The Future of Downtown SF Will Rely on Better Tax Policy

by David Harrison, BOMA SF Manager of Government and Public Affairs

Over the past year, Mayor Breed and policy leaders from the Office of Economic and Workforce Development have been meeting with the business community to discuss strategies to revitalize Downtown San Francisco. Legislators got an official first look at the mayor’s proposal on February 9 following her State of the City Address when the mayor released her Roadmap to the Future of Downtown San Francisco.

The plan calls for three major tax policy changes that aim to attract new companies to open or maintain offices downtown: 1) Pausing scheduled gross receipts tax increases for sectors heavily impacted by the pandemic, including retail stores, hotels, manufacturing, arts, and entertainment; 2) A three-year tax break of up to $1 million per business for companies opening their first office in San Francisco; and 3) A measure on the November 2024 Ballot to overhaul the gross receipts tax, and perhaps the City’s business tax structure at large. Although specifics have not yet been determined, the promise of future changes to the City’s business tax structure are both consequential and politically controversial. For years, the business community and the once-booming commercial real estate industry were targets of one-off tax measures that added to the bureaucratic red tape and cost of doing business in the City. “We have to stop the endless cycle of one-off ballot measures around taxes thrown on the ballot without any real thought or any analysis,” Mayor Breed said in her speech. In addition to special taxes passed by a simple majority using the Upland Loophole, remnants of San Francisco’s archaic tax structure are incentivizing companies to not bring employees back to the office. Yes—language in the current gross receipts tax system does not count workers who work outside of the city. This loophole and the overall complexity of the City’s business tax structure need to be overhauled.

As these taxes relate more directly to the commercial real estate industry, BOMA’s focus will be on suggesting that these taxes levied on members’ assets are actually reinvested to serve our industry. Given the high amount paid in, we are not receiving the level of services to be expected for this price. We also hope to use the prospect of tax incentives to help building owners and managers meet upcoming mandates. The City has a lot of upcoming measures with no incentives in sight.

Take electrification, for example, where the City will one day mandate that commercial building owners pay the significant capital cost of replacing natural gas equipment with electric. In addition, San Francisco hopes to tax building owners to help pay for the electrification of its affordable housing stock. BOMA plans on urging the City to explore credits against transfer taxes or gross receipts taxes to incentive good behavior rather than requiring action and then adding more cost. This shift in tax policy will not only go a long way towards helping our industry, but also to attracting new businesses to want to be here and grow here.

In Memoriam... Honoring CRE Advocate Rex Hime

Rex S. Hime, a leading advocate for commercial real estate for many decades, passed away in February after a long battle with cancer. Recently retired, Rex was the President and CEO of the California Business Properties Association (CBPA) from 1985-2021. Under his leadership, CBPA became the only commercial real estate association in the nation representing all aspects of the retail, office, and industrial commercial real estate industry, bringing together ICSC, NAIOP, BOMA and IREM to speak with one voice. “Rex was a giant in our industry, and we are all saddened to hear of his passing. His commitment to commercial real estate is unparalleled, and we owe him a great debt of gratitude for his work and advocacy. Rex was not just a colleague; he was also a valued friend and will be greatly missed,” said John Bryant, CEO, BOMA SF. “The San Francisco and State of California Real Estate Community lost one of its best advocates with the passing of Rex Stewart Hime. When I became a member of the BOMA California Board of Directors, Rex welcomed me his infectious warm and welcoming demeanor. The best way to celebrate Rex’s life and to honor his legacy is to get active in local, state or national politics,” added Glenn Good, Brookfield Properties, BOMA SF Immediate Past President.

Energy & Environment Committee Kicks Off Year with Packed Agenda

BOMA San Francisco’s Energy and Environment Committee kicked off the new year with an information-packed meeting, highlighting the list of priorities for the committee to tackle this year on behalf of BOMA members.

“There’s a lot that owners need to know about this year,” remarked Committee Chair Bill Whitfield of Shorenstein Realty Services. “This is going to be where the rubber meets the road, both in terms of taking advantage of efficiency incentive programs that mitigate increasing utility costs in the face of peak demand, as well as preparing for the critical long-term planning in the face of looming decarbonization mandates at various levels of government.”

BOMA SF Government Affairs Manager David Harrison was also cautionary that committee members would have their work cut out for them this year: “We are, of course, focused on downtown economic recovery in the aftermath of shifting work trends due to the pandemic. That being said, the discussion right now about how we decarbonize our buildings is going to be the single biggest policy issue for our assets over the next several years.”

Top of mind for the committee and BOMA members is San Francisco’s Climate Action Plan. After passing the plan in 2021, the Department of Environment and Mayor have adopted legislation for their first two priorities, first mandating that new construction in San Francisco be all-electric, and next requiring that large commercial buildings in San Francisco purchase 100% renewable electricity. Next, focus will shift to decarbonizing existing buildings, with the goal of eliminating on-site natural gas consumption in large commercial buildings by 2035. The Climate Action Plan targets 2023 for the development of a system to monitor the replacement rate of existing private sector natural gasfueled equipment with all-electric systems. By 2025, the plan calls for the adoption of a building performance standard that requires buildings to begin transitioning to all-electric equipment and begin regularly disclosing their progress towards the goal or face annual fees in lieu of electrification.

(Continued on page 22)

About

Maintenance - Repairs - Operations

Associate Publisher: Megan Kelly

Editor: Henry Eason

Managing Editor/Ad Director: Ellen Eason, Eason Communications LLC

Infrastructure Production Equipment Material Handling Tools and Consumables

viding virtual programming. It is my goal to continue growing the educational offerings by providing both in-person and virtual opportunities to learn, network and connect with others in the BOMA San Francisco community. It is our goal to continue delivering the best material in a time-sensitive way to meet the needs of our membership.

How Can You Help?

4 We are constantly looking to provide new and thoughtful educational offerings that are relevant to your operations and career progression. If there is something you would like to learn more about, please let us know and we will try our best to provide it or point you to a place where it already exists.

4 To the industry leaders and subject matter experts out there, think about giving back to the greater

Promote

Copyright commercial real estate community by offering to teach classes/seminars, serve as a mentor, or provide updates on market trends or regulations. We can help identify an activity that fits your interests and time commitment.

How Can We Help You?

4 Advance your career—Knowledge is power and you can never stop learning. Take advantage of all the educational offerings BOMA/BOMI has to offer like the RPA and CMCP programs and seminars/webinars on relevant topics that update you on current trends and regulations in the market.

4 Enhance your network—Meet like-minded people and develop relationships with others in our community. While the saying “it’s not what you know, it’s who you know” is cliché, it is very true. From friendships to knowing who to call when you run into issues, a robust network can help you be better at your job—and you might even have some fun along the way! n

To

all