What it does
Proposition O is an ordinance that would repeal a telephone fee for 911 services and replace it with a general tax on all telephone users. The new tax would have the same rate as the 911 fee, but revenue from it would not be dedicated to any specific service. The measure also would update the Telephone Users Tax to apply to additional telephone services and technologies such as voice-over-Internet, instead of only traditional landlines.
While it does not need voter approval, a governmental fee does require a nexus between the fee and the services with which it is associated. A general tax requires approval by a majority of the voters. For a tax to be dedicated to a specific use, it must be approved by two-thirds of the voters participating in the election in which the tax measure appears on the ballot. This measure would convert a fee to a general tax.
How it is now
The City imposes an Emergency Response Fee on phone lines in order to operate the City's 911 emergency response system. The City charges $2.75 on single lines, $20.62 on trunk lines and $371.15 for high-capacity trunk line subscribers. The fee, collected by communication companies and passed along to the City, generates approximately $43 million in revenue annually.
The Telephone Users Tax is paid only by commercial telephone users. Previously, San Francisco had a TUT on residential customers, but this was repealed in the 1980s. San Francisco is the only California city with a TUT that does not charge it to residential customers. The commercial TUT produces about $45 million annually in revenue to the City. The TUT applies only to land lines, and thus does not capture voice-over Internet protocol systems and other modern systems. There are 24 other jurisdictions that have updated their TUT to capture VOIP.
How it would change if this ordinance passes
If this ordinance were approved, the 911 fee would be repealed, and instead the City would have a new general tax on all telephones. There would be no change to the rates that are charged.
Additionally, the City's TUT would be updated to tax new technologies, so the City would collect more revenue than it collects now.
As a policy decision, the City could continue to fund the 911 system at its current level by allocating $43 million or more to the system.
Why it is on the ballot
Under state law, taxes and fees differ. Taxes typically require voter approval, while fees require the levying authority — such as a city — to show a legal nexus between the fee and the activity it finances. An example of a legal nexus fee is a fee on developers of commercial buildings to help pay for the additional transit riders their buildings generate.
The current 911 charge is a fee, not a tax. However, a recent court decision found that Union City's 911fee structure was illegal and needed to be established as a tax approved by voters. San Francisco and many other communities in California are concerned that their 911 fees also could be deemed illegal and thus are taking measures to convert their fees to taxes, which require voter approval. A general tax, such as the one Prop. O would create, requires the votes of one more than half of all voters participating in the election on which the tax measure appears on the ballot.
The Board of Supervisors — with the support of the mayor — voted unanimously to place Prop. O on the November ballot.
Arguments in favor of Prop. O:
- With the recent court decision, the City needs to quickly correct its 911 fee. The loss of the revenue from the 911 fee would add nearly $45 million to the City's projected deficit. Recapturing this revenue is important to prevent the further growth of the City's budget deficit.
- Modernizing the telephone users tax to capture Internet-based voice services is necessary to reduce the threat that the TUT revenue would decline over time as businesses get rid of land lines and switch over to voice-over Internet protocol services.
- It is possible that the measure could result in an increase in City revenues if users retain landlines and also add VOIP lines, both of which would be subject to the tax.
Arguments against Prop. O:
- This measure is a step forward, but also a missed opportunity to take advantage of the loss of the 911 fee to try to expand the TUT to include the City's residential customers.
- There is also a missed opportunity to bring in needed funds for the City's 911 system to address current shortfalls.
- As a general tax, the revenue collected under Prop. O would not be directed to emergency services, but rather to the General Fund. If the City wanted to capture the money for the 911 system, it should have proposed a special tax or included on the ballot a companion measure that would recommend that the City use the tax revenue to support 911 and emergency services.
California law requires a careful distinction between fees and taxes. Proposition O is a preemptive measure by the City and County of San Francisco to make changes and avoid a lawsuit for having an illegal fee. In addition, the proposition appropriately modernizes the City's telephone tax.
While we would have liked for the policy debate to have considered applying a telephone tax to residents as well as businesses, we recognize the political reality of securing majority support on a crowded ballot. Nonetheless, this high turnout presidential election might have been the best chance to propose such a new tax. Further, the threat of losing funding for our 911 system might have been sufficient motivation to also support an increase in the 911 fee to help establish a "reverse 911" system to be used to notify residents of emergencies. In spite of these missed opportunities, this measure is necessary and should be supported.
SPUR recommends a "Yes" vote on Prop. O.