AB 2488: Downtown revitalization and economic recovery financing districts: City and County of San Francisco.
- Session Year: 2023-2024
- House: Assembly
- Latest Version Date: 2024-09-19
Current Status:
Passed
(2024-09-19: Chaptered by Secretary of State - Chapter 274, Statutes of 2024.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
Existing law authorizes the legislative body of a city or a county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance, including the acquisition, construction, or rehabilitation of housing for persons of very low, low, and moderate income. Existing law requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing district, at the same time the resolution to form an enhanced infrastructure district is adopted. Existing law requires the public financing authority to adopt an infrastructure financing plan that includes specified information, including a finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
This bill would authorize the City and County of San Francisco to designate one downtown revitalization and economic recovery financing district for the purpose of financing commercial-to-residential conversion projects with incremental tax revenues generated by commercial-to-residential conversion projects within the district. The bill would require the boundaries of the district to be limited to downtown San Francisco, as defined.
The bill would establish a criteria for the composition of the district board. The bill would require the City and County of San Francisco to establish the board for the district at the same time that it adopts the resolution of intention. The bill would require the district to prepare a downtown revitalization financing plan that includes specified information and requirements. In this regard, the bill would require a downtown revitalization financing plan to include a requirement that incremental tax revenues be distributed back to the respective project for the purpose of financing the debt service of the project for 30 years or until the district ceases to exist. The bill would also require the downtown revitalization financing plan to identify each existing commercial building within the district that may opt in to receive incremental tax revenue from the district. The bill would require a district to establish a process for eligible commercial-to-residential conversion projects identified in the financing plan to opt into receiving incremental tax revenue generated by the respective project. The bill would prohibit an eligible commercial-to-residential conversion project from opting in to receive incremental tax revenue from the district after December 31, 2032. The bill would require the financing plan to include a requirement that any remaining incremental tax revenues be used for downtown revitalization programs. The bill would require the financing plan to provide a date upon which the district will cease to exist and tax increment distributions to the district will end.
This bill would specify that the commercial-to-residential conversion projects that opt in to receive incremental tax revenue are public works for which prevailing wages shall be paid, as specified. The bill would require the commercial-to-residential conversion projects that opt in to receive incremental tax revenue to comply with labor standards adopted by the Board of Supervisors, as specified. The bill would prohibit commercial-to-residential conversion projects from receiving incremental tax revenue or net available revenue, as defined, if the Board of Supervisors does not adopt labor standards, as specified.
This bill would make legislative findings and declarations as to the necessity of a special statute for the City and County of San Francisco.
Existing law authorizes the legislative body of a city or a county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance, including the acquisition, construction, or rehabilitation of housing for persons of very low, low, and moderate income. Existing law requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing district, at the same time the resolution to form an enhanced infrastructure district is adopted. Existing law requires the public financing authority to adopt an infrastructure financing plan that includes specified information, including a finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
This bill would authorize the City and County of San Francisco to designate one downtown revitalization and economic recovery financing district for the purpose of financing commercial-to-residential conversion projects with incremental tax revenues generated by commercial-to-residential conversion projects within the district. The bill would require the boundaries of the district to be limited to downtown San Francisco, as defined.
The bill would establish a criteria for the composition of the district board. The bill would require the City and County of San Francisco to establish the board for the district at the same time that it adopts the resolution of intention. The bill would require the district to prepare a downtown revitalization financing plan that includes specified information and requirements. In this regard, the bill would require a downtown revitalization financing plan to include a requirement that incremental tax revenues be distributed back to the respective project for the purpose of financing the debt service of the project for 30 years or until the district ceases to exist. The bill would also require the downtown revitalization financing plan to identify each existing commercial building within the district that may opt in to receive incremental tax revenue from the district. The bill would require a district to establish a process for eligible commercial-to-residential conversion projects identified in the financing plan to opt into receiving incremental tax revenue generated by the respective project. The bill would prohibit an eligible commercial-to-residential conversion project from opting in to receive incremental tax revenue from the district after December 31, 2032. The bill would require the financing plan to include a requirement that any remaining incremental tax revenues be used for downtown revitalization programs. The bill would require the financing plan to provide a date upon which the district will cease to exist and tax increment distributions to the district will end.
This bill would specify that the commercial-to-residential conversion projects that opt in to receive incremental tax revenue are public works for which prevailing wages shall be paid, as specified. The bill would require the commercial-to-residential conversion projects that opt in to receive incremental tax revenue to comply with labor standards adopted by the Board of Supervisors, as specified. The bill would prohibit commercial-to-residential conversion projects from receiving incremental tax revenue or net available revenue, as defined, if the Board of Supervisors does not adopt labor standards, as specified.
This bill would make legislative findings and declarations as to the necessity of a special statute for the City and County of San Francisco.
Existing law authorizes the legislative body of a city or a county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance, including the acquisition, construction, or rehabilitation of housing for persons of very low, low, and moderate income. Existing law requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing district, at the same time the resolution to form an enhanced infrastructure district is adopted. Existing law requires the public financing authority to adopt an infrastructure financing plan that includes specified information, including a finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
This bill would authorize the City and County of San Francisco to designate one downtown revitalization and economic recovery financing district for the purpose of financing office-to-residential commercial-to-residential conversion projects with incremental tax revenues generated by office-to-residential commercial-to-residential conversion projects within the district. The bill would require the boundaries of the district to be limited to downtown San Francisco, as defined.
The bill would establish a criteria for the composition of the district board. The bill would require the City and County of San Francisco to establish the board for the district at the same time that it adopts the resolution of intention. The bill would require the district to prepare and adopt a downtown revitalization financing plan that includes specified information and requirements. In this regard, the bill would require a downtown revitalization financing plan to include a requirement that incremental tax revenues be allocated distributed back to the respective project for the purpose of financing the debt service of the project for 30 years or until the district ceases to exist. The bill would also require the downtown revitalization financing plan to identify each existing commercial office building within the district that may opt in to receive incremental tax revenue from the district. The bill would require a district to establish a process for eligible office-to-residential commercial-to-residential conversion projects identified in the financing plan to opt into receiving incremental tax revenue generated by the respective project. The bill would prohibit an eligible office-to-residential commercial-to-residential conversion project from opting in to receive incremental tax revenue from the district after December 31, 2032. The bill would require the financing plan to include a requirement that any remaining incremental tax revenues be allocated to uses supporting downtown revitalization. used for downtown revitalization programs. The bill would require the financing plan to provide a date upon which the district will cease to exist and tax increment allocations distributions to the district will end.
This bill would state the intent of the Legislature to amend these provisions in order to establish labor standards applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue under the bill.This bill would specify that the commercial-to-residential conversion projects that opt in to receive incremental tax revenue are public works for which prevailing wages shall be paid, as specified. The bill would require the commercial-to-residential conversion projects that opt in to receive incremental tax revenue to comply with labor standards adopted by the Board of Supervisors, as specified. The bill would prohibit commercial-to-residential conversion projects from receiving incremental tax revenue or net available revenue, as defined, if the Board of Supervisors does not adopt labor standards, as specified.
This bill would make legislative findings and declarations as to the necessity of a special statute for the City and County of San Francisco.
Existing law authorizes the legislative body of a city or a county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance, including the acquisition, construction, or rehabilitation of housing for persons of very low, low, and moderate income. Existing law requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing district, at the same time the resolution to form an enhanced infrastructure district is adopted. Existing law requires the public financing authority to adopt an infrastructure financing plan that includes specified information, including a finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
This bill would authorize the City and County of San Francisco to designate a one downtown revitalization and economic recovery financing district for the purpose of financing office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects within the district. The bill would require the boundaries of the district to be contiguous with the boundaries of the City and County of San Francisco. limited to downtown San Francisco, as defined.
The bill would establish a criteria for the composition of the district board. The bill would require the City and County of San Francisco to establish the board for the district at the same time that it adopts the resolution of intention. The bill would require the district to prepare and adopt a downtown revitalization financing plan that includes specified information and requirements. In this regard, the bill would require a downtown revitalization financing plan to include a requirement that incremental tax revenues be allocated back to the respective project for the purpose of financing the debt service of the project for 30 years or until the district ceases to exist. The bill would also require the downtown revitalization financing plan to identify each existing commercial office building within the district that may opt in to receive incremental tax revenue from the district. The bill would require a district to establish a process for eligible office-to-residential conversion projects identified in the financing plan to opt into receiving incremental tax revenue. revenue generated by the respective project. The bill would prohibit an eligible office-to-residential conversion project from opting in to receive incremental tax revenue from the district after December 31, 2032. The bill would require the financing plan to include a requirement that any remaining incremental tax revenues be allocated to uses supporting downtown revitalization. The bill would require the financing plan to provide a date upon which the district will cease to exist and tax increment allocations to the district will end.
This bill would state the intent of the Legislature to amend these provisions in order to establish labor standards applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue under the bill.
This bill would make legislative findings and declarations as to the necessity of a special statute for the City and County of San Francisco.
Existing law authorizes the legislative body of a city or a county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance, including the acquisition, construction, or rehabilitation of housing for persons of very low, low, and moderate income. Existing law requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing district, at the same time the resolution to form an enhanced infrastructure district is adopted. Existing law requires the public financing authority to adopt an infrastructure financing plan that includes specified information, including a finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
This bill would authorize a local government the City and County of San Francisco to designate one or more a downtown revitalization and economic recovery financing districts district for the purpose of financing office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects within the district. The bill would require the boundaries of a district, at the time the local government adopts a resolution of intention to establish the district, to meet specified criteria regarding commercial office uses and commercial office vacancy rates. the district to be contiguous with the boundaries of the City and County of San Francisco.
The bill would establish a criteria for the composition of the district board. The bill would require the local government the City and County of San Francisco to establish the board for the district at the same time that it adopts the resolution of intention. The bill would require the district to prepare and adopt a downtown revitalization financing plan that includes specified information and requirements. In this regard, the bill would require a downtown revitalization financing plan to include a requirement that incremental tax revenues be allocated back to the respective project for the purpose of financing the debt service of the project for 30 years or until the district ceases to exist. The bill would also require the downtown revitalization financing plan to identify each existing commercial office building within the district that may opt in to receive incremental tax revenue from the district. The bill would require a district to establish a process for eligible office-to-residential conversion projects identified in the financing plan to opt into receiving incremental tax revenue. The bill would prohibit an eligible office-to-residential conversion project from opting in to receive incremental tax revenue from the district after December 31, 2032. The bill would require the financing plan to include a requirement that any remaining incremental tax revenues be allocated to uses supporting downtown revitalization. The bill would require the financing plan to provide a date upon which the district will cease to exist and tax increment allocations to the district will end.
This bill would state the intent of the Legislature to amend these provisions in order to establish labor standards applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue under the bill.
This bill would make legislative findings and declarations as to the necessity of a special statute for the City and County of San Francisco.
Existing law authorizes the legislative body of a city or a county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance, including the acquisition, construction, or rehabilitation of housing for persons of very low, low, and moderate income. Existing law requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing district, at the same time the resolution to form an enhanced infrastructure district is adopted. Existing law requires the public financing authority to adopt an infrastructure financing plan that includes specified information, including a finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
This bill would authorize a local government to designate one or more downtown revitalization and economic recovery financing districts for the purpose of financing office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects within the district. The bill would require the boundaries of a district, at the time the local government adopts a resolution of intention to establish the district, to meet specified criteria regarding commercial office uses and commercial office vacancy rates.
The bill would establish a criteria for the composition of the district board. The bill would require the local government to establish the board for the district at the same time that it adopts the resolution of intention. The bill would require the district to prepare and adopt a downtown revitalization financing plan that includes specified information and requirements. In this regard, the bill would require a downtown revitalization financing plan to include a requirement that incremental tax revenues be allocated back to the respective project for the purpose of financing the debt service of the project for 30 years or until the district ceases to exist. The bill would also require the downtown revitalization financing plan to identify each existing commercial office building within the district that may opt in to receive incremental tax revenue from the district. The bill would require a district to establish a process for eligible office-to-residential conversion projects identified in the financing plan to opt into receiving incremental tax revenue. The bill would require the financing plan to include a requirement that any remaining incremental tax revenues be allocated to uses supporting downtown revitalization. The bill would require the financing plan to provide a date upon which the district will cease to exist and tax increment allocations to the district will end.
This bill would state the intent of the Legislature to amend these provisions in order to establish labor standards applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue under the bill.
Existing law authorizes a city or county to designate one or more proposed enhanced infrastructure financing districts pursuant to specified requirements. Existing law requires that proceedings for the establishment of these districts be instituted by the adoption of a resolution of intention, as specified.This bill would make a nonsubstantive change in these provisions.Existing law authorizes a city or county to designate one or more proposed enhanced infrastructure financing districts pursuant to specified requirements. Existing law requires that proceedings for the establishment of these districts be instituted by the adoption of a resolution of intention, as specified.
This bill would make a nonsubstantive change in these provisions.
For purposes of this part:
(a)Board of Supervisors means the Board of Supervisors of the City and County of San Francisco.
(b)Commercial-to-residential conversion project means a housing development project that converts an existing qualifying commercial building to market rate or affordable housing by either reuse of the existing commercial building or by replacing the commercial building with a new residential building.
(c)Communitywide significance means benefits associated with the commercial-to-residential conversion project beyond the conversion of commercial space to residential dwelling units.
(d)Designated official means the appropriate official designated pursuant to Section 62455.
(e)District board means the governing board of the downtown revitalization and economic recovery financing district.
(f)(1)Downtown revitalization and economic recovery financing district or district means a legally constituted governmental entity separate and distinct from the City and County of San Francisco for the sole purpose of financing commercial-to-residential conversion projects or other projects of communitywide significance in downtown San Francisco that support downtown revitalization and economic recovery as authorized by this division. A downtown revitalization and economic recovery financing district is a local agency for purposes of Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5.
(2)A downtown revitalization and economic recovery financing district shall be deemed a district within the meaning of Section 1 of Article XIIIA of the California Constitution.
(g)Downtown revitalization financing plan means an adopted financing plan prepared pursuant to Section 62456.
(h)Downtown San Francisco means an area in the City and County of San Francisco bounded beginning at the intersection of Washington Street and The Embarcadero, running southerly along The Embarcadero and then King Street to 3rd Street, running northwesterly on 3rd Street to Townsend Street, running southwesterly along Townsend Street to 6th Street, running northwesterly along 6th Street to Mission Street, running southwesterly along Mission Street to 10th Street, running southeasterly along 10th Street to Minna Street, running southwesterly along Minna Street to Lafayette Street, running southeasterly along Lafayette Street to Howard Street, running southerly along Howard Street to the junction with the Central Freeway, running westerly along the Central Freeway to Market Street, running northeasterly along Market Street to Franklin Street, running northerly along Franklin Street to Golden Gate Avenue, running easterly along Golden Gate Avenue to Taylor Street, running northerly along Taylor Street to Turk Street, running easterly along Turk Street to Mason Street, running northerly along Mason Street to Ellis Street, running westerly along Ellis Street to Taylor Street, running northerly along Taylor Street to OFarrell Street, running westerly along OFarrell Street to Shannon Street, running northerly along Shannon Street to Geary Street, running easterly along Geary Street to Taylor Street, running northerly along Taylor Street to Bush Street, running easterly along Bush Street to Kearny Street, running northerly along Kearny Street to Sacramento Street, running easterly along Sacramento Street to Montgomery Street, running northerly along Montgomery Street to Washington Street, and running easterly along Washington Street to The Embarcadero.
(i)Lower income households has the same meaning as defined in Section 50079.5 of the Health and Safety Code.
(j)Moderate-income households means households of persons and families of moderate income, as defined in Section 50093 of the Health and Safety Code.
(k)Net available revenue means periodic distributions to San Francisco from the Redevelopment Property Tax Trust Fund, created pursuant to Section 34170.5 of the Health and Safety Code, that are available to San Francisco after all preexisting legal commitments and statutory obligations funded from that revenue are made pursuant to Part 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code. Net available revenue shall not include any funds deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund or funds remaining in the Redevelopment Property Tax Trust Fund prior to distribution. Net available revenue shall not include any moneys payable to a school district that maintains kindergarten and grades 1 to 12, inclusive, community college districts, county office of education, or to the Educational Revenue Augmentation Fund, pursuant to paragraph (4) of subdivision (a) of Section 34183 of the Health and Safety Code.
(l)Opted-in taxable property means the property of a commercial-to-residential conversion project that has opted in to receive incremental tax revenue pursuant to Section 62459.
(m)Qualifying commercial building means a commercial building identified in the downtown revitalization financing plan pursuant to subdivision (d) of Section 62456.
(n)San Francisco means the City and County of San Francisco.
(o)Very low income households has the same meaning as defined in Section 50105 of the Health and Safety Code.
62451.The Board of Supervisors of the City and County of San Francisco may establish one downtown revitalization and economic recovery financing district pursuant to this division. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)(1)State that a district is proposed to be established under the terms of this division and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the recorder of the county.
(2)The boundaries of the district shall be limited to downtown San Francisco.
(b)State the need for the district and the goals the district proposes to achieve.
(c)State that incremental property tax revenue generated by investment in the commercial-to-residential conversion project from San Francisco will be used to finance these activities.
(d)Fix a time and place for a public hearing by the Board of Supervisors on the proposed downtown revitalization financing plan. The Board of Supervisors shall hold the public hearing before the district boards third public hearing, described in subdivision (d) of Section 62458. After the Board of Supervisors public hearing, the Board of Supervisors may approve or reject the proposed downtown revitalization financing plan.
62452.(a)(1)The district boards membership shall consist of three members of the Board of Supervisors, and two members of the public chosen by the Board of Supervisors. The Board of Supervisors may appoint one of its members to be an alternate member of the district board who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the district. The appointment of the public members shall be subject to the provisions of Sections 54970 and 54972.
(2)For purposes of this subdivision, the district board may include a directly elected mayor.
(b)The Board of Supervisors shall ensure the district board is established at the same time that it adopts a resolution of intention pursuant to Section 62451.
(c)Members of the district board shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties pursuant to Article 2.3 (commencing with Section 53232) of Chapter 2 of Part 1 of Division 2 of Title 5.
(d)Members of the district board are subject to Article 2.4 (commencing with Section 53234) of Chapter 2 of Part 1 of Division 2 of Title 5.
(e)The district board shall be a local public agency subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5), the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1), and the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
62453.(a)The purpose of the district is to finance commercial-to-residential conversion projects with incremental tax revenues generated by commercial-to-residential conversion projects within the district.
(b)Incremental tax revenues generated by commercial-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this section.
(c)The district shall finance only commercial-to-residential conversion projects that the district determines are of communitywide significance and that provide significant benefits to the district or San Francisco.
(d)The district shall ensure that incremental tax revenues allocated to the district are limited to those revenues described in Section 62457 that are generated through commercial-to-residential conversion projects within the district that have opted in pursuant to Section 62459.
(e)(1)The district shall take all of the following actions:
(A)Hold an annual public hearing.
(B)On or before June 30, after holding a public hearing, adopt an annual report.
(C)Make available written copies of the draft of the annual report available to the public 30 days before the public hearing.
(D)Post the draft of the annual report in an easily identifiable and accessible location on the districts internet website.
(2)The annual report shall contain all of the following:
(A)A description of the projects undertaken by the district in the fiscal year, including any rehabilitation of structures, and a comparison of the progress expected to be made on those projects compared to the actual progress.
(B)A chart comparing the actual revenues and expenses, including administrative costs, of the district to the budgeted revenues and expenses.
(C)The amount of tax increment revenues received by the district.
(D)A description of each commercial-to-residential conversion project within the district that opted in and the amount of tax increment revenues received.
(E)An assessment of the status regarding completion of the districts projects.
(F)The amount of revenues expended by the district to assist private businesses.
(3)If the district fails to adopt the annual report required by subparagraph (B) of paragraph (1), the district shall not allow for any additional properties to opt in to receiving funds from the district until the district has adopted the report.
(4)Every 10 years at a public hearing required by subparagraph (A) of paragraph (1), the district shall consider the following:
(A)Whether the requirements of this division continue to be met.
(B)Whether amendments to the downtown revitalization plan are necessary to ensure the requirements of this division continue to be met.
62454.The creation of the district and the adoption of a downtown revitalization financing plan pursuant to this division shall not be deemed a project for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).
62455.After adopting the resolution pursuant to Section 62451, the Board of Supervisors shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate government official to prepare a downtown revitalization financing plan pursuant to Section 62456.
62456.After receipt of a copy of the resolution of intention to establish the district, the official designated pursuant to Section 62455 shall prepare a proposed downtown revitalization financing plan. The downtown revitalization financing plan shall be consistent with the general plan and applicable specific plans of San Francisco, and shall include all of the following:
(a)A map and legal description of the proposed district, which may include all or a portion of the district designated by the Board of Supervisors in its resolution of intention.
(b)A description of the potential commercial-to-residential conversion projects that are proposed in the area of the district. A commercial-to-residential conversion project may be mixed use, but at least 60 percent of the square footage of the commercial-to-residential conversion shall be designated for residential use. Mixed-use developments shall be limited to residential and commercial uses.
(c)A requirement that if nonresidential development is included in the development pursuant to subdivision (b), at least 25 percent of the total planned units affordable to lower income households shall be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25 percent of nonresidential development made available for lease or sale and permitted for use and occupancy.
(d)(1)A requirement that an opted-in taxable property shall not receive a property tax distribution from the district unless it meets one of the following:
(A)At least 5 percent of total units for rent are affordable to very low income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(B)At least 10 percent of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(C)At least 10 percent of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years.
(2)The affordability requirements established pursuant to this subdivision shall not apply to the first 1,500,000 square feet of opted-in commercial-to-residential conversion projects.
(e)A finding that the potential commercial-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(f)Identification of each existing commercial building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(g)A requirement that the incremental tax revenues generated by each individual commercial-to-residential conversion project within the district that are allocated to the district by San Francisco be distributed by the district back to that same project for the purpose of financing necessary development costs. Each individual commercial-to-residential conversion project shall receive an annual distribution on a pay-go basis in an amount no greater than the amount of incremental tax revenues generated by that same commercial-to-residential conversion project for a maximum of 30 years or until the district ceases to exist, whichever occurs first.
(h)A requirement that the first distribution of incremental tax revenue to a commercial-to-residential conversion project pursuant to subdivision (g) commence with the fiscal year that begins after the project is issued a certificate of occupancy.
(i)A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the distribution described in subdivision (g) shall also be transferred to the new property owner.
(j)A requirement that any incremental tax revenues remaining after the distribution of revenues pursuant to subdivision (g) be used for downtown revitalization programs. Once the allocation of revenues has ceased, the tax increment shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(k)A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section, not including amounts required to reimburse San Francisco for the costs of establishing the district or the costs described in Section 62461.
(l)A financing section, which shall contain all of the following information:
(1)A specification of the maximum portion of the incremental tax revenue of San Francisco proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion may change over time.
(2)A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
(3)A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the plan.
(4)A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district distributes funding to the first commercial-to-residential conversion project within the district.
(5)An analysis of the costs to San Francisco of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by San Francisco as a result of expected development in the area of the district.
(6)An analysis of the projected fiscal impact of the district and the associated development upon San Francisco.
(m)If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of a commercial-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the requirements of Article 2 (commencing with Section 66300.5) of Chapter 12 of Division 1 of Title 7.
(n)The goals the district proposes to achieve for each project financed pursuant to this division.
62457.(a)A downtown revitalization financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the downtown financing district each year by or for the benefit of the State of California, or San Francisco, shall be divided, subject to the provisions of Section 53993, as follows:
(1)That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for San Francisco upon the total sum of the assessed value of all of the opted-in taxable property in the district, as established pursuant to subdivision (b) of Section 62459, shall be allocated to, and when collected shall be paid to, San Francisco as taxes on all other property are paid.
(2)That portion of the levied taxes each year specified in the adopted downtown revitalization financing plan for San Francisco in excess of the amount specified in paragraph (1) shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in paragraph (1), all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to San Francisco. When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(b)Notwithstanding subdivision (a), where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of the district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the oversight board and the Department of Finance. For the purposes of this chapter, the division of taxes allocated to the district pursuant to subdivision (a) shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund created pursuant to subdivision (b) of Section 34170.5 of the Health and Safety Code.
(c)The Board of Supervisors may choose to dedicate any portion of its net available revenue, as defined in subdivision (k) of Section 62450, to the district through the downtown revitalization financing plan.
(d)(1)That portion of any ad valorem property tax revenue annually allocated to San Francisco pursuant to Section 97.70 of the Revenue and Taxation Code that is specified in the adopted downtown revitalization financing plan for San Francisco, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
(2)When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, the revenues described in this subdivision shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(e)The downtown revitalization financing plan shall not divide revenues that are allocated to other taxing entities that are not part of San Francisco.
(f)The portion of the incremental tax revenues described in subdivisions (a) and (c) generated by a commercial-to-residential conversion project that can be allocated to the district shall be limited to the incremental tax revenues generated by residential use in the project, with residential use measured based on square footage.
62458.(a)The district board shall consider adoption of the downtown revitalization financing plan at three public hearings.
(b)At the first public hearing, the district shall present the draft downtown revitalization financing plan, answer questions about the district, and consider comments about the downtown revitalization financing plan.
(c)At the second public hearing, the district shall consider any written and oral comments and take action to approve, modify, or reject the downtown revitalization financing plan.
(d)If the district takes action to approve or modify the downtown revitalization financing plan at the second public hearing, and if the Board of Supervisors approved the downtown revitalization financing plan pursuant to subdivision (d) of Section 62451, then the district may enact an ordinance or adopt a resolution to approve the downtown revitalization financing plan at the third public hearing.
(e)At least 10 days before each public hearing, the district board shall give notice of the public hearing as follows:
(1)The district board shall post notice of each public hearing required by this section in an easily identifiable and accessible location on the districts internet website.
(2)The district board shall do one of following:
(A)Mail a written notice of the public hearing at least 10 days before each scheduled public hearing date to each landowner, resident, business owner, and labor organization that represents workers in the geographic area of the project.
(B)If the district designates a contact person to receive and process any requests for an electronically mailed packet of all materials, email, at least 10 days before each scheduled public hearing date, notice of the public hearing to the email contact list assembled and maintained by the designated contact person.
(C)Publish notice of each public hearing at least 10 days before each public hearing in a newspaper of general circulation in San Francisco.
62459.(a)(1)After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible commercial-to-residential conversion projects identified pursuant to subdivision (d) of Section 62456 to opt into receiving incremental tax revenue generated by that same commercial-to-residential conversion project pursuant to this division. A district shall establish a process to reconsider the amount of incremental tax revenue to be distributed to a project if there is a change in use or the square footage of commercial space converted to housing planned to be built.
(2)An eligible commercial-to-residential conversion project may opt in to receive incremental tax revenue generated by that same commercial-to-residential conversion project pursuant to this division at any time before the project is issued the first building permit for the project.
(3)A commercial-to-residential conversion project shall not be eligible to opt in to receive incremental tax revenue pursuant to this division after December 31, 2032.
(b)After a commercial-to-residential conversion project opts in, the district shall determine whether it meets the requirements of this division and can begin receiving property tax incremental revenues. If the district determines that the project does not meet the requirements of this division, or that it does not have enough room under the limit established pursuant to paragraph (3) of subdivision (l) of Section 62456 for the project, the district shall not allow the project to begin receiving incremental tax revenue.
(c)For purposes of paragraph (1) of subdivision (a) of Section 62457, after a commercial-to-residential conversion project opts in to receive incremental tax revenue, and the district approves the projects ability to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, which shall be the assessed value for the applicable property as shown on the assessment roll used in connection with the property by San Francisco, last equalized prior to the first building permit being issued as a part of the conversion of the commercial-to-residential conversion project.
(d)An eligible commercial-to-residential conversion project that opts in to receive incremental tax revenue pursuant to subdivision (a) shall comply with the labor standards established in Section 62460.
62460.(a)Commercial-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459 are public works for which prevailing wages shall be paid for purposes of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code.
(b)(1)Notwithstanding any other law, commercial-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459 shall comply with labor standards adopted by the Board of Supervisors and applicable to projects funded pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 64650.
(2)If the Board of Supervisors does not adopt labor standards applicable to projects funded pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 64650, then the commercial-to-residential conversion project shall not receive incremental tax revenue or net available revenue.
62461.All costs incurred by San Francisco in connection with the division of taxes pursuant to this division for the district shall be paid by the district.
62462.(a)If San Francisco establishes a district pursuant to this division, it shall develop and submit an annual report to the relevant committees of the Legislature regarding the commercial-to-residential conversion projects financed by the district.
(b)The reports submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795.
62463.Any action or proceeding to attack, review, set aside, void, or annul the creation of a district, adoption of a downtown revitalization financing plan, including a division of taxes, shall be commenced within 30 days after the enactment of the resolution creating the district pursuant to Section 62451. Consistent with the time limitations of this section, an action or proceeding with respect to a division of taxes under this chapter may be brought pursuant to Chapter 9 (commencing with Section 860) of Title 10 of Part 2 of the Code of Civil Procedure.
62464.This section implements and fulfills the intent of this chapter and of Article XIII B of the California Constitution. The allocation and payment to a district of the portion of taxes specified in Section 62453 for the purpose of paying principal of, or interest on, loans, or advances incurred by the district pursuant to this chapter, shall not be deemed the receipt by a district of proceeds of taxes levied by or on behalf of the district within the meaning or for the purposes of Article XIII B of the California Constitution, nor shall that portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to limitation of, any other public body within the meaning or for purposes of Article XIII B of the California Constitution or any statutory provision enacted in implementation of Article XIII B of the California Constitution.
SEC. 2.The Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique amount of vacant commercial space within the City and County of San Francisco. The Legislature additionally finds and declares all of the following:
(a)The commercial vacancy rate in the City and County of San Francisco is acute among downtown areas in California and the nation.
(b)From March 2020 to June 2021, office vacancy rates in the City and County of San Francisco increased from 5 percent to 20 percent as offices adopted hybrid and fully remote reporting schedules.
(c)According to data from the City and County of San Francisco, as of April 15, 2024, 32 percent of the City and County of San Franciscos office space is vacant.
(d)The City and County of San Franciscos vacancy rate is higher than other major metropolitan areas such as the cities of New York City, Los Angeles, Austin, and Seattle.
(e)This bill addresses a crisis in commercial vacancy in downtown San Francisco that is unmatched by other major metropolitan areas.
(f)Therefore, while public funds for housing development should prioritize the funding of affordable housing, on a limited and temporary basis, it is appropriate to authorize the City and County of San Francisco to provide funding to market rate developments through the use of tax increment financing tools to help abate the crisis.
For purposes of this part:
(a)Board of Supervisors means the Board of Supervisors of the City and County of San Francisco.
(b)Commercial-to-residential conversion project means a housing development project that converts an existing qualifying commercial building to market rate or affordable housing by either reuse of the existing commercial building or by replacing the commercial building with a new residential building.
(c)Communitywide significance means benefits associated with the commercial-to-residential conversion project beyond the conversion of commercial space to residential dwelling units.
(d)Designated official means the appropriate official designated pursuant to Section 62455.
(e)District board means the governing board of the downtown revitalization and economic recovery financing district.
(f)(1)Downtown revitalization and economic recovery financing district or district means a legally constituted governmental entity separate and distinct from the City and County of San Francisco for the sole purpose of financing commercial-to-residential conversion projects or other projects of communitywide significance in downtown San Francisco that support downtown revitalization and economic recovery as authorized by this division. A downtown revitalization and economic recovery financing district is a local agency for purposes of Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5.
(2)A downtown revitalization and economic recovery financing district shall be deemed a district within the meaning of Section 1 of Article XIIIA of the California Constitution.
(g)Downtown revitalization financing plan means an adopted financing plan prepared pursuant to Section 62456.
(h)Downtown San Francisco means an area in the City and County of San Francisco bounded beginning at the intersection of Washington Street and The Embarcadero, running southerly along The Embarcadero and then King Street to 3rd Street, running northwesterly on 3rd Street to Townsend Street, running southwesterly along Townsend Street to 6th Street, running northwesterly along 6th Street to Mission Street, running southwesterly along Mission Street to 10th Street, running southeasterly along 10th Street to Minna Street, running southwesterly along Minna Street to Lafayette Street, running southeasterly along Lafayette Street to Howard Street, running southerly along Howard Street to the junction with the Central Freeway, running westerly along the Central Freeway to Market Street, running northeasterly along Market Street to Franklin Street, running northerly along Franklin Street to Golden Gate Avenue, running easterly along Golden Gate Avenue to Taylor Street, running northerly along Taylor Street to Turk Street, running easterly along Turk Street to Mason Street, running northerly along Mason Street to Ellis Street, running westerly along Ellis Street to Taylor Street, running northerly along Taylor Street to OFarrell Street, running westerly along OFarrell Street to Shannon Street, running northerly along Shannon Street to Geary Street, running easterly along Geary Street to Taylor Street, running northerly along Taylor Street to Bush Street, running easterly along Bush Street to Kearny Street, running northerly along Kearny Street to Sacramento Street, running easterly along Sacramento Street to Montgomery Street, running northerly along Montgomery Street to Washington Street, and running easterly along Washington Street to The Embarcadero.
(i)Lower income households has the same meaning as defined in Section 50079.5 of the Health and Safety Code.
(j)Moderate-income households means households of persons and families of moderate income, as defined in Section 50093 of the Health and Safety Code.
(k)Net available revenue means periodic distributions to San Francisco from the Redevelopment Property Tax Trust Fund, created pursuant to Section 34170.5 of the Health and Safety Code, that are available to San Francisco after all preexisting legal commitments and statutory obligations funded from that revenue are made pursuant to Part 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code. Net available revenue shall not include any funds deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund or funds remaining in the Redevelopment Property Tax Trust Fund prior to distribution. Net available revenue shall not include any moneys payable to a school district that maintains kindergarten and grades 1 to 12, inclusive, community college districts, county office of education, or to the Educational Revenue Augmentation Fund, pursuant to paragraph (4) of subdivision (a) of Section 34183 of the Health and Safety Code.
(l)Opted-in taxable property means the property of a commercial-to-residential conversion project that has opted in to receive incremental tax revenue pursuant to Section 62459.
(m)Qualifying commercial building means a commercial building identified in the downtown revitalization financing plan pursuant to subdivision (d) of Section 62456.
(n)San Francisco means the City and County of San Francisco.
(o)Very low income households has the same meaning as defined in Section 50105 of the Health and Safety Code.
62451.The Board of Supervisors of the City and County of San Francisco may establish one downtown revitalization and economic recovery financing district pursuant to this division. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)(1)State that a district is proposed to be established under the terms of this division and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the recorder of the county.
(2)The boundaries of the district shall be limited to downtown San Francisco.
(b)State the need for the district and the goals the district proposes to achieve.
(c)State that incremental property tax revenue generated by investment in the commercial-to-residential conversion project from San Francisco will be used to finance these activities.
(d)Fix a time and place for a public hearing by the Board of Supervisors on the proposed downtown revitalization financing plan. The Board of Supervisors shall hold the public hearing before the district boards third public hearing, described in subdivision (d) of Section 62458. After the Board of Supervisors public hearing, the Board of Supervisors may approve or reject the proposed downtown revitalization financing plan.
62452.(a)(1)The district boards membership shall consist of three members of the Board of Supervisors, and two members of the public chosen by the Board of Supervisors. The Board of Supervisors may appoint one of its members to be an alternate member of the district board who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the district. The appointment of the public members shall be subject to the provisions of Sections 54970 and 54972.
(2)For purposes of this subdivision, the district board may include a directly elected mayor.
(b)The Board of Supervisors shall ensure the district board is established at the same time that it adopts a resolution of intention pursuant to Section 62451.
(c)Members of the district board shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties pursuant to Article 2.3 (commencing with Section 53232) of Chapter 2 of Part 1 of Division 2 of Title 5.
(d)Members of the district board are subject to Article 2.4 (commencing with Section 53234) of Chapter 2 of Part 1 of Division 2 of Title 5.
(e)The district board shall be a local public agency subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5), the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1), and the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
62453.(a)The purpose of the district is to finance commercial-to-residential conversion projects with incremental tax revenues generated by commercial-to-residential conversion projects within the district.
(b)Incremental tax revenues generated by commercial-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this section.
(c)The district shall finance only commercial-to-residential conversion projects that the district determines are of communitywide significance and that provide significant benefits to the district or San Francisco.
(d)The district shall ensure that incremental tax revenues allocated to the district are limited to those revenues described in Section 62457 that are generated through commercial-to-residential conversion projects within the district that have opted in pursuant to Section 62459.
(e)(1)The district shall take all of the following actions:
(A)Hold an annual public hearing.
(B)On or before June 30, after holding a public hearing, adopt an annual report.
(C)Make available written copies of the draft of the annual report available to the public 30 days before the public hearing.
(D)Post the draft of the annual report in an easily identifiable and accessible location on the districts internet website.
(2)The annual report shall contain all of the following:
(A)A description of the projects undertaken by the district in the fiscal year, including any rehabilitation of structures, and a comparison of the progress expected to be made on those projects compared to the actual progress.
(B)A chart comparing the actual revenues and expenses, including administrative costs, of the district to the budgeted revenues and expenses.
(C)The amount of tax increment revenues received by the district.
(D)A description of each commercial-to-residential conversion project within the district that opted in and the amount of tax increment revenues received.
(E)An assessment of the status regarding completion of the districts projects.
(F)The amount of revenues expended by the district to assist private businesses.
(3)If the district fails to adopt the annual report required by subparagraph (B) of paragraph (1), the district shall not allow for any additional properties to opt in to receiving funds from the district until the district has adopted the report.
(4)Every 10 years at a public hearing required by subparagraph (A) of paragraph (1), the district shall consider the following:
(A)Whether the requirements of this division continue to be met.
(B)Whether amendments to the downtown revitalization plan are necessary to ensure the requirements of this division continue to be met.
62454.The creation of the district and the adoption of a downtown revitalization financing plan pursuant to this division shall not be deemed a project for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).
62455.After adopting the resolution pursuant to Section 62451, the Board of Supervisors shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate government official to prepare a downtown revitalization financing plan pursuant to Section 62456.
62456.After receipt of a copy of the resolution of intention to establish the district, the official designated pursuant to Section 62455 shall prepare a proposed downtown revitalization financing plan. The downtown revitalization financing plan shall be consistent with the general plan and applicable specific plans of San Francisco, and shall include all of the following:
(a)A map and legal description of the proposed district, which may include all or a portion of the district designated by the Board of Supervisors in its resolution of intention.
(b)A description of the potential commercial-to-residential conversion projects that are proposed in the area of the district. A commercial-to-residential conversion project may be mixed use, but at least 60 percent of the square footage of the commercial-to-residential conversion shall be designated for residential use. Mixed-use developments shall be limited to residential and commercial uses.
(c)A requirement that if nonresidential development is included in the development pursuant to subdivision (b), at least 25 percent of the total planned units affordable to lower income households shall be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25 percent of nonresidential development made available for lease or sale and permitted for use and occupancy.
(d)(1)A requirement that an opted-in taxable property shall not receive a property tax distribution from the district unless it meets one of the following:
(A)At least 5 percent of total units for rent are affordable to very low income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(B)At least 10 percent of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(C)At least 10 percent of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years.
(2)The affordability requirements established pursuant to this subdivision shall not apply to the first 1,500,000 square feet of opted-in commercial-to-residential conversion projects.
(e)A finding that the potential commercial-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(f)Identification of each existing commercial building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(g)A requirement that the incremental tax revenues generated by each individual commercial-to-residential conversion project within the district that are allocated to the district by San Francisco be distributed by the district back to that same project for the purpose of financing necessary development costs. Each individual commercial-to-residential conversion project shall receive an annual distribution on a pay-go basis in an amount no greater than the amount of incremental tax revenues generated by that same commercial-to-residential conversion project for a maximum of 30 years or until the district ceases to exist, whichever occurs first.
(h)A requirement that the first distribution of incremental tax revenue to a commercial-to-residential conversion project pursuant to subdivision (g) commence with the fiscal year that begins after the project is issued a certificate of occupancy.
(i)A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the distribution described in subdivision (g) shall also be transferred to the new property owner.
(j)A requirement that any incremental tax revenues remaining after the distribution of revenues pursuant to subdivision (g) be used for downtown revitalization programs. Once the allocation of revenues has ceased, the tax increment shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(k)A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section, not including amounts required to reimburse San Francisco for the costs of establishing the district or the costs described in Section 62461.
(l)A financing section, which shall contain all of the following information:
(1)A specification of the maximum portion of the incremental tax revenue of San Francisco proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion may change over time.
(2)A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
(3)A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the plan.
(4)A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district distributes funding to the first commercial-to-residential conversion project within the district.
(5)An analysis of the costs to San Francisco of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by San Francisco as a result of expected development in the area of the district.
(6)An analysis of the projected fiscal impact of the district and the associated development upon San Francisco.
(m)If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of a commercial-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the requirements of Article 2 (commencing with Section 66300.5) of Chapter 12 of Division 1 of Title 7.
(n)The goals the district proposes to achieve for each project financed pursuant to this division.
62457.(a)A downtown revitalization financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the downtown financing district each year by or for the benefit of the State of California, or San Francisco, shall be divided, subject to the provisions of Section 53993, as follows:
(1)That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for San Francisco upon the total sum of the assessed value of all of the opted-in taxable property in the district, as established pursuant to subdivision (b) of Section 62459, shall be allocated to, and when collected shall be paid to, San Francisco as taxes on all other property are paid.
(2)That portion of the levied taxes each year specified in the adopted downtown revitalization financing plan for San Francisco in excess of the amount specified in paragraph (1) shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in paragraph (1), all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to San Francisco. When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(b)Notwithstanding subdivision (a), where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of the district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the oversight board and the Department of Finance. For the purposes of this chapter, the division of taxes allocated to the district pursuant to subdivision (a) shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund created pursuant to subdivision (b) of Section 34170.5 of the Health and Safety Code.
(c)The Board of Supervisors may choose to dedicate any portion of its net available revenue, as defined in subdivision (k) of Section 62450, to the district through the downtown revitalization financing plan.
(d)(1)That portion of any ad valorem property tax revenue annually allocated to San Francisco pursuant to Section 97.70 of the Revenue and Taxation Code that is specified in the adopted downtown revitalization financing plan for San Francisco, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
(2)When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, the revenues described in this subdivision shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(e)The downtown revitalization financing plan shall not divide revenues that are allocated to other taxing entities that are not part of San Francisco.
(f)The portion of the incremental tax revenues described in subdivisions (a) and (c) generated by a commercial-to-residential conversion project that can be allocated to the district shall be limited to the incremental tax revenues generated by residential use in the project, with residential use measured based on square footage.
62458.(a)The district board shall consider adoption of the downtown revitalization financing plan at three public hearings.
(b)At the first public hearing, the district shall present the draft downtown revitalization financing plan, answer questions about the district, and consider comments about the downtown revitalization financing plan.
(c)At the second public hearing, the district shall consider any written and oral comments and take action to approve, modify, or reject the downtown revitalization financing plan.
(d)If the district takes action to approve or modify the downtown revitalization financing plan at the second public hearing, and if the Board of Supervisors approved the downtown revitalization financing plan pursuant to subdivision (d) of Section 62451, then the district may enact an ordinance or adopt a resolution to approve the downtown revitalization financing plan at the third public hearing.
(e)At least 10 days before each public hearing, the district board shall give notice of the public hearing as follows:
(1)The district board shall post notice of each public hearing required by this section in an easily identifiable and accessible location on the districts internet website.
(2)The district board shall do one of following:
(A)Mail a written notice of the public hearing at least 10 days before each scheduled public hearing date to each landowner, resident, business owner, and labor organization that represents workers in the geographic area of the project.
(B)If the district designates a contact person to receive and process any requests for an electronically mailed packet of all materials, email, at least 10 days before each scheduled public hearing date, notice of the public hearing to the email contact list assembled and maintained by the designated contact person.
(C)Publish notice of each public hearing at least 10 days before each public hearing in a newspaper of general circulation in San Francisco.
62459.(a)(1)After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible commercial-to-residential conversion projects identified pursuant to subdivision (d) of Section 62456 to opt into receiving incremental tax revenue generated by that same commercial-to-residential conversion project pursuant to this division. A district shall establish a process to reconsider the amount of incremental tax revenue to be distributed to a project if there is a change in use or the square footage of commercial space converted to housing planned to be built.
(2)An eligible commercial-to-residential conversion project may opt in to receive incremental tax revenue generated by that same commercial-to-residential conversion project pursuant to this division at any time before the project is issued the first building permit for the project.
(3)A commercial-to-residential conversion project shall not be eligible to opt in to receive incremental tax revenue pursuant to this division after December 31, 2032.
(b)After a commercial-to-residential conversion project opts in, the district shall determine whether it meets the requirements of this division and can begin receiving property tax incremental revenues. If the district determines that the project does not meet the requirements of this division, or that it does not have enough room under the limit established pursuant to paragraph (3) of subdivision (l) of Section 62456 for the project, the district shall not allow the project to begin receiving incremental tax revenue.
(c)For purposes of paragraph (1) of subdivision (a) of Section 62457, after a commercial-to-residential conversion project opts in to receive incremental tax revenue, and the district approves the projects ability to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, which shall be the assessed value for the applicable property as shown on the assessment roll used in connection with the property by San Francisco, last equalized prior to the first building permit being issued as a part of the conversion of the commercial-to-residential conversion project.
(d)An eligible commercial-to-residential conversion project that opts in to receive incremental tax revenue pursuant to subdivision (a) shall comply with the labor standards established in Section 62460.
62460.(a)Commercial-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459 are public works for which prevailing wages shall be paid for purposes of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code.
(b)(1)Notwithstanding any other law, commercial-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459 shall comply with labor standards adopted by the Board of Supervisors and applicable to projects funded pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 64650.
(2)If the Board of Supervisors does not adopt labor standards applicable to projects funded pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 64650, then the commercial-to-residential conversion project shall not receive incremental tax revenue or net available revenue.
62461.All costs incurred by San Francisco in connection with the division of taxes pursuant to this division for the district shall be paid by the district.
62462.(a)If San Francisco establishes a district pursuant to this division, it shall develop and submit an annual report to the relevant committees of the Legislature regarding the commercial-to-residential conversion projects financed by the district.
(b)The reports submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795.
62463.Any action or proceeding to attack, review, set aside, void, or annul the creation of a district, adoption of a downtown revitalization financing plan, including a division of taxes, shall be commenced within 30 days after the enactment of the resolution creating the district pursuant to Section 62451. Consistent with the time limitations of this section, an action or proceeding with respect to a division of taxes under this chapter may be brought pursuant to Chapter 9 (commencing with Section 860) of Title 10 of Part 2 of the Code of Civil Procedure.
62464.This section implements and fulfills the intent of this chapter and of Article XIII B of the California Constitution. The allocation and payment to a district of the portion of taxes specified in Section 62453 for the purpose of paying principal of, or interest on, loans, or advances incurred by the district pursuant to this chapter, shall not be deemed the receipt by a district of proceeds of taxes levied by or on behalf of the district within the meaning or for the purposes of Article XIII B of the California Constitution, nor shall that portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to limitation of, any other public body within the meaning or for purposes of Article XIII B of the California Constitution or any statutory provision enacted in implementation of Article XIII B of the California Constitution.
SEC. 2.The Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique amount of vacant commercial space within the City and County of San Francisco. The Legislature additionally finds and declares all of the following:
(a)The commercial vacancy rate in the City and County of San Francisco is acute among downtown areas in California and the nation.
(b)From March 2020 to June 2021, office vacancy rates in the City and County of San Francisco increased from 5 percent to 20 percent as offices adopted hybrid and fully remote reporting schedules.
(c)According to data from the City and County of San Francisco, as of April 15, 2024, 32 percent of the City and County of San Franciscos office space is vacant.
(d)The City and County of San Franciscos vacancy rate is higher than other major metropolitan areas such as the cities of New York City, Los Angeles, Austin, and Seattle.
(e)This bill addresses a crisis in commercial vacancy in downtown San Francisco that is unmatched by other major metropolitan areas.
(f)Therefore, while public funds for housing development should prioritize the funding of affordable housing, on a limited and temporary basis, it is appropriate to authorize the City and County of San Francisco to provide funding to market rate developments through the use of tax increment financing tools to help abate the crisis.
For purposes of this part:
(a)Board of Supervisors means the Board of Supervisors of the City and County of San Francisco.
(b)Commercial-to-residential conversion project means a housing development project that converts an existing qualifying commercial building to market rate or affordable housing by either reuse of the existing commercial building or by replacing the commercial building with a new residential building.
(b)(c)Communitywide significance means benefits associated with the office-to-residential commercial-to-residential conversion project beyond the conversion of office commercial space to residential dwelling units.
(c)(d)Designated official means the appropriate official designated pursuant to Section 62455.
(d)(e)District board means the governing board of the downtown revitalization and economic recovery financing district.
(e)(f)(1)Downtown revitalization and economic recovery financing district or district means a legally constituted governmental entity separate and distinct from the City and County of San Francisco for the sole purpose of financing office-to-residential commercial-to-residential conversion projects or other projects of communitywide significance in downtown San Francisco that support downtown revitalization and economic recovery as authorized by this division. A downtown revitalization and economic recovery financing district is a local agency for purposes of Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5.
(2)A downtown revitalization and economic recovery financing district shall be deemed a district within the meaning of Section 1 of Article XIIIA of the California Constitution.
(f)(g)Downtown revitalization financing plan means an adopted financing plan prepared pursuant to Section 62456.
(g)(h)Downtown San Francisco means an area in the City and County of San Francisco bounded beginning at the intersection of Washington Street and The Embarcadero, running southerly along The Embarcadero and then King Street to 3rd Street, running northwesterly on 3rd Street to Townsend Street, running southwesterly along Townsend Street to 6th Street, running northwesterly along 6th Street to Mission Street, running southwesterly along Mission Street to 10th Street, running southeasterly along 10th Street to Minna Street, running southwesterly along Minna Street to Lafayette Street, running southeasterly along Lafayette Street to Howard Street, running southerly along Howard Street to the junction with the Central Freeway, running westerly along the Central Freeway to Market Street, running northeasterly along Market Street to Franklin Street, running northerly along Franklin Street to Golden Gate Avenue, running easterly along Golden Gate Avenue to Taylor Street, running northerly along Taylor Street to Turk Street, running easterly along Turk Street to Mason Street, running northerly along Mason Street to Ellis Street, running westerly along Ellis Street to Taylor Street, running northerly along Taylor Street to OFarrell Street, running westerly along OFarrell Street to Shannon Street, running northerly along Shannon Street to Geary Street, running easterly along Geary Street to Taylor Street, running northerly along Taylor Street to Bush Street, running easterly along Bush Street to Kearny Street, running northerly along Kearny Street to Sacramento Street, running easterly along Sacramento Street to Montgomery Street, running northerly along Montgomery Street to Washington Street, and running easterly along Washington Street to The Embarcadero.
(h)(i)Lower income households has the same meaning as defined in Section 50079.5 of the Health and Safety Code.
(i)(j)Moderate-income households means households of persons and families of moderate income, as defined in Section 50093 of the Health and Safety Code.
(j)Office-to-residential conversion project means a housing development project that converts an existing qualifying commercial office building to market rate or affordable housing by either reuse of the existing commercial office building or by replacing the commercial office building with a new residential building.(k)Net available revenue means periodic distributions to San Francisco from the Redevelopment Property Tax Trust Fund, created pursuant to Section 34170.5 of the Health and Safety Code, that are available to San Francisco after all preexisting legal commitments and statutory obligations funded from that revenue are made pursuant to Part 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code. Net available revenue shall not include any funds deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund or funds remaining in the Redevelopment Property Tax Trust Fund prior to distribution. Net available revenue shall not include any moneys payable to a school district that maintains kindergarten and grades 1 to 12, inclusive, community college districts, county office of education, or to the Educational Revenue Augmentation Fund, pursuant to paragraph (4) of subdivision (a) of Section 34183 of the Health and Safety Code.
(k)(l)Opted-in taxable property means the property of an office-to-residential a commercial-to-residential conversion project that has opted in to receive incremental tax revenue pursuant to Section 62459.
(l)(m)Qualifying commercial office building means a commercial office building identified in the downtown revitalization financing plan pursuant to subdivision (d) of Section 62456.
(m)(n)San Francisco means the City and County of San Francisco.
(n)(o)Very low income households has the same meaning as defined in Section 50105 of the Health and Safety Code.
62451.The Board of Supervisors of the City and County of San Francisco may establish one downtown revitalization and economic recovery financing district pursuant to this division. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)(1)State that a district is proposed to be established under the terms of this division and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the recorder of the county.
(2)The boundaries of the district shall be limited to downtown San Francisco.
(b)State the need for the district and the goals the district proposes to achieve.
(c)State that incremental property tax revenue generated by investment in the office-to-residential commercial-to-residential conversion project from San Francisco will be used to finance these activities.
(d)Fix a time and place for public hearings on the proposal. a public hearing by the Board of Supervisors on the proposed downtown revitalization financing plan. The Board of Supervisors shall hold the public hearing before the district boards third public hearing, described in subdivision (d) of Section 62458. After the Board of Supervisors public hearing, the Board of Supervisors may approve or reject the proposed downtown revitalization financing plan.
62452.(a)(1)The district boards membership shall consist of three members of the Board of Supervisors, and two members of the public chosen by the Board of Supervisors. The Board of Supervisors may appoint one of its members to be an alternate member of the district board who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the district. The appointment of the public members shall be subject to the provisions of Sections 54970 and 54972.
(2)For purposes of this subdivision, the district board may include a directly elected mayor.
(b)The Board of Supervisors shall ensure the district board is established at the same time that it adopts a resolution of intention pursuant to Section 62451.
(c)Members of the district board shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties pursuant to Article 2.3 (commencing with Section 53232) of Chapter 2 of Part 1 of Division 2 of Title 5.
(d)Members of the district board are subject to Article 2.4 (commencing with Section 53234) of Chapter 2 of Part 1 of Division 2 of Title 5.
(e)The district board shall be a local public agency subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5), the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1), and the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
62453.(a)The purpose of the district is to finance office-to-residential commercial-to-residential conversion projects with incremental tax revenues generated by office-to-residential commercial-to-residential conversion projects within the district.
(b)Incremental tax revenues generated by office-to-residential commercial-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this section.
(c)The district shall finance only office-to-residential development commercial-to-residential conversion projects that the district determines are of communitywide significance and that provide significant benefits to the district or San Francisco.
(d)The district shall ensure that incremental tax revenues allocated to the district are limited to those revenues described in Section 62457 that are generated through office-to-residential commercial-to-residential conversion projects within the district that have opted in pursuant to Section 62459.
(e)(1)The district shall take all of the following actions:
(A)Hold an annual public hearing.
(B)On or before June 30, after holding a public hearing, adopt an annual report.
(C)Make available written copies of the draft of the annual report available to the public 30 days before the public hearing.
(D)Post the draft of the annual report in an easily identifiable and accessible location on the districts internet website.
(2)The annual report shall contain all of the following:
(A)A description of the projects undertaken by the district in the fiscal year, including any rehabilitation of structures, and a comparison of the progress expected to be made on those projects compared to the actual progress.
(B)A chart comparing the actual revenues and expenses, including administrative costs, of the district to the budgeted revenues and expenses.
(C)The amount of tax increment revenues received by the district.
(D)A description of each office-to-residential commercial-to-residential conversion project within the district that opted in and the amount of tax increment revenues received.
(E)An assessment of the status regarding completion of the districts projects.
(F)The amount of revenues expended by the district to assist private businesses.
(3)If the district fails to adopt the annual report required by subparagraph (B) of paragraph (1), the district shall not spend any funds received pursuant to a resolution adopted pursuant to this chapter allow for any additional properties to opt in to receiving funds from the district until the district has adopted the report.
(4)Every 10 years at a public hearing required by subparagraph (A) of paragraph (1), the district shall consider the following:
(A)Whether the requirements of this division continue to be met.
(B)Whether amendments to the downtown revitalization plan are necessary to ensure the requirements of this division continue to be met.
62454.The creation of the district and the adoption of a downtown revitalization financing plan pursuant to this division shall not be deemed a project for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).
62455.After adopting the resolution pursuant to Section 62451, the Board of Supervisors shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate government official to prepare a downtown revitalization financing plan pursuant to Section 62456.
62456.After receipt of a copy of the resolution of intention to establish the district, the official designated pursuant to Section 62455 shall prepare a proposed downtown revitalization financing plan. The downtown revitalization financing plan shall be consistent with the general plan and applicable specific plans of San Francisco, and shall include all of the following:
(a)A map and legal description of the proposed district, which may include all or a portion of the district designated by the Board of Supervisors in its resolution of intention.
(b)A description of the potential office-to-residential commercial-to-residential conversion projects that are proposed in the area of the district. An office-to-residential A commercial-to-residential conversion project may be mixed use, but at least two-thirds 60 percent of the square footage of the office-residential commercial-to-residential conversion shall be designated for residential use. Mixed-use developments shall be limited to residential and commercial uses.
(c)A requirement that if nonresidential development is included in the development pursuant to subdivision (b), at least 25 percent of the total planned units affordable to lower income households shall be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25 percent of nonresidential development made available for lease or sale and permitted for use and occupancy.
(d)(1)A requirement that an opted-in taxable property shall not receive a property tax allocation distribution from the district unless it meets one of the following:
(A)At least 5 percent of total units for rent are affordable to very low income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(B)At least 10 percent of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(C)At least 10 percent of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years.
(2)The affordability requirements established pursuant to this subdivision shall not apply to the first 1,500,000 square feet of opted-in office-to-residential commercial-to-residential conversion projects.
(e)A finding that the potential office-to-residential commercial-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(f)Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(g)A requirement that the incremental tax revenues generated by each individual office-to-residential commercial-to-residential conversion project within the district that are allocated to the district by San Francisco be allocated distributed by the district back to that same project for the purpose of financing the debt service of the project. necessary development costs. Each individual office-to-residential commercial-to-residential conversion project shall receive an annual allocation distribution on a pay-go basis in an amount no greater than the amount of incremental tax revenues generated by that same office-to-residential commercial-to-residential conversion project for a maximum of 30 years or until the district ceases to exist, whichever occurs first.
(h)A requirement that the first allocation distribution of incremental tax revenue to an office-to-residential a commercial-to-residential conversion project pursuant to subdivision (g) commence with the fiscal year that begins after the project is issued a certificate of occupancy.
(i)A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the allocation distribution described in subdivision (g) shall also be transferred to the new property owner.
(j)A requirement that any incremental tax revenues remaining after the allocation distribution of revenues pursuant to subdivision (g) be allocated to uses supporting downtown revitalization. used for downtown revitalization programs. Once the allocation of revenues has ceased, the tax increment shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(k)A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section. section, not including amounts required to reimburse San Francisco for the costs of establishing the district or the costs described in Section 62461.
(l)A financing section, which shall contain all of the following information:
(1)A specification of the maximum portion of the incremental tax revenue of San Francisco proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion may change over time.
(2)A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
(3)A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the plan.
(4)A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district allocates distributes funding to the first office-to-residential commercial-to-residential conversion project within the district.
(5)An analysis of the costs to San Francisco of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by San Francisco as a result of expected development in the area of the district.
(6)An analysis of the projected fiscal impact of the district and the associated development upon San Francisco.
(m)If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of an office-to-residential a commercial-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the requirements of Article 2 (commencing with Section 66300.5) of Chapter 12 of Division 1 of Title 7.
(n)The goals the district proposes to achieve for each project financed pursuant to this division.
62457.(a)A downtown revitalization financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the downtown financing district each year by or for the benefit of the State of California, or San Francisco, shall be divided, subject to the provisions of Section 53993, as follows:
(1)That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for San Francisco upon the total sum of the assessed value of all of the opted-in taxable property in the district, as established pursuant to subdivision (b) of Section 62459, shall be allocated to, and when collected shall be paid to, San Francisco as taxes on all other property are paid.
(2)That portion of the levied taxes each year specified in the adopted downtown revitalization financing plan for San Francisco in excess of the amount specified in paragraph (1) shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in paragraph (1), all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to San Francisco. When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(b)Notwithstanding subdivision (a), where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of the district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the oversight board and the Department of Finance. For the purposes of this chapter, the division of taxes allocated to the district pursuant to subdivision (a) shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund created pursuant to subdivision (b) of Section 34170.5 of the Health and Safety Code.
(c)The Board of Supervisors may choose to dedicate any portion of its net available revenue, as defined in subdivision (k) of Section 62450, to the district through the downtown revitalization financing plan.
(c)(d)(1)That portion of any ad valorem property tax revenue annually allocated to San Francisco pursuant to Section 97.70 of the Revenue and Taxation Code that is specified in the adopted downtown revitalization financing plan for San Francisco, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
(2)When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, the revenues described in this subdivision shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(d)(e)The downtown revitalization financing plan shall not divide revenues that are allocated to other taxing entities that are not part of San Francisco.
(e)(f)The portion of the incremental tax revenues described in subdivisions (a) and (c) generated by an office-to-residential a commercial-to-residential conversion project that can be allocated to the district shall be limited to the incremental tax revenues generated by residential use in the project, with residential use measured based on square footage.
62458.(a)The district board shall consider adoption of the downtown revitalization financing plan at three public hearings.
(b)At the first public hearing, the district shall present the draft downtown revitalization financing plan, answer questions about the district, and consider comments about the downtown revitalization financing plan.
(c)At the second public hearing, the district shall consider any written and oral comments and take action to approve, modify, or reject the downtown revitalization financing plan.
(d)If the district takes action to approve or modify the downtown revitalization financing plan at the second public hearing, and if the Board of Supervisors approved the downtown revitalization financing plan pursuant to subdivision (d) of Section 62451, then the district may enact an ordinance or adopt a resolution to approve the downtown revitalization financing plan at the third public hearing.
(e)At least 10 days before each public hearing, the district board shall give notice of the public hearing as follows:
(1)The district board shall post notice of each public hearing required by this section in an easily identifiable and accessible location on the districts internet website.
(2)The district board shall do one of following:
(A)Mail a written notice of the public hearing at least 10 days before each scheduled public hearing date to each landowner, resident, business owner, and labor organization that represents workers in the geographic area of the project.
(B)If the district designates a contact person to receive and process any requests for an electronically mailed packet of all materials, email, at least 10 days before each scheduled public hearing date, notice of the public hearing to the email contact list assembled and maintained by the designated contact person.
(C)Publish notice of each public hearing at least 10 days before each public hearing in a newspaper of general circulation in San Francisco.
62459.(a)(1)After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible office-to-residential commercial-to-residential conversion projects identified pursuant to subdivision (d) of Section 62456 to opt into receiving incremental tax revenue generated by that same office-to-residential commercial-to-residential conversion project pursuant to this division. A district shall establish a process to reconsider the amount of incremental tax revenue to be allocated distributed to a project if there is a change in use or the square footage of office commercial space converted to housing planned to be built.
(2)An eligible office-to-residential commercial-to-residential conversion project may opt in to receive incremental tax revenue generated by that same office-to-residential commercial-to-residential conversion project pursuant to this division at any time before the project is issued the first building permit for the project.
(3)An office-to-residential conversion A commercial-to-residential conversion project shall not be eligible to opt in to receive incremental tax revenue pursuant to this division after December 31, 2032.
(b)After an office-to-residential a commercial-to-residential conversion project opts in, the district shall determine whether it meets the requirements of this division and can begin receiving property tax incremental revenues. If the district determines that the project does not meet the requirements of this division, or that it does not have enough room under the limit established pursuant to paragraph (3) of subdivision (l) of Section 62456 for the project, the district shall not allow the project to begin receiving incremental tax revenue.
(c)For purposes of paragraph (1) of subdivision (a) of Section 62457, after an office-to-residential a commercial-to-residential conversion project opts in to receive incremental tax revenue, and the district approves the projects ability to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, which shall be the assessed value for the applicable property as shown on the assessment roll used in connection with the property by San Francisco, last equalized prior to the first building permit being issued as a part of the conversion of the office-to-residential commercial-to-residential conversion project.
(d)An eligible office-to-residential commercial-to-residential conversion project that opts in to receive incremental tax revenue pursuant to subdivision (a) shall comply with the labor standards established in Section 62460.
62460.It is the intent of the Legislature to subsequently amend this section to establish labor protections applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459.62460.(a)Commercial-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459 are public works for which prevailing wages shall be paid for purposes of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code.
(b)(1)Notwithstanding any other law, commercial-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62459 shall comply with labor standards adopted by the Board of Supervisors and applicable to projects funded pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 64650.
(2)If the Board of Supervisors does not adopt labor standards applicable to projects funded pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 64650, then the commercial-to-residential conversion project shall not receive incremental tax revenue or net available revenue.
62461.All costs incurred by San Francisco in connection with the division of taxes pursuant to this division for the district shall be paid by the district.
62462.(a)If San Francisco establishes a district pursuant to this division, it shall develop and submit an annual report to the relevant committees of the Legislature regarding the office-to-residential commercial-to-residential conversion projects financed by the district.
(b)The reports submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795.
62463.Any action or proceeding to attack, review, set aside, void, or annul the creation of a district, adoption of a downtown revitalization financing plan, including a division of taxes, shall be commenced within 30 days after the enactment of the resolution creating the district pursuant to Section 62451. Consistent with the time limitations of this section, an action or proceeding with respect to a division of taxes under this chapter may be brought pursuant to Chapter 9 (commencing with Section 860) of Title 10 of Part 2 of the Code of Civil Procedure.
62464.This section implements and fulfills the intent of this chapter and of Article XIII B of the California Constitution. The allocation and payment to a district of the portion of taxes specified in Section 62453 for the purpose of paying principal of, or interest on, loans, or advances incurred by the district pursuant to this chapter, shall not be deemed the receipt by a district of proceeds of taxes levied by or on behalf of the district within the meaning or for the purposes of Article XIII B of the California Constitution, nor shall that portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to limitation of, any other public body within the meaning or for purposes of Article XIII B of the California Constitution or any statutory provision enacted in implementation of Article XIII B of the California Constitution.
SEC. 2.The Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique amount of vacant office commercial space within the City and County of San Francisco. The Legislature additionally finds and declares all of the following:
(a)The commercial vacancy rate in the City and County of San Francisco is acute among downtown areas in California and the nation.
(b)From March 2020 to June 2021, office vacancy rates in the City and County of San Francisco increased from 5 percent to 20 percent as offices adopted hybrid and fully remote reporting schedules.
(c)According to data from the City and County of San Francisco, as of April 15, 2024, 32 percent of the City and County of San Franciscos office space is vacant.
(d)The City and County of San Franciscos vacancy rate is higher than other major metropolitan areas such as the cities of New York City, Los Angeles, Austin, and Seattle.
(e)This bill addresses a crisis in commercial vacancy in downtown San Francisco that is unmatched by other major metropolitan areas.
(f)Therefore, while public funds for housing development should prioritize the funding of affordable housing, on a limited and temporary basis, it is appropriate to authorize the City and County of San Francisco to provide funding to market rate developments through the use of tax increment financing tools to help abate the crisis.
For purposes of this part:
(a)Board of Supervisors means the Board of Supervisors of the City and County of San Francisco.
(b)Communitywide significance means benefits associated with the office-to-residential conversion project beyond the conversion of office space to residential dwelling units.
(b)(c)Designated official means the appropriate official designated pursuant to Section 62405. 62455.
(c)(d)District board means the governing board of the downtown revitalization and economic recovery financing district.
(d)(e)(1)Downtown revitalization and economic recovery financing district or district means a legally constituted governmental entity separate and distinct from the City and County of San Francisco for the sole purpose of financing office-to-residential conversion projects or other projects of communitywide significance in downtown San Francisco that support downtown revitalization and economic recovery as authorized by this division. A downtown revitalization and economic recovery financing district is a local agency for purposes of Chapter 9 (commencing with Section 54950). 54950) of Part 1 of Division 2 of Title 5.
(2)A downtown revitalization and economic recovery financing district shall be deemed a district within the meaning of Section 1 of Article XIIIA of the California Constitution.
(e)(f)Downtown revitalization financing plan means an adopted financing plan prepared pursuant to Section 62406. 62456.
(g)Downtown San Francisco means an area in the City and County of San Francisco bounded beginning at the intersection of Washington Street and The Embarcadero, running southerly along The Embarcadero and then King Street to 3rd Street, running northwesterly on 3rd Street to Townsend Street, running southwesterly along Townsend Street to 6th Street, running northwesterly along 6th Street to Mission Street, running southwesterly along Mission Street to 10th Street, running southeasterly along 10th Street to Minna Street, running southwesterly along Minna Street to Lafayette Street, running southeasterly along Lafayette Street to Howard Street, running southerly along Howard Street to the junction with the Central Freeway, running westerly along the Central Freeway to Market Street, running northeasterly along Market Street to Franklin Street, running northerly along Franklin Street to Golden Gate Avenue, running easterly along Golden Gate Avenue to Taylor Street, running northerly along Taylor Street to Turk Street, running easterly along Turk Street to Mason Street, running northerly along Mason Street to Ellis Street, running westerly along Ellis Street to Taylor Street, running northerly along Taylor Street to OFarrell Street, running westerly along OFarrell Street to Shannon Street, running northerly along Shannon Street to Geary Street, running easterly along Geary Street to Taylor Street, running northerly along Taylor Street to Bush Street, running easterly along Bush Street to Kearny Street, running northerly along Kearny Street to Sacramento Street, running easterly along Sacramento Street to Montgomery Street, running northerly along Montgomery Street to Washington Street, and running easterly along Washington Street to The Embarcadero.
(f)(h)Lower income households has the same meaning as defined in Section 50079.5 of the Health and Safety Code.
(g)(i)Moderate-income households means households of persons and families of moderate income, as defined in Section 50093 of the Health and Safety Code.
(h)(j)Office-to-residential conversion project means a housing development project that converts an existing qualifying commercial office building to market rate or affordable housing by either reuse of the existing commercial office building or by replacing the commercial office building with a new residential building.
(i)(k)Opted-in taxable property means the property of an office-to-residential conversion project that has opted in to receive incremental tax revenue pursuant to Section 62409. 62459.
(j)(l)Qualifying commercial office building means a commercial office building identified in the downtown revitalization financing plan pursuant to subdivision (d) of Section 62406. 62456.
(k)(m)San Francisco means the City and County of San Francisco.
(l)(n)Very low income households has the same meaning as defined in Section 50105 of the Health and Safety Code.
62401.62451.The Board of Supervisors of the City and County of San Francisco may establish a one downtown revitalization and economic recovery financing district pursuant to this division. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)(1)State that a district is proposed to be established under the terms of this division and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the recorder of the county. The map may identify, within the district, certain areas which shall be referred to as project areas.
(2)The boundaries of the district shall be contiguous with the boundaries of the City and County of limited to downtown San Francisco.
(b)State the need for the district and the goals the district proposes to achieve.
(c)State that incremental property tax revenue generated by investment in the office-to-residential conversion project from San Francisco will be used to finance these activities.
(d)Fix a time and place for a public hearing public hearings on the proposal.
62402.62452.(a)(1)The district boards membership shall consist of three members of the Board of Supervisors, and two members of the public chosen by the Board of Supervisors. The Board of Supervisors may appoint one of its members to be an alternate member of the district board who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the district. The appointment of the public members shall be subject to the provisions of Sections 54970 and 54972.
(2)For purposes of this subdivision, legislative body the district board may include a directly elected mayor.
(b)The Board of Supervisors shall ensure the district board is established at the same time that it adopts a resolution of intention pursuant to Section 62401. 62451.
(c)Members of the district board shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties pursuant to Article 2.3 (commencing with Section 53232) of Chapter 2. 2 of Part 1 of Division 2 of Title 5.
(d)Members of the district board are subject to Article 2.4 (commencing with Section 53234) of Chapter 2. 2 of Part 1 of Division 2 of Title 5.
(e)The district board shall be a local public agency subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950)), 54950) of Part 1 of Division 2 of Title 5), the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1), and the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
62403.62453.(a)The purpose of the district is to finance office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects within the district.
(b)Incremental tax revenues generated by office-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this section.
(c)The district shall finance only office-to-residential development projects that the district determines are of communitywide significance and that provide significant benefits to the district or San Francisco.
(d)The district shall ensure that incremental tax revenues allocated to the district are limited to those revenues described in Section 62407 62457 that are generated through office-to-residential conversion projects within the district that have opted in pursuant to Section 62409. 62459.
(e)The district shall ensure that the requirements of this division are met every 10 years.(e)(1)The district shall take all of the following actions:
(A)Hold an annual public hearing.
(B)On or before June 30, after holding a public hearing, adopt an annual report.
(C)Make available written copies of the draft of the annual report available to the public 30 days before the public hearing.
(D)Post the draft of the annual report in an easily identifiable and accessible location on the districts internet website.
(2)The annual report shall contain all of the following:
(A)A description of the projects undertaken by the district in the fiscal year, including any rehabilitation of structures, and a comparison of the progress expected to be made on those projects compared to the actual progress.
(B)A chart comparing the actual revenues and expenses, including administrative costs, of the district to the budgeted revenues and expenses.
(C)The amount of tax increment revenues received by the district.
(D)A description of each office-to-residential conversion project within the district that opted in and the amount of tax increment revenues received.
(E)An assessment of the status regarding completion of the districts projects.
(F)The amount of revenues expended by the district to assist private businesses.
(3)If the district fails to adopt the annual report required by subparagraph (B) of paragraph (1), the district shall not spend any funds received pursuant to a resolution adopted pursuant to this chapter until the district has adopted the report.
(4)Every 10 years at a public hearing required by subparagraph (A) of paragraph (1), the district shall consider the following:
(A)Whether the requirements of this division continue to be met.
(B)Whether amendments to the downtown revitalization plan are necessary to ensure the requirements of this division continue to be met.
62404.62454.The creation of the district and the adoption of a downtown revitalization financing plan pursuant to this division shall not be deemed a project for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).
62405.62455.After adopting the resolution pursuant to Section 62401, 62451, the Board of Supervisors shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate government official to prepare a downtown revitalization financing plan pursuant to Section 62406. 62456.
62406.62456.After receipt of a copy of the resolution of intention to establish the district, the official designated pursuant to Section 62405 62455 shall prepare a proposed downtown revitalization financing plan. The downtown revitalization financing plan shall be consistent with the general plan and applicable specific plans of San Francisco, and shall include all of the following:
(a)A map and legal description of the proposed district, which may include all or a portion of the district designated by the Board of Supervisors in its resolution of intention.
(b)A description of the potential office-to-residential conversion projects that are proposed in the area of the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this division, those public improvements and facilities to be financed with assistance from the proposed district, and those to be provided jointly. district. An office-to-residential conversion project may be mixed use, but at least two-thirds of the square footage of the office-residential conversion shall be designated for residential use. Mixed-use developments shall be limited to residential and commercial uses.
(c)A requirement that if nonresidential development is included in the development pursuant to subdivision (b), at least 25 percent of the total planned units affordable to lower income households shall be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25 percent of nonresidential development made available for lease or sale and permitted for use and occupancy.
(d)(1)A requirement that an opted-in taxable property shall not receive a property tax allocation unless it meets one of the following:
(A)At least 5 percent of total units for rent are affordable to very low income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(B)At least 10 percent of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(C)At least 10 percent of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years.
(2)The affordability requirements established pursuant to this subdivision shall not apply to the first 3,000,000 1,500,000 square feet of opted-in office-to-residential conversion projects.
(e)A finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(f)Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(g)A requirement that the incremental tax revenues generated by each individual office-to-residential conversion project within the district be allocated back to that same project for the purpose of financing the debt service of the project. Each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the an amount equal to no greater than the amount of incremental tax revenues generated by the that same office-to-residential conversion project for a maximum of 30 years or until the district ceases to exist, whichever occurs first.
(h)A requirement that the first allocation of incremental tax revenue to an office-to-residential conversion project pursuant to subdivision (g) commence with the fiscal year that begins after the project is issued a certificate of occupancy.
(i)A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the allocation described in subdivision (g) shall also be transferred to the new property owner.
(j)A requirement that any incremental tax revenues remaining after the allocation of revenues pursuant to subdivision (g) be allocated to uses supporting downtown revitalization. Once the allocation of revenues has ceased, the tax increment shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(k)A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section.
(l)A financing section, which shall contain all of the following information:
(1)A specification of the maximum portion of the incremental tax revenue of San Francisco proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion may change over time.
(2)A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
(3)A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the plan.
(4)Either of the following:(A)(4)A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district allocates funding to the first office-to-residential conversion project within the district.
(B)If the district is divided into project areas, a date on which the downtown revitalization financing plan will cease to be in effect and all tax allocations to the district will end and a date on which the districts authority to pay incremental tax revenues received under this division will end, not to exceed 45 years from the date the district or the applicable project area has actually received one hundred thousand dollars ($100,000) in annual incremental tax revenues under this division. After the time limits established under this subparagraph, a district or project area shall not receive incremental tax revenues under this division. If the district is divided into project areas, a separate and unique time limit shall be applicable to each project area that does not exceed 45 years from the date the district has actually received one hundred thousand dollars ($100,000) in incremental tax revenues under this division from that project area.(5)An analysis of the costs to San Francisco of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by San Francisco as a result of expected development in the area of the district.
(6)An analysis of the projected fiscal impact of the district and the associated development upon San Francisco.
(m)If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of an office-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the requirements of Article 2 (commencing with Section 66300.5) of Chapter 12. 12 of Division 1 of Title 7.
(n)The goals the district proposes to achieve for each project financed pursuant to this division.
62407.62457.(a)A downtown revitalization financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the downtown financing district each year by or for the benefit of the State of California, or San Francisco, shall be divided, subject to the provisions of Section 53993, as follows:
(1)That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for San Francisco upon the total sum of the assessed value of all of the opted-in taxable property in the district, as established pursuant to subdivision (b) of Section 62409, 62459, shall be allocated to, and when collected shall be paid to, San Francisco as taxes on all other property are paid.
(2)That portion of the levied taxes each year specified in the adopted downtown revitalization financing plan for San Francisco in excess of the amount specified in paragraph (1) shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in paragraph (1), all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to San Francisco. When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(b)Notwithstanding subdivision (a), where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of the district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the Oversight Board oversight board and the Department of Finance. For the purposes of this chapter, the division of taxes allocated to the district pursuant to subdivision (a) shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund created pursuant to subdivision (b) of Section 34170.5 of the Health and Safety Code.
(c)(1)That portion of any ad valorem property tax revenue annually allocated to San Francisco pursuant to Section 97.70 of the Revenue and Taxation Code that is specified in the adopted downtown revitalization financing plan for San Francisco, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
(2)When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, the revenues described in this subdivision shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(d)The downtown revitalization financing plan shall not divide revenues that are allocated to other taxing agencies entities that are not part of San Francisco.
(e)The portion of the incremental tax revenues described in subdivisions (a) and (c) generated by an office-to-residential conversion project that can be allocated to the district shall be limited to the incremental tax revenues generated by residential use in the project, with residential use measured based on square footage.
62408.The62458.(a)The district board shall consider adoption of the downtown revitalization financing plan at a single public hearing. three public hearings.
(b)At the first public hearing, the district shall present the draft downtown revitalization financing plan, answer questions about the district, and consider comments about the downtown revitalization financing plan.
(c)At the second public hearing, the district shall consider any written and oral comments and take action to approve, modify, or reject the downtown revitalization financing plan.
(d)If the district takes action to approve or modify the downtown revitalization financing plan at the second public hearing, then the district may enact an ordinance or adopt a resolution to approve the downtown revitalization financing plan at the third public hearing.
(e)At least 10 days before each public hearing, the district board shall give notice of the public hearing as follows:
(1)The district board shall post notice of each public hearing required by this section in an easily identifiable and accessible location on the districts internet website.
(2)The district board shall do one of following:
(A)Mail a written notice of the public hearing at least 10 days before each scheduled public hearing date to each landowner, resident, business owner, and labor organization that represents workers in the geographic area of the project.
(B)If the district designates a contact person to receive and process any requests for an electronically mailed packet of all materials, email, at least 10 days before each scheduled public hearing date, notice of the public hearing to the email contact list assembled and maintained by the designated contact person.
(C)Publish notice of each public hearing at least 10 days before each public hearing in a newspaper of general circulation in San Francisco.
62409.62459.(a)(1)After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible office-to-residential conversion projects identified pursuant to subdivision (d) of Section 62406 62456 to opt into receiving incremental tax revenue generated by that same office-to-residential conversion project pursuant to this division. A district shall establish a process to reconsider the amount of incremental tax revenue to be allocated to a project if there is a change in use or the square footage of office space converted to housing planned to be built.
(2)An eligible office-to-residential conversion project may opt in to receive incremental tax revenue generated by that same office-to-residential conversion project pursuant to this division at any time before the project is issued the first building permit for the project.
(3)An office-to-residential conversion project shall not be eligible to opt in to receive incremental tax revenue pursuant to this division after December 31, 2032.
(b)After an office-to-residential conversion project opts in, the district shall determine whether it meets the requirements of this division and can begin receiving property tax incremental revenues. If the district determines that the project does not meet the requirements of this division, or that it does not have enough room under the limit established pursuant to paragraph (3) of subdivision (l) of Section 62456 for the project, the district shall not allow the project to begin receiving incremental tax revenue.
(b)(c)For purposes of paragraph (1) of subdivision (a) of Section 62407, 62457, after an office-to-residential conversion project opts in to receive incremental tax revenue, and the district approves the projects ability to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, which shall be the assessed value for the applicable property as shown upon on the assessment roll used in connection with the property by San Francisco, last equalized prior to the first building permit being issued as a part of the conversion of the office-to-residential conversion project.
(c)(d)An eligible office-to-residential conversion project that opts in to receive incremental tax revenue pursuant to subdivision (a) shall comply with the labor standards established in Section 62410. 62460.
62410.62460.It is the intent of the Legislature to subsequently amend this section to establish labor protections applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62409. 62459.
62411.62461.All costs incurred by San Francisco in connection with the division of taxes pursuant to this division for the district shall be paid by the district.
62412.62462.(a)If San Francisco establishes a district pursuant to this division, it shall develop and submit an annual report to the relevant committees of the Legislature regarding the office-to-residential conversion projects financed by the district.
(b)The reports submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795.
SEC. 2.The Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique amount of vacant office space within the City and County of San Francisco. The Legislature additionally finds and declares all of the following:
(a)The commercial vacancy rate in the City and County of San Francisco is acute among downtown areas in California and the nation.
(b)From March 2020 to June 2021, office vacancy rates in the City and County of San Francisco increased from 5 percent to 20 percent as offices adopted hybrid and fully remote reporting schedules.
(c)According to data from the City and County of San Francisco, as of April 15, 2024, 32 percent of the City and County of San Franciscos office space is vacant.
(d)The City and County of San Franciscos vacancy rate is higher than other major metropolitan areas such as the cities of New York City, Los Angeles, Austin, and Seattle.
(e)This bill addresses a crisis in commercial vacancy in downtown San Francisco that is unmatched by other major metropolitan areas.
(f)Therefore, while public funds for housing development should prioritize the funding of affordable housing, on a limited and temporary basis, it is appropriate to authorize the City and County of San Francisco to provide funding to market rate developments through the use of tax increment financing tools to help abate the crisis.
For purposes of this part:
(a)Board of Supervisors means the Board of Supervisors of the City and County of San Francisco.
(a)(b)Designated official means the appropriate official designated pursuant to Section 62405.
(b)(c)District board means the governing board of the downtown revitalization and economic recovery financing district.
(c)(d)(1)Downtown revitalization and economic recovery financing district or district means a legally constituted governmental entity separate and distinct from the local government that established it pursuant to this division the City and County of San Francisco for the sole purpose of financing office-to-residential conversion projects or other projects of communitywide significance that support downtown revitalization and economic recovery as authorized by this division. A downtown revitalization and economic recovery financing district is a local agency for purposes of Chapter 9 (commencing with Section 54950).
(2)A downtown revitalization and economic recovery financing district shall be deemed a district within the meaning of Section 1 of Article XIII A of the California Constitution.
(d)(e)Downtown revitalization financing plan means an adopted financing plan prepared pursuant to Section 62406.
(e)Legislative body means the city council or board of supervisors.(f)Local government means a city, county, or city and county, whether general law or chartered.(f)Lower income households has the same meaning as defined in Section 50079.5 of the Health and Safety Code.
(g)Moderate-income households means households of persons and families of moderate income, as defined in Section 50093 of the Health and Safety Code.
(g)(h)Office-to-residential conversion project means a housing development project that converts an existing qualifying commercial office building to market rate or affordable housing by either reuse of the existing commercial office building or by replacing the commercial office building with a new residential building.
(h)(i)Opted-in taxable property means the property of an office-to-residential conversion project that has opted in to receive incremental tax revenue pursuant to Section 62409.
(i)(j)Qualifying commercial office building means a commercial office building identified in the downtown revitalization financing plan pursuant to subdivision (d) of Section 62406.
(k)San Francisco means the City and County of San Francisco.
(l)Very low income households has the same meaning as defined in Section 50105 of the Health and Safety Code.
62401.A legislative body of a local government The Board of Supervisors of the City and County of San Francisco may establish one or more proposed a downtown revitalization and economic recovery financing district pursuant to this division. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)(1)State that a district is proposed to be established under the terms of this division and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the clerk of the city or in the office of the recorder of the county, as applicable. county. The map may identify, within a the district, certain areas which shall be referred to as project areas.
(2)The boundary of a boundaries of the district shall satisfy both of the following criteria at the time the resolution of intention is adopted: be contiguous with the boundaries of the City and County of San Francisco.
(A)At least 50 percent of the built area in the geographic boundaries of the district shall be used as commercial office space.(B)The commercial office building vacancy rate shall be 20 percent or greater.(b)State the need for the district and the goals the district proposes to achieve.
(c)State that incremental property tax revenue from the local government within the district San Francisco will be used to finance these activities.
(d)Fix a time and place for a public hearing on the proposal.
62402.(a)(1)The district boards membership shall consist of three members of the legislative body of the local government, Board of Supervisors, and two members of the public chosen by the legislative body. The legislative body Board of Supervisors. The Board of Supervisors may appoint one of its members to be an alternate member of the legislative body district board who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the authority. district. The appointment of the public members shall be subject to the provisions of Sections 54970 and 54972.
(2)For purposes of this subdivision, legislative body may include a directly elected mayor of a charter city or charter city and county who is not a member of the city or city and countys legislative body under the city or city and countys adopted charter. mayor.
(b)The legislative body Board of Supervisors shall ensure the district board is established at the same time that it adopts a resolution of intention pursuant to Section 62401.
(c)Members of the district board established pursuant to this chapter shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties pursuant to Article 2.3 (commencing with Section 53232) of Chapter 2.
(d)Members of the district board are subject to Article 2.4 (commencing with Section 53234) of Chapter 2.
(e)The district board created pursuant to this chapter shall be a local public agency subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950)), the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1), and the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
62403.(a)(1)The purpose of a the district is to finance office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects within the district.
(b)Incremental tax revenues generated by office-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this section.
(c)The district shall finance only office to residential office-to-residential development projects that the district determines are of communitywide significance and that provide significant benefits to the district or the surrounding community. San Francisco.
(d)The district shall ensure that incremental tax revenues allocated to the district are limited to those revenues described in Section 62407 that are generated through office-to-residential conversion projects within the district that have opted in pursuant to Section 62409.
(e)The district shall ensure that the requirements of this division are met every 10 years.
62404.The creation of a the district and the adoption of a downtown revitalization financing plan pursuant to this division shall not be deemed a project for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).
62405.After adopting the resolution pursuant to Section 62401, the legislative body Board of Supervisors shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate local government official to prepare a downtown revitalization financing plan pursuant to Section 62406.
62406.After receipt of a copy of the resolution of intention to establish a the district, the official designated pursuant to Section 62405 shall prepare a proposed financing plan. The financing plan shall be consistent with the general plan, and specific plan, if applicable, of the local government within which the district is located general plan and applicable specific plans of San Francisco, and shall include all of the following:
(a)A map and legal description of the proposed district, which may include all or a portion of the district designated by the legislative body Board of Supervisors in its resolution of intention.
(b)A description of the potential office-to-residential conversion projects and other forms of development that is that are proposed in the area of the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this division, those public improvements and facilities to be financed with assistance from the proposed district, and those to be provided jointly. An office-to-residential conversion project may be mixed use, but at least two-thirds of the square footage of the office-residential conversion shall be designated for residential use. Mixed-use developments shall be limited to residential and commercial uses.
(c)A requirement that if nonresidential development is included in the development pursuant to subdivision (b), at least 25 percent of the total planned units affordable to lower income households shall be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25 percent of nonresidential development made available for lease or sale and permitted for use and occupancy.
(d)(1)A requirement that an opted-in taxable property shall not receive a property tax allocation unless it meets one of the following:
(A)At least 5 percent of total units for rent are affordable to very low income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(B)At least 10 percent of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
(C)At least 10 percent of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years.
(2)The affordability requirements established pursuant to this subdivision shall not apply to the first 3,000,000 square feet of opted-in office-to-residential conversion projects.
(c)(e)A finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(d)(f)Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(e)(g)A requirement that the incremental tax revenues generated by each individual office-to-residential conversion project within the district pursuant to this division be allocated back to that project for the purpose of financing the debt service of the project. Each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the amount equal to the amount of incremental tax revenues generated by the project for a maximum of 30 years or until the district ceases to exist. exist, whichever occurs first.
(h)A requirement that the first allocation of incremental tax revenue to an office-to-residential conversion project pursuant to subdivision (g) commence with the fiscal year that begins after the project is issued a certificate of occupancy.
(i)A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the allocation described in subdivision (g) shall also be transferred to the new property owner.
(f)(j)A requirement that any incremental tax revenues remaining after the allocation of revenues pursuant to subdivision (e) (g) be allocated to uses supporting downtown revitalization. Once the allocation of revenues has ceased, the tax increment shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
(g)(k)A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section.
(h)(l)A financing section, which shall contain all of the following information:
(1)A specification of the maximum portion of the incremental tax revenue of the local government San Francisco proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion need not be the same for all affected taxing entities. The portion may change over time.
(2)A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
(3)A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the plan.
(4)Either of the following:
(A)A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district allocates funding to the first office-to-residential conversion project within the district.
(B)If the district is divided into project areas, a date on which the downtown revitalization financing plan will cease to be in effect and all tax allocations to the district will end and a date on which the districts authority to pay incremental tax revenues received under this division will end, not to exceed 45 years from the date the district or the applicable project area has actually received one hundred thousand dollars ($100,000) in annual incremental tax revenues under this division. After the time limits established under this subparagraph, a district or project area shall not receive incremental tax revenues under this division. If the district is divided into project areas, a separate and unique time limit shall be applicable to each project area that does not exceed 45 years from the date the district has actually received one hundred thousand dollars ($100,000) in incremental tax revenues under this division from that project area.
(5)An analysis of the costs to the local government San Francisco of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by the local government San Francisco as a result of expected development in the area of the district.
(6)An analysis of the projected fiscal impact of the district and the associated development upon the local government. San Francisco.
(i)(m)If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of an office-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the requirements of Article 2 (commencing with Section 66300.5) of Chapter 12.
(j)(n)The goals the district proposes to achieve for each project financed pursuant to this division.
62407.(a)A downtown revitalization financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the downtown financing district each year by or for the benefit of the State of California, or the local government, San Francisco, shall be divided, subject to the provisions of Section 53993, as follows:
(1)That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for the local government San Francisco upon the total sum of the assessed value of all of the opted-in taxable property in the district, as established pursuant to subdivision (b) of Section 62409, shall be allocated to, and when collected shall be paid to, the local government San Francisco as taxes on all other property are paid.
(2)That portion of the levied taxes each year specified in the adopted downtown revitalization financing plan for the local government San Francisco in excess of the amount specified in paragraph (1) shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in paragraph (1), all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to the local government. San Francisco. When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, the local government. San Francisco.
(b)Notwithstanding subdivision (a), where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of the district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the Oversight Board and the Department of Finance. For the purposes of this chapter, the division of taxes allocated to the district pursuant to subdivision (a) shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund created pursuant to subdivision (b) of Section 34170.5 of the Health and Safety Code.
(b)(c)(1)That portion of any ad valorem property tax revenue annually allocated to a local government San Francisco pursuant to Section 97.70 of the Revenue and Taxation Code that is specified in the adopted downtown revitalization financing plan for the local government, San Francisco, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
(2)When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, the revenues described in this subdivision shall be allocated to, and, when collected, shall be apportioned to, the respective local government. San Francisco.
(d)The downtown revitalization financing plan shall not divide revenues that are allocated to other taxing agencies that are not part of San Francisco.
62408.The district board shall consider adoption of the downtown revitalization financing plan at a single public hearing.
62409.(a)(1)After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible office-to-residential conversion projects identified pursuant to subdivision (d) of Section 62406 to opt into receiving incremental tax revenue pursuant to this division. A district shall establish a process to reconsider the amount of incremental tax revenue to be allocated to a project if there is a change in use or the square footage of office space converted to housing planned to be built.
(2)An eligible office-to-residential conversion project may opt in to receive incremental tax revenue pursuant to this division at any time before the project is issued the first building permit for the project.
(3)An office-to-residential conversion project shall not be eligible to opt in to receive incremental tax revenue pursuant to this division after December 31, 2032.
(b)For purposes of paragraph (1) of subdivision (a) of Section 62407, after an office-to-residential conversion project opts in to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, as shown upon the assessment roll used in connection with the property by the local government, San Francisco, last equalized prior to the first building permit being issued as a part of the conversion of the office-to-residential conversion project.
(c)An eligible office-to-residential conversion project that opts in to receive incremental tax revenue pursuant to subdivision (a) shall comply with the labor standards established in Section 62410.
62410.It is the intent of the Legislature to subsequently amend this section to establish labor protections applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62409.
62411.All costs incurred by a county San Francisco in connection with the division of taxes pursuant to this division for a the district shall be paid by that the district.
62412.(a)If San Francisco establishes a district pursuant to this division, it shall develop and submit an annual report to the relevant committees of the Legislature regarding the office-to-residential conversion projects financed by the district.
(b)The reports submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795.
SEC. 2.The Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique amount of vacant office space within the City and County of San Francisco.
For purposes of this part:
(a)Designated official means the appropriate official designated pursuant to Section 62405.
(b)District board means the governing board of the downtown revitalization and economic recovery financing district.
(c)(1)Downtown revitalization and economic recovery financing district or district means a legally constituted governmental entity separate and distinct from the local government that established it pursuant to this division for the sole purpose of financing office-to-residential conversion projects or other projects of communitywide significance that support downtown revitalization and economic recovery as authorized by this division. A downtown revitalization and economic recovery financing district is a local agency for purposes of Chapter 9 (commencing with Section 54950).
(2)A downtown revitalization and economic recovery financing district shall be deemed a district within the meaning of Section 1 of Article XIII A of the California Constitution.
(d)Downtown revitalization financing plan means an adopted financing plan prepared pursuant to Section 62406.
(e)Legislative body means the city council or board of supervisors.
(f)Local government means a city, county, or city and county, whether general law or chartered.
(g)Office-to-residential conversion project means a housing development project that converts an existing qualifying commercial office building to market rate or affordable housing by either reuse of the existing commercial office building or by replacing the commercial office building with a new residential building.
(h)Opted-in taxable property means the property of an office-to-residential conversion project that has opted in to receive incremental tax revenue pursuant to Section 62409.
(i)Qualifying commercial office building means a commercial office building identified in the downtown revitalization financing plan pursuant to subdivision (d) of Section 62406.
62401.A legislative body of a local government may establish one or more proposed downtown revitalization and economic recovery financing district pursuant to this division. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)(1)State that a district is proposed to be established under the terms of this division and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the clerk of the city or in the office of the recorder of the county, as applicable. The map may identify, within a district, certain areas which shall be referred to as project areas.
(2)The boundary of a district shall satisfy both of the following criteria at the time the resolution of intention is adopted:
(A)At least 50 percent of the built area in the geographic boundaries of the district shall be used as commercial office space.
(B)The commercial office building vacancy rate shall be 20 percent or greater.
(b)State the need for the district and the goals the district proposes to achieve.
(c)State that incremental property tax revenue from the local government within the district will be used to finance these activities.
(d)Fix a time and place for a public hearing on the proposal.
62402.(a)(1)The district boards membership shall consist of three members of the legislative body of the local government, and two members of the public chosen by the legislative body. The legislative body may appoint one of its members to be an alternate member of the legislative body who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the authority. The appointment of the public members shall be subject to the provisions of Sections 54970 and 54972.
(2)For purposes of this subdivision, legislative body may include a directly elected mayor of a charter city or charter city and county who is not a member of the city or city and countys legislative body under the city or city and countys adopted charter.
(b)The legislative body shall ensure the district board is established at the same time that it adopts a resolution of intention pursuant to Section 62401.
(c)Members of the district board established pursuant to this chapter shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties pursuant to Article 2.3 (commencing with Section 53232) of Chapter 2.
(d)Members of the district board are subject to Article 2.4 (commencing with Section 53234) of Chapter 2.
(e)The district board created pursuant to this chapter shall be a local public agency subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950)), the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1), and the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
62403.(a)(1)The purpose of a district is to finance office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects within the district.
(b)Incremental tax revenues generated by office-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this section.
(c)The district shall finance only office to residential development projects that the district determines are of communitywide significance and that provide significant benefits to the district or the surrounding community.
(d)The district shall ensure that incremental tax revenues allocated to the district are limited to those revenues described in Section 62407 that are generated through office-to-residential conversion projects within the district that have opted in pursuant to Section 62409.
(e)The district shall ensure that the requirements of this division are met every 10 years.
62404.The creation of a district and the adoption of a downtown revitalization financing plan pursuant to this division shall not be deemed a project for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).
62405.After adopting the resolution pursuant to Section 62401, the legislative body shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate local government official to prepare a downtown revitalization financing plan pursuant to Section 62406.
62406.After receipt of a copy of the resolution of intention to establish a district, the official designated pursuant to Section 62405 shall prepare a proposed financing plan. The financing plan shall be consistent with the general plan, and specific plan, if applicable, of the local government within which the district is located and shall include all of the following:
(a)A map and legal description of the proposed district, which may include all or a portion of the district designated by the legislative body in its resolution of intention.
(b)A description of the potential office-to-residential conversion projects and other forms of development that is proposed in the area of the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this division, those public improvements and facilities to be financed with assistance from the proposed district, and those to be provided jointly.
(c)A finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(d)Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(e)A requirement that the incremental tax revenues generated by each individual office-to-residential conversion project within the district pursuant to this division be allocated back to that project for the purpose of financing the debt service of the project. Each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the amount equal to the amount of incremental tax revenues generated by the project for 30 years or until the district ceases to exist.
(f)A requirement that any incremental tax revenues remaining after the allocation of revenues pursuant to subdivision (e) be allocated to uses supporting downtown revitalization.
(g)A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section.
(h)A financing section, which shall contain all of the following information:
(1)A specification of the maximum portion of the incremental tax revenue of the local government proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion need not be the same for all affected taxing entities. The portion may change over time.
(2)A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
(3)A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the plan.
(4)Either of the following:
(A)A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district allocates funding to the first office-to-residential conversion project within the district.
(B)If the district is divided into project areas, a date on which the downtown revitalization financing plan will cease to be in effect and all tax allocations to the district will end and a date on which the districts authority to pay incremental tax revenues received under this division will end, not to exceed 45 years from the date the district or the applicable project area has actually received one hundred thousand dollars ($100,000) in annual incremental tax revenues under this division. After the time limits established under this subparagraph, a district or project area shall not receive incremental tax revenues under this division. If the district is divided into project areas, a separate and unique time limit shall be applicable to each project area that does not exceed 45 years from the date the district has actually received one hundred thousand dollars ($100,000) in incremental tax revenues under this division from that project area.
(5)An analysis of the costs to the local government of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by the local government as a result of expected development in the area of the district.
(6)An analysis of the projected fiscal impact of the district and the associated development upon the local government.
(i)If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of an office-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the requirements of Article 2 (commencing with Section 66300.5) of Chapter 12.
(j)The goals the district proposes to achieve for each project financed pursuant to this division.
62407.(a)A downtown revitalization financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the downtown financing district each year by or for the benefit of the State of California, or the local government, shall be divided, subject to the provisions of Section 53993, as follows:
(1)That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for the local government upon the total sum of the assessed value of all of the opted-in taxable property in the district, as established pursuant to subdivision (b) of Section 62409, shall be allocated to, and when collected shall be paid to, the local government as taxes on all other property are paid.
(2)That portion of the levied taxes each year specified in the adopted downtown revitalization financing plan for the local government in excess of the amount specified in paragraph (1) shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in paragraph (1), all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to the local government. When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, the local government.
(b)(1)That portion of any ad valorem property tax revenue annually allocated to a local government pursuant to Section 97.70 of the Revenue and Taxation Code that is specified in the adopted downtown revitalization financing plan for the local government, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
(2)When the district ceases to exist pursuant to the adopted downtown revitalization financing plan, the revenues described in this subdivision shall be allocated to, and, when collected, shall be apportioned to, the respective local government.
62408.The district board shall consider adoption of the downtown revitalization financing plan at a single public hearing.
62409.(a)(1)After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible office-to-residential conversion projects identified pursuant to subdivision (d) of Section 62406 to opt into receiving incremental tax revenue pursuant to this division.
(2)An eligible office-to-residential conversion project may opt in to receive incremental tax revenue pursuant to this division at any time before the project is issued the first building permit for the project.
(b)For purposes of paragraph (1) of subdivision (a) of Section 62407, after an office-to-residential conversion project opts in to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, as shown upon the assessment roll used in connection with the property by the local government, last equalized prior to the first building permit being issued as a part of the conversion of the office-to-residential conversion project.
(c)An eligible office-to-residential conversion project that opts in to receive incremental tax revenue pursuant to subdivision (a) shall comply with the labor standards established in Section 62410.
62410.It is the intent of the Legislature to subsequently amend this section to establish labor protections applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue pursuant to Section 62409.
62411.All costs incurred by a county in connection with the division of taxes pursuant to this division for a district shall be paid by that district.
SECTION 1.Section 53398.59 of the Government Code is amended to read:53398.59.A legislative body of a city or county may designate one or more proposed enhanced infrastructure financing districts pursuant to this chapter. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:(a)State that an enhanced infrastructure financing district is proposed to be established under the terms of this chapter and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the clerk of the city or in the office of the recorder of the county, as applicable. The map may identify, within a district, certain areas which shall be referred to as project areas.(b)State the type of public facilities and development proposed to be financed or assisted by the district in accordance with Section 53398.52.(c)State the need for the district and the goals the district proposes to achieve.(d)State that incremental property tax revenue from the city or county and some or all affected taxing entities within the district, if approved by resolution pursuant to Section 53398.68, may be used to finance these activities.(e)(1)State that a city, county, or city and county may allocate tax revenues derived from local sales and use taxes imposed pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200) of Division 2 of the Revenue and Taxation Code) or transactions and use taxes imposed in accordance with the Transactions and Use Tax Law (Part 1.6 (commencing with Section 7251) of Division 2 of the Revenue and Taxation Code) to an enhanced infrastructure financing district pursuant to Section 53398.75.5, if applicable.(2)The legislative body of the city or county that elects to make an allocation pursuant to paragraph (1) shall adopt an ordinance to establish the following:(A)The procedure by which the city or county will calculate the revenues derived from sales and use taxes and transactions and use taxes to be allocated to the enhanced infrastructure financing district.(B)The decision process by which the city or county will determine the amount that will be dedicated to the proposed district.(f)Fix a time and place for a public hearing on the proposal.A legislative body of a city or county may designate one or more proposed enhanced infrastructure financing districts pursuant to this chapter. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
(a)State that an enhanced infrastructure financing district is proposed to be established under the terms of this chapter and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the clerk of the city or in the office of the recorder of the county, as applicable. The map may identify, within a district, certain areas which shall be referred to as project areas. project areas.
(b)State the type of public facilities and development proposed to be financed or assisted by the district in accordance with Section 53398.52.
(c)State the need for the district and the goals the district proposes to achieve.
(d)State that incremental property tax revenue from the city or county and some or all affected taxing entities within the district, if approved by resolution pursuant to Section 53398.68, may be used to finance these activities.
(e)(1)State that a city, county, or city and county may allocate tax revenues derived from local sales and use taxes imposed pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200) of Division 2 of the Revenue and Taxation Code) or transactions and use taxes imposed in accordance with the Transactions and Use Tax Law (Part 1.6 (commencing with Section 7251) of Division 2 of the Revenue and Taxation Code) to an enhanced infrastructure financing district pursuant to Section 53398.75.5, if applicable.
(2)The legislative body of the city or county that elects to make an allocation pursuant to paragraph (1) shall adopt an ordinance to establish the following:
(A)The procedure by which the city or county will calculate the revenues derived from sales and use taxes and transactions and use taxes to be allocated to the enhanced infrastructure financing district.
(B)The decision process by which the city or county will determine the amount that will be dedicated to the proposed district.
(f)Fix a time and place for a public hearing on the proposal.
|
Date
|
Status
|
|---|---|
| Sep 19, 2024 | Chaptered by Secretary of State - Chapter 274, Statutes of 2024. |
| Sep 19, 2024 | Approved by the Governor. |
| Sep 11, 2024 | Enrolled and presented to the Governor at 4 p.m. |
| Aug 29, 2024 | Senate amendments concurred in. To Engrossing and Enrolling. (Ayes 72. Noes 0.). |
| Aug 29, 2024 | Assembly Rule 77 suspended. |
| Aug 28, 2024 | In Assembly. Concurrence in Senate amendments pending. May be considered on or after August 30 pursuant to Assembly Rule 77. |
| Aug 28, 2024 | Read third time. Passed. Ordered to the Assembly. (Ayes 32. Noes 5.). |
| Aug 26, 2024 | Read second time. Ordered to third reading. |
| Aug 23, 2024 | Read third time and amended. Ordered to second reading. |
| Aug 5, 2024 | Read second time and amended. Ordered to third reading. |
| Jul 3, 2024 | From committee: Amend, and do pass as amended. (Ayes 7. Noes 2.) (July 2). |
| Jun 26, 2024 | From committee: Do pass and re-refer to Com. on HOUSING. (Ayes 5. Noes 1.) (June 26). Re-referred to Com. on HOUSING. |
| May 29, 2024 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| May 22, 2024 | Referred to Coms. on L. GOV. and HOUSING. |
| May 13, 2024 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 13, 2024 | Read third time. Passed. Ordered to the Senate. (Ayes 71. Noes 1. Page 5186.) |
| Apr 25, 2024 | Read second time. Ordered to third reading. |
| Apr 24, 2024 | From committee: Do pass. (Ayes 8. Noes 0.) (April 24). |
| Apr 22, 2024 | Re-referred to Com. on H. & C.D. |
| Apr 18, 2024 | From committee: Do pass and re-refer to Com. on H. & C.D. (Ayes 9. Noes 0.) (April 17). Re-referred to Com. on H. & C.D. |
| Apr 18, 2024 | From committee chair, with author's amendments: Amend, and re-refer to Com. on H. & C.D. Read second time and amended. |
| Apr 15, 2024 | Assembly Rule 56 suspended. (Page 4775.) |
| Apr 15, 2024 | (Pending re-refer to Com. on H. & C.D.) |
| Mar 19, 2024 | Re-referred to Com. on L. GOV. |
| Mar 18, 2024 | Referred to Coms. on L. GOV. and H. & C.D. |
| Mar 18, 2024 | From committee chair, with author's amendments: Amend, and re-refer to Com. on L. GOV. Read second time and amended. |
| Feb 14, 2024 | From printer. May be heard in committee March 15. |
| Feb 13, 2024 | Read first time. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 29, 2024 | AB 2488 Ting Concurrence in Senate Amendments | Assembly Floor |
Passed |
|
| Aug 28, 2024 | Assembly 3rd Reading AB2488 Ting By Wiener | Senate Floor |
Passed |
|
| Jul 2, 2024 | Do pass as amended | Senate Standing Committee on Housing |
Passed |
|
| Jun 26, 2024 | Do pass, but first be re-referred to the Committee on [Housing] | Senate Standing Committee on Local Government |
Passed |
|
| May 13, 2024 | AB 2488 Ting Assembly Third Reading | Assembly Floor |
Passed |
|
| Apr 24, 2024 | Do pass. | Assembly Standing Committee on Housing and Community Development |
Passed |
|
| Apr 17, 2024 | Do pass and be re-referred to the Committee on [Housing and Community Development] | Assembly Standing Committee on Local Government |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Advance San Francisco | ** Support | |
| Bay Area Council | ** Support | |
| BOMA San Francisco | ** Support | |
| Build Group | ** Support | |
| BUILD GROUP, INC. | ** Support | |
| California Apartment Association | ** Support | |
| California Business Properties Association | * Support | Apr 24, 2024 |
| California Special District Association | * Neutral | Apr 17, 2024 |
| California State Association Of County Auditors | ** Against | |
| California State Building and Construction Trades Council | * Indeterminate | Jun 26, 2024 |
| California Travel Association | ** Support | |
| City of San Francisco | * Support | Jun 26, 2024 |
| Emerald Fund | ** Support | |
| Forell Elsesser Engineers | ** Support | |
| Grow the Richmond | ** Support | |
| Housing Action Coalition | ** Support | |
| London Breed - Mayor of City & County of San Francisco | ** Support | |
| Metrovation | ** Support | |
| Metrovation, LLC | ** Support | |
| Napa-Solano for Everyone | ** Support | |
| Northern Neighbors Sf | ** Support | |
| Peninsula for Everyone | ** Support | |
| Plant Construction | ** Support | |
| Presidio Bay Ventures | ** Support | |
| Progress Noe Valley | ** Support | |
| San Francisco Bay Area Planning and Urban Research Association | ** Support | |
| San Francisco Chamber of Commerce | ** Support | |
| San Francisco Yimby | ** Support | |
| SKS Partners | ** Support | |
| Southside Forward | ** Support | |
| State Association Of County Auditors | ** Against | |
| Streets for People | ** Support | |
| Sylvan Development Group, LLC | ** Support | |
| TISHMAN SPEYER PROPERTIES | ** Support | |
| Tmg Partners | ** Support | |
| Union Square Alliance | ** Support | |
| Urban Environmentalists | ** Support | |
| Webcor Builders | ** Support | |
| Yimby Action | ** Support |
CONCURRENCE IN SENATE AMENDMENTS
CSA1 Bill Id:AB 2488
Author:(Ting)
As Amended Ver:August 23, 2024
Majority vote
SUMMARY
Allows the City and County of San Francisco to establish one downtown revitalization and economic recovery financing district (district).
Senate Amendments
- Expand the provisions of the bill to include all commercial buildings instead of just commercial office buildings.
- Define "commercial-to-residential conversion project" to mean a housing development project that converts an existing qualifying commercial building to market rate or affordable housing by either reuse of the existing commercial building or by replacing the commercial building with a new residential building.
- Define "communitywide significance" to mean benefits associated with the commercial-to-residential conversion project beyond the conversion of commercial space to residential dwelling units.
- Define "net available revenue" to mean periodic distributions to San Francisco from the Redevelopment Property Tax Trust Fund that are available to San Francisco after all preexisting legal commitments and statutory obligations funded from that revenue are made. "Net available revenue" shall not include any funds deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund or funds remaining in the Redevelopment Property Tax Trust Fund prior to distribution. "Net available revenue" shall not include any moneys payable to a school district that maintains kindergarten and grades 1 to 12, inclusive, community college districts, county office of education, or to the Educational Revenue Augmentation Fund.
- Limit the boundaries of the district to downtown San Francisco, as defined.
- Remove the ability of the district to identify "project areas", as specified.
- Require the district hold an annual public hearing, adopt an annual report that contains specified information, make written copies of the draft annual report available to the public 30 days before a public hearing, and post the draft annual report in an easily identifiable and accessible location on the district's internet website.
- Specify that if the district fails to adopt the annual report, the district shall not allow for any additional properties to opt in to receiving funds from the district until the district has adopted the report.
- Require every 10 years during a public hearing, the district to consider the following:
- Whether the requirements of this bill continue to be met.
- Whether amendments to the downtown revitalization plan are necessary to ensure the requirements of this bill continue to be met.
- Make specified changes to what must be included in the downtown revitalization financing plan, including a requirement that the affordability requirements apply after the first 1,500,000 square feet, instead of the first 3,000,000 square feet, of opted-in commercial-to-residential conversion projects.
- Reduce the mixed-use requirement from at least two-thirds residential use to at least 60% residential use.
- Provide that the portion of the specified incremental tax revenue generated by a commercial-to-residential conversion project that can be allocated to the district shall be limited to the incremental tax revenues generated by residential use in the project, with residential use measured based on square footage.
- Require the district board to consider adoption of the downtown revitalization financing plan at three public hearings, instead of one, as specified.
- Specify that after a commercial-to-residential conversion project opts in, the district shall determine whether it meets the requirements of this bill and can begin receiving incremental tax revenues. If the district determines that the project does not meet the requirements of this bill, the district shall not allow the project to begin receiving incremental tax revenue.
- Specify that the Board of Supervisors shall hold a public hearing before the district's third public hearing. After the Board of Supervisor's public hearing, the Board of Supervisors may approve or reject the proposed downtown revitalization financing plan.
- Authorize the Board of Supervisors to choose to dedicate any portion of its net available revenue to the district through the downtown revitalization financing plan.
- Provide that commercial-to-residential conversion projects that opt in to receive incremental tax revenue, as specified, are public works for which prevailing wages shall be paid.
- Require that commercial-to-residential conversion projects that opt in to receive incremental tax revenue shall comply with specified labor standards adopted by the Board of Supervisors.
- Provide that if the Board of Supervisors does not adopt specified labor standards, then the commercial-to-residential conversion project shall not receive incremental tax revenue or net available revenue.
- Specify that any action or proceeding to attack, review, set aside, void, or annul the creation of a district, adoption of a downtown revitalization financing plan, including a division of taxes, shall be commenced within 30 days after the enactment of the resolution creating the district. An action or proceeding with respect to a division of taxes under this chapter may be brought pursuant to existing law.
- Add findings and declarations.
- Make numerous technical, conforming, and clarifying changes.
COMMENTS
- Redevelopment. Article XVI, Section 16 of the California Constitution authorizes the Legislature to provide for the formation of redevelopment agencies (RDAs) to eliminate blight in an area by means of a self-financing schedule that pays for the redevelopment project with tax increment derived from any increase in the assessed value of property within the redevelopment project area (or tax increment). Generally, property tax increment financing involves a local government forming a tax increment financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area.
To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local government participating in the district is "frozen" at the amount it received from property within a project area prior to the project area's formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues — the so-called property tax "increment" revenues — flow to the tax increment financing district instead of other local governments. After the bonds have been fully repaid using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local governments.
Prior to Proposition 13, very few RDAs existed; however, after its passage, RDAs became a source of funding for a variety of local infrastructure activities. Eventually, RDAs were required to set-aside 20% of funding generated in a project area to increase the supply of low and moderate income housing in the project areas. At the time RDAs were dissolved, the Controller estimated that statewide, RDAs were obligated to spend $1 billion on affordable housing. At the time of dissolution, over 400 RDAs statewide were diverting 12% of property taxes, over $5.6 billion yearly.
In 2011, facing a severe budget shortfall, the Governor proposed eliminating RDAs in order to deliver more property taxes to other local agencies. Ultimately, the Legislature approved and the Governor signed two measures, ABX1 26 (Blumenfield), Chapter 5 and ABX1 27 (Blumenfield), Chapter 6 that together dissolved RDAs as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA) and the League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all RDAs were required to dissolve as of February 1, 2012.
- Attempts to Replace RDAs. After the Supreme Court's 2011 Matosantos decision dissolved all RDAs, legislators enacted several measures creating new tax increment financing tools to pay for local economic development. The Legislature authorized the creation of Enhanced Infrastructure Financing Districts (EIFDs) [SB 628 (Beall), Chapter 785, Statutes of 2014] quickly followed by Community Revitalization and Investment Authorities (CRIAs) [AB 2 (Alejo), Chapter 319, Statutes of 2015]. Similar to EIFDs, CRIAs use tax increment financing to fund infrastructure projects. CRIAs may currently only be formed in economically depressed areas.
The Legislature has also authorized the formation of affordable housing authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds [AB 1598 (Mullin), Chapter 764, Statutes of 2017]. SB 961 (Allen), Chapter 559, Statutes of 2018, removed the vote requirement for a subset of EIFDs to issue bonds and required these EIFDs to instead solicit public input, and AB 116 (Ting), Chapter 656, Statutes of 2019, removed the voter requirement for any EIFD to issues bonds in favor of a formal protest process. SB 852 (Dodd), Chapter 266, Statutes of 2022, created climate resilience districts (CRDs), which can also utilize tax-increment financing..
- California's Housing Crisis. California faces a severe housing shortage. A variety of factors have contributed to the lack of housing production. A major cause of the housing crisis is the mismatch between the supply and demand for housing. The Statewide Housing Plan adopted by the Department of Housing and Community Development (HCD) in 2022 found California needs approximately 2.5 million units of housing, including one million units affordable to lower income households, to address this mismatch over the next eight years. That would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households.
The Legislative Analyst's Office wrote in a January 24, 2024 article, California Housing Affordability Tracker, "California home prices have long been—and continue to be—much more expensive than the rest of the US. Prices for mid-tier homes are more than twice as expensive as the typical mid-tier US home. (Mid-tier homes reflect home values in the 35th to 65th percentile range.) Perhaps even more importantly for a first-time home buyer, a bottom-tier home in California is now about 33 percent more expensive than a mid-tier home in the rest of the U.S.—a gap that has widened over the last decade (Bottom-tier homes are those with values in the 5th to 35th percentile range.)"
"Monthly payments for a newly purchased mid-tier home—including mortgage, taxes, and homeowners' insurance—have increased dramatically over the last couple of years. Payments for a mid-tier home were over $5,500 a month in December 2023—an 80 percent increase since January 2020. Payments for a bottom-tier home were over $3,400 per month—an 85 percent increase since January 2020. Also, the gap between the monthly costs of purchasing a bottom-tier home versus renting are near levels that have not been seen since the housing bubble in the mid-2000s. This rapid increase in monthly costs for homebuyers was driven by higher home prices and increasing mortgage rates, both of which we discuss in more detail below."
- Adaptive Reuse. Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, it would also need to be financially attractive to the property owner – something that has increased due to the sharp downturn in the downtown office market since the beginning of the COVID-19 pandemic. However, other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units, often with bathrooms.
According to the Author
"In the aftermath of the COVID-19 pandemic, many cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate and tens of millions of square feet of vacant office space. AB 2488 gives the city a new tool to adapt to the post-pandemic normal by allowing them to create a downtown revitalization district to help finance the conversion of empty office buildings into new homes. This will solve two problems for San Francisco; it will provide the food traffic and transit ridership needed to spur economic recovery downtown while also reducing the impacts of the housing crisis. AB 2488 will empower San Francisco to turn empty office buildings and a struggling downtown into vibrant, walkable, mixed-use community with exciting new cultural, social, and economic opportunities."
Arguments in Support
According to the Bay Area Council, "The COVID-19 pandemic resulted in tragic losses of human life and disrupted everyday activities in ways that we are still struggling to adapt to years later. One of these changes is the increase of remote and hybrid work. As of November 2023, 14% of Californians still worked entirely remotely, and 21% had hybrid schedules. In the Bay Area, the percentage of remote and hybrid workers is even higher.
"Remote work offers many positive benefits to workers and the environment, but it has also resulted in undesirable consequences for urban centers. Millions of square feet of office buildings are now sitting empty in San Francisco, which has a record-breaking 36.7% vacancy rate. Transit systems have also suffered with many Bay Area transit operators seeing less than 50% of their prep-pandemic ridership. This crisis has left the City and County of San Francisco with an urgent need to find creative ways to save downtowns from a 'doom loop' of economic decline and urban blight.
"AB 2488 offers an exciting solution to this challenge and addresses two problems at once: 1) it will replace the foot traffic lost due to remote work and generate new kinds of economic activity in the city center, and 2) it will lessen the longstanding housing supply shortage in San Francisco. Office-to-residential (OTR) conversions promise to build highly desirable, mixed-use neighborhoods with both economic and cultural vitality. New housing increases transit ridership and increases demand for new entrepreneurial endeavors, including restaurants, shopping, and nightlife."
Arguments in Opposition
None on file.
FISCAL COMMENTS
None.
VOTES:
ASM LOCAL GOVERNMENT: 9-0-0
YES: Juan Carrillo, Waldron, Alanis, Haney, Kalra, Pacheco, Ramos, Ward, Wilson
ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-1
YES: Ward, Joe Patterson, Grayson, Kalra, Lee, Quirk-Silva, Reyes, Wilson
ABS, ABST OR NV: Sanchez
ASSEMBLY FLOOR: 71-1-8
YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas
NO: Gallagher
ABS, ABST OR NV: Bauer-Kahan, Megan Dahle, Essayli, Grayson, Mathis, Jim Patterson, Quirk-Silva, Ta
SENATE FLOOR: 32-5-3
YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk
NO: Dahle, Nguyen, Niello, Ochoa Bogh, Seyarto
ABS, ABST OR NV: Alvarado-Gil, Grove, Jones
UPDATED
VERSION: August 23, 2024
CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0004861
CONCURRENCE IN SENATE AMENDMENTS
CSA1 Bill Id:AB 2488
Author:(Ting)
As Amended Ver:August 23, 2024
Majority vote
SUMMARY
Allows the City and County of San Francisco to establish one downtown revitalization and economic recovery financing district (district).
Senate Amendments
- Expand the provisions of the bill to include all commercial buildings instead of just commercial office buildings.
- Define "commercial-to-residential conversion project" to mean a housing development project that converts an existing qualifying commercial building to market rate or affordable housing by either reuse of the existing commercial building or by replacing the commercial building with a new residential building.
- Define "communitywide significance" to mean benefits associated with the commercial-to-residential conversion project beyond the conversion of commercial space to residential dwelling units.
- Define "net available revenue" to mean periodic distributions to San Francisco from the Redevelopment Property Tax Trust Fund that are available to San Francisco after all preexisting legal commitments and statutory obligations funded from that revenue are made. "Net available revenue" shall not include any funds deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund or funds remaining in the Redevelopment Property Tax Trust Fund prior to distribution. "Net available revenue" shall not include any moneys payable to a school district that maintains kindergarten and grades 1 to 12, inclusive, community college districts, county office of education, or to the Educational Revenue Augmentation Fund.
- Limit the boundaries of the district to downtown San Francisco, as defined.
- Remove the ability of the district to identify "project areas", as specified.
- Require the district hold an annual public hearing, adopt an annual report that contains specified information, make written copies of the draft annual report available to the public 30 days before a public hearing, and post the draft annual report in an easily identifiable and accessible location on the district's internet website.
- Specify that if the district fails to adopt the annual report, the district shall not allow for any additional properties to opt in to receiving funds from the district until the district has adopted the report.
- Require every 10 years during a public hearing, the district to consider the following:
- Whether the requirements of this bill continue to be met.
- Whether amendments to the downtown revitalization plan are necessary to ensure the requirements of this bill continue to be met.
- Make specified changes to what must be included in the downtown revitalization financing plan, including a requirement that the affordability requirements apply after the first 1,500,000 square feet, instead of the first 3,000,000 square feet, of opted-in commercial-to-residential conversion projects.
- Reduce the mixed-use requirement from at least two-thirds residential use to at least 60% residential use.
- Provide that the portion of the specified incremental tax revenue generated by a commercial-to-residential conversion project that can be allocated to the district shall be limited to the incremental tax revenues generated by residential use in the project, with residential use measured based on square footage.
- Require the district board to consider adoption of the downtown revitalization financing plan at three public hearings, instead of one, as specified.
- Specify that after a commercial-to-residential conversion project opts in, the district shall determine whether it meets the requirements of this bill and can begin receiving incremental tax revenues. If the district determines that the project does not meet the requirements of this bill, the district shall not allow the project to begin receiving incremental tax revenue.
- Specify that the Board of Supervisors shall hold a public hearing before the district's third public hearing. After the Board of Supervisor's public hearing, the Board of Supervisors may approve or reject the proposed downtown revitalization financing plan.
- Authorize the Board of Supervisors to choose to dedicate any portion of its net available revenue to the district through the downtown revitalization financing plan.
- Provide that commercial-to-residential conversion projects that opt in to receive incremental tax revenue, as specified, are public works for which prevailing wages shall be paid.
- Require that commercial-to-residential conversion projects that opt in to receive incremental tax revenue shall comply with specified labor standards adopted by the Board of Supervisors.
- Provide that if the Board of Supervisors does not adopt specified labor standards, then the commercial-to-residential conversion project shall not receive incremental tax revenue or net available revenue.
- Specify that any action or proceeding to attack, review, set aside, void, or annul the creation of a district, adoption of a downtown revitalization financing plan, including a division of taxes, shall be commenced within 30 days after the enactment of the resolution creating the district. An action or proceeding with respect to a division of taxes under this chapter may be brought pursuant to existing law.
- Add findings and declarations.
- Make numerous technical, conforming, and clarifying changes.
COMMENTS
- Redevelopment. Article XVI, Section 16 of the California Constitution authorizes the Legislature to provide for the formation of redevelopment agencies (RDAs) to eliminate blight in an area by means of a self-financing schedule that pays for the redevelopment project with tax increment derived from any increase in the assessed value of property within the redevelopment project area (or tax increment). Generally, property tax increment financing involves a local government forming a tax increment financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area.
To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local government participating in the district is "frozen" at the amount it received from property within a project area prior to the project area's formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues — the so-called property tax "increment" revenues — flow to the tax increment financing district instead of other local governments. After the bonds have been fully repaid using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local governments.
Prior to Proposition 13, very few RDAs existed; however, after its passage, RDAs became a source of funding for a variety of local infrastructure activities. Eventually, RDAs were required to set-aside 20% of funding generated in a project area to increase the supply of low and moderate income housing in the project areas. At the time RDAs were dissolved, the Controller estimated that statewide, RDAs were obligated to spend $1 billion on affordable housing. At the time of dissolution, over 400 RDAs statewide were diverting 12% of property taxes, over $5.6 billion yearly.
In 2011, facing a severe budget shortfall, the Governor proposed eliminating RDAs in order to deliver more property taxes to other local agencies. Ultimately, the Legislature approved and the Governor signed two measures, ABX1 26 (Blumenfield), Chapter 5 and ABX1 27 (Blumenfield), Chapter 6 that together dissolved RDAs as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA) and the League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all RDAs were required to dissolve as of February 1, 2012.
- Attempts to Replace RDAs. After the Supreme Court's 2011 Matosantos decision dissolved all RDAs, legislators enacted several measures creating new tax increment financing tools to pay for local economic development. The Legislature authorized the creation of Enhanced Infrastructure Financing Districts (EIFDs) [SB 628 (Beall), Chapter 785, Statutes of 2014] quickly followed by Community Revitalization and Investment Authorities (CRIAs) [AB 2 (Alejo), Chapter 319, Statutes of 2015]. Similar to EIFDs, CRIAs use tax increment financing to fund infrastructure projects. CRIAs may currently only be formed in economically depressed areas.
The Legislature has also authorized the formation of affordable housing authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds [AB 1598 (Mullin), Chapter 764, Statutes of 2017]. SB 961 (Allen), Chapter 559, Statutes of 2018, removed the vote requirement for a subset of EIFDs to issue bonds and required these EIFDs to instead solicit public input, and AB 116 (Ting), Chapter 656, Statutes of 2019, removed the voter requirement for any EIFD to issues bonds in favor of a formal protest process. SB 852 (Dodd), Chapter 266, Statutes of 2022, created climate resilience districts (CRDs), which can also utilize tax-increment financing..
- California's Housing Crisis. California faces a severe housing shortage. A variety of factors have contributed to the lack of housing production. A major cause of the housing crisis is the mismatch between the supply and demand for housing. The Statewide Housing Plan adopted by the Department of Housing and Community Development (HCD) in 2022 found California needs approximately 2.5 million units of housing, including one million units affordable to lower income households, to address this mismatch over the next eight years. That would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households.
The Legislative Analyst's Office wrote in a January 24, 2024 article, California Housing Affordability Tracker, "California home prices have long been—and continue to be—much more expensive than the rest of the US. Prices for mid-tier homes are more than twice as expensive as the typical mid-tier US home. (Mid-tier homes reflect home values in the 35th to 65th percentile range.) Perhaps even more importantly for a first-time home buyer, a bottom-tier home in California is now about 33 percent more expensive than a mid-tier home in the rest of the U.S.—a gap that has widened over the last decade (Bottom-tier homes are those with values in the 5th to 35th percentile range.)"
"Monthly payments for a newly purchased mid-tier home—including mortgage, taxes, and homeowners' insurance—have increased dramatically over the last couple of years. Payments for a mid-tier home were over $5,500 a month in December 2023—an 80 percent increase since January 2020. Payments for a bottom-tier home were over $3,400 per month—an 85 percent increase since January 2020. Also, the gap between the monthly costs of purchasing a bottom-tier home versus renting are near levels that have not been seen since the housing bubble in the mid-2000s. This rapid increase in monthly costs for homebuyers was driven by higher home prices and increasing mortgage rates, both of which we discuss in more detail below."
- Adaptive Reuse. Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, it would also need to be financially attractive to the property owner – something that has increased due to the sharp downturn in the downtown office market since the beginning of the COVID-19 pandemic. However, other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units, often with bathrooms.
According to the Author
"In the aftermath of the COVID-19 pandemic, many cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate and tens of millions of square feet of vacant office space. AB 2488 gives the city a new tool to adapt to the post-pandemic normal by allowing them to create a downtown revitalization district to help finance the conversion of empty office buildings into new homes. This will solve two problems for San Francisco; it will provide the food traffic and transit ridership needed to spur economic recovery downtown while also reducing the impacts of the housing crisis. AB 2488 will empower San Francisco to turn empty office buildings and a struggling downtown into vibrant, walkable, mixed-use community with exciting new cultural, social, and economic opportunities."
Arguments in Support
According to the Bay Area Council, "The COVID-19 pandemic resulted in tragic losses of human life and disrupted everyday activities in ways that we are still struggling to adapt to years later. One of these changes is the increase of remote and hybrid work. As of November 2023, 14% of Californians still worked entirely remotely, and 21% had hybrid schedules. In the Bay Area, the percentage of remote and hybrid workers is even higher.
"Remote work offers many positive benefits to workers and the environment, but it has also resulted in undesirable consequences for urban centers. Millions of square feet of office buildings are now sitting empty in San Francisco, which has a record-breaking 36.7% vacancy rate. Transit systems have also suffered with many Bay Area transit operators seeing less than 50% of their prep-pandemic ridership. This crisis has left the City and County of San Francisco with an urgent need to find creative ways to save downtowns from a 'doom loop' of economic decline and urban blight.
"AB 2488 offers an exciting solution to this challenge and addresses two problems at once: 1) it will replace the foot traffic lost due to remote work and generate new kinds of economic activity in the city center, and 2) it will lessen the longstanding housing supply shortage in San Francisco. Office-to-residential (OTR) conversions promise to build highly desirable, mixed-use neighborhoods with both economic and cultural vitality. New housing increases transit ridership and increases demand for new entrepreneurial endeavors, including restaurants, shopping, and nightlife."
Arguments in Opposition
None on file.
FISCAL COMMENTS
None.
VOTES:
ASM LOCAL GOVERNMENT: 9-0-0
YES: Juan Carrillo, Waldron, Alanis, Haney, Kalra, Pacheco, Ramos, Ward, Wilson
ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-1
YES: Ward, Joe Patterson, Grayson, Kalra, Lee, Quirk-Silva, Reyes, Wilson
ABS, ABST OR NV: Sanchez
ASSEMBLY FLOOR: 71-1-8
YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas
NO: Gallagher
ABS, ABST OR NV: Bauer-Kahan, Megan Dahle, Essayli, Grayson, Mathis, Jim Patterson, Quirk-Silva, Ta
UPDATED
VERSION: August 23, 2024
CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0004861
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB 2488 |
THIRD READING
Bill No: AB 2488
Author: Ting (D)
Amended: 8/23/24 in Senate
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE: 5-1, 6/26/24
AYES: Durazo, Glazer, Skinner, Wahab, Wiener
NOES: Seyarto
NO VOTE RECORDED: Dahle
SENATE HOUSING COMMITTEE: 7-2, 7/2/24
AYES: Skinner, Blakespear, Caballero, Cortese, Padilla, Umberg, Wahab
NOES: Ochoa Bogh, Seyarto
NO VOTE RECORDED: Menjivar
ASSEMBLY FLOOR: 71-1, 5/13/24 - See last page for vote
SUBJECT: Downtown revitalization and economic recovery financing districts: City and County of San Francisco
SOURCE: Author
DIGEST:
This bill allows the City and County of San Francisco to create a Downtown Revitalization and Economic Recovery Financing District (district) to finance commercial-to-residential conversion projects using incremental property tax revenues.
Senate Floor Amendments of 8/23/24 make various changes to the district’s formation, powers, procedures, and accountability provisions, including: (1) expanding the bill to cover any commercial-to-residential conversions, not just offices; and (2) specify labor standards that apply to projects the district funds.
ANALYSIS:
Existing law:
- Authorizes local governments to create enhanced infrastructure financing districts (EIFDs) and to use tax increment financing to finance public capital facilities or other specified projects, as specified.
- Authorizes local governments to establish community revitalization infrastructure authorities (CRIAs) to use property tax increment revenues to finance a community revitalization plan within a community revitalization area, as specified.
- Authorizes local governments to create Affordable Housing Authorities (AHAs) to provide low- and moderate-income housing and affordable housing, defined as housing affordable to households with incomes at or below 120% of area median income (AMI).
This bill:
- Allows San Francisco to create a district to finance commercial-to-residential conversion projects with incremental tax revenues generated by commercial-to-residential conversion projects and outlines the districts: formation process, governance structure, powers, financing plan, payment mechanics, affordability requirements, labor standards, and accountability measures.
- Allows the San Francisco Board of Supervisors to form a district by adopting a resolution that:
- States the intent to form a district.
- Describe the district’s boundaries, which must be limited to downtown San Francisco as specified.
- States the need for, and the goals of, the district.
- States the district will use incremental property tax revenue to finance these activities.
- Fixes a time and place for a public hearing on the proposed financing plan. The Board of Supervisors must hold the hearing before the district board’s third public hearing. At the hearing, the Board of Supervisors can approve or deny the financing plan.
- Requires that when the Board of Supervisors establishes the district, it must also form a district board at the same time with three members of the Board of Supervisors and two members of the public chosen by the Board of Supervisors. Additionally, the Board of Supervisors may appoint one supervisor to serve as an alternate who can vote in place of another member who is absent or disqualifies themselves from participating in the meeting. Members cannot receive compensation, but they can be reimbursed for actual and necessary expenses.
- Allows the district to use incremental property tax revenues generated by commercial-to-residential conversion projects that opt into the district.
- Allows the district to only finance commercial-to-residential conversion projects the district determines are of communitywide significance and provide significant benefits to the district or San Francisco.
- Requires the district to create a financing plan it must approve at three public hearings. The first meeting is for the district to present the financing plan, answer public questions, and consider public comments. The second meeting is to consider public comments and take action to approve, modify, or reject the financing plan. The third meeting is to adopt a resolution or enact a resolution to approve the plan and create the district, provided the Board Supervisors approved the plan at their meeting. The district must meet specified noticing requirements for these meetings.
- Requires the financing plan must comply with specified conditions and outline certain actions the district will take. The conditions and actions outlined in this bill include obligations that the financing plan:
- Include a map and legal description of the proposed district.
- Describe the potential commercial-to-residential conversion projects in the district. Eligible projects can be mixed-use, but must dedicate at least 60 percent of the square footage for residential use.
- Require each project that includes nonresidential development to develop residential and nonresidential portions of the development concurrently, as specified.
- Identify each existing commercial building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue.
- Require the incremental tax revenues generated by each individual commercial-to-residential conversion project be distributed back to that same project to finance necessary development costs of the project. The amount a project receives cannot be greater than the incremental tax revenues generated by that same project for a period no greater than 30 years or until the district ceases to exist. This amount is limited to the incremental tax revenues generated by residential use in the project as specified.
- Require that distributions transfer to the new property owner if the project is sold.
- Require that any incremental tax revenues remaining after allocating funds to the project must go to support downtown revitalization programs. After allocations have ceased, the tax increment returns to San Francisco.
- Require the district to limit its administrative costs to 5 percent of its revenues, not including amounts to reimburse San Francisco for the costs of establishing the district.
- Specify the maximum portion of the incremental tax revenue proposed for the district for each year.
- Include a date when the district ceases to exist no more than 45 years from the date the district distributes funding to the first project.
- Analyze the cost to San Francisco to provide facilities and services to the area of the district before and after its development, which must include analysis of the tax, fee, charge, and other revenues San Francisco expects to receive in the area of the district.
- Analyze the projected fiscal impact of the district on San Francisco.
- Require, if a project proposes to remove or demolish any residential units, a plan to protect or replace those units, and relocate residents consistent with existing law.
- Include the goals the district proposes to achieve for each project.
- Prohibit the district from receiving property tax increment that would go to other taxing entities.
- Requires the district to create a process for projects to opt in to district. After a project opts in, the district must determine whether the project meets the district’s requirements. If the project does not meet the district’s requirements or there is not enough room under the required cap on total incremental revenues the district receives, then the district must not start distributing funds to the project.
- Requires, if the district approves the project, the district to establish the base assessed value for the property using the last assessment roll equalized prior to the issuance of the first building permit for the project. The district must pay San Francisco for the costs of calculating property tax revenue amounts. Projects cannot opt in after December 31, 2032.
- Provides direction on how to calculate the portion of property tax revenue that goes to the district, requires the district to place revenue in a special fund, and prohibits it from receiving revenue from other taxing entities.
- Allows the Board of Supervisors to choose to dedicate net available revenues to the district as specified.
- Provides that no affordability requirements apply to the first 1.5 million square feet of opted-in commercial-to-residential conversion projects.
- After the first 1.5 million square feet are developed projects must comply with one of the following affordability requirements:
- At least 5% of total units for rent are affordable to very low-income households or the local inclusionary requirement, whichever is higher.
- At least 10% of total units for rent are affordable to lower- income households or the local inclusionary requirement whichever is higher.
- At least 10% of total units for sale are affordable to moderate-income households, or the local inclusionary requirement, whichever is higher.
- Commercial-to-residential projects that opt in to receive funding are considered public works and must pay prevailing wage. These projects must also comply with labor standards adopted by the Board of Supervisors. If the Board of Supervisors does not adopt labor standards, then the project cannot receive incremental tax revenue or net available revenue.
- Requires the district to take the following actions related to annual reports:
- Hold an annual public hearing.
- Adopt an annual report on or before June 30th each year that includes specified information on the annual actions of the district.
- Make written copies of the draft annual report available to the public 30 days before the public hearing.
- Post the draft annual report on the district’s website.
- If, the district fails to adopt the annual report by June 30th, the district allow for any additional projects to opt into receiving funds from the district.
- Every ten years, the district must consider whether the statutory requirements of the district continue to be met, or whether amendments to the district’s financing plan are needed.
- Requires the district to submit an annual report to the relevant committees of the Legislature on the projects the district finances if the Board of Supervisors creates a district.
- Provides that any action to challenge the creation of the district or the financing plan must commence within 30 days after the resolution creating the district, as specified.
- Provides that allocation and payment to the district must not be deemed the receipt by a district of proceeds of taxes for purposes of calculating constitutional debt limits.
Background
- Tax increment financing (TIF). From the early 1950s until their dissolution in 2011, California redevelopment agencies (RDAs) used property tax increment financing (TIF) to pay for economic development projects in blighted areas pursuant to Community Redevelopment Law. Generally, TIF involves a local government forming a TIF district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues generated when projects the bonds finance increase assessed property values within the project area. To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local agency participating in the district is “frozen” at the amount it received from property within a project area prior to the project area’s formation. In future years, as the project area’s assessed valuation grows above the frozen base, the resulting additional property tax revenues—the so-called property tax “increment” revenues—flow to the TIF district instead of other local agencies. After the district has repaid the bonds using the incremental property tax revenues, the district dissolves, ending the diversion of tax increment revenues from participating local agencies.
Citing a significant state General Fund deficit, Governor Brown’s 2011-12 budget proposed eliminating RDAs and diverting billions of dollars of property tax revenues back to schools, cities, and counties to fund core services. Among the statutory changes the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, Chapter 5, Statutes of 2011) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld the dissolution of RDAs.
RDAs’ dissolution deprived many local governments of the primary tool they used to eliminate physical and economic blight, finance new construction, improve public infrastructure, rehabilitate existing buildings, and increase the supply of affordable housing.
- San Francisco Downtown. Before the pandemic, San Francisco estimated 470,000 people commuted to San Francisco for work from other places. This not only filled now-vacant office space, but also spurred the creation of other businesses and generated considerable economic development. However, the shift of people working from home during and after the COVID-19 pandemic has decreased the need for office space. According to the City and County of San Francisco, “Office vacancy reached historically low levels in 2019. Then, the pandemic created a significant increase in office vacancy rates. This suggests that with fewer employees physically reporting to work, many offices reduced the size of their office or let go of their office space entirely. According to data it updated on April 15, 2024, 32% of San Francisco’s office space is vacant.
Comments
- Purpose of the bill. According to the author, “In the aftermath of the COVID-19 pandemic, many cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate and tens of millions of square feet of vacant office space. AB 2488 gives the city a new tool to adapt to the post-pandemic normal by allowing them to create a downtown revitalization district to help finance the conversion of empty office buildings into new homes. This will solve two problems for San Francisco; it will provide the food traffic and transit ridership needed to spur economic recovery downtown while also reducing the impacts of the housing crisis. AB 2488 will empower San Francisco to turn empty office buildings and a struggling downtown into vibrant, walkable, mixed-use community with exciting new cultural, social, and economic opportunities.”
- Alphabet soup. After the Supreme Court’s 2011 Matosantos decision dissolved all RDAs, legislators enacted a slew of measures creating new tax increment financing tools to pay for local economic development. Rather than rely on these existing districts to finance downtown revitalization projects, this bill creates yet another financing tool. While this bill does not grant a downtown revitalization district access to a greater share of property tax increment, it is different from other districts in that it takes increment generated by a project and returns it to the project’s owner, rather than allowing those funds to flow to San Francisco’s general fund. Supporters argue that diverting these funds back to the project will help developers build projects that cannot pencil without this additional revenue. However, the California State Association of County Auditors, who opposes this bill, raises various design flaws, including a lack of clarity as to how County Auditor-Controller is supposed to calculate and distribute property tax increment. Given these concerns, it is unclear whether this new approach will make the downtown revitalization district more successful than the many other types of post-redevelopment infrastructure financing tools the Legislature has already created.
- Public benefit. While some other TIF districts can finance housing projects, these measures typically prohibit using property tax increment on market rate units, and only allow districts to finance affordable portions of housing projects. This stems from a simple concept: if local agencies are going to use taxpayer funds to finance projects instead of pay for goods and services, they should only fund projects where the public receives an equal or greater benefit in return. In this bill, the developer gets to keep all of the property tax increment the project generates to build any type of housing or mixed-use project. In return, the public gets the benefit of having of having an empty commercial space converted into housing. However, for the first 1.5 million square feet of conversions, there is no affordability requirement for these projects. After that point, projects must include between 5% to 10% affordable units. This means the public will be subsidizing the construction of projects that are at least 90% market rate units for as many as 30 years.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No
SUPPORT: (Verified 8/23/24)
Advance San Francisco
Bay Area Council
Build Group, INC.
California Apartment Association
Emerald Fund
Forell Elsesser Engineers
Grow the Richmond
Housing Action Coalition
London Breed - Mayor of City & County of San Francisco
Northern Neighbors SF
Progress Noe Valley
San Francisco Chamber of Commerce
San Francisco Yimby
Southside Forward
San Francisco Bay Area Planning and Urban Research Association
Streets for People
Sylvan Development Group, LLC
TMG Partners
Urban Environmentalists
YIMBY Action
OPPOSITION: (Verified 8/23/24)
California State Association of County Auditors
ASSEMBLY FLOOR: 71-1, 5/13/24
AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas
NOES: Gallagher
NO VOTE RECORDED: Bauer-Kahan, Megan Dahle, Essayli, Grayson, Mathis, Jim Patterson, Quirk-Silva, Ta
Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119
8/26/24 17:01:15
**** END ****
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB 2488 |
THIRD READING
Bill No: AB 2488
Author: Ting (D)
Amended: 4/18/24 in Assembly
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE: 5-1, 6/26/24
AYES: Durazo, Glazer, Skinner, Wahab, Wiener
NOES: Seyarto
NO VOTE RECORDED: Dahle
SENATE HOUSING COMMITTEE: 7-2, 7/2/24
AYES: Skinner, Blakespear, Caballero, Cortese, Padilla, Umberg, Wahab
NOES: Ochoa Bogh, Seyarto
NO VOTE RECORDED: Menjivar
ASSEMBLY FLOOR: 71-1, 5/13/24 - See last page for vote
SUBJECT: Downtown revitalization and economic recovery financing districts: City and County of San Francisco
SOURCE: Author
DIGEST:
This bill allows the City and County of San Francisco to create a Downtown Revitalization and Economic Recovery Financing District (district) to finance office-to-residential conversion projects using incremental property tax revenues.
ANALYSIS:
Existing law:
- Authorizes local governments to create enhanced infrastructure financing districts (EIFDs) and to use tax increment financing to finance public capital facilities or other specified projects, as specified.
- Authorizes local governments to establish community revitalization infrastructure authorities (CRIAs) to use property tax increment revenues to finance a community revitalization plan within a community revitalization area, as specified.
- Authorizes local governments to create Affordable Housing Authorities (AHAs) to provide low- and moderate-income housing and affordable housing, defined as housing affordable to households with incomes at or below 120% of area median income (AMI).
This bill:
- Allows San Francisco to create a district to finance office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects and outlines the districts: formation process, governance structure, powers, financing plan, payment mechanics, affordability requirements, labor standards, and accountability measures.
- Allows the San Francisco Board of Supervisors to form a district by adopting a resolution that:
- States the intent to form a district.
- Describe the district’s boundaries, which must be limited to downtown San Francisco as specified.
- States the need for, and the goals of, the district.
- States the district will use incremental property tax revenue to finance these activities.
- Fixes a time and place for public hearings on the proposal.
- Requires that when the Board of Supervisors establishes the district, it must also form a district board at the same time with three members of the Board of Supervisors and two members of the public chosen by the Board of Supervisors. Additionally, the Board of Supervisors may appoint one supervisor to serve as an alternate who can vote in place of another member who is absent or disqualifies themselves from participating in the meeting. Members cannot receive compensation, but they can be reimbursed for actual and necessary expenses.
- Allows the district to use incremental property tax revenues generated by office-to-residential conversion projects that opt into the district.
- Allows the district to only finance office-to-residential conversion projects the district determines are of communitywide significance and provide significant benefits to the district or San Francisco.
- Requires the district to create a financing plan it must approve at three public hearings. The first meeting is for the district to present the financing plan, answer public questions, and consider public comments. The second meeting is to consider public comments and take action to approve, modify, or reject the financing plan. The third meeting is to adopt a resolution or enact a resolution to approve the plan and create the district. The district must meet specified noticing requirements for these meetings.
- Requires the financing plan must comply with specified conditions and outline certain actions the district will take. The conditions and actions outlined in this bill include obligations that the financing plan:
- Include a map and legal description of the proposed district.
- Describe the potential office-to-residential conversion projects in the district. Eligible projects can be mixed-use, but must dedicate at least two-thirds of the square footage for residential use.
- Require each project that includes nonresidential development to develop residential and nonresidential portions of the development concurrently, as specified.
- Identify each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue.
- Require the incremental tax revenues generated by each individual office-to-residential conversion project be allocated back to that same project to finance the debt service of the project. The amount a project receives cannot be greater than the incremental tax revenues generated by that same project for a period no greater than 30 years or until the district ceases to exist. This amount is limited to the incremental tax revenues generated by residential use in the project as specified.
- Require that any incremental tax revenues remaining after allocating funds to the project must go to support downtown revitalization. After allocations have ceased, the tax increment returns to San Francisco.
- Specify the maximum portion of the incremental tax revenue proposed for the district for each year.
- Include a date when the district ceases to exist no more than 45 years from the date the district allocates funding to the first project.
- Analyze the cost to San Francisco to provide facilities and services to the area of the district before and after its development, which must include analysis of the tax, fee, charge, and other revenues San Francisco expects to receive in the area of the district.
- Analyze the projected fiscal impact of the district on San Francisco.
- Require, if a project proposes to remove or demolish any residential units, a plan to protect or replace those units, and relocate residents consistent with existing law.
- Include the goals the district proposes to achieve for each project.
- Prohibit the district from receiving property tax increment that would go to other taxing entities.
- Requires the district to create a process for projects to opt in to district. After a project opts in, the district must determine whether the project meets the district’s requirements. If the project does not meet the district’s requirements or there is not enough room under the required cap on total incremental revenues the district receives, then the district must not start distributing funds to the project.
- Requires, if the district approves the project, the district to establish the base assessed value for the property using the last assessment roll equalized prior to the issuance of the first building permit for the project. The district must pay San Francisco for the costs of calculating property tax revenue amounts. Projects cannot opt in after December 31, 2032.
- Provides direction on how to calculate the portion of property tax revenue that goes to the district, requires the district to place revenue in a special fund, and prohibits it from receiving revenue from other taxing entities.
- Provides that no affordability requirements apply to the first three million square feet of opted-in office to residential conversion projects.
- After the first 1.5 million square feet are developed projects must comply with one of the following affordability requirements:
- At least 5% of total units for rent are affordable to very low-income households or the local inclusionary requirement, whichever is higher.
- At least 10% of total units for rent are affordable to lower- income households or the local inclusionary requirement whichever is higher.
- At least 10% of total units for sale are affordable to moderate-income households, or the local inclusionary requirement, whichever is higher.
- Expresses intent for the bill to be amended to specify minimum labor standards.
- Requires the district to take the following actions related to annual reports:
- Hold an annual public hearing.
- Adopt an annual report on or before June 30th each year that includes specified information on the annual actions of the district.
- Make written copies of the draft annual report available to the public 30 days before the public hearing.
- Post the draft annual report on the district’s website.
- If, the district fails to adopt the annual report by June 30th, the district must not spend funds until it is approved.
- Every ten years, the district must consider whether the statutory requirements of the district continue to be met, or whether amendments to the district’s financing plan are needed.
- Requires the district to submit an annual report to the relevant committees of the Legislature on the projects the district finances if the Board of Supervisors creates a district.
Background
- Tax increment financing (TIF). From the early 1950s until their dissolution in 2011, California redevelopment agencies (RDAs) used property tax increment financing (TIF) to pay for economic development projects in blighted areas pursuant to Community Redevelopment Law. Generally, TIF involves a local government forming a TIF district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues generated when projects the bonds finance increase assessed property values within the project area. To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local agency participating in the district is “frozen” at the amount it received from property within a project area prior to the project area’s formation. In future years, as the project area’s assessed valuation grows above the frozen base, the resulting additional property tax revenues—the so-called property tax “increment” revenues—flow to the TIF district instead of other local agencies. After the district has repaid the bonds using the incremental property tax revenues, the district dissolves, ending the diversion of tax increment revenues from participating local agencies.
Citing a significant state General Fund deficit, Governor Brown’s 2011-12 budget proposed eliminating RDAs and diverting billions of dollars of property tax revenues back to schools, cities, and counties to fund core services. Among the statutory changes the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, Chapter 5, Statutes of 2011) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld the dissolution of RDAs.
RDAs’ dissolution deprived many local governments of the primary tool they used to eliminate physical and economic blight, finance new construction, improve public infrastructure, rehabilitate existing buildings, and increase the supply of affordable housing.
- San Francisco Downtown. Before the pandemic, San Francisco estimated 470,000 people commuted to San Francisco for work from other places. This not only filled now-vacant office space, but also spurred the creation of other businesses and generated considerable economic development. However, the shift of people working from home during and after the COVID-19 pandemic has decreased the need for office space. According to the City and County of San Francisco, “Office vacancy reached historically low levels in 2019. Then, the pandemic created a significant increase in office vacancy rates. This suggests that with fewer employees physically reporting to work, many offices reduced the size of their office or let go of their office space entirely. According to data it updated on April 15, 2024, 32% of San Francisco’s office space is vacant.
Comments
- Purpose of the bill. According to the author, “In the aftermath of the COVID-19 pandemic, many cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate and tens of millions of square feet of vacant office space. AB 2488 gives the city a new tool to adapt to the post-pandemic normal by allowing them to create a downtown revitalization district to help finance the conversion of empty office buildings into new homes. This will solve two problems for San Francisco; it will provide the food traffic and transit ridership needed to spur economic recovery downtown while also reducing the impacts of the housing crisis. AB 2488 will empower San Francisco to turn empty office buildings and a struggling downtown into vibrant, walkable, mixed-use community with exciting new cultural, social, and economic opportunities.”
- Alphabet soup. After the Supreme Court’s 2011 Matosantos decision dissolved all RDAs, legislators enacted a slew of measures creating new tax increment financing tools to pay for local economic development. Rather than rely on these existing districts to finance downtown revitalization projects, this bill creates yet another financing tool. While this bill does not grant a downtown revitalization district access to a greater share of property tax increment, it is different from other districts in that it takes increment generated by a project and returns it to the project’s owner, rather than allowing those funds to flow to San Francisco’s general fund. Supporters argue that diverting these funds back to the project will help developers build projects that cannot pencil without this additional revenue. However, the California State Association of County Auditors, who opposes this bill, raises various design flaws, including a lack of clarity as to how County Auditor-Controller is supposed to calculate and distribute property tax increment. Given these concerns, it is unclear whether this new approach will make the downtown revitalization district more successful than the many other types of post-redevelopment infrastructure financing tools the Legislature has already created.
- Public benefit. While some other TIF districts can finance housing projects, these measures typically prohibit using property tax increment on market rate units, and only allow districts to finance affordable portions of housing projects. This stems from a simple concept: if local agencies are going to use taxpayer funds to finance projects instead of pay for goods and services, they should only fund projects where the public receives an equal or greater benefit in return. In this bill, the developer gets to keep all of the property tax increment the project generates to build any type of housing or mixed-use project. In return, the public gets the benefit of having of having an empty office converted into housing. However, for the first 1.5 million square feet of conversions, there is no affordability requirement for these projects. After that point, projects must include between 5% to 10% affordable units. This means the public will be subsidizing the construction of projects that are at least 90% market rate units for as many as 30 years.
- Labor standards. The current version of this bill requires this bill’s projects to include labor standards, but provides that it is the Legislature’s intent to amend the bill to specify those standards. The Legislature may wish to consider amending this bill to specify the labor standards this bill’s projects must meet.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No
SUPPORT: (Verified 7/15/24)
Advance San Francisco
Bay Area Council
Build Group, INC.
California Apartment Association
Emerald Fund
Forell Elsesser Engineers
Grow the Richmond
Housing Action Coalition
London Breed - Mayor of City & County of San Francisco
Northern Neighbors SF
Progress Noe Valley
San Francisco Chamber of Commerce
San Francisco Yimby
Southside Forward
San Francisco Bay Area Planning and Urban Research Association
Streets for People
Sylvan Development Group, LLC
TMG Partners
Urban Environmentalists
YIMBY Action
OPPOSITION: (Verified 7/15/24)
California State Association of County Auditors
ASSEMBLY FLOOR: 71-1, 5/13/24
AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas
NOES: Gallagher
NO VOTE RECORDED: Bauer-Kahan, Megan Dahle, Essayli, Grayson, Mathis, Jim Patterson, Quirk-Silva, Ta
Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119
7/31/24 15:30:49
**** END ****
SENATE COMMITTEE ON HOUSING
Senator Nancy Skinner, Chair
2023 - 2024 Regular
Bill No: AB 2488 Hearing Date: 7/2/2024
Author: | Ting | ||
Version: | 4/18/2024 | ||
Urgency: | No | Fiscal: | No |
Consultant: | Hank Brady | ||
SUBJECT: Downtown revitalization and economic recovery financing districts: City and County of San Francisco.
DIGEST: This bill allows the City and County of San Francisco (SF) to create a Downtown Revitalization and Economic Recovery Financing District (district) to finance office-to-residential conversion projects using incremental property tax revenues.
ANALYSIS:
Existing law:
- Authorizes local governments to create enhanced infrastructure financing districts (EIFDs) and to use tax increment financing to finance public capital facilities or other specified projects, as specified.
- Authorizes local governments to establish community revitalization infrastructure authorities (CRIAs) to use property tax increment revenues to finance a community revitalization plan within a community revitalization area, as specified.
- Authorizes local governments to create Affordable Housing Authorities (AHAs) to provide low- and moderate-income housing and affordable housing, defined as housing affordable to households with incomes at or below 120% of area median income (AMI).
This bill:
- Allows SF to create a district to finance office-to-residential conversion projects with incremental tax revenues (also referred to as tax increment financing or TIF) generated by office-to-residential conversion projects and outlines the districts: formation process, governance structure, powers, financing plan, payment mechanics, affordability requirements, labor standards, and accountability measures.
Formation process
- Allows the SF Board of Supervisors to form a district by adopting a resolution that:
- States the intent to form a district.
- Describe the district’s boundaries, which must be contiguous with the boundaries of SF.
- States the need for, and the goals of, the district.
- States the district will use incremental property tax revenue to finance these activities.
- Fixes a time and place for a public hearing on the proposal.
Governance structure
- Requires that when the Board of Supervisors establishes the district, it must also form a district board at the same time with three members of the Board of Supervisors and two members of the public chosen by the Board of Supervisors. Additionally, the Board of Supervisors may appoint one supervisor to serve as an alternate who can vote in place of another member who is absent or disqualifies themselves from participating in the meeting. Members cannot receive compensation, but they can be reimbursed for actual and necessary expenses.
District powers
- Allows the district to use incremental property tax revenues generated by office-to-residential conversion projects that opt into the district.
- Allows the district to only finance office-to-residential conversion projects the district determines are of communitywide significance and provide significant benefits to the district or SF.
Financing plan
- Requires the district to create a financing plan it must approve at a public hearing. The plan must comply with specified conditions and outline certain actions the district will take. The conditions and actions outlined in the bill include obligations that the financing plan:
- Include a map and legal description of the proposed district.
- Describe the potential office-to-residential conversion projects in the district, including those the private sector provides, governmental entities provide without funding from the district, public improvements that would receive financing from the district, and those provided jointly. Eligible projects can be mixed-use, but must dedicate at least two-thirds of the square footage for residential use.
- Require each project that includes nonresidential development to develop residential and nonresidential portions of the development concurrently, as specified.
- Identify each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue.
- Require the incremental tax revenues generated by each individual office-to-residential conversion project be allocated back to that project to finance the debt service of the project.
- Require that any incremental tax revenues remaining after allocating funds to the project must go to support downtown revitalization. After allocations have ceased, the tax increment returns to SF.
- Specify the maximum portion of the incremental tax revenue proposed for the district for each year.
- Include a date when the district ceases to exist no more than 45 years from the date the district allocates funding to the first project. If the district is divided into project areas, each project area can have its own time limit, which cannot exceed 45 years from when the district receives $100,000 in increment from that area.
- Analyze the cost to SF to provide facilities and services to the area of the district before and after its development, which must include analysis of the tax, fee, charge, and other revenues SF expects to receive in the area of the district.
- Analyze the projected fiscal impact of the district on SF.
- Require, if a project proposes to remove or demolish any residential units, a plan to protect or replace those units, and relocate residents consistent with existing law.
- Include the goals the district proposes to achieve for each project.
- Prohibit the district from receiving property tax increment that would go to other taxing entities.
Payment mechanics
- Provides that projects cannot opt in after December 31, 2032. After a project opts in, the district must establish the base assessed value for the property using the last assessment roll equalized prior to the issuance of the first building permit for the project. The district must pay SF for the costs of calculating property tax revenue amounts.
- Provides direction on how to calculate the portion of property tax revenue that goes to the district, requires the district to place revenue in a special fund, and prohibits it from receiving revenue from other taxing entities.
Affordability Requirements
- Provides that no affordability requirements apply to the first three million square feet of opted-in office to residential conversion projects.
- After the first three million square feet are developed projects must comply with one of the following affordability requirements:
- At least 5% of total units for rent are affordable to very low-income households or the local inclusionary requirement, whichever is higher.
- At least 10% of total units for rent are affordable to lower- income households or the local inclusionary requirement whichever is higher.
- At least 10% of total units for sale are affordable to moderate-income households, or the local inclusionary requirement, whichever is higher.
Labor Standards
- Expresses intent for the bill to be amended to specify minimum labor standards
Accountability measures
- Requires the district to submit an annual report to the relevant committees of the Legislature on the projects the district finances if the Board of Supervisors creates a district.
COMMENTS:
- Author’s statement. “In the aftermath of the COVID-19 pandemic, many cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate and tens of millions of square feet of vacant office space. AB 2488 gives the city a new tool to adapt to the post-pandemic normal by allowing them to create a district to help finance the conversion of empty office buildings into new homes. This will solve two problems for San Francisco; it will provide the food traffic and transit ridership needed to spur economic recovery downtown while also reducing the impacts of the housing crisis. AB 2488 will empower San Francisco to turn empty office buildings and a struggling downtown into vibrant, walkable, mixed-use community with exciting new cultural, social, and economic opportunities.”
- SF Downtown. Before the pandemic, SF estimated 470,000 people commuted to SF for work from other places. This not only filled now-vacant office space, but also spurred the creation of other businesses and generated considerable economic development. However, the shift of people working from home during and after the COVID-19 pandemic has decreased the need for office space. According to the City and County of SF“Office vacancy reached historically low levels in 2019. Then, the pandemic created a significant increase in office vacancy rates. From March 2020 to June 2021, office vacancy rates increased from 5% to 20% as offices adopted hybrid and fully remote reporting schedules. This suggests that with fewer employees physically reporting to work, many offices reduced the size of their office or let go of their office space entirely. By late 2022, the rate remained higher than it had been in decades, but the rate of increase had slowed.”[1]
According to data it updated on April 15, 2024, 32% of SF’s office space is vacant. Other large cities have lower vacancy rates: New York 18%, Los Angeles 27%, Austin 23%, and Seattle 22%.
- Adaptive reuse. Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, they would also need to be financially beneficial to the property owner. Other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units often with bathrooms.
- Tax increment financing (TIF). According to Governor’s Office of Planning and Research (OPR), TIF is a mechanism used to fund and finance public facilities and other improvements, often in infill locations where up-front investments are needed to enable real estate development.[2] TIF captures incremental growth in tax revenues (usually property tax, although other types of revenue can also be collected) above and beyond what taxing entities receive within a designated area. TIF revenues are typically used to pay back upfront costs or debt service for bonds issued to fund improvements such as infrastructure and other public facilities that are needed to facilitate private investment. Historically, TIF was a financing tool used by local redevelopment agencies (RDAs). While they were active, RDAs enjoyed broad powers and often played a role in encouraging infill and TOD. RDAs were also an important local source of funding for affordable housing, because state law required RDAs to set aside 20% of revenues for that purpose. RDAs were dissolved by the state in 2012, partly due to concerns about how TIF revenues were being used (i.e. not meeting their obligations to fund affordable housing).
- Alphabet soup: IFDs, EIFDs, IRFDs, CRIAs, AHAs, NIFTIs, and NIFTI-2s. Since the dissolution of RDAs, the Legislature has created numerous new TIF tools to authorize local governments to raise revenues to finance local infrastructure. Below is a chart summarizing the various available TIF tools already available to local governments:
TIFs + Enabling Legislation | Location Reqs | Rev Sources | Affordable Housing Reqs | Expenditures | Number Created |
Infrastructure Financing Districts (IFD), SB 208 (Seymour, Chapter 1575, 1990) | None | Property tax increment | None | Capital improvements only, such as highways, transit, water systems, sewer projects, flood control, childcare facilities, libraries, parks, and solid waste | 2 |
Enhanced Infrastructure Financing Districts (EIFD), SB 628 (Beall, Chapter 785, 2014) | None | Property tax increment, increment from property tax in-lieu of vehicle license fees | None | Purchase, construction, or improvement of real property; can be used for maintenance of public faclities, as specified | 5 |
Infrastructure and Revitalization Financing District (IRFD), AB 229 (Perez, Chapter 775, 2014) | None | Property tax increment | None | Same as IFDs plus watershed lands, flood management, brownfield restoration and other environmental mitigation, purchase of real property, housing acquisition or construction, commercial acquisition or construction, and repayment transfer funds nto a military base reuse authority | 0 |
Community Revitalization and Infrastructure Authority (CRIA), AB 2 (Alejo, Chapter 319, 2015) | Disadvantaged communities, as specified, or an area within a former military base, as specified. | Property tax increment, increment from property tax in-lieu of vehicle license fees | 25% for affordable housing | Wide range of capital improvements within its boundaries | 0 |
Affordable Housing Authorities, AB 1598 (Mullin, Chpater 764, 2017) | None | Property tax increment, increment from property tax in-lieu of vehicle license fees, sales and use tax increment | 95% for increasing and preserving affordable housing, as specified. | Financing low- and moderate-income housing, including supportive and transitional housing. | 0 |
Neighborhood Infill Finance and Transit Districts (NIFTI), AB 1568 (Bloom, Chapter 562, 2017) | Qualified infill site | Property tax increment, increment from property tax in-lieu of vehicle license fees, sales and use tax increment | 20% of revenues for acquisition, rehabilitation or construction of affordable housing; 20% for all housing to be affordable | Wide range of capital improvements and affordable housing | 0 |
Second Neighborhood Infill Finance and Transit Districts (NIFTI-2), SB 961 (Allen, Chapter 559, 2018) | Qualified infill site and within 1/2 mile of a major transit stop | Property tax increment, increment from property tax in-lieu of vehicle license fees, sales and use tax increment | 40% of revenues must be spent on affordable housing; 50% of affordable housing funds for households below 60% AMI and 50% for households below 30% AMI |
| 0 |
- OPR reports. SB 961 (Allen, Chapter 559, Statutes of 2018) required OPR to, on or before January 1, 2021, complete a study and make recommendations on (1) the effectiveness of TIFs, (2) the relative advantages and disadvantages of different types of TIF tools, and (3) the impacts of extending NIFTI-2s to areas around bus stops, including segregated bus lanes. The first report identified several key limitations current TIF districts share:
- They have limited revenue potential to make district formation worthwhile.
- Unlike redevelopment where taxing entity participation was mandatory, current TIF districts rely on volunteer participation.
- They have limited powers compared to RDAs.
- Some technical challenges interfere with their development.
The reports found that despite the multitude of TIF tools available for local agencies to choose from, only five EIFDs had been created by the end of 2020: Otay Mesa (San Diego County), Placentia (Orange County), La Verne (Los Angeles County), West Sacramento (Yolo County), and Sacramento (Sacramento County).[3] Of these five, only the Placentia and La Verne EIFDs will include County participation.
- It will work this time! According to the sponsors, SF’s record breaking commercial vacancy rate requires creative ways to save downtown from a ‘doom loop’ of economic decline. Supporters of the measure argue that owners of office space do not have sufficient capital to secure a loan to convert the office space into housing. They contend that making public funds available to these property owners (via TIF) will make office to residential conversions economically feasible. They argue that this bill will help replace lost foot traffic in the city center and will lessen the housing supply shortage in SF.
As noted above, SF and other local governments already enjoy authority to fund housing developments through creation of various districts that can dedicate TIF to these projects (see Comment 5). While other TIF districts can finance housing projects, these measures typically prohibit using property tax increment on market rate units. In this bill, however, the developer keeps all of the property tax increment the project generates to build any type of housing or mixed-use project in return for converting empty office space into needed housing units. However for the first handful of conversions the district is authorized to finance there is no affordability requirement for these projects. After that point, projects must include affordable units. Given that this bill deviates from existing precedent the author has agreed to add intent language clarifying that this allowance is a response to the uniquely acute commercial vacancy rates in Downtown SF.
- Labor standards? This bill was amended on March 18, 2024 to express the author’s intent to require some form of labor standards to apply to projects funded by the bill. This bill has progressed through the three committees and was approved on the Assembly Floor with this same ambiguous language. On July 2, 2024 this Committee will be the last to review and vote on this bill, yet substantive language is not available for this Committee, or any previous committee to review. At the time this analysis was published, it was not clear when a compromise would be reached.
- Amendments. Due to compressed committee referral deadlines, the author was unable to adopt author’s amendments or accept amendments agreed to in Senate Local Government Committee before the bill could be heard in this Committee. Author’s amendments, amendments agreed to in Local Government Committee, and amendments requested by this Committee must be adopted as Committee amendments. In summary, the author has agreed to accept the following amendments:
- Clarify that SF can approve or deny a project that requests to opt in to the district.
- Allow SF to approve less than the entire amount of property tax increment.
- Require annual reports of the district.
- Strengthen the meeting and notice requirements for SF to create a district.
- Strengthen actions SF must take to demonstrate compliance with the bill.
- Clarify that a directly elected mayor can be selected to serve on the district’s board
- Delete the requirement to include a description of potential office-to-residential conversion projects provided by the private sector or other governmental entities.
- Limit the bill to only allow SF to create a single district in downtown SF and remove reference to project areas.
- Define what benefits the project must include to be of communitywide significance.
- Clarify that allocations to a project cannot exceed the incremental revenues generated by the project and only includes the increment generated by residential use in the project.
- Reduce the threshold for when affordability requirements apply to projects to begin after the first 1.5 Million square feet are developed.
- Specify that authorizing public financing for market-rate developments under this bill is a temporary remedy necessary to address the acute crisis of commercial vacancy rates in the area of downtown SF identified in the bill.
- Make other technical and clarifying changes.
- Opposition. The State Association of County Auditors (SACA) are opposed to the bill and raise several issues. SACA is concerned that it is unclear how these newly created districts would overlap with RDA successor agencies that are still receiving tax increment. They also note concerns about overlap with other tax increment entities such as EIFDs.
- Incoming. This bill was heard in the Local Government Committee where it as approved on June 26, 2024 on a 5-1 vote.
Related Legislation:
AB 930 (Friedman, 2023) — allows local agencies to create Reinvestment in Infrastructure for a Sustainable and Equitable California (RISE) districts and provides these new districts various financing powers to finance sustainable infrastructure projects. The measure is being heard at this same hearing.
AB 3068 (Haney, 2024) — enacts the Office to Housing Conversion Act, which creates a streamlined, ministerial approval process for adaptive reuse projects and provides certain financial incentives for the adaptive reuse of existing buildings. The measure is being heard at this same hearing.
SB 1227 (Wiener) — would have created an alternate welfare exemption from property tax for housing available to those of moderate income in downtown SF, and enacts a CEQA exemption and allows CEQA streamlining for specific projects in the area. The measure was held on the Senate Appropriations suspense file.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No
POSITIONS: (Communicated to the committee before noon on Wednesday,
June 26, 2024.)
SUPPORT:
Mayor London Breed, City & County of San Francisco
Advance SF
Bay Area Council
Build Group
California Apartment Association
Emerald Fund
Forell Elsesser Engineers
Grow the Richmond
Housing Action Coalition
Northern Neighbors SF
Progress Noe Valley
San Francisco Bay Area Planning and Urban Research Association (SPUR)
San Francisco Chamber of Commerce
San Francisco YIMBY
Southside Forward
Streets for People
Sylvan Development Group, LLC
TMG Partners
Urban Environmentalists
YIMBY Action
OPPOSITION:
State Association of County Auditors
-- END --
https://www.sf.gov/data/san-francisco-office-space-vacancy ↑
Office of Planning and Research. Housing Financing Tools and Equitable, Location-Efficient Development in California: Report on the Use of Tax Increment Financing. (December 29, 2020) https://www.opr.ca.gov/docs/20210203-TIF_Tools_Final_Report.pdf ↑
The report points out that two IFDs were created, but these were created under unique circumstances prior to the end of redevelopment ↑
SENATE COMMITTEE ON LOCAL GOVERNMENT
Senator María Elena Durazo, Chair
2023 - 2024 Regular
Bill No: | AB 2488 | Hearing Date: | 6/26/24 |
Author: | Ting | Fiscal: | No |
Version: | 4/18/24 | Consultant: | Peterson |
Downtown revitalization and economic recovery financing districts: City and County of San Francisco
Allows the City and County of San Francisco to create a Downtown Revitalization and Economic Recovery Financing District to finance office-to-residential conversion projects using incremental property tax revenues.
Background
Redevelopment agencies. From the early 1950s until their dissolution in 2011, California redevelopment agencies (RDAs) used property tax increment financing (TIF) to pay for economic development projects in blighted areas pursuant to Community Redevelopment Law. Generally, TIF involves a local government forming a TIF district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues generated when projects the bonds finance increase assessed property values within the project area. To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local agency participating in the district is “frozen” at the amount it received from property within a project area prior to the project area’s formation. In future years, as the project area’s assessed valuation grows above the frozen base, the resulting additional property tax revenues—the so-called property tax “increment” revenues—flow to the TIF district instead of other local agencies. After the district has repaid the bonds using the incremental property tax revenues, the district dissolves, ending the diversion of tax increment revenues from participating local agencies.
Citing a significant state General Fund deficit, Governor Brown’s 2011-12 budget proposed eliminating RDAs and diverting billions of dollars of property tax revenues back to schools, cities, and counties to fund core services. Among the statutory changes the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld the dissolution of RDAs.
RDAs’ dissolution deprived many local governments of the primary tool they used to eliminate physical and economic blight, finance new construction, improve public infrastructure, rehabilitate existing buildings, and increase the supply of affordable housing.
Post redevelopment TIF districts. After RDA’s dissolution in 2011, local officials sought other ways to use TIF to raise the capital they need to fund public works projects. The most common TIF districts are enhanced infrastructure financing districts (EIFDs). The Legislature enacted SB 628 (Beall, 2014) to allow local officials to create Enhanced Infrastructure Financing Districts (EIFDs), which augment the tax increment financing powers available to local agencies under existing infrastructure financing district statutes. While the Legislature has created other similar financing tools, they have seldom, or never, been used.
EIFDs can finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community with an estimated useful life of 15 years or more. An EIFD is governed by a public financing authority (PFA) with three members of each participating taxing entity’s legislative body and a minimum of two public members.
To create an EIFD, the legislative body of a city or county must adopt a resolution of intention to establish the financing district. The resolution must state a time and place for a hearing on the proposal, the proposed district’s boundaries, the types of facilities and development to be financed, the need for the district, the goals the district proposes to achieve, and that incremental property tax revenues may be used to finance the EIFD’s activities. The city or county must create the PFA at the same time it adopts the resolution of intention. The PFA then provides public notice and directs an official to prepare an infrastructure financing plan (IFP).
The PFA must hold four meetings to consider an EIFD’s formation. These meetings must be at least 30 days apart and noticed in an easily identifiable and accessible location on the EIFD’s website. The PFA must mail a written notice of the meeting or public hearing to each landowner, each resident, and each taxing entity at least 10 days before the meeting.
At the final hearing, the PFA must hold a public protest process. The PFA must terminate the EIFD infrastructure plan a majority of landowners and residents within the district boundaries protest the EIFD. If between 25% and 50% protest, the PFA must call for an election to allow each landowner to vote on the proposed plan.
Adaptive reuse. Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, they would also need to be financially beneficial to the property owner. Other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units often with bathrooms.
Recent state adaptive reuse efforts. One of the state’s primary efforts to address homelessness during the COVID-19 pandemic involved turning hotels and motels into housing for individuals experiencing homelessness, known as Project Homekey. Project Homekey has received nearly $2 billion to convert hotels and motels to housing for the formerly homeless, which has created 6,863 units of housing with at a cost of slightly less than $2 billion. The cost of under $300,000 per unit is substantially less than the current cost to build new housing. Additionally, the 2022-23 budget included $450 million one-time General Fund ($200 million in 2022-23 and $250 million in 2023-24) to convert existing commercial or office space to affordable housing. Finally, AB 1695 (Santiago, 2022) requires state funding sources to include adaptive reuse as an eligible activity.
The Legislature has also enacted other policies to facilitate the conversion of commercial properties into housing. This includes:
- SB 6 (Caballero, 2022) which enacts the Middle Class Housing Act of 2022, which establishes housing as an allowable use on any parcel zoned for office or retail uses; and
- AB 2011 (Wicks, 2022) establishes a streamlined, ministerial approval process, not subject to the California Environmental Quality Act (CEQA), for certain infill multifamily affordable housing projects that are located on land that is zoned for retail, office, or parking.
San Francisco Downtown. Before the pandemic, San Francisco estimated 470,000 people commuted to San Francisco for work from other places. This not only filled now-vacant office space, but also spurred the creation of other businesses and generated considerable economic development. However, the shift of people working from home during and after the COVID-19 pandemic has decreased the need for office space. According to the City and County of San Francisco:
“Office vacancy reached historically low levels in 2019. Then, the pandemic created a significant increase in office vacancy rates. From March 2020 to June 2021, office vacancy rates increased from 5% to 20% as offices adopted hybrid and fully remote reporting schedules. This suggests that with fewer employees physically reporting to work, many offices reduced the size of their office or let go of their office space entirely.
By late 2022, the rate remained higher than it had been in decades, but the rate of increase had slowed.”[1]
According to data it updated on April 15, 2024, 32 percent of its office space is vacant. Other large cities have lower vacancy rates: New York 18 percent, Los Angeles 27 percent, Austin 23 percent, and Seattle 22 percent.
The Bay Area Council, and other business organizations, want to create a new TIF district to try to revitalize downtown San Francisco by financing office-to-residential conversion projects.
Proposed Law
Assembly Bill 2488 allows the City and County of San Francisco to create a Downtown Revitalization and Economic Recovery Financing District (downtown revitalization district) to finance office-to-residential conversion projects with incremental tax revenues generated by office-to-residential conversion projects and outlines the district’s:
- Formation process;
- Governance structure;
- Powers;
- Financing plan;
- Payment mechanics; and
- Accountability measures.
Formation process. AB 2488 allows the San Francisco Board of Supervisors to form a downtown revitalization district by adopting a resolution that:
- States the intent to form a district;
- Describe the district’s boundaries, which must be contiguous with the boundaries of the City and county of San Francisco;
- States the need for, and the goals of, the district;
- States the district will use incremental property tax revenue to finance these activities; and
- Fixes a time and place for a public hearing on the proposal.
AB 2488 also provides the creation of a district does not count as a project under CEQA. After adopting the resolution, the district board must identify a government official to prepare a downtown revitalization financing plan.
Governance structure. When the Board of Supervisors establishes the district, it must also form a district board at the same time with three members of the Board of Supervisors and two members of the public the Board of Supervisors chooses. Additionally, the Board of Supervisors may appoint one supervisor to serve as an alternate who can vote in place of another member who is absent or disqualifies themselves from participating in the meeting. Members cannot receive compensation, but they can be reimbursed for actual and necessary expenses. The District board is a local public agency that must follow state laws on ethics, meetings, and public transparency.
District powers. AB 2488 gives downtown revitalization districts the following powers:
- Allows a district to use incremental property tax revenues generated by office-to-residential conversion projects that opt into the district, which it must pay into a special fund of the district set up for this purpose; and
- Allows it to only finance office-to-residential conversion projects the district determines are of communitywide significance and provide significant benefits to the district or San Francisco.
Financing plan. AB 2488 requires the downtown revitalization district to create a financing plan it must approve at a public hearing, which must:
- Be consistent with the general plan and applicable specific plans of San Francisco;
- Include a map and legal description of the proposed district;
- Describe the potential office-to-residential conversion projects in the district, including those the private sector provides, governmental entities provide without funding from the district, public improvements that would receive financing from the district, and those provided jointly. Eligible projects can be mixed use, but must dedicate at least two-thirds of the square footage for residential use. These mixed use projects can only include residential and commercial uses;
- Require each project that includes nonresidential development to make at least 25 percent of total units that must be made affordable to lower income households, if any, for lease or sale and permitted for occupancy at the same time as every 25 percent of nonresidential development is made available;
- Include a finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district;
- Identify each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue;
- Require the incremental tax revenues generated by each individual office-to-residential conversion project be allocated back to that project to finance the debt service of the project. Each conversion must receive an annual allocation for a maximum of 30 years or until the district ceases to exist;
- Require that any incremental tax revenues remaining after allocating funds to the project must go to support downtown revitalization. After allocations have ceased, the tax increment returns to San Francisco;
- Require that local administrative costs do not exceed 5 percent of the tax revenues allocated;
- Specify the maximum portion of the incremental tax revenue proposed for the district for each year, which may change over time;
- Project the amount of tax revenues the district expects to receive each year;
- Include a limit on the total number of dollars of taxes that can be allocated to the district;
- Include a date when the district ceases to exist no more than 45 years from the date the district allocates funding to the first project. If the district is divided into project areas, each project area can have its own time limit, which cannot exceed 45 years from when the district receives $100,000 in increment from that area;
- Analyze the cost to San Francisco to provide facilities and services to the area of the district before and after its development, which must include analysis of the tax, fee, charge, and other revenues San Francisco expects to receive in the area of the district;
- Analyze the projected fiscal impact of the district on San Francisco;
- Require, if a project proposes to remove or demolish any residential units, a plan to protect or replace those units, and relocate residents consistent with existing law;
- Include the goals the district proposes to achieve for each project; and
- Prohibit the district from receiving property tax increment that would go to other taxing entities.
Payment mechanics. AB 2488 allows the district to allocate back to a project the incremental tax revenues that project develops to finance the project’s debt service. Each project must receive an annual allocation equal to the incremental tax revenues generated for a maximum of 30 years or until the district ceases to exist, whichever occurs first. The payments start with the fiscal year that begins after the project receives a certificate of occupancy. If the owner sells or transfer the property, they must also transfer the allocation to the new property owner.
After the district adopts its financing plan, it must create a process for eligible projects to opt into receiving the benefit. It must also create a process to reconsider the amount received if there is a change in use or square footage of the planned project. Projects can opt in any time before the first building permit’s issuance. Projects cannot opt in after December 31, 2032. After a project opts in, the district must establish the base assessed value for the property using the last assessment roll equalized prior to the issuance of the first building permit for the project. The district must pay San Francisco for the costs of calculating property tax revenue amounts.
AB 2488 provides direction on how to calculate the portion of property tax revenue that goes to the district, requires the district to place revenue in a special fund, and prohibits it from receiving revenue from other taxing entities. No funds can go to projects until the assessed value of the property exceeds its assessed value shown by the last equalized assessment rolls. When the district ceases to exist, money must go back to San Francisco. Debts and obligations of the district are subordinate to the enforceable obligations of a former redevelopment agency, and the property tax revenue the district receives cannot include any taxes that the county auditor-controller must deposit into the Redevelopment Property Tax Trust Fund.
Affordability requirements. Before a project can receive a property tax allocation, it must meet one of the following affordability requirements:
- At least 5 percent of total units for rent are affordable to very low income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years;
- At least 10 percent of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years; or
- At least 10 percent of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years.
These affordability requirements do not apply to the first three million square feet of opted-in office-to-residential conversion projects.
Labor standards. AB 2488 requires the district’s projects to comply with labor standards. The measure includes intent language for the Legislature to amend the bill to specify those standards.
Accountability measures. AB 2488 requires downtown revitalization districts to adopt the following accountability measures:
- Ensure the requirements of AB 2488 are met every 10 years; and
- Submit an annual report to the relevant committees of the Legislature on the projects the district finances if the Board of Supervisors creates a district.
Comments
1. Purpose of the bill. According to the author, “In the aftermath of the COVID-19 pandemic, many cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate and tens of millions of square feet of vacant office space. AB 2488 gives the city a new tool to adapt to the post-pandemic normal by allowing them to create a downtown revitalization district to help finance the conversion of empty office buildings into new homes. This will solve two problems for San Francisco; it will provide the food traffic and transit ridership needed to spur economic recovery downtown while also reducing the impacts of the housing crisis. AB 2488 will empower San Francisco to turn empty office buildings and a struggling downtown into vibrant, walkable, mixed-use community with exciting new cultural, social, and economic opportunities.”
2. Alphabet soup. After the Supreme Court’s 2011 Matosantos decision dissolved all RDAs, legislators enacted a slew of measures creating new tax increment financing tools to pay for local economic development. In 2014, the Legislature authorized the creation of EIFDs, quickly followed by Community Revitalization and Investment Authorities (CRIAs) in 2015 (AB 2, Alejo). In 2017, the Legislature authorized the formation of Affordable Housing Authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds (AB 1598, Mullin). That same year, AB 1658 created the first Neighborhood Infill Finance and Transit Improvements Districts (NIFTIs) to provide additional incentives for the formation of EIFDs. The following year, SB 961 (Allen) created NIFTI-2s with yet another incentive to form by removing voter approval to issue bonds in areas near transit. In 2022, SB 852 (Dodd) created climate resilience districts and gave them TIF and other financing powers for climate resilience projects. Rather than rely on these existing districts to finance downtown revitalization projects, AB 2488 creates yet another financing tool.
While AB 2488 does not grant a downtown revitalization district access to a greater share of property tax increment, it is different from other districts in that it takes increment generated by a project and returns it to the project’s owner, rather than allowing those funds to flow to San Francisco’s general fund. Supporters argue that diverting these funds back to the project will help developers build projects that cannot pencil without this additional revenue. However, the California State Association of County Auditors, who opposes the bill, raises various design flaws, including a lack of clarity as to how County Auditor-Controller is supposed to calculate and distribute property tax increment. Given these concerns, it is unclear whether this new approach will make the downtown revitalization district more successful than the many other types of post-redevelopment infrastructure financing tools the Legislature has already created.
3. Public benefit. While some other TIF districts can finance housing projects, these measures typically prohibit using property tax increment on market rate units, and only allow districts to finance affordable portions of housing projects. This stems from a simple concept: if local agencies are going to use taxpayer funds to finance projects instead of pay for goods and services, they should only fund projects where the public receives an equal or greater benefit in return. In this bill, the developer gets to keep all of the property tax increment the project generates to build any type of housing or mixed-use project. In return, the public gets the benefit of having of having an empty office converted into housing. However, for the first 3 million square feet of conversions, there is no affordability requirement for these projects. After that point, projects must include between 5 percent to 10 percent affordable units. This means the public will be subsidizing the construction of projects that are at least 90 percent market rate units for as many as 30 years. To better balance the benefits the public receives versus the developer, the Committee may wish to consider amending the bill to strengthen its affordability requirements.
4. Sure, but will it work? Supporters of the measure argue that owners of office space do not have sufficient capital to secure a loan to convert the office space into housing. AB 2488 seeks to address this problem by allowing San Francisco to allocate back to a project the incremental tax revenues that project develops to repay the project’s debt service. AB 2488 allows San Francisco to specify the maximum portion of the incremental tax revenue proposed for the district for each year, which may change over time. It is unclear how the City would determine which projects receive funding when it reaches the cap. This means that when the developer tries to secure the loan to finance the project, it cannot guarantee how much revenue it might receive or that the amount will be stable enough over time to repay its debt. To clarify how these districts operate, the Committee may wish to consider the following amendments:
- Clarify that San Francisco can approve or deny a project that requests to opt in to the district;
- Allow San Francisco to approve less than the entire amount of property tax increment;
- Require annual reports of the district;
- Only allow one district in Downtown, not across the entire city;
- Define what benefits the project must include to be of communitywide significance; and
- Clarify that allocations to project cannot exceed the incremental revenues generated by the project and only includes the increment generated by residential use in the project.
5. Public input. When a city or county wants to form an EIFD to finance projects of communitywide significant, it must go through four public meetings, notify the public, and give them an opportunity to protest the district’s formation. AB 2488 only requires one public meeting and does not provide a protest process. To ensure the public has adequate opportunities to review a downtown revitalization district’s formation, the Committee may wish to consider amending the bill to strengthen the meeting and notice requirements for San Francisco to create a downtown revitalization district.
6. An alternative approach. AB 2488 requires San Francisco to set up a new legal entity to determine which projects receive property tax increment. However, it is unclear how setting up a new district helps San Francisco determine which projects should receive this incentive. The Legislature has enacted other laws to provide property tax incentives to target specific projects without creating a new district. For example, under the Capital Investment Incentive Program (CIIP), counties and cities can pay a capital investment incentive amount for 15 years to a proponent of a qualified manufacturing facility making an initial investment that exceeds $150 million. The proponent must apply to the city or county by filing a request, which must be approved by majority vote of the city or county’s governing body for payments to commence. Since San Francisco is a charter city, it has the authority to control its own “municipal affairs,” such an approach may not even require legislation. It is unclear that creating a new TIF district helps San Francisco award incentives to developers completing office-to-residential conversions in a more effective manner compared to offering a more direct incentive similar to CIIP.
7. Labor standards. The current version of the bill requires AB 2488 projects to include labor standards, but provides that it is the Legislature’s intent to amend the bill to specify those standards. The Committee may wish to consider amending the bill to specify the labor standards AB 2488 projects must meet.
8. Other implementation issues. Committee staff recommend the following amendments to help clarify how San Francisco is to implement AB 2488’s provisions:
- The measure requires San Francisco to review AB 2488’s requirements every ten years, but does not specify what this review entails. The Committee may wish to consider amending the bill to clarify what San Francisco must do to comply with this requirement;
- The measure allows San Francisco to create project areas within a district. However, it is unclear what purpose these project areas serve since properties only receive increment that individual project creates. The Committee may wish to consider amending the bill to remove references to project areas;
- The measure provides that a “legislative body” may include a directly elected mayor. However, the measure does not refer to a legislative body anywhere else in the measure. The Committee may wish to consider amending the bill clarify that directly elected mayor can be selected to serve on the district’s board; and
- Make other technical changes.
9. Related legislation. The Legislature is considering other measures regarding TIF, adaptive reuse and Downtown San Francisco revitalization:
- AB 930 (Friedman) which this Committee approved on a vote of 5-2 at its June 11th hearing, allows local agencies to create Reinvestment in Infrastructure for a Sustainable and Equitable California (RISE) districts and provides these new districts various financing powers to finance sustainable infrastructure projects. The measure is currently pending in the Senate Housing Committee.
- AB 2909 (Santiago) allows certain properties within the City of Los Angeles that are at least 30 years old to be eligible for the Mills Act for purposes of adaptive reuse of the property from January 1, 2026 to January 1, 2036. The measure is pending in this Committee.
- AB 3068 (Haney), which this Committee approved on a vote of 4-3 at its June 11th hearing, enacts the Office to Housing Conversion Act, which creates a streamlined, ministerial approval process for adaptive reuse projects and provides certain financial incentives for the adaptive reuse of existing buildings. The measure is currently pending in the Senate Housing Committee.
- SB 1227 (Wiener) creates an alternate welfare exemption from property tax for housing available to those of moderate income in downtown San Francisco, and enacts a CEQA exemption and allows CEQA streamlining for specific projects in the area. The measure was held on the Senate Appropriations suspense file.
10. Coming and going. The Senate Rules Committee has ordered a double referral of AB 2488: first to the Senate Local Government Committee to hear issues related to local government, and second to the Senate Housing Committee.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Housing and Community Development Committee: 8-0
Assembly Floor: 71-1
Support and Opposition
(6/21/24)
Support: London Breed - Mayor of City & County of San Francisco
Advance SF
Bay Area Council
Build Group, INC.
California Apartment Association
Emerald Fund
Forell Elsesser Engineers
Grow the Richmond
Housing Action Coalition
Northern Neighbors Sf
Progress Noe Valley
San Francisco Bay Area Planning and Urban Research Association
San Francisco Chamber of Commerce
San Francisco Yimby
Southside Forward
Streets for People
Sylvan Development Group, LLC
Tmg Partners
Urban Environmentalists
Yimby Action
Opposition: State Association of County Auditors
-- END --
https://www.sf.gov/data/san-francisco-office-space-vacancy ↑
ASSEMBLY THIRD READING
ATR Bill Id:AB 2488
Author:(Ting)
As Amended Ver:April 18, 2024
Majority vote
SUMMARY
Allows the City and County of San Francisco to establish downtown revitalization and economic recovery financing district (district).
Major Provisions
- States that the purpose of a district is to finance office-to-residential conversion projects with incremental tax revenues generated by the office-to-residential conversion projects within the district.
- Requires the district to finance only the office-to-residential development projects that the district determines are of communitywide significance and that provide significant benefits to the district or San Francisco.
- Provides that the Board of Supervisors of the City and County of San Francisco may establish a district. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
- State that a district is proposed to be established under the terms of this bill and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the recorder in the county. The map may identify, within a district, certain areas which shall be referred to as "project areas."
- The boundary of the district shall be contiguous with the boundaries of the City and County of San Francisco.
- State the need for the district and the goals the district proposes to achieve.
- State that incremental property tax revenue from San Francisco will be used to finance these activities.
- Fix a time and place for a public hearing on the proposal.
- Provides that the district shall ensure that incremental tax revenues allocated to the district are limited to specified revenues that are generated through the office-to-residential conversion projects within the district that have opted in.
- Specifies that after the receipt of a copy of the resolution of intention to establish a district, the designated official shall prepare a proposed financing plan. The financing plan shall be consistent with the general plan and specific plan of San Francisco and shall include specified information, including a financing section.
- Prohibits the downtown revitalization financing plan from dividing revenues that are allocated to other taxing agencies that are not part of San Francisco.
- Requires, after the adoption of the financing plan, the district to establish a process for eligible office-to-residential conversion projects to opt into receiving incremental tax revenue pursuant to this bill. A district shall establish a process to reconsider the amount of incremental tax revenue to be allocated to a project if there is a change in use or the square footage of office space converted to housing planned to be built.
- Includes a sunset on the ability of office-to-residential conversion projects to opt in to receive increment tax revenue as of December 31, 2032.
- Requires San Francisco to develop and submit an annual report to the relevant committees of the Legislature regarding the office-to-residential conversion projects financed by the district.
COMMENTS
Redevelopment. Article XVI, Section 16 of the California Constitution authorizes the Legislature to provide for the formation of redevelopment agencies (RDAs) to eliminate blight in an area by means of a self-financing schedule that pays for the redevelopment project with tax increment derived from any increase in the assessed value of property within the redevelopment project area (or tax increment). Generally, property tax increment financing involves a local government forming a tax increment financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area.
To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local government participating in the district is "frozen" at the amount it received from property within a project area prior to the project area's formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues — the so-called property tax "increment" revenues — flow to the tax increment financing district instead of other local governments. After the bonds have been fully repaid using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local governments.
Prior to Proposition 13, very few RDAs existed; however, after its passage, RDAs became a source of funding for a variety of local infrastructure activities. Eventually, RDAs were required to set-aside 20% of funding generated in a project area to increase the supply of low and moderate income housing in the project areas. At the time RDAs were dissolved, the Controller estimated that statewide, RDAs were obligated to spend $1 billion on affordable housing. At the time of dissolution, over 400 RDAs statewide were diverting 12% of property taxes, over $5.6 billion yearly.
In 2011, facing a severe budget shortfall, the Governor proposed eliminating RDAs in order to deliver more property taxes to other local agencies. Ultimately, the Legislature approved and the Governor signed two measures, ABX1 26 (Blumenfield), Chapter 5, Statutes of 2011-12 and ABX1 27 (Blumenfield), Chapter 6, Statues of 2011-12 that together dissolved RDAs as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA) and the League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all RDAs were required to dissolve as of February 1, 2012.
Attempts to Replace RDAs. After the Supreme Court's 2011 Matosantos decision dissolved all RDAs, legislators enacted several measures creating new tax increment financing tools to pay for local economic development. The Legislature authorized the creation of Enhanced Infrastructure Financing Districts (EIFDs) (SB 628 (Beall), Chapter 785, Statutes of 2014) quickly followed by Community Revitalization and Investment Authorities (CRIAs) (AB 2 (Alejo), Chapter 319, Statutes of 2015). Similar to EIFDs, CRIAs use tax increment financing to fund infrastructure projects. CRIAs may currently only be formed in economically depressed areas.
The Legislature has also authorized the formation of affordable housing authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds (AB 1598 (Mullin), Chapter 764, Statutes of 2017). SB 961 (Allen), Chapter 559, Statutes of 2018, removed the vote requirement for a subset of EIFDs to issue bonds and required these EIFDs to instead solicit public input, and AB 116 (Ting), Chapter 656, Statutes of 2019, removed the voter requirement for any EIFD to issues bonds in favor of a formal protest process. SB 852 (Dodd), Chapter 266, Statutes of 2022, created climate resilience districts (CRDs), which can also utilize tax-increment financing. CRDs were also given the authority to issue general obligation bonds and impose special taxes. While these entities share fundamental similarities with RDAs in terms of using various forms of tax-increment financing, they differ in two significant aspects, 1) not having access to the school's share of property tax increment, and 2) not automatically including the tax increment of other taxing entities.
California's Housing Crisis. California faces a severe housing shortage. A variety of factors have contributed to the lack of housing production. A major cause of the housing crisis is the mismatch between the supply and demand for housing. The Statewide Housing Plan adopted by the Department of Housing and Community Development (HCD) in 2022 found California needs approximately 2.5 million units of housing, including one million units affordable to lower income households, to address this mismatch over the next eight years. That would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households.
The Legislative Analyst's Office wrote in a January 24, 2024 article, California Housing Affordability Tracker, "California home prices have long been—and continue to be—much more expensive than the rest of the US. Prices for mid-tier homes are more than twice as expensive as the typical mid-tier US home. (Mid-tier homes reflect home values in the 35th to 65th percentile range.) Perhaps even more importantly for a first-time home buyer, a bottom-tier home in California is now about 33% more expensive than a mid-tier home in the rest of the U.S.—a gap that has widened over the last decade (Bottom-tier homes are those with values in the 5th to 35th percentile range.)"
"Monthly payments for a newly purchased mid-tier home—including mortgage, taxes, and homeowners' insurance—have increased dramatically over the last couple of years. Payments for a mid-tier home were over $5,500 a month in December 2023—an 80% increase since January 2020. Payments for a bottom-tier home were over $3,400 per month—an 85% increase since January 2020. Also, the gap between the monthly costs of purchasing a bottom-tier home versus renting are near levels that have not been seen since the housing bubble in the mid-2000s. This rapid increase in monthly costs for homebuyers was driven by higher home prices and increasing mortgage rates, both of which we discuss in more detail below."
Adaptive Reuse. Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, it would also need to be financially attractive to the property owner – something that has increased due to the sharp downturn in the downtown office market since the beginning of the COVID-19 pandemic. However, other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units, often with bathrooms.
According to the Author
According to the author, "In the aftermath of the COVID-19 pandemic, cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and, for many cities, record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate, San Jose is at 30.7%, and Los Angeles is at 26.2%. Cities urgently need to find creative ways to save their downtowns from a 'doom loop' of economic decline and urban blight. [This bill] gives cities a new tool to adapt to the post-pandemic normal by allowing them to create downtown revitalization districts to help finance the conversion of empty office buildings into new homes. This will solve two problems for California cities; it will provide the foot traffic and transit ridership needed to spur economic recovery in downtowns while also reducing the impacts of California's housing crisis. [This bill] will empower cities to turn their empty office buildings and struggling downtowns into vibrant, walkable, mixed-use communities with exciting new cultural, social, and economic opportunities."
Arguments in Support
According to the Bay Area Council, the sponsor of the bill, "Remote work offers many positive benefits to workers and the environment, but it has also resulted in undesirable consequences for urban centers. Millions of square feet of office buildings are now sitting empty in California. Silicon Valley ended 2023 with over 25% of its office spaces vacant, and Southern California had an office vacancy rate of over 20%. In downtown Los Angeles, there is a 26% office vacancy rate, and San Francisco has a record-breaking 36.7% vacancy rate. Transit systems have also suffered with many Bay Area transit operators seeing less than 50% of their prep-pandemic ridership. This crisis has left cities with an urgent need to find creative ways to save their downtowns from a 'doom loop' of economic decline and urban blight.
[This bill] offers an exciting solution to this challenge and addresses two problems at once: 1) it will replace the foot traffic lost due to remote work and generate new kinds of economic activity in city centers, and 2) it will lessen the longstanding housing supply shortage in big cities. Office-to-residential (OTR) conversions promise to build highly desirable, mixed-use neighborhoods with both economic and cultural vitality. New housing increases transit ridership and increases demand for new entrepreneurial endeavors, including restaurants, shopping, and nightlife."
Arguments in Opposition
None on file.
FISCAL COMMENTS
None.
VOTES
ASM LOCAL GOVERNMENT: 9-0-0
YES: Juan Carrillo, Waldron, Alanis, Haney, Kalra, Pacheco, Ramos, Ward, Wilson
ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-1
YES: Ward, Joe Patterson, Grayson, Kalra, Lee, Quirk-Silva, Reyes, Wilson
ABS, ABST OR NV: Sanchez
UPDATED
VERSION: April 18, 2024
CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0002792
Date of Hearing: April 24, 2024
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Christopher M. Ward, Chair
ABPCA Bill Id:AB 2488 (
Author:Ting) – As Amended Ver:April 18, 2024
SUBJECT: Downtown revitalization and economic recovery financing districts: City and County of San Francisco
SUMMARY: Allow the City and County of San Francisco to establish downtown revitalization and economic recovery financing districts (districts). Specifically, this bill:
- Defines the following terms:
- “Board of Supervisors” means the Board of Supervisors of the City and County of San Francisco.
- “Designated official” as the appropriate official designated pursuant to this bill.
- “District board” as the governing board of the district.
- “District” as a legally constituted governmental entity separate and distinct from the City and County of San Francisco Board of Supervisors created for the sole purpose of financing office-to-residential conversion projects or other projects of community wide significance that support downtown revitalization and economic recovery as authorized by this bill. A district is a local agency for the purposes of the Ralph M. Brown Act and subject to existing open meetings laws. A district shall be deemed a district within the meaning of Section 1 of Article XIII A of the California Constitution.
- “Downtown revitalization financing plan” (financing plan) as an adopted financing plan prepared pursuant to this bill.
- “Legislative body” as the city council or board of supervisors.
- “Lower income households” has the same meaning as defined in Health and Safety Code (HSC) Section 50079.5.
- “Moderate income households” means households of persons and families of moderate income, as defined in HSC Section 50093.
- “Office-to-residential conversion project” as a housing development project that converts an existing qualifying commercial office building to market rate or affordable housing by either reuse of the existing commercial office building or by replacing the commercial office with a new residential building.
- “Opted-in taxable property” as the property of an office-to-residential conversion project that has opted in to receive incremental tax revenue.
- “Qualifying commercial office building” as a commercial office building identified in the financing plan.
- “Very low income households” has the same meaning as HSC Section 50105.
- Provides that the Board of Supervisors of the City and County of San Francisco may establish a district. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
- State that a district is proposed to be established under the terms of this bill and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the recorder in the county. The map may identify, within a district, certain areas which shall be referred to as “project areas.”
- The boundary of the district shall be contiguous with the boundaries of the City and County of San Francisco.
- State the need for the district and the goals the district proposes to achieve.
- State that incremental property tax revenue from San Francisco will be used to finance these activities.
- Fix a time and place for a public hearing on the proposal.
- Specifies that the district board’s membership shall consist of three members of the Board of Supervisors, and two members of the public chosen by the Board of Supervisors. The Board of Supervisors may appoint one of its members to be an alternate member of the district board who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the district. The appointment of the public members shall be subject to the provisions of existing law.
- Provides that a legislative body may include a directly elected mayor.
- Requires the Board of Supervisors to ensure the district board is established at the same time that it adopts a resolution of intention.
- Provides that members of a district board shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties.
- Specifies that members of the district board are subject to existing ethics training requirements.
- Provides that the district board shall be a local public agency subject to the Ralph M. Brown Act, the California Public Records Act, and the Political Reform Act.
- States that the purpose of a district is to finance office-to-residential conversion projects with incremental tax revenues generated by the office-to-residential conversion projects within the district.
- Provides that incremental tax revenues generated by office-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this bill.
- Requires the district to finance only the office-to-residential development projects that the district determines are of communitywide significance and that provide significant benefits to the district or San Francisco.
- Provides that the district shall ensure that incremental tax revenues allocated to the district are limited to specified revenues that are generated through the office-to-residential conversion projects within the district that have opted in.
- Requires the district to ensure that the requirements of this bill are met every 10 years.
- Specifies that the creation of a district and the adoption of a financing plan shall not be deemed a “project” for the purposes of the California Environmental Quality Act.
- Provides that after adopting the resolution of intention, the Board of Supervisors shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate local government official to prepare a financing plan.
- Specifies that after the receipt of a copy of the resolution of intention to establish a district, the designated official shall prepare a proposed financing plan. The financing plan shall be consistent with the general plan and specific plan of San Francisco and shall include all of the following:
- A map and legal description of the proposed district, which may include all or a portion of the district designated by the Board of Supervisors in its resolution of intention.
- A description of the potential office-to-residential conversion projects proposed in the area of the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this bill, those public improvements and facilities to be financed with assistance from the proposed district, and those to be provided jointly. Provides that an office-to-retail conversion may be mixed use but at least two-thirds of the square footage of the building must be a residential use.
- A requirement that if nonresidential development is included in the development, then at least 25% of the total planned units affordable to lower income households must be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25% of nonresidential development made available for lease or sale and permitted for use and occupancy.
- A requirement that an opted-in taxable property shall not receive a property tax allocation unless it meets one of the following:
- At least 5% of total units for rent are affordable to very low-income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years; or
- At least 10% of total units for rent are affordable to lower income households or the local inclusionary requirement, whichever is higher, for a minimum of 55 years; or
- At least 10% of total units for sale are affordable to households of moderate income or the local inclusionary requirement, whichever is higher, for a minimum of 45 years; and
- The affordability requirements shall not apply to the first 3 million square feet of opted-in office-to-residential conversion projects.
- A finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
- Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this bill.
- A requirement that the incremental tax revenues generated by each individual office-to-residential conversion project within the district be allocated back to that project for the purpose of financing the debt service of the project. Each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the amount equal to the amount of incremental tax revenues generated by the project for 30 years or until the district ceases to exist, whichever occurs first.
- A requirement that the first allocation of incremental tax revenue to an office-to-residential conversion project begin with the fiscal year that begins after the project is issued a certificate of occupancy.
- A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the allocation or property taxes shall also be transferred to the new property owner.
- A requirement that any incremental tax revenues remaining after the allocation of revenues pursuant to e) above, be allocated to uses supporting downtown revitalization. Provides that once the allocation of revenues ceases the tax increment shall be allocated to and when collected apportioned to San Francisco.
- A requirement that local administrative costs to implement this bill do not exceed 5% of the tax revenues allocated pursuant to this bill.
- A financing section, which shall contain all of the following information:
- A specification of the maximum portion of the incremental tax revenue of San Francisco proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion may change over time.
- A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
- A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the financing plan.
- Either of the following:
- A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district allocates funding to the first office-to-residential conversion project within the district.
- If the district is divided into project areas, a date on which the financing plan will cease to be in effect and all tax allocations to the district will end and a date on which the district’s authority to pay incremental tax revenues received under this division will end, not to exceed 45 years from the date the district or the applicable project area has actually received $100,000 in annual incremental tax revenues under this bill. After the time limits established, a district or project area shall not receive incremental tax revenues under this bill. If the district is divided into project areas, a separate and unique time limit shall be applicable to each project area that does not exceed 45 years from the date the district has actually received $100,000 in incremental tax revenues under this bill from that project area.
- An analysis of the costs to San Francisco of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The financing plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by San Francisco as a result of expected development in the area of the district.
- An analysis of the projected fiscal impact of the district and the associated development upon the local government.
- If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of an office-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the Housing Crisis Act of 2019, as specified.
- The goals the district proposes to achieve for each project financed pursuant to this bill.
- Specifies that a financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the district each year by or for the benefit of the State of California, or San Francisco, shall be divided, subject to the provisions of Section 53993, as follows:
- That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for San Francisco upon the total sum of the assessed value of all of the opted-in taxable property in the district, established pursuant to 18) below, shall be allocated to, and when collected shall be paid to, the local government as taxes on all other property are paid.
- That portion of the levied taxes each year specified in the adopted financing plan for San Francisco in excess of the amount specified in a) above, shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in a) above, all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to the local government. When the district ceases to exist pursuant to the adopted financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, San Francisco.
- Provides that where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of the district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the Oversight Board and the Department of Finance. Provides that the division of taxes allocated to the district shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund.
- After an office-to-residential conversion project opts in to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, as shown upon the assessment roll used in connection with the property by San Francisco, last equalized prior to the first building permit being issued as a part of the conversion of the office-to-residential conversion project.
- Requires a district to establish a process to reconsider the amount of incremental tax revenue to be allocated to a project if there is a change in use or the square footage of office space converted to housing planned to be built.
- Specifies that the portion of any ad valorem property tax revenue annually allocated to a local government pursuant to existing law related to the Educational Revenue Augmentation Fund (ERAF) that is specified in the adopted financing plan for the local government, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
- Specifies that when a district ceases to exist pursuant to the adopted financing plan, the revenues described above shall be allocated to, and, when collected, shall be apportioned to, the respective local government.
- Prohibits the downtown revitalization financing plan from dividing revenues that are allocated to other taxing agencies that are not part of San Francisco.
- Provides that a district board shall consider adoption of the financing plan at a single public hearing.
- Requires, after the adoption of the financing plan, the district to establish a process for eligible office-to-residential conversion projects to opt into receiving incremental tax revenue pursuant to this bill.
- Specifies that an eligible office-to-residential conversion project may opt in to receive incremental tax revenue at any time before the project is issued the first building permit.
- Requires an eligible office-to-residential conversion project that opts in to receive incremental tax revenue to comply with specified labor standards.
- Provides that it is the intent of the Legislature to subsequently amend this bill to establish labor protections applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue.
- Requires all costs incurred by a county in connection with the division of taxes pursuant to this bill to be paid by that district.
- Requires San Francisco to develop and submit an annual report to the relevant committees of the Legislature regarding the office-to-residential conversion projects financed by the district.
- Includes a sunset on the ability of office-to-residential conversion projects to opt in to receive increment tax revenue as of December 31, 2032.
EXISTING LAW:
- Provides that all property is taxable, unless otherwise provided by the California Constitution or laws of the United States. (California Constitution, Article XIII, Section 1)
- Authorizes the Legislature to partially or fully exempt property used for certain purposes, including charitable purposes, owned by a nonprofit organization organized and operated for those certain purposes if no part of the organization's earnings inure to the benefit of any private shareholder or individual. (California Constitution, Article XIII, Section 4.) Existing statute implements this authorization by requiring that eligible property is irrevocably dedicated, and used, for the exempt purpose. This exemption is commonly referred to as the “welfare exemption.” (R&TC Section 214(a).)
- Article XVI, Section 16 of the California Constitution authorizes the Legislature to provide for the formation of RDAs to eliminate blight in an area by means of a self-financing schedule that pays for the redevelopment project with tax increment derived from any increase in the assessed value of property within the redevelopment project area (or tax increment).
FISCAL EFFECT: None.
COMMENTS:
Author’s Statement: According to the author, “In the aftermath of the COVID-19 pandemic, cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and, for many cities, record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate, San Jose is at 30.7%, and Los Angeles is at 26.2%. Cities urgently need to find creative ways to save their downtowns from a ‘doom loop’ of economic decline and urban blight. “AB 2488 gives cities a new tool to adapt to the post-pandemic normal by allowing them to create downtown revitalization districts to help finance the conversion of empty office buildings into new homes. This will solve two problems for California cities; it will provide the foot traffic and transit ridership needed to spur economic recovery in downtowns while also reducing the impacts of California’s housing crisis. AB 2488 will empower cities to turn their empty office buildings and struggling downtowns into vibrant, walkable, mixed-use communities with exciting new cultural, social, and economic opportunities.”
Redevelopment: Article XVI, Section 16 of the California Constitution authorizes the Legislature to provide for the formation of redevelopment agencies (RDAs) to eliminate blight in an area by means of a self-financing schedule that pays for the redevelopment project with tax increment derived from any increase in the assessed value of property within the redevelopment project area (or tax increment). Generally, property tax increment financing involves a local government forming a tax increment financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area.
To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local government participating in the district is “frozen” at the amount it received from property within a project area prior to the project area’s formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues — the so-called property tax “increment” revenues — flow to the tax increment financing district instead of other local governments. After the bonds have been fully repaid using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local governments.
Prior to Proposition 13, very few RDAs existed; however, after its passage, RDAs became a source of funding for a variety of local infrastructure activities. Eventually, RDAs were required to set aside 20% of funding generated in a project area to increase the supply of low- and moderate-income housing in the project areas. At the time RDAs were dissolved, the Controller estimated that statewide, RDAs were obligated to spend $1 billion on affordable housing. At the time of dissolution, over 400 RDAs statewide were diverting 12% of property taxes, over $5.6 billion yearly.
In 2011, facing a severe budget shortfall, the Governor proposed eliminating RDAs in order to deliver more property taxes to other local agencies. Ultimately, the Legislature approved and the Governor signed two measures, ABX1 26 (Blumenfield), Chapter 5 and ABX1 27 (Blumenfield), Chapter 6 that together dissolved RDAs as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA) and the League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all RDAs were required to dissolve as of February 1, 2012.
Attempts to Replace RDAs: After the Supreme Court’s 2011 Matosantos decision dissolved all RDAs, legislators enacted several measures creating new tax increment financing tools to pay for local economic development. The Legislature authorized the creation of Enhanced Infrastructure Financing Districts (EIFDs) [SB 628 (Beall), Chapter 785, Statutes of 2014] quickly followed by Community Revitalization and Investment Authorities (CRIAs) [AB 2 (Alejo), Chapter 319, Statutes of 2015]. Similar to EIFDs, CRIAs use tax increment financing to fund infrastructure projects. CRIAs may currently only be formed in economically depressed areas.
The Legislature has also authorized the formation of affordable housing authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds [AB 1598 (Mullin), Chapter 764, Statutes of 2017]. SB 961 (Allen), Chapter 559, Statutes of 2018, removed the vote requirement for a subset of EIFDs to issue bonds and required these EIFDs to instead solicit public input, and AB 116 (Ting), Chapter 656, Statutes of 2019, removed the voter requirement for any EIFD to issues bonds in favor of a formal protest process. SB 852 (Dodd), Chapter 266, Statutes of 2022, created climate resilience districts (CRDs), which can also utilize tax-increment financing. CRDs were also given the authority to issue general obligation bonds and impose special taxes. While these entities share fundamental similarities with RDAs in terms of using various forms of tax-increment financing, they differ in two significant aspects: 1) not having access to the schools’ share of property tax increment, and 2) not automatically including the tax increment of other taxing entities.
California’s Housing Crisis: California faces a severe housing shortage. A variety of factors have contributed to the lack of housing production. A major cause of the housing crisis is the mismatch between the supply and demand for housing. The Statewide Housing Plan adopted by the Department of Housing and Community Development (HCD) in 2022 found California needs approximately 2.5 million units of housing, including one million units affordable to lower income households, to address this mismatch over the next eight years. That would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households.
Adaptive Reuse: Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, it would also need to be financially attractive to the property owner – something that has drawn more attention due to the sharp downturn in the downtown office market since the beginning of the COVID-19 pandemic. However, other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units, often with bathrooms.
Recent State Adaptive Reuse Efforts: One of the state’s primary efforts to address homelessness during the COVID-19 pandemic involved turning existing hotels and motels into housing for individuals experiencing homelessness, known as Project Homekey. These uses are already divided into quarters designed for short-term human habitation and can readily be converted to housing with the addition of kitchens. As of February 29, 2024, the Legislative Analyst’s Office reported that Project Homekey has funded 250 projects and assisted 15,319 units of housing with a total expenditure of $3.35 billion. The cost of converting a unit under Project Homekey, at $218,683 per unit, is less than the current cost of constructing a new multifamily unit which averages at a little under $600,000 a unit as calculated by a recent report from the UC Berkeley’s Terner Center for Housing Innovation, Making it Pencil: the Math of Housing Development-2023. This report found that for a multifamily mixed-use project with five stories of residential and a nonresidential ground floor, the average cost per unit in the Bay Area is $637,000 in the East Bay and $623,000 in the South Bay, $594,000 in Los Angeles, and $508,000 in Sacramento.
Property Tax Welfare Exemption: Article XIII, Section 4(b) of the California Constitution authorizes the Legislature to exempt property used exclusively for religious, hospital, or charitable purposes, as specified, from taxation. The Legislature has implemented this “welfare exemption” in R&TC Section 214.
AB 2144 (Filante), Chapter 1469, Statutes of 1987, amended R&TC Section 214 to specifically exempt low-income housing developments operated by non-profit organizations. As noted in the Senate Revenue and Taxation Committee analysis, AB 2144's proponents argued that the property tax funds then being paid “could better be used in furtherance of the goals of providing low income housing.” Generally, to qualify for the welfare exemption, the law requires that the rental housing be financed with specified tax-exempt bonds, government loans, or grants, or that the property's owner receives a Low-Income Housing Tax Credit under the Internal Revenue Code Section 42. The welfare exemption extends to “units serving lower income households.” To qualify, the unit must be occupied by a lower income household (typically a household with a maximum income of 80 percent of Area Median Income). To receive the welfare exemption, a property owner must certify that the property tax savings is necessary to maintain the affordability of the units occupied by lower income households.
The California Constitution prohibits a reduction or wavier of property taxes except for specified charitable purposes, which the Legislature has defined as deed-restricted rental housing for households at 80% of AMI or less. This bill is not a property tax exemption, but rather authorizing the use of property taxes already collected by San Francisco. The state does not direct local governments in how to spend their property taxes – that is the purview of the local government. Redevelopment was constitutionally created and directed any tax increment from all the taxing entities to repay the debts of a redevelopment project area. This bill only applies to any tax increment associated with the City and County of San Francisco’s portion of property taxes. It is unclear if San Francisco needs legislative authority to spend their own property taxes and any associated tax increment.
Affordability: The property tax welfare exemption is only available to rental units that are restricted to 80% of AMI or below. Developers receive the benefit of the property tax abatement prior to payment. In San Francisco, this bill would transfer property taxes and any growth in increment of property taxes in a district to a developer of largely market-rate housing. The payments would last for 30 years. When a district is first created, there are no affordability requirements, until developers opt-in for 3 million square feet of conversions. At that point, the developers must choose between providing housing at one of the following affordability levels: 5% very low-income, 10% lower income, or 20% moderate income for for-sale units.
Arguments in Support: According to the Bay Area Council, the sponsor of the bill, “Remote work offers many positive benefits to workers and the environment, but it has also resulted in undesirable consequences for urban centers. Millions of square feet of office buildings are now sitting empty in California. Silicon Valley ended 2023 with over 25% of its office spaces vacant, and Southern California had an office vacancy rate of over 20%. In downtown Los Angeles, there is a 26% office vacancy rate, and San Francisco has a record-breaking 36.7% vacancy rate. Transit systems have also suffered with many Bay Area transit operators seeing less than 50% of their prep-pandemic ridership. This crisis has left cities with an urgent need to find creative ways to save their downtowns from a ‘doom loop’ of economic decline and urban blight.
AB 2488 offers an exciting solution to this challenge and addresses two problems at once: 1) it will replace the foot traffic lost due to remote work and generate new kinds of economic activity in city centers, and 2) it will lessen the longstanding housing supply shortage in big cities. Office-to-residential (OTR) conversions promise to build highly desirable, mixed-use neighborhoods with both economic and cultural vitality. New housing increases transit ridership and increases demand for new entrepreneurial endeavors, including restaurants, shopping, and nightlife.”
Arguments in Opposition: None on file.
Double referred: This bill is double referred. It was heard in the Assembly Committee on Local Government and passed on a vote of 9-0 on April 17, 2024.
Related Legislation:
AB 3068 (Haney), of the current legislative session, establishes the Office to Housing Conversion Act, creating streamlined, ministerial approvals process for adaptive reuse projects, as defined, and provides certain financial incentives for the adaptive reuse of existing buildings. This bill was heard in Assembly Housing and Community Development Committee and passed out 9-0. It is currently pending hearing in Assembly Local Government Committee.
AB 2909 (Santiago), of the current legislative session, would allow certain properties within the City of Los Angeles that are at least 30 years old to be eligible for the Mills Act for purposes of adaptive reuse of the property from January 1, 2026 to January 1, 2036. This bill was heard in Assembly Local Government Committee and passed out 9-0.
REGISTERED SUPPORT / OPPOSITION:
Support
Bay Area Council (Sponsor)
Advance SF
BOMA San Francisco
Build Group
California Apartment Association
California Travel Association
East Bay YIMBY
Emerald Fund
Grow the Richmond
Housing Action Coalition
Metrovation
Mountain View Yimby
Napa-Solano for Everyone
Northern Neighbors
Peninsula for Everyone
Plant Construction
Presidio Bay Ventures
Progress Noe Valley
San Francisco Bay Area Planning and Urban Research Association
San Francisco Chamber of Commerce
San Francisco Yimby
San Luis Obispo Yimby
Santa Cruz Yimby
Santa Rosa Yimby
SKS Partners
South Bay Yimby
Southside Forward
Streets for People
Tishman Speyer Properties
TMG Partners
Union Square Alliance
Urban Environmentalists
Ventura County Yimby
Webcor Builders
Yimby Action
Opposition
None on file.
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085
Date of Hearing: April 17, 2024
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Juan Carrillo, Chair
ABPCA Bill Id:AB 2488 (
Author:Ting) – As Amended Ver:March 18, 2024
SUBJECT: Downtown revitalization and economic recovery financing districts.
SUMMARY: Allows cities and counties to establish downtown revitalization and economic recovery financing districts (district). Specifically, this bill:
- Defines the following terms:
- “Designated official” as the appropriate official designated pursuant to this bill.
- “District board” as the governing board of the district.
- “District” as a legally constituted governmental entity separate and distinct from the local government that established it pursuant to this bill for the sole purpose of financing office-to-residential conversion projects or other projects of community wide significance that support downtown revitalization and economic recovery as authorized by this bill. A district is a local agency for the purposes of the Ralph M. Brown Act and subject to existing open meetings laws. A district shall be deemed a district within the meaning of Section 1 of Article XIII A of the California Constitution.
- “Downtown revitalization financing plan” (financing plan) as an adopted financing plan prepared pursuant to this bill.
- “Legislative body” as the city council or board of supervisors.
- “Local government” as a city, county, or city and county, whether general law or chartered.
- “Office-to-residential conversion project” as a housing development project that converts an existing qualifying commercial office building to market rate or affordable housing by either reuse of the existing commercial office building or by replacing the commercial office with a new residential building.
- “Opted-in taxable property” as the property of an office-to-residential conversion project that has opted in to receive incremental tax revenue.
- “Qualifying commercial office building” as a commercial office building identified in the financing plan.
- Provides that a legislative body of a local government may establish one or more proposed districts. Proceedings for the establishment of a district shall be instituted by the adoption of a resolution of intention to establish the proposed district and shall do all of the following:
- State that a district is proposed to be established under the terms of this bill and describe the boundaries of the proposed district, which may be accomplished by reference to a map on file in the office of the clerk of the city or in the office of the recorder of the county, as applicable. The map may identify, within a district, certain areas which shall be referred to as “project areas.”
- The boundary of the district shall satisfy both of the following criteria at the time the resolution of intention is adopted:
- At least 50% of the built area in the geographic boundaries of the district shall be used as commercial office space.
- The commercial office building vacancy rate shall be 20% or greater.
- State the need for the district and the goals the district proposes to achieve.
- State that incremental property tax revenue from the local government within the district will be used to finance these activities.
- Fix a time and place for a public hearing on the proposal.
- Specifies that the district board’s membership shall consist of three members of the legislative body of the local government, and two members of the public chosen by the legislative body. The legislative body may appoint one of its members to be an alternate member of the legislative body who may serve and vote in place of a member who is absent or disqualifies themselves from participating in a meeting of the authority. The appointment of the public members shall be subject to the provisions of existing law.
- Provides that a legislative body may include a directly elected mayor of a charter city or charter city and county who is not a member of the city or city and county’s legislative body under the city and county’s adopted charter.
- Requires the legislative body to ensure the district board is established at the same time that it adopts a resolution of intention.
- Provides that members of a district board established pursuant to this bill shall not receive compensation but may receive reimbursement for actual and necessary expenses incurred in the performance of official duties.
- Specifies that members of the district board are subject to existing ethics training requirements.
- Provides that the district board shall be a local public agency subject to the Ralph M. Brown Act, the California Public Records Act, and the Political Reform Act.
- States that the purpose of a district is to finance office-to-residential conversion projects with incremental tax revenues generated by the office-to-residential conversion projects within the district.
- Provides that incremental tax revenues generated by office-to-residential conversion projects within the district shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes described in this bill.
- Requires the district to finance only the office to residential development projects that the district determines are of communitywide significant and that provide significant benefits to the district or the surrounding community.
- Provides that the district shall ensure that incremental tax revenues allocated to the district are limited to specified revenues that are generated through the office-to-residential conversion projects within the district that have opted in.
- Requires the district to ensure that the requirements of this bill are met every 10 years.
- Specifies that the creation of a district and the adoption of a financing plan shall not be deemed a “project” for the purposes of the California Environmental Quality Act.
- Provides that after adopting the resolution of intention, the legislative body shall send a copy of the resolution to the district board. The district board shall designate and direct the appropriate local government official to prepare a financing plan.
- Specifies that after the receipt of a copy of the resolution of intention to establish a district, the designated official shall prepare a proposed financing plan. The financing plan shall be consistent with the general plan, and specific plan, if applicable, of the local government within which the district is located and shall include all of the following:
- A map and legal description of the proposed district, which may include all or a portion of the district designated by the legislative body in its resolution of intention.
- A description of the potential office-to-residential conversion projects and other forms of development that is proposed in the area of the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this bill, those public improvements and facilities to be financed with assistance from the proposed district, and those to be provided jointly.
- A finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
- Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this bill.
- A requirement that the incremental tax revenues generated by each individual office-to-residential conversion project within the district pursuant to this bill be allocated back to that project for the purpose of financing the debt service of the project. Each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the amount equal to the amount of incremental tax revenues generated by the project for 30 years or until the district ceases to exist.
- A requirement that any incremental tax revenues remaining after the allocation of revenues pursuant to e) above, be allocated to uses supporting downtown revitalization.
- A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to this bill.
- A financing section, which shall contain all of the following information:
- A specification of the maximum portion of the incremental tax revenue of the local government proposed to be committed to the district for each year during which the district will receive incremental tax revenue. The portion need not be the same for all affected taxing entities. The portion may change over time.
- A projection of the amount of tax revenues expected to be received by the district in each year during which the district will receive tax revenues.
- A limit on the total number of dollars of taxes that may be allocated to the district pursuant to the financing plan.
- Either of the following:
- A date on which the district will cease to exist, by which time all tax allocations to the district will end. The date shall not be more than 45 years from the date on which the district allocates funding to the first office-to-residential conversion project within the district.
- If the district is divided into project areas, a date on which the financing plan will cease to be in effect and all tax allocations to the district will end and a date on which the district’s authority to pay incremental tax revenues received under this division will end, not to exceed 45 years from the date the district or the applicable project area has actually received one hundred thousand dollars ($100,000) in annual incremental tax revenues under this bill. After the time limits established, a district or project area shall not receive incremental tax revenues under this bill. If the district is divided into project areas, a separate and unique time limit shall be applicable to each project area that does not exceed 45 years from the date the district has actually received one hundred thousand dollars ($100,000) in incremental tax revenues under this bill from that project area.
- An analysis of the costs to the local government of providing facilities and services to the area of the district while the area is being developed and after the area is developed. The financing plan shall also include an analysis of the tax, fee, charge, and other revenues expected to be received by the local government as a result of expected development in the area of the district.
- An analysis of the projected fiscal impact of the district and the associated development upon the local government.
- If any residential dwelling units within the territory of the district are proposed to be removed or demolished in the course of an office-to-residential conversion project within the area of the district, a plan providing for replacement of those units and relocation of those persons or families consistent with the Housing Crisis Act of 2019, as specified.
- The goals the district proposes to achieve for each project financed pursuant to this bill.
- Specifies that a financing plan shall contain a provision that taxes, if any, levied upon opted-in taxable property in the area included within the district each year by or for the benefit of the State of California, or the local government, shall be divided, subject to the provisions of Section 53993, as follows:
- That portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for the local government upon the total sum of the assessed value of all of the opted-in taxable property in the district, established pursuant to 18) below, shall be allocated to, and when collected shall be paid to, the local government as taxes on all other property are paid.
- That portion of the levied taxes each year specified in the adopted financing plan for the local government in excess of the amount specified in a) above, shall be allocated to, and when collected shall be paid into a special fund of, the district for all lawful purposes of the district. Unless and until the total assessed valuation of the opted-in taxable property in a district exceeds the total assessed value of the opted-in taxable property in the district as shown by the last equalized assessment rolls referred to in a) above, all of the taxes levied and collected upon the opted-in taxable property in the district shall be paid to the local government. When the district ceases to exist pursuant to the adopted financing plan, all moneys thereafter received from taxes upon the opted-in taxable property in the district shall be allocated to, and, when collected, shall be apportioned to, the local government.
- After an office-to-residential conversion project opts in to receive incremental tax revenue, the district shall establish the base assessed value for the applicable property, as shown upon the assessment roll used in connection with the property by the local government, last equalized prior to the first building permit being issued as a part of the conversion of the office-to-residential conversion project.
- Specifies that the portion of any ad valorem property tax revenue annually allocated to a local government pursuant to existing law related to the Educational Revenue Augmentation Fund (ERAF) that is specified in the adopted financing plan for the local government, and that corresponds to the increase in the assessed valuation of taxable property shall be allocated to, and, when collected, shall be apportioned to, a special fund of the district for all lawful purposes of the district.
- Specifies that when a district ceases to exist pursuant to the adopted financing plan, the revenues described above, shall be allocated to, and, when collected, shall be apportioned to, the respective local government.
- Provides that a district board shall consider adoption of the financing plan at a single public hearing.
- Requires that, after the adoption of the financing plan, the district shall establish a process for eligible office-to-residential conversion projects to opt into receiving incremental tax revenue pursuant to this bill.
- Specifies that an eligible office-to-residential conversion project may opt in to receive incremental tax revenue at any time before the project is issued the first building permit for the project.
- Requires an eligible office-to-residential conversion project that opts in to receive incremental tax revenue to comply with specified labor standards.
- Provides that it is the intent of the Legislature to subsequently amend this bill to establish labor protections applicable to office-to-residential conversion projects that opt in to receive incremental tax revenue.
- Requires all costs incurred by a county in connection with the division of taxes pursuant to this bill to be paid by that district.
FISCAL EFFECT: None.
COMMENTS:
- Redevelopment. Article XVI, Section 16 of the California Constitution authorizes the Legislature to provide for the formation of redevelopment agencies (RDAs) to eliminate blight in an area by means of a self-financing schedule that pays for the redevelopment project with tax increment derived from any increase in the assessed value of property within the redevelopment project area (or tax increment). Generally, property tax increment financing involves a local government forming a tax increment financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area.
To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local government participating in the district is “frozen” at the amount it received from property within a project area prior to the project area’s formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues — the so-called property tax “increment” revenues — flow to the tax increment financing district instead of other local governments. After the bonds have been fully repaid using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local governments.
Prior to Proposition 13, very few RDAs existed; however, after its passage, RDAs became a source of funding for a variety of local infrastructure activities. Eventually, RDAs were required to set-aside 20% of funding generated in a project area to increase the supply of low and moderate income housing in the project areas. At the time RDAs were dissolved, the Controller estimated that statewide, RDAs were obligated to spend $1 billion on affordable housing. At the time of dissolution, over 400 RDAs statewide were diverting 12% of property taxes, over $5.6 billion yearly.
In 2011, facing a severe budget shortfall, the Governor proposed eliminating RDAs in order to deliver more property taxes to other local agencies. Ultimately, the Legislature approved and the Governor signed two measures, ABX1 26 (Blumenfield), Chapter 5 and ABX1 27 (Blumenfield), Chapter 6 that together dissolved RDAs as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA) and the League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all RDAs were required to dissolve as of February 1, 2012.
- Attempts to Replace RDAs. After the Supreme Court’s 2011 Matosantos decision dissolved all RDAs, legislators enacted several measures creating new tax increment financing tools to pay for local economic development. The Legislature authorized the creation of Enhanced Infrastructure Financing Districts (EIFDs) [SB 628 (Beall), Chapter 785, Statutes of 2014] quickly followed by Community Revitalization and Investment Authorities (CRIAs) [AB 2 (Alejo), Chapter 319, Statutes of 2015]. Similar to EIFDs, CRIAs use tax increment financing to fund infrastructure projects. CRIAs may currently only be formed in economically depressed areas.
The Legislature has also authorized the formation of affordable housing authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds [AB 1598 (Mullin), Chapter 764, Statutes of 2017]. SB 961 (Allen), Chapter 559, Statutes of 2018, removed the vote requirement for a subset of EIFDs to issue bonds and required these EIFDs to instead solicit public input, and AB 116 (Ting), Chapter 656, Statutes of 2019, removed the voter requirement for any EIFD to issues bonds in favor of a formal protest process. SB 852 (Dodd), Chapter 266, Statutes of 2022, created climate resilience districts (CRDs), which can also utilize tax-increment financing. CRDs were also given the authority to issue general obligation bonds and impose special taxes. While these entities share fundamental similarities with RDAs in terms of using various forms of tax-increment financing, they differ in two significant aspects, 1) not having access to the school’s share of property tax increment, and 2) not automatically including the tax increment of other taxing entities.
- California’s Housing Crisis. California faces a severe housing shortage. A variety of factors have contributed to the lack of housing production. A major cause of the housing crisis is the mismatch between the supply and demand for housing. The Statewide Housing Plan adopted by the Department of Housing and Community Development (HCD) in 2022 found California needs approximately 2.5 million units of housing, including one million units affordable to lower income households, to address this mismatch over the next eight years. That would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households.
The Legislative Analyst’s Office wrote in a January 24, 2024 article, California Housing Affordability Tracker, “California home prices have long been—and continue to be—much more expensive than the rest of the US. Prices for mid-tier homes are more than twice as expensive as the typical mid-tier US home. (Mid-tier homes reflect home values in the 35th to 65th percentile range.) Perhaps even more importantly for a first-time home buyer, a bottom-tier home in California is now about 33 percent more expensive than a mid-tier home in the rest of the U.S.—a gap that has widened over the last decade (Bottom-tier homes are those with values in the 5th to 35th percentile range.)”
“Monthly payments for a newly purchased mid-tier home—including mortgage, taxes, and homeowners’ insurance—have increased dramatically over the last couple of years. Payments for a mid-tier home were over $5,500 a month in December 2023—an 80 percent increase since January 2020. Payments for a bottom-tier home were over $3,400 per month—an 85 percent increase since January 2020. Also, the gap between the monthly costs of purchasing a bottom-tier home versus renting are near levels that have not been seen since the housing bubble in the mid-2000s. This rapid increase in monthly costs for homebuyers was driven by higher home prices and increasing mortgage rates, both of which we discuss in more detail below.”
- Adaptive Reuse. Adaptive reuse is the process of converting an existing non-residential building to housing. The ability to adaptively reuse a building is highly dependent on the initially designed use. For example, uses such as warehouses and big box retail are not generally suitable to adaptive reuse, because their tall ceilings, single stories, and rudimentary plumbing would need to be completely redone to be appropriate for human habitation. Office buildings maintain some potential for conversion, because their multi-floor layout is conducive to housing; however, the large configuration of most office buildings makes it difficult to provide the necessary light and air that is required for residential units. For these conversions to occur, it would also need to be financially attractive to the property owner – something that has increased due to the sharp downturn in the downtown office market since the beginning of the COVID-19 pandemic. However, other commercial properties, like hotels and motels, are more conducive to adaptive reuse, since they already have separate residential units, often with bathrooms.
- Recent State Adaptive Reuse Efforts. One of the state’s primary efforts to address homelessness during the COVID-19 pandemic involved turning existing hotels and motels into housing for individuals experiencing homelessness, known as Project Homekey. These uses are already divided into quarters designed for short-term human habitation and can readily be converted to housing with the addition of kitchens. As of February 29, 2024, the Legislative Analyst’s Office reported that Project Homekey has funded 250 projects and assisted 15,319 units of housing with a total expenditure of $3.35 billion. The cost of converting a unit under Project Homekey, at $218,683 per unit, is less than the current cost of constructing a new multifamily unit which averages at a little under $600,000 a unit as calculated by a recent report from the UC Berkeley’s Terner Center for Housing Innovation, Making it Pencil: the Math of Housing Development-2023. This report found that for a multifamily mixed-use project with five stories of residential and a nonresidential ground floor, the average cost per unit in the Bay Area is $637,000 in the East Bay and $623,000 in the South Bay, $594,000 in Los Angeles, and $508,000 in Sacramento.
- Property Tax Welfare Exemption. Article XIII, Section 4(b) of the California Constitution authorizes the Legislature to exempt property used exclusively for religious, hospital, or charitable purposes, as specified, from taxation. The Legislature has implemented this "welfare exemption" in R&TC Section 214.
AB 2144 (Filante), Chapter 1469, Statutes of 1987, amended R&TC Section 214 to specifically exempt low-income housing developments operated by non-profit organizations. As noted in the Senate Revenue and Taxation Committee analysis, AB 2144's proponents argued that the property tax funds then being paid "could better be used in furtherance of the goals of providing low income housing." Generally, to qualify for the welfare exemption, the law requires that the rental housing be financed with specified tax-exempt bonds, government loans, or grants, or that the property's owner receives a Low-Income Housing Tax Credit under the Internal Revenue Code Section 42. The welfare exemption extends to "units serving lower income households." To qualify, the unit must be occupied by a lower income household (typically a household with a maximum income of 80 percent of Area Median Income). To receive the welfare exemption, a property owner must certify that the property tax savings is necessary to maintain the affordability of the units occupied by lower income households.
- Bill Summary. This bill authorizes a city or county to designate one or more districts for the purpose of financing office-to-residential conversion projects with incremental tax revenues generated by the conversion projects. This bill requires that the city or county adopt a resolution of intention to form a district and meet specified criteria regarding commercial office uses and commercial office vacancy rates.
This bill establishes the board membership of a district and requires a district to adopt a financing plan that includes certain information and requirements. Additionally, this bill specifies that the financing plan must include a requirement that the incremental tax revenue be allocated back to the respective project for the purpose of debt service of the project for 30 years or until the district ceases to exist.
Lastly, the district must establish a process for eligible conversion projects to opt into receiving incremental tax revenue allocations, and requires a district to provide a date on which the district will cease to exist, not to exceed 45 years, as specified. The Bay Area Council is the sponsor of this bill.
- Author’s Statement. According to the author, “In the aftermath of the COVID-19 pandemic, cities are struggling to adjust to decreased foot traffic in their once-thriving downtowns. Fewer people in city centers results in struggling small businesses, declines in transit ridership, and, for many cities, record-breaking rates of empty office buildings. San Francisco has an estimated 32-34% office vacancy rate, San Jose is at 30.7%, and Los Angeles is at 26.2%. Cities urgently need to find creative ways to save their downtowns from a ‘doom loop’ of economic decline and urban blight.
“AB 2488 gives cities a new tool to adapt to the post-pandemic normal by allowing them to create downtown revitalization districts to help finance the conversion of empty office buildings into new homes. This will solve two problems for California cities; it will provide the foot traffic and transit ridership needed to spur economic recovery in downtowns while also reducing the impacts of California’s housing crisis. AB 2488 will empower cities to turn their empty office buildings and struggling downtowns into vibrant, walkable, mixed-use communities with exciting new cultural, social, and economic opportunities.”
- Policy Considerations. The Committee may wish to consider the following:
- Incentivizing Home Building. In 2022, HCD found that California needs approximately 2.5 million units of housing, including one million units affordable to lower income households over the next eight years. This would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households. The Legislature has adopted many measures to help stimulate the development of housing by providing state funding for direct financial assistance, streamlining permitting and other local processes, or overriding local planning and zoning standards for certain types of projects. It has been a consistent policy of the Legislature in recent years to include affordability requirements on developments receiving the benefit of financing, streamlining, or other incentives to ensure the state can meet its affordability goals. This bill does not currently require affordable housing to be built in order to receive the benefit of property tax allocations for office-to-residential conversions. In order for the state to continue promoting affordability, the Committee may wish to consider if this bill should require a limited amount of affordability.
- Is Additional Clarity Needed? The stated intent of this bill is to create a new tool for converting unused office space in struggling downtowns into walkable, mixed-use communities. Property tax is used by local agencies for many purposes, whether it be for infrastructure development or providing the daily services their residents need. The use of property tax increment for incentivizing the adaptive reuse of office buildings is complex and requires a city or county to balance the current needs of their residents with those projects that may provide a public benefit less quickly. In order to ensure that this bill meets the author’s intent and limits potential unintended consequences, additional clarity may be needed regarding the following issues:
- This bill requires the district financing plan to include a description of the potential office-to-residential conversion projects “and other forms of development.” It is not clear what “other forms of development” means. It was noted by the author and sponsors that this is to facilitate mixed-use development. Should a clearer definition of mixed-use development be used to avoid confusion and ensure residential units are built concurrently with the commercial units?
- This bill says that each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the amount equal to the amount of incremental tax revenues generated by the project for 30 years or until the district ceases to exist. Because a district has a maximum lifespan of 45 years, does this provision potentially allow for a developer to receive a property tax allocation for more than 30 years?
- This bill does not specify what happens if the property that is receiving a property tax allocation is sold to another owner. Should the property tax allocation be transferred to the new owner?
- EIFD Law contains a provision ensuring that property taxes that are dedicated to paying off enforceable obligations of a former RDA. This provision is not included in property tax to be used by an EIFD. To ensure the former RDAs are able to continue paying off existing obligations, should this bill contain similar language to that of EIFD law?
- EIFDs and other tax increment financing tools have typically ensured that the property tax that is being utilized is only that of the agencies that agree to participate in the infrastructure financing tool. The sponsors have indicated that it is the intent that a district only use the property tax apportioned to the city or county that creates a district. Additional clarification may be needed to achieve this intent.
- This bill requires a district to establish a process for eligible office-to-residential conversion projects to opt-in to receiving incremental tax revenue. However, what happens if a project changes the use or the amount of housing is reduced? Does this bill allow for a district to reconsider the amount of property tax revenue that is to be allocated to a particular project?
- This bill requires the district financing plan to include a description of the potential office-to-residential conversion projects “and other forms of development.” It is not clear what “other forms of development” means. It was noted by the author and sponsors that this is to facilitate mixed-use development. Should a clearer definition of mixed-use development be used to avoid confusion and ensure residential units are built concurrently with the commercial units?
- Scope. The stated intent of this bill is to help provide the foot traffic and transit ridership needed to spur economic recovery in downtowns. However, this bill is not clearly limited to downtown areas and could apply to areas that may not have the transit available to meet the author’s intent. The Committee may wish to consider if the scope of this bill should be limited.
- Incentivizing Home Building. In 2022, HCD found that California needs approximately 2.5 million units of housing, including one million units affordable to lower income households over the next eight years. This would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households. The Legislature has adopted many measures to help stimulate the development of housing by providing state funding for direct financial assistance, streamlining permitting and other local processes, or overriding local planning and zoning standards for certain types of projects. It has been a consistent policy of the Legislature in recent years to include affordability requirements on developments receiving the benefit of financing, streamlining, or other incentives to ensure the state can meet its affordability goals. This bill does not currently require affordable housing to be built in order to receive the benefit of property tax allocations for office-to-residential conversions. In order for the state to continue promoting affordability, the Committee may wish to consider if this bill should require a limited amount of affordability.
- Committee Amendments. In order to address the policy considerations above, and make additional clarifying and technical amendments, the committee may wish to amend the bill as follows:
- Limit the bill to the City and County of San Francisco.
- Require a district’s boundaries to be contiguous with the city and county of San Francisco.
- Specify that for the first three million square feet of office-to-residential conversions, in aggregate, there is no affordable housing requirement in this bill.
- Provide that after the first three million square feet of office-to-residential conversion, in aggregate, the following affordability requirement shall be met:
- Limit the bill to the City and County of San Francisco.
62406(b). A requirement that an opted-in taxable property shall not receive a property tax allocation unless it meets one of the following:
1) At least 5% of total units for rent are affordable to very low-income households, as defined in Health and Safety Code Section 50105, or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
2) At least 10% of total units for rent are affordable to lower income households, as defined in Health and Safety Code Section 50079.5, or the local inclusionary requirement, whichever is higher, for a minimum of 55 years.
3) At least 10% of total units for sale are affordable to households of moderate income, as defined in Health and Safety Code Section 50093, or the local inclusionary requirement, whichever is higher for a minimum of 45 years.
- Add a 7-year sunset to the bill’s provisions.
- Require the City and County of San Francisco issue a report to the legislature detailing the office-to-residential conversion projects conducted under this bill
- Include the following amendments to provide additional clarity:
62406. After receipt of a copy of the resolution of intention to establish a district, the official designated pursuant to Section 62405 shall prepare a proposed financing plan. The financing plan shall be consistent with the general plan, and specific plan, if applicable, of the local government within which the district is located and shall include all of the following:
(a) A map and legal description of the proposed district, which may include all or a portion of the district designated by the legislative body in its resolution of intention.
(c) A description of the potential office-to-residential conversion projectsandother forms of developmentthatisare proposed in the area of the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this division, those public improvements and facilities to be financed with assistance from the proposed district, and those to be provided jointly. A project may be mixed-use, but at least two-thirds of the square footage of the office-residential conversion shall be designated for residential use. Mixed use developments shall be limited to residential and commercial uses.
(d) A requirement that if nonresidential development is included in the development pursuant to this subdivision (c), at least 25 percent of the total planned units affordable to lower income households shall be made available for lease or sale and permitted for use and occupancy before or at the same time with every 25 percent of nonresidential development made available for lease or sale and permitted for use and occupancy.
(e) A finding that the potential office-to-residential conversion projects and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district.
(f) Identification of each existing commercial office building within the district that is eligible for conversion to residential use and that may opt in to receive incremental tax revenue pursuant to this division.
(g) A requirement that the incremental tax revenues generated by each individual office-to-residential conversion project within the district pursuant to this division be allocated back to that project for the purpose of financing the debt service of the project. Each individual office-to-residential conversion project shall receive an annual allocation on a pay-go basis in the amount equal to the amount of incremental tax revenues generated by the project for a maximum of 30 years or until the district ceases to exist, whichever is shorter.
(h) A requirement that the allocation of incremental tax revenue pursuant to subdivision (g) allocated back to an office-to-residential conversion project shall begin with the first fiscal year that commences after the qualified adaptive reuse property is issued a certificate of occupancy.
(i) A requirement that if an opted-in taxable property is sold or otherwise transferred to a new property owner, the allocation described in subdivision (e) is also transferred to the new property owner.
(j) A requirement that any incremental tax revenues remaining after the allocation of revenues pursuant to subdivision (g) be allocated to uses supporting downtown revitalization. Once the allocation of revenues has ceased, the tax increment shall be allocated to, and, when collected, shall be apportioned to, the respective local government.
(i) A requirement that local administrative costs to implement this section do not exceed 5 percent of the tax revenues allocated pursuant to the section.
(j) A financing section, which shall contain all of the following information:
(1) A specification of the maximum portion of the incremental tax revenue of the local government proposed to be committed to the district for each year during which the district will receive incremental tax revenue.The portion need not be the same for all affected taxing entities.The portion may change over time.
- Add a 7-year sunset to the bill’s provisions.
62407. (b) Notwithstanding subdivision (a), where any district boundaries overlap with the boundaries of any former redevelopment project area, any debt or obligation of a district shall be subordinate to any and all enforceable obligations of the former redevelopment agency, as approved by the Oversight Board and the Department of Finance. For the purposes of this division, the division of taxes allocated to the district pursuant to subdivision (a) of this section shall not include any taxes required to be deposited by the county auditor-controller into the Redevelopment Property Tax Trust Fund created pursuant to subdivision (b) of Section 34170.5 of the Health and Safety Code.
64207. (d) The downtown revitalization financing plan shall not divide revenues that are allocated to other taxing agencies that are not part of the local government that established the downtown revitalization and economic recovery financing district.
62409. (a) (1) After the adoption of the downtown revitalization financing plan, the district shall establish a process for eligible office-to-residential conversion projects identified pursuant to subdivision (d) of Section 62406 to opt into receiving incremental tax revenue pursuant to this division. A district shall establish a process to reconsider the amount of incremental tax revenue to be allocated to a project if there is a change in use or the change in the square footage of office space converted to housing planned to be built.
Due to timing constraints, these amendments should be adopted in the Housing and Community Development Committee.
- Arguments in Support. According to the Bay Area Council, sponsors of the bill, “The COVID-19 pandemic resulted in tragic losses of human life and disrupted everyday activities in ways that we are still struggling to adapt to years later. One of these changes is the increase of remote and hybrid work. As of November 2023, 14% of Californians still worked entirely remotely, and 21% had hybrid schedules. In some parts of the state, like the Bay Area, the percentage of remote and hybrid workers is even higher.
“Remote work offers many positive benefits to workers and the environment, but it has also resulted in undesirable consequences for urban centers. Millions of square feet of office buildings are now sitting empty in California. Silicon Valley ended 2023 with over 25% of its office spaces vacant, and Southern California had an office vacancy rate of over 20%. In downtown Los Angeles, there is a 26% office vacancy rate, and San Francisco has a record-breaking 36.7% vacancy rate. Transit systems have also suffered with many Bay Area transit operators seeing less than 50% of their prep-pandemic ridership. This crisis has left cities with an urgent need to find creative ways to save their downtowns from a ‘doom loop’ of economic decline and urban blight.
“AB 2488 offers an exciting solution to this challenge and addresses two problems at once: 1) it will replace the foot traffic lost due to remote work and generate new kinds of economic activity in city centers, and 2) it will lessen the longstanding housing supply shortage in big cities. Office-to-residential (OTR) conversions promise to build highly desirable, mixed-use neighborhoods with both economic and cultural vitality. New housing increases transit ridership and increases demand for new entrepreneurial endeavors, including restaurants, shopping, and nightlife.”
- Arguments in Opposition. None on file.
- Double-Referral. This bill is double-referred to the Assembly Committee on Housing and Community Development.
REGISTERED SUPPORT / OPPOSITION:
Support
Bay Area Council [SPONSOR]
Advance SF
Build Group
Building Owners and Managers Association, San Francisco
California Apartment Association
California Travel Association
East Bay YIMBY
Emerald Fund
Grow the Richmond
Housing Action Coalition
Metrovation, LLC
Mountain View YIMBY
Napa-Solano for Everyone
Northern Neighbors
Peninsula for Everyone
Plant Construction
Presidio Bay Ventures
Progress Noe Valley
San Francisco Bay Area Planning and Urban Research Association (SPUR)
San Francisco Chamber of Commerce
San Francisco YIMBY
San Luis Obispo YIMBY
Santa Cruz YIMBY
Santa Rosa YIMBY
SKS Partners
South Bay YIMBY
Southside Forward
Streets for People
Tishman Speyer Properties
TMG Partners
Union Square Alliance
Urban Environmentalists
Ventura County YIMBY
Webcore Builders
YIMBY Action
Opposition
None on file
Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958
Discussed in Hearing
52SEC
Assembly Floor
3MIN
Senate Floor
3MIN
Senate Standing Committee on Housing
6MIN
Senate Standing Committee on Local Government
1MIN
Assembly Floor
5MIN
Assembly Standing Committee on Housing and Community Development
8MIN
Assembly Standing Committee on Local Government
Bill Author
Bill Co-Author(s):