Proposition C is the most contested and consequential of the five local initiatives on the ballot this fall. It would impose an additional gross receipts tax, paid primarily by the largest businesses in San Francisco, and dedicate those funds to services for homeless people and the prevention of homelessness. The funds involved are large: The Controller’s Office estimates the tax would raise between $250 and $300 million annually; this is approximately a 30 percent increase in overall business tax revenues, and a 5 percent increase in total General Fund revenue. It would nearly double the amount of money allocated to homelessness services.
The tax is a good idea. But while homelessness is a critical issue that deserves increased funding, this initiative is a bad way to address it. Citizens would be much better off defeating this initiative, and then returning with a straightforward business tax increase that does not prescribe how the money is to be spent.
The case for raising business taxes
As has been explained in previous columns, San Francisco is facing growing structural budget deficits. While this should partly be addressed through disciplined budget cuts, it will also require increased revenues. And since the economy is currently booming, this is a logical time to raise taxes. The key question is whether a tax on business is both fair and efficient.
Taxing big business is often not as progressive as it first appears, because businesses will attempt to pass along the cost of the tax either to employees (in the form of reduced wages) or customers (in the form of higher prices). However, given how much demand there currently is for businesses to operate in San Francisco (per the Federal Reserve Bank of St. Louis, the unemployment rate was an astonishingly low 2.4 percent as of August), businesses today may choose to absorb much of the cost of the tax in the form of reduced profits rather than risk losing employees or customers. This is especially true since federal business taxes, which are generally larger than city business taxes, were just significantly lowered in the 2017 tax overhaul. Hence, as long as the economy is booming, a tax on big business is probably reasonably progressive.
I would also argue that the proposed new business tax is reasonably efficient. It should be easy and inexpensive to administer, since we already have similar business taxes. Also, raising business taxes today when businesses are clamoring to operate in San Francisco gives the City an effective tool to stimulate business activity in the next downturn by lowering those same business taxes in the next recession. (Indeed, I believe it would be smart for San Francisco to adopt the general policy of raising business taxes during cyclical upswings and lowering them during cyclical downswings.)
The case against dedicating these funds towards homelessness services
The problem is not that homelessness is the wrong priority. Rather, the problem is that it is very poor governance for voters to mandate specific uses of funds. Doing so practically ensures that money will be spent ineffectively, because voters cannot assess the specific ways funds should be allocated – both today and indefinitely into the future – in order to achieve a complex goal such as reducing homelessness.
A summary of the specific provisions of Proposition C is as follows:
At least 50 percent of revenues (of which at least 45 percent dedicated to homeless youth and families) must be spent on permanent housing expenditures, including rental subsidies (for up to five years) for homeless people re-housed in private housing; permanent supportive housing (for the chronically homeless) along with on-site supportive services; and acquisition or master lease of single-room occupancy buildings
At least 25 percent for mental health services for homeless people
Up to 15 percent for measures to prevent homelessness
Up to 10 percent for homeless shelters, including Navigation Centers and bathrooms, showers, and handwashing stations for homeless people
I have no idea whether these are the right items to prioritize, and the right amounts to spend on them. Do you? And can anyone really claim to know with confidence that these items and these amounts should be hard-coded into the law unless and until another ballot initiative changes them?
Proposition C is a specific instance of a general San Francisco problem: overeager voter-mandated spending. A report from the Controller’s Office 18 months ago stated that, “The prevalence of voter-adopted spending requirements is unique to San Francisco.” Their review of every single city and county in California found only 10 voter-adopted baselines in total throughout all of California outside San Francisco. But as of April 2017 San Francisco all by itself had nineteen voter-adopted baselines. Even more striking, as of April 2017 baseline spending was projected to grow to 30 percent of all general fund spending – and that is before the impact of Proposition C.
Voters should communicate their priorities to elected officials, allow them to make the necessary decisions, and then hold them accountable for results. San Francisco is alone among cities and counties in California, if not the entire nation, in mandating to our elected officials how they must spend our money. That is no way to run a government.
Anyone who wants to know why City Hall seems to spend our money so inefficiently should look in the mirror.
How you should vote on Proposition C
A tax increase at this point is warranted and a tax on big business is a sensible way to do it. The mandated spending, however, must stop. The road to dysfunctional government is paved with the good intentions of voter set-asides. We should let our elected officials figure out the best policies to accomplish what the voters demand, and then we should hold them accountable for results.
Vote no on proposition C. Let’s get a clean tax increase next election cycle, and then make it clear to City Hall that their reelection depends in large part on their ability to address the homelessness crisis.
Patrick Wolff lives in the Sunset District. Email him at email@example.com.