San Francisco Officials on Collision Course With Developers Over Tax

Update, 5 p.m. Tuesday: The San Francisco Board of Supervisors has voted unanimously to approve a special downtown tax district meant to support transportation infrastructure projects.

The Transbay Transit Community Facilities District is designed to collect a levy from developers of high-rise projects surrounding the new Transbay Terminal. The funds collected would help pay for the terminal itself and other projects, including extending Caltrain from its current South of Market location to downtown.

The developers agreed to the district and special levy two years ago and got city concessions in return, including permits to exceed the city's building-height limit in the Transbay Terminal neighborhood, centered at First and Mission streets.

But earlier this month, developers said the special levy is excessive and threatened to sue the city. That led to an unsuccessful effort to broker a deal that would modify the tax payment schedule for the developers.

Before Tuesday's vote, Supervisor Scott Wiener called the potential lawsuit "weak" and added, "I don’t think we should be bullied into giving up a huge amount of critical transit money because a group of developers don’t want to fulfill their obligation under this massive upzoning that the city did for these properties.”

Chris Lehane, a longtime Democratic political consultant who has been working with the developers, said via email after board's vote: "While we made clear time and time again our interest and desire to secure an agreement on rates that would be fair to all the parties, at the end of the day we could not reach a consensus compromise solution that would work for the consortium of developers with projects in the district."

The developers aren't saying if they'll make good on their threat to sue, but city officials say there would be consequences if they try to get out of paying the special tax.

Original post: The San Francisco Board of Supervisors and Mayor Ed Lee appear to be headed toward a showdown with big developers over creation of a special tax district set up to fund construction of new downtown transit infrastructure.

The board is scheduled to consider the Transbay Transit Community Facilities District during its meeting Tuesday afternoon.

In exchange for building towers beyond allowed height limits, developers agreed to the benefits district plan, which would require them to pay a special tax to fund transportation projects. Among the initiatives that would get funding from the tax is extending Caltrain from its current location at Fourth and King streets to the new Transbay Terminal.

But the developers are now threatening to sue. They say the taxes, assessed on property values that have risen sharply since the original agreement, are too high. That threat led the Board of Supervisors to delay a vote while a compromise was negotiated.

City officials then worked out a deal giving developers 37 years, instead of the original 30, to pay the special tax. In return, they'd promise not to sue. But two City Hall sources say at least one developer is holding out -- meaning the compromise deal could be off.

If that's the case, one source says Mayor Ed Lee would push for the original agreement.