ($850 with interest) million in debt? The No on A and B crowd should appreciate this.

  3. OK, well if you are honest enough to admit that you didn’t want the city to give property tax reductions when RE prices were falling, then your argument to increase them when RE prices are increasing can be best seen in the context of you always wanting more taxes rather than on any putative notion of fairness and a consistent standard.

    I happen to think that those who take risks and are willing to commit capital in order to create places for San Franciscans to live, work and play should be richly rewarded for that. Without that, we are Detroit or,at least, Oakland, rather than the world class city that is globally driving the leading industry sector of the 21st century.

    I am disappointed with Wiener on this, as I am with him on the Muni funding thing. He appears to have lost the plot. Or maybe it’s all just angling to be the next mayor. Who knows?

  4. Sam, I sat in the office of Assessor Phil Ting after that downturn and looked at the long, long list of big commercial landlords who were seeking property tax reductions. I suggested that they all be rejected, because I’m always looking for more city taxes from the wealthy, but he made it clear that many were totally legit; property values had, indeed, fallen, and those assessments were going to be reduced. That happens EVERY time property values fall. Ordinary small landlords may have trouble, but big commercial landlords get what they want.

  5. I’d like to see the data to support that claim but, in any event, it doesn’t answer my question and challenge to you, which was this:

    At that time of declining valuations did you “passionately argue that the city should take LESS in tax?”

    If not, why not?

  6. Actually, Sam, when the real estate market dropped in 2007-2008, many, many big landlords and developers applied for an got property tax reductions, costing the city millions.

  7. Where is your evidence that the city handed out tax rebates when the RE business went bad in 2007-2011? From what I recall they required an affirmative application, along with reams of proof, and even then dragged their heels and tried to stall.

    But when the market turns up, they want their pound of flesh? Double standard.

    Getting a downward assessment is very very difficult to pull off. And yet the city becomes super efficient and aggressive when there is an upward-assessment.

    Double standard.

  8. a) you are simply speculating that the City would make those arguments. And trust me, if they did, the developers would be howling to high heaven

    b) could be wrong here, but any homeowner could have had their property reassessed and their property taxes potentially reduced during the market crash a few years ago, so yes, the City did go handing out tax decreases

    The only ones whining are the real estate developers who entered into this agreement with eyes wide open, bless their poor hearts.

  9. Yes, San Franciscans value civility and consensus over constant war and identity politics. And you think that’s a bad thing?

    Advocating for class interests IS the problem, because it breeds intolerance borne out of envy. Provoking hate based on stereotypes is a losing game.

  10. Excellent points. There is quite simply no way that HSR is getting built. Heck, if we cannot even afford or organize the stretch from Fresno, what chance do we ever have of pushing HSR through existing built-up areas?

    So yes, some reasonable compromise should be made that allows for the fact that the current speculative and self-serving valuations that the city is using are predicated on some very improbable outcomes.

  11. So a deals a deal, except when it isn’t, especially when it costs the wealthier party more than it (should have) anticipated.

    An interesting issue. I suspect strongly the result in this real estate controlled town will not be that the developers pay what they agreed in their deal with the city. Look for some shitty compromise gussied up as a sugarcoated everyone wins fantasy in this town where people value getting along with each other over advocating for their class interests.

    Except of course the uppermost classes who get what they want from such civility and agreeability. The San Francisco spirit–don’t offend anyone even as they kick you out onto the street.

  12. Lets not forget that the original value of the Terminal included HSR & CalTrain. HSR is SOL and CalTrain has no funding for such.

    Does that increase or decrease the value of the Terminal?

  13. Except, Dan, those developers would not have benefitted from a decline in RE values because then the city would have done what the developers are doing now, and claim that they should not be disadvantaged by random cyclical market volatility.

    Did the city go around handing out tax decreases during the 2007-2011 real estate bust? No they did not. So why the hypocrisy, the double standards and the whining now?

  14. whatever. a deal is a deal. the tax was agreed by these companies to be based on the land valuation and now that that has changed, and not in their favor, they are crying about the unfairness of it all. They signed on to this possibility. I weep no tears for them. if the market had plummeted, they’d be benefitting from the lower valuation and there wouldn’t be much the City could do about that. Those are the breaks. If Kim and/or Lee fold on this, their true colors will be on display for all to see. It isn’t too often that I agree with Tim, but this is a defining moment for Lee.

  15. Tim, if instead we were in a bad real estate market, then the tax assessment would now be declining, along with the valuations. Would you then passionately argue that the city should take LESS in tax?

    Of course you wouldn’t, which shows the hypocrisy of your position. you want higher taxes regardless of the situation so the fact that you support higher taxes here is meaningless.

    Just because valuations have risen does not mean that there any more cash to fork over to the city. And would you really want the developers skimping on finish, safety or features just so that more tax can be extorted?

    The developers are not asking for a tax break. They are simply arguing that the city should not get a windfall tax hike just because the theoretical value of this site may have increased. The developers are happy to pay the dollar amount that was originally agreed. But setting taxes to valuations is a flawed approach – that is why the voters overwhelmingly passed Prop 13, which remains wildly popular with the voters.

    The city is getting a good deal already and should not be looking a gift horse in the mouth.

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