Propositions K and L - Competing Growth Conrol Reform Measures

What it does

San Francisco is straining under high demand for both homes and jobs. This situation is affecting almost every “intact” city in the United States, but it is especially difficult for San Francisco because of 1) the economic strength of the high-tech sector in the Bay Area, and 2) the strong tradition of neighborhood preservation that make new housing and new offices politically controversial. Proposition K is a measure backed by SPUR the business community, and anti-sprawl environmentalists to increase the amount of office space that is allowed to be built downtown. Proposition L is a measure backed by a coalition of anti-growth activists and Mission community organizations. It would keep the current growth caps put in place by Proposition M in 1986 more or less where they are. Both measures would keep growth out of the Mission and other neighborhoods. Both measures include a host of other provisions. But the core question is whether or not to allow more jobs downtown.

Why it is on the ballot

Proposition M was passed in 1986 as the culmination of years of debate over concerns about the “Manhattanization” of San Francisco. The most significant aspect of Proposition M is an annual citywide limit on office growth. It limits total office growth to 950,000 square feet per year – 875,000 in “large” buildings greater than 50,000 square feet, 75,000 in “small” buildings between 25,000 and 50,000 square feet. Buildings smaller than 25,000 square feet are unregulated. The future supply of office space is complicated by impacts of Proposition M which were not anticipated by its initial framers. Most importantly, Prop. M counts all office space developed by federal, state, and local government as a part of the annual cap. This includes not only space developed downtown, but also in the Presidio, Treasure Island, and Hunters Point Shipyard. Several pending projects, including the construction of the 900,000 square foot Lucas Digital Arts complex in the Presidio, the 650,000 square foot Federal Building at 7th and Mission, and a new city office building on Golden Gate Avenue, will take most of the Proposition M cap for the next several years. These are projects which are not under the control of the San Francisco Planning Commission and which will proceed regardless of Proposition M. In addition, Mission Bay was approved under a development agreement which allows it to be developed at any time, balancing office space and housing in tandem, but its office space still counts against Proposition M limits. The developer, Catellus Corp has received approvals for the first 275,000 square feet, and a total of five million square feet may be developed there over its 10-20 year build-out. As a result, San Francisco is facing a situation in which essentially no space available to the broad private market is likely to be developed outside Mission Bay until sometime after 2003 (making it available in 2005).

SPUR's analysis

This latest round in San Francisco’s growth wars is triggered by the current economic boom, in particular by the tremendous growth in demand for office space in San Francisco to house the new digital economy. SPUR believes that, properly managed, this growth is good for San Francisco and should be accommodated. A healthy city requires a healthy economy, and the new high tech firms are providing a remarkable number of well-paying jobs that are open to the full spectrum of San Franciscans. Moreover, the regional consequences of not accommodating these new jobs within San Francisco are quite troubling. In essence, the jobs that do not locate in highrises in downtown San Francisco will be displaced to the suburbs. Like every battle in San Francisco’s growth wars, this round is partly about where in the region growth will go. From a regional perspective, we are faced with a classic environmental choice: accept high-density growth in the urban core or displace it into suburban sprawl. Beneath the long list of changes each measure would enact, the real issue is whether or not to allow new office jobs in downtown San Francisco. Prop. K, by exempting many developments from the “Prop. M cap,” would also allow more offices downtown. Prop. L would not. That said, SPUR is also very concerned about the ability of San Francisco to assimilate more jobs. We simply must do a better job building more housing and we must invest in a dramatic expansion of our transit system if the new employees are going to have places to live and have a way to get to work. Neither Propositions L or K will solve our serious needs for housing and transit.

The potential modification to Prop. M

A June 2000 SPUR position paper recommended certain modification to Proposition M to help return the overheated market to a more balanced condition and address some of the unforeseen effects of Proposition M on the private office market (see SPUR report number 386 available on the web at www.spur.org). We also recommended that the city take a close look at not only how much growth takes place, but where it takes place, that we need to address the impacts of growth through exactions, and that we need clarity in our zoning code regarding what is and what isn’t office space.

In crafting its recommendations, SPUR stated the following guiding assumptions:

• Most digital industry uses should be classified as “office” given the nature of their space requirements and general intensity of use, and should therefore be located in zones allowing office uses as a permitted or conditional use.
• Most office development should take place adjacent to the downtown core and along major transit corridors to minimize additional auto commuting and impacts on neighborhoods.
• Large-scale growth should be directed away from residential neighborhoods where it will cause direct negative impacts such as parking, traffic, and inappropriate scale of development.
• All office development causes impacts; therefore payments (or on-site provision) of housing, transit, child-care, open-space and job training should be made regardless of the location of development.
• Good transit service is critical to support dense urban employment and housing development; to preserve mobility in a growing San Francisco transit must continue to improve in quantity and quality. Increased exactions on growth should help pay for this improvement.
• Job growth must be accompanied by housing supply growth, and increased exactions should help pay for the construction of more affordable units.
• Encouraging the linkage of job training to growing businesses will help existing diverse communities to profit from economic growth.
• Other land uses should not be convertible to office uses without full review and permitting, subject to geographic limitations on office use.
• It is a priority to provide affordable space for small businesses, non-profits and the arts.

Propositions K and L

Two competing ballot initiatives to reform Proposition M will be on the November 7, 2000 ballot. Proposition K was submitted by the Mayor four supervisors. Proposition L was drafted by land use attorney and slow growth advocate Sue Hestor and was submitted via a petition drive.

Proposition K: Proposition K, while it is not perfect, incorporates many of SPUR’s smart growth principles and specific recommendations on Proposition M reform:

• Defines almost all digital business space as offices.
• Significantly addresses the supply/demand imbalance that has driven rents sky-high by exempting from the cap federal, state, local government and Port of San Francisco projects and office development in Mission Bay, a mixed use project subject to a development agreement that requires the impacts of that office growth to be mitigated on-site.
• Encourages the concentration of new office development downtown by placing a two-year moratorium on developments in the Mission and Potrero Hill and encouraging office developments in the downtown and South of Market areas.
• Calls for community-based planning studies of the Mission, Potrero Hill and South of Market to fine-tune current zoning controls to define specific sub-areas where offices may be appropriate in the future and other areas that should be reserved for housing and non-office businesses.
• Places a two-year moratorium on Mission and Potrero Hill projects, while not instituting any permanent ban on new office development in those areas.
• Significantly increases the exactions imposed on new office space to support affordable housing, transit, child care, job training, public art, and affordable office space for non-profits from the current level of $14.00 per square foot to a total of $30.00 per square foot within two years.
• Encourages the development of low-rent non-profit office space by excluding such space from the office cap, not imposing exactions on the space, and giving office developers who include non-profit space a priority in the annual “beauty contest” allocation of the cap.

Proposition K is silent on the issue of the conversion of live/work lofts to office space. To remedy the many issues associated with live/work, SPUR urges that meaningful legislation be passed prior to the election.

From a good government perspective, perhaps the most problematic aspect of Prop. K is that it establishes a new position of “growth management coordinator” located in the Mayor’s office, a role that more properly belongs in the Planning Department.

Proposition L: Proposition L also incorporates many of SPUR’s principles and recommendations, but contains many poison pills that would have negative consequences:

• Like Proposition K, Proposition L defines digital businesses as office, keeps the cap at 950,000 square feet per year, and adds several exclusions to the cap. However, by not excluding Mission Bay offices from the cap, very little private office development outside Mission Bay could be accommodated over the next five years under Proposition L, thereby continuing the current office shortage that has led to massive rent increases for all office users.
• Proposition L places a permanent ban on any office construction exceeding 6,000 square feet from the entire Northeast Mission, western and southern South of Market areas and Central Waterfront. This ban could only be lifted by a vote of the people, which is virtually a guarantee of anachronistic zoning that will not evolve over time.
• Proposition L also places a temporary moratorium (of undetermined length) on any office development exceeding 6,000 square feet on the rest of South of Market, Potrero Hill, Showplace Square and Bayview/Hunters Point until planning studies are completed. Some of these areas either permanently or temporarily off-limits to new offices are well served by transit and could accommodate additional office growth.
• Proposition L does not increase exactions on office space nearly as much as does Proposition K.
• Proposition L addresses the many legitimate issues with live/work housing in a clumsy way. Of course live/work space should be located appropriately; of course it should not be allowed to be converted to offices as a way to get around the growth cap; and of course it should pay full exactions like any other form of housing. However, Proposition L takes away all of the incentives to create loft-style housing in more appropriate ways, and does so in a way that will require a vote of the people to amend over time.
• Proposition L would require EIRs and other environmental review documents prepared in San Francisco to be far more extensive and time-consuming to prepare than required by state law. The environmental review process is already often misused, serving as a NIMBY tool to stop even good development, rather than as a way to ensure mitigation of true environmental impacts.
• Proposition L purports to address the non-profit office crisis by requiring developers to provide reduced price space to community service agencies, but this approach is likely to run afoul of the state of California prohibition of commercial rent control.

Prop. L Misunderstands the Region

The supporters of Prop. L do not usually claim that it will bring down commercial rents. They know that by continuing to limit the supply of new office space, demand will continue to drive office rents higher, leading to more displacement of businesses that cannot pay high rents. This is justified by saying that the city lacks the capacity to assimilate more jobs—a point that hits close to home in terms of transit. From SPUR’s perspective, the better solution than stopping new development would be to fix the transit system—this would make it possible for the city to develop responsibly and break out of the dangerous rent spiral. To freeze the city as it is—in terms of office supply and transit capacity—is a lose-lose scenario.

The more subtle piece of the Prop. L case concerns housing costs: the measure’s supporters believe that by limiting the supply of office space, which means limiting employment in the city, they will reduce demand for housing in San Francisco. They are selling Prop. L as a way to bring down housing costs. It will not work for one simple reason: the Bay Area has become an integrated regional commute shed. If jobs do not go in high rises in downtown San Francisco, they will be displaced to other parts of the Bay Area (in places that are guaranteed to be more auto-dependent, we might add). But the people who work in these jobs, even if they are pushed out of the city, still have the option of living in San Francisco. Since 1980, the number of San Francisco residents who commute to jobs outside the city has grown from 47 thousand. We can expect this trend to continue—and, in fact, accelerate if Prop. L passes. As always happens, those with the most choice about where they live will be those with the most wealth. We know that many of those with wealth will continue to choose to live in San Francisco. The housing crisis will be unchanged by both Prop. K and L.

SPUR supports Proposition K and opposes Proposition L

The core issue is whether or not to allow office jobs in downtown San Francisco. SPUR believes that the answer is an unequivocal “yes.” Doing so is the only way to reduce rents on commercial space. Furthermore, San Francisco’s highrises downtown is the ideal place—from a regional an environmental perspective—to locate new jobs.

We need to highlight that fact that Prop. K does not fully address all of the planning issues associated with the growth of new office jobs. While Prop. K does direct growth into the right locations and will stop the displacement of small businesses, neither measure would increase the housing stock or the capacity of transit system. The office exactions, even with the proposed increase, are simply too small to make a dent in these issues. Along with the passage of Proposition K, we call on the city to take the next steps: allow hosing to be built in the right places; increase funding for subsidized affordable housing; and increase funding for a major capital expansion of Muni. The employees of our dynamic economy need places to live and they need a way to get to work.

That said, we believe these competing measures present the most important question facing voters this year. Passage of Prop. K, and the defeat of Prop. L are essential for the health of the city and the region.

Comparison of Proposition K, Proposition L
and the existing Proposition M

SPUR recommends a "Yes" vote on Proposition K and a "No" vote on Proposition L.