Pedestrians walk past boarded up vacant buildings in the 500 block of Columbus Avenue. A measure proposed for the March ballot would tax property owners with vacant properties. (Kevin N. Hume/S.F. Examiner)

SF may ask voters to approve a vacant storefront tax in March

Supervisor Peskin says proposal to give small businesses ‘leverage in lease negotiations’

To combat storefront vacancies, the Board of Supervisors may vote Tuesday to place a measure on the March ballot to tax building owners who won’t lease their commercial spaces to small businesses.

Introduced by Supervisor Aaron Peskin, the proposal was heard Wednesday by the board’s Budget and Finance Committee, which made several amendments, including adjusting the tax rate.

“We are all aware of the perennial issue of storefront vacancies in our neighborhood commercial districts, which unfortunately have been increasing in recent times,” Peskin said.

He said the tax would compel “bad actor landlords to get off their duffs” and rent their commercial spaces out to small businesses, such as by lowering the amount of rent they seek.

He also said it would prevent landlords from trying to lean too heavily on tenants during negotiations, knowing that without a tenant they will get socked with the tax.

“What this tax does, which is completely avoidable, that we do not want to collect, is give small business lessees leverage in lease negotiations,” Peskin said.

Due to the amendments, the committee will hold a special meeting on Monday, when it is expected to send the proposal to the full board for a vote Tuesday. That is the last scheduled meeting for the board to meet the deadline to place the measure on the March 2020 ballot.

The proposal imposes a tax of $1,000 per linear feet of street frontage if it remains vacant for more than 182 days in a given tax year. The tax was amended Wednesday to start the tax at $250 per linear foot in 2021, $500 in the second year and $1,000 in the third year and beyond. The average storefront is estimated at about 25 linear feet.

The City Controller’s chief economist Ted Egan had estimated the unamended proposal would generate between $300,000 and $5 million annually.

The tax revenues would flow into a so-called Small Business Assistance Fund to “assist the maintenance and operation of small business,” such as to help businesses impacted by public construction projects, offset costs of seismic upgrade work and help with lease negotiations.

To address concerns raised by the San Francisco Chamber of Commerce, which remains critical of the proposal, Peskin also added temporary exemptions to the tax.

If a building owner, for example, is rehabbing or improving the commercial space, it would not be considered vacant for one year following the issuance of the building permit for that work. If a small business is applying for a special conditional use permit to operate in the vacant space, it wouldn’t be deemed a vacant space for six months following an application for the permit. However, if The City doesn’t act on the conditional use permit within six months, the tax wouldn’t apply to the property owner for that tax year.

The tax would apply to “properties in The City’s approximately two dozen neighborhood commercial districts and neighborhood commercial transit districts,” Peskin said. He added, “It would not apply to C-3 or the downtown commercial areas, but would apply to our beloved neighborhood commercial corridors.”

Dee Dee Workman, vice president of public policy at the San Francisco Chamber of Commerce, said that despite the amendments the proposal should provide “additional time and flexibility” for small property owners to comply.

Supervisor Rafael Mandelman said he had a “concern about fairness.” He said that while the proposal is targeting “bad actor landlords” who keep their rents high or don’t do enough to hold on to tenants, there are some “property owners out there who are having a great deal of trouble filling spaces.”

Mandelman, however, noted that he is often asked by his constituents why there isn’t a vacancy tax and noted that the measure does allow the board to make changes to the proposal with a two-thirds vote should voters approve it.

Supervisor Sandra Fewer was more decisive in her support of the proposal. “I am looking forward to this quite frankly,” Fewer said. “I don’t know what else to do besides a mechanism like this.”

Egan said that the retail industry has not fared well in San Francisco even as the local economy “as a whole has done extremely well.”

“Just in the last three years, since 2015, we’ve seen an 8 percent decline in retail trade employment alongside a 13 percent growth in overall employment,” Egan said.

The vacancy tax would require a two-thirds vote to pass on the March ballot.

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