Proposition M and the Downtown Growth Battle

Do high-rises create a healther economy?
Article
July 1, 1999

In November of 1986, San Francisco voters passed Proposition M, a citizen-sponsored initiative that created the first annual limit on high-rise development in the country-475,000 square feet per year-and set new planning priorities that stressed protecting affordable housing, neighborhood character and small businesses. It was the result of over two decades of debate over the costs and benefits of high-rise development. That debate involved environmentalists, SPUR, neighborhood activists, developers, the Chamber of Commerce and thousands of San Franciscans. Why did they get so involved during the 1970s and 1980s?

The "freeway revolt" and several other events in the late 1960s started the whole discussion. After intense citizen lobbying, a plan to connect the Bay Bridge to the Golden Gate Bridge along the north waterfront (and through Golden Gate Park) was finally defeated at the Board of Supervisors, but only by a 6-5 vote. A 550-foot U. S. Steel corporate tower near the Ferry Building was also defeated in the late 1960's. Similar efforts to stop or scale down two of the city's tallest buildings, the Bank of America headquarters tower and the Transamerica Pyramid, however, were less successful.

Opponents of these projects banded together in 1971 to fight additional high-rise development with a new tool, the citywide ballot initiative. Proposition T would have limited all new construction downtown to 80 feet in height. Its supporters were primarily environmentalists and residents of neighborhoods adjacent to downtown. Prop. T was defeated 37 percent to 63 percent. Its proponents regrouped in 1972 and offered voters another initiative, Proposition P, that would have imposed a 160-foot height limit. It lost but garnered 43 percent of the vote.

1971 also saw the publication of the San Francisco Bay Guardian's study, "The Ultimate High-rise: San Francisco's Mad Rush to the Sky." It was the first of a number of studies that would call into question the economic and social benefits of high-rise development. Following their second electoral defeat, neighborhood/anti-high-rise advocates agreed to pursue a different electoral strategy. They joined with others to try to elect a mayor that was less pro-development and enact a system of district elections for supervisors. They backed liberal State Senator George Moscone for the mayor's job. Moscone pledged to appoint a planning commission that would stop the routine approval of high-rises.

In 1975 Moscone narrowly defeated conservative realtor John Barbagelata and San Francisco Supervisor Dianne Feinstein. A year later voters approved district elections. Although Moscone appointed a more neighborhood-oriented planning commission, that commission continued to approve high-rises.

While anti-high-rise advocates hoped to push Moscone on the high-rise issue as he began to think about his re-election, they never got the chance. Moscone was assassinated in November of 1978 along with Supervisor Harvey Milk. Board President Dianne Feinstein succeeded Moscone as mayor. The anti-high-rise/ neighborhood activists viewed Mayor Feinstein as an advocate for downtown high-rise development.

Given the likelihood of Feinstein's re-election the next fall and the recent loss of district elections at the ballot box, neighborhood, housing and growth control advocates formed San Franciscans for Reasonable Growth (SFRG). SFRG immediately drafted a new growth control initiative and gathered enough signatures that summer to place it on the November, 1979 ballot. Proposition O would have reduced height and bulk limits downtown, limiting height in some areas to 260 feet (from 700) and in others areas to 130-150 feet.

Downtown interests, the development community and labor formed their own coalition to fight Prop. O. It was called San Francisco Forward. Its members claimed passage of the initiative would cost the city jobs and taxes, shift the tax burden to homeowners and, if downtown could not build up, result in downtown spreading out into the neighborhoods. Their campaign slogan, Don't Los Angelize San Francisco, was a play on the slogan of early 1970's high-rise opponents, Don't Manhattanize San Francisco.

SFRG was outspent by over 10 to 1 ($500,000 vs. $35,000) and Prop. O was defeated 54 percent to 46 percent. But SFRG was heartened by the trend in support (37 percent in 1971, 43 percent in 1972 and 46 percent in 1979) and a study released by the city just months before the November, 1979 election.

About the time SFRG announced plans for Proposition O in early 1979, the city planning department decided to commission another high-rise study. This time it would be in two phases. Phase I would be carried out by the nationally-known planning firm Sedway-Cooke and answer the question: "Does high-rise development pay its own way?" The second phase of the study would suggest changes to the city's master plan to better manage growth based on the conclusions of Phase I.

Proposition O advocates were somewhat cynical about the timing and motives of the study, particularly given that Phase I was due out 3-4 weeks before the November election. They saw it as a political ploy to convince voters that high-rises were good for the city and that the initiative was a simplistic, "meat-ax "approach to a complex problem.

The Sedway-Cooke study came out on schedule and to everyone's amazement concluded that because of Proposition 13: 1) "costs may exceed revenues in the downtown by as much as 25 percent"; and 2)"new downtown development will not solve the city's growing fiscal problem; without new revenue sources, development will make it worse in the long run." After the results of the Phase I study were released, the city put Phase II on hold.

Despite the defeat of Prop. O, the Chamber of Commerce was concerned about the growing anti-high-rise sentiment among voters and the conclusions of the Sedway-Cooke study. In 1980, the Chamber commissioned one of the big-eight the accounting firms to conduct a $100,000 study of the cost/benefit issue in the downtown high-rise district (Kearney, Washington, the Embarcadero and Howard).

 

This report concluded that "the downtown high-rise district continues to produce more revenue for the city than it costs". The report stated that in fiscal year 1978-1979 the city collected 50-60 percent more revenue from the C-3-O district than it cost the city to serve it. They estimated that for 1980-1981 that figure would rise to 100 percent.

SFRG and others immediately criticized the report's methodology and basic assumptions. David Jones, an SFRG member and EPA administrator, argued that the study had a major conceptual flaw in that "it pretends the downtown high-rise district is a separate city with limited interactions with the city of San Francisco."

On the income side, it returned all revenue generated back to the high-rise district. On the expense side, it included a share of each department's budget proportional to the amount of its activities that were in the C-3-0 district, i.e. only those police and fire services directly related to calls/fires in the district. Since there was no public school in the district, no school expenses were charged to the district.

Jones accepted the study's revenue figures but adjusted the expenses for city services to reflect the obvious flaw in the assumption that the high-rise district or any San Francisco district should pay only for those specific activities that occur within its boundaries. He assigned a portion of the school budget, S. F. General Hospital's budget, the city parks budget, etc. to the district. With his adjustments, expenses in 1978-1979 rose from $36 million to $94 million, almost double the revenue generated.

The consultant's response to the Jones report was to issue an updated report for 1980-1981, but without changing the original methodology. Jones responded in turn with a spoof of the study that was so funny and effective that it generated more ink and airtime than both the previous Chamber studies.

Entitled "239-45 Bartlett Cost/Revenue Study," it took Jones' own 4-unit building in the Mission, applied the same "accepted cost accounting methods" used in the Andersen study and demonstrated that in 1980 the revenues generated from his house exceeded costs by 10,000 percent. Armed with this "data," he proposed stopping all new high-rise construction downtown and replacing it with 3-story wood frame residential construction to maximize city revenue.

Jones realized that there were flaws in his reasoning but he pointed out to the media that "to the extent that our conclusion is ludicrous, exaggerated, distorted or unwarranted because of the methodology chosen, the conclusions of the Chamber study need to be questioned". The press loved it.

On a serious note, Jones concluded his satirical study by suggesting that one analyze the past 15 years of intense downtown growth, from 1965-1980, to see what conclusions could be drawn from the data regarding trends. Among other things, he pointed out that:

• From 1965-1980, high-rise office growth created 166,000 new jobs while the number of employed San Franciscans declined by 18,000.

• This growth created a demand for 92,000 additional units of housing while the city's housing stock increased by less than 20,000 units from 1965-1980.

• From 1965-1980, the taxes paid by downtown as measured in dollars had increased, but downtown's share of taxes relative to the city's total tax role had declined significantly: from 21.3 percent to 13.3 percent.

The latter was due to Proposition 13 and the fact that the average house in the city turned over ever 5-7 years allowing a major increase in its assessment. How often would the Bank of America or Transamerica building be bought and sold?

Partly in response to a growing concern about the jobs/housing imbalance issue raised by SFRG (and the Jones studies) and the threat that SFRG would run a housing and transit linkage fee initiative in November, the city enacted an informal housing impact fee in 1981. The rationale for the fee was that additional downtown office space would increase the number of households from outside the city who wanted to live in San Francisco. A year later a transit linkage fee was adopted. In August of 1983, the planning department released its Downtown Plan. It grew out of a downtown EIR that analyzed the impacts of a variety of growth control proposals including the status quo, Proposition O (had it passed) and several proposals favored by the planning department. The Downtown Plan reduced permitted heights and bulk (floor area ratios) downtown and protected 266 landmark buildings. It also mandated more visually interesting design, preserved sunlight on streets, and called for new development to be better coordinated with public transit.

Local high-rise opponents complained that while protecting historic buildings in the financial district, it just shifted development to the South of Market. The planning department believed that the plan itself, together with new linkage fees, would reduce office high-rise construction. If it didn't, the plan stated, then and only then should the city consider imposing an artificial limit on development.

SFRG was quick to point out that under the Downtown Plan developers would be allowed to build another 24 million square feet of office space (the equivalent of 48 Transamerica Pyramids) by the year 2000. While the Plan identified the need for $3-4 billion in transit improvements and 1,000-1,500 new housing units a year to accommodate 100,000 new office workers, it did not identify the sources of funding to accomplish this.

SFRG also questioned the timing of the Downtown Plan. Earlier in the year they had drafted the San Francisco Plan Initiative, now designated as Proposition M on the ballot. Prop. M required the board of supervisors to pass ordinances requiring new office developers to cover the full cost of transit and housing needs generated by their developments.

Despite being outspent $700,000 to $60,000, Prop. M lost by less than 2,000 votes (49.4% percent to 50.6 percent)in November of 1983. The board of supervisors finally adopted the Downtown Plan in September of 1985 by a 6-5 vote. To secure six votes, Mayor Feinstein agreed to the board's 950,000 square foot "annual limit," but only with a three year sunset clause and after a grandfathering clause that exempted millions of square feet in the pipeline.

SFRG decided early in 1986 to run another initiative to address "the one fatal flaw in the Downtown Plan," the millions of square feet of "pipeline" high-rise projects waiting to be built. Designated Proposition M (again), it contained two basic provisions. The first and most controversial was an annual limit on major development of 475,000 square feet per year, the equivalent of one Transamerica Pyramid. The second provision was a series of master plan priorities that favored the preservation of housing, small businesses and neighborhood character.

The prospect of the master plan priorities section of Prop. M helping to preserve neighborhood character appealed to voters in more conservative neighborhoods farther from downtown. They and other voters also began to pay attention to the economic arguments. Proposition M proponents often repeated "The Formula" taken from high-rise EIRs. One million square feet of new office buildings divided by 268 sq. ft./worker = 3,731 new workers to clog the streets and highways, with about half of them choosing to move to San Francisco. Since the impact fees covered less than half of the true cost of these impacts, every new high-rise left the city further in the hole when it came to housing, taxes and transit.

The new argument with Proposition M was jobs and whether high-rise construction increased or reduced employment downtown. Recent studies showed that large corporations downtown had suffered a net loss of 17,000 jobs over the past five years due to mergers, takeovers or sluggish growth. The only reason the city had a modest increase in employment over that period was the performance of small businesses as job generators (particularly companies with less that 20 employees). These were the very businesses, SFRG argued, that were being displaced by high-rise expansion into the South of Market and its effects on surrounding property values and rents.

Proposition M won in November of 1986 by over 5,000 votes (51.4 percent to 48.6 percent) despite being outspent 4 to 1 by developers. A significant factor may have been a four-part front page series in the San Francisco Examiner in August outlining the financial links between high-rise developers, their architects, engineers and attorneys, and local elected officials via political contributions. The series concluded with a poll showing two-thirds of the voters supporting Proposition M.

After Proposition M passed, the city allocated the annual square footage allowed through a process dubbed the beauty contest. Projects were selected by a competitive review of developer proposals by the city planning commission and a panel of internationally famous architects and urban designers. Several years later Seattle became the second major city to enact an annual limit on high-rise development through a ballot initiative. The whole issue of the annual limit surfaced again, briefly, after Mayor Frank Jordan took office. Several of his advisors floated the idea of repealing Prop. M because it was "hurting economic growth."

In response, the business/economic affairs specialist for the Chronicle wrote an article about the folly of such an idea. Although he did not support Prop. M when it passed, he argued that it prevented a glut of high-rise buildings from going up at the end of the economic boom of the late eighties. Cities like New York, Los Angeles and Denver that allowed the market to dictate the pace of construction were facing office vacancy rates of 30 percent and more. The only two cities with relatively healthy vacancy rates, 11-13 percent, were San Francisco and Seattle.Spur logo

About the Authors: 

Brad Paul was a founding member of San Franciscans for Reasonable Growth and deputy mayor for housing during the Agnos administration. Currently, he is a consultant on housing, economic development, and planning issues. He is a member of SPUR, active on SPUR's housing committee.