Three San Francisco ballot measures levying new or higher taxes on the business community coasted to victory by wide margins in Tuesday's election.
With virtually all precincts reporting results just before 11 p.m., Prop. I, which will raise the transfer tax on real estate sales, had just under 58% of votes in favor. Prop. F, which will overhaul the city's primary business tax, the gross receipts tax, had more than 68% in favor. Prop. F will raise taxes sharply for some businesses while cutting them for others. Prop. L, which imposes a new tax on companies with "overpaid" executives based on a city formula, was ahead with more than 65% of the vote.
All three tax measures seek to generate additional revenue for affordable housing, Covid-19 relief and other public services. Each required simple majority votes to pass.
Prop. I is expected to generate some $196 million annually by doubling the city’s real estate transfer tax from approximately 3% to 6% for both residential and commercial properties sold for $10 million or more. It was authored by District 5 Supervisor Dean Preston.
"I'm thrilled to see the decisive initial returns in favor of Prop. I. This will provide crucial funding for rent relief and affordable housing," Preston said earlier in the evening.
The measure was heavily opposed by real estate and business interests, with more than $4 million raised against it in the months leading up to the Nov. 3 election. Opponents argued that it would effectively chill real estate transactions and add to taxes that are already some of the highest in the country, potentially resulting in more companies decamping from San Francisco.
Affordable housing advocates celebrated Tuesday what they described a clear victory.
The San Francisco Planning Department this summer estimated that the city is underfunding affordable housing by $500 million annually. In light of the funding shortfall and the city falling significantly behind on meeting its affordable housing targets mandated by the state, San Francisco will be expected to build even more housing in the coming years.
Peter Cohen, co-director of the Council of Community Housing Organizations, said of Prop. I that "we are fortunate to have a new revenue source for affordable housing and housing preservation right at the time we need it most in the recovery from Covid-19 economic impacts."
"With the Housing Stability Fund legislation and the Rent Relief Fund legislation that were both adopted unanimously by the Board of Supervisors last week, this new Prop. I revenue can be put to immediate use," said Cohen. "It's a good outcome for affordable housing and housing justice."
Prop. F, the Small Business and Economic Recovery Act, was spearheaded by Board of Supervisors President Norman Yee and Mayor London Breed and is intended to shift the city tax burden to larger businesses, "jump-start'' the economy and “create a fairer business tax system," according to its authors.
A combination of a charter amendment and ordinance, Prop. F eliminates the city’s current tax on payroll expenses and instead raises its gross receipts and administrative office tax rates in phases. It also expands tax exemptions for small businesses; eliminates the tax credit offered to businesses that pay a similar tax in other jurisdictions; and changes business registration fees.
It was officially opposed by the Libertarian Party of San Francisco and the California Taxpayers Association.
Under Proposition L, or District 7 Supervisor Matt Haney’s Tax on Businesses with Disproportionate Executive Pay, San Francisco voters on Tuesday granted the city permission to tax public and private businesses whose CEOs are “overpaid” — those who make an annual income that is more than 100 times higher than the median income of its employees. There are higher rates at 200 times the average employee and at every increment of 100 up to 1,000 times.
The additional gross receipts tax applies to companies with annual revenues of over $1.7 million. The city has estimated that Prop. L would add between $60 million and $140 million annually to its General Fund.
The 0.1% surcharge added to qualifying businesses’ annual tax payments will take effect in 2022. The measure’s definition of CEO pay includes bonuses, stock options and other forms of compensation.
As a general tax, Prop. L’s revenues could be spent for any purpose.
Haney has said that the measure will incentivize companies to invest in their workers and not just their top leaders, and that the additional tax can be avoided by raising employees’ wages. It would also allow the city to hire “hundreds of nurses, doctors, and first responders,” he said.
San Francisco Chief Economist Ted Egan has said that the retail, financial services and information sectors are likely to bear a disproportionate share of the tax burden. Due to the Bay Area’s high average salaries, however, Egan projected that very few companies would be subject to the tax.
Jay Cheng, public policy director for the San Francisco Chamber of Commerce, described Tuesday's results as a "political message as much as an economic impact."
"Voters were pretty loud and clear that they wanted to see taxes increase in San Francisco, and that will have long term impacts on our economy. You have to respect that voters knew what they were voting for," said Cheng. "I think we are looking at ... a national election with local impacts. Folks came out to vote against Trump and when they did they voted straight down the ballot. I think companies are probably digesting that information right now and what that means for their futures."