There is an undercurrent to the debate on San Francisco’s Proposition C that proposes to increase the gross receipts tax on big companies to pay for homeless services. On the surface the campaign is an argument about the best and most effective way to fund homeless services. The proposition has gained attention because of the disagreement between tech titans over support for the tax. But, issues that will last beyond next week’s vote is how much can business be counted on to fund government programs and is a majority vote sufficient to pass a tax for special purposes.
The Proposition C fight could be a precursor for the expected 2020 ballot battle over the split roll property tax designed to dramatically raise taxes on commercial property.
Corporations have often been cast as greedy, if not outright evil, in popular culture. The greed attack has been raised in the Proposition C campaign. Yet, approximately, 400 companies would be responsible for the new tax if it passes—companies that already pay a majority of all business taxes collected by the city.
Supporters of the tax say large corporations, despite philanthropic efforts, have not been socially responsible enough in funding the city’s needs. They argue that corporations, especially the tech giants whose wealth and enriched employees drive up housing costs, cause problems such as homelessness. They also say corporations benefited from the federal tax cuts.
Expect to hear many of these arguments repeated in a split roll fight.
There is, of course, another side to this charge that business is not doing enough. On the tax cut front, the economy has boomed so taking away tax savings could undermine the economic surge, which has led to increased revenue for the city and the state. As to consequences that could bite the city if too much reliance is put on corporations to pay taxes, Mayor London Breed may have said it best when she told KQED, “Making sure that as we try and tax, that there aren’t the unintended consequences of job loss for middle-income residents. I mean manufacturing, retail, those are things that are important to San Francisco.”
Meanwhile, the heated question of whether a special tax that finds its way to the ballot via initiative requires a two-thirds or majority vote will be turned up a few notches if Proposition C passes with more than a majority but less than a two-thirds vote.
Proposition 13 required a two-thirds vote for special taxes, those earmarked for special purposes. Court cases and later ballot measures, especially Proposition 218 in 1996, affirmed this position.
Then along came a 2017 California Supreme Court decision, California Cannabis Coalition vs. City of Upland, that concluded that a special tax increase brought to the voters via the initiative process might need a simple majority vote to pass. But it wasn’t entirely clear if the court intended to unleash the taxing power for initiatives.
Ironically, another San Francisco ballot initiative titled Proposition C, this one on the June ballot, may force courts to be more definitive. The June Proposition C, another tax on business, by the way, raised revenue for universal childcare. It passed with barely more than 50%. A lawsuit has been filed by the Howard Jarvis Taxpayers Association and business organizations to declare the tax invalid as a special tax.
If the homeless measure Proposition C also passes with less than two-thirds there will be more pressure to get a court clarification or see if the tax floodgates will be opened.
Business is often the target for tax raisers, as the example of both San Francisco propositions show. One reason is that businesses don’t vote even though they are subject to a tax.
Business had a chance to clarify the two-thirds vote requirement through a ballot initiative of its own. However, as reported here, after gathering the necessary signatures, business backed away from the proposal when the main funder of the initiative, the soda industry, cut a deal with the legislature.
As the tax increases via initiative multiply, business leaders may come to regret that decision to pull the initiative fix.