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Controller: three commercial-rent proposals would raise $64M–$146M but impose modest net economic costs
Summary
The Controller’s Office told the Budget and Finance Committee that three competing commercial‑rent/gross‑receipts proposals would raise roughly $64M–$146M annually (based on 2016 data) and produce modest net negative impacts on jobs and GDP; the committee continued and later sent the early‑childhood proposal to the full Board for February 27.
The San Francisco Controller’s Office presented a comparative analysis of three competing commercial‑rent gross‑receipts proposals and their projected fiscal and economic effects, and the Budget and Finance Committee debated the measures and scheduling for the ballot.
Ted Egan of the Controller’s Office summarized the 2012 business tax reform that replaced a payroll tax with a phased‑in gross‑receipts system and described why the payroll tax has not fully phased out: the city has been gradually offsetting payroll reductions to maintain revenue neutrality. He then compared three proposed commercial-rent taxes under consideration by separate sponsors:
- The Peskin transportation proposal (broadest in scope) was estimated at roughly $103 million annually (2016 basis) and would fund transportation operations and infrastructure. - The Kim/Yi early‑childhood proposal (highest rate) was estimated at about $146 million annually and would fund early care and education, including higher compensation for childcare staff; it would tax most commercial rents at 3.5% (1% for warehouses) while exempting government, arts, industrial and certain retail uses. - The Safai housing/homelessness proposal was estimated at about $64 million annually and focuses on acquisition and rehabilitation for affordability and supportive housing.
Egan said all three are dedicated taxes that would require a two‑thirds vote of the electorate and noted standard exemptions: landlords with less than $1 million in gross receipts would be exempt and nonprofits would generally be excluded. Using the city’s economic model and 2016 revenue data, Egan reported modest net negative economic impacts over the next 20 years, ranging from an average annual job loss of about 184 jobs under the Peskin proposal to roughly 746 under the Kim/Yi proposal; changes in GDP and disposable income were small in percentage terms.
Committee members pressed Egan on pass‑through to tenants and vacancy effects. Egan said pass‑through would likely be limited in many commercial segments and estimated that around 12% of the tax could be passed on to tenants in some commercial‑real‑estate scenarios. He also cautioned that effects would vary by property type and neighborhood, noting downtown office tenants are less price‑sensitive than retail tenants in weaker corridors.
The committee also conducted in‑depth policy discussion of the Kim/Yi childcare initiative, which sponsors said would expand subsidies and raise childcare workers’ pay while serving families up to 200% of area median income (sponsors gave a working example that a family of three at 200% AMI would earn about $207,000). Public testimony included union support for higher funding of childcare workers and industry caution from building‑owner groups about targeted gross‑receipts taxes.
After lengthy discussion about ballot certification and scheduling, the committee agreed to send the Kim/Yi measure to the full Board for placement on the February 27 agenda with no committee recommendation; the committee had previously voted (roll call) to continue the item to February 15, and later advanced it to the Board to satisfy timing concerns.
