Good afternoon.

The meeting will come to order.

Welcome to the May 6, 2026 meeting of the budget and appropriation committee.

I'm Supervisor Connie Chan, Chair of the Committee.

I'm joined by Supervisor Danny Souter and Supervisor Cheyenne Chin.

Our clerk is Brent Halipa.

I would like to uh thank um Jeanette uh Ekinov from SFGov TV uh for broadcasting this meeting.

Mr.

Clerk, do you have any announcement?

Thank you, Madam Chair.

Just a friendly reminder to those in attendance to please make sure to silence all cell phones and electronic devices to prevent interruptions to our proceedings.

And should you have any documents to be included as part of the file, should be submitted to myself, the clerk.

Public comment will be taken on each item on this agenda.

When your item of interest comes up and public comment is called, please line up to speak on the west side of the chamber to your right and my left along those curtains.

And while not required to provide public comment, we do invite you to fill out a comment card and leave them on the trade by the television to your left by the doors.

If you wish for your name to be accurately recorded for the minutes, alternatively, public comment can be submitted by writing in either of the following ways.

I could email them to myself, the budget and appropriations committee clerk at B-R-E-N-T.jov.org.

If you submit public comment via email, it will be forwarded to the supervisors and also included as part of the official file.

You may also send your written comments via U.S.

Postal Service to our office in City Hall at one Dr.

Carlton become the place room 244, San Francisco, California, 94102.

And thank you, Madam Chair.

That concludes my announcements.

Thank you, Mr.

Clerk.

And before we call the items on the agenda today, we will need to excuse President Raphael Mendelman and Vice Chair Matt Dorsey as well as Supervisor Shaman Walton.

So with that, I would like to make the motion to excuse all three of them from this meeting and a roll call, please.

Okay.

On that motion by Chair Chan, seconded by Member Chen.

That we excuse Vice Chair Dorsey, Member Manelman and Walton from attendance from today's meeting.

Member Sauter.

Sauter, aye.

Member Chen?

Chen, aye.

Chair Chan.

Aye.

Chan I.

We have three eyes.

The motion passes.

And with that, Mr.

Clerk, please call items one and two together.

Items one and two.

Our hearings are the following budget and legislative analyst reports.

Item number one is on a report titled Performance of Financial Incentives for Housing.

And item number two is on our report titled San Francisco's Debt Capacity.

Madam Chair.

Thank you.

And colleagues, I am going to uh say this in the context of the about why I have call for the report for these two items that how I see as a budget committee chair of now.

This is my fourth year in a context that I anticipate to step down in August of this year after we wrap up this upcoming budget process.

Is that I hope for you, colleagues uh on this committee, as well as those in the public, to understand that when we balance our budget, it is more than what we see from city departments and from the mayor presenting the annual budget.

It is so much more than that, that it's also inclusive of the city's um bond rating, our ability to manage our debt, and in this case a debt uh capacity that we will you will see as one of the presentation.

But um, I think that in due to the recent um years, we have time and again debated uh both um on this committee and this body uh as well as in the chamber when that we gather as a full board about policy around um financial incentives for housing, be it around zoning or be it around fee waiver, as well as impact fees, waivers, um, all of those impact the city's ability to again balance its budget um as a whole.

And so it is my goal today that through the budget and legislative analyst independent studies and independent research and presentation that help all of us to be able to put um all these policy discussions into context about how do we manage our debt, how do we manage the city's finances, as well as balancing the budget and to produce housing altogether, and that meet our needs.

And I think that you'll also see one of the reasons why that I'm calling these two items together is not only our capacity for bond um and providing for infrastructure for the city in relations to housing production.

I think that it does actually require a very robust um conversation and discussion and moving policies forward from this body from the budget and finance and budget and appropriation committee.

So colleagues, I hope that this is an opportunity for me to through the budget and legislative analysts to kind of um share with you what I have learned not only over the last few years as your budget committee chair, but also almost the last two decades as a policy A, being you know ushered through different uh budget at different fiscal years at different time and different types of conditions of local economy that um help all of us to think about the trajectory and the future of San Francisco, um, the next two, not just the next two fiscal years, but next five and then and longer.

So with that, I'm going to present to you um Nick Mr.

Nick Mernar from the budget and legislative analyst.

Good afternoon, supervisors Nick Bernard from the budget legislative analyst office.

Thank you, Chair Chan.

And uh hello.

I will start with the report on debt capacity, I think if that makes sense.

So I have two presentations for you.

We released two reports yesterday, one about the city's debt capacity and one about um the performance of financial incentives uh for housing.

So I'll start with the report on debt capacity, which evaluated three things.

It looked at the impact of relaxing the city's financial policies to issue more debt, it provided project detail on authorized but unissued debt, and looked at funding for the potable emergency firefighter water system.

So the city has two primary funding sources for general fund projects, uh for general fund capital projects.

One is general obligation bonds, which require voter approval and are paid for by property taxes, and certificates of participation, which are paid directly from the general fund.

And so, under policy established in the capital plan, the property tax rate used to repay GO bonds may not exceed the 2006 rate, which is 0.1201% of assessed value or $120 per $100,000 of assessed value.

And then under city policy and the in the administrative code, annual debt service for COPs cannot exceed 3.25% of general fund discretionary revenue.

And so what this slide shows is the city's capacity to issue general obligation bonds for the next 10 years.

This is from the amended capital plan, and it shows in the colored bars planned geo bond uh requests to voters over the next 10 years, and then in the dark gray, you can see the authorized but unissued debt.

And then this uh graph also from the amended capital plan shows the city's plan for uh certificates of participation, again the dark gray or the excuse me, the dark shaded uh bar in this case is the authorized but unissued COPs, and then the colored bars are um the plant's new COP issuances over that time period.

Uh I think what's critical to take away from these charts is that in the case of geo bonds, we are hitting the debt limit in 2032, uh based on projected assessed value through that time, and then uh we're hitting the COP limit in fiscal year 28-29 based on projected general fund discretionary revenues.

So we evaluated um what would the impact be if we relaxed the financial policies that control our ability to issue this kind of debt.

Uh so in that this first chart or this first table on the slide, you can see we looked at 0.01% increment increases to the uh general obligation bond property tax rate and what that results in.

So each 0.01% increase is one $410 million general obligation bond.25% increase is one $128 million COP, which would require about $13 million a year in annual debt service.

So there are trade-offs to relaxing these financial policies.

And so for the median uh valued uh single-family homeowner, a 0.01 percentage point increase in the property tax rate would translate to about $75 a year on additional property tax payments.

So the payment this year in that case would go up from $8,928 to $9,003.

San Francisco is already already has the eighth highest property tax in the state.

So if we were to increase our uh if everything else stayed the same and the geo bond rate increased by 0.01%, uh, we would then rise to the sixth highest property tax rate.

Um and based on data from capital planning, the you know, ever since the 2006 rate limit was put into effect, uh, voters have been much more likely to approve geobonds because it means that their property taxes will not go up because we're not going to exceed that uh debt limit rate.

Uh in the case of COPs, because they're paid directly out of the general fund, any increase in debt capacity means additional general fund costs and the form of debt service, and you know, that would exacerbate the structural budget deficit that the city faces.

In addition to that, in either case, additional debt could result in a ratings downgrade.

Um, and so we looked at research to estimate the the impact of losing uh of going down one notch in our credit ratings, uh, and it would be in the case of a geobond, uh, instead of being able to issue one 410 million dollar bond with this new policy, you would be only able to issue uh a 470 million dollar bond.

So it's it's it's small, but then it increases the further down you go in the credit rating.

So next we looked at authorized but unissued debt.

These are recent general obligation bonds that have been approved by voters for which there are that are not fully spent down, and you can see on the right-hand column the the amounts that are unissued by authorization, and the total unissued amount is 1.18 billion dollars.

When we exclude the past bonds, because those are very special purpose, uh bonds related to affordable housing and the 2024 bonds, and just focus on the CWAL and the ESER and the health and recovery bond.

There's still about 300 million dollars assigned to projects that have not begun construction.

And then this table looks at the authorized but unissued certificates of participation.

You can see again the remaining unissued amounts for projects on the right-hand uh column of this table, and it totals 352 million dollars.

Uh, we did identify 1.9 million dollars from the 2023 uh community facility bond uh that is not programmed, and then next we looked at the hall of justice, the hall of justice is this sort of uh juggernaut in the capital plan that has takes up a lot of space in the kind of out years of the plan.

Uh and so we worked with capital planning and the city administrators' office to understand what the needs are because they've evolved over time, and the plan is to uh acquire or build city um a new space for city staff that work in the Hall of justice.

So that includes the sheriff, the district attorney, and the police and the public defender potentially.

Um so looking at those needs, we estimate that the total cost of that project is $367 million dollars.

That doesn't account for all known costs because, for example, we know that there's a parking need, we don't know what that how that parking, the cost of that parking solution.

So that I think that is a uh minimum cost estimate at this point.

But we also looked at the COPs assigned to this project that have already been approved by the board and then already in the capital planning.

You can see here that this about $55 million of authorized but unissued COPs for repairs at the Hall of Justice, at the current Hall of Justice, and then $367 million of COPs planned.

You know, over the next over the you know the next several years.

Um if the city does relocate uh to a new Hall of Justice, there is also a benefit from leaving leases that the city has already entered into that are about $15 million a year.

Moving those tenants into city-owned space uh would basically free up about $15 million a year that's now being spent on lease costs that could be spent on um debt service for certificates of participation, uh and that would support a one-time 250 million dollar COP issuance.

I think the based on the timeline I've understood from city staff, the their the project cost will come into better focus in fiscal year 28-29 once the buildings have been acquired or developed.

Uh and then it will it will be better known what the what the renovation needs are to you know make them available for city staff.

And then finally, we looked at the potable emergency firefighter water system.

Uh the total cost of the system just for the West side is $1.58 to $1.78 billion.

Um there is $154 million uh from a 2020 ECER bond assigned to this project, and then the PUC's capital plan that is coming before you in a couple weeks has about $190 million uh over the next 10 years from the water enterprise program because this project is jointly funded both by the city's general obligation bond program and the PUC's water revenue bond program.

Uh so that leaves an unfunded cost of 1.28 to 1.44 billion dollars.

The June 2026 ESER bond has 130 million dollars.

So if that's approved, that would offset a portion of these costs.

Um, but just kind of looking forward looking at the capacity both on the general obligation bond program and the PUC's water capital program.

Uh, we think it'll take about 25 years to fully fund this expansion of the firefighter water system uh based on the capacity constraints in both those capital plans, um, unless there's a significant reordering of projects within those capital plans.

So options for the board to consider, I think we've laid out the cost and benefits of um increasing the city's debt policies, limiting geo bonds and certificates of participation.

We've also identified 300 million dollars in authorized but unissued geo bond debt that could be assigned to new projects.

Um if the new projects fall outside of the programs that have been authorized by voters, uh, the you would need to go back to the voters to reassign that funding.

And then we found about 1.9 million dollars in COPs that could be potentially redirected to new projects.

Um, and then finally just reevaluating the needs of the Hall of Justice.

Uh based on the information we know now, the $422 million may be maybe over budgeted, and I think we'll know more in a couple years.

And then, you know, the there will be it would be significant legislative action to, you know, to follow through on these recommendations, you would need to amend the administrative code, you need to uh change appropriations, approve transaction documents.

So this is not something that can be done in June, or that would be very ambitious.

I think it would it's gonna take time to work out a new plan for this money if that's your desire.

Any questions?

I do, but I think I I do see um Mr.

Brian Strong here.

I think that I have questions more for Mr.

Brian Strong, specifically about um the unspent bond dollars, which we have those conversation um in the past when you come when you come before when you came before us uh to issue other bond dollars.

I think that I'm gonna start off with um, let's go to the one that I think fairly easy um is the portable emergency firefighting water system um and I'm curious to see um knowing that what we currently have already approved and issue um as well as that we're gonna issue shortly uh with the um water revenue bond um and what it's coming before voters in June help us understand what is and maybe you can't uh but I wonder if through you that we can have a better understanding of both SFUC and SFIR their perspective of how then you know are they actually leveraging local bond dollars to advocates for federal dollars or state bond dollars to be able to complete the system uh in a more timely fashion instead of 25 years that we can actually streamline this to be able to finish it quicker.

Yeah uh good afternoon uh members of the committee brian strong uh with the city administrators office and the office of resilience and capital planning uh thank you for the question I I cannot speak for the PUC but my understanding is that we have explored state and federal grants for um what's now EFWS and previous to a AWSS.

They're difficult to come by and one is it's not just the size there there are larger grants but it is also the the programs have been established typically are by FEMA and so forth that's where a lot of the funds have come from and FEMA requires that this be a system that's only used in an emergency and the fact is that we use a CFWS whenever we have a four alarm fire or a significant fire so it's not it's not necessarily just being reserved for after an earthquake or after a major disaster so that has made it very challenging I think for us to get at some of the federal funds that may be available.

Again though I would I would defer to the PUC in terms of whether or not they've they've reached out for specific grants or different grant programs.

I know they've got a pretty aggressive grant yeah one yeah and the other thing I would just say is like the the state did have a resilient a 10 billion dollar resilience bond right but that was all the that was primarily focused on wildfire in San Francisco is not really we're we're not a high wildfire area we're a high fire following earthquake area so even though that fund those funds were there they're not really eligible for EFWS type projects.

And then I'm gonna move to the one that actually we do know we have the 13 billion dollars US Army Corps water resource development act 13 billion dollars from the congressional spending from again water resources.

We hope yes yeah we we don't know correct but uh we're hoping for it and we're waiting for that to come and that actually supposed to if and correct me if I'm wrong and in does that mean that for the unissue but appropriate or approved 216 million dollars of the 2018 seawall bond is then that is something that we actually require to have and to spend because that is a match or leverage for us to receive the 13 billion.

Yeah that's right I mean it's part of the reason why we we have been carefully I think moving forward with spending those dollars is that we have this much this opportunity to leverage those funds to be able to you know hopefully get between 13 and 17 billion dollars in federal funding right for the for the larger project but that project it requires a local match and that local match which is typically around 30 33 percent or so these types of projects, we want to make sure that these projects are eligible for that local match.

So when we spend that those funds, you know, those dollars, and they do have a number of projects that they're talking about doing along the embarcadero um in some of the vulnerable areas that that we can do the best we can to make sure that those funds we're gonna count toward our match, you know, down the road when the uh when the Army Corps funds are approved.

Should they be approved?

Um I think last but not least, walk us through exactly the thinking around hall of justice.

That is, you know, yeah.

Yes, I mean it's it's the hall of justice is a complicated story.

I'm gonna defer to Heather if she's okay.

I mean, I and she can probably give a better background on where things are.

Suffice it to say, this is a project that we've been working on since we started the 10-year capital plan.

Just to let you know, this has been a high priority project for the Capital Planning Committee, and part of the challenge is that there are a lot of dependencies in terms of being able to move it forward.

So uh with that, I'll pass it to Heather.

Afternoon supervisors, nice to meet you.

Heather Green with the Office of the City Administrator, formerly of resilience and capital planning and now in the central office.

Um yes, so um thinking about the hall of justice looking forward.

Um the way that the city administrators' office is thinking about that today, is there are kind of three pillars of need for us to get out of that building that we all know is substandard and um one of our top priorities.

Uh the first of those is you know, that building will need to remain operational as long as the courts are in the building, and they have begun preliminary planning.

They are awaiting state funding that will be a state resourced project, and we are dependent on DOF to source to resource San Francisco for our replacement courthouse.

Um, but you know, they are exploring their most feasible options, and until they are able to exit, uh, we need to keep the building limping along.

So we have reduced capacity of the building substantially, many divisions and departments have exited, district attorney, the largest, adult probation, also Southern Station was relocated.

City medical examiner, the list goes on.

We have been doing a good job, and it was um accelerating up until COVID.

It was a very high priority.

Um, and so you know, we have reduced capacity of the building, which is good, less strain on the systems.

The systems in the building continue to fail.

The elevators were, you know, capping out regularly.

Um, we had leaks that brought on our grievances.

Um, and so, you know, we are trying to keep the building going without over straining it, which is why we keep it at reduced capacity in large part.

Um, fortunately, the jails have closed.

So that's pillar one, keep the building limping along in the most cost-efficient way that we can.

The second piece is um the 4257 street facility for the sheriff, the jail over there.

Some of those buildings systems are dependent on systems within the hall of justice, most notably the boilers.

Um, there's also uh connective walkways between the jail and the courts that go through the hall, um, some stores, supplies, holding, um, and these are functions that we need to figure out how to sever from the hall of justice and make 4257 street, which is a building we will continue to need, um, make that building independent.

And um planning is underway on uh as many friends as we can do simultaneously boilers and holding first up.

Um, and then the third part is relocating the folks who are still in the building.

So this is you know, it's all exit because it's all gonna get us out of the building, but this is actually like relocating people from where they are to some permanent future state.

And there we have the largest tenants uh are police, it's police units, mostly police investigations.

There's also the ID bureau.

Some of the uh units that and sheriff warrants and records, sheriff prisoner legal services.

Um, some of what's in the building has true court adjacency, and some of those will be part of a replacement courthouse.

So we're being want to be mindful, especially when it comes to holding, which could be a very expensive project.

The replacement courthouse one day will contain the holding function, including transport, Sally Port, all of that.

And so trying to think about how we can solve for today's needs in a medium-term way, so that we don't build overbuild when the courthouse will eventually uh serve that.

Warrants and records and police ID, which includes fingerprinting and records, those functions need to be court proximate.

And it's a little bit hard to solve for those in a permanent way without knowing exactly where the courts are going to go.

We have some idea.

Courts will need to go through their site acquisition process.

And so, you know, we can plan but cannot solve for that quite yet.

Police investigations, including Arctic, those are functions that there are advantages to having it courts proximate, but doesn't need to be right next door.

And you know, the district attorney is in the largest of the leases, like Nick mentioned, that were part of the HOJ exit pre-COVID.

So we are developing scope like right now to get so we've already done a scan of properties on the market, publicly available on the market, looking for what's available.

You know, very little turned up that's the right size.

Police has a very challenging fleet need for parking.

Um so we are looking, we're gonna I hope is we'll engage a broker to look to try to gauge things off market.

What is your timeline?

Yeah, see scope coming together for broker services now.

Um, already went to look at a site uh was it this week or last week, Monday.

And is this for SFPD or is it for the ret remaining like including inclusive of the court and the holding cell?

Because for example, you already have Southern Station already moved out years back.

Um you also have the district attorney already also moved out, and including your medical examiner also moved out.

And I say this with the personal experience actually have been have actually work in that building.

Yeah, uh, I was 25, I'm 48.

Um, so I understand what that means, and I've been through I will no longer go to restroom should I ever visit hall of justice again.

Um, so I I do understand that personally and deeply with the condition that it was even then.

Um, so what is your timeline?

I think that I want to talk about specifically though, because right now that be at the Arctic, it's not at Hall of Justice, the investigative units also not in there.

Investigations are at the investigation units is, but Southern Station isn't, and plus the headquarters of SFD are not.

Those were relocated.

Yeah, and so let's walk break it down a little bit because I understand what you're also saying is look, infrastructure-wise lie boiler, it is related to uh Seven Street's location, which is the sheriff's like holding, like county jail like space.

So then if the the buildings actually are interconnected.

So let's break that like let's pin that one first.

Um, let's actually talk about the court and the holding cell.

What is a timeline that looks like for relocation?

Yeah, so the courts uh prior did their own um statewide assessment of court facilities and uh ranked everybody in order of need, urgency of need.

San Francisco, this was in 2020.

San Francisco was in the second tier, they've been making their way through uh the the list top down.

Um we have not jumped.

Um, and we are approaching the way the courts uh receive money, it's in two phases.

They receive money from DOF for acquisition and design, and then construction dollars follow, you know, two years later.

Um, so you know, the earliest San Francisco San Francisco appears in the court's five-year infrastructure plan uh for acquisition and design funding.

The earliest it could come would uh would be I think it's fiscal 28.

I can double check and confirm.

But so eight, that would be acquisition and design, but that is all subject to state availability, and so you know, if that slips a year or two, then there's uh usually a two-year gap to construction funding, uh, which can be it can be for a large project like ours split into years.

And but then sorry, I don't mean to remove.

I just kind of want to move this along this conversation along.

So help me understand though that while that may be true if 2028, we won't know until 2028 and further out.

That portion is specifically can be embersed and provided by state.

Well, yes, that would be all state money.

Okay.

So I'm gonna pin that part parts of that, which is the state court.

Let's actually talk about the investigative units by SFPD, and then we can actually go into the the portion of the sheriff's uh infrastructure a bit too, because those other portion then actually is on the responsibility of San Francisco.

Yes.

And what is your projected timeline for solving that as well a projected budget to solve for that?

Yeah, those are such good questions.

So I think you know, in terms of timeline to identify a site, we are looking in the market now.

Obviously, the market is what it is.

We want to try to take advantage of it as you know, benefits the city's budget.

Um cannot make a site come forward, and so um the scope we're developing will be um to look at both properties we could buy and those we could lease, trying to cast as wide a net as possible, just trying to make the best use of our funds.

Um in terms of how long so there's a contract required for that that will take some months to get going, and then the work itself, you know.

I don't uh we'll see how long it takes to come back, but we are trying to make the decision about purchase lease, you know, in this budget cycle, say um we know that the funds are available um in a planned COP in the coming year.

We want to be able to move if something good comes up.

The site I looked at this week, it's possible.

Um, but the tenant improvements likely required there unfortunately would be I expect significantly higher than what you have in the report.

Like that is a reasonable number if we are converting pretty good office space into pretty good office space for the city, but it would not cover like an industrial gut and rebuild.

Of course, um, which is what the kinds of sites we're seeing that have the parking need.

So, you know, the goal for I'd say like the coming year is to understand what's available and make a course decision.

Technically, you really have six months because you actually have to also decide Arctic.

Arctic's lease is ending by the end of this year, calendar year, December 2026 is the end of Arctic.

So I'm gonna ask this next question.

Is that it seems will you confirm and can you confirm what the budget and legislative analyst has proposed is that the reality of the entire COP that it's dedicated to a hall of justice, which is a little bit over 400 million dollars, is actually an over budgeted dollar amount at the moment.

So I don't given the plan.

I don't exactly agree with that, no.

Um, I I understand the the logic and using the numbers that are there, that is how it adds up, but um that TI differential is really meaningful.

So, you know, tenant improvements, I'm sorry.

So the tenant improvement um allowance in the report is 450 dollars a square foot, which like I said is convert is a reasonable um public works delivered dollar per square foot for pretty good office to pretty good office.

But we're looking at let's say this the a building of 80,000 square feet, which is kind of mid-range of the police's size need for its investigations in Arctic, those uh if if that is more of an industrial gut, which is more like say, let's say even $700 a square foot, which I mean I am making that number up, it could be higher.

Like when we did animal care and control, that was over eleven hundred dollars a square foot.

You know what I'm saying?

So it's really gonna depend, it's very hard to come up.

So, but let's say, you know, even if it's $700 a square foot on $80,000 square feet.

Now we're talking about $56 million, and there goes your differential.

So we do we do need to hold the budget until we know a little bit more about our uh direction.

Uh my hope is that this costs as little as possible.

Of course.

Um, but uh thank you.

You know, that's I think that um that sources uh exceeding uses is the best case scenario.

Thank you.

I appreciate it.

I wanted to express my thoughts on specifically on this report around the COP, both for the mayor and them and his team as well as for our controller.

Um my apologies.

I think I briefly mentioned this, but uh to the mayor himself, but I have yet to be able to have die deeper into the discussion.

Um I have expressed uh my interest of seeing and utilizing in this upcoming budget that using the COPs um approve or authorize but an issue or that we can plan to do two things to prioritize two things, and one is really the fire apparatus that we have yet to be able to raise funds for, and that I'm interested to use the COPs to actually help us uh starting purchasing the apparatus that's been really aged out more than two decades and three decades.

Um, of course, ideally is that we could buy them with cash.

That's not the reality of the city.

So I'm interested in using the COPs that is available to us to be able to do so uh if possible.

And the second piece that, like what I'm interested in seeing, is uh I wonder if Supervisor Chan Chin and Supervisor Dennis Souter would agree with me.

You know, I think that there is uh an ongoing dialogue and conversation about the API equity fund that consistently to continue to support the AAPI community uh throughout the city, and particularly that what I'm interested in seeing is the Chinatown Preservation Fund.

Um that is to say, though, what I'm also looking for is not only the COPs that is currently listed, including the Hall of Justice, but also all these listed other bond projects that has been, you know, how off since 2016.

What I'm eager to see is a more robust conversation and discussion in the upcoming June for all of us to talk about why we haven't moved forward with some of these um projects and and that I do believe that the time is now, especially given um I think SFPUC will come before us next week as uh one of the enterprise agency to talk about why we have to actually get the construction project going now because the cost will always be higher down the roll.

And so I look forward to having those conversations about let's move forward with what it's already um authorized but unissue um geo bonds, and let's move forward with those projects.

Uh, let's discuss some of these, you know, COPs that has been sitting for far too long, like the 10 million dollars of the 2013 Treasure Island Improvement Project, which we already know that we issue is 65 million dollars of COPs for Treasure Island.

Uh yes, I have questions around the 39 million dollars of like almost 40 million dollars of the 2019 Hall of Justice Relocation Project.

Especially we know that uh courts and holding cells could be refunded and reimbursed by state.

Um, I want a more accurate and shuffle-ready uh accounts for these bond dollars and COPs, and to be able to offset some of the urgency that we have for fire apparatus, which we know we need to have right now and yet we don't have funding for.

Um, supervisor Souter.

Thank you, Chair Chan.

Um, and I share that sentiment of getting this money moving.

Um to Mr.

Minard, did you did you look into that in terms of all of you know some 300 million dollars authorized but unissued?

Um do you have a sense within that within this 300 million?

How much is uh moving forward but maybe slow and behind versus uh is there a pod in here that is I don't want to say forgotten about, but but it's kind of forgotten about or is not uh going to be used as originally intended.

Yeah, uh to the chair.

So this is the list that adds up to the 300 million for the geo bonds.

Um there's a kind of different story for each piece of it uh with the ether bonds.

I think some of the project costs were underestimated, or there's been a like a shuffling of the timeline of starting some of the projects with the $29 million dollars for um HSH from the 2020 Health and Recovery Bond.

That was originally intended for um adult permanent supportive housing.

Uh the department has basically put that plan for acquiring additional housing on hold.

Um, so there's no immediate plan for that money.

Uh and so I think that could be redeployed without with minimal service impact.

Um, the seawall bond, I think uh, you know, that's from 2018.

That I think the port, frankly, has just been slow to get the projects off the ground.

We didn't really even get a project list for that 200 million dollars.

I know that they've just hired a consultant to help them develop a more robust capital planning process for those set of projects, but I think that that is just a delay on the port's part.

And then with Reckon Park, there's about 10 million dollars in funding for these programs.

That they felt an urgency to deliver improvements to some of those parks, whereas these programs are general and multi-year programs, and that they're purposefully spending the money down over the next couple years to allow for some of the positions in their department to be paid for out of bond funds.

And how much flexibility do we have to if there is money that has been designated for something that isn't going forward?

How much flexibility do we have to change versus where do we pass the threshold where we have to go back to voters?

So it depends on the legislation that's approved by voters.

Um, like to take an example for like the CBOL bond, that was a pretty general authorization for CWAL projects.

Uh with H with the HSH piece of the health and recovery bond, that is specifically for adult permanent supportive housing.

Um, so it it would it depends on like the ordinance approved by voters.

Uh but once you I think fall outside uh the kind of black and white of the legislation, then you would need to go back and get voter approval.

Okay, thank you for that.

Thank you.

And so with that, I think we're ready for the next presentation.

Okay, so this next uh presentation is about our report also issued yesterday on the performance of financial incentives for housing, uh, which looked at the impact of uh reductions to inclusionary requirements, development impact fees, recently established uh infrastructure financing districts and other financial incentives that have all been implemented since 2023 to increase uh housing production in San Francisco, particularly uh market rate housing.

So I want to start with the macro picture uh, which you can see here.

The blue line shows um interest rates uh from January 2019 through September 2025, which you can see increased from 2.7 to 4.1%.

Uh and then the red line is the construction cost index in California, which increased by 53%.

And that is uh basically a kind of composite of labor and material costs uh for construction in San Francisco and Los Angeles uh during that time.

Uh and the interest rates are just as important as labor costs because it means that developers face higher borrowing costs for loans and uh have higher hurdle rates for um their investors to uh invest in their projects.

The this uh shows uh median one-bedroom rents in San Francisco and the blue line, and as well as uh a condo price index in the red line.

And the takeaway for for me from this chart is that both rents and condo prices have been flat in nominal terms between 2025 and 2020, excuse me, between 2019 and 2025, which means that at the same time that cost of development has gone up, uh the revenues that developers get for their projects has not gone up.

So that has made most development financially infeasible in San Francisco, unless it's publicly funded.

And so in response, the Board of Supervisors has taken numerous actions to improve the feasibility of development in San Francisco, starting with um in September 2023, the board approved an ordinance to reduce inclusionary requirements, which at the time ranged from 15 to 33 percent to they reduced the legislation reduced it by 18 to 68%, depending on the location and characteristics of the project.

Development impact fees were also reduced by 33%.

And then for adaptive reuse projects, development impact fees, inclusion error requirements, and transfer taxes have been waived for downtown adaptive reuse projects.

In addition to that, the board has also approved about $3.8 billion in funding directly for large development projects.

There's 115 million dollars for COPs for infrastructure on Treasure Island, uh $56 million loan to the Balboa Reservoir developer for infrastructure, and then three infrastructure financing districts established in the past couple years uh to support uh infrastructure and affordable housing costs in these areas.

Uh, in terms of the infrastructure financing districts, power station and California Street, those projects have you can see building activity since the districts were formed.

Uh Stonestown there has not been activity, though.

OEWD reports that they are planning to start doing some predevelopment work in the coming months.

This graph shows building permit activity over time, 2022 to through 2025, and you can see the timeline of the various legislation that I was just talking about kind of in in there, as well as that daughter line on the top is the average number of building permits issued in 2019.

And so for me, the takeaways from this chart are that the ledge there's not an immediate observable impact, at least just looking at this timeline, from the legislation that translates into building activity, and that there's been an ongoing decline both from 2019 and then also from 2022.

We also looked at changes to the pipeline, which is shown here.

So this shows the good news is that there's 18% more projects in the pipeline in late 2025 as there were in late 2023.

But a lot of the increase is really in project seeking entitlement approval from the planning department.

There's actually been a decrease in building permit uh requests, retrievals, and for units under construction.

Um so that at least suggests to me that there is a kind of long-term optimism in San Francis about San Francisco that rents will recover and be sufficient to pay for development costs and market rate returns on those investments, but they're not now ready to build in San Francisco.

Next, we looked at projects that were stalled in 2023 at the time that all this legislation began to be enacted, and then what was their status now?

And we only looked at projects that were um not 100% affordable because the legislation didn't really address those uh and for projects that had 10 or more units and that were not under a development agreement.

So this is the kind of subset of projects that is really targeted by the incentives we've been talking about.

Um so there were about 113 projects stalled in 20 late 2013, sorry, late 2023.

Uh and by stalled, I mean there had been no activity on them in the past year.

When we looked at the projects in late 2025, we found that 65 of them, so more than half were deleted from the housing pipeline because there was no activity.

And then so what this table shows is the remaining status of those projects, and you can see that 37% moved forward in the development process, 31% had no change, and then 23% were canceled.

Now, because some of the incentives are have not expired, this is a sort of like two-year check-in on them.

So we won't know the full impact of the incentives because um, for example, if you were a previously approved project in 2023, you have until May 2029 to seek reductions in your inclusion area requirements before you get your certificate of occupancy.

So that incentive will remain in effect for several years.

This shows the 10 largest cities in California and their building permit activity per capita.

And this is not number of building permits, it's uh units uh that have issued building permits.

And so there's a couple interesting takeaways.

First, San Francisco had the lowest number of units uh issued building permits per capita, issuing just 127 in 2024.

Uh many but you can also see that many other cities have either recovered their 20 to their 2019 levels of building activity, or there's been an increase in building activity over the past couple years, even if they haven't fully recovered to the 2019 level.

Most of those cities did see increase in rents over the past several years, which could I think largely explain the building activity or the interest in development in those areas because the rents have been going up.

So there's better economic conditions in those cities for developers.

Other cities may also have lower fees, fewer land use regulations, and lower labor costs, which you know, all of which would make development less expensive in those cities, which helps make them uh more financially feasible.

Oakland and San Jose did uh reduce their inclusionary requirements and other fees related to housing development, but that happened in uh outside the window.

Uh it happened after 2024.

So I don't think could explain these building uh activity charts that you see here.

Other research uh by the planning department uh I think confirms these findings.

Uh, there's, you know, most recently the triennial triannual uh review of the economic feasibility of inclusionary requirements that was issued by the controller's office uh just on Friday found that there's a feasibility gap of 80,000 to 308,000 per unit in San Francisco right now, and that's consistent with another analysis undertaken by the planning department in May 2025 uh on housing constraints.

Now, as we know just from this chart, there have been some projects delivered.

So these conditions do not apply to every single project because each project sponsor has a different cost of capital, uh, but it does apply to most projects under this analysis.

Um I will also say there are some uh the analysis that has been done, did not look at area specific inclusion area requirements, it did not incorporate forecasts of home prices in its analysis, it just looked at current conditions, and it did not comprehensively examine development impact fees.

So just to kind of pull this all together in one nice chart, uh the kind of status quo we face is a uh financial feasibility gap of 80 to 308,000 per unit.

The macro conditions account for a substantial portion of that feasibility gap.

You can see prior analysis uh estimated that it's high as 232,000 per unit, and then the levers that the city has direct control over, such as development impact fees and inclusion error requirements at times are significant but are not enough to close that gap.

The the development impact fee discounts that have already been approved by the board, you know, and a sample project we looked at saved between four and sixteen thousand dollars per unit.

If you if you were to waive them all, it would be eight to thirty-three thousand dollars per unit.

Similarly, the inclusion area requirements are a more substantial cost on developers, and under current policy, they're about 40 to 90,000 per unit under existing city policy.

So can in conclusion, the fee reductions have not been sufficient to accelerate housing production since 2023 in the face of broader macroeconomic headwinds.

The fee waivers, you know, for projects that were delivered did reduce city revenues for those projects, though some of them may not have moved forward without the waivers.

We have rents have recently gone up in the past several months.

They've been nominal terms returned to their 2019 levels.

Uh so that may indicate a recovering market.

And so as we as the board I am sure will debate additional discounts to these fees, uh I think it's important to also hold that the that future rents and condo prices may be different than they are now, and also recognize that further fee reductions could going back to this chart, push more projects into feasibility sooner as the macro conditions change.

So we have several um options for you to consider.

One is uh requesting the control and the planning department to do a broader analysis of development impact fees and area-specific inclusionary requirements uh and the to determine the extent to which they restrict housing development and do that on the same cycle that they are already doing the evaluation of the baseline inclusionary requirements, also to request the planning and building departments to report every three years on the performance of the fee waivers that you have already approved or may approve in the future and how they've impacted the housing pipeline, uh also tying any future fee reductions to an improvement in macroeconomic conditions and not making them permanent, and also uh this analysis looking at how projects might change their status over time was a very labor-intensive process that no one had done before because it was impossible to do under the existing planning department system without manually going through each project.

So we do recommend that the planning department create a unique project identifier to allow better tracking of projects through the pipeline over time, which they are planning to do.

And then finally, you know, most of the fees that we're talking about here, they are dedicated to affordable housing or other um community facilities.

So as to the extent that the board continues to approve reductions in these fees, um it may make sense to backfill that revenue so that that infrastructure can continue to get built, and that those costs are not concentrated on a small group of payers such as developers, but are instead on a broader uh base of taxpayers.

Happy to answer any other questions.

I think my question is that sort of why every three years to report back, like why that timeline, and because I think oftentimes when we talk about fee um waivers, um we have seen waivers that are five or ten years sometimes or just indefinite.

And I guess what I'm trying to say, well, and I'm trying to ask is that you once we waiver fees without a sunset date, it just continue on because it's to re to impose a new fees as of today, both policy, uh state policy um preemptively restricting the city to be able to impose fees like the way we historically has in the past.

Now they now a lot of times these fees will then have to go to the voters instead of being able to allow the city to really set up fees, not all, but some.

So help us understand your logic of report back of these um, you know, impact in every three years.

Why every three?

Every three years felt like a good cadence for a couple reasons.

One, there's an existing process already established in the planning code for a review of the baseline inclusionary requirements every three years, and so I think piggybacking on that process where there's already a consultant in place and um policymakers are kind of thinking about these fees and the broader macroeconomic conditions affecting housing, uh, felt reasonable to me.

And then in addition to that, I also think I've I felt like every year would be too soon.

I think you would there'd be too much noise, and you wouldn't really have a sense of a trend, because there's always a bunch of noise happening, right?

But if you were to look at a couple years of data, I think you could have more uh certainty about where conditions are.

Thank you.

Um I really appreciate this report.

Colleagues, I think that this is um, we've been having all sorts of negotiation and debate about all these.

Uh, it is my goal that this becomes a framework or uh providing a framework and context for us to have ongoing conversation.

Supervisor Chen.

Thank you, Chair Chan.

Um, I do have a questions on the slide, uh, number eight and number nine.

You mentioned that uh on slide number eight that um the percentage change of eighteen percent, but the total eighteen percent neck.

So you mentioned something about uh it's probably due to entitlement increase of that means land banking.

Someone is doing land banking in a city.

I think that that is a way to characterize it.

Yeah, okay.

So the bottom line is 18%.

Okay, and then uh on page nine, um, I just want to understand how to read um the the chart the chart.

So we have um canceled it and withdrawing project, which is about 22.9 percent.

So does those cancel the project then back to uh the percentage change of the 18%?

Do or they completely out of the picture for your calculations.

So it's a mix of both.

Many of them are just dead.

The developer gave up on them.

Some of them so that they gave up also means that they don't own the land, the entitlement, and that they back to the market on sale, but someone still owned that.

Correct.

But would then be the 18% be calculated to your 18%?

So, yeah, these are two different um, I think like the this table, which is showing the change in the stalled projects, it's really a subset of the project shown on this table.

So some of them will appear in the 18%.

Okay, so yeah, so then they back to the pipeline, basically.

Correct.

Okay.

Um, and Supervisor General, there's one other explanation I wanted to share, which is um for some of the canceled projects.

Uh what the planning department said is that because there's been some changes in the state density bonus or in the family zoning law that went into effect uh recently, that's some projects have canceled their entitlements to seek um projects with different attributes.

So some of those cancellations are actually in the new pipeline.

Right, yeah.

Thank you for that explanation.

Um that helps me.

Thank you.

Thank you.

Um I look forward to using these as a framework for us to have conversation about.

I think as indicated by the report, have shown us there are two legislation right now that are pending.

Uh, one is the transfer tax um that was introduced, a transfer tax waiver, I believe.

Um, the there are a few actually, you know.

Um, there's the um transfer uh real essay transfer tax changes that is coming before us, um, as well as the um foreclosure transactions, um, transfer tax.

Um, I think that this will be all, and also there is the EIFD conversation that's coming before this body.

I would love to now have these as contacts and framework for those conversations.

Um thank you uh for the budget and legislative analysis.

Uh thank you, Mr.

Minar, for your um analysis today.

I want to say those colleagues, um, you will see in the upcoming budget conversation, inclusive of um some of these capital improvement fundings that is part of the budget um for the some of these chapter six departments for departments that actually have approved but um unused unspent bond dollars, as well as for our planning department merging with Department of Building Inspection, as well as uh Office of Economic and Workforce Development and the Mayor's Office of Housing and Community Development.

When they come before us for their budget this coming month, uh coming June, they some of these conversations will actually be framed within these two reports about their budget.

And sort of about their advocacy around fee waivers, inclusionary waivers, and in association of their performance for work, which is the housing production piece, uh, and then of course every other city department actually has bond dollars that are unspent um but issue and authorized um and their report back on those, which inclusive of some of the um enterprise agency inclusive of SA port.

So with that, let's go to public comments on these two items.

Yes, if we have any members of the public who I should address this committee regarding either the hearings and our items one or two.

That was your opportunity.

Madam Chair, we have no speakers.

Seeing no public comments, public comment is now closed.

Um colleagues, I would like to actually have these two items um heard in filed.

Uh, if I may, um second by supervisor souter.

Um, and with that, let's have a roll, let's roll call, please.

And on the motion that both hearings in our items one and two, uh moved by Chair Chan, seconded by Member Sauter, would be heard and filed.

Member Sauter.

Solder, aye.

Member Chen.

Chen, aye, Chair Chan.

I'm Chan, I we have three eyes.

The motion passes, and I want to conclude this meeting to say that I'm glad that all the people that need to know about this actually are in the room.

And so uh, so this will not be a surprise.

Uh, should June come.

So I appreciate everybody's um participation in this hearing.

Um, and with that, Mr.

Clerk, do we have any other business before us today?

Madam Chair, that concludes our business.

The meetings are journal.