San Francisco embraced several tax measures on the ballot Tuesday, despite the recession and the millions of dollars spent arguing that raising taxes during a pandemic would increase the city’s economic woes.
There were still about 90,000 uncounted votes Wednesday, but the four major tax measures were leading by such wide margins that their victories were all but certain.
San Francisco voters are generally friendly toward new taxes — particularly when they are levied on big businesses — and Tuesday’s election revealed how the current recession failed to change that. The victories were welcome at City Hall, which recently struggled to close a $1.5 billion deficit and is bracing for even more pain.
But it’s unclear whether the extra revenue generated by the new tax measures will be enough to stave off service cuts and layoffs in the coming years.
The measures “will help stabilize our budget for now, although we know there remains major challenges with the ongoing economic crisis around COVID,” said Jeff Cretan, a spokesman for Mayor London Breed. “We’re moving forward with recovery, but it’s going to be a really long road.”
The mayor and Board of Supervisors were most immediately concerned about Proposition F, a massive business tax overhaul, and Proposition A, a $487.5 million bond measure that will go to homelessness, parks and mental health programs. Both measures were critical for keeping the city’s delicately balanced $13.1 billion budget intact.
But the budget for the next two fiscal years — which was signed by the mayor in October — was also balanced on the assumption that there would be some economic recovery by the end of the year, and that FEMA would continue reimbursing the city for COVID-19 related expenses. Both prospects are uncertain.
Meanwhile, Prop. 15, a California ballot measure that would remove property tax protections for commercial buildings, would generate $733 million annually for San Francisco’s schools and government. But that measure was trailing Wednesday with 48% of the vote.
Ben Rosenfield, the city controller, is expected to release another report on San Francisco’s economy next week. Given the slow economic recovery from the pandemic thus far, many are planning for that analysis to be bleak.
“We’re far from out of the woods,” said Supervisor Aaron Peskin. “While (the new taxes) are certainly a great shot in the arm, we’re going to have to take this day by day and month by month. It’s a long path to recovery.”
Other taxes passed Tuesday include: Proposition J, a parcel tax that is expected to generate about $48 million a year for San Francisco Unified School District’s teachers; Proposition L, a tax on companies with highly paid CEOs — dubbed the CEO tax — which could generate between $60 million and $140 million a year for the city’s general fund; and Proposition I, a real estate transfer tax increase on transactions above $10 million, which could generate between $13 million and $346 million a year, most likely for affordable housing.
Prop. I, which captured 58% of the vote Wednesday, was the most hotly contested measure in San Francisco. Opponents spent nearly $5.5 million against it in a campaign largely organized by the Chamber of Commerce, which argued the tax would hurt the economy.
Rosenfield’s office also concluded that Prop. I will hurt the economy by discouraging property investment and making land more expensive, leading to higher housing construction costs. A city analysis said it will kill 625 jobs, half in real estate and construction, and cut $50 million from the city’s gross domestic product.
Supervisor Dean Preston, author of Prop. I, said he was “encouraged” by the results, and proud of voters undeterred by the deluge of campaign ads against the measure.
“The message from San Francisco is that voters, especially in a recession, are going to insist that those who are doing really well are paying their fair share toward recovery,” he said.
The Board of Supervisors promised that the money generated from Prop. I would go toward affordable housing and rent relief for those struggling during the pandemic. But that’s not guaranteed, as the tax money will go into the city’s general fund and could be used for any purpose. Transfer tax revenue is also expected to drop compared to prior years as the real estate market cools, and Rosenfield’s office said the tax is “highly volatile.”
On Wednesday, Jay Cheng, public policy director of the Chamber of Commerce, said he was concerned about the long-term impact of Prop. I. But, he said, San Franciscans made a clear decision in favor of the measure — and they have to respect that.
“We spent enough money to educate them on the issue, and they still made their decision,” Cheng said. “We are very committed to the economic recovery to the city, but we think that the taxes will make it more difficult.”
The Bay Area Council, another business group, offered a much sharper criticism of Tuesday’s results, calling the new taxes “untimely and misguided.”
“The middle of a pandemic-fueled shutdown is the wrong time to raise taxes,” Jim Wunderman, the council’s CEO, said in a statement. “The drip, drip, drip of new general taxes is going to erode the already shaky foundations of local economies decimated by the worst downturn in generations.”
Rosenfield’s office concluded that Prop. L, the CEO tax, is likely to hurt employment and investment. It will also increase the cost of doing business, leading to fewer residents and spending. The industries most likely to be affected are retail, finance and information, which is predominantly tech, and the tax would have a “high level of volatility” given fluctuations in executive compensations.
In contrast, Prop. F, the business tax overhaul, is expected to provide a modest boost of 3,444 jobs by 2025, because it eliminates the city’s payroll tax, which gives companies an incentive to hire workers. But it’s a small gain with the city expected to lose 100,000 jobs this year due to the pandemic.
Ruth Bernstein, CEO of EMC Research, said that San Francisco voters are generally receptive to measures that invest in the community. But, given the complexity of some measures and the focus on the presidential election, she’s skeptical many voters understood what they were voting for.
Still, all the tax measures passed handily. By Wednesday, Prop. F had 68% of the vote, Prop. I had 58%, Prop. J had 75% and Prop. L had 65%.
Peter Cohen, co-director of the Council of Community Housing, a coalition of affordable housing advocates, said he was “elated that S.F. voters continue to show up strong” when it comes to new revenue measures. Cohen strongly supported the real estate transfer tax increase.
Voters “just know in their gut that there are big winners in this town,” he said. “And they are fine with expecting those big winners to put out their paychecks.”