Clash erupts over how to spend S.F. tax money
When voters approved a tax hike on San Francisco’s most expensive property sales in November, they likely thought the funds would go directly to rent relief and affordable housing — as advertised in the campaign.
But in fact, the money was technically a general tax, meaning that it goes into the general fund and can be used for any city services.
Now, a fight is heating up between Mayor London Breed and some supervisors, advocates and voters who rallied for the cause, after Breed released her budget Tuesday without targeting the tax revenue to rent relief and affordable housing.
Five supervisors, led by Dean Preston, banded together to get Proposition I, which doubled taxes on sales of properties valued at more than $10 million, on the ballot in November. The measure’s supporters, ranging from tenant advocates to teacher unions, campaigned that the money would be used for rent relief and affordable social housing. They faced off with opponents, including major developers, in a cashloaded campaign — and won with 57.6% of the vote.
Prop. I is expected to bring in around $200 million over the next two years and contributed significantly to revenue that helped fill holes in the city’s budget this year.
The ballot measure’s wording doesn’t state what the money would be used for, but the argument in support of it in the voter handbook said it “will help renters who have lost jobs and income, and will also help small landlords who depend on rental income to live.” Before it passed, the Board of Supervisors approved a resolution stating that the purpose was to promote housing stability during and after the COVID19 crisis. The board has since created Rent Relief and Housing Stability funds for those purposes and allocated $20 million in the budget surplus — the amount of revenue expected at the time from Prop. I — evenly between the funds, which the mayor approved.
“I don’t think it was a mystery to anyone that these were funds for COVID rent relief and social housing,” Preston said Tuesday. “It’s really astonishing that given that budget reality, the mayor would not specifically and unequivocally propose a budget that would fully fund the promises of Prop. I ... The need has only grown since the voters voted for it, so to be denying rent relief to people right now is unconscionable.”
The mayor’s budget proposes to add an unprecedented $1 billion over the next two years to what the city is already spending on addressing homelessness and $50.6 million for affordable housing. The budget does not include any direct rent relief. Separately, the city is administering $90 million in federal rent relief.
Jeff Cretan, the mayor’s spokesperson, said Tuesday that Prop. I revenue went into the general fund. He said that if supervisors have different priorities, “that’s a conversation for the budget process” that would require funding from somewhere else in the budget.
Breed has pushed back at using Prop. I funds for rent relief and affordable social housing.
At a board meeting in April, Breed said housing is a “top priority” and funding housing and eviction protection is “imperative” in response to questions about how she planned to use Prop. I money.
“However, the measure that increased the transfer tax on the November 2020 ballot was a general tax and the ballot question made no mention of any potential uses,” Breed said. “I am required by the charter to assume any unrestricted revenue goes toward the general fund expenditure.
“I don’t agree we should set it aside for brand new programming that hasn’t been fully defined when we have an economic and housing crisis to solve now,” she added.
She said if Preston wanted to allocate it for specific purposes, he should have made it a dedicated tax, which requires twothirds of the vote to pass. He couldn’t have done it as a property sales tax though: The City Attorney’s spokesman confirmed that the California Constitution prohibits cities and counties from imposing a transfer tax as a special tax.
Since Breed spoke, funding from the federal American Rescue Plan erased a majority of the city’s deficit — but tough choices about priorities remain.
Supervisors and advocates argue San Franciscans are still struggling to pay rent and existing relief programs don’t meet the dire need. A city report last year estimated that, at its worst, more than 33,000 households owed up to $32.7 million a month in unpaid rent.
“Right now we’re still dealing with many thousands of tenants deeply into debt because of COVID economic losses as a critical need. It also happens to be one that voters increased a tax to fund,” said Supervisor Matt Haney, chair of the board’s budget committees. “Prop. I didn’t include with it the specific outline of how it was spent, but the board was clear and the campaign around it was clear.”
A petition pressing Breed to use the funds for what it calls “voterintended purposes” amassed more than 1,000 signatures from nearly two dozen organizations as of Wednesday. The progressive Daybreak Political Action Committee — founded by Jackie Fielder, who ran against incumbent Democratic state senator Scott Wiener in November — has texted thousands of voters urging Breed to take action.
Political consultant Jim Ross said fighting over how to spend general taxes is a “perpetual issue.” Traditionally, a transfer tax is extremely volatile and therefore often put toward onetime uses such as housing development instead of the general fund, he said.
The Prop. I debate is also set against a backdrop of political tension. Preston narrowly lost to Breed for the District 5 supervisor seat in 2016, then won in 2019 against Vallie Brown, who was appointed by Breed to replace her when she became mayor. The more moderate mayor has criticized progressive supervisors for past policy choices — and Democratic Socialist Preston is on the far left of the political spectrum.
Ross said that Breed has been trying to “moderate the impulses of the Board of Supervisors to tax” and hypothesized that her positioning on Prop. I may be a way of pushing back to slow that down in the future. Cretan declined to comment on the theory.
The mayor’s budget now goes to the Board of Supervisors, which will decide its priorities. Reallocating Prop. I revenue could either draw down the general fund, which might mean cuts in other areas, or the city’s reserves.
Ross said he believed that although Breed and Preston differ on this debate, they have common ground and would come to an agreement.
“The Board of Supervisors bats last, so if there’s support for spending the money as intended or at least pitched to voters ... then that’s where the money will go,” Ross said. “At the end of the day, it all comes down to who has six votes.”