While most of the attention for Tuesday’s election was focused on the mayor’s race, it was the propositions that represent an alarming trend of how we are generating revenue for The City.
The June ballot contained two competing tax measures, Proposition C and Proposition D, both representing a lack of strategy in how The City is trying to create revenue from the business community. Prop. C, which was still too close to call on Wednesday, would add a huge 3.5 percent surcharge to The City’s commercial rent tax to subsidize early childcare services, increasing gross receipts tax rates on local businesses of all sizes by more than $140 million. It will significantly raise office rents so that some businesses may relocate or move their workforce out of San Francisco. This hurts the very workers that Prop. C aims to help. Prop. D, which failed with 55.4 percent opposing it, would’ve added a smaller 1.7 percent surcharge on commercial rent tax to fund housing and homeless programs.
In addition to these tax measures that were on the June ballot, there are potentially four more headed for the November ballot, including a $300 million surcharge on The City’s largest businesses. If Prop. C passes, it will be by a very slim margin. Consider that along with the fact that Prop. D failed, and it’s clear the voters don’t have a big appetite for one-off tax measures.
So how do we make sure the business community is being taxed effectively to produce revenue that benefits The City while not draining our economy and ability to attract and retain workers?
Rather than creating one-off taxes to attempt a temporary fix to one of our city’s many pressing issues, we need a broader tax reform to generate sustainable revenue for The City that allows us to address our needs comprehensively.
For those of you who don’t track San Francisco business tax policy, here’s a recap: In 2012, voters approved a gradual conversion from the payroll tax to an income based gross receipts tax. The phasing out of the payroll tax is not compete and the voters will be asked in a future election to end the payroll tax by raising the gross receipts rates to generate an equal amount of revenue for The City. Other changes made to the payroll tax in 2011, such as eliminating stock compensation from the tax and the ongoing transition to the gross receipts tax, have had a positive impact on both job growth and tax collections. It’s time to get the gross receipts tax right, and we need to do that before layering on additional surcharges on business — especially when their tax payments have already doubled.
The business community recognizes that we need to fund vital services and is a strong partner with The City. As our businesses are thriving, they are also substantially and increasingly contributing. Employers in San Francisco paid $410 million in business taxes in 2011. In 2017, they are generating $800 million. With 150,000 more jobs and 100,000 more people, the business community tax is almost 100 percent bigger in just seven years.
With this strong economy and the lowest unemployment of any major city in the country, we are able to set a record budget, allocating essential dollars for our issues like street cleaning, increased police officers and homeless shelters. The robust tax collection allows the mayor to tackle these issues and allocate the proper budget out of the General Fund. Let the mayor properly run the budget, as Mayor Mark Farrell has done, rather than determining budget appropriations at the ballot box.
Tallia Hart is president and CEO of the San Francisco Chamber of Commerce.