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June 5, 2018 — California Primary Election
Local

City of San Francisco
Proposition C Ordinance - Majority Approval Required

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Election Results

Passing

120,199 votes yes (50.87%)

116,085 votes no (49.13%)

Additional Tax on Commercial Rents Mostly to Fund Child Care and Education
— undefined

Shall the City impose a new gross receipts tax of 1% on revenues a business receives from leasing warehouse space in San Francisco, and 3.5% on revenues a business receives from leasing some commercial spaces in San Francisco, to fund quality early care and education for young children and for other public purposes?

What is this proposal?

Pros & Cons — Unbiased explanation with arguments for and against

Information provided by League of Women Voters San Francisco

The Question

Shall the City impose a new gross receipts tax of 1% on revenues a business receives from leasing warehouse space in San Francisco, and 3.5% on revenues a business receives from leasing some commercial spaces in San Francisco, to fund quality early care and education for young children and for other public purposes?

NOTE: Propositions C and D concern the same tax. If the voters approve both measures, the one with the greater number of votes over the threshold will be enacted.

Note: The Pros & Cons are also available in Spanish and Chinese.

 

The Situation

The City collects a gross receipts tax from many businesses receiving revenue from the lease of commercial property, such as office buildings, warehouses and other industrial buildings, and retail spaces. The current tax rate ranges from 0.285% to 0.3%.

Businesses with $1 million or less in total gross revenues within San Francisco are generally exempt from the gross receipts tax. Certain other businesses are also exempt, including some nonprofit organizations, banks and insurance companies.

The Proposal

This measure would impose a new and additional gross receipts tax of:

¡         1% on the amounts a business receives from the lease of warehouse space in the City and

¡         3.5% on the amounts a business receives from the lease of other commercial spaces in the City.

This tax would not apply to:

¡         Businesses with $1 million or less in total gross receipts and

¡         Businesses currently exempt from existing gross receipts tax or to amounts received from leases to non-formula retail sales establishments or industrial or arts spaces

85% of the revenues would fund:

¡         Child care and education for children birth to 5 years whose parents are very low income to low income,

¡         Child care and education for children birth to 3 years whose parents are low to middle income and do not currently qualify for assistance,

¡         Services that support the development of children birth to 5 years, and

¡         Increased compensation for child care and education providers of children birth to 5 years old.

15% of the revenues would go to the City’s General Fund.

 

A “YES” Vote Means: You want to impose a new gross receipts tax of 1% on revenues a business receives from the lease of warehouse space in the City, and 3.5% on revenues a business receives from the lease of some commercial spaces in the City to fund quality early care and education for young children, and for other general purposes.

A “NO” Vote Means: You do not want to approve this tax.

 

Supporters say

¡     The shortage of and high costs of childcare pose a financial burden to working families and can cause families to leave San Francisco. Affordable and accessible childcare helps women stay in the workforce.

¡     Large property owners have been taking advantage of Proposition 13[1] and should pay their fair share by supporting residents and working families of San Francisco.

¡     Early education and childcare teachers are among the most underpaid workers in the City. This will provide quality jobs and increased wages for a workforce that is predominately low-income women of color.

¡     Studies have found that every dollar invested in early childhood education saves seven dollars in reduced costs for remedial education, incarceration and social support.



[1] Proposition 13 was an amendment to the California Constitution approved by the voters of California in 1978. It caps the tax amount for all kinds of properties – residential and commercial – at 1% of a property’s purchase price, allowing for increases of no more than 2% per year.

Opponents say

¡     The high prices and shortage of childcare can be attributed to the administrative burdens of opening a childcare business, including zoning laws and high annual licensing fees.

¡     Commercial rents are already high, and this $148 million tax increase will force businesses to cut staff, leave the City, or close entirely.

¡     This proposal would give free childcare to families earning 200% of Area Median Income (AMI), such as a single parent earing $185,000, a family of three earning $208,000, or a family of four earning $230,000.

¡     In 2012, the U.S. Department of Health and Human Services (HSS) reported that the benefits of Head Start’s preschool disappear by 3rd grade.

Measure Details — Official information about this measure

YES vote means

A “YES” Vote Means: If you vote "yes," you want to impose a new gross receipts tax of 1% on revenues a business receives from the lease of warehouse space in the City, and 3.5% on revenues a business receives from the lease of some commercial spaces in the City to fund quality early care and education for young children, and for other general purposes.

NO vote means

A “NO” Vote Means: If you vote "no," you do not approve this tax.

Summary

Ballot Simplification Committee

The Way It Is Now: The City collects a gross receipts tax from many businesses receiving revenue from the lease of commercial property, such as office buildings, warehouses and other industrial buildings, and retail spaces. The current tax rate ranges from 0.285% to 0.3%.

Businesses with $1 million or less in total gross revenues within San Francisco are generally exempt from the gross receipts tax. Certain other businesses are also exempt, including some nonprofit organizations, banks and insurance companies.

Propositions C and D concern the same tax. If both measures are adopted by the voters, the one with the most votes will be enacted.

The Proposal: Proposition C would impose an additional gross receipts tax of:

• 1% on the revenues a business receives from the lease of warehouse space in the City; and

• 3.5% on the revenues a business receives from the lease of other commercial spaces in the City.

This additional tax would generally not apply to businesses exempt from the existing gross receipts tax.

It would also not apply to revenues received from leases to businesses engaged in:

• Industrial uses.

• Some retail sales of goods and services directly to consumers; or

• Arts activities.

This additional tax would also not apply to revenues received from certain nonprofit organizations or from government entities.

The City would use 15% of funds collected from this additional tax for any general purpose.

The City would use the remaining 85% of the funds from this additional tax for:

• Quality early care and education for children from newborns through age 5 whose parents are very low income to low income;

• Quality early care and education for children from newborns through age 3 whose parents are low to middle income and do not currently qualify for assistance;

• Investment in services that support physical, emotional and cognitive development of children from newborns through age 5; and

• Increased compensation for people who provide quality early care and education for children from newborns through age 5.

Financial effect

City Controller Ben Rosenfield

City Controller Ben Rosenfield has issued the following statement on the fiscal impact of Proposition C:

Should the proposed ordinance be approved by the voters, in my opinion, it would generate additional net annual revenue to the City of approximately $146 million. The proposed ordinance would raise the gross receipts tax paid by commercial landlords in San Francisco. Eighty-five percent of the revenues from the tax would be designated for child care and early education, and 15% would be available for any public purpose. Total tax collections would change over time at the rate of inflation of commercial rents in the City.

The current gross receipts tax was passed by the voters in November 2012 and replaced the former 1.5% payroll tax with a gross receipts tax that varies by the size and type of business. Commercial landlords generally pay a rate between 0.285% and 0.3% of gross receipts currently. The proposed ordinance would add a new tax of 3.5% for most commercial spaces and 1.0% for rents from warehouse spaces, in addition to the current gross receipts tax.

The proposal exempts commercial landlords with less than $1.0 million in gross receipts, rents paid from non-profit tenants, government tenants, arts, industrial uses and non-formula retail uses as well as other exemptions required under State law. We estimate that these exemptions represent approximately 20% of the tax base, and therefore that 80% of commercial rents paid in the city would be subject to the tax.

As noted above, total tax revenues that would be generated are estimated to be approximately $146 million annually based on the current tax base, exemptions and rates, and would change over time at the rate of inflation of commercial rents in the City.

Published Arguments — Arguments for and against the ballot measure

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