Supervisors Consider Suspension of Empty Homes Tax

tax

Legislation has been introduced in San Francisco that would suspend the imposition of the “Empty Homes Tax” until a final decision is reached in litigation against the tax, promising certainty for taxpayers as the courts decide the legality of the tax. Aimed at bringing residential housing stock back into the local rental market, the Empty Homes Tax was adopted by San Francisco voters with the passage of Measure M in November 2022 and imposes a tax on vacant residential units beginning in the 2024 tax year, with payments generally due beginning in April 2025.

As we previously reported on November 7, 2024, a handful of property owners in the City affected by the Empty Homes Tax, in addition to various interested real estate organizations, filed a complaint in San Francisco Superior Court challenging the Empty Homes Tax. On November 26, 2024, the Court issued an order prohibiting the City from enforcing or administering the Empty Homes Tax as it granted judgment in favor of Plaintiffs based on the tax’s violation of both the California and the US Constitution. Following the Court’s decision, an appeal was filed by the City on December 6, 2024.

To provide certainty for both taxpayers and the City and avoid placing an undue burden on property owners, the City’s proposed legislation would suspend the imposition of the Empty Homes Tax, retroactive to the 2024 calendar year. The Empty Homes Tax would be set to be reinstated to first apply in the tax year immediately following the calendar year of a final decision in the ongoing litigation.

The proposed ordinance requires a supermajority vote of two-thirds of the Board of Supervisors for approval. If the tax is not suspended, it would place an undue burden on property owners that may have residential vacancies from several years prior, may be administratively difficult and financially burdensome for the City to collect, and would add significant uncertainty for both the City and property owners throughout the appeal. If passed and once effective, the proposed ordinance would be retroactive to January 1, 2024. We certainly hope the City will pass this commonsense ordinance quickly.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Kaitlin Sheber.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Preliminary Election Results: Correction on Measures L & M

Measure L: Additional Business Tax on Transportation Network Companies and Autonomous Vehicle Businesses to Fund Public Transportation – Failed*

With preliminary election results showing 56.88% voter approval, it would seem voters passed Measure L, but the Measure has failed due to a provision in Measure M discussed below. Measure L would have placed a permanent additional tax on transportation network companies and autonomous vehicle businesses to support Muni transportation services and fare discount programs, titled the “Ride-Hail Platform Gross Receipts Tax.” The Measure would impose the tax specifically on businesses that provide passenger service for compensation and receive more than $500,000 in gross receipts. The tax rates range between 1% and 4.5% of gross receipts. The Controller estimates annual revenue from the measure at approximately $25 million.

Measure M: Changes to Business Taxes – Passed

Measure M proposed to modify several existing taxes in the City, including the Gross Receipts Tax, Homelessness Gross Receipts Tax, Overpaid Executive Gross Receipts Tax, Business Registration Fee, and the Administrative Office Tax on Payroll Expenses. In general, the Measure is expected to cut taxes for many small businesses and shift more tax burden onto medium, large, and wealthier businesses through a variety of changes. Preliminary election results show that Measure M was approved by 69.73% of voters so far. As discussed above, Measure M contained a provision to render Measure L null and void in the event it obtained more votes. With preliminary results showing Measure L with 201,074 votes in favor and Measure M with 228,038 votes in favor, Measure L is expected to fail.

*Corrected from original publication on November 13, 2024.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Kaitlin Sheber.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

San Francisco Empty Homes Tax Struck Down at Trial Court

Last week, the San Francisco Superior Court struck down the City’s “Empty Homes Tax” which was set to be collected for the first time starting in April 2025 for the 2024 tax year. As stated in a message on the San Francisco Treasurer and Tax Collector’s website, the agency is evaluating the court’s decision and its effect on the upcoming collections and will “expect to have more information in the coming weeks.”

Adopted by San Francisco voters with the passage of Measure M, during the November 2022 general election the Empty Homes Tax aimed to add residential housing stock back into the local rental market by imposing a tax on owners of certain multifamily buildings for keeping rental units vacant for 182 or more days each tax year. The Empty Homes Tax would have applied broadly to most multifamily property owners in the City whose properties had vacant units with limited exemptions for 501(c)(3) tax exempt nonprofits, governmental entities, and the owners of residential buildings with two or fewer units.

The tax would have been calculated based on the vacant units’ square footage. For the 2024 tax year, a minimum tax of $2,500 would have been assessed for vacant units with less than 1,000 square feet and up to $5,000 would have been assessed for vacant units with greater than 2,000 square feet. Tax rates imposed under the Empty Homes Tax were set to increase annually over the next few years.

The present litigation was brought in February of 2023, shortly after the passage of Measure M, by a handful of property owners in the City affected by the Empty Homes Tax, in addition to the various interested real estate organizations including the San Francisco Apartment Association and the San Francisco Association of Realtors.

In their complaint challenging the Empty Homes Tax, Plaintiffs argued that the Empty Homes Tax violated the Takings Clause of the US Constitution. Specifically, Plaintiffs argued that the tax amounted to the City compelling property owners to rent their property, an action the United States Supreme Court and California’s First Appellate District have held is a Taking. Yee v. City of Escondido (1992) 503 U.S. 519; Cwynar v. City & Cty. Of S.F. (2001) 90 Cal.App.4th 637, 658. The tax, plaintiffs argued, sought to “achieve indirectly the very result that the Constitution and state law prohibit…” by “coerc[ing] owners to rent their units by severely penalizing those who exercise their rights to keep units vacant…” (Complaint pg.5.)

Plaintiffs also argued that Prop M was preempted by the Ellis Act which prohibits public entities from compelling owners of residential real property to offer their accommodations for rent or lease. Cal. Gov. Code § 7060(a). As Plaintiffs highlighted in their motion for summary judgment, the “compulsion” prohibited by the Ellis Act extends to the imposition of financial or other penalties for declining to rent residential units. See Bullock v. San Francisco (1990) 221 Cal.App.3d 1072.

In addition to arguing that Plaintiffs did not have standing to challenge the tax before paying it under protest, the City argued in its motion for summary judgement that Plaintiffs had mischaracterized Prop M as requiring property owners to rent their units or pay the Empty Homes Tax. Rather, the City argued, property owners merely needed to ensure that their rental units were “occupied, inhabited, or used,” or that they fell within one of Prop M’s vacancy exclusion periods. Defendant’s Motion for Summary Judgement, Pg. 16.

The Court has yet to publish its decision granting summary judgment for Plaintiffs. It is certainly possible that the City will appeal the decision, which will create uncertainty over the future of the Empty Homes Tax.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Alex Klein.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Key Tax Appeal and Exclusion Request Deadlines

Appeal

Property owners in San Francisco have a right to appeal the assessed value of their properties within a certain window of time and may request tax exclusions when performing certain work.  Typically, the Assessor determines the increased base year value for the portion of any taxable real property that is newly constructed.  The value of the land would remain unchanged when there is new construction.  However, the cost of some types of improvements, including seismic safety improvements and accessibility improvements, may be excluded from reassessment if a timely request is submitted.

Below is an overview of key deadlines and time frames to keep in mind, especially as the Regular Assessment Appeal Period is open now through September 16, 2024.

Key Appeal Deadlines for San Francisco:

Regular Assessment Appeal Period Opened July 2

The open filing period for appealing 2024/2025 assessed property values began on July 2, 2024 and expires on September 16, 2024.  No appeals may be filed after September 16, 2024.  Note that the Assessment Appeals Board has 2 years from the date of a timely filed application to schedule, hear, and render a decision.

Supplemental and Escape Assessment Roll

Supplemental and Roll Correction assessment appeals are only accepted within 60 days after the date of the supplemental notice issued by the Assessor, and Escape assessment appeals are only accepted within 60 days of the issuance of the tax bill.

Exclusion Deadlines:

Seismic Safety Improvements

Under the Revenue and Taxation Code Section 74.5, a new construction exclusion may be requested for (1) seismic retrofitting improvements and (2) improvements utilizing earthquake mitigation technologies that are constructed or installed in existing buildings.  To obtain the exclusion, the property owner must submit a completed BOE-64 form to the Assessor before or within 30 days after completion of the project.

Additionally, all documents necessary to support the exclusion must be filed by the property owner within 6 months after completion of the project.  Failure to timely file the form and all necessary documents constitutes a waiver of the exclusion for that year.  The exclusion expires upon a change in ownership of the property.

Accessibility Improvements

Section 74.6 of the Revenue and Taxation Code generally allows an exclusion for construction, installation, removal, or modification of a portion or structural component of an existing building or structure to the extent that it is done for the purpose of making the building more accessible to, or more usable by, a disabled person.  To receive the exclusion, the property owner must notify the Assessor of its intent to use the exclusion before or within 30 days after completion of the project.  All documents necessary to support the exclusion must be filed with the Assessor within 6 months after completion of the project.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Kaitlin Sheber.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Proposed Legislation Could Slash Transfer Tax Rates – For Some

rates

Looking to kick-start housing production in San Francisco, Supervisor Ahsha Safaí recently introduced legislation that would significantly reduce the city’s transfer tax rate – a fee imposed by the city on real estate transactions – for certain residential projects that satisfy a detailed set of preconditions.

Specifically, the proposed tax cuts would apply to rental residential projects (including those subject to a recorded condominium map) that meet the following criteria:

  • Include no less than 12% affordable on-site units, calculated by excluding any permitted density bonus units.
  • Receive a Certificate of Final Completion and Occupancy (“CFCO”) on or after June 3, 2014.
  • Used/Use 100% union labor.
  • At least one year before and through the date of the transfer, collectively have a minimum of $25 million in investment from union pension fund(s).

If passed, the legislation would lower transfer taxes from 5.5% to 3% for qualifying properties valued between $10 million and $25 million, and from 6% to 3% for properties worth more than $25 million. For qualifying properties that received a CFCO prior to the ordinance’s passage, the reduced transfer tax rate would expire on June 30, 2029. Applicable projects that are issued a CFCO after the passage of the ordinance would be able to capitalize on the reduced rate through December 31, 2033.

The value brackets that the ordinance targets likely mean the tax cuts will primarily apply to mid- to large-scale residential projects. Projects such as 100 Van Ness Avenue, 99 Ocean Avenue and 101 Polk Street would appear to be within the qualifying group of projects that could avail themselves of the tax benefit if the ordinance were to pass and those properties brought to market.

Notably, Supervisor Safaí’s proposed legislation is only made possible through the passage in March of Prop. C. In addition to allowing a one-time transfer tax exemption for owners of properties converted from commercial to residential use the first time they are sold following conversion, that tax measure also authorized the Board of Supervisors to amend, reduce, suspend or repeal (but not increase) the transfer tax without voter approval.

Supervisor Safaí, who is running for mayor, looks to capitalize on this authority, saying that reducing the tax rate could create an incentive for owners that have been on the sideline, waiting for a more favorable economic environment before bringing their properties to market.

San Francisco’s transfer tax rates shifted mightily at the turn of the decade and has since been a hot-button issue for owners and investors alike.  In 2020, San Francisco voters approved Prop. I, which doubled the transfer tax from 3% to 6% on the sale of properties over $25 million, and from 2.75% to 5.5% on deals worth between $10 million and $25 million. The city’s Controller’s Office at the time projected that the measure could increase city revenue by $196 million per year on average. While the tax generated $520 million in fiscal year 2021-22, transfer tax revenue plummeted in fiscal year 2022-23 to $186 million. With historically high vacancy rates for commercial properties, dramatically higher interest rates, and a general decline in deal volume and aggregate sales prices across all property types in the city since 2021, the gross revenue from transfer taxes for fiscal year 2023-24 may yet fall further.

It is unclear if the proposed legislation would materially swing the tide in increasing transfer tax revenues for the city. On balance, the ordinance would be a step in the right direction towards promoting new residential deals and investment to help generate much-needed housing production. It will certainly make it easier to finance qualifying projects. Yet, with tens of thousands of residential units currently approved but not financeable, it can be argued that the ordinance – with its narrow scope and 5- to 10-year sunset provisions – does not go far enough to provide the spark that will begin the thaw of an otherwise frozen housing pipeline.

If you have any questions or would like to discuss this proposed legislation or existing transfer tax rates, please contact Michael Corbett from Reuben, Junius & Rose, LLP, at (415) 567-9000 or mcorbett@reubenlaw.com.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Michael Corbett.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Proposed New Business Tax Structure in San Francisco

On May 6, 2024, a new San Francisco business tax initiative was filed in order to qualify for the November 2024 ballot.  The purpose of the initiative is to remedy Covid-19’s major impact on the San Francisco economy, including remote work.  According to the San Francisco Tax Collector’s website, the initiative was proposed by  Controller Greg Wagner, former Controller Ben Rosenfield, Chief Economist Ted Egan, and San Francisco Treasurer Jose Cisneros.  San Francisco Leaders Support Business Tax Reform Proposal to Strengthen City Economy | San Francisco (sf.gov).  The San Francisco Chronicle states the proposal was filed by two “business leaders” but is supported by Mayor Breed and Board of Supervisors President Aaron Peskin. https://www.sfchronicle.com/sf/article/s-f-economy-tax-plan-19444049.php.

According to the Tax Collector, the key elements of the proposal are:

  • Exempting more than 2,500 small businesses from the tax by expanding the Small Business Exemption to $5 million dollars
  • Lowering taxes for hotels, arts, entertainment, and recreation
  • Reducing volatility by ensuring taxes are not overconcentrated
  • Reducing disincentives for bringing workers back or locating in San Francisco
  • Simplifying the overall tax structure to be more predictable

According to the San Francisco Chronicle, post-pandemic, the five largest taxpayers in the City accounted for 24% of all business taxes, and remote work reduced the City’s business tax revenue by $484 million in 2021. https://www.sfchronicle.com/sf/article/remote-work-reduced-s-f-s-taxes-484-million-18193946.php   The loss of tourists and workers in the City has devastated the retail, restaurant and hotel industries. For some businesses, the proposed tax initiative would be a welcome shift from the ever increasing taxes and fees imposed by the City.  However, the decreased income would be made up by increase on other types of commercial activities.

The measure keys on some of the businesses most impacted by the loss of workers in San Francisco, including retail, restaurants, and hospitality.  Unfortunately for the owners of empty office buildings, there would be no reduction in the commercial rents tax. If passed by the voters, the 2024 tax ordinance would result in a significant change in the business tax structure, including revised gross receipts tax rates, short term decreases in the Homelessness Gross Receipts Tax and Overpaid Executive Tax, and a temporary reduction in business registration fees.  The measure would also provide key incentives for small businesses, certain new office building occupants, and grocery stores. Finally, the new tax plan would shift the calculation of business taxes away from the partial reliance on San Francisco based payroll (i.e., lower because of remote work), and focus more on gross receipts, in an effort to more evenly allocate the tax burden and lure workers back to San Francisco.

The proposal is quite detailed and technical in nature.  The Tax Collector’s office has issued a summary of the key changes and expected impacts of the ordinance, and a link to that summary is attached here.  PowerPoint Presentation (sf.gov)

The following are a few additional components of the proposal (some of which are from the Tax Collector’s analysis):

  • Enacts a new small business exemption from the Gross Receipts Tax for businesses that make less than $5 million per year (with annual CPI adjustments). Importantly, residential landlords do not qualify for this exemption.
  • Tax credits of up to $1M for those that open a new business in the City (that person or combined group cannot have operated in the City for the past three years) in certain “Designated Areas”
  • Tax credits for companies that lease all or a portion of a “Qualified Building” for office purposes (“Qualified Building” means that construction must have started between Nov. 4, 2024 and Nov. 4, 2029 and be at least 450,000 square feet, among other requirements), and house at least 100 employees in such building.
  • Gross Receipts tax rates would be reduced for certain industries, including retail, recreation, food service, and hotels.
  • Gross Receipts tax rates would increase significantly (almost double for firms making over $5M per year) for financial and legal services (i.e., attorneys and accountants), and these businesses would lose the ability to reduce the tax due to non-San Francisco employees.
  • The construction industry would be hit with increased tax rates for income above $2.5 million.
  • No significant change in gross receipts tax rates for real estate leasing activities.
  • Tax credits for supermarkets and other grocery retailers (excluding convenience stores) of 0.5% of these company’s taxable gross receipts, up to a maximum credit of $4 million.
  • Reduces the tax rate on Administrative offices based on payroll expenses in San Francisco from 1.54% in 2024 to 1.47% in 2025 and 2026.
  • Reduce the Overpaid Executive Tax by 80%.
  • The Homelessness Gross Receipts Tax, previously charged only to companies making $50 million annually, would be modified to reduce the income threshold to $25 million starting in 2025 (except for the real estate category, where the threshold remains at $50 million).

If the proposed tax plan qualifies for the ballot and passes, it would be a strong signal that San Francisco has turned away from the theory that higher taxes do not impact San Francisco businesses, and recognition that a reasonable tax structure is necessary to attract at least certain types of companies.  However, some industries would still be subject to the more aggressive tax structure, and taxes would still increase in later years. It will be interesting to see if this plan is enough to attract more business to San Francisco.

 

Authored by Reuben, Junius & Rose, LLP Partner Kevin Rose.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Voters Approve Mayor’s Transfer Tax Exemption

The Mayor’s proposal to waive San Francisco’s Transfer Tax for certain converted residential space (“Measure C”) was approved by voters on March 5, according to the City of San Francisco’s official preliminary election results. We previously provided an overview of this measure that is aimed at encouraging conversion of office to residential use in the City on October 25, 2023.

Generally, under the new law, up to the first 5,000,000 square feet of “Converted Residential Property” can be exempted from the City’s Transfer Tax. Conversions that involve demolition of nonresidential property to construct new residential property may also be considered Converted Residential Property subject to the tax exemption.

However, the measure caps the amount of new square footage that can be considered Converted Residential Property. For projects where a building is demolished to construct new residential property at the same site, the amount of Converted Residential Property only includes residential square feet in the new building that exceeds the square feet of any residential space in the demolished building, up to a maximum of the total gross floor area of the non-residential space in the demolished building, plus 10%.

According to SPUR, the approval of Measure C comes with the following benefits:

  • Acceleration of office to residential conversion projects can speed downtown recovery through reducing the cost of development;
  • Activating obsolete office buildings with housing can increase foot traffic and economic activity;
  • The Board of Supervisors can make future changes to the transfer tax as needed legislatively, allowing flexibility for the City to make adjustments based on economic conditions

The tax exemption under Measure C applies to the First Transfer of Converted Residential Property—meaning the first transfer after a certificate of final completion and occupancy or temporary certificate of occupancy is issued for the property, whichever is earlier. So, projects will generally see the benefits of Measure C once construction is complete.

The passage of Measure C alone is not expected to close the feasibility gap for most office to residential conversion projects, and additional incentives will be needed to make such projects financially viable.

Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Summer SF Legislation Roundup

summer

Below is a round-up of some items introduced before the Board of Supervisor’s summer recess, which will run from July 31st to September 4th.

Update to Ordinance That Would Expand Allowable Commercial, Restaurant, and Retail Uses

In early June, Mayor Breed and Supervisors Engardio, Dorsey, and Melgar introduced an ordinance aimed at reducing zoning restrictions to allow more types of commercial use on the ground floor of certain neighborhood commercial and residential districts.

For an in-depth overview of this legislation, see our June 22nd update.

On July 25th, the Mayor substituted an amended version of this legislation.  It has been assigned to the Land Use and Transportation Commission, where it will likely be heard in the early fall.

Changes in the updated version appear minor, and include:

  • allowing formula retail restaurants with conditional use authorization at the ground floor in the Mission Street Formula Retail Restaurant Subdistrict;
  • retaining the flat prohibition on formula retail pet supply stores or restaurants in the Geary Boulevard Formula Retail Pet Supply Store and Formula Retail Eating and Drinking Subdistrict;
  • correcting the summary description of maximum number of eating and drinking uses that would be allowed in the Mission Street NCTD to 197 (from 179); and
  • clarifying that formula retail and restaurant controls would be amended in certain residential districts, as well as commercial districts.

A Tweak to Prop X

Section 202.8 of the Planning Code, enacted by voters in 2016 as “Prop X”, limits projects that would convert Production, Distribution, and Repair (“PDR”) uses, Institutional Community uses and Arts Activities uses in certain Eastern Neighborhoods Plan areas and Central SoMa.

With limited exemptions, Prop X imposes specific replacement requirements for projects that would convert building space where the prior use was:

  • a PDR use of at least 5,000 square feet;
  • an Institutional Community use of at least 2,500 square feet; or
  • an Arts Activities use.

On July 25th, Supervisor Dorsey introduced an ordinance that would create an exemption from Prop X replacement requirements for projects proposing change of use from one of the listed uses above to another listed use, or to new Institutional Education uses, in areas zoned SALI, MUO, SLI, MUG or MUR as of July 1, 2016. This could allow for a more efficient change of use process, encouraging continued use of buildings.

This legislation would require a supermajority vote (i.e., 8 members) of the Board to pass, and has been assigned under the Board’s 30-day rule to the Land Use and Transportation Committee for review.

Vacant Storefront Fee Waivers

Currently, owners of vacant or abandoned commercial storefronts are required to register the storefront with the Department of Building Inspection (“DBI”) within 30 days of a vacancy or abandonment, pay an annual registration fee, and to renew the registration annually.

On July 25th, Mayor Breed introduced an ordinance that allows the Director of DBI to waive the annual registration fee for storefronts that comply with City and state law, do not contribute to blight as defined by the Administrative Code, and are ready for occupancy and being offered for sale, lease, or rent.

This ordinance has been referred to the Building Inspection Commission for comment and recommendation.

Reduction of Entertainment Permit Requirements

On July 25th, Mayor Breed introduced an ordinance that could reduce entertainment permit requirements citywide, encouraging a sector that will draw in locals and tourists alike.

The ordinance, which has been referred to the City’s Small Business Commission for review, would do the following:

  • waive the initial license and filing fees through June 30, 2025, for certain Entertainment Permits for current or former holders of Just Add Music Permits;
  • waive initial license and filing fees for Entertainment Permits for applicants who are newly eligible to apply for those permits due to recent Planning Code amendments;
  • eliminate masked ball permits;
  • require applicants for Arcade, Ancillary Use, billiard and pool table, Place of Entertainment, Limited Live Performance, Fixed Place Outdoor Amplified Sound, and Extended-Hours Premises Permits to submit a new Permit application and filing fee if their existing application has not been granted, conditionally granted, or denied within 12 months of its submission;
  • authorize the Entertainment Commission Director to issue billiard and pool table permits without a hearing, and allow them to be suspended or revoked under the standards that apply to other Entertainment Permits;
  • eliminate the requirement that applicants for Place of Entertainment Permits disclose criminal history information regarding certain individuals connected with the applicant business;
  • narrow the categories of new criminal charges, complaints, or indictments brought against a Place of Entertainment Permittee or its employees or agents that the Permittee must report, to only those charges, complaints or indictments that could be grounds for suspension of the Permit; and
  • allow the Entertainment Commission Director to require an applicant for a Limited Live Performance Permit to propose a Security Plan if necessary to protect the safety of persons and property or provide for the orderly dispersal of persons and traffic, to make compliance with the Security Plan a condition of the Permit, and to require revisions to the Security Plan as necessary.

Decline in Value Tax Appeals are Due Soon

Tax bills are in the mail for the 2023/2024 tax year.  Many commercial owners have experienced a decline in income and property value due to reduced occupancy and rental rates.  Some residential neighborhoods have also declined in value.  The good news is that there is the possibility for some temporary real estate tax relief.  Property owners have the right to file decline in value appeals (also referred to as Prop. 8 appeals) to account for such market conditions.  The deadline for properties located in San Francisco is September 15, 2023.  Alameda County’s deadline is also September 15, 2023.  Contra Costa County and San Mateo County give a bit more time – November 30, 2023 is their deadline.  (Deadlines are taken from each County’s website.)

If you would like more information about a real estate tax appeal, contact Kevin Rose at krose@reubenlaw.com.

 

Authored by Reuben, Junius & Rose, LLP Attorney Melinda Sarjapur.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

HCD Cracks Down on S.F. Housing Practices; S.F. Real Estate Tax Appeal Deadline

HAU

Last month, the State Department of Housing and Community Development (“HCD”) announced that its Housing Accountability Unit (“HAU”) will conduct a first-ever Housing Policy and Practice Review of San Francisco, aimed at identifying and removing barriers to approval and construction of new housing in the City. According to the City’s self-reported data, it has the longest timelines in the state for advancing housing projects to construction, among the highest housing and construction costs, and the HAU has received more complaints about San Francisco than any other local jurisdiction in the state. U.S. Census data shows that Seattle – a city of comparable size – approves housing construction at more than three times the rate of San Francisco.

Over the next nine months and beyond, the HAU, in partnership with the U.C. Berkeley Institute of Urban and Regional Development and others, will conduct a comprehensive analysis of San Francisco’s housing approval policies and practices. The review will examine discretionary decision-making patterns that lead to abnormally long housing delays. The review also intends to identify barriers to the approval and development of housing at all income levels, including housing that is affordable to lower- and moderate-income households.

Separately, in an August 8 letter to Planning Director Rich Hillis, HCD was both critical and encouraging of the City’s Draft Housing Element. California cities are required to update their General Plan Housing Elements by January 2023. HCD praised the City’s “bold and meaningful actions to both reduce barriers to higher-opportunity neighborhoods while simultaneously reinvesting in historically underserved neighborhoods.” Yet HCD also identified a number of revisions that would be necessary for the Housing Element to comply with state law.

In yet another letter on August 11, HCD asked the City to explain itself concerning a specific project approval, expressing concern that the City violated housing law. HCD was concerned with the City’s decision, in granting conditional approval, to downsize a 19-unit group housing project at 3832 18th Street in the Mission District. HCD expressed concern that the downsizing violated the State Density Bonus Law.

This project-specific letter follows HCD’s letter to the City last November expressing concern that the City’s denial of two large housing projects, at 450 O’Farrell Street and 469 Stevenson Street, may have violated state law. In those cases, the Planning Commission had approved the projects, but the Board of Supervisors denied them.

The aforementioned Housing Accountability Unit at HCD is part of an unprecedented new initiative to support the production of housing statewide. According to its website, “California’s housing crisis has reached historic proportions despite the passage of numerous laws intended to increase the supply of housing affordable to Californians at all income levels.” As part of the 2021-2022 state budget, HCD received additional staff to grow its accountability efforts and formed the HAU. The HAU holds jurisdictions accountable for meeting their housing element commitments and complying with state housing laws. One of its primary tools is technical assistance to the public and enforcement letters. More information on these powers is available at the HCD website.

San Francisco Real Estate Tax Appeal Deadline

The deadline for San Francisco property owners to appeal their property’s value for the 2022/2023 tax year is September 15, 2022.  Deadlines for other California counties vary.  Please contact Kevin Rose (krose@reubenlaw.com) if you have questions about the tax appeal process.

 

Authored by Reuben, Junius & Rose, LLP Attorney Thomas P. Tunny.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Proposition C Upheld by Court of Appeal

Proposition C

California’s First District Court of Appeal (“Court of Appeal”) has rejected arguments from business and tax groups challenging the validity of San Francisco’s Proposition C, the Early Care and Education initiative.  The Court of Appeal held that citizen initiatives to enact a special tax only require a simple majority vote to pass, even if an elected official is involved in the citizen initiative process. This decision could be a game-changer in how tax measures are processed in the future, causing legislators to convert proposed tax measures into citizen-initiated measures, i.e. allowing politicians in California to use the citizen initiative’s simple majority vote requirement to avoid the more strenuous two-thirds supermajority vote local governments must obtain to increase taxes. San Francisco City Attorney Dennis Herrera described the ruling as “a victory for voters and a victory for democracy.”

Background

Proposition C, a citizen initiative, was approved by City of San Francisco voters on the June 5, 2018 ballot. This commercial rent tax was expected to raise up to $145 million annually for childcare and early education services by taxing business revenues from commercial space rentals by 3.5% and warehouse space rentals by 1% where receipts are over $1 million. Norman Yee, at the time a member of the City’s Board of Supervisors, was the driving force behind citizen initiative Proposition C. He completed the key steps required to put a citizen initiative on the ballot— he both turned in the signed initiative petition pages and signed the ballot arguments in support of Proposition C.

In San Francisco, there are two different ways special taxes are imposed: (1) local governments may present a special tax to the voters, but voters must approve the special tax by a super majority two-thirds vote, or (2) local citizen initiatives may present special taxes to the voters after receiving a threshold number of signatures. Citizen initiatives only require a simple majority vote to pass.

After Proposition C was approved by a 51% majority of voters, the Howard Jarvis Taxpayers Association quickly joined forces with other business-related groups (“Plaintiffs”) to challenge the initiative, arguing the measure needed a two-thirds supermajority vote to pass because an elected district supervisor put forward the measure. Though the City has collected tax funds from businesses since the passage of the proposition, the money was not spent during the legal challenge. A San Francisco Superior Court judge rejected Plaintiffs’ arguments in July 2019. The decision was affirmed by the Court of Appeal on January 27, 2021. Now, Plaintiffs are planning to appeal the most recent decision to the California Supreme Court as the Court has not previously ruled on this issue.

Legal Reasoning

The Court of Appeal adopted the reasoning of a recent case in another division of the same court, City and County of San Francisco v. All Persons Interested in the Matter of Proposition C (2020) 51 Cal.App.5th 701 (“All Persons”), to reject Plaintiffs’ appeal arguments. First, All Persons noted the initiative power is “one of the most precious rights” of the democratic process, so courts must both guard and liberally construe the exercise of the power. Accordingly, the court held Proposition 13 only requires governmental entities to gain two-thirds supermajority voter approval before imposing a special tax. Next, the court held Proposition 218, which requires a two-thirds supermajority when local government imposes a special tax, did not apply because the electorate is not “local government.” Finally, the court held that the City Charter did not require a two-thirds supermajority to pass a special tax because the Charter only creates substantive limits on the initiative power, not procedural limitations.

Plaintiffs argued their action challenging Proposition C was distinguishable from All Persons because Norman Yee was an elected official serving on the Board of Supervisors. The court rejected this argument, holding that Propositions 13 and 218 did not require a two-thirds vote to pass special taxes where an elected official was involved in the citizen initiative process. Plaintiffs will appeal to the California Supreme Court, noting this decision allows politicians in California to circumvent the two-thirds voter approval requirement for special taxes by turning special tax proposals into citizen initiative petitions.

 

Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.