June 11, 2013
Do Developers Need Stimulation Or Neighborhoods The Cash?
In 2009, near the nadir of requests for new building permits in San Francisco, Mayor Newsom initiated a fee deferral program for developer in an effort to provide an economic stimulus for new construction projects, a program which was adopted on July 1, 2010.
Development impact fees are typically collected at one of two points: either at the issuance of a permit to build or at the building’s Certificate of Occupancy. The deferral program allowed developers to defer the paying of impact fees due at the time of permitting until the certificate of occupancy was issued, typically a two year delay.
Since the program was adopted, there have been 107 building applications subject to development impact fees and/or in-lieu fees. Of these 107 applications, 68 project sponsors elected to defer fees. These 68 projects were assessed over $86 million worth of fees—the vast majority of the $93 million worth of impact fees assessed during this period. So while only 63.6% of the project sponsors who were eligible to defer fees chose to do so, the project sponsors who did defer had the projects with the largest fees, resulting in deferral of 92.5% of all impact fees eligible for deferral.
In total, roughly $68 million worth of fees were deferred, which included $40 million earmarked to support the development of affordable housing in San Francisco, $7 million for improving local transit and flow, and another $7 million to mitigate the impact of new developments in SoMa and Rincon Hill.
Set to expire on July 1, 2013, this week San Francisco’s Planning Commission is slated to decide whether they believe "the stimulative effects of the Fee Deferral Program are still needed" or if the program should be allowed to expire and impact fees for future developments should be collected and put to use sooner rather than later.
First Published: June 11, 2013 11:30 AM
Comments from "Plugged In" Readers
After looking at the graph I would say keep the deferral. I never like to see politicians get a huge pile of cash all at once, they love to spend it the minute they get it. Much better to spread it out over time so they don't blow it on one stupid project.
Reminds me of the recent Muni windfall which was promptly squandered on free you passes, and now they are raising fare price again.
Posted by: lyqwyd at June 11, 2013 1:10 PM
I don't fully agree. The way it's supposed to work: the government gives incentives during downturns to help the economy. When the economy comes back, remove the incentives and fill back the coffers. That money will come handy during the next downturn.
Now, lyqwyd's reaction is typical of our distrust of government. Some justified, and some pure fantasy. Nobody likes taxes, but everyone is happy to see a co kick out a drunken guy from your front porch or a fireman saving your house.
If the government keeps giving away incentives even during good times, then no wonder our deficits are ballooning. If we empty the coffers during bad times, then do not refill them during good, that cycle cannot last more than 2 rounds.
Developers need NO incentive to develop today. There's a lot of profit to be made. Why should the tax payer have to bear the weight of sustaining our city alone? After all everyone loses light and views with these new buildings. We have more density and with it a bit more tension and a bit less mobility. The upside should be a wealthier city (better higher quality services), not only wealthier individuals. Or else our social contract breaks down.
Posted by: lol at June 11, 2013 1:56 PM
Maybe there's a way to achieve both phasing out incentives in good times as well as smoothing out the revenue. I didn't read lyqwyd's assertion that the government will blow through windfall as mistrust. It is more just plain reality. Many people just can't let a capital balance sit there waiting for a rainy day. This isn't so much of a problem in relatively rich SF, but during the boom many bay area communities built a lot of facilities: libraries, parks, fire stations, etc. that they now cannot afford to staff. And then there's unfunded pension benefits.
One way to prevent a binge spender from causing damage is to regulate and moderate their income. People are naturally binge spenders.
Posted by: The Milkshake of Despair at June 11, 2013 2:49 PM
folks. these fees don't go into some magic slush fund accessible only to those dastardly politicians. they go into specific funds for the good stuff that makes it better to live here - or depending on your POV stuff that helps keep it from getting worse. you know, things like parks, muni, and, street improvements. all are already underfunded and can only take so much more of a beating before they completely crop out.
Posted by: the knower of rules at June 11, 2013 10:38 PM
The development fees are not funds that should be "spread out" over time. They are intended to mitigate the impacts of development by paying for various improvements which, directly or indirectly, relate to the project or the increased population the project will bring.
So allowing the fees to be deferred means that the city doesn't get the money until the project opens for business. That's way too late — it may take years to plan and implement the necessary improvements. When the money is paid up front, the improvements can be made more-or-less on the same schedule as the new development. When the payments are deferred, we are playing catch-up.
We no longer need this stimulus for development, if in fact we ever did. It should be allowed to expire.
Posted by: Dubocian at June 12, 2013 1:58 AM
I agree that "binge spending" can be an issue. But it's more an issue with the individuals than with the system.
Yes these funds are earmarked for specific improvement. And when they are not collected the improvements have to happen anyway, meaning taking from schools, other projects, or creating debt. When a sewer pipe becomes insufficient, the city doesn't say "we didn't collect our fees and therefore cannot do anything about it", they just do the project and take the money from the collective pocket. This means deferred maintenance (they have repaved part of Market Street this WE at long last, Yeah!!!)
SF's finances are healthier than many other cities, which means it's tempting to give incentives here and there. Just remember that in times of crisis, when the city coffers are empty, private companies cannot be asked to make an effort. It's already too late at this point.
Posted by: lol at June 12, 2013 8:25 AM
"Binge" spending isn't the problem. Binge spending implies a bunch of one time spending that then stops until the next binge. The issue is that governments have a tendency to take a windfall and use it to fund ongoing expenditures that only make sense if the windfall is in fact not a windfall but a permanent increase in revenue. They basically have a tendency to just budget in the windfall reoccuring every year.
Posted by: Rillion at June 12, 2013 10:04 AM
Philosophically I agree the incentive should be ended, but there's a huge difference between the theoretical ideal, and the practical reality.
I just keep looking at the chart. Our leaders are proven to squander large infusions of money, this isn't just at the SF city level, it can be seen at state and federal levels.
The leadership does best when their funding is fairly stable, and they perform very poorly when it fluctuates wildly.
As MoD points out this is somewhat human nature.
I wholeheartedly agree with ending the program, but it should be a gradual phase-out over the next 5-10 years.
Posted by: lyqwyd at June 12, 2013 10:13 AM
These impact fees are inordinately high in a lot of cases. I won't argue whether the fees are fair or not (from my first sentence, you can probably guess where I sit on that one), however I have worked on projects where the fees equal 6 to 8% of the total construction hard cost. Why should developers have to pay such fees before the project even starts construction, as opposed to waiting to the end of the project, when they are in a position of generating revenue. The developer makes no money until the project is sold (or is bringing in rents). Financing large construction projects is complicated as it is, these city fees just make it tougher. I would vote to make the fee deferment permanent.
Posted by: apropos at June 12, 2013 3:52 PM