February 28, 2005, Volume 11, Number 2

This Issue of the BOMA-San Francisco Advocate  Is Brought To You By:

ABM/Ampco System Parking

City Controller Gives Update on City Finances 
City Controller Ed Harrington recently updated the business community on the city’s financial state at the 25th Annual Luncheon meeting of the Union Square Association. At the event, Harrington stated the city’s total current assessment value for all properties was approximately $100 billion but that almost $10 billion of it was under appeal. He said the economy was picking up and that fact was being demonstrated in higher sales taxes, and property transfer tax receipts, the latter of which have significantly increased with all the commercial property sales activity in the last half of 2004. In fact, the fiscal impact of the loss of the gross receipts tax several years (about $30 million, due to a lawsuit filed by a group of large SF businesses) has largely been negated by these new increases in revenues. He said city employment is down by 1400 positions over the last 3 years, and that over the last 10 years only 670 new general fund-supported positions had actually been added. The rest were paid for from special funds or grants. Harrington stated the newly-installed SF Stats tracking program will be able to gauge the performance of all city departments in the future, and will greatly aide his new job as City Auditor for many of the city’s important services. Of importance to BOMA members, he stated he was going to be doing a city audit of all departments that have some function/transaction responsibilities with property to see what better systems can be implemented to increase efficiencies while reducing turnaround time. BOMA has been calling upon the City and Mayor’s office for some time to do just that, starting with the Assessor’s Office. BOMA members wish to pay their assessments (and re-assessments) in a timely fashion, but find their ability to do so to be severely hampered by the slow action of that city government department.

On a different note, BOMA is pleased to recognize Tim Falvey, Hanford-Freund & Company, who was installed as President of the Union Square Association at their annual meeting on February 18, 2005. Tim is also an active member of BOMA, serving on its Government and Public Affairs Committee and Political Action Committee Board of Directors.

BOMA Cal Legislative Conference March 14-15 Sacramento
BOMA California will be holding a statewide legislative conference in Sacramento starting the afternoon of March 14th, with a state board meeting (open to all BOMA members), followed by a reception and dinner with legislators that evening. On Tuesday morning, there will be a breakfast briefing on the issues to be discussed with state legislators in visits to be conducted between 10:30 and 12:30 p.m. A luncheon with newly elected Freshmen/women legislators will conclude the event. BOMA San Francisco is making appointments with State Senators Jackie Speier, Carole Migden, and State Assembly Members Mark Leno, Leland Yee, Joe Nation, Gene Mullin, and Ira Ruskin for our members who attend. There is no registration cost, but attendees will be charged a pro rata cost to attend the Monday evening legislative dinner. Richard Costigan, Legislative Secretary to Governor Schwarzenegger will be recognized by BOMA Cal along with State Senator Dick Ackerman (R-Irvine). Sponsorships are also available and welcomed. For further information, or to be part of a BOMA SF carpool going to Sacramento, please call Ken Cleaveland at 415-362-2662, ext 11 or contact our state advocate Cliff Moriyama at 916-443-4676. Members wishing to book rooms should immediately do so, as this is a busy time of the year. More information can be found at our state association website: www.bomacal.org.

BOMA San Francisco Voices Opposition to PUC Proposal for Punitive Peak Period Energy Rates         
BOMA San Francisco’s Board of Directors recently retained an energy consultant to represent our membership before the California Public Utilities Commission. The urgency came as a result of a recent proposal by Commission President Michael Peevey to sharply increase the cost of energy on selected summer afternoons for large energy consumers over 200 kW. That action would hit many BOMA member buildings with costs up to five times the regular rates. In our response to the PUC, Bill Roberts of Economic Sciences Corporation (Berkeley, CA) stated that “BOMA members have the responsibility for purchasing energy and managing energy costs on behalf of their tenants. Energy costs represent a very large portion of building operating expense, which is ultimately paid for by office tenants in the form of rent and operating cost escalations.” He stated that most BOMA buildings have already made significant investments in energy conservation upgrades to reduce consumption and increase efficiencies, and made the following key arguments in opposition to the Critical Peak Pricing (CPP) program:

1. The proposal presumes an energy emergency in California in 2005, but PG & E has stated it does not forecast such an emergency in northern California this year.

2. The proposal for mandatory CPP will unfairly shift costs to tenants of energy efficient buildings. BOMA buildings have, for the most part, already made significant investments in energy upgrades, and have little potential for additional load shaving or shifting. Commercial office buildings cannot change their pattern of usage which shows peak consumption in the early afternoon, a “load shape” that does not change, can be planned for, and is not an indication of inefficient consumption.

3. The proposal only worsens an already unfair cost of service differential. Currently, commercial customers, like BOMA office buildings, pay considerably more for power than it costs to provide it to them. The “cost of service” analysis demonstrates that for primarily political reasons, the residential energy rates have been subsidized by the commercial and industrial sector for years. This new CPP proposal will exacerbate an already unfair situation because it won’t be applied to residential energy customers. [Note: BOMA is also intervening in the current PG & E rate proposal submitted to the CPUC to ask for greater parity for commercial customers based more closely on the real cost to service our membership.]

4. The imposition of high rates for certain peak periods of the day on office buildings will not produce a reduction in consumption. Previous voluntary programs have not been effective in reducing summer peak demand, so why should this one be any different, just because it’s mandatory? If mandatory CPP is going to be effective in capturing demand response from buildings that have not yet implemented efficiency and load management practices, then CPP must induce new investment. Therefore, the effect of CPP tariffs on the calculated returns on investment and payback periods should be carefully examined first. In deliberating the development of demand management rate structures, it should be noted that building owners do not control all energy use in their buildings. Building operations are under the control of owners (within the constraints of tenant leases) and account for about 60-70% of building load. The remaining load balance of 30-40% is consumed by tenant-controlled office equipment, specialty lighting, etc. This portion of the building load is currently shielded from energy efficiency and load management incentives by CPUC Rule 18, which prevents sub-metering of tenants, and the application of energy and demand charges in allocating energy costs to tenants. This rule must be changed.

5. Lastly, mandatory CPP will increase business uncertainty and hamper California’s business recovery. The imposition of such energy rate increases will greatly increase the uncertainty for businesses, including commercial real estate owners, as to what their ultimate operational costs will be for energy. This uncertainty is not appreciated on Wall Street, and will not assist in our efforts to rebuild California’s economy from the dotcom debacle.

The BOMA Advocate will keep its readers and BOMA members appraised of the CPP issue, and the rate setting filing, and will let you know what the results of the deliberations are when completed.

Special Forum on Parking Issues in San Francisco March 30th
BOMA, in conjunction with SPUR (San Francisco Planning and Urban Research Association) will be hosting a special forum on the city’s parking policies, how to change them, make them more restrictive, or more sensible, on March 30, 2005 at 10:30 a.m. – Noon, at the SPUR Offices, 312 Sutter Street, 5th Floor. All BOMA members are invited to attend! SPUR recently adopted a policy paper calling for serious restrictions on future parking, and BOMA has voiced great concerns about the fairness and economic viability of such policies. Jeff Tumlin, a partner at Nelson Nygaard, will also present his informative power point show about the San Francisco transportation systems. No charge to attend.

Supervisor Jake McGoldrick Proposes Downtown Toll; Supervisor Aaron Peskin Suggests Downtown Transit Assessment District  
The San Francisco Supervisors are continuing to look at ways to further tax downtown businesses and visitors and workers. The latest two proposals, if implemented, are guaranteed to make downtown less viable as an employment and retail center for the Bay Area.

The first, a proposal by Supervisor McGoldrick to consider a toll for visitors who drive their vehicles into downtown San Francisco on workdays during commute hours, would take a page from the current central London toll practice. Although studies have shown a reduction in traffic there by 30%, the nearly $10 a day cost to purchase a “driving pass” has been an exceptional burden on businesses located within the toll zone. A recent study by the London Chamber of Commerce of the business community there found that 37% of retail businesses have reduced their staffing levels since the introduction of the congestion or “c” charge; 46% of respondents experienced administrative problems with the toll program, and 28% stated they were considering closing their businesses because of the new toll. Almost 2/3 of the respondents stated their business volume was down and blamed this “c” charge for all or most of this downturn. To his credit, Supervisor McGoldrick stated he does not want to immediately impose a toll nor approve one that would unfairly discriminate against downtown businesses. He simply wants to study the idea at the present time.

The second proposal, by Supervisor Peskin (and Board of Supervisors President), would create a “downtown” transit assessment district, modeled after the same idea proposed in 1994 with Proposition O, which BOMA and the business community successfully defeated after a costly campaign. Although no tax figures have been suggested for the new district (such as $1/square foot per year, which Proposition O called for), the idea is still antithetical to the interests of a strong, vibrant economy in San Francisco, and would discriminate against businesses and employers located within whatever area is determined to be the “downtown assessment district”. Fortunately, under a new state law (passed as Proposition 218), the approval of such a district would have to be voted upon by the residents living in the assessment district, and by a 2/3 majority. That hurdle may temper the efforts to carve out a downtown transit assessment district in favor of one that would apply citywide. 

Water and Sewer Rate Increases Proposed
The City’s Public Utilities Commission is proposing to increase the water and sewer rates for all customers in 2005 and 2006 to pay for the much-needed improvements to the city’s underground piping system. The Rate Fairness Board will hold a hearing on March 2, from 6 – 8 p.m. at the Bill Graham Civic Auditorium (99 Grove Street) to gain input from the public on their plans to increase water rates by 15% and sewer rates by 13% to commercial and industrial customers in 2005 and 2006, respectively.  The rationale is the fact that 70% of the city’s sewer lines are over 70 years old, and that rates have been frozen due to a citizen initiative passed in 1997, that expired last year. Residential rates will increase, but not as much as commercial/industrial rates. Cross subsidy by commercial customers to residential customers was approximately $6 million in 2004, according to PUC officials. SIC codes are being used to determine exact water/sewer costs. A new sewer connection fee of $2500 - $3000 will be charged for new residential unit hookups. BOMA members are invited to attend the hearing on March 2 or the subsequent hearing on March 22 at 1:30 p.m. at City Hall (Room 400) where these rate increases will be debated. For more information, log onto www.sfwater.org or email rateinfo@sfwater.org.

City Legislative Analyst Recommends Additional Measures to Combat Graffiti Vandalism
A February 4, 2005 Legislative Analyst report on graffiti prevention and abatement offered a number of suggestions the Board of Supervisors might consider in their (and our) efforts to combat graffiti vandalism in the City. Graffiti costs the City an estimated $22 million per year in clean up and repair costs. In 2004, the San Francisco Police Department made 131 arrests for graffiti vandalism, and the Department of Public Works cleaned off an estimated 1,200,000 square feet of graffiti scrawls.

The Leg Analyst report recommended more city departments and their employees be empowered to assess fines and issues tickets for graffiti vandalism, similar to what is done in New York City. This would greatly expand the opportunities to catch the perpetrators of graffiti. The second was to create a reward program similar to the one in Los Angeles, which would reward the public for information that leads to the arrest and conviction of graffiti vandals.  The third was the encouragement of more “neighborhood watch groups” to voluntarily patrol certain areas to deter graffiti activity. A fourth was to promote more business/community improvement districts be formed to increase the presence of so-called “ambassadors” that would also deter vandalism. A fifth was the suggestion to install cameras in graffiti hotspots. The last was the suggestion that the business community work with the school district to conduct public education programs aimed at differentiating between public art and graffiti vandalism (which by and large rests on the concept of permission). The analyst also suggested the city invest in signage that is resistant to graffiti vandalism and more easily cleaned and to expand its volunteer involvement in graffiti clean up similar to what San Jose is doing, with its 1,000 volunteer painters. 

BOMA San Francisco Receives BOMA International Award for Best Advocacy Program
At the BOMA International Legislative Conference in Washington, DC, last month, BOMA San Francisco received one of only three national awards for excellence in advocacy efforts. The award recognized our excellent Office Tenant Improvement Codes/Practices Seminar, which had been a huge success in October, 2003. The program featured a panel of experts, and an extensive handout that takes office building managers through the process of gaining permits and approvals for tenant build-outs in San Francisco from start to finish. A huge thank you goes out to Gordon L’Estrange, Ottolini, Booth & Associates, Architects, who chaired the committee that sponsored the seminar, and produced the terrific OTI guide. An update to this highly-successful and informative OTI seminar and guide is planned this year for October 18, and will be chaired by Brad Tardy (Metro Construction), so mark your calendars now! (BOMA San Francisco was recognized two years ago by BOMA International for having the best Government Affairs Committee.)

Assembly Member Mark Leno Explains His Proposed Ellis Act Revisions
State Assembly Member Mark Leno (D, San Francisco) recently replied to a BOMA inquiry regarding his intentions to modify the Ellis Act to prevent eviction of renters. BOMA, and others, have expressed their concern that his efforts to make new buyers of rental properties hold the properties for a minimum of 5 years as rentals before being able to sell them might further reduce the ability for state residents to buy their own homes. Currently, only about 35% of San Franciscans own their own home or condo, which is the reverse of the average numbers that own their own homes in other cities across the country (67%, except in NYC). Leno stated in correspondence to BOMA that the goal of his legislation (AB 781) was to discourage real estate speculators who “never intended to be landlords from buying up properties and evicting tenants…for the purposes of making a quick profit.”  Leno said his legislation will not require a 5 year waiting period for homeowner move-ins, nor will it prohibit tenancies in common. What it will do is stop speculators from purchasing rental properties and flipping them to other buyers. This loop hole in the Ellis Act is what is being “fixed” by this legislation. Leno stated the San Francisco Tenant’s Union recently compiled a report showing that 33% of Ellis Act evictions during 2003-4 occurred within the first two months of gaining ownership. SFSOS reported that the number of actual evictions in 2003-4 was only 107, and that this legislation was unnecessary. For further information, go to www.leginfo.ca.gov for a copy of the bill.

Commercial Recycler of the Year (CoRY) Award Entries Due Next Week!
Tuesday, March 1st is the deadline to submit your CoRY Award application.  Don't miss out on this opportunity to participate in this great program.  Winners will be awarded cash prizes.  Please take the time to visit BOMA's website, www.bomasf.org/CORYawards to access the application forms. Submit your application to BOMA at 233 Sansome Street, 8th Floor, San Francisco, CA 94104.  Should you have any questions, please contact either Cary Valdrow at cvaldrow@seagateprop.com  or Beverly Sutliff at bsutliff@cacremco.com, our co-chairs for the 2005 CoRY awards program. 

Recycling & "Going Green" is a real hot button in the Bay Area.  Be recognized by peers and the City as a top commercial recycler!   Recycling reduces trash costs!  This is a great opportunity to increase your building's trash savings and reinvest monies to recycle further.  It is a never-ending cycle to savings! This year's CORY Awards will be held at the Palace Hotel on April 28th starting at 11:00 a.m. Craig Sheehy, Director of Property Management of Thomas Properties will be the keynote speaker.  Craig has been traveling the country promoting his environmental project, Greening Your Building Helps Your Bottom Line. His building (the Cal/EPA Headquarters building in Sacramento) was recently recognized as one of the most energy efficient high-rises in the nation and was awarded both the EPA's Energy Star and the U.S. Green Buildings Council's LEED-EB (existing building) Platinum Certification, making it the only high rise building to receive this certification to date. We look forward to your participation in the 2005 CORY Awards program, and wish you the best of luck!  

9/11 Commission Proposals Impact Real Estate
In case you missed the recommendations that were a part of the 9/11 Commission report, released late last year, the report stated that building owners should use NFPA 1600 standard in preparing their emergency procedures, and suggested that insurance companies and other financial institutions consider these actions when assessing insurability and credit-worthiness. Robert Preston, a consultant in counter terror and political risks for Aon Risk Services (London) stated that BOMA members will need to “confirm to an insurance company that your building is prepared for emergencies in two key areas: first, that you have taken steps to reduce the likelihood of an emergency in your property, and second, that you have demonstrated you have procedures in place to diffuse the situation if an emergency occurs.” For a copy of the NFPA 1600 standard, go to www.nfpa.org.

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” (Ronald Reagan, 1986)