Mayor London Breed and the Board of Supervisors have reached an agreement over a November gross receipts tax measure that would immediately raise rates on the information sector and release hundreds of millions of dollars for homeless and childcare services.
Breed and Board President Norman Yee announced the agreement Tuesday as the board’s Budget and Finance Committee voted to send the measure to the full board for a vote to place it on the Nov. 3 ballot.
The agreement was expected after the committee made a number of changes last week to Yee’s gross receipts tax measure. Breed had also introduced a competing measure, which she will now withdraw.
“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 his 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.”
Yee said “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.”
The measure raises the rates next year on the information sector, which includes The City’s large internet companies, to match them with the rates applied to financial and professional services, which would generate an additional $30 million in revenue for The City in 2021.
But other stepped increases would begin in 2022 and phase in through 2024 when it would generate about $97 million annually for the general fund, according to an economic analysis released Tuesday by the City Controller’s chief economist Ted Egan. Sectors slated for increases between 2022 and 2024 also includes the information sector, along with the biotechnology, real estate and financial services sectors. Tax hikes in 2023 and 2024 could be delayed a year if the economy is slow to recover based on gross receipts.
Another provision in the measure would allow The City to spend hundreds of millions of dollars for childcare and homeless services from two tax measures approved by voters in 2018 that are caught up in litigation.
The City has been collecting the tax revenue but the City Controller has impounded the funds due to the litigation. But the measure includes a a “backstop” increase in gross receipts tax rates to mirror the 2018 measures that would go into effect for 20 years only if the City loses the litigation, which would allow the controller to release the funds. This would give The City about $930 million next year for these needs.
Egan said that that the tax measure would actually increase employment in the early years due to releasing the funds from the 2018 tax measures. He said it would “would raise the number of jobs by about 5,500 in 2021, and 1,900 in 2022.”
Some sectors would see a tax break in the initial years and more small business would be exempted from the gross receipts tax.
Industries including hotels, restaurants, arts and entertainment, recreation, manufacturing and retail would see a reduction in tax rates for three years.
Small businesses with $1 million or less in gross receipts are exempted from the tax. Under the measure, the exemption would increase to small business with gross receipts of $2 million or less.
The measure sees through The City’s 2012 voter-approved measure to transition from a tax on a business’s payroll to a gross receipts tax by eliminating what remains of the payroll tax.
While business advocates said they welcomed the changes to the proposal, they also raised concerns about other tax measures slated for the ballot, including a tax on stock compensation from Supervisor Gordon Mar and a tax on businesses if their CEO pay is 100 percent more than the median pay of their workers, which is proposed by Supervisor Matt Haney.
Jennifer Stojkovic, a spokesperson for sf.citi, a tech advocacy group, said the “amendments are a step in the right direction with economic indicators and phased rate increases.”
But she said that “sf.citi remains concerned that the proposed GRT measure, combined with the onslaught of other new business tax proposals, will drive tech businesses out of San Francisco and create additional burdens for those who remain.”
“What local leadership fails to see is that tech’s exodus would strain the city’s revenue streams even further and worsen San Francisco’s economic outlook for years to come,” she said.
The full board is expected to vote next week to place the measure the ballot.