City Hall Falling Money

City leaders are divided over shelters and school funding after an unexpected windfall boosts public coffers.

The City & County of San Francisco suddenly finds itself flush with cash. It’s a great problem for any city to have. And now for the bickering. 

San Francisco’s property tax revenue yielded an extra $414.7 million after the City Controller’s office found that the Education Revenue Augmentation Fund (ERAF), a state program distributing property tax dollars to local schools, had more than met its funding threshold over the past two fiscal years. Of that bounty, over half has already been allocated according to a formula in the city charter, including increased funding for the school district and budget reserves.

Two competing proposals over spending the leftover $181 million find Mayor London Breed pitted against an increasingly hostile Board of Supervisors. Breed’s proposal splits the windfall according to the spending priorities voters passed in November’s Proposition C: half is allocated to the Department of Homelessness and Supportive Housing (HSH) and the Department of Public Health (DPH), primarily to increase shelter beds and supportive housing, and the other half is allocated to the Mayor’s Office of Housing and Community Development (MOHCD), to develop permanently affordable housing.

A majority of the Board of Supervisors (Peskin, Ronen, Mandelman, Fewer, Kim, and Yee) offered a contentious counterproposal: $121 for MOHCD and DPH, $10 million to fund childcare services, and $50 million to purchase electrical equipment from Pacific Gas & Electric. In addition, three incoming Supervisors, Matt Haney and Shamann Walton (both transitioning off terms on the school board), have separately proposed to spend part of the windfall on teacher salary raises. Incoming District 4 Supervisor Gordon Mar has also endorsed this proposal.

Supporters of the Mayor’s proposal are incensed that the Board’s majority faction neglected to include funding for the Department of Homelessness and Supportive Housing (HSH); the Supervisors behind the competing faction, however, emphasize the need to reduce the city’s dependence on the beleaguered utility company.

The argument for spending part of the windfall on schools stems from Proposition G, a parcel tax measure passed in June of 2018, would provide an additional $50 million annually to increase public school teacher salaries in the City. Those funds are currently delayed by a pending lawsuit over the threshold needed for approval.

“We are extremely disheartened at the prospect of calling off during this period of litigation the urgent salary enhancements that Prop G was meant to fund,” wrote Dr. Vincent Matthews, Superintendent of the San Francisco Unified School District (SFUSD), in a letter to the Board of Supervisors. In his letter, Dr. Matthews requested a $60 million allocation from the windfall. According to the Controller’s office, $39 million of the windfall revenue has already been earmarked for school funding, including reserves, well ahead of negotiations for the discretionary $181 million left over.

Spending several million to backfill this promised raise has found supporters even among the minority faction of Supervisors traditionally aligned with the Mayor.

“I would support providing the funds for increasing educator salaries,” said outgoing Supervisor Katy Tang. 

Proposition C, which passed by an overwhelming margin in November, will also have its projected $300 million in annual revenue tied up in a similar court battle. As a result, Breed has directed City Attorney Dennis Herrera to defend Prop C’s outcome in court—despite her initial opposition to the measure during the election—and contends that her proposed allocation would backfill additional funding amid this (presumably temporary) setback.

“I’m focused on addressing the immediate crisis we see every day on our streets and I think the voters have been clear that they want action,” Mayor Breed said. “That’s why I want to fund programs for affordable housing, supportive housing, behavioral health, and homelessness, like my plan to open 1,000 new shelter beds by 2020, so that no one is forced to sleep on our streets. This one-time funding will help make an immediate difference as we wait for more sustainable funding to become available.”

But City Hall insiders were puzzled by the proposal to spend $50 million to purchase electrical equipment from PG&E to provide energy directly through the SF Public Utilities Commission (SFPUC). Although SFPUC has complained of inflated costs for electrical infrastructure on new construction projects from the statewide utility, voters passed Proposition A in June 2018, which authorized SFPUC to leverage bonds in order to purchase new equipment. Per Proposition A, the Board of Supervisors has sole authority to approve SFPUC bonds; at press time, however, none of the Supervisors behind the competing proposal have responded to questions regarding Prop A bond authority.

Sonja Trauss, whose unsuccessful bid for District 6 Supervisor had received Mayor Breed’s endorsement, excoriated the Board’s proposal. “The spending proposal from the so-called Progressives is shocking. Everyone knows our biggest problem in San Francisco is unsheltered homelessness,” Trauss wrote in an email. “It is peak cynicism for the Progressives to campaign on claims that they are the city's moral compass, that they will protect the city's most vulnerable, and protect the social safety net, but then immediately turn around and frustrate the Mayor's efforts to create shelter and housing for the 1,000 people on our shelter waiting list.”

As a housing activist and founder of the pro-development group YIMBY Action, Trauss also felt vindicated by the fact that the revenue windfall is at least in part attributable to new construction. According to Assessor-Recorder Carmen Chu, San Francisco saw the greatest growth of its property tax base out of all counties in California—12% in the past year alone. In 2018, 44% of property taxes came from new construction. 

Supervisor-elect Matt Haney, who cruised to victory in District 6, told Trauss’ supporters on Twitter that he supports additional funding for shelter, though he also reiterated his call for additional spending on teacher salaries.

Salesforce CEO Marc Benioff, the high-profile billionaire whose generosity boosted the Prop C campaign to the tune of several million, also wrote in support of spending on homelessness services. “I support spending 100% of our city’s budget windfall on our #1 crisis: homelessness,” Benioff posted on Twitter.

Other political operatives speculated that the Board’s proposal differed on increased funding for the Department of Homelessness in order to stymie Breed’s effort to drastically increase capacity for homeless shelters.

“This is what 2019 is going to look like,” said Todd David, Executive Director of the San Francisco Housing Action Coalition (SFHAC) and former head of the public education political group ParentPAC. “We have real work to do, but I think we are going to see more fighting over who gets to take credit, rather than solving problems.”

Proponents of Proposition C, however, contended that it may be too early to draw any conclusive inferences about the future of homeless services in 2019. Jennifer Friedenbach, Executive Director of the Coalition on Homelessness—one of the organizations that spearheaded the Prop C campaign—said that the six Supervisors’ proposal could still bridge the gap in anticipated Prop C funding. The notion that there was no proposed increase in shelter funding, she claimed, was “misinformation.”

“It remains to be seen how the funds would be spent between shelter and affordable housing,” Friedenbach said. “We are waiting to see the details.”

Housing providers like Randy Shaw, Executive Director of the Tenderloin Housing Clinic, have said that the details aren’t looking good so far. In part, that’s because MOHCD funds supportive housing for the formerly homeless in some affordable projects, but not temporary shelter; Public Health funding, meanwhile, provides shelter specifically with mental health treatment. Sheltering over one thousand San Franciscans who line up daily on the waitlist for a bed, however, is largely the duty of the Department of Homelessness.

“I don’t understand why, with overwhelming voter approval of Prop C, we aren’t seeing funding for shelter as an immediate priority,” Shaw said.

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