Supporters of Proposition C, the “Our City, Our Home” measure, and another Proposition C focused on childcare funding, cheer during a rally across from Civic Center Courthouse, where a court case attempting to kill the measure was being heard on Wednesday, July 3, 2019. Both measures faced legal challenges because they were approved by a simple majority vote rather than by a two-thirds majority. (Kevin N. Hume/S.F. Examiner)

Legal victory over ‘Big C’ homeless services tax brings more certainty to Breed’s budget proposal

City Controller’s memo confirms release of funds tied up in litgation

A legal victory this week upholding a 2018 voter-approved tax on big businesses to fund homeless services gave The City more certainty around Mayor London Breed’s budget proposal.

That’s because the budget was balanced with the assumption The City would see the revenue from the measure. The proposal is pending approval this month at the Board of Supervisors.

While The City was collecting the tax from Proposition C, commonly referred to as “Big C,” City Controller Ben Rosenfield held the money in reserve given the legal risks.

But with Wednesday’s decision by the California Supreme Court to decline to take up an appeal by the Howard Jarvis Taxpayers Association of a ruling in The City’s favor, there remain no more legal issues. Prop. C is now law.

“Accordingly, the Controller’s Office will immediately release our reserve of Big C funds that the City has collected to date and will collect going forward,” Rosenfield said in a memo to Breed and the Board of Supervisors Thursday afternoon.

“This is a huge sigh of relief and victory scream simultaneously,” said Supervisor Hillary Ronen, who serves on the board’s budget committee. “The budget was balanced in a relatively painless way because we assumed the usage of Big C money.

“Now we can get to work on implementing the projects we funded without a pit in our stomach that the rug could be pulled out from under at any moment,” she said.

Rosenfield said in the memo that the budget proposal “appropriates $931 million of Big C funds for various voter-adopted purposes (of which $492 million has been collected to date).”

The measure, placed on the ballot by the Coalition on Homelessness, applies a gross receipt tax on larger companies to fund affordable housing, mental health and other homeless services, generating about $300 million annually.

The City was counting on winning the legal case. But Breed and the board placed on the Nov. 3 ballot Proposition F, a reform of the gross receipts tax on businesses, that if approved would also have allowed The City to spend Prop. C funds.

“These funds are now free of legal risk on the voter threshold issue, regardless of the outcome of the November measure,” Rosenfield said.

Supervisor Matt Haney said that “this means we don’t have to have contingency plans that would involve big cuts to mainly mental health and homelessness services we had already budgeted for.”

But Haney underscored “there’s still a lot riding on the passage of Prop F.”

Prop. F is a major overhaul to San Francisco’s gross receipts business tax that will give more small business tax relief and shift more of the tax burden onto larger business, while raising more revenue over time for The City.

And Prop. F’s passage could also help release funds of another tax measure caught up in litigation.

While “Big C” cleared a legal challenge, there remains pending litigation over two June 2018 tax measures on similar grounds that they needed two-thirds majority to pass, not a simple majority. One of those measures is referred to as “Baby C,” a tax on commercial rents to pay for child care and salaries of early educators.

While the outcome of “Big C” bodes well for “Baby C,” it remains tied up in the courts; funding from the measure is not being released by Rosenfield, but it is assumed in the budget. The funding could also be released if Prop F passes, however.

“The pending budget also appropriates $568 million of funds resulting from the still-contested commercial rents tax measure, and programs those funds for voter-adopted child care expenditures,” Rosenfield wrote in the memo. “Of this total, $135 million supports the General Fund budget. These funds remain at risk, and can only be released following a final court ruling in the City’s favor or voter adoption of Proposition F on the November ballot.”

The other June 2018 measure tied up in litigation is Proposition G, a parcel tax to generate revenue for the San Francisco Unified School District. Rosenfield will continue to hold these monies on reserve pending a legal outcome or if voters approve Proposition J on the Nov. 3 ballot.

“Parcel taxes collected for teacher compensation will similarly be reserved until the legal proceedings conclude, although if Proposition J on the ballot is adopted by a two-thirds vote, it would remove the legal risks on the voter threshold issue going forward and allow the appropriation of future funds collected under the new tax,” Rosenfield wrote.

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