Supervisors continue Mills Act review for 178 Townsend amid questions on tax break and scope

The subcommittee continued consideration of a Mills Act historical property contract for 178 Townsend Street on May 13 after extended discussion about the scope of eligibility and the fiscal impacts of the tax abatement.

Tara Sullivan of the Planning Department outlined the Mills Act program under Chapter 71 of the San Francisco Administrative Code: a rolling 10-year contract under which owners of qualified historic properties agree to undertake maintenance and preservation work in exchange for up to a 50% reduction in local property taxes. Sullivan said the subject property is in the South End Historic District, received a certificate of appropriateness and other entitlements, and that the department has draft guidelines it has used in practice but which have not been formally codified by the Board of Supervisors.

Budget analyst Mr. Rose told the committee that if the board approved the contract as written, the reduction in property taxes would be about $170,005.20 annually (a 44% reduction). He also noted differing cost figures reported in the file: a rehabilitation estimate of $6,200,000 in one place and $22,000,000 in another; the project sponsor's financing letter from Bank of the West stated the project's final loan approval is "heavily reliant" on receipt of a fully executed Mills Act contract.

Project representatives and preservation advocates told the committee the project will preserve a contributor to the historic district and create local jobs. Katie O'Brien (project sponsor) said the development would expand from 85 to about 94 units, include roughly 19 affordable units (she described volunteering to add affordable units beyond the 12% inclusionary requirement), aim for LEED Gold, provide day care on site and use prevailing wage and first-source hiring. Ramsey Dea, a mortgage banker for the sponsor, said lenders required the Mills Act as part of underwriting because reassessed property taxes could make the deal infeasible.

Supervisors questioned whether the Mills Act should apply to the entire improved property value or only to the historically significant portion and raised concerns that the planning department's internal guidelines limit eligibility for larger mixed-use or commercial properties. Planning staff said the department based valuation on the current assessed value and that any exceptions would need further review; the planning department and Historic Preservation Commission have deemed the project to meet the Secretary of the Interior's Standards for Rehabilitation.

After discussion and divergent views about whether the contract as drafted adheres to the Mills Act's preservation intent, supervisors moved to continue the item to the call of the chair so sponsors could address outstanding issues. The subcommittee did not approve the Mills Act contract at this meeting.