Proposition K: Raising the City’s Sales Tax

This Charter amendment would raise the city’s sales and use tax by 0.75 percent, to 9.25 percent.

The Board of Supervisors voted 8-3 to put this initiative on the ballot. Voting for: John Avalos, President London Breed, David Campos, Malia Cohen, Mark Farrell, Eric Mar, Katy Tang and Scott Wiener. Voting against: Jane Kim, Aaron Peskin and Norman Yee.

Proposition K is linked to Proposition J, another Charter amendment, which would lock City Hall into annual spending on services for homeless people, plus public transit maintenance and upgrades.

Why is this on the ballot?

San Francisco faced a budget deficit of $100 million earlier this year. Though the budget has since been balanced, Mayor Ed Lee and the Board of Supervisors accomplished this partially by relying on expected revenue from the passage of this ballot measure.

The official opponent to Proposition K argues that it will disproportionately hurt small businesses, “as shoppers flee San Francisco for lower sales taxes,” as well as low- and middle-income residents.

What would it do and at what cost?

The city’s current sales tax is 8.75 percent, but it will drop to 8.5 percent after a 0.25 percent temporary state levy expires Dec. 31. Proposition K would then raise San Francisco’s sales tax 0.75 percent, to 9.25 percent, starting in April 2017. This tax would last for 25 years, and is projected to earn the city about $155 million per year — nearly $3.8 billion overall.

San Francisco’s chief economist, Ted Egan, projected in July that the tax increase would cause consumer spending to drop by $150 million to $155 million beginning in 2017. But that would be offset by roughly equal tax revenue to City Hall, which could spend that money on public employees and private contractors.

The tax would result in “the loss of between 430 and 480 private sector jobs, but a gain of approximately 580 jobs in the public sector,” Egan wrote. Furthermore, that public investment would cause positive indirect, “multiplier effects” throughout the local economy.

At 9.25 percent, San Francisco’s rate would be lower than many others in the Bay Area. For example, South San Francisco has a rate of 9.5 percent, as does Alameda County. And the cities of Albany, Hayward, San Leandro and Union City have a rate of 10 percent.

Contra Costa County’s is 8.5 percent but several of its cities have higher levies: 10 percent in El Cerrito, and 9.5 percent in Richmond, Pinole and Moraga.

Los Angeles shoppers pay 9 percent but rates are between 9.5 percent and 10 percent in several other cities in L.A. county.

Is there a catch?

The controller’s July report found that the city’s sales tax affects residents more than other groups, including tourists and businesses. In 2015, payments by residents accounted for 57 percent of sales tax revenue.

Sales taxes are among the most regressive, because they disproportionately hit poorer residents. A sales tax is a flat tax — everyone pays the same rate regardless of income. That takes a bigger percentage chunk out of lower-income earners’ cash flow than it does for those at the upper end.

This measure does not require that the revenue from the new sales tax go to any specific purpose. But another measure, Proposition J, which seeks millions for homeless services and public transit, appears linked to the passage of Proposition K. In placing the sales tax on the ballot, the Board of Supervisors required that it be assigned the letter immediately following the one that the homelessness and transportation funding measure received.

Proposition J would create two funds to spend money on homelessness services and public transportation maintenance and upgrades. Those funds would carry a combined cost of about $152 million annually. But even if San Franciscans voted for those funds, Lee could block their creation if he decided they were too expensive for the city’s budget to accommodate. And presumably, the passage of Proposition K would be a factor that he would consider.

When he signed the fiscal year 2016-2017 budget on Aug. 1, Lee said a “significant increase in funding for services for homeless residents and families” was made possible by “a consensus process to move forward with a sales tax increase on the November ballot.”

However, regardless of whether Proposition J passes, if voters approve Proposition K, the sales tax revenue would flow into the city’s general fund, where it could be used for anything.

Who officially proposed it?

Mayor Ed Lee and supervisors Mark Farrell and Scott Wiener.

Who officially opposes it?

The nonprofit organization Save MUNI.

Vote threshold to pass

Simple majority — 50 percent plus one

Effective date if passed

April 2017.

Follow the money

One committee is spending money in support of Proposition K: “Mayor Ed Lee for San Francisco Committee, Yes on J and K.”

Follow the money at the San Francisco Ethics Commission: all Proposition K filings.

Our coverage

Measure to Raise Sales Tax Qualifies for November Ballot.

Endorsements: our methodology

The Public Press chose to count endorsements from organizations that backed multiple candidates or ballot measures, and that made those endorsements available online. We did not count endorsements from individuals.

If you think we missed an important organization, please tell us. We’d love to hear from you.

Tracked endorsements by organization

Written by: Noah Arroyo

Published: Sept. 30, 2016

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