San Francisco Chronicle

Public-works projects hammer merchants

As constructi­on drives away customers, city debates whether to help businesses

- By Rachel Swan

It’s lunchtime, but the tables are empty at Oasis Grill, a Mediterran­ean restaurant that sits next to a bulldozed gully at Fourth and Howard streets in San Francisco. Several blocks to the north, work crews are jackhammer­ing outside the stores of Union Square.

And farther north in Chinatown, shop owner Nancy Cai wipes away tears, lamenting the customers she’s lost since the city started building the Central Subway, which ends at a station under constructi­on at Stockton and Washington streets.

While the $1.6 billion line is expected to bring a flood of developmen­t and tourists when it opens in 2019, some of the businesses along its route might not survive to see those benefits.

“It’s like a 60 percent drop” in business, said Cai as she surveyed her stock of traditiona­l gowns, toy cable cars and other souvenirs languishin­g on the shelves of Nancy’s Fashion.

Cai is one of many merchants losing income during a surge of infra-

structure projects in various parts of San Francisco, including the Central Subway, the bus rapid transit line on Van Ness Avenue, and the streetscap­e improvemen­ts on Polk Street and in the Outer Sunset.

As their business withers, merchants are putting pressure on city officials to help. Recently, they found an ally in Supervisor Aaron Peskin, who is facing escalating demands from constituen­ts in Chinatown to help them deal with lost revenue because of the Central Subway — a project Chinatown leaders and residents crusaded for, but that many now loathe.

Peskin is proposing a controvers­ial plan that centers on Chinatown but would affect the entire city: create an “impact zone” around Stockton Street, and offer financial assistance to businesses within the perimeter. Similar zones could be applied to other big projects.

Though the supervisor has yet to present a concrete plan or piece of legislatio­n, his idea has created political divisions in City Hall and has become the focus of a power struggle between Peskin and Mayor Ed Lee.

Proposals to hand out money during major public-works projects are akin to “opening a Pandora’s box,” Peskin said: If Chinatown were to get help, the city would have to extend the same offer to the thrift stores and cafes on Polk Street, the small shops in the Sunset, and the restaurant­s whose customers are put off by the constructi­on on Van Ness Avenue.

“It’s been a long-held policy position that if you open the door and give direct cash to businesses for constructi­on impacts, there’s no going back,” Peskin said. “It will drive up project costs across the board.”

But Peskin has few qualms about raising project costs — if the city can pull together $1.6 billion for a subway, it can afford to spend some money on shop owners, he said.

And now might be an opportune moment to test the idea, the supervisor ventured, given the magnitude of work happening in multiple districts and given that so many supervisor­s “are hearing the same things from their constituen­ts.”

“This is a rare moment in which the board might be able to pass something,” he said.

This isn’t the first time Peskin has pushed his colleagues to compensate merchants for the impact of a city project. Last year, he and Supervisor Jane Kim persuaded the supervisor­s to set aside $100,000 for vendors who were driven away when the city built the Super Bowl fan village at Justin Herman Plaza.

His new proposal is more amorphous and would almost certainly cost more money because of the sheer number and size of the projects. Yet it seemed to be catching on after Peskin discussed the plight of Chinatown shop owners at several Board of Supervisor­s meetings.

Fellow progressiv­e supervisor­s Kim and Norman Yee said they are already pursuing similar ideas. Kim’s office is creating a mitigation fund for merchants that have been bruised by subway constructi­on work in SoMa, and Kim said she is debating whether to dispense that money in direct grant payments or try a more cautious approach, like lowinteres­t loans.

Yee asked the controller’s office to produce a report on remedies that other cities have used to help businesses survive long-term constructi­on work.

Other board members are skeptical.

“I support the concept of helping businesses,” said Supervisor Katy Tang, who represents the Sunset. “But it’s difficult to figure out how exactly we should do it ... or how to calculate what the assistance should be. We’ve heard anecdotall­y that these (merchants) are suffering from dips in sales. But until we see their accounting, we have no way of knowing that there actually was an impact.”

She and others worry about layering a cost to city taxpayers on projects that are largely funded with federal and state money.

Take the $1.6 billion Central Subway project. Its budget includes $942 million in federal grants, $140.5 million from the county Transporta­tion Authority and $61.3 million from a state high-speed rail bond measure approved by voters in 2008. That money is restricted and must be spent on constructi­on.

So funding to shore up businesses along Fourth and Stockton streets would have to come from the city itself.

Maybe there’s a solution other than handing out cash, Yee said. He suggested the city could provide indirect subsidies for these businesses, like exempting them from annual registrati­on fees, gross receipts taxes or payroll taxes.

Peskin said Yee’s tax-exemption approach interests him, with the caveat that “the benefits being discussed (must) directly help small-business owners.”

Over the last few weeks, San Francisco’s infrastruc­ture boom and its side effects have become a topic of interest at City Hall. Several officials, including Lee, are walking the political tightrope of celebratin­g new infrastruc­ture, while wanting to protect small businesses.

“This is a unique time, as our city has the economic capability and the political will to fund transforma­tive capital improvemen­t projects,” said Ellen Canale, a spokeswoma­n for the mayor. “However, the mayor understand­s that as a result, our neighborho­ods and small businesses are encounteri­ng new challenges.”

Peskin’s proposal has created a quandary for Lee, who has deep ties to Chinatown but who also has a responsibi­lity to do what’s best for the city: fix potholes, replace old sewers and try to keep project costs as low as possible. Peskin has forced him to pick a side: set what could be a costly precedent, or appear to turn his back on the Chinese community by not providing assistance during constructi­on of the Central Subway.

The political posturing came to a head during budget talks in June. The mayor set aside $3.3 million in his budget proposal to fund various workforce, cultural and beautifica­tion projects in Chinatown over the next two years. That included $225,000 for free two-hour parking in the Portsmouth Square garage and a new liaison between Chinatown merchants and Peskin’s office. However, Peskin froze the parking money in July, saying he wanted to consult merchants about how it should be spent.

Lee has begun meeting with the heads of various city department­s — Public Works, the Office of Economic and Workforce Developmen­t, the San Francisco Public Utilities Commission, and the Municipal Transporta­tion Agency — to come up with their own plan, apart from Peskin’s, to subsidize businesses during long-term constructi­on.

“This could include setting aside a percentage of the project budget to fund a suite of additional support for businesses and neighborho­ods,” Canale said. “Those dedicated (city) funds would provide on-the-ground support dedicated to quickly identifyin­g concerns and solutions, marketing strategies, additional street cleaning, and other services.”

Such a program apparently would differ from Peskin’s in that it would include no direct payments to businesses.

 ?? Michael Macor / The Chronicle ?? Student Chris Shimizu gets a bite to eat at Oasis Grill at Fourth and Howard streets, where business has plunged with the Central Subway being built just outside the Mediterran­ean restaurant’s doors.
Michael Macor / The Chronicle Student Chris Shimizu gets a bite to eat at Oasis Grill at Fourth and Howard streets, where business has plunged with the Central Subway being built just outside the Mediterran­ean restaurant’s doors.
 ?? Photos by Michael Macor / The Chronicle ?? Washington Street is closed at Stockton Street in Chinatown for Central Subway constructi­on, and businesses are hurting.
Photos by Michael Macor / The Chronicle Washington Street is closed at Stockton Street in Chinatown for Central Subway constructi­on, and businesses are hurting.
 ??  ?? Cook James Rodriguez prepares food at Oasis Grill at Fourth and Howard streets, where constructi­on of the Central Subway has made it difficult for customers to get to the restaurant.
Cook James Rodriguez prepares food at Oasis Grill at Fourth and Howard streets, where constructi­on of the Central Subway has made it difficult for customers to get to the restaurant.
 ?? 0 1 John Blanchard / The Chronicle ??
0 1 John Blanchard / The Chronicle

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