Supervisor Norman Yee, seen here speaking at a news conference in support of Prop. C on May 31, 2018, spearheaded the effort to get the universal subsidized childcare measure on the ballot. A group of business and property owner organizations have filed suit seeking to block the measure, which increases the gross receipts tax on commercial rents by 3.5 percent starting January 1. (Kevin N. Hume/S.F. Examiner)

Business groups sue SF over universal childcare measure on June ballot

Business organizations have filed a lawsuit seeking to invalidate the San Francisco Universal Childcare for All initiative, or Proposition C.

The measure, which aims to subsidize early education by raising the gross receipts tax on commercial rents by 3.5 percent starting January 1, was narrowly approved by 50.87 percent of San Francisco voters in the June 5 special election. Once implemented, it is expected to generate some $150 million in revenue annually.

But the lawsuit, filed August 3 by the Howard Jarvis Taxpayers Association, the Building Owners and Managers Association of California, the California Business Properties Association, and the California Business Roundtable, is challenging the required vote threshold at which the measure passed.

The groups assert that the tax hike constitutes a “special tax” and required a two-thirds majority to pass under the state constitution.

Proponents of the measure argue that because it was placed on the ballot through a voter signature initiative, it legitimately passed by a simple majority.

At the heart of the issue is a state Supreme Court case called California Cannabis Coalition v. City of Upland. The court found that tax measures proposed by voter initiative are exempt from some of the procedural standards required for those proposed by local government agencies or legislators, although that ruling did not decide on the vote threshold.

“The California Supreme Court recently clarified that certain restrictions bind local officials but do not bind the voters themselves,” said John Cote, a spokesperson for the City Attorney’s office. “San Francisco is confident that when voters act through the initiative process a simple majority vote is required, rather than the two-thirds majority required when local officials act. It is important to stand up for the rights of the voters, and we are doing just that.”

But the plaintiffs contend that The City’s interpretation of the Supreme Court ruling does not hold up.

“While there has been speculation in the media that the decision’s reasoning was one step toward a conclusion that a city-coordinated ‘initiative’ could reduce the constitutionally-mandated vote requirement for a special tax, plaintiffs contend that is a misrepresentation of law and that the decision never so held,” reads the lawsuit.

“The City of San Francisco is relying on speculation of the Upland decision, but not the decision itself,” said Laura Murray, an attorney with the Howard Jarvis Taxpayers Association.

According to Murray, the increase could come at the cost of San Francisco renters who could see the tax “built into their leases,” as well as the “health of the business climate” in San Francisco.

“It’s a really high gross receipts tax,” she said.

SEE RELATED: Child care advocates point to critical need for funding ahead of election

Supervisor Norman Yee, who spearheaded the effort, pointed out that San Francisco’s gross receipts tax is currently the lowest in the country.

“Large corporations have benefited a lot from Trump. For them to cry about 3.5 percent increase [is something] I don’t understand,” he said.

The childcare measure faced opposition from its inception. A dueling measure proposed by Supervisor Ahsha Safai sought to tap into the same revenue stream for affordable housing and homeless services at a lesser, 1.7 percent increase to the tax.

Language in Safai’s measure, which required a two-thirds majority vote to pass, included a “poison pill” provision that if both measures were approved, the one with the most votes would become law. Yee had previously placed a similar version of proposition C on the ballot through the Board of Supervisors, but the signature drive was initiated to take advantage of the lower threshold for passage.

The lawsuit argues that both types of propositions should be treated equally. “Whether city leadership places a special tax measure on the ballot by incubating an initiative or by going directly through its Board of Supervisors, the measure requires a two-thirds vote under the California constitution to pass,” according to the lawsuit.

Yee said that the lawsuit could impact the planned January 1 implementation of the tax increase.

“We will move forward as if everything is fine even though a determination has not been made on this issue,” he said. “We can set up the mechanism to collect [the tax] and put it on reserve and not spend the money. Or we can spend the money and if we lose, The City would have to reimburse the property owners.”


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