SAN FRANCISCO (KCBS)— The San Francisco Board Of Supervisors are meeting Tuesday to create a special tax district around the Transbay Terminal to cover the cost of its reconstruction including the Caltrain extension. But while downtown developers had earlier promised to pay in, they are now lobbying, and threatening a lawsuit claiming the amounts are too excessive due to soaring property values.

Some of the biggest developers in San Francisco are involved including, Hines, Boston Properties, TMG, and others Boston Properties, TMG, and others. They are responsible for the new high-rises that are popping up downtown, including the Salesforces Tower—which will be the tallest building on the West Coast. The Transbay Terminal will also go down four floors into the ground to accommodate the train station.

But in order to pay for all of that the Board of Supervisors need to assess a special tax district that the developers had earlier agreed to but now that their property values are soaring with the economy, they are having second thoughts.

This is billions of dollars at stake and it’s going to be a big fight.

Many home owners in the Bay Area are familiar with these tax districts that are often called Mello-Roos districts, because of the state law that allow the special areas to be set up. Taxes are assessed on the parcels to pay for things like roads to law enforcement and in this case, a transit terminal.

When the office developers signed off, they were awarded huge upzonings, including adding extras floors allowing them to make more money. But now the bill has come due and it’s a lot bigger than was originally estimated. The cost of the tunnel and finishing the terminal has grown exponentially—not unlike the Bay Bridge’s Eastern Span.

On paper, San Francisco wins the case; the developers signed the deal but as anyone who’s worked with developers knows, a contract is only as good as the person is willing to pay it. The developers are now saying they’re going to file suit, which would tie things up in court for years. It’s a threat and a pretty good one, because they can afford some of the biggest law firms that money can buy.

City Hall is in a tough position and needs to be able to work something out because the building still needs to go up. Mayor Ed Lee already made them one offer and it was rejected. This is big money and a big test for Mayor Lee.

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