SF Mayor Breed, supervisors agree on business tax overhaul — would free money for homeless

San Francisco Chronicle, July 21, 2020

By Dominic Fracassa

San Francisco Mayor London Breed and the Board of Supervisors have reached an agreement to bring a unified business-tax reform measure to voters on the November ballot.

If the measure passes — it needs only a simple majority vote — San Francisco would be able to unlock hundreds of millions of dollars in revenue that’s been collected, but remains off-limits and unspent because of ongoing legal disputes. They announced the deal on Tuesday.

The announcement puts a formal end to weeks of closed-door negotiations between Breed’s administration and the board that centered on how quickly to raise tax rates and and for what industries.

It was a conversation shaded in large part by the nearly $2 billion hole in the city budget caused by the COVID-19 pandemic that officials must confront. Breed sought to go easier on certain sectors that have been among the hardest hit by the shattered economy.

“I’m proud we’ve come together on a consensus measure that will reform our business taxes, release critical funding for homelessness and childcare, and add new revenue that will help support our city as we eventually emerge from this pandemic,” Breed said in a statement. “Our city faces incredible challenges in the coming months and years, but we’ve shown that when we work together we can make a difference for the future of San Francisco.

Restaurants, retail, manufacturing, arts organizations and hospitality businesses will see no increases through 2024 under the proposal. Other industries — like the technology sector — will see increases phased in over time as the broader economy recovers.

“This unified measure cuts to the heart of what we need most right now: bold reform to our business tax structure and much needed relief for our struggling small businesses and working families,” said Supervisor Norman Yee.

Tech companies and financial services firms would be subject to the steepest increases, with 10% hikes starting in 2022, increasing 5% each year through 2024.

One element of the measure would free up the roughly $300 million in business taxes that the city has collected but cannot be spent pending the outcome of two court cases. Pro-business and anti-tax groups have sued the city, claiming officials illegally allowed a pair of 2018 ballot measures to pass with simple majorities, rather than two-thirds supermajorities.

The city won both cases at the trial court level, but both have been appealed. While the taxes are still being collected, City Controller Ben Rosenfield has said the city cannot spend the money until the cases are fully resolved, which likely will take years.

To get around that blockade, Breed’s proposal would allow the city to start using the money it’s already collected for homelessness and child care programs under those previously approved ballot measures.

If the city loses its court case, and those prior taxes are struck down, the city could use the new tax, which would replace them, to pay for court-ordered refunds and to continue funding the child care and homelessness programs. If the city wins, it could begin freely using the 2018 taxes and the new taxes would be shelved.

Breed proposed a separate parcel tax for the November ballot that would generate $50 million annually for the San Francisco Unified School District’s teachers. The measure would replace a nearly identical parcel tax San Francisco voters passed in 2018. That measure, Proposition G on the June 2018 ballot, is also tied up in litigation, though the city has also won that case at the trial court level.

The tax measure would also phase out the city’s payroll tax in 2021 and replace it with an across-the-board increase in the gross receipts tax — a measure of a company’s total gross revenues. It would also raise the revenue threshold at which businesses would be subject to the gross receipt tax to $2 million, from $1.17 million.

The business-tax-reform measure still needs to be passed by the Board of Supervisors before it can reach the ballot.

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