SAN FRANCISCO (Map, News) - As high-rises fill the sky of the South of Market neighborhood, so do the coffers of a community fund that will put $34 million up for grabs in the next four years for neighborhood and nonprofit groups.

Fears that high-priced development would force longtime residents out of the downtown neighborhood were behind a controversial demand by Supervisor Chris Daly that developers pay unprecedented amounts of “impact” fees to help prevent gentrification of the area.

In 2005, developers agreed to pay an unprecedented $25 per square foot in exchange for The City lifting zoning height limits to allow for a 55- and 45-story private residential towers in the Rincon Hill area of the South of Market, or SoMa, neighborhood. Sales of these homes r from $500,000 to $2 million.

When the deal was taking shape, critics said Daly was leaning on developers to shore up funding for organizations certain to, in turn, give him political support. Mayor Gavin Newsom criticized the legislation as using “strong-armed” tactics when he signed it into law in August 2005.

The millions of dollars now coming into the fund are supposed to provide services for those most likely to be forced out of the neighborhood, including low-income residents, immigrants, youths, the disabled and people who were formerly incarcerated, according to a plan for the impact fees approved last Tuesday by the Board of Supervisors.

SoMa is bordered by Market Street to the north, The Embarcadero to the east, King Street to the South and South Van Ness Avenue and Division Street to the west.

SoMa resident Jim Mekko said that eight to 10 years ago the downtown neighborhood was “ground zero” of the dot-com boom and bust and the funds would bring needed relief to the community.

The median income of a SoMa household was $46,314, according to the 2000 U.S. Census; the area has a higher percentage of adults who are under 65 years of age and live in poverty — 18 percent — compared with the whole of The City, which is 8 percent.

To help determine how the millions — called the SoMa Community Stabilization Fund — would be doled out, an advisory committee was chosen from a pool of applicants and approved by the Board of Supervisors.

The plan forwarded Tuesday by the city legislators provides spending guidelines — from down-payment assistance to job training — put together by the advisory committee.

Daly praised the committee’s work, saying it would put the money “into the hands of the community folks that can do good to mitigate some of the negative impacts from very large development that is happening in the South of Market.”

The next step would be a “request of proposal” that city officials say will be sent out by this summer so interested organizations can apply for a portion of the funds, which at that point, will total about $7 million.

The advisory committee is charged with making recommendations on what organizations should receive the funding.

A large percentage of funds won’t be given to any one organization, said Steve Sarver, who sits on the advisory committee and co-founded the San Francisco Soup Company.

Another committee member, Ada Chan, a community development consultant, expressed concern that with the lean budget year, groups may put pressure on the advisory group to use the fund “to fill their budget gaps with this money.”

Don Marcos, executive director of the Mission Hiring Hall/South of Market Employment Center, said that as SoMa develops, the question is “Can an established low-income community co-exist with a high-income … community?”

The SoMa fund will ensure that answer is a “yes,” he said.

Developers should count on future fees

Imposing community impact fees on developers similar to those applied to builders with projects in the South of Market area would likely happen for future development areas, one city legislator said.

“No area plan improvements that create greater development opportunities and greater opportunities to profit from development will go forth in the city of San Francisco without having mitigation or impact fees that will provide for the enhancement of those areas,” Supervisor Jake McGoldrick said.

Future fees, however, should have more money going to such needs as public transportation and a lot less going to nonprofits and social programs, which he called “kind of mushy money.”

Without expressing support for similar fees in the future, other city leaders, including Supervisor Sean Elsbernd, said the current process for distributing the funds was going well.

Mayor Gavin Newsom, who criticized the demand for the fees when the deal was approved in 2005, has now given his support to “the process and protocol by which the resources from the fund will be distributed,” his spokeswoman, Giselle Barry said.

Gabriel Metcalf, executive director of the San Francisco Planning and Urban Research Association, a city think tank, said that while he had concerns about how the money would be spent, he was withholding judgment for now.

“I sure hope they spend this money in a way that brings broad public benefits instead of subsidizing the political agenda of one group,” Metcalf said.

jsabatini@examiner.com