In Support of SB 1227, “San Francisco: downtown revitalization zone: welfare tax and California Environmental Quality Act exemptions”
In Support of SB 1227, “San Francisco: downtown revitalization zone: welfare tax and California Environmental Quality Act exemptions”
February 27, 2024
Sen. Scott Wiener
1021 O Street,
Suite 8620
Sacramento, CA 95814-4900
Dear Sen. Wiener,
My name is Steven Greenhut and I am the Western Region director for the R Street Institute, a nonprofit, nonpartisan public policy research organization that promotes freer markets and limited, effective government. I’m writing to express R Street’s support for Senate Bill 1227. The bill aligns with our principles of promoting housing construction by reducing government barriers imposed by regulations such as the California Environmental Quality Act (CEQA).
Although R Street would like to see broader CEQA exemptions for all types of housing construction –including market-rate and suburban housing – we support your dogged efforts to pass targeted exemptions. Any measures to reduce burdens that restrict housing supply are welcome given the state’s home-affordability crisis and the related problem of homelessness. SB 1227 is a sensible follow-up to Senate Bill 423, which extends housing-related streamlining measures, applies them in the coastal zone and provides extra scrutiny of San Francisco’s Byzantine building-approval process.
We applaud SB 1227’s innovative, market-oriented approach toward spurring San Francisco’s downtown revitalization and believe it will help private investors and developers respond to the astounding change in the city’s commercial real-estate market. Success in downtown San Francisco could provide a template for other California cities to follow. As you noted in your statement introducing the legislation, the city’s downtown office-vacancy rates have hit an astounding 35.8 percent – a 700-percent jump since pre-pandemic levels. It’s foolhardy to expect the downtown office market to return as it was or to let the vacancy problem fester.
Downtown property owners certainly have the wherewithal and incentive to adapt to changing market conditions, but the regulatory process gets in the way. The news about the city’s disastrous attempt to install a $1.7-million toilet in the Noe Valley Town Square has received so much attention because it highlights San Francisco’s convoluted process for permitting anything – even simple public projects that lack opposition. SB 1227 doesn’t change city permitting rules, of course, but it will remove the state-imposed CEQA hurdle and do so for a wide range of projects. Currently, CEQA lawsuits derail projects or delay them for years. They add substantial costs to building.
By providing a 10-year CEQA exemption for downtown projects as well as a property tax break for projects that provide certain types of rental housing, SB 1227 would incentivize a variety of projects that could help transition the downtown to something more vibrant. Offices are fine if that’s what the market demands, but the market is now demanding something else. Building regulations need to adjust to that change. Mayor London Breed is correct that streamlined construction rules will help the area offer alternatives to a 9-to-5 working environment that is no longer the standard, especially in a tech-oriented city such as San Francisco. Additional housing downtown would provide a clientele for mixed-used and entertainment-oriented projects.
Beyond stubbornly high office-vacancy rates, there are other telltale signs that many downtowns need to move beyond their office orientation. The Financial Times reported this week that delinquent commercial property debt recently tripled at the nation’s biggest banks. “Bad commercial real estate loans have overtaken loss reserves at the biggest US banks after a sharp increase in late payments linked to offices, shopping centers and other properties,” the article explained. In other words, these vacancies portend a serious financial challenge. Vacant buildings also pose financial strains on municipal budgets, which can no longer count on office-related revenues.
On a related note, CNN reported last summer that nearly 40 retail stores have closed around Union Square since the pandemic – victims not only of ongoing crime problems, but of a reduced population of office workers to patronize those businesses. The city’s soaring home prices – still near $1.3 million despite recent fluctuations – are one reason for San Francisco’s falling population. That speaks to the need for incentivizing housing construction and rental conversions, as SB 1227 would do. Even with streamlined building approvals, these projects take substantial time to plan and build. For that reason, we’d hope this legislation moves ahead sooner rather than later.
Supporters of the measure, such as the San Francisco Chamber of Commerce, talk about the need to “re-imagine downtown” by creating a more vibrant mix of businesses. We agree. Of course, San Francisco needs a lot less top-down “re-imagining” from its city government and more efforts that let the market respond from the bottom up. We appreciate your emphasis that the bill would “allow change” rather than mandate it. That’s the right approach toward urban revitalization. Despite its ongoing struggles and encrusted bureaucracies, San Francisco remains a vibrant and entrepreneurial city. It’s easy to imagine the exciting projects that will emerge by reducing the CEQA impediment. We support SB 1227 because it will help unleash those creative forces.
Best regards,
Steven Greenhut
Steven Greenhut
Western Region Director
R Street Institute
[email protected]
(909) 260-9836