This Week in San Francisco Land Use – Sept. 14, 2012

​Revamp of Transit Impact Development Fee (TIDF) Proposed

Significant changes to the Transit Impact Development Fee (“TIDF”) may be coming our way soon.  The TIDF is a per-square-foot impact fee that applies to non-residential developments proposing new construction and changes in use of existing buildings.  A broad coalition including Mayor Lee, Supervisor Wiener and Supervisor Olague have introduced the amendments, which gives the legislation good odds of passing at this point.  Note, however, that the previously-proposed expansion of the TIDF to apply to residential uses is not proposed as part of this legislation (nor is the broader Transportation Sustainability Fee (“TSF”), which we reported on back in May 2012 and would add the benefit of eliminating the need for CEQA transportation studies).

Among the changes proposed, we see two as having the most impact on development in the city. First, the threshold for triggering the TIDF would be reduced from 3,000 square feet to 800 square feet.  It was not uncommon for projects to avoid the TIDF by limiting non-residential uses – say a ground floor retail space in a residential building – to below 3,000 square feet.  Now, with an 800 square foot trigger, most non-residential projects, or components of projects, will trigger the fee.

The other major change is that the fee rates are being changed.  This is not unique in itself – the fee rates increase on an annual basis – but the legislation increases the disparity between the office fee rate and the industrial fee rate significantly.  The office fee rate will increase from $12.06 to $12.64 and the industrial fee rate will be reduced from $9.65 to $6.80.  The real impact of this will be felt in projects converting old industrial buildings into office.  Since the TIDF provides for a fee credit based on the fee rate of the current use and the fee rate of the proposed use, the credit for a change from industrial to office would decrease from roughly 80% to 54%.  Essentially, a reduction in the industrial fee rate helps few projects (as there are few industrial developments these days in the city) but will significantly decrease the credit available for an industrial to office conversion.

There are some other goodies in the legislation, including additional fee credits for policy reasons, such as a reduction in the fee for businesses occupying a space of less than 5,000 square feet and for projects that do not maximize the amount of parking permitted.  However, in the end, the legislation ends up making the TIDF a larger exaction on projects – especially those office conversions that are so popular these days.

Residential Parking Tax Reform Measure Proposed

A new residential parking tax reform measure has also been introduced by Supervisor Wiener that could bring residential parking operators into the light – but there’s a catch! Currently, the same parking tax collection and registration rules apply to owners of major commercial parking garages downtown and to owners of parking spaces at a residential building being rented out to residents who do not live in the building.  These significant rules include obtaining an annual parking permit, making monthly tax prepayments, paying associated fees, and maintaining certain levels of insurance.  According to the city itself, these rules have led to likely thousands of owners of residential parking spaces who are not complying with the parking tax ordinance. Taxes due even on a single space can add up over time, and including penalties for failure to pay the tax on time, and can create a major cost that hang over many residential parking space owners’ heads.  

Supervisor Wiener’s legislation would create a “carve out” for certain residential parking operations. For parking operations consisting of 5 or less spaces rented to non-residents may be eligible for a significantly streamlined parking tax.  The spaces must be rented on at least a monthly basis and the total gross receipts must not exceed $4,000 quarterly and $15,000 annually.  If eligible, a residential parking operation would be exempted from the commercial parking permit requirement, from the monthly prepayment requirement, and from the revenue control equipment fee.  The residential parking owner must still file quarterly parking tax returns. 

While the first part of the legislation will be important for new owners of residential parking spaces, those who have owned residential parking spaces for many years without paying the parking tax face significant tax liability and penalties, and would have little incentive to come clean now.  For these owners, the legislation attempts to entice them into the new program by providing amnesty for taxes, fees, and penalties not paid up until April 1, 2011.  That may not be enough to bring existing residential parking owners into the open.  First, the amnesty does not provide protection for unpaid taxes between April 1, 2011 and today – which could be significant when penalties are added.  Also, as we have seen with the Planning Department’s legitimization program, the “amnesty” provision may not be as forgiving as it sounds, and residential parking owners could run the risk of exposing themselves to the city, and subsequently being denied eligibility for the amnesty program.

Supervisor Wiener’s legislation is a common sense attempt to distinguish residential owners who rent a small amount of parking spaces from major downtown commercial parking garage owners.  While the “amnesty” provisions may not be enough to bring the thousands of existing residential parking owners into the light, it will certainly make the parking tax work better moving forward.

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, 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.

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