Prop C
Commercial Rent Tax for Child Care and Education
Additional Tax on Commercial Rents Mostly to Fund Child Care and Education

Imposes a tax on commercial landlords in San Francisco to fund child care and education programs.

Vote NO

Jump to SPUR’s Recommendation

What the Measure Would Do

This measure would impose a tax on individuals and businesses that receive income from the lease or sublease of commercial space, primarily offices. The measure would exempt industrial uses, arts activities and retail sales or services that are not chain stores. Gross receipts received from leases to nonprofits and government entities would also be exempt from the tax, as would small business enterprises (defined for tax year 2017 as those with annual gross receipts under $1,090,000). The city controller estimates that 20 percent of San Francisco’s commercial tax base would be exempt.

Gross receipts from the lease of warehouse space would be taxed at an additional 1 percent, and gross receipts for other commercial space would be taxed at an additional 3.5 percent. Currently, the gross receipts tax rate for real estate properties ranges between 0.285 percent and 0.3 percent. Effectively, this measure would increase the tax rate for commercial rent income to 3.785 percent or 3.8 percent for most types of commercial space.

Prop. C would deposit all revenues into a fund that would be appropriated on an annual or supplemental basis. After administrative costs, 15 percent of the amount remaining would go to the General Fund and could be expended on any purpose. The other 85 percent would be spent on eligible programs, including early care and education for children under 6 years old (in families at or below 85 percent of state median income) and early care and education for children under 4 years old (in families at or below 200 percent of area median income), as well as on increasing compensation and access to training for care professionals and staff.

The city controller estimates that this tax would generate $146 million annually. (For perspective, the total business tax budgeted for 2017–18 is $752 million.)

The measure would go into effect on January 1, 2019. It could be amended or repealed by the Board of Supervisors by ordinance without going back to the voters unless the amendment is intended to increase the tax. The measure would prevent the mayor and Board of Supervisors from reducing General Fund support for early childhood care and education below the current baseline level of $84.6 million, ensuring that the board could not simply use this as a substitute source of funds for existing programs.

There are two commercial rent taxes on the ballot this election, Propositions C and D. They are structured to ensure that, even if both win, only one of them will take effect (generally, the one with the greater number of votes; however, because Prop. C requires a simple majority to pass and Prop. D requires two-thirds of the vote, Prop. C could win with fewer votes than Prop. D).

The Backstory

In 2012, San Francisco switched its system of taxing businesses from a payroll tax to a gross receipts tax. The gross receipts tax applied different tax rates to different industries and included commercial rents as a type of industry. In developing the current gross receipts tax, the mayor’s office and the city controller’s office conducted extensive outreach to affected business sectors. That process resulted in establishing different tax rates based on the relative profitability of industries in San Francisco. Every business that grosses more than $1,090,000 in San Francisco or has a San Francisco payroll expense of more than $300,000 is subject to the gross receipts tax. However, the gross receipts tax has not grown sufficiently to fully phase out the payroll tax. (In a future election, the gross receipts tax may be renegotiated and brought back to the voters, but neither of the commercial rent tax measures on the June ballot provides this needed fix.)

At the end of 2017, negotiations among the Board of Supervisors and the mayor over a potential commercial rent tax measure to fund transportation expanded to include housing and child care. With Mayor Ed Lee’s death, the issues became increasingly politicized. This measure and a competing commercial rent tax measure to fund housing and homelessness solutions (Prop. D) were both put on the ballot.

San Francisco’s budgeted spending on childcare in FY 2017–18 is approximately $110 million, including $12 million on early childhood education funding through the Children and Families Commission and $99 million through the city’s Office of Early Childhood Education. OECE provides eligible families with financial assistance for child care and works to build the supply of quality care available in the city. Since March 2004, San Francisco has also administered the Preschool for All program, which expands access to high-quality preschool education.

According to the Children’s Council of San Francisco, there is only enough licensed child care capacity for 15 percent of San Francisco infants. In an increasingly unaffordable San Francisco, child care can account for 40 percent of a family’s basic expenses and can be one of several factors pushing families to leave the city. In addition, the challenge of finding quality affordable child care is a barrier to keeping women in the workforce.

Prop. C was put on the ballot with voter signatures and requires a simple majority (50 percent plus one vote) to pass.


  • San Francisco families face a documented shortage of affordable child care, adding to other pressures that push families to leave San Francisco. This measure would create an ongoing source of funding that could increase the availability of child care over time and improve the quality of care provided in San Francisco.
  • When jobs are created, so is the need for high-quality child care for employees. Proponents argue that public investment is needed to maintain our economic sustainability and growth.
  • Since buildings, unlike businesses, cannot leave San Francisco, increasing the gross receipts tax on commercial real estate would be unlikely to push commercial building owners out of San Francisco or to reduce the city’s economic competitiveness overall.


  • The 2012 decision to convert San Francisco’s business tax system from a payroll tax to a gross receipts tax underwent a carefully considered process that involved myriad stakeholders in an effort to balance their needs and priorities. This measure skipped over that process and would increase taxes significantly for only one industry. It is unclear whether the measure’s authors studied the impact of this tax or undertook analysis to determine which industries could bear an additional tax burden and how much.
  • Although the number of jobs lost would be small, economic modeling by the controller’s office predicts that this tax would have a net negative economic effect on San Francisco (including a loss of gross domestic product and a loss of disposable income per capita).
  • While buildings cannot leave San Francisco, tenants can. To the extent that this tax would be passed on to tenants, some business tenants might move to other cities, impacting the strength and diversity of San Francisco’s economy.
SPUR's Recommendation

While there is a clear need for more affordable child care to serve San Francisco families, SPUR was ultimately not convinced that this tax structure at this tax rate was the appropriate choice, in part because it does not follow our principles for good tax policy.1 Singling out one segment of one industry with a significant tax increase over a single year is not equitable, and while the cause is a good one, the potential tax bears no relationship to the industry that would be affected (such as a tax on pollution that goes to fund environmental cleanup).

A more comprehensive effort to update and reform the gross receipts tax is needed, and it should take into account the city’s growing and changing expenditure needs. The process should also include robust outreach and negotiation with all members of the business community, which appears to have been absent in the development of this measure. This scattershot effort is not a step in the right direction, nor does it set a good example for others seeking funding for their agendas.

Vote NO on Prop C - Commercial Rent Tax for Child Care and Education

1SPUR, “Principles and Framework of Good Tax Policy,” Back in the Black: A fiscal strategy for investing in San Jose’s future, May 2016, page 44, http://www.spur.org/sites/default/files/publications_pdfs/SPUR_Back_in_the_Black.pdf#page=45