San Francisco voters just passed a huge tax increase on business to pay for homelessness services, but it’s anyone’s guess if the new levy is legally enforceable.
On Tuesday, some 60 percent of Bay City residents voted in favor of Proposition C, a ballot initiative that would raise an estimated $300 million a year for housing, mental health treatment, and other services for the city’s 7,500 homeless residents through a hike in the city’s business gross receipts tax.
That’s a huge amount of new revenue, increasing the take from the city’s current business taxes by some 33 percent, and nearly doubling the $380 million the city currently spends on the homeless.
Because it’s a gross receipts tax, it would tax companies’ total revenue, regardless of how profitable they are.
The specter of such a huge tax hike—the largest in the city’s history—proved controversial long before Tuesday. San Francisco mayor London Breed, State Sen. Scott Weiner (D–San Francisco), and many of the city’s tech businesses came out against it.
Supporting Prop C were a coalition of homeless advocates, as well as Marc Benioff, the colorful billionaire CEO of Salesforce. Benioff spent at least $7 million of personal and corporate funds supporting the measure.
Despite a commanding win at the polls, the future of Prop C is still very much up in the air thanks to a confusing court ruling which has left California’s cities unsure of what percentage of the vote tax initiatives must win to become law. The California Constitution requires that “special taxes”—those dedicated to funding a specific government program—must be approved by two-thirds of voters. That would seem to invalidate Prop. C, which garnered only 60 percent of the vote.
However, in August 2017, the California Supreme Court ruled that some constitutional limitations on ballot initiatives only apply to those measures placed on the ballot by local governments, and not to citizen initiatives that earn their spot on the ballot through signature gathering campaigns. While that particular case did not specifically address voting thresholds, it has nonetheless provided ammo for those claiming that special taxes put on the ballot as citizens initiatives—which would include Prop. C—need only a simple majority approval.
In October 2017, City Attorney Dennis Herrera sent a memo to city election officials saying, “[I]t seems very likely that voters may now propose special taxes by initiative subject only to a majority vote.”
Then in June, San Francisco passed two special taxes—one for teacher salaries, the other for subsidized childcare—with less than a two-thirds majority. Shortly thereafter, the Howard Jarvis Taxpayers Association—an anti-tax group—sued the city, claiming that the two taxes were illegal.
This has city leaders in a pickle.