Infra-Destructure: San Francisco
Breaks the Bank for Developers

Marc Salomon

By Marc Salomon

April 13, 2010

After 30 years of Reaganist tax cuts and assaults on the public sector, there is no dispute that public infrastructure has been allowed to deteriorate due to lack of maintenance and investment. From interstate highway bridge collapses to crumbling prisons and deteriorating or non-existent public transit systems, the boomer generation took the gifts bestowed upon them by their industrious parents (who defeated Hitler in 4 ½ years), returned home to pay a 70 percent marginal income tax rate, and then squandered the gains in a bonfire of narcissism and selfishness.

Arising from Reaganist ideology is the primacy of corporate imperative and the duty of government to facilitate corporate profits. In recent years, with profitability declining, a particularly virulent strain of corporate dominance emerged where the public sector directly subsidizes very profitable corporate activities with public tax dollars.

This has been at the core of the national economy since the post-WWII era when military Keynesianism created the military industrial complex. At the State and local levels, with no foreign policy to be enforced by military means, the prime vector for corporate corruption is real estate and development. State and local land-use regulations can spell the difference between a parcel of trashed dirt and a high rise of luxury condos. Real estate consistently ranks high on the list of donors to political campaigns across the nation.

Traditionally, when developers subdivide land for housing, they are responsible for building infrastructure required to support those new residents. Neighborhoods cannot function without sewers, streets, public transportation, sidewalks, schools, hospitals, libraries and community facilities of all types.

Eastern Neighborhoods, Market-Octavia Development Plans

One major shortcoming of the Eastern Neighborhoods and Market-Octavia plans has been that developers exert such strong political influence that they have been able to evade 2/3rds of the cost of infrastructure that studies showed their developments would have the city construct. This means that existing residents are to be on the hook for these costs at the expense of the maintenance of our existing built environment.

In the era of corporate dominance, and with political campaigns costing more and more to successfully execute, the roles have shifted where the developers are dictating the terms of land use rules and politicians, in need of campaign cash or fearful of a potential recall for not playing ball with developers, more often than not cave in.

Market Rate Housing

A prescient example of the latter dates back to 2007 at Mission and Cesar Chavez. Seven Hills developers wanted to replace a paint store with market rate housing. The Planning Department, fixated on entitling the most market rate housing possible, gave the green light. The nonprofit housing activists lodged an appeal on the grounds that there was no study of the impacts of replacing light industrial-supporting land uses like a paint store with more expensive luxury condos.

The appeal and opposition seemed destined for success, but former District One Supervisor Jake McGoldrick, already vulnerable for chasing the Moby Dick of Saturday street closure in Golden Gate Park, against the express will of district voters in a previous election, was subject to a recall funded by developers. In a pincer move, lobbyists for Seven Hills held a fundraiser for McGoldrick to stave off the recall. The next day, McGoldrick voted to reject the appeal and open up the Mission to what would be an increasing flood of market rate projects in formerly light industrial-zoned areas.

When developers talk, politicians listen. And it is not just termed-out politicians who are facing political oblivion faster than presumed who are subject to this pressure. Candidates seeking office likewise play nice with developers. This has happened on the progressive side with the Residential Builders Association as well as on the conservative side with the larger scale developers.

Friends to Corporate Welfare, Developers

As Mayor Gavin Newsom gamely seeks a new landing spot as Lt. Governor due to his nonrenewable lease on Room 200 at City Hall, and as Supervisor Bevan Dufty seeks to extend his political relevance in face of being termed-out by running for Mayor, they have teamed up to push a developer corporate welfare package that is winding its way tortuously through the legislative process.

Billed as a “stimulus” measure, the three-pronged package would consolidate all fees charged to developers in one area of the law; exempt developers from their affordable housing requirements by passing the buck to future purchasers of those units; and delay the collection of development fees for several years.

Ostensibly innocuous, the fee consolidation legislation might contain hidden pitfalls because it appears that nobody has checked the language of the bill, chapter and verse, to ensure that the proposed language matches up point-for-point with existing law. This is critical because when Mission Street was rezoned two years ago, the Planning Department and City Attorney “accidentally” granted politically-connected developer Gus Murad, the politically connected entrepreneur and owner of Medjools restaurant, an extra 20 feet in height for a large parcel Murad owned, a gift to Murad of millions of dollars that does not come free. The Board of Supervisors was unable to muster an eighth vote to amend the heights back to standard over a Newsom veto granting his contributor free money.

Currently, developers are required to provide varying amounts of affordable housing, generally just short of the 20 percent range, in residential construction of any significant size, either by on-site inclusionary, off-site all affordable, or by a monetary contribution to the Mayor’s Office of Housing. This bill would allow developers to evade 1/3rd of their requirement, shifting that burden from developers onto future buyers with a legally questionable approach of adding a fee, a percentage of the purchase price, which would go to the Mayor’s Office of Housing to subsidize affordable housing development.

Finally, Newsom and Dufty propose subsidizing luxury housing development by gifting developers a moratorium on infrastructure fee collection for several years. What this means is that San Franciscans whose Muni is collapsing, streets and sidewalks are crumbling, sewers are leaking and stinking, and whose parks are decaying, must accept further degradation because the City will need to put into place fresh infrastructure at construction time for these new projects.

Taken together, the only things that this package stimulates are the political campaigns of Gavin Newsom and Bevan Dufty. It is dubious that the main impediments to new housing starts in San Francisco are development fees. The lack of demand for housing on the part of buyers is a critical factor, and we can be sure that few, if any, of the construction workers will be able to afford the units they build. And financial institutions, which are hip deep in underwater housing in a price declining market climate, will be loathe to finance new construction that further drives down the value of their toxic real estate portfolios.

Over-development, Property Devaluation

As housing prices continue to decline, the production of more housing (should financing become available), will put further downward pressure on housing prices. This would exacerbate a deflationary spiral and put more San Franciscans under water on their mortgages. In any jurisdiction where public officials were taking proactive steps to transfer property values from homeowners to developers, the pitchforks and torches would be wielded in a nasty recall of elected officials who engaged in such antagonistic conduct.

Indeed, throughout the gift-giving to the developer frenzy that passes for land use planning in San Francisco, developers caterwauled incessantly about the burdens of fees and how they would increase the price of housing, as if price were determined by value invested rather than what the market would bear. Now that they have an opening and there is a crisis, largely of their own making, they are back pushing the same demands that San Franciscans subsidize their operations.

Calvin Welch and the Non-profit Housing Mafia

Initially, supervisors agreed that this was a non starter. Those who are designated stakeholders allegedly representing San Franciscans, the nonprofit housing cartel headed by Calvin Welch, initially agreed. But over the past few weeks, opinions have shifted and the nonprofit housing Mafiosi have signed onto a deal where the City would get 15 percent of fees, which is 4.5 percent of infrastructure costs up front – with the rest being deferred.

Why such a shift? It is difficult to tell, but suffice it to say that the nonprofit housing cartel is funded largely by grants from the Mayor’s Office of Housing, with little supervisorial oversight. When the Mayor taps Calvin Welch, who was Willie Brown’s go-to man on housing, on the shoulder, he tends to offer up his undivided attention. Aside from violence, the specter of political and financial oblivion is a powerful motivator. Having been beaten up by for-profit developers for so many years, perhaps the nonprofit housing Mafiosi are taking out their frustrations on those less powerful than themselves.

The problem here is that unless you are one of the few Gavin Newsom partisans and hacks, or a big for-profit developer, Calvin Welch speaks for you. But an analysis of the past 15-years reveals that Welch and his nonprofit cadre have not won an election since 1996, when the full faith and credit of Willie Brown’s political machine dragged Proposition A, the first ever affordable housing bond measure, across the finish line. Two subsequent bond measures, Prop A and Prop B, went down in flames short of 2/3rds, as did Prop B, a set aside measure in 2008 which only required 50 percent plus one for passage. On the candidate front, Welch and company have fared as poorly, picking the wrong horse in almost every contest, Eric Quezada and Sue Lee in Districts Nine and One, for example, respectively.

The voters have spoken and rejected Welch’s approach, largely because Welch, more than any other individual, contributed to the demolition of the Moscone Coalition, which united progressives, liberals and neighbors, against downtown and conservative interests. Welch did this by putting the funding of his nonprofit housing developers in front of sustaining a viable grassroots and democratic coalition. To this day, neighborhood groups will reject anything that has Welch’s name on it even though their kids cannot afford to live here and they acknowledge that affordable housing would benefit them. And the nonprofits will take steps to neutralize others who would contest progressive political space.

Most damning of all, it would take centuries, at the current rate of affordable housing production, to make a dent in the housing crisis. To the Welch model of progressive politics, is a war of attrition where progressives are destined for extinction. The best we can do is maintain a population of trophy poor while the nonprofit workers continue to get paid irrespective of a dismal record of accomplishment.

In politics, not all is smiles and sunshine. One key discriminant that distinguishes progressives from moderates is that progressives tend to kick ass up, and kiss ass down, while our opponents tend to kiss ass up and kick ass down. The former is the posture of the insurgent, the latter of the prison trustee. Welch is one who, along with his partner Rene Cazenave, who have perfected the art of kicking ass down and kissing ass up by slathering abuse on those with less power and money than themselves. The result has been a nonprofit operation that is an effective cap on recapturing the breadth of the Moscone Coalition as it places the nonprofits in the role of paid enforcers.

Similar to labor, city-funded nonprofits have a finite price point which can be met in negotiations. Coalitions predicated on participation of labor and nonprofits are inherently vulnerable because once that price point is reached, beneficiaries of that funding, fight like dogs to ensure that their Good Thing is not challenged by the rabble.

Gentrification and Homophobia

In addition, the nonprofit housing narrative is laced through-and-through with a not so subtle taint of homophobia. The highest form of San Franciscan, according to the Mafiosi, are poor immigrant families from Latin America. Lesbians and gays, especially gay men, are viewed as double-income, no kids, racist conservative oppressors, bent on clear cutting the Mission. This insultingly ignores the fact that lesbians were the first indicators of gentrification, largely being displaced from the Valencia corridor in the early 1990s. And it ignores the fact that perhaps the single largest demographic within the progressive and liberal coalition are progressive gay white men.

In this case, San Franciscans have been sold out by those with a direct, particular financial interest in the outcome of City land-use policy, as the stakeholders for writing zoning or influencing tweaks to policy such as these bills are almost exclusively developers, for- and non-profit alike.

Single-issue politics is a trap best avoided because it is inherently unbalanced, and politics is the art of balancing competing interests. Housing is critical, but so is transportation. As Muni continues to decay due to lack of reliable funding, this bill would add insult to injury and further kick transit to the curb. Market-Octavia and Eastern Neighborhoods environmental review revealed that new development would cause significant unmitagable delays to Muni lines through the plan area. Parking from four proposed 400-foot towers at Market and Van Ness, one block from the freeway (fees from which would gold plate Hayes Valley), would grind Muni to a halt at that critical intersection.

The choice for supervisors is clear: give Newsom and Dufty a fresh set of chits with which to continue their conservative political trajectories, or stand up to Calvin Welch, his affordable housing Mafiosi, developers and real estate finance interests, and with Muni riders to defend our mission-critical infrastructure systems against further raids.

San Francisco would do better to follow our liberal instincts and apply some demand side stimulus here instead of Reaganist trickle-down supply side corporate welfare. Were the City to cut a $10 thousand check to all building and construction trade members who live in San Francisco, we would be less worse off in the long term than if we mortgaged our infrastructure systems on the altar of developer profit so that construction workers could eat lunch in a pail and spend their wages in Vallejo.

Take Action

And progressives, liberals and neighbors need to start calling out the nonprofit housing extortion racket for the damage they are doing to hundreds of thousand of San Franciscans by putting their own financial interests and self aggrandizement before the best interests of the broad majority of working San Franciscans.

Contact the offices of Land Use and Economic Development Committee members and demand that they vote against Calvin Welch’s sell out of San Franciscans:

Sophie Maxwell (chair)
(415) 554-7670 – voice
(415) 554-7674 – fax
Sophie.Maxwell@sfgov.org

Eric Mar (vice chair)
(415) 554-7410 – voice
(415) 554-7415 – fax
Eric.L.Mar@sfgov.org

David Chiu (board president)
(415) 554-7450 – voice
(415) 554-7454 – fax
David.Chiu@sfgov.org

Marc Salomon

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