San Francisco Mayor, Supervisors Introduce Tax Measures to Fill Budget Holes

San Francisco Mayor London Breed and a group of supervisors advanced dueling plans on Tuesday to place business tax hikes in front of voters in November.

With the city facing a $1.7 billion budget shortfall over the next two years, the mayor and members of the board are also working on additional ideas that could help fund city services, including changes to the city’s business tax structure and maneuvers to tap existing tax revenue held up in litigation.

“As we face an unprecedented budget shortfall due to the COVID-19 pandemic, we need to find ways to bridge funding gaps for key services that address homelessness, housing, and mental health, and also provide relief for small businesses that have been struggling,” Breed wrote in a tweet.

Breed's proposal to raise the city's gross receipts tax, introduced at the board of supervisors, could raise up to $76 million annually. It contains a trigger tied to unemployment that would delay implementation as the economy improves and provide protections for "cost-sensitive" businesses.

The proposal from Supervisors Gordon Mar, Dean Preston, Matt Haney, Hillary Ronen and Shamann Walton was placed directly on the November ballot.

It would base increases to the city's gross receipts tax on executive pay. Companies whose CEOs make 100 times more than their average worker would pay an additional 0.1% tax, increasing to as much as 1.0% for larger disparities in compensation between executives and average employees. Supporters estimate the tax could bring in $60 to $140 million on a yearly basis.

Businesses grossing less than $1.17 million annually would be exempted.

"Any corporation can avoid this tax by adopting more equitable pay structures," said District 5 supervisor Dean Preston. "And if you don't, prepare to be forced to pay your fair share to help address our city's budget shortfall and provide for the basic needs of the residents of San Francisco."

Tuesday marked the city's deadline for the mayor and supervisors to introduce ordinances for the November ballot at the board of supervisors. Negotiations can continue until the late July deadlines for final submissions and withdrawals of ballot measures.

There is wider agreement on a series of reforms that could also add money to the city's coffers. Breed included the ideas in a separate measure she placed directly on the ballot, in case negotiations over an increased gross receipts tax increase break down.

These include the elimination of the city's payroll tax in favor of the gross receipts tax and added tax exemptions for small businesses. Also included is a novel idea to allow the city to start spending nearly $300 million in tax dollars for child care and homeless services that have been on hold because of a lawsuit.

San Francisco voters approved two tax measures in June and November of 2018 (both labeled Proposition C) with a simple majority vote. Business and anti-tax groups sued, arguing the measures needed two-thirds approval. San Francisco began collecting the taxes but has yet to spend them.

Breed is proposing to begin spending the money while asking voters to approve similar backup taxes that would take effect (and refund businesses) if the two Proposition C measures are overturned in court.

Breed has expressed a desire for a single business tax increase to go before voters, but Supervisor Haney said the supervisors' tax regarding executive compensation should stay on the ballot.

"This measure is needed regardless of the outcomes of those negotiations," said Haney, who represents District 6. "We need to address inequality, we need the resources to ensure our health system can respond, and we avoid layoffs. A $2 billion budget [deficit] is not going to be addressed by whatever the final outcome is of the gross receipts reform."

While the new business tax ideas would raise money for the general fund, Breed is also targeting an additional tax increase to help San Francisco schools, which is facing a deficit that could near $150 million as the state weighs large cuts to public schools.

The proposal placed on the ballot Tuesday would generate $50 million for the San Francisco Unified School District by adding a $288 tax on real estate parcels.

Officials in Oakland are also eyeing new taxes as a way to shore up city finances. A proposal announced by councilmembers earlier this month would ask voters to approve higher tax rates for larger businesses while lowering gross receipts taxes on businesses taking in less than $250,000.