Budget and Appropriation Committee Meeting: Review of Incentives for Housing and Debt Capacity - May 6, 2026

The Budget and Appropriation Committee, chaired by Supervisor Connie Chan and joined by Supervisors Danny Souter and Cheyenne Chin, met on May 6, 2026, to hear two reports from the Budget and Legislative Analyst (BLA): a performance review of financial incentives for housing and an analysis of San Francisco's debt capacity. The committee excused President Raphael Mendelman, Vice Chair Matt Dorsey, and Supervisor Shaman Walton from the meeting. Chair Chan framed the hearings as a broader context for upcoming budget discussions, emphasizing the need to consider the city's debt management, bond ratings, and housing production together.

Discussion Items

Debt Capacity Report (Item 2)

• Nick Marinaro from the BLA presented findings on the city's capacity to issue general obligation (GO) bonds and certificates of participation (COPs). Under current policies, the GO bond property tax rate is capped at the 2006 rate (0.1201% of assessed value), and COP debt service is limited to 3.25% of general fund discretionary revenue. The analysis showed that the city will hit the GO bond debt limit in 2032 and the COP limit in fiscal year 2028-2029 based on projected revenues.
• Relaxing the GO bond rate by 0.01% would allow one additional $410 million bond, raising the median single-family homeowner's property tax by about $75 per year, and push San Francisco from the 8th to the 6th highest property tax rate in the state. For COPs, a 0.25% increase would support a $128 million issuance but add $13 million annually in debt service, exacerbating the structural deficit and risking a credit rating downgrade.
• The BLA identified $1.18 billion in unissued GO bond authorizations and $352 million in unissued COPs. Within the GO bonds, about $300 million (excluding passthrough bonds) is assigned to projects that have not begun construction. For COPs, $1.9 million from the 2023 community facility bond is unprogrammed.
• The Hall of Justice project was discussed at length. BLA estimated the total cost at $367 million (minimum), with $55 million in authorized but unissued COPs for repairs and $367 million in planned COPs. Heather Green from the Office of the City Administrator detailed three pillars: keeping the existing building operational, severing dependencies from the adjacent jail at 425 7th Street, and relocating remaining tenants (primarily police units and sheriff services). She noted that the state courts are awaiting state funding, with earliest acquisition/design funding possible in fiscal year 2028. For police investigations, she is exploring purchase/lease options but cautioned that tenant improvement costs could exceed the $450/sq ft estimate in the report, potentially reaching $700/sq ft or more.
• Chair Chan expressed interest in using available COPs to prioritize funding for aging fire apparatus (over two to three decades old) and the Chinatown Preservation Fund. She also questioned why certain authorized bonds (e.g., from 2016) have not moved forward and called for a more accurate accounting of bond and COP funds.
• Supervisor Souter asked about unissued GO bonds; the BLA explained that some projects (e.g., HSH adult supportive housing from the 2020 Health and Recovery Bond) have no immediate plan, while others (seawall bond, Rec and Park) are delayed but still moving.
• The potable emergency firefighter water system (EFWS) was estimated to cost $1.58-1.78 billion for the west side, with $154 million from a 2020 ESER bond and $190 million from the PUC's capital plan, leaving an unfunded cost of $1.28-1.44 billion. BLA projected 25 years to fully fund the system under current capacity constraints. Brian Strong noted that federal grants have been difficult to secure because the system is used for non-emergency fires, and state resilience bonds primarily focus on wildfire, not earthquake-related fire risk.

Performance of Financial Incentives for Housing Report (Item 1)

• Nick Marinaro presented findings on the impact of reduced inclusionary requirements (18-68% reduction since September 2023), 33% reduction in development impact fees, and waivers for downtown adaptive reuse projects. The BLA also highlighted $3.8 billion in direct funding for large developments (e.g., Treasure Island COPs, Balboa Reservoir loan, infrastructure financing districts).
• Macroeconomic conditions have made most development financially infeasible: interest rates rose from 2.7% to 4.1% (2019-2025), construction costs increased 53%, and median rents and condo prices remained flat in nominal terms. The financial feasibility gap is estimated at $80,000 to $308,000 per unit, with macroeconomic factors accounting for up to $232,000 of that gap. Current fee and inclusionary reductions save $4,000 to $90,000 per unit but are insufficient to close the gap.
• Building permit activity has continued to decline; the housing pipeline showed an 18% increase in projects since late 2023, but that increase is primarily in projects seeking entitlements, not building permits or units under construction. Of 113 stalled projects in late 2023, 65 (more than half) were deleted from the pipeline by late 2025. Among remaining projects tracked, 37% moved forward, 31% had no change, and 23% were canceled.
• San Francisco had the lowest building permit activity per capita among the 10 largest California cities in 2024, issuing only 127 units. Other cities (e.g., Los Angeles, San Diego) have recovered to or exceeded 2019 levels, likely because their rents rose, improving development feasibility.
• Chair Chan asked about the recommended three-year reporting cycle; the BLA explained it aligns with the existing cycle for baseline inclusionary review and provides enough data to detect trends without yearly noise.
• Supervisor Chen asked about the 18% pipeline increase and whether canceled projects re-enter the pipeline; the BLA confirmed that some cancellations are actually re-filed for different entitlements (e.g., due to state density bonus changes), so those projects may reappear.
• Chair Chan noted that upcoming budget conversations will be framed by these reports, including discussions of transfer tax waivers, EIFDs, and unspent bond dollars.

Public Comments & Testimony

No members of the public spoke on either item. Public comment was closed.

Key Outcomes

The committee voted unanimously (3-0) to hear and file both reports. Chair Chan stated that the reports would serve as a framework for upcoming budget discussions in June, including capital improvement funding, planning department merger with Building Inspection, and the budgets of OEWD, MOHCD, and other departments with unspent bond dollars.