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Proposition C promises a $300 million annual funding increase for San Francisco’s homelessness services. We analyze how it would work and what the tradeoffs might look like.

San Francisco’s Proposition C could drastically increase funding for homeless services in San Francisco. Advocates support raising the gross receipts tax on the City’s largest businesses to greatly reduce homelessness in San Francisco. Some political observers and factions of the business community have instead argued that additional taxation won’t solve a problem that is essentially about bureaucratic management. The facts about job growth versus tax revenue are nebulous, but the City’s sheltering services could clearly use a boost. So how do the details stack up?

Proposition C recently qualified for this November’s ballot after supporters of the “Our City, Our Home” campaign submitted over 28,000 signatures, three times the minimum 9,485 required. It has earned endorsements from even historically moderate Democrats, including U.S. Representative and House Minority Leader Nancy Pelosi.

If passed, this measure would raise $300 million annually by imposing an additional 0.5% tax on businesses’ gross receipts exceeding $50 million. The text of the initiative points out that, in comparison, the “Tax Cuts and Jobs Act” signed by President Donald Trump last year cut the federal corporate tax rate by 14%—but, critically, the federal tax cut lowered taxes on profits, not gross revenue.

Since some major corporations such as Wells Fargo and Lyft are headquartered in San Francisco; Proposition C’s authors also increased an alternative to the gross receipts tax for businesses whose entire global revenue flows through their local administrative centers. Those companies instead have a 1.5% payroll tax increase.

The revenue from the increased tax would be deposited into the “Our City, Our Home Fund”, which would apply to funding homeless services:

  • At least $150 million (50%) would be allocated to helping homeless people secure permanent housing. This includes providing short-term rental subsidies for up to five years, permanent supportive housing, and single room occupancies.
  • At least $75 million (25%) would be used to provide health services to homeless people who struggle with behavioral impairments connected to mental illness or substance abuse. 
  • At most $40 million (12%) would be used for programs to aid people who are recently homeless or at risk of homelessness.
  • At most $30 million (10%) would be used to pay for new shelter beds as well as fund bathrooms and showers.
  • 3% would be used to administer the tax. 

In 2012, San Francisco began to phase out its payroll tax system in favor of gross receipts, which supporters argued would favor job growth during the Great Recession. According to an Economic Analysis by the City Controller’s office, tax revenues are returning to pre-2012 levels despite the new tax structure. Furthermore, the Controller’s data suggests that the City’s business taxes have become more progressive as a result, and has shifted the tax burden from information and technology companies to financial services and real estate.

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It’s important to note that San Francisco spends most of its budget for homeless services keeping people in their homes. Many people you see on the street—the currently unsheltered population, which has remained relatively stable over the past few years—are not the main recipients of the City’s spending.

San Francisco currently spends about $300 million on homeless services annually, but it has not been enough to fully address the scope of the problem. 66% of the spending for homeless services already goes toward housing more than 7,500 formerly homeless households through permanent supportive housing and rental subsidies; the remaining funds go toward providing other services to the roughly 15,000 people who experience homelessness in San Francisco each year.

Although San Francisco had a higher rate of sheltered homeless individuals than other major California cities in 2017 (42% of the homeless population compared to 25% in Los Angeles), 4,353 people lacked appropriate shelter at the time of the 2017 San Francisco Homeless Point-in-Time Count . According to the Department of Homelessness and Supportive Housing (HSH), as per the initiative text, San Francisco had approximately 2,500 shelter beds for its homeless population in April 2018. The waiting list for shelter beds consistently has over 1,000 people on it. 

The measure aims to address these disparities by housing at least 4,000 homeless people, and expanding shelter beds by 1,000, within five years. It additionally intends to reduce family homelessness by 85%. 

This would help the Department of Homelessness and Supportive Housing meet the goals laid out in its Five Year Framework last year, which aimed to reduce chronic homelessness in half by December 2022 and end family homelessness by December 2021. 

According to the nonprofit TODCO Group, in a poll conducted by David Binder Research, 66% of 400 likely voters supported the measure. The support encompassed different age, race, and income groups. Both long-time residents and newer residents strongly supported it as well. Republican voters were the only group to oppose the measure at 80%.

But a second poll done by EMC Research, showed that support for the measure dropped significantly after voters heard arguments about the cost of the measure and homeless services. The SF Chronicle reported that the EMC Research poll showed overall support dropping from 56% to 47% after hearing negative arguments.

Jim Lazarus, senior vice president of public policy at the San Francisco Chamber of Commerce, told the Beacon that the Chamber is mounting a campaign in opposition to the measure. The Chamber also sponsored an opposition argument to the measure. Although this measure could be seen as a tax on large technology companies, Lazarus explained that there are a lot of businesses that could generate gross receipts exceeding $50 million, such as law firms, hotels, accounting firms, and grocery stores. He noted that he could not know exactly which businesses this would affect because tax filings are confidential. But, according to Lazarus, because the measure would tax gross receipts, and not net income, it would not take profitability into account and could ultimately put jobs at risk. 

Further, the San Francisco Chronicle recently obtained a memo from the Office of Economic and Workforce Development in which Lazarus specified that “middle income, non-technical support and administrative roles in San Francisco — the jobs largely considered the easiest to move” would primarily be affected, warning that there is “a limit on how high taxes can go before you decide to go to Oakland, where the taxes are much, much lower.”

Lazarus’s concerns are not without merit, but may have applied more directly to describing the pre-2012 payroll tax situation than Prop C. Businesses affected by Prop C would have the option to pay a payroll tax increase if they are headquartered in the City, and would presumably only choose that if a gross receipts tax were higher. The proponents of the measure have considered the economic impact and have made an effort to create a flexible policy.

With an unemployment rate of 2.6%, San Francisco’s economic priorities are hardly the same as those in 2012, when recession-era unemployment was dire. The OEWD memo estimated that less than 5% of the City’s 88,000 businesses would be subject to the increased half-percent tax. In other words, the measure does not affect more than 95% of businesses in San Francisco.

Proposition C is intended to target high-grossing industries that, in theory, should be able to afford it. These affected businesses have already benefited from a more progressive local tax structure that eases the tax burden on more innovative industries that create new jobs, like the technology sector, after a progressive 2012 policy overhaul. By continuing this trend, Our City, Our Home supporters hope that these companies would remain in San Francisco, happily contributing to a City that shelters all its residents.

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