Judge could rule soon in fight over S.F. tax revenue

Did San Francisco break the law when voters passed a series of tax measures last year to fund early childhood education, homelessness services and teacher pay raises?

That was the $500 million question up for debate Wednesday in a San Francisco Superior courtroom.

The city attorney’s office and lawyers representing the Howard Jarvis Taxpayers Association and business groups squared off in a fight that could decide the fate of two voterapproved ballot measures — both called Proposition C — and, perhaps, change the landscape of California tax law.

It was the first major courtroom battle in what’s been a messy legal fight. Opponents argue that the city’s use of a simplemajority voter threshold to pass a trio of tax hikes is

illegal. They say the California Constitution and the city’s own charter require tax measures to win more than twothirds of votes to pass.

The battle is holding up as much as a halfbillion dollars in annual tax revenue. The city is collecting the taxes on schedule, but none of those funds can be spent until the legal questions surrounding the ballot measures are resolved — a process that could take years. Either side is expected to appeal, potentially up to the state Supreme Court.

Both Prop. Cs passed at the ballot in 2018, one in June and the other in November.

The June measure raised taxes on commercial landlords to fund a roughly $146 million investment in early education and childcare programs.

The November initiative raised taxes on San Francisco’s largest businesses to fund up to $300 million worth of housing and services for homeless people.

That measure got a major jolt of publicity — as well as financial support — from Salesforce CEO Marc Benioff, who called it a moral imperative for addressing the city’s homelessness crisis. He and Jack Dorsey, the CEO of Twitter and the payments company Square, sparred publicly over the measure’s merits. Mayor London Breed opposed the initiative.

The third measure, June’s Proposition G, placed on the ballot a $298 parcel tax to fund a $50 million pay raise for San Francisco teachers. A separate hearing on that measure is scheduled for August, but the ruling that comes out of Wednesday’s arguments will inform that case.

San Francisco Superior Court Judge Ethan Schulman reserved most of his questions for attorneys representing the taxpayers’ association and the business groups, possibly signaling some skepticism about their arguments. Just before the hearing ended, Schulman said he was prepared to issue a ruling as early as Friday. By law he has 90 days to rule, but he said that he does “not plan to take that much time.”

The cases hinge largely on an argument over whether the law affords citizens more leeway to pass new taxes, compared to restrictions placed on government officials.

Since the mid1990s, any ballot measure that would raise taxes for a specific purpose has required a twothirds majority to pass. The Howard Jarvis Association played an integral role in passing the two amendments to the state Constitution that set that standard: Propositions 13 and 218.

But in 2017, the San Francisco city attorney’s office issued a pivotal memo interpreting a state Supreme Court ruling from that same year to mean that tax measures put on the ballot by citizens — not government leaders — needed only a simple majority to pass. The threshold is still twothirds for tax measures put on the ballot by government officials.

The state Supreme Court’s ruling made clear that ballot measures generated by citizens aren’t subject to the same constraints as those generated by local governments, but didn’t explicitly mention questions about voter thresholds.

Howard Jarvis attorney Laura Dougherty argued that June’s Prop. C was, in fact, a governmentled measure, one more reason why it shouldn’t have passed with a simple majority. That measure was ultimately put on the ballot by a signaturegathering petition, but four supervisors — Jane Kim, Norman Yee, Sandra Lee Fewer and Hillary Ronen — originally tried to put the measure on the ballot themselves.

The supervisors withdrew their signatures in favor of the signaturegathering effort so that the measure would only need a majority to pass. Yee coauthored the measure and helped spearhead support for it.

Dougherty argued that Yee’s involvement meant that June’s Prop. C was a governmentled tax hike smuggled through a signaturegathering petition. Yee has maintained previously that the supervisors’ efforts were a backstop in case the signaturegathering drive failed to gain traction, and that the measure was communitydriven at its core.

“The creation of the tax really did come from the board,” she said. “And Supervisor Yee collected the signatures. He was in charge of the campaign.”

Schulman pressed her on that point, saying he suspected “it was not Supervisor Yee personally that was out there, collecting those signatures. My guess is he had better things to do than that.”

“True,” Dougherty replied.

Deputy City Attorney Wayne Snodgrass pounced on that point, underscoring that “politicians often get involved in the political process. (The opposing attorneys) seem to think that that’s bad; that that’s a suspicious activity . ... In our view, that’s a natural outgrowth of the political process: The citizens have concerns. They take them to their elected officials.”

Dozens of early childhood and homelessness advocates filled the courtroom to capacity.

“It’s extremely important for us to win this case,” said Sara HicksKilday, director of Early Care Educators of San Francisco. “We’re dying for the money. The need is great.”