Supervisor Peskin to propose commercial rent tax hike for June ballot to fund transit

San Francisco voters last year soundly defeated Mayor Ed Lee’s proposed sales tax hike that would have generated $100 million annually for transit needs.

But voters may have another shot to fund transit.

Today, Supervisor Aaron Peskin plans to propose a June 2018 ballot measure to impose a Commercial Rent Tax that would increase the gross receipts tax rate on rents received by landlords from commercial properties. It would take a two-thirds vote to approve since it would dedicate the revenue to transit needs.

Peskin wants to generate the same amount sought by the unsuccessful sales tax hike — $100 million annually — for similar transit needs identified when The City asked voters to approve the sales tax in 2016. That includes funding for infrastructure, including neighborhood express bus lines, increased transit operations, new vehicles, a downtown Caltrain extension, road repaving, bike lane facilities and pedestrian safety improvements.

Commercial building owners currently pay in taxes up to 0.3 percent of the rents they receive from the office tenants under the 2012 voter-approved Proposition E, which phases out San Francisco’s tax on a business’ payroll and replaces it with a tax on a business’ gross receipts. The measure also set the gross receipt tax rates by industries.

Peskin’s tax proposal would impose an additional tax of 2.5 percent on the gross receipts from the lease of commercial office space.

“I think this is a very fair percentage that we are proposing,” Peskin said, noting commercial landlords have had a “windfall” since the economy has boomed after 2010.

The proposal has a small business and nonprofit exemption, which means property owners wouldn’t pay the tax increase on the rent they receive from small businesses and nonprofits. It’s being proposed as a flat tax, but Peskin said that could end up being a ceiling with lower rates for smaller buildings as negotiations continue.

It would take six votes by the board or four supervisor signatures to place the measure on the ballot.

Peskin argued the tax hike makes sense since there is a “real correlation” between impacts on transit and the growth of office space in San Francisco during the tech boom. He added that commercial landlords “are enjoying some of the highest per-square -foot rents.”

He also noted his proposal comes as the Trump administration is “on the precipice of handing out some of the largest corporate tax breaks in history.”

When the regressive sales tax hike was proposed, Peskin opposed it along with supervisors Jane Kim, and Norman Yee. Peskin argued that it was a wrongheaded policy for The City to be “balancing our budget on the backs of the poorest and most vulnerable in our city.”

Peskin’s proposal does seem to get ahead of final recommendations from the San Francisco Transportation Task Force 2045, which was established by the mayor in partnership with the Board of Supervisors following the failed sales tax to recommend what to do next.

The task force, which Peskin’s legislative aide co-chairs, intends to issue final recommendations in January. It has explored a gross receipts rate hike on rents along with a number of other ideas.

But Peskin said, “It is an iterative process and if we are going to make a June ballot the conversation has to start somewhere. I think this is a good starting point.”

The Building Owners and Managers Association of San Francisco represents some of the largest commercial properties in The City and has participated in the task force discussions.

John Bozeman, BOMASF’s director of government affairs, said a gross receipts hike “is something that we’re reviewing and don’t have much comment at this time.”

He said he hadn’t had a chance to “digest the number” in Peskin’s proposal, which he hadn’t seen yet, but the issue is “an ongoing conversation we need to have with Mr. Peskin and the task force.”

Bozeman added, “We need to make sure that the revenue that’s raised [for transit] is sustainable.”

Ed Reiskin, head of the San Francisco Municipal Transportation Agency, didn’t weigh in specifically on Peskin’s proposal Monday, but said, “The transportation system in San Francisco and the region has significant operating and capital needs, so we welcome efforts to address those needs, which are being systematically evaluated by the mayor’s and Board of Supervisors’ leadership in convening the Transportation 2045 Task Force.”

Joshua Sabatini
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Joshua Sabatini

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