Business Tax for Homeless Services
Additional Business Taxes to Fund Homeless Services
Imposes an additional tax on individuals and businesses that receive more than $50 million in gross income in San Francisco, to fund homelessness services and housing.
What the Measure Would Do
Prop. C would impose an additional tax on individuals and businesses in San Francisco that earn more than $50 million in gross receipts (total income) per year in order to fund homelessness services and housing. Out of 13,000 businesses that currently pay the gross receipts tax, approximately 300 to 400 would be affected.
Currently, the gross receipts tax rate for businesses that would be affected by Prop. C ranges from 0.16 percent to 0.65 percent, depending on the business. Companies earning gross receipts in excess of $50 million would pay an additional tax on the excess amount at rates ranging from 0.175 percent to 0.69 percent. (For example, if a business’s annual gross receipts were $54 million, the additional tax would apply only to the $4 million in excess of $50 million.) For those businesses paying the payroll tax instead of the gross receipts tax, the payroll tax rate would increase from 1.4 percent to 2.9 percent.
Businesses currently exempt from the existing gross receipts tax (including certain nonprofits, banks and insurance companies) would also be exempt from this additional tax, as would gross receipts received from commercial rents, since those businesses are already being taxed at a higher rate under June’s Prop. C.
Estimates have Prop. C raising $250 million to $300 million annually, which would be deposited into a newly created Our City, Our Home Fund. The gross receipts tax currently generates $900 million per year, so this would be a 28 to 33 percent increase. After administrative costs, the funds would be distributed as follows:
• At least 50 percent would go to the Mayor’s Office of Housing and Community Development (MOHCD) to help people experiencing homelessness access permanent housing. Uses would include short-term rental subsidies, permanent supportive housing and preservation of single-room occupancy buildings (SROs). A minimum of 20 percent of this allocation would be spent on housing for homeless youth, and a minimum of 36 percent would be spent on housing for homeless families.
• Up to 10 percent would go to the Department of Homelessness and Supportive Housing (HSH) to help people experiencing homelessness access short-term residential shelters and to fund hygiene programs.
• Up to 15 percent would go to MOHCD and/or HSH to provide services to those at risk of becoming homeless or those who have recently become homeless.
• At least 25 percent would go to the Department of Public Health (DPH) to create a new mental health services program that would serve homeless people severely impaired by behavioral health issues.
According to HSH, Prop. C would house 5,000 homeless people, provide outreach and mental health services to 10,000 people, assist 30,000 people with eviction protections, legal counsel and short-term assistance, and expand shelter beds by 1,000 within 10 years. There are currently 1,000 people on the city’s shelter bed waiting list.
Prop. C establishes a baseline level of expenditure on homelessness programs, so that the Board of Supervisors could not simply use this new revenue as a substitute source of funds for existing programs. Based on information from the controller’s office, the estimated baseline would be approximately $380 million annually, not including the $300 million in new tax revenue generated by this measure. However, since this measure is not a charter amendment, this baseline guidance is not legally binding on the board’s budget decisions.
Prop. C would go into effect on January 1, 2020, and would require the Board of Supervisors to create a nine-member committee to oversee the administration of the Our City, Our Home Fund.
This measure could be amended by a two-thirds vote of the Board of Supervisors without going back to the voters if changes are consistent with the intent of the initiative.
As of the 2017 San Francisco Homeless Count, there were 7,499 people considered homeless living in San Francisco, of whom 4,353 were unsheltered.1 On many fronts, San Francisco is already doing more than other cities to address homelessness. The city has made significant investments in permanent supportive housing and pioneered a new model for shelters, the navigation center. But the current crisis is dwarfing these efforts. In 2016, Mayor Ed Lee established the Department of Homelessness and Supportive Housing to more effectively help those experiencing homelessness access stable housing and services. HSH has made progress delivering new supportive housing units, creating new navigation centers and providing prevention and other services, but chronic homelessness has not declined. Homelessness remains the issue of highest concern for San Franciscans, and it is clear that more needs to be done.
The Coalition on Homelessness, GLIDE and other homeless advocates gathered signatures to place this measure on the ballot. The coalition that worked on this measure sought input from city staff, people experiencing homelessness, service providers and business associations like the Chamber of Commerce, the Hotel Council and SF Travel.
In 2012, San Francisco switched its system of taxing businesses from a payroll tax to a gross receipts tax. 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. The gross receipts tax needs to be renegotiated and brought back to the voters at a future election, but neither Prop. C nor any of the other recent gross receipt tax measures would provide this needed fix.
This measure was put on the ballot with voter signatures to capitalize on the California Supreme Court’s recent Upland decision, which concluded that a tax measure placed on a local ballot by signature requires only a simple majority (50 percent of the vote plus one) to pass. June’s Prop. C and Prop. G were also written to capitalize on the Upland decision, but both measures face litigation. It is still unclear whether these measures will require a simple majority or two-thirds support to pass.
• This tax would generate significant funds, almost doubling the annual amount currently invested in city efforts to address homelessness. While it is impossible to assess whether this would “solve” homelessness in San Francisco, this funding would be a game-changing investment that would have deep impact.
• The proposed allocations in the measure are based on data as well as on HSH’s existing strategic framework. In addition, the sponsors sought out input from many perspectives, including people experiencing homelessness, service providers and businesses that would be affected by this new tax (some of whom still oppose the measure).
• At least half of the funding would go toward housing people and keeping them housed rather than toward services, outreach or temporary shelter. A high level of investment in permanent solutions is needed to make a dent in this chronic problem.
• This measure is one of several piecemeal efforts to increase tax revenue for specific issues or to tax specific business sectors. San Francisco instead needs a more comprehensive effort to update and reform the gross receipts tax, one that adjusts gross receipts rates across industries to complete the phasing out of the payroll tax and, ideally, one that takes all of the city’s funding needs into account comprehensively.
• The tax could cause affected businesses to leave the city. If it passes, 3 percent of the city’s tax-paying businesses will pay 67 percent of the city’s business tax revenue, rather than the 57 percent they currently pay. The risk of losing businesses is higher when a tax is shouldered by a small number of businesses rather than a broader set of taxpayers.
• Homelessness is a widespread problem in the Bay Area and is caused by a set of structural and systemic factors (such as economic dislocation, reduced social safety nets, failed federal housing policy and mass incarceration) that extend across city boundaries. The burden is not San Francisco’s alone to bear and would be better addressed through regional policy and funding.
SPUR takes issue with the recent trend of one-off tax measures that support specific uses or affect specific sectors. We did not support June’s Prop. C or Prop. D for this reason, calling instead for a more comprehensive effort to update the city’s gross receipts tax. Besides falling short in this area, the measure would probably have significant impacts on businesses in San Francisco, given the scale of the tax increase.
But these concerns are overshadowed by San Francisco’s homelessness challenge, which has reached visible crisis proportions. In a city with a thriving economy and a budget exceeding $11 billion, there are too many people who remain in need. This measure would generate significant funding to be spent in a holistic way, providing “upstream” services that prevent homelessness and bolster mental health support, as well as supporting a range of housing options for those experiencing homelessness or at risk of becoming homeless. Absent federal leadership on this issue, San Franciscans have the opportunity to make significant investments in short- and long-term solutions scaled to the scope of this challenge. After weighing both sides, SPUR believes Prop. C is worthy of support.
1 2017 San Francisco Homeless Count & Survey. Accessed at http://hsh.sfgov.org/wp-content/uploads/2017/06/2017-SF-Point-in-Time-Count-General-FINAL-6.21.17.pdf