Committee delays ordinance to let mixed‑income projects use state tax credits; changes would exempt some projects from nonpotable water rule

The San Francisco Board of Supervisors’ Land Use and Transportation Committee on Feb. 3 delayed consideration of an ordinance that would allow private market developers to use California debt limit allocation committee (CDLAC) tax‑exempt multifamily revenue bonds and tax credits allocated by the California Tax Credit Allocation Committee (TCAC) when a project provides additional on‑site affordable units beyond the current inclusionary requirement.

The committee approved two substantive amendments to the ordinance and voted to continue the item to the Feb. 10 meeting so the changes can be circulated and re‑noticed. The measure, as introduced, would update the Planning Code to permit the use of CDLAC/TCAC financing for certain projects that add affordable units or provide deeper affordability than required by the inclusionary housing ordinance.

The changes were brought forward to allow a mixed‑income project on Sutter Street — described repeatedly in testimony as a 303‑unit project at 1101–1123 Sutter that would include 101 affordable units — to move forward under state financing that requires documentation showing readiness to start construction by a hard state deadline. Supervisor Souder (District 3) said the project “would bring 300 new homes … a hundred of these units would be affordable; it represents a 33% affordable project” and called the opportunity “rare” and urgent because the development faces a March 17 deadline under its state financing.

Vice Chair Cheyenne Chen introduced a set of amendments intended to protect prioritization of public subsidy for fully affordable projects while allowing some market developments to access state programs. Chen’s amendments would: (1) add a legislative finding affirming city policy to prioritize CDLAC/TCAC allocations for 100% affordable projects; (2) require developers who use the new exception to provide an additional amount of on‑site affordable housing equal to 25% of the baseline inclusionary obligation (described in committee as roughly an additional 4 percentage points above the 15% baseline in many cases); and (3) require the Mayor’s Office of Housing and Community Development (MOHCD) to monitor TCAC and CDLAC awards and report back to the Inclusionary Housing Technical Advisory Committee if conditions change.

Supervisor Mahmood and Supervisor Souder summarized a separate amendment to the city’s nonpotable water ordinance (NPO) that would create a narrow, targeted exemption from on‑site water reuse requirements for projects that use CDLAC and TCAC financing and provide at least 100 on‑site affordable units and that can demonstrate readiness to pull permits by the state financing deadline. Souder said the NPO requirement was not flagged to the project team until after plans and financing were largely in place and that imposing retrofit costs at that stage could prevent the project from moving forward.

Planning Department staff Veronica Flores told the committee the Planning Commission had already recommended a technical clarification: the ordinance should reference both sections 4.15 and 4.15(a)/(b) of the planning code so that pipeline and interim inclusionary rates are covered by the proposed exception. Flores said staff and the planning commission’s recommended technical change have been circulated to the committee.

Developers and community stakeholders testified in favor of the amendments. Patrick McNerney, president of Martin Building Company and project sponsor, described the financing structure and said the Sutter development is “a 303 unit project … a hundred and 1 of those units are affordable. 202 are market rate.” He said the state Mixed Income Program (CalHFA) award is competitive and that the project was the only San Francisco applicant to win an award in that round. Labor and construction stakeholders, including the NorCal Carpenters Local 22 and the San Francisco Electrical Construction industry, urged the committee to approve the amendments, citing job creation and union labor commitments.

Housing‑advocacy groups at the hearing — including SF YIMBY, Housing Action Coalition and community groups working in the Fillmore and Sutter corridors — generally supported the targeted exceptions and emphasized the need to seize state funding opportunities to build more homes. Several public commenters urged care to preserve prioritization of fully subsidized affordable housing and asked for clearer metrics and an accountability plan tied to MOHCD reporting.

Committee members voted to introduce the amendments on the record, recorded three ayes on the amendment motions, and then voted unanimously (three ayes) to continue the ordinance, twice amended, to the Feb. 10 meeting so the substantive amendments can be posted and reviewed. City Attorney staff confirmed to the committee that the substantive amendments require the ordinance to be re‑heard next week but do not require a second referral to the Planning Commission.

What happens next

Because the committee treated the changes as substantive, the ordinance will return to the Land Use and Transportation Committee for a public hearing on Feb. 10. If the amended ordinance advances, it will be scheduled for full Board consideration; committee members and several public speakers flagged MOHCD reporting and monitoring requirements as a priority for committee follow‑up.

—Clarifying details from the hearing: the Sutter project was described in committee as a 303‑unit building with 101 affordable units and 202 market units; the developer reported the project must demonstrate readiness to start construction by March 17 to comply with state financing requirements; the proposed NPO exemption would apply only to projects using CDLAC and TCAC financing and providing at least 100 on‑site affordable units. —