Task Force Recommends Fee and Permit Changes

Task Force

There are few cities that have not been negatively impacted by COVID-19.  Since March, San Francisco and the surrounding cities have been largely shut down, with businesses opening in a staggered manner based on infection and death rates.  Nonessential office workers remain at home.  Seven months into this “new normal”, a number of studies and reports have been issued, analyzing the impact the virus has had on the local economy.  Without a doubt, San Francisco appears to have been hit particularly hard, as more and more companies are allowing employees to work remotely, many through July 2021.  The result is an empty business district and what appears to be an exodus of residents from the City.  The lack of office employees working and residing in the City has had a drastic effect on the economy.  A few key statistics:[1]

  • 1% office vacancy rate in Q3
  • 43% decline in sales tax receipts from April to June as compared to 2019
  • 65% decrease in sales at restaurants and bars and consumer goods stores
  • 50%+ storefronts are not operating as of August 2020
  • 1% increase in online sales tax receipts

Recognizing that the City was facing a looming financial crisis, Mayor Breed and Board President Yee convened a task force – the Economic Recovery Task Force – in the spring to advise the City and provide recommendations to support the recovery efforts from COVID-19.  Consisting of over 100 members, the Task Force received 1000 surveys and conducted an additional 900 interviews with residents and business owners in San Francisco.  The Task Force issued its final report on October 8th, listing 41 recommendations ranging from economic stimulus to safe reopening guidelines.

Several of the recommendations focus on the real estate and construction industry.  Construction is a revenue-generator for San Francisco: in addition to bringing in permit and impact fees, statistics show that each $1 million spending in construction translates into approximately 5.93 jobs.  While a recession often leads to a significant slowdown in construction, San Francisco has not seen the resulting stoppage, largely due to projects that were already underway.  However, falling rents and sales prices, high construction costs, and broad economic uncertainty have resulted in developers unable to secure financing for their projects and a slowdown in development projects breaking ground.

The Task Force makes the following recommendations relating to development in San Francisco:

  1. Focus on the major development projects and public infrastructure investments

The Task Force recognizes that there are already many projects that could boost construction – ones that have already received approvals and/or been identified by the City.  The City recently underwent a major rezoning in Central SoMa, with several large projects approved.  In addition, there are several significant long-term projects underway on SF Port property.  Further, the City’s last 10-year Capital plan allocated $39 billion in investments from 2020-2029.

The Task Force calls for the City to continue focusing on its major developments, such as the Shipyard, Mission Rock, Pier 70, Treasure Island, and Central SoMa, as these projects bring with them thousands of jobs and support for local business.  They also call for an update to the City’s Capital plan, focusing on projects that promote good state of repair for its buildings, right-of-way, public spaces, and other infrastructure assets.  If these projects can begin (or continue) construction within the next year, then it would provide needed jobs for the construction industry while developing spaces for the eventual reopening of the City.

  1. “Redesign” the building permit processes and consider an application fee “holiday” or reduction to incentivize permits

The Task Force calls for the overhaul of the City’s permit processes – not a new idea but one that has gained traction over the past months.  The Task Force calls out DBI, Fire Department, SFPUC, and Planning, as agencies that should implement programmatic and regulatory changes to redesign the permitting process, increase transparency, make the permitting process as easy and affordable as possible, and to remove permitting and process requirements not directly related to health and safety.

The Task Force also calls for an application fee “holiday” – a temporary reduction or elimination of fees – that would incentivize owners (both business and residential) and developers to pull permits and undertake construction projects.

  1. Allow for the deferral of Development Impact Fees

Development Impact Fees are imposed on certain projects that will cause an increase in demand of public services, infrastructure, and housing.  Impact fees are imposed at project approval and collected at the issuance of the first construction document, often several years before a development receives its certificate of occupancy.  The City has implemented fee deferral programs before, most notably in 2010-2013 during the Great Recession, as well as 2019’s fee waiver for 100% affordable housing projects and Accessory Dwelling Units (ADUs).

The Task Force recommends that the Planning Department develop another fee deferral program for a limited time that would allow developers to defer paying impact fees until each project receives the first certificate of occupancy, at the end of construction, rather than at issuance of first construction document.  This would help developers secure financing on projects that would likely not be able to break ground and pay impact fees otherwise.

These three recommendations are a few of the 41 that address the financial impacts of COVID-19.  Any application fee reductions, impact fee deferrals, or other fee “holidays” will require legislation by the Board of Supervisors.  Application fees are imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, and the administrative enforcement and adjudication.  Simply put, the application fees charged go back into the City’s General Fund and are used to maintain City services and agency functions and for employee salaries.  According to the 2020-2021 City Budget, Planning experienced a decrease in application and permit volume of 10% – numbers that have likely increased due to COVID-19.  Reduction in applications results in a budget shortfall, impacting the City’s ability to review projects and permits.  Impact fees are used to create new affordable housing, build infrastructure projects such as parks, bike lanes, and street improvements, and fund new childcare facilities, to name a few areas where the fees are allocated.  These fees are integral to the City’s major improvement projects outlined in the first recommendation above.  The Board of Supervisors will have to balance these concerns when considering whether and how to implement the Task Force’s recommendations.

It is unclear at the date of this writing whether the Mayor’s Office or Board of Supervisors will seek legislation to reduce, eliminate, or defer application and impact fees.  Reuben, Junius, & Rose, LLP will continue to monitor these recommendations.

[1] Recovery Task Force Report, October 2020, City and County of San Francisco/OneSF, pgs. 16 – 19.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tara Sullivan.

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.

Streamlining Construction Permits

Meeting the needs of commercial projects after entitlement can be difficult when City agencies are tasked with solving a housing crisis. The Small Business Permit Streamlining Ordinance seeks to update several areas of code that affect various agency processes and may contribute to an elegant solution for commercial property owners exploring options with tenants for shared space.

The ordinance proposes to align regulation of restaurant enclosures for outdoor food service and restroom requirements with state standards; amend the Planning Code to clarify that a Type 23 liquor license may be used in conjunction with a Bar or Restaurant use;  amend the definition of a Bar to provide for consistent treatment of Type 64 liquor licenses; to reduce the distance measured for Retail Sales and Services uses in Neighborhood Commercial zoning districts to any neighborhood commercial district; to reduce the distance measured for nonconforming uses in RH (Residential, House), RM (Residential, Mixed), and RTO (Residential, Transit-Oriented) districts to any neighborhood commercial district; and importantly, to allow Limited Restaurant use as an Accessory Use which would enable more flex use spaces in neighborhoods who want to encourage and maximize a thriving local scene. For more information on this, read the legislation here:  File No. 181211.

These are times that keep the City focused on a healthy socio-economic future requiring balance between housing and the associated commercial infrastructure needed to sustain the inhabitants, pursue cultural growth and allow neighborhood flavor to emerge in partnership with neighborhood community groups questing to influence use of their local spaces.

Commercial property owners may also be interested in following the crafting of recently proposed legislation which would amend the Building Code to require the assessment of a fee within the first 30 days of vacancy for any storefront that is not tenanted regardless of whether it is offered for rent or lease; and require annual safety inspections within sixty days of the annual registration renewal and the issuance of a Notice of Violation with a penalty of four times the registration fee for failure to register within thirty days. If passed without reform, this legislation has the potential to over-burden the property owner and require them to navigate substantively bureaucratic code enforcement issues especially if their potential tenants meet with delay working through after entitlement permitting for their tenant improvements. For more information on this, read the legislation here: File No. 181213.

The Small Business Permit Streamlining Ordinance may offer some relief, but it does not provide additional staff to assist with the increased review times for commercial projects due to ADU and housing being given priority. In a City that lacks housing, prioritizing these projects without increasing staff or allocating paid overtime for in-house review can critically impact commercial alteration projects and contribute to costly and seemingly ever moving targets for start of construction.

San Francisco entitlement and permitting processes offer unique challenges to estimating project timelines. Stakeholders need to more carefully assess what to include in the initial permit set being supplied for Planning review when construction timelines, which are dependent on the after entitlement issuance of building permits, are a factor. The Planning Department can review an architectural set – best known as a “Site” permit set for entitlement; however that same permit set does not and cannot be converted to a “Full” building permit set automatically after planning review.  Filing with a design plan as a Site permit locks the project sponsor into a two-phase review process and may contribute to a property owner realizing excessive, financial impact, if the afore-mentioned vacant storefront legislation does not include a provision giving deferral for fees, enforcement and penalties while a tenant improvement is under permit review. The Land Use Committee should be encouraged to expand the vacant storefront legislation to include alternative paths for property owners who can demonstrate that a potential tenant is in process of entitlement and subsequent permitting.

While projects requiring more than an hour of review, do not qualify for over the counter processing at the building department, in house review of a full permit can cut permitting time in half and is one way design professionals and property owners can help guide a prospective tenant toward a more rapid occupancy of their buildings.

 

Authored by Reuben, Junius & Rose, LLP  Permit Consulting Manager Gillian Allen

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.