After a grueling budget season whose consequences we are still dealing with, the Board of Supervisors’ Government Audit & Oversight Committee pondered three revenue measures yesterday for the November ballot. As the City faces a revenue problem that could mean more cuts to health and human services, we can’t just throw money-raising measures on the ballot without a coherent political strategy for success. Aaron Peskin deserves credit for working with the Mayor’s Office to tweak his Business Payroll Tax measure to protect small businesses. And at yesterday’s meeting, he upped the value of properties affected by his Real Estate Transfer Tax measure from $2 to $5 million. But Jake McGoldrick has an alternate proposal to raise the Transfer Tax on properties worth more than $1 million – a strategy doomed to repeat prior failures. As non-profits fear more mid-year cuts in the near future, we can’t afford to put a losing revenue measure on the ballot. The stakes are simply too high.
Everyone knows the definition of insanity: “doing the same thing over and over again and expecting a different result.” So why is Supervisor Jake McGoldrick proposing another increase in the Real Estate Transfer Tax for properties worth over $1 million? It’s good public policy, but the voters need to approve it to realize any revenue. And we tried this same measure in November 2002 – only to lose because Downtown spent wads of money scaring middle-class homeowners into believing they would be hit. With progressives busy this November around a Housing Charter Amendment and a bond measure to rebuild SF General Hospital, it will be tough to wage a grassroots campaign to support it.
It was obvious from yesterday’s public comment that the Association of Realtors and the Chamber of Commerce will oppose any tax increase at all – even the transfer tax, which only affects property owners at the time of sale. And unlike in 2002, when the real estate market was hot, they’ll claim that this is a bad time to raise the transfer tax because we’re in a recession. Therefore, the burden for Supervisors is to narrowly craft a measure that will withstand such (well-funded) attacks. Convincing voters that this measure is about making Downtown pay its fair share – and nothing else – is essential, or on November 5th we’ll be faced with making painful budget cuts because another revenue measure failed.
McGoldrick said in Committee that, based on conversations with neighbors and “at bus stops,” $1 million is a fair minimum to raise the transfer tax. But that doesn’t measure up to the cold political reality. With the cost of San Francisco real estate, a lot of homeowners are sitting on property that will sell for over $1 million – and not all are Downtown millionaires.
Which is why Aaron Peskin’s measure to only raise the Transfer Tax for properties that sell for over $5 million is a sound approach. Just like repealing Prop 13 at the state level is politically impossible (but “split-roll” taxation is not), directing the transfer tax at the very rich and corporations who won big from George Bush’s tax cuts is what it will take to raise real revenue. Peskin’s proposal also has a tax credit for owners who seismically retrofit their buildings or install solar panels – which left McGoldrick to merely grumble “mine won’t solve the problems of climate change.”
Peskin’s other measure would plug a loophole in the City’s Business Payroll Tax. Right now, business partnerships – which include law firms, accounting firms and consulting firms – don’t pay this tax, costing the City $19 million a year in unmet revenue. While Peskin’s measure is sound public policy, expect every corporate law firm in town to throw money into defeating it when it’s on the ballot. They’ll moan that it “hurts small businesses” – who already must provide their workers paid sick leave, universal health care and a minimum wage increase. Once again, we need an inclusive strategy to win.
Fortunately, Peskin teamed up to find common ground with an unlikely ally: Gavin Newsom. The Mayor has proposed a companion measure that would go into effect if Peskin’s measure passes, by exempting some small businesses. Currently, the tax only affects businesses with over $167,000 on payroll. Newsom’s measure would up the minimum to $250,000 – with adjustments for inflation made every two years. Such a move will legitimately show that the tax is designed to shelter small businesses.
While Peskin agreed to the Mayor’s amendment, Newsom also wanted to lower the tax rate for businesses that have between $250,000 and $400,000 in their payroll. But in this difficult budget season, that’s just not fiscally prudent. You can’t tell non-profits who provide front-line health and human services to the indigent that they’re being cut while we’re cutting taxes for business owners. That’s Republican-style budget priorities.
“This budget process has been horrific,” said Bill Hirsh of the AIDS Legal Referral Panel at yesterday’s hearing, “and we’re going to be looking at this next year. It seems like the budget process never ends – while our clients are in constant need of services.” Our City has a revenue problem, and there’s simply no time to play political games by proposing tax measures that sound great – without a coherent strategy for getting 50% plus one of San Francisco voters to approve it. Otherwise, we’ll be back at the same place next year – with even fewer options at saving needed services.
Raising the minimum for the Real Estate Transfer Tax increase is necessary to show that it’s really about making Downtown pay its fair share. And getting small businesses on board to plug the Business Tax loophole is essential to rounding up more than just the usual suspects. Supervisor Aaron Peskin gets it. Will the others too?
