February 5, 2003




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by Calvin Welch

The privatization agenda

SAN FRANCISCO'S BUDGET crisis is once again being used to push a long-standing agenda of private developers: the privatization of major land-use decisions. The current form of this hustle involves a proposal by Joe O'Donoghue, the godfather of "live-work" development, for 330 market-rate condos in an 85-foot-high, square-block monster building at Fourth and Freelon Streets in the South of Market.

This is not the first time a market-driven real estate bust has created a prolonged budget crisis for the city – and not the first time that crisis has been used by developers to push for special favors. After the collapse of the speculative high-rise office bubble in the late 1980s, the city faced eight years of $100 million annual deficits. These deficits were used by private developers in San Francisco to drive a privatization agenda: cutting General Fund support for the Planning Department and, replacing it with developer fees, streamlining the planning approval process, and creating various publicly financed get-rich-quick private development schemes.

But these deficits were caused not by the public sector's overregulation of the private real estate sector. They were caused by the failure of the public sector to regulate private-sector excess. And none of the "fixes" actually worked.

This time around, there's a new twist: if we give special favors to O'Donoghue and his friends for this massive market-rate housing development, they will build, somewhere else (no site has been purchased), some affordable housing. This, shouts O'Donoghue, is an "innovative new model," proving that the private sector can do the job better than publicly funded development by faith- and community-based nonprofits.

At its heart, the proposal relies on the old idea that if you give the rich more (in this case, a density bonus) something will trickle down to the poor.

Irony, which is supposed to be dead in this post 9/11 world, turns out to be alive and well in San Francisco politics: The site of this project is in District Six, and the district's supervisor, Chris Daly (who is routinely attacked by O'Donoghue's friends at the San Francisco Examiner as a hypocritical, left-wing trust-fund zealot), introduced the legislation to make the project happen.

The developer, Joe Cassidy, already has approval to build a 480-car parking garage with 188 live-work lofts on the site. The problem is that the parking garage, planned for the dot-com office boom, is economically dead as disco. The new deal, for 330 market-rate condos, is just a bailout for the old deal.

And unless the developers get their density bonus, no affordable housing will be built – because O'Donoghue got the project exempted from the city's affordable-housing requirements. In other words, the developer is demanding a special favor in order to do something he should have been forced to do anyway: Developers of all market-rate housing projects of more than 10 units are now required to build affordable housing.

Thus the sins of the old boom are being used to justify a bad new deal in an era of a budget crisis – which, in large measure, was made worse by the very sins represented by the bad old deal.

At a Planning Commission hearing Jan. 9, more than 60 speakers offered amendments to the proposal. They wanted to let the commission lower the height and bulk of the building, to classify the project as "conditional use, which would ensure that affordable housing requirements are enforced, to include prevailing-wage requirements, and more. Daly's representative at the hearing, Bill Barnes, agreed to the changes.

But the essence of the deal remains the same. It is special legislation that bails out a failed market-rate developer in exchange for trickle-down financing for a handful of affordable-housing units. It pits one set of housed neighbors with a legitimate desire for a livable neighborhood against another, poorer set of neighbors with a legitimate desire for affordable housing. Both sets of neighbors get far less than they should – and O'Donoghue and his friends get it all.

The Fourth and Freelon deal may be a model for how developers take advantage of the budget crisis – but it is most definitely not a model for how affordable housing development should occur in San Francisco.

Calvin Welch is project director for the San Francisco Information Clearinghouse.