was less than 5,000 square feet, the fee would be waived. there are other ideas including providing a 5,000 square foot wafer for small retail in large mixed use buildings, but the complexity of doing that increases. i would like to explore those ideas with you and that's primarily why i'm here tonight. and then finally, housing developers ask that the city consider 100% fee waiver for affordable housing based on the fact that affordable housing is generally subsidized by the city so it's peter paying for paul in the sense that affordable housing should be given a break in terms of the cost for constructing affordable housing in san francisco. the key thing here is we have $40 million of these discounts to give over the 20-year life of the program. we specifically budgeted enough money to fund those improvements i mentioned, so we

can't give discounts with no end in sight. there has to be a total cap. the current proposal is five years up to $10 million of discounts would be available and they be given on a first come, first serve basis. we have done a series of financial feasibility studies on new development to see how the fees to affect the feasibility of residential and commercial development. that feasibility study will be updated when we get closer to the actual ordinance approval date. there will be a period or i should say the implementation of this is really important. we have done a lot of work with the four agencies to make sure that these monies are carefully spent and that they're spent only in the highest performing transit investments. there are very strict criteria in the ordinance that limit how these funds can be used so they aren't used for things like backfilling budget deficits, but they're actually spent on performing linings that was

discussing earlier. there is an opportunity every five years to update the fee, to update our projects of growth and to adjust if we need to make sure we're meeting the need and that the improvements we're funding were actually working. every five years is what i call a refresher. he have five years a new study will be done to look 20 years out. we're always looking 20 years out every five years. this is a self-regulating, self-improving program. and there will be a transition period before this gets adopted where projects will have to choose whether they go under the old system or the new system and the planning department will provide counsel toll developers so they don't get trapped between the change in methodology. this calendar is very important here. we have been doing outreach actually beginning in november. we focused initially primarily on residential because this is a brand-new fee for residential developers and we have met with

a whole range of groups from the housing action coalition to affordable housing activists to tenant rights activists to bicycle activists. we have covered a lot of range. we presented at the planning commission, at the sfmta board, at the transportation authority and now we're before your commission. our goal is to have a final ordinance in environment review beginning next month. it will take about a year and a half and we expect to have environment review end in -- summer of 2013 and then we will hope that the ordinance moves to a full board for a vote in the fall of 2013. so as you can tell, we're here a little bit early, but that's the point, we want to get your feedback and do know that this ordinance will be introduced, but it will be parked at committee at land use committee for some time until we have the environmental review done and we can actually then ask the planning commission and others to take action. so with that long presentation

behind me, i'm open to any questions, concerns, and ideas. thank you. president o'brien: questions, commissioner o'brien. thank you, president, the first thing was to disclose among many of the hats they wear in the city, i do a little bit of development work in the city and i wish to disclose for the record that that is the case, i have been directly advised that i could still participate in the discussion and weigh in on it, not to have a concern. in the interest of transparency, i want to make that disclosure. i find the presentation very informative, mr. yarne, i have many questions, i won't take up the whole evening with all of them today, but one or two that i thought might be quite important right away. so there is a proposal here that says we're going to include residential into the

mix and just to help me understand the differences we may be talking about two different, totally different animals here all together. if you're developing in the eastern neighborhoods today, you will pay a fee that is referred to as an impact fee. it's extremely expensive. i'm dealing with a project now where the initial estimate is over $100,000, which is a lot of money for a relatively small project. so is this going to -- is this a different fee that is not related to that and wasn't related before because it didn't include residential? is it going to be calculated and factored in so that this fee that is already outstanding for residential projects is not going to have this extra fee added on on top of it? >> exactly that. we have proposed and the ordinance contains language that would replace any existing

transportation-related impact fee. so that portion of the eastern neighborhood's infrastructure impact fee that would have gone towards transportation, which depending on which zone you're in varies, but approximately is about $4, that is essentially limb investigated by this fee. so instead of paying four plus 5.50 or $9.50, it you pay $5.50. it's a dollar increase of what you would pay in some eastern neighborhood areas. some eastern neighborhood areas, the portion that goes to transportation is slightly higher, so in that case, it's a wash. no other cases, it's slightly lower so the fee is in that gain, in the overall fee burden. and neighborhoods that have no existing transportation-related

impact for residential, this represents a net increase of $5.53 per square foot. it's not inconsequential. president o'brien: and the outreach that you managed earlier, did you contact any of the private development communities at all, i'm just curious which organization did you talk to? >> yeah, we met with frequently, the residential builders association. we met with a collection of large and "medium" sized developers, both through the action coalition which has a significant number of medium to large residential developers involved. the spur housing policy committee, which has a whole range from the very largest to medium-sized, both affordable and market rate and we have reached out to the business community as well. we will continue to do that. i will say and i'm not hiding the ball or the fee, as you might say, in almost all cases, this represents an increase in

the cumulative impact fee burden on residential uses in the city. there is no way around it. the good news, if i may offer this, is that it does considerable, but not all, a considerable number of circumstances save time and increase certainty. so the hope was by improving ceqa and by premitigating that some projects would experience savings, this by no means applies to all projects. small projects that do not have complex or lengthy transportation analysis under ceqa for example do not particularly benefit directly. arguably, everyone benefits by having an impact fee that is actually administered well and used to improve service. however, we recognize, my office in particular, the office of workforce development, that this is a net increase on the fee burden. there are active discussions

including a recently conversation with mayor lee and the r.b.a. about taking a global look at all impact fees in the city and to start talking about how the city can, looking at all of the impact fees, not just transportation and isolation, but affordable housing and parks and schools and p.u.c., how we might be able to lessen the overall burr. precisely because of the concern that i believe i hear you raising, commissioner o'brien. president o'brien: i was referring to the floor here, but the last thing i would just say, that's going to be a lot, i'm sure you know that. it certainly would make a big difference if it did give the certainty that you refer to, which is huge for businesses and also if it did affect the timeline involved where projects could, you know, hopefully get realized and get entitled in a much sooner time

frame than what exists. that would certainly help to alleviate that not inconsiderable increase to do business. thank you very much. >> commissioner dooley. commissioner dooley: i have some questions about the cap that you mentioned over time for the extension for the 5,000 square feet or under. i'm just concerned about what happens if that is all used up? just my quick calculation would be if you had a 5,000 square foot business, it would be $66,500 for the fee which is a lot for a new business. so i'm just wondering how that works in terms of when you reach that cap, i'm under the impression under people are applying for that same pool of money, so does that mean once it's used up that the business that are 5,000 square feet or

other will need to be paying that fee? >> yeah, that is, in that scenario, that is correct. from the -- when the $40 million cap runs out, there are no more discounts. it's important to dig down into what we actually think is going to happen. i have actually asked staff at the small business commission to help us look into truly how many small businesses are actually paying the transit impact development fee today and presumably the t.s.f. in the future. and the interesting thing is it sounds much more draconian than in fact it is. in most cases, small businesses are reusing existing small business occupied space. the classic example is a neighborhoods commercial district. most of those storefronts, whether they're 1,000 or 3,000 square feet have been commercial storefronts. so under existing rules and future rules, there is no fee it pay. the only time you would be

paying a fee is if you were expanding that space, you're adding floor area, so you take a 3,000 square foot retail space that has been retail since 1920, say, you're on sacramento street, and you're adding space. and what we don't know right now, we just don't have enough data is how many small businesses have really been touched by tdif. there are some anecdotal examples. there is a bowling alley that is pretty famous now or infamous depending on your perspective that was converting a warehouse to a retail, to a bowling alley. in that case, it was an intensification of the use, it was a change from warehouse to essentially retail. so in that case, you had to pay the difference between what warehouse was paid and what retail would have paid. it was a margin. several dollars multiplied over

a series of square feet. in that case we found out, guess what, that the tenant had actually remodeled the place to the point where she was removing square footage. so when we calculated the loss of square footage plus the intensity of the change in use, it was a net zero fee. so i say all that just to say that at this point we don't have enough data to even know how many small businesses are being affected today. and my sense is absent the fee being used up for other things, the discounts being used up for other things, there would be more than enough to cover small business. i think that the more important challenge for policymakers such as yourself and the board of supervisors ultimately is how many opportunities for different interest groups do you want to have give discounts to. that's the challenge. there is only so much that we can give out. commissioner dooley: i'm wondering about whether we

might, our commission might want to suggest that we could have some sort of fixed percentage of this pool of money so that at least we would know what we're dealing with with our small businesses rather than be sort of free for all. we don't want to have them grabbing all the pot, you know, before we do because we don't really know, at least here, we don't know how that's going to work. >> i think a regulatory mud wrestling match. commissioner dooley: you don't want really want to do that. thank you. >> commissioner yee riley. commissioner yee riley: thank you for the presentation. we are all interested on the 5,000 square foot waiver. my question is, is it limited to only commercial buildings and how do you come up with 5,000? what is the magic number? is it based on survey or some sort of study? >> it is. 5,000 was a number we came to

pending, we hope, some survey. we do not have -- it literally is a number that we just arrived at through conversation. there is no magic data point. i can tell you that anecdote alley we wanted it large enough to accommodate a medium neighborhood sized grocer. we didn't want it so large that it would capture users that many would not consider small businesses or some might consider out of scale with neighborhood commercial districts. but, frankly, i'm here to learn from you and from the staff what the right number may ultimately be. so we're not wedded to the 5,000. it was a convenient number that seemed to capture a range of businesses, but we're hoping that through research we can find out, again, who has been affected and what's the standard size that makes sense

for san francisco. commissioner yee riley: thank you. >> commissioner clyde. commissioner clyde: thank you, mr. yarne. just the first, let me see, so i looked at this and 94% of this feel is going to be dedicated to basically improving muni. that's very much necessary for small business. i ride muni. i depend on it pretty much exclusively when i'm not taking taxis or using my bicycle. it would be -- it's a significant improvement that needs to be made yesterday. how we fund it is going to be really interesting going forward. i want to ask about the nonresidential fees not in the eastern neighborhoods. currently if someone takes, reuses the space -- it used to be a grocery store and now they want to subdivide it into maybe some offices or an art gallery,

an office and maybe put in a little restaurant, ok. so they want to reuse this and put in multiple places. are they currently assessed fees in the nonresidential side? >> so in a scenario that you're describing? commissioner clyde: right. >> in the scenario you're describing you have a lucky subdivider, developer, because grocery retail is the highest, has the highest fee rate because it generates the highest number of trips. so in a scenario that you're describing where a grocery store is reconverted into some small office, some retail restaurants, there would be no fees charged. commissioner clyde: there would not? >> no, because you're going from a higher intensity to a lower intensity use. commissioner clyde: interesting. what about small manufacturing? we have talked about at this

commission reusing some of these larger difficult to lease space into maybe light manufacturing, sewing with a retail space as part of that complex. >> even more so. commissioner clyde: even more? >> in other words those what we call in planning speak, production distribution repair, p.d.r. uses are even lower intensity, so there would be no fee paid. not to get too complicated, but under tidf, if a fee was recently paid on grocery and then you for some reason the grocery store went bankrupt or something and a couple years later you converted to a lower intensity use under the low system, there was an opportunity to get back an amortized portion of the fee. commissioner clyde: do we charge this fee on financial institutions as well? >> yes, we do. commissioner clyde: and then you know that there is a big discussion right now about

workforce housing, middle income housing. >> just came from that. commissioner clyde: i was there and had to come here. it's full of a lot of very interesting information, but what is striking me is how expensive it is and how difficult it is to develop workforce housing in san francisco. we seem to do a good job with low income and very low income housing, good pools of money for that. of course, market rate housing can take care of itself. it's market rate. but that middle ground and that's where many of our small business people are workers in that middle income. they are not low income. they're in middle income. there is a real challenge for small employers, at least in mystery in restaurants and hospitality, hotel, keeping people in the city. it doesn't take much to earn in that middle income. so i am a little concerned about the residential impact fee when it comes to the

creation of workforce housing. i have lost many of my very good workers to other areas of the country. a couple just moved over to the east bay because they can get affordable housing in the east bay. so can you -- >> well, i wouldn't want to bring that whole discussion in here, but basically it is an absolutely legitimate concern. this city has put a significant fee burden on housing, market rate housing. it's made in some case arguably, it's raised the level, the threshold of which a developer will build housing. if you're paying $90,000 in fees per door per unit before you even buy land or pay for some concrete or wood, that's a pretty significant cost that generally gets passed on. and so it is a problem.

it is real. the problem ultimately, though, comes down to priorities and deciding what of that fee burden is essential and what is unessential, or what of that fee burden can be shifted to other revenue sources. i would make a very strong argument that of all of the impact fees i have seen, i'm not known for being a fan of another new fee in a city that has a five fee burden, i will say this is one of the most appropriate and fair nexus studies i have ever seen in terms of studying real impacts and providing real solutions. but inevitably, we have to take a look at the overall fee burden and a the mayor has indicated he wants to do that. commissioner clyde: the current transit impact development fee is applicable for any space over 3,000 square feet that has been vacant for five or more years. are there time limits on this new fee? >> so that's a great question.

there is traditionally, the way vacancies have been treated, at a certain point, you lose your credit. so if you have had a retail space that sat vacant and it's treated as essentially a new use. i think we need to look into that and how that is done when we move to the new system. commissioner clyde: is the fact of that expiration, is that an incentive for a landlord to rent the property? >> hopefully. commissioner clyde: because that is a huge problem in san francisco. we don't really have ways to force people to lease their space or use their space. >> i would say hopefully because as you probably know from firsthand experience, it's amazing sometimes the lack of rational self-interest to lease by certain retail landlords. we have a lot of people in our office that focus on commercial corridor revitalization. folks are absentee landlords or

just not interested. you're correct, it creates a financial incentive to move the property, but the reality is most landlords don't have an idea that this financial penalty even exists. so their willingness to respond to it is probably minimal. commissioner clyde: thanks. >> director dick-endrizzy. >> as you noted, we had the discussion in our meeting that the controller did a report on the impact fee and through a quick look at it, we saw that a few numbers of small businesses were charged that. so if that is absolutely the case and moving forward, instead of a fee waiver for the first 5,000, since it's such a nominal amount of money, do you think that this group might consider a full exemttion so that the small businesses that are working with that 5,000

square foot, if that's what the final decision is, should any larger developments end up utilizing that pool of $40 million or $10 million a year, that the small business can still be ail to have, work under the guidelines of what the intent of that 5,000, the fee waiver is for the $5,000 square foot? >> i think it's a really interesting idea and i think what would happen in that scenario, just to play it out, is we would have to project 20 years out given historic tidf revenues what percentage of that stream is going to actually come from small businesses. if we were to do that, we would reduce the discount budget available to those other waivers. we would say based on past history, $2 million of the $40 million will be used by small businesses i would say.

i think in that scenario, it's pocket to consider that. we would have to study it, but i think it's possible. we just have to predict accurately how much small business will utilize it so we don't bust our budget. >> we should open it up for public comment. >> at this time we are going to open it up for public comment. we have any members of the public that would like to comment on this matter? seeing none, thank you very much. >> well, i think perhaps maybe what we could provide mr. yarne, the commission can provide is some direction in terms of the square footage and around the question about the amount that is allocated. i think it might be good to just have the commissioners make some directive comments for him to be able to take back and work on in regards to small business.

president o'brien: i certainly put on my small business hat kind of like the idea of some kind of protection put in there for small business no matter what happens. i don't really -- five years is a long time and, you know, if all of a sudden this money is all gone and somebody trying to start a small business is going to be faced with a substantial fee, commissioner dooley gave an estimate, one is $60,000. commissioner dooley: $66,000. president o'brien: that some going to kill anybody trying to start a small business, trying to come up with that $60,000. remember, when you're going for your small business administration loan or whatever, you're telling the bank, i'm getting absolutely out of it, at least from the business perspective, maybe indirectly from services

provided on the part of the city. i just would like -- i would rather see small business always gets the roughened of the stick anyway. that's why we're here to protect them to not get subject to this some way or another at any time, whether the $40 million gets used up or not. that's certainly one thing i would like to see something put in in the sense of direction to try to make that a goal for the small business community. commissioner dooley: i think it's completely justified. you have to look at the job creation and what it costs for job creation. i don't know if that can be quantified, but how much is another person working or an additional three jobs here, five, 10, 20. they at some point, we don't get many breaks and i think please you should work to find out how much you can reasonably

expect the small business community to use and then exempt that figure off the top so it isn't in a pool that is up for grabs and a competitive way. president o'brien: michael al, precisely, i think if you could do some level of analysis on how you think that, the pool of waivers will get con suled. this might be moot. maybe you look back in history and decide, well, we have got plenty of allowance here for the small business portion and then maybe either exempting it is easy to do because it's not a huge amount. i think for us to just blindly go into it and everything is going to be ok doesn't usually work out in san francisco. i don't know how difficult it is for you to go back and look at the data but that would be useful for us. >> thank you.

>> thank you, michael. >> thank you. >> the recognition. >> yeah. chris is going to call it. >> commissioners, you are now on item number three, presentation of the small business commission certificate of honor to sergeant chuck limbert, san francisco police department as part of the san francisco small business commission city employee recognition program. president o'brien: come on up, if i could have the police chief and the captain from mission station. i first would