Funds Will Go for Transit : S.F. Municipal Fee on New Office Buildings Upheld

A pioneering, multimillion-dollar municipal fee that was imposed on new downtown office buildings to pay for increased public transit use has been upheld by a state appeals court here.

The decision was hailed by attorneys for the city, who said that it could lead other communities to use the same approach to meet growing urban needs. But lawyers for developers assailed the ruling as creating a “giant loophole” in Proposition 13, the tax-limitation initiative enacted in 1978.

Under the transit-fee ordinance, apparently the first of its kind in the nation, developers are charged up to $5 per square foot of new office space to finance the anticipated costs of accommodating new bus, cable car and rail riders resulting from the current downtown building boom.

Rising Transit Costs

The San Francisco Board of Supervisors, in enacting the fee in 1981, based the charge on the projected increased transit costs generated over the 45-year average life of each new office building. By the turn of the century, an additional 100,000 people are expected to be working in the downtown area.

The measure is one of a series of controversial development fees enacted here in recent years to provide support for municipal programs. Others require developers to subsidize low-income housing projects, pay for art to be displayed in new buildings and provide or finance child-care facilities.

The three-member panel of the state Court of Appeal unanimously rejected a far-ranging legal challenge to the transit fee made in behalf of 6,000 downtown property owners. The opponents said the measure, if upheld, would give municipalities virtually unlimited power to subsidize transit or other public programs at the expense of a small group of property owners.

But Appellate Justice Harry W. Low, in a 36-page opinion filed earlier this week, upheld the fee against the developers’ challenge. Among other things, the court ruled that the fee was not a “special tax” that would have required a two-thirds voter approval under provisions of Proposition 13.

Called Reasonable

The court found that the fee was not aimed at replacing revenue lost under the initiative but was a reasonable charge tied to an increase in ridership created by new development. Unlike most taxes, the fees are not “compulsory,” but imposed only on developers who choose to create new office space, the court said.

The panel also upheld the city’s calculation of the projected costs of expanded transit use brought on by new development.

“We are mindful of local government’s need to generate revenue to maintain the quality of life the residents of the city have come to expect,” Low wrote. “This has become increasingly difficult in the post-Proposition 13 era. The transit fee imposed falls within permissible bounds.”

However, by a separate 2-1 vote, the court also ruled that developers who had obtained permits and had begun construction before the measure was enacted were not subject to its requirements.

Raises $25 Million

The ordinance thus far has generated an estimated $25 million for the city’s Municipal Railway, with another $46 million anticipated in the next three decades. Funds collected are being held in escrow pending final resolution of the case.

Such development fees have been used increasingly in the state to pay for expanded school, park or road needs--but San Francisco’s is apparently the first use of the device to pay for citywide public transportation, according to attorneys in the case.

“We’re obviously very pleased with the decision,” said Jerome B. Falk Jr., a San Francisco attorney representing the city. “Once the legality of such a fee is well-established, other cities could be expected to emulate this city.”

Allan N. Littman of San Francisco, an attorney for the firms that challenged the fee, said a rehearing will be sought before the appeal court but that if such review is denied, the issue will be taken to the state Supreme Court.

“If this is upheld, cities and counties will use it as a giant loophole to avoid complying with Proposition 13,” Littman said. “If they can do this for transit, they can do it for almost anything you can imagine.”