Adjust or Bust
written by Jody Knight
City agencies adapt with electronic permitting, updated ADU regulations, and tax law revisions.
Electronic Processing and Over-the-Counter Permits
COVID-19 has pushed the Department of Building Inspection to implement its long-planned transition to electronic processing of permits. Electronic Plan Review (“EPR”) has a new online portal for building permit submittals that allows EPR through Bluebeam. For permits previously started in paper, DBI is evaluating the need to convert to EPR on a permit-by-permit basis. Conversion to EPR is likely to result in delays in the short term as electronic submittals are processed, but should allow more efficient simultaneous review once a permit moves forward.
DBI has also restarted processing over-the-counter (“OTC”) permits. On June 24, DBI began offering OTC curbside services in coordination with its permitting agency partners (Public Works, Planning, Fire, and the Public Utilities Commission). Curbside services will be offered from 7:30 a.m. to 4:30 p.m. Monday through Friday, with the hours divided between services.
Drop-in services for OTC without plans are available for up to 20 people per day between 7:30 a.m. and 9:30 a.m. Starting at noon on Fridays, Eventbrite tickets are available for the following week's slots.
OTC permits with plans may be submitted by appointment between 9:30 a.m. and 3:30 p.m., with appointments prioritized by length time in the queue.
Drop-in permit pick-up will be available 3:30 to 4:30 p.m., after DBI alerts a customer that a permit is ready. To use these OTC services, customers must arrive with forms complete and must wear face masks and stay six feet apart. The following types of permits may
be processed OTC:
Over-the-Counter Without Plans
Over-the-Counter With Plans
Expect long delays. There is already a backlog of thousands of electronic permits being processed, so new filings may not receive appointments for months. Also, this is a pilot program that is subject to change as DBI continues to adapt to electronic filing and limited in-person services in the COVID-19 era.
State Law Changes to ADUs Incorporated Into Planning Code
Early this year, state law changed to allow additional flexibility in adding Accessory Dwelling Units (“ADUs”) to existing and proposed housing. In May, some of those changes were incorporated into Planning Code Section 207. Additional changes to align the Planning Code with state law are expected in July.
The changes to the ADU program include an allowance for construction of ADUs in single-family homes or detached auxiliary structures on the same lot. The Code changes allow for single-family “no waiver” ADUs under Section 207(c)(6), but limit expansion of the envelope of the single-family home or auxiliary structure for the ADU to 1,200 square feet. State law also allows a Junior ADU (“JADU”) of no greater than 500 square feet to be developed within the existing or proposed primary residence in addition to an ADU. Therefore, under the new state law, every lot can have at least three units. Single-family ADUs will require posted notice at the site, even if the ADU is built entirely within the envelope of an existing building.
“Waiver” ADUs for single-family homes and ADUs in multifamily buildings are regulated by Section 207(c)(4). For lots that have four or fewer existing dwelling units or where the zoning would permit the construction of four or fewer dwelling units, one ADU is permitted. For lots that have more than four existing dwelling units or are undergoing seismic retrofitting, or where the zoning would permit the construction of more than
four dwelling units, there is no limit on the number of total ADUs permitted, subject to restrictions for prior evictions. No minimum lot size is required for the construction of an ADU.
Under Section 207, ADUs may be constructed in the build-able area of a lot, be converted from auxiliary structures, or be built within the envelope of an existing residential building. For auxiliary structures, dormers may be added to an auxiliary structure even if the structure is within the required rear yard. The new state law also allows construction of a new detached unit, not otherwise subject to local development standards, if it is not more than 800 square feet, no more than 16 feet in height, and provides four-foot side and rear setbacks. In San Francisco, ADUs are not to be constructed from space within an existing dwelling unit, except that an ADU may expand into habitable space on the ground or basement floors if it does not exceed 25% of the gross square footage of the space. This limitation may be waived by the Zoning Administrator if waiver helps with the layout of the proposed ADU.
In an effort to incentivize creation of new units, ADUs of up to 750 square feet are now exempt from impact fees by state law. ADUs of 750 square feet or larger are only subject to impact fees proportional to the size relationship of the ADU to the primary dwelling. In addition, ADUs are not required to be sprinklered where the main unit is not required to be sprinklered.
Finally, state law now requires processing of ADU applications within 60 days. However, many property owners have experienced delays based on when the city deems a project application “complete.” The Planning Department continues to refine its procedures for ADUs, and we hope that property owners will encounter less red tape than they did in the past.
Rental Income Could Soon be Subject to New Gross Receipts Tax
San Francisco has begun planning for the economic aftermath of COVID-19. On June 15, Mayor Breed announced legislation for the Board of Supervisors and a proposed ballot measure that would eliminate the city’s payroll tax in favor of an expanded gross receipts tax once the economy improves, while providing tax and fee relief for small businesses. Currently, the city imposes a .38% payroll tax on all businesses with annual payroll expenses exceeding $320,000. Mayor Breed has expressed concern about the payroll tax as a disincentive to hiring.
A gross receipts tax is a tax imposed on the total revenue of a business. For landlords, this includes all income from rental properties. We do not yet know the amount of the proposed gross receipts tax, but under the mayor’s proposal, the tax would increase gradually as the economy improves. Breed’s proposal includes a small business exception that would exclude businesses with $1,500,000 or less annually in gross receipts. Competing measures currently proposed by the Board of Supervisors would include steeper increases than those anticipated by the mayor’s proposal.
Not surprisingly, business groups, including the San Francisco Chamber of Commerce, have come out in strong opposition to the tax changes, arguing that now is not the time to further burden San Francisco businesses. Even before COVID-19, there was concern that the cost of doing business in San Francisco, including local tax policy, could drive businesses out of the city, either across the Bay or across the country. PG&E announced in June that it would move its San Francisco headquarters to Oakland. Opponents have sounded the alarm about potential impacts on small-to-medium-sized and local businesses, particularly those that have high gross receipts but low margins. Debate over this and other business tax measures will continue as we approach the November election.
The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Jody Knight is a partner at Reuben, Junius & Rose, LLP and can be reached at 415-567-9000.