(S.F. Examiner file photo)

As SF faces big budget deficit, tax hikes land on ballot

Mayor and supervisors in talks over dueling gross receipts tax measures

As San Francisco faces a more than $1.5 billion budget deficit over the next two years, city officials are turning to tax measures to generate revenue to avoid deep cuts.

One measure placed on the ballot Tuesday was an “overpaid executive” tax. Another was a tax hike companies would have to pay on stock-based compensation.

There are also dueling measures regarding how to reform San Francisco’s gross receipts tax, one from Mayor London Breed and one from the Board of Supervisors, reflecting a debate over how much increased revenue the reform should generate. Talks are ongoing to reach a compromise.

Tuesday was the deadline to introduce tax measures for the November ballot. They come as The City is facing a massive budget deficit over the next two years as a result of the COVID-19 pandemic and an economic downturn. Breed has told city departments they must come up with 10 percent in cuts next fiscal year, growing to 15 percent in the subsequent year.

Supervisor Matt Haney placed on the November ballot with at least four signatures a tax on companies whose executives earn significantly more than their workers that could raise up to $140 million annually. The tax would go into effect in 2022.

He argued that the revenue was needed to support Department of Public Health services and employees.

“We absolutely need more health care workers in our city,” Haney said. “General Hospital was understaffed with nurses even before this pandemic hit.”

Supervisor Gordon Mar revived his proposal from last year to increase a tax on stock-based compensation. The measure would increase the payroll tax companies have to pay on stock-based compensation by 1.12 percent for a total of 1.5 percent, which could generate between $50 million and $100 million annually. The tax would apply to compensation paid dating back to January 1, 2020. The measure was placed on the ballot Tuesday with the support of Supervisors Hillary Ronen, Dean Preston and Aaron Peskin.

“As we all grapple with a monumental budget crisis due to COVID-19, we should have every option on the table to increase city revenue to protect and preserve vital services and programs. That includes the CEO tax, the real estate transfer tax, the gross receipts and stock compensation tax,” Mar said. “We cannot balance the budget on the backs of city workers or on the backs of the vulnerable communities who rely on our programs and services now more than ever.”

Preston previously placed on the ballot an increase to the real estate transfer tax on the sale of properties valued at more than $10 million that could generate about $150 million a year for affordable housing and to help pay off rents owed due to impacts of COVID-19.

Meanwhile, Breed has placed on the ballot a long-promised reform to the gross receipts tax with her own signature that “contains no significant tax increases.” The measure simplifies the way the city taxes businesses by eliminating what is left of the payroll tax, which was being phased out as The City transitioned to a gross receipt tax. It also generates the revenue from a homeless tax measure that’s currently caught up in litigation. She said she would also introduce the measure through the board to debate the details of a tax increase.

Board President Norman Yee, along with Supervisors Sandra Fewer, Mar and Peskin, placed on the ballot a competing measure and also introduced a measure at the board for further debate.

Yee said his proposal creates “a more equitable gross receipts where more profitable, higher-earning businesses pay modestly more.”

“This measure will generate an additional $181 million in ongoing revenue to help close the city’s budget deficit, prevent cuts to critical public services, reinvest in jobs and community revitalization,” Yee said.

The deadline to withdraw the measures submitted with signatures is the end of July, which is when an agreement would need to be reached by.

“It is my hope that we can land on a unified tax measure that has consensus,” Yee said.

It’s unclear how much the other tax proposals are caught up in the negotiations.

Haney said he plans to keep his measure on the ballot “regardless of the outcome of those negotiations.”

“We need to address inequality. We need to have the resources to ensure our health system can respond,” Haney said.

His tax measure drew support from labor leaders Tuesday. Jennifer Esteen, a psychiatric nurse at Zuckerberg San Francisco General Hospital and a member of Service Employees International Union 1021, said that the wealth and income gap has led to some of the challenges seen on the streets like people living in tents who “I know that they are not being well cared for.”

“We need more nurses. We need more doctors. We need more frontline staff to do the basic work of providing health care,” Esteen said.

Haney’s tax measure would apply to companies that pay their CEOs 100 times or more than their average worker and impose at least a .1 percent surcharge to their annual business tax payment.

The tax would take a simple majority to pass since the funds are not dedicated to a specific use, but Haney said the intent is use the money to support health care workers under the Department of Public Health.

The business sector was critical of the tax hike measures and warned they could hinder an economic recovery.

Jennifer Stojkovic, executive director of sf.citi, an advocacy group for tech companies, criticized Haney and Mar for not consulting with the tech industry before placing the measures on the ballot “in the midst of the worst economic crisis in a century.”

“It’s wholly disingenuous for the Board of Supervisors to propose these taxes as a means for companies to ‘pay their fair share’ during the economic crisis, when countless major tech companies have implemented pay cuts and been forced to lay off thousands of workers while the City of San Francisco has yet to lay off or cut salaries for a single worker,” she said.

Stojkovic added that The City was facing a $420 million deficit even before the pandemic hit and that “throwing countless tax measures on the ballot will not solve our crisis.”

Rodney Fong, President and CEO of the SF Chamber of Commerce, criticized the board for “desperately trying to fill in City Hall’s current budget deficit” and warned large employers would relocate to “more affordable cities.”

“It makes no sense to suggest tax increases this year: our local economy is still struggling from the COVID-19 pandemic, we’ve already seen several major employers leave the City, and our unemployment rate is at a record high,” Fong said. “These tax increases will stall our City’s economic recovery.”

jsabatini@sfexaminer.com

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