Breed sets sights on overhaul of city businesstax structure
San Francisco Mayor London Breed on Tuesday will introduce a sweeping proposal for the November ballot to reform the city’s complex patchwork of business taxes and potentially unlock around $300 million in revenue that has been collected, but remains offlimits and unspent because of ongoing legal disputes.
The measure largely reflects the conclusions of an examination of the city’s business taxes that began last summer. That review, reflecting input from city leaders and the business community, was intended to shape a ballot measure that would simplify and stabilize the tax system, while potentially bringing in more money.
But with the city and much of its business community confronting an unprecedented economic collapse brought on by the COVID19 pandemic, Breed’s measure, which would raise an estimated $300 million for the general fund over the next two fiscal years, takes on added urgency.
Business taxes are among the biggest revenue sources for San Francisco’s general fund, ordinarily bringing in more than $1 billion annually. By October, city officials will have to find a
way to close a $1.7 billion hole in the general fund over the next two fiscal years attributed to the coronavirus crisis.
The mayor’s initiative is not intended to be the end of ongoing deliberations over businesstax reform, nor is there any guarantee that the version of the measure she’ll introduce Tuesday will be what voters see in November. Rather, it will help set the boundaries for what likely will be a frantic few months of debate with the Board of Supervisors to create a unified vision of businesstax reform that the city’s elected leaders can uniformly support ahead of the election.
“In a world where we are living with COVID19 and its impact on our budget, we have to be creative and collaborative to do what’s best for San Francisco,” Breed said in a statement. “I look forward to continuing our work with the Board of
Supervisors, the business community, and all those who are focused on meeting the challenges our city is facing.”
In an effort to demonstrate a goodfaith commitment toward the negotiations, Breed will introduce one version of her measure with the Board of Supervisors that can be debated and amended before it’s finalized for the ballot. While Breed and the board agree on the broad contours of a plan for reform, they have not yet agreed on how much to increase the grossreceiptstax rate, which is based on a company’s total gross revenue, or how quickly to raise it.
Both the mayor and the board agree an increase is necessary, but Breed is aiming for a smaller, more gradual rise to reduce the pressures on businesses already decimated by the pandemic. Supervisors are looking to raise rates more quickly to bring in as much money as possible.
As a backup in the event discussions with the board fray or fall apart, Breed is also signing a second measure directly onto the ballot that would enact several reforms that reflect where she, the business community and the board are generally aligned. That version will not include the proposed grossreceiptstax increase, which would gradually take effect as the economy improves.
The board is expected to submit on Tuesday its own taxreform ballot proposal, which likely will include the supervisors’ opening gambit around the pace and size of the tax increase.
“We are proposing a balanced measure that provides relief to our small businesses, jump starts our economy, and prevents massive cuts to our critical public services by asking our most profitable corporations to pay their fair share,” Board President Norman
Yee said in a statement. “There will be many discussions as we move this proposal ahead and we are committed to seeing a strong, unified measure for November’s ballot.”
But both sides say they’re optimistic that a deal can be reached in time to present a harmonized plan for reform in front of voters.
“I think there’s wide agreement that negotiations will continue, and we hope to have a single proposal that everyone can get behind. I believe that’s very doable, that’s my goal for sure,” Supervisor Matt Haney said.
Four elements embedded in both versions of Breed’s measures reflect the areas of the broadest agreement between her administration and the board.
One element of the proposal would free up the roughly $300 million in business taxes that the city has collected but cannot be spent pending the outcome of two court cases. Probusiness and antitax groups have sued the city claiming officials illegally allowed a pair of 2018 ballot measures to pass with simple majorities, rather than twothirds supermajorities.
The city won both cases at the trial court level, but both are being appealed. While the taxes are still being collected, City Controller Ben Rosenfield has said the city cannot spend the money until the cases are fully resolved, which likely will take years.
To get around that blockade, Breed’s proposal would allow the city to start using the money it’s already collected for homelessness and child care programs under those previously approved ballot measures.
If the city loses its court cases, and those prior taxes are struck down, the city could use the new tax, which would replace them, to pay for courtordered refunds and to continue funding the child care and homelessness programs. If the city wins, it could begin freely using the 2018 taxes and the new taxes would be shelved.
The new taxes would be created along with the rest of the provisions in the mayor’s proposal if the measure gets a simple majority of votes — but they would take effect only if the city loses the court cases. There would be no clear standing for anyone to challenge the new tax since the money would be deposited into the city’s general fund, and such taxes require only a simplemajority vote.
Breed’s measure would also do away with the payroll tax for most businesses, a city goal nearly a decade in the making. The measure would also expand the number of businesses subject to the city’s grossreceipts tax. If the measure passes, businesses making $1.5 million or less in gross receipts would be exempt from the tax.