Recognizing that Downtown San Francisco is “struggling” post-pandemic, State Senator Scott Wiener has announced new legislation to exempt certain projects in the area from California Environmental Quality Act (CEQA) review for a 10-year period, together with a tax exemption for projects providing workforce housing. SB 1227 seeks to expand on SB 423, CEQA streamlining legislation the Senator authored last year, which will result in many housing projects in San Francisco becoming exempt from CEQA as of mid-2024. (See our past coverage here).

Temporary CEQA Exemption

Unlike SB 423, SB 1227 would apply to a range of non-residential and mixed use projects that do not meet the definition of a “housing development project,” as well as student housing projects, and it will apply only in a defined “downtown revitalization zone,” which includes the Financial District, Union Square, Civic Center, Yerba Buena, East Cut, South Beach, and Rincon Hill. (See map here). To qualify for the CEQA exemption, the project must not involve demolition of:

• Housing restricted to below-market rate households, or subject to rent control;
• Housing occupied by tenants, or a building operated as a hotel, within 10 years prior to submittal of an application for development; or
• A listed historic structure.

The site must also meet a number of environmental criteria, including not being located on a designated hazardous waste site or special flood hazard area. Many of the site requirements will be met simply due to the highly urbanized nature of the targeted area (e.g., there are no areas of prime farmland or very high fire hazard severity zones in downtown San Francisco). Importantly, most projects will be required to meet labor requirements similar to SB 423’s, summarized below:

• All projects over 10,000 square feet or proposing 10 or more residential units must pay prevailing wages;
• Projects over 40,000 square feet must also comply with apprenticeship, health care, and reporting requirements;
• Projects over 40,000 square feet that do not include residential uses, or that include residential uses and are over 85 feet in height, must also comply with specified requirements for a skilled and trained workforce.

By leaving local zoning controls intact but eliminating CEQA review in these limited circumstances, the bill could significantly shorten the review period, and avoid lengthy litigation challenges, for qualifying projects.

Expansion of Welfare Exemption

SB 1227 would also expand the partial “welfare exemption” from property tax for specified projects in the downtown revitalization zone that provide workforce housing. To qualify, projects must obtain building or site permits for residential units before January 1, 2035 and must provide rental housing up to 120% of the area median income, so long as they are rented 10% below the market value. By expanding an exemption already used by residential projects affordable to lower income households, the legislation is intended to encourage the production of moderate-income residential projects in downtown San Francisco.

Throughout the legislative session, we will continue to monitor SB 1227, as well as other legislation related to housing and development, and will provide updates as they become available.