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Controversial San Francisco Tax District Fuels Transbay Terminal

Despite protests and litigation threats from real estate developers, the San Francisco Board of Supervisors voted unanimously on Sept. 23 to create a special community tax district—locally known as a Mello-Roos district—for the Transbay Transit Center at 2014 market rates. The vote marks a key funding piece for the approximately $4.5-billion Transbay Transit Center, billed as the “Grand Central of the West.”

Images courtesy of TJPA
San Francisco officials hope developers will not challenge new district tax rates for projects such as Transbay Transit Center.

Mello-Roos districts are named for Senator Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles) who co-authored the Community Facilities Act, passed in 1982. The law creates special districts in which cities can seek funding through initiatives to build community projects.

Designed by architecture firm Pelli Clark Pelli, the new 1-million-sq-ft
terminal, slated for completion in 2017, will host 11 transit systems, including the proposed high-speed-rail system.
Construction commenced in 2008 with construction of a temporary terminal.

The new district is designed to support several other new developments in the heart of San Francisco, including a
proposal to build the city’s tallest skyscraper and a major metro rail extension. A prolonged lawsuit from developers, however, could pose challenges to the
district, including building permits and occupancy certifications being revoked.

Developers include Boston Properties and Hines Interests, which plan to build the 61-story Salesforce Tower, slated to be San Francisco’s tallest building. They and other real estate interests argue that, when negotiations for the development of the district started, property values were much lower; they want those values to be used as the base for the district tax rates.

Since then, property values have boomed. “The San Francisco County Transportation Authority [SFCTA]
believes, as the city does, that a deal is a deal, and our hope is that litigation will not occur,” says Eric Young, spokesman for SFCTA.

Millions of dollars in public funds already have been invested in both the transit center and downtown Caltrain extension projects, and the rise in valuations is being driven, in part, by these critical transportation facilities, Young says.

“The bargain was [that] the developers could build higher, they could build bigger, but they had to help us pay for infrastructure,” says Adam Alberti, spokesman for Transbay Joint Powers Authority. “Now, they want the value of the district to be based on 2012 property values instead of today’s values. Well, I’d like my taxes to be based on the past, too, but that isn’t going to happen.”

Another $866 million is needed to fully fund both phases of Transbay, Alberti says. The project facing the most risk from a drawn-out lawsuit is the $2.6-billion extension of Caltrain into downtown San Francisco. There are other funding options if the developers back out, but they likely would require long lead times and public votes. “A future infusion of sales taxes and other regional, state and federal funds was always envisioned for the Caltrain extension,” Young says.