San Francisco Economy

I. SUMMARY AND CONCLUSIONS

1.1 Introduction

This report concludes that San Francisco is well positioned for continuing economic success, and that the benefits of projected economic growth can be shared among workers at all income levels. The report describes the effects of the city and region's hugely successful economic evolution on land use, housing and transportation, and identifies illconceived public policy, and insufficient investment in housing and transportation as the most significant challenges to continued economic prosperity. San Francisco Planning and Urban Research Association (SPUR) recommendations for increasing the city's housing stock and improving transportation are related to the needs of the city's economy. The analysis of San Francisco's current economy and future prospects draws on the significant body of work previously published by the Association of Bay Area Governments (ABAG), Bay Area Council, Bay Area Economic Forum, and Center for Continuing Study of the California Economy. The analysis is built around three basic industry groups that leverage projected growth in similar industries in the State and national economy to support economic growth in San Francisco.

The report is organized in five sections. Section 1 summarizes the material presented in the body of the report, major conclusions, and policy recommendations. Section 2 provides economic context for San Francisco with brief descriptions of the national, State, and Bay Area regional economies. Prospects for growth, especially in the primary industries expected to drive growth in these larger economic venues, are identified. Section 3 describes San Francisco's economy, its economic base of primary growth industries, and the main challenges to the city's continued economic success. Section 4 explores one of the major challenges to continued growth - the quality and capacity of the local and regional transportation system. Section 5 discusses a second major challenge to growth - the price and availability of housing. An appendix presents more detailed data on topics covered in the report, organized by report sections.

1.2 ECONOMIC CONTEXT

Opportunities for economic growth in San Francisco are generated primarily by growth in the national, state and regional economy. The extent to which the city takes advantage of these growth opportunities is determined by local factors, including local public policy. The analysis of growth prospects for San Francisco in this report begins with a review of developments in the national economy.

The current outlook for the American economy is for sustained growth for at least the next ten years, due mainly to relatively high rates of productivity growth. American firms have restructured and invested in new technology to compete in the global market. The advent of the Internet and other digital communications has produced major efficiencies in the nation's increasingly knowledge-based industries. American workers have learned new skills to participate in the rapidly changing economy. These four factors - technology investments, corporate restructuring, the Internet, and rising skill levels - converged in 1995 to establish a new level of productivity for the nation. Projected growth in population, households, labor force and productivity is expected to generate average growth in real Gross Domestic Product of 2 % to 3 % a year over the next decade.

California and the Bay Area embody all of the reasons most observers are optimistic about the long-run economic prospects for the nation. Population, labor force, labor participation rates, skill levels, productivity, and personal income all are growing well here. Northern California's high technology companies and the burgeoning hospitality and entertainment industries led California out of recession in the 1990s and are projected to exhibit strong growth in the years ahead. In the first decade of the new millennium, California's economy is widely expected to outperform the nation, and within California, the San Francisco Bay Area is expected to outperform California. The region's economic base is anchored by some of the fastest growing industries in the state and nation, including high technology, foreign trade, tourism and entertainment, and professional services. The Bay Area's concentration of firms serving the rapidly growing digital media and Internet tools market should fuel rapid growth in the region for many years to come.

1.3 SAN FRANCISCO ECONOMY

San Francisco is a densely developed, 47 square mile peninsula with a population of nearly 800 thousand people living in 315 thousand households. One of the most ethnically diverse places in the nation, San Francisco has no ethnic majority. The income range of city residents includes extremes of wealth and poverty, but on average, San Franciscans are richer than residents of most American cities. Average household income of $68,0001 is well above the national average, but below the Bay Area average of $76,000. City residents also are better educated than most Americans, with 22% holding a Bachelor's degree, and 13% holding a graduate or professional degree.

San Francisco is unique among California counties in that nearly half (46%) of its labor force is housed outside the city. The city's housing stock of 340 thousand units is relatively old, reflecting the age of the city and public policy that has restricted housing production over the last 30 years. Some 56% percent of housing units was constructed prior to 1940, and 81% prior to 1960. Single family units are less than one-third of the city's housing stock, compared with more than two-thirds in the metropolitan area outside the city. Roughly one-third of city residents own their homes, compared with two-thirds of metro area residents.

San Francisco's economy is closely linked to regional, national and international markets. Although many San Francisco jobs are in resident-serving businesses, the growth and development of the city's economy depends on industries oriented to external markets. These export industries form the city's economic base and drive growth in all segments of the local economy, including resident-serving businesses. The rate of economic growth in San Francisco depends on the rate of growth in larger economic venues, the number and type of jobs they create, and the share of these new jobs the city can capture. The city has no way to influence the rate of growth in the state or national economy. Its influence on local economic growth arises exclusively from its determination of factors that affect the location and expansion decisions of industries that form San Francisco's economic base.

This report organizes the description of San Francisco's economic base around the three broad private industry groups identified below, and the city's State and federal government establishment. The city has a significant concentration of employment and payroll (relative to the Bay Area metropolitan economy) in each basic industry group, although not necessarily in each industry within a group. City-based State and federal government activities are included in the city's economic base because they have high concentrations of employment and payroll like basic industries in the private sector, and because the large State and federal administrative, judicial and regulatory presence in San Francisco is one of the city's competitive assets.

1.3.1 VISITOR INDUSTRY

The Visitor Industry encompasses much more economic activity than is implied by the term "tourism". Visitors are defined in this report as: 1) people from outside the Bay Area who are in the city for a convention, business meeting, or leisure travel; 2) metro and other nearby area residents who are in the city for purposes other than employment; and 3) metro and other nearby area residents who work in the city. This is broader than the Convention and Visitors Bureau's definition of visitors which excludes the commuter work force. The primary market for the Visitor Industry Group is the San Francisco expenditures of nonresidents, although many Visitor Industry businesses serve residents as well as visitors. Major elements of this industry group include:

• visitor transportation
• travel agents and tour operators
• hotels and other visitor lodging
• restaurants and drinking places
• retail trade
• arts, entertainment and amusements
• business and other services

1.3.2 FINANCE, INVESTMENT AND DEAL-MAKING

The Finance, Investment and Deal-Making Industry includes finance, investment, insurance, and real estate; professional services supporting financial transactions, dealmaking and other investment decisions; and a wide range of other business and professional services. The market for this industry group is wealth-creating and wealthpreserving transactions. Major elements of this industry group include:

• security and commodity brokers, dealers and exchanges
• investment advisors
• insurance carriers, agents and brokers
• real estate developers, operators, lessors and agents
• holding companies, trusts and other investment offices
• professional services of lawyers, accountants, managers and consultants
• business services that support deal-making, finance and investment activities

1.3.3 COMMUNICATIONS AND MEDIA CONTENT

The Communications and Media Content Industry Group includes communications media, such as telephone, broadcast, cable, Internet, and print. The group also encompasses research, preparation and production of content for these media. Content producers include reporters, advertising agencies, commercial artists, photographers, graphic designers, motion picture and video producers, and the digital media "dot.coms". The market for this industry group is business and personal information, advertising, entertainment, education, and content for non-store retailers, such as catalogs, mail order houses, television retail sales channels, and e-commerce. Major elements of this industry group include:

• telephone communications, wired, wireless, voice and data
• non-voice telecommunications, such as e-mail, fax, teletype, telex, telegraph
• radio and television broadcast
• cable and other pay television
• printing and publishing
• advertising
• communications equipment
• services to the communications industry

1.4 FORECAST

San Francisco is positioned for significant economic growth over the next 10 years because its economic base is comprised of some of the fastest growing industries in the State and national economy. The city could create as many as 66,000 new jobs, raising total city-based employment to 695,000 jobs by 2010. The projected distribution of this 10.5% growth in employment by major industry group is summarized in Table 1.a.

2000 - 2010
Projected Job Growth in San Francisco by Basic Industry Group

The number of jobs in basic industries is projected to rise much faster than other private sector jobs (17% verses 7%) or than public sector employment (3%). Finance, Investment and Deal-Making is projected to create the most jobs (22 thousand), and Communications and Media Content will have the highest percent growth (26%). Realization of this forecast would increase the share of basic industry jobs in the overall economy from an estimated 39% in 2000 to a projected 42% in 2010.

The share of city-based jobs held by city residents is projected to decrease from the current 54% to 52%, and be reflected in about 46,000 additional inbound commuters. The percent of employed city residents working outside the city is projected to rise to 21%, and a much more substantial increase in the number of employed residents will add 14 thousand reverse commuters. Reverse commuters are expected to total more than 92 thousand by 2010, compared with 278 thousand inbound commuters. Notwithstanding housing recommendations elsewhere in this report, the rate of housing production in San Francisco likely will continue to be the principal constraint on the share of city-based jobs held by City residents.

Assumptions underlying this report's forecast include rates of growth in the larger economic venues that generate opportunities for growth in the city's economy, and local public policies that influence the degree to which San Francisco benefits from these opportunities. Local public policy assumptions include:

• The city's land use decisions will accommodate growth in industries whose growth is projected in the forecast.

• The city will permit enough housing to be built to accommodate projected household growth.

• The city and regional transportation system will provide access to the city and metro area labor force implicit in the forecasts.

• The city's relatively favorable political climate for economic growth in the late 1990s will continue.

1.5 ECONOMIC EVOLUTION

San Francisco was the only major city in the Western United States for nearly a century -- the manufacturing, distribution, and trade center of the West, as well as the seat of government administration, services, and cultural activities. Growth and development of the metropolitan Bay Area after World War II brought profound changes and considerable specialization in the Bay Area regional economy. In the process, San Francisco lost its manufacturing, distribution and maritime industries. High tech manufacturing concentrated in Santa Clara County and the I-680 Corridor, containerized shipping at the Port of Oakland, warehouse and distribution facilities in less congested locations in Alameda, Stanislaus and Yolo Counties, and back office operations in business parks in eastern and central Alameda and Contra Costa Counties. Unlike many cities confronting similar circumstances in what came to be called the rust belt, San Francisco moved quickly to create a new economy and build the infrastructure needed to support the new economy. This was not a small change.

In a single generation -- from the 1960's to the early 1980s -- San Francisco shifted its economic base from manufacturing and distribution to services, replaced its capital stock of low rise factories and warehouses with high rise office buildings, and transformed its labor force from blue collar to white collar. Massive capital investments were required to permit the concentration of employment required by the new economy. Downtown high rise buildings were constructed to provide office space. BART and Muni Metro were built to access the labor force and move people under Market Street to the office core. Moscone Center and new downtown hotels transformed tourism into a basic industry employing 14% of the city's private sector labor force. A quantum expansion of SFO addressed city and regional needs in an increasingly global marketplace. This infrastructure and the entrepreneurs and labor force it attracted are the foundation of the city's current economy, and represent much of the competitive advantage leveraged by the city's basic industries.

The economic transformation of the city and region was a resounding success, but the speed of change, and resulting pressure on housing and transportation, sparked a sharp reaction played out in measures to curb economic growth. A successful grassroots initiative to stop Caltrans' ill-conceived plan to scar everyone's favorite city with double deck freeways throughout the city froze highway capacity at the 1964 level. Fearful that more residents would change the character of the city's neighborhoods, the neighborhoods were downzoned in 1978. The following year the city adopted rent controls to deal with the predictable consequences of restricting housing supply. A growing thicket of housing market regulations confronted anyone proposing additions to the city housing stock. In 1986 the city adopted Proposition M and, subsequently, the South of Market Plan to curtail construction of high rise buildings.

San Francisco developed an increasingly hostile attitude toward business, reflected in the rising cost of doing business in the city and in the nation's most stringent controls on business development. At the same time, globalization of business spurred American corporations to cut costs to compete in the global market. In the ensuing wave of corporate restructuring, San Francisco lost nearly half its Fortune 500 corporation headquarters. Many other major employers reduced their presence in the city, often by relocating business activities that did not need to be in the concentrated urban core. It was these developments that terminated the building boom in the mid-1980s.

San Francisco slid into recession, along with the rest of the region and State in the early 1990s. Inflation adjusted growth in city tax revenues slowed, then turned negative. Property values fell, and the city was forced to curtail expenditures. The Municipal Railway deteriorated, social services were reduced, and maintenance of public facilities like the parks was noticeably deficient.

The return of significant economic growth to the State and region in 1995 revived San Francisco's economy and restarted the process of economic evolution. Mergers, acquisitions, and new business ventures began reshaping the financial sector; explosive growth in world-wide use of the Internet opened a new chapter in the communications industry; and tourism and entertainment, among the fastest growing industries in the national economy, flourished in San Francisco.

Growth of the digital communications industry in San Francisco merits a closer look, since San Francisco's success in capturing a significant share of this industry has rekindled growth control issues. Digital media initially were seen as extensions of Silicon Valley high tech businesses, and most hardware and software developers for the industry were drawn to the South Bay. However, as the industry developed, content producers for the Internet - the dot.coms - increasingly were drawn to San Francisco. The city had well established businesses in print, broadcast, telecommunications, advertising, journalism, commercial art, photography, and graphic design that provided the pool of creative talent the dot.coms needed. San Francisco State University established a multimedia training program on its downtown campus in 1992 and began training people with leading edge digital media skills. The trade press serving the digital media industry, firms like Ziff Davis, Red Herring, Wired, MacWorld, PC World, and Industry Standard, moved to the city. Moreover, San Francisco had plenty of office space available during the recession, while space was in short supply on the Peninsula and in the South Bay.

As the digital media revolution began to resonate throughout the economy, San Francisco's concentration of businesses offered a ready market for Internet tools and content dot.coms. Brokerage giant Charles Schwab's online transactions account for more than half of the company's trades in a customer base of 6.3 million active accounts, representing $595 billion in customer assets. A relatively new company, Epoch Partners, provides 5.3 million individual investors, selected from the combined customer bases of Charles Schwab, Ameritrade and TD Waterhouse, with access to the IPOs of companies going public. Nearly all commercial banks offer customers the option of on-line transactions, as do most large retailers. Newspapers, and radio and TV broadcast stations invite their patrons to log on for features, news and weather. The economic potential was enormous in a city that had become the favored location for Internet content producers.

The dot.coms are a nearly perfect fit with San Francisco. Their operations are compact and fit into land-efficient office space. They draw many of their employees from the same labor pool as other communications and media content producers. The dense, urban environment, diversity of people and life styles, and rich array of contemporary culture is a magnet for many industry participants. Moreover, the dot.coms can tolerate the high cost of a city location because generally they do not have to compete on price.

The dot.coms initially settled in the South of Market area where space was available for start-ups at relatively moderate rents in low-rise buildings that were vacant or occupied by low intensity uses. The eclectic mix of business tenants, cultural institutions, night clubs, and generally informal atmosphere appealed to the mostly young dot.com crowd. The 3,370 live/work units added to the city's housing stock between 1987 and 1999, many South of Market and in the Mission, also attracted digital industry participants. However, the success of the industry, and the ease with which new firms could enter the industry, put pressure on available space and rents in the area. Older buildings were rehabilitated, some new construction occurred, and more was proposed. Unfortunately, creating adequate space for the dot.coms and other knowledge-based industries to grow South of Market ran headlong into the city's backward-looking South of Market Plan.

Digital media firms began to appear in many parts of the city as their further expansion was blocked South of Market. Many expanded to high rise offices downtown, and to older buildings in the Mission and mid-Market area. Underutilized land and buildings in southeast industrial areas also attracted digital media firms. However, in 1999 the city adopted interim zoning controls (Industrial Protection Zones) precluding construction of housing, including live-work units, generally reserving these areas for light industrial uses judged unable to compete for space with uses in greater demand in today's economy.

Economic success enables firms in growing industries, such as digital media, to offer higher rents than firms whose products and services generate less demand. Restrictions, such as the Industrial Protection Zones, that penalize successful industries to reward less successful ones effectively tax growing industries to subsidize industries in decline. Needless to say, it is well beyond the capacity of land use plans to micromanage San Francisco's economy in this fashion.

1.6 PUBLIC POLICY

As noted earlier in this summary, prospects for economic growth in San Francisco are generated primarily by growth in the regional, state, and national economy. The city has no way to influence growth in these larger economic venues. Its influence on local economic growth arises exclusively from its influence on the location and expansion decisions of industries that form San Francisco's economic base. The most powerful tools the city has for influencing industry location decisions are its control of land use and infrastructure.

1.6.1 LAND USE

Land use decisions in densely developed San Francisco have an enormous impact on business and residential development. The city's past land use decisions, and the entitlement process that accompanies them, have been major contributors to the high cost of housing and business development in the city. It is important for business and political leadership to address the following land use issues:

• South of Market is the only area adjacent to the downtown office core where expansion of high rise office buildings reasonably can occur, yet the current South of Market Plan largely prevents such expansion. To maintain a compact downtown and avoid the ad hoc disbursement of office uses to the neighborhoods, the city needs to revisit the South of Market Plan to accommodate a reasonable amount of high rise office growth. South of Market is, and should continue to be a mixed use area. For example, the city chose the top of its convention center as the site for major facilities oriented to the needs of children. High rise buildings will change urban design South of Market, but the area can and should continue to be a place for cultural institutions, night life, and high density housing, including housing for low income people.

• Reuse of Industrial Land: Much of the available land for business and residential growth in San Francisco is in underutilized industrial areas in the southeast quadrant of the city. Reuse of this land for the city's new economy and for major additions to the city's housing stock, is a key underpinning of economic growth projected by most forecasts, including this report. However, the city has adopted interim zoning (Industrial Protection Zones or IPZs) that excludes housing, and reserves much of this land for low intensity, low paying, low growth industries that are not part of San Francisco's economic base. The interim controls are intended to become permanent later this year. Planning for the southeast quadrant must address the needs of the city's present and future economy, rather than attempting to preserve remnants of the city's former economy. Industrial services firms frequently need protection from complaints about the noise and truck traffic associated with their operations, and many need to become more land efficient to be competitive, but they do not need protection from market rents. If their services are valuable to the economy and a city location is essential to provide their services, they will be able to pay competitive rents and recover the cost from their customers.

• Entitlement Process: The city's entitlement process for new development is contentious and protracted. Statutory exactions drive up the cost of everything built in the city, constraining housing construction and business development. Pervasive use of discretionary reviews narrows the focus of land use decisions to the immediate vicinity of proposed projects, enhances the influence of special interest groups, and diminishes consideration of city-wide interests. Rationalizing the entitlement process is an essential component of rationalizing land use decisions.

• Proposition M: This summer San Francisco office development reached the annual 950,000 square foot cap imposed by Proposition M in 1986. This has stopped the processing of all private development proposals for commercial office space at precisely the moment when the need for additional office space is most urgent. Unless modified, the current Prop M moratorium on private office development may continue for several years because government buildings in the development pipeline are being counted against the Prop M cap, most notably the new federal building and replacement of the Letterman Hospital building complex at the Presidio. Unless the Prop M cap is loosened to permit development of more private office space, competition for existing space will intensify the current office rent spiral and will affect nearly every business in the city. Initial pressure has fallen most heavily on nonprofits and other price-sensitive, resident-serving businesses. However, the cap shortly will put businesses that are the foundation of the city's current prosperity at risk.

1.6.2 HOUSING

Increased housing is essential to maintain San Francisco as a vital and diverse community. The city's economy is structured to draw its labor force from throughout the Bay Area, and the city and region have created transportation infrastructure to permit this type of economic organization. However, there is a growing margin of demand for city-based housing that is not met due to the city's tight restrictions on housing construction, and that unmet demand is driving the current upward spiral in city housing costs.

Public policies have forced housing production well below the margin of regional housing demand that wants to be met in the city, and well below the city's' capacity to create new housing to meet current demand. Each of the constraints on housing production in San Francisco was proposed for some meritorious purpose, but collectively they have placed a stranglehold on housing production that negatively affects every household in the city. San Francisco has abundant opportunities to increase its housing stock and relieve the current crisis. However, to make substantial progress the goal must be housing production, not micromanaging the housing market to address social or economic ills in the city. Significant growth in the housing stock is the most powerful tool for assuring housing is more affordable for all San Franciscans.

Solving the housing crisis can improve the amenities and livability of San Francisco neighborhoods, and would increase the material well-being of most San Franciscans. Failure to resolve the housing problem threatens the viability of the city's economy and ultimately, therefore, the livability of neighborhoods.

1.6.2.1 HOUSING SUPPLY

The high cost of San Francisco housing is among the most important factors driving the high cost of doing business in San Francisco because housing costs put continual upward pressure on wages. ABAG forecasts only 10,500 housing units will be added to the City's housing stock over the next ten years, a forecast the City Planning Department characterizes as "optimistic". This amount of housing would accommodate only 18% of the city-based job growth ABAG forecasts over the next 10 years, and only 16 % of job growth forecast in this report. Both ABAG and City Planning acknowledge housing potential under present restrictive zoning is at least five times the 10-year forecast. Much of this potential is in existing residential neighborhoods where City Planning says housing production is constrained by "community desires" and not by the zoned potential.

• Housing Target: To make headway on the housing problem, the city needs to set an ambitious goal and pursue it aggressively. San Francisco's housing production target for the next 10 years should be a minimum of 20,000 to 25,000 units.

• Density: When land is in short supply and hence relatively costly, the market generates demand for higher density to compensate for the high cost of land. Even when zoning and the entitlement process prevent legal density from rising, the gray market produces some (usually less desirable) increase in density. Housing supply throughout the Bay Area must increase to accommodate population growth, and increasing supply by increasing density, especially along transit lines, is the main option for increasing housing supply in the inner ring of development around the Bay. The urban design of San Francisco, with dense development, major transit infrastructure, and generous amounts of public open space is especially well suited to high density housing development.

• Redeveloping Industrial Land: The city should target major additions to the housing stock in the underutilized Southeast quadrant of the city. Land along the planned Third Street light rail project is a particularly important opportunity for high density housing as has been endorsed by SPUR and the Mayor of San Francisco.

• Transit Oriented Development: Major transit lines offer the best sites for high density development, including high density housing. That is why BART and Muni metro were built under Market Street simultaneously with construction of the downtown office core. There are significant opportunities for high density housing development along transit lines throughout the city. Transit oriented mixed use development in commercial districts, similar to that along Van Ness Avenue, is a good model, if scaled appropriately for different neighborhoods.

• High Rise Housing: While low-rise housing (up to 50 feet) blends best with the character of most San Francisco neighborhoods, high-rise housing is appropriate for areas like downtown and South of Market. Rents have reached the level (about $2,100 per unit) that can produce a reasonable return on high rise residential buildings, and the city should entitle more high-rise residential developments in these areas.

1.6.2.2 HOUSING MARKET RIGIDITY

In addition to restricting new housing construction, San Francisco public policy has created rigidity in the market for existing housing that makes it difficult to upgrade the city's aging housing stock and correct imbalances between supply and demand. These measures come on top of the market rigidity created by Proposition 13 and the California Environmental Quality Act (CEQA).

The primary goal of the city's housing policies is to assure a supply of rental housing affordable to lower income people. To this end the city adopted the Residential Rent Stabilization and Arbitration Ordinance in 1979 to limit rent increases. This was followed in the next ten years by a series of housing market regulations - Residential Hotel Unit Conversion and Demolition Ordinance, Apartment Unit Conversion Ordinance, Time Share Conversion Ordinance, and the Condominium Conversion Ordinance - adopted to prevent the market from altering the composition of the housing stock. More recently the city has considered measures to block tenants from pooling their resources to buy their buildings as "tenants in common" and become owners of the units they currently rent. Measures to regulate San Francisco's housing market have restrained rents for some people, but they have had many other consequences as well:

• Rents for people who have occupied the same unit for many years are as unreasonably low as rents in unregulated units that must bear the brunt of restricted housing supply are unreasonably high.

• Some of the existing rental housing stock has deteriorated because owners are unable to recover their investments in maintenance and upgrades with higher rents, at least not without going through a protracted and uncertain application process at the Rent Board.

• The number of vacant units has risen to 25,400 - two and one-half times the entire addition to San Francisco's housing stock ABAG projects for the next 10 years, and a rate of vacant units that is 60% higher than in the metro area outside San Francisco. This anomaly is attributed to San Francisco housing regulations that make holding rental units vacant about the only way owners can regain control of their property.

• Upward pressure on rents for the entire market has been concentrated on unregulated units.

San Francisco need not abandon its commitment to housing its most vulnerable residents to expand housing supply and lower housing prices for other San Franciscans because housing is not the zero sum game current housing policy appears to assume. Just as economic growth is the most powerful tool for reducing poverty and raising the incomes of the whole population, significant growth in the housing stock is the most powerful tool for assuring housing is more affordable for all San Franciscans.

1.6.2.3 SPUR DETAILED HOUSING RECOMMENDATIONS

SPUR proposes the following detailed changes in public policy to stimulate greater housing production.

1.6.2.3.1 SITES, DENSITY AND PARKING

Identifying sites and providing for greater density are two keys to greater housing production. SPUR recommends the follow steps in these areas:

• Rezone underutilized land currently zoned for industrial and commercial uses for moderate to high density housing.

• Provide density bonuses city-wide for projects that provide affordable units.

• Increase heights and densities along neighborhood commercial corridors and major transit routes.

• Revise height and bulk limits in certain residentially zoned districts to better synchronize them with Building Code height restrictions and building envelopes that are feasible to construct.

• Permit Planned Unit Development approvals for residential and mixed use developments on lots smaller than _ acre and within the downtown area.

• Increase the housing density permitted on downtown lots without the need to acquire transferable development rights (TDRs).

• Reduce minimum parking requirements in certain locations and for certain populations. San Francisco prides itself on being an intimate, accessible city, with public transit never more than three blocks away from any location. People don't need automobiles for many trips, and many people don't own automobiles. SPUR recommends residential parking requirements be reduced for places well served by transit and resident-serving businesses, and for housing serving populations with very low rates of automobile ownership.

1.6.2.3.2 RESIDENTIAL ENTITLEMENT PROCESSES

Regulatory processes for housing construction in San Francisco add to the cost of all dwelling units constructed in the city. Residents value the city's efforts to assure that homes are safe, well constructed, and not blighted by their surroundings, but they would like these services to be delivered more efficiently. SPUR has the following suggestions for the Department of City Planning:

• Produce neighborhood plans with program environmental impact reports that relieve individual projects of the requirement for further environmental review so long as the project conforms to the approved neighborhood plan. This proposal currently is being pursued in three neighborhoods: the Central Waterfront, Balboa Park, and Hayes Valley. SPUR urges the city Planning Department to continue this program as an ongoing part of its work with other neighborhoods.

• Link inclusionary affordable housing requirements to density bonuses, either on site or elsewhere, so that inclusionary zoning results in more housing.

• Remove the automatic conditional use requirement for projects over 40 feet in height in residential zoning districts.

• Establish enforceable timelines for review of residential projects.

1.6.3 TRANSPORTATION

The transportation section of this report analyzes traffic to and within San Francisco over the next 10 years. It suggests three broad areas the city needs to address to assure transportation needs are met.

• Congestion within the city.

• Access to the metro area labor force through the regional transportation system to support projected economic growth in San Francisco.

• Flight delays at San Francisco International Airport.

SPUR recognizes San Francisco's competitive advantage arises from infrastructure that permits the city to concentrate employment in the urban core, and that future economic growth depends on bringing additional workers into the urban core. Congestion from too many automobiles is the principal threat to the city's ability to access the labor force its economy requires. The goal of transportation planning, therefore, must be to make the urban core more accessible by transit, and less attractive to private automobiles. Automobiles can continue to be a major source of transportation for short-term, transient uses such as business meetings, shopping and entertainment, but the workforce - San Francisco residents and metro area commuters - must make much greater use of transit to assure the city's continued economic success. Massive investments in transit infrastructure were required to create the city's present economy, and similar investments are vital to preserve the economy.

1.6.3.1 CITY TRANSPORTATION AND PARKING

The Metropolitan Transportation Commission (MTC) estimates that approximately 2.7 million trips for all purposes will occur in San Francisco each business day this year, and that 71% of these trips will originate in the city. This number is projected to increase 9% over the next 10 years, with 72% of the increase originating in San Francisco. Studies by the San Francisco County Transportation Authority indicate the number of automobiles in the city on a typical business day currently exceeds practical capacity for traffic circulation. Moreover, San Francisco's capacity to accommodate additional automobiles in the most congested parts of the city cannot be increased without demolishing buildings, narrowing sidewalks, and/or double decking the streets - options unlikely to appeal to very many San Franciscans.

As the most densely developed part of the region, San Francisco has both a greater opportunity and a greater need to make it easier for more people to complete trips in the city by transit, taxi, bicycle, or on foot. Keys to making the city more accessible to the largest number of people are aggressively to encourage use of the full range of transportation modes, accommodate a more limited number of automobiles and their parking requirements, and increase the amount and quality of transit service. This is not just about making San Francisco a more livable city. It is what is required to enable the city's economy to continue to thrive and grow.

SPUR has developed an extensive set of recommendations to address current congestion and make the city more accessible to residents and the large number of visitors who are a mainstay of San Francisco's economy.

• Core Muni Lines: Improving transit service in San Francisco doesn't necessarily mean new routes on more streets. Muni already provides a bus stop within three blocks of almost every home and business in city, which is excellent coverage by any standard. Rather, the focus should be on improving Muni's core service - the workhorse lines used by the greatest number of patrons. The challenge is to make these Muni lines the preferred alternative for people who can choose their mode of transportation. Meaningful improvements would include shorter travel times, greater frequency and reliability, easier transfers, greater comfort, and better customer service.

• Muni Metro Expansion: The city has adopted a "Four Corridor Rail Plan," but to date only the Third Street Light Rail Corridor is funded. The other three elements of the plan, all as yet unfunded, are the "Central Subway" to extend the Third Street line underground through Chinatown to Northbeach; the Geary line, with by far the greatest potential for riders; and the Van Ness line. Each of these projects promises major improvements in comfort and travel times, and the efficiency of an expanded network of electric light rail in the city. The city needs to secure funding for these important projects.

• Express Service: Muni should significantly expand its Express and Limited Stop services to shorten travel times, and attract more riders from neighborhoods farther from downtown.

• SOMA Service: Transit service has yet to catch up with rapid business and residential development South of Market. Consequently the level of congestion South of Market is approaching the level of congestion in the downtown high rise office core. Muni has requested funding in the 2001 Budget for expanding South of Market service, and implementing better service is a priority.

• Parking Priorities: The concentration of employment in downtown San Francisco is based on a transit-intensive model, but it never was intended that very much of the work force would come to the Financial District by private automobile. In addition to the massive private investment in high rise buildings, there was a massive public investment in BART and Muni Metro to move workers under Market Street to the high rise office core. Parking in downtown San Francisco primarily is for short term use - business meetings, shopping, entertainment - and was not intended to accommodate more than the relatively small portion of the work force that requires use of a personal automobile to do the work. This is the parking model most likely to make downtown San Francisco accessible to everyone who needs to be there in the course of the business day.

• New Parking: New commercial parking within the city should be located in neighborhood commercial districts to relieve long standing parking deficits in these districts, and south of US 101/Bay Bridge to avoid bringing more automobiles into the office core. Existing downtown parking should be oriented to short term use.

• Parking Price: The market is the most powerful tool for accomplishing many objectives, and it has an important role in restoring accessibility downtown. Parking rates should favor transient parking and penalize all-day parking. City-owned garages and many private operators already use this pricing model.

• Pedestrian: Walking is the only way most people who work downtown and in many other parts of the city would consider taking lunch or shopping trips during the day. Indeed, walking for purpose and pleasure is a leading pastime in the City. The city should develop a pedestrian-enhancement plan for the city to promote this frequent choice for mobility.

• Harmonize Modes of Transportation: Many modes of transportation share San Francisco streets. The city should promote street designs that harmonize automobiles with other modes of travel. Every street in San Francisco needs to accommodate automobile traffic, but every street also is a pedestrian street. Boulevards that separate fast-moving traffic from slower traffic, and traffic calming techniques that modulate traffic flows, are excellent solutions for San Francisco.

• Delivery Vehicles: Through routing, signs, control over curb space, and control over the timing of deliveries, the city has the tools to ensure deliveries are facilitated in ways that mesh well with the rest of the activities on San Francisco streets. However, this is unlikely to happen without a plan. The city, in collaboration with San Francisco businesses, should create a plan for delivery vehicles.

• Transit Revenue from Parking: The Department of Parking and Traffic (DPT) has the authority to increase revenue for Muni through parking enforcement and parking charges, and DPT should use that authority to assist Muni and improve accessibility.

1.6.3.2 REGIONAL TRANSPORTATION

More intensive use of public transportation is needed to improve access and reduce congestion throughout the Bay Area. San Francisco is unique among Bay Area counties in the high percentage of its labor force that lives outside the city, and consequently, it relies on efficient regional transportation. MTC estimates that 786 thousand daily trips to San Francisco will originate outside the city this year. These travelers will enter the city through three transportation corridors - the Peninsula (46%), Bay Bridge (38%) and Golden Gate (16%). The 9% growth over 10 years MTC projects for trips to San Francisco generated outside the city will be distributed similarly among the three corridors - Peninsula (44%), Bay Bridge (30%) and Golden Gate (26%). The city should support the following regional transportation initiatives.

• Congestion Pricing: The market is a powerful tool for managing congestion. SPUR supports the use of congestion pricing of bridge tolls, parking and transit fares.

• Park and Ride: Outside San Francisco, Bay Area patterns of urbanization frequently require use of an automobile to access transit, which generates the need for parking at transit stations. San Francisco's commitment to transit for its metro area work force needs to begin with removing the practical obstacles to transit use that motivate people to drive to San Francisco. Inadequate parking at regional transit stations is one of the most important of these obstacles.

• Regional Ferry System: This July a new State-chartered commission will begin exploring the feasibility of creating a regional ferry network to augment the regional transportation system. It is too early to tell whether ferries can be a major addition to regional transit service, but SPUR supports a thorough investigation of this promising idea.

• Non-Muni Buses in the City: A key objective of transit planning for San Francisco should be to promote transit use, and to this end SPUR recommends Golden Gate Transit and Samtrans be allowed to pick up, discharge, and carry passengers at all stops in San Francisco

1.6.3.3.1 PENINSULA CORRIDOR

Although the Bay Bridge Corridor carries 57% more commuters than the Peninsula Corridor, the Peninsula Corridor (US 101, I-280, BART, Samtrans, Caltrain) generates more trips to San Francisco because of the influence of the Airport, close integration of city streets in northern San Mateo County with San Francisco, traffic crossing the city en route to the Bay Bridge and Golden Gate Bridge, and connections between the high tech companies in Silicon Valley and a variety of San Francisco businesses. The Peninsula also is the part of the inner ring of development around the Bay with the least well developed public transit service, which encourages excessive reliance on automobiles. The airport alone is enough to make the Peninsula a crucial gateway to San Francisco. High priority projects in the Peninsula Corridor include the following:

• BART: Growing congestion in the Peninsula Corridor, especially between the Airport and San Francisco, is a major concern for the many San Francisco industries that depend on the airport, most notably the Visitor Industry. Completion of the BART extension to SFO, which will provide the first rapid transit link between the airport, downtown San Francisco and Eastbay cities served by BART, is the most important near term transit project in the Peninsula Corridor.

• Caltrain Rapid Rails: The proposed Caltrain Rapid Rails Project involves electrification of the entire 72-mile line from San Francisco to Gilroy with a BARTCaltrain interface in Milbrae. While the Peninsula Corridor between San Francisco and San Jose is one of the fastest growing travel markets in the Bay Area, it is the least well served by Transit. The Rapid Rails Project will significantly upgrade transit service in this most heavily used gateway to San Francisco, and should be the second highest transit priority in the Peninsula Corridor after completion of BART to SFOMilbrae.

• Caltrain Downtown Extension: The gap between the Caltrain station at Fourth and Townsend and the BART-Muni nexus under Market Street has long been recognized as a significant barrier to increasing the use of Caltrain by travelers in the Peninsula Corridor. SPUR supports the extension of Caltrain to close this gap.

• Caltrain Park and Ride Facilities: Most current Caltrain commuters are not concentrated near Peninsula and South Bay Caltrain stations necessitating use of private automobiles to access Caltrain service. Lack of parking at or within easy walking distance of Caltrain stations is a major issue for prospective Caltrain riders. SPUR believes this issue should be addressed with pay-for-use surface lots and parking garages at or near Caltrain stations. It is in San Francisco's interest to participate in these largely self-amortizing projects to expedite their construction.

• Third Street Light Rail Extension: The current project to extend Muni Metro along Third Street will terminate the service within San Francisco. This does not recognize the high degree of economic integration between the city and northern San Mateo County. SPUR recommends the city engage San Mateo County in a discussion of the possibility of extending the Third Street Muni Metro line into northern San Mateo County.

1.6.3.3.2 BAY BRIDGE CORRIDOR

The Bay Bridge Corridor (Bridge, BART, AC Transit and Ferries) carries the largest number of commuters to San Francisco (138 thousand) and is projected to have the largest increase in commuters in the next decade (5,600). This corridor is the second largest generator of trips for all purposes to San Francisco (300 thousand daily), and also will have the second largest increase in trips over the next 10 years (21 thousand daily). High priority projects in the Bay Bridge Corridor include the following:

• BART Extensions: The fixed lane capacity of the Bay Bridge makes transit improvements, especially BART, vital to enable the corridor to carry projected increases in commuter and other trips. These projects include planned East and Southbay extensions of BART, and increased bus feeder service to BART lines.

• Highway Projects: Highway projects planned or underway will not increase the number of lanes in the corridor, but should improve the flow of traffic. These projects include rebuilding or retrofitting the east span of the Bay Bridge, completing the rebuild and seismic retrofit of the I-80, I-580, I-880 and I-980 interchange commonly known as the Bay Bridge Maze, and rebuilding the western approach to the bridge in San Francisco (terminal separation structure). Rebuilding the western approach presents major challenges in the areas of replacement parking and traffic management. Careful planning and extraordinary measures will be needed during the period of construction to avoid major disruptions of both surface transit lines and auto traffic.

• Ferries: Ferries once were the only transit in the Bay Bridge Corridor, but they were prohibited from competing with other forms of transportation once the bridge was constructed. As travel demand grows in the Bay Bridge Corridor, ferries may offer an attractive means of bringing more people without automobiles into the city, and extending the life of current transportation infrastructure in the Corridor. SPUR supports the initiative proposed by the Bay Area Council to determine the feasibility of substantially expanding ferry service on the Bay.

• Other Major Initiatives: As other major projects to add capacity to transportation in the Bay Bridge Corridor are proposed, SPUR believes a fundamental criterion for evaluating these projects should be their ability efficiently to move large numbers of people in the Corridor without increasing the number of automobiles in San Francisco.

1.6.3.3.3 GOLDEN GATE CORRIDOR

The Golden Gate Corridor (Bridge, Buses, Ferries) is in much better shape than either the Peninsula or Bay Bridge Corridors. The number of commuters using the corridor actually declined during the last decade (from 42 thousand to 37 thousand a day) and growth in the number of commuters in the next decade is not projected to raise the total to the 1990 level before the year 2010. Trip generation is another matter. Although the Golden Gate Corridor generates the smallest total number of daily trips among the three corridors (124 thousand), its growth in trip generation over the next 10 years will nearly match that of the Peninsula Corridor (18 thousand daily trips). It is the only one of the three corridors with significant projected growth in non-work-related trips (6 thousand daily). High priority projects in the Golden Gate Corridor include the following:

• Doyle Drive: The proposed rebuilding of Doyle Drive and associated feeder streets will substantially improve safety and traffic flows to and from the Southern approach to the Bridge. It also will dramatically reduce the visual impact of the roadway on the Presidio National Park. This project should receive the highest priority among proposals to improve transportation in the Golden Gate Corridor.

• Fastrak E-Toll: When implemented in July of this year, the much delayed Fastrak EToll system will permit electronic toll collection on the Golden Gate Bridge, and is expected to significantly improve the southbound flow of traffic in the morning commute for Golden Gate Transit Buses as well as automobiles. SPUR supports this initiative as well as companion systems being readied for other Bay Area bridges.

• U.S. 101 HOV Lane: Caltrans abandoned the segment of the high occupancy vehicle (HOV) lane on US 101 from the Richardson Bay Bridge south across the Golden Gate Bridge because it believed the lane in this portion of the Golden Gate Corridor was not justified by high occupancy vehicle use. SPUR believes Caltrans should revisit this decision in light of growing traffic in the Corridor and the need to encourage more commuters to use transit.

• Ferries: Ferry service from Larkspur and Sausalito in Marin County to San Francisco has operated since 1970. However ferries never have attracted enough patrons to be economically viable without substantial subsidies from Golden Gate Bridge tolls. The Golden Gate Bridge District's ongoing program of replacing current ferries with high speed catamarans has the potential to draw more traffic off the Bridge to this mode of transportation, and SPUR supports this program.

Private Blue and Gold Fleet ferries from Tiburon to San Francisco operate without subsidy at peak commute hours with four round trips in the morning and evening. This popular service would attract even more riders if Blue and Gold were to add at least one mid-day round trip to serve non-commute travelers.

• Rail Transportation: The Golden Gate Bridge Highway and Transportation District, owns the right-of-way of the former Northwest Pacific Railroad from Larkspur to Sonoma. Marin and Sonoma Counties, and the Bridge District have long term plans to implement passenger service on this abandoned rail line to relieve congestion in the U.S. 101 Corridor north of San Rafael, and to provide a feeder service from Northbay counties to Bridge District ferries and buses at the Larkspur Ferry Terminal for the final leg of the journey to San Francisco. SPUR supports this plan to bring commuters to San Francisco from fast growing Northbay counties without their automobiles.

1.6.3.4 SAN FRANCISCO INTERNATIONAL AIRPORT

It is difficult to overstate the value of San Francisco International Airport (SFO) for the city and region. The airport carries 65% of all airline passengers entering and leaving the Bay Area, 93% of international passengers, and more than half the value of goods exported from the region.

Currently SFO experiences more and longer delays than any other major international airport in the nation, a situation related to weather and the configuration of SFO's runways. Delays and congestion are not expected to diminish until new runways are built, a project that involves Bay fill. SFO has responded to the concerns of environmentalists by committing to mitigate the environmental effects of the Bay fill. Other critics of the project include residents of adjacent communities who fear increased aircraft noise and increased highway congestion in and around the airport.

SFO is such a vital asset to the city and region, San Francisco's Mayor has pledged the authority of his office and his considerable political acumen to secure approval. Most business and government leaders throughout the region are solidly behind the expeditious approval and completion of SFO's runway reconfiguration project. SPUR believes it is critically important to solve the delay problem at SFO expeditiously and to mitigate any adverse effects on the Bay, aircraft noise, and surface transportation.

Endnotes

¹ABAG estimate in 1995 dollars.