Sarah Holder is a staff writer at CityLab covering local policy, affordable housing, labor, and technology.
California cities are angling to charge big business for housing, after a notable failure in Seattle. They might have a better shot.
Big businesses want lower taxes. Cities—and many of the people who live in them—want lower rates of homelessness. Lately, the compatibility of these two desires is being tested, as local governments across the U.S. float a new strategy to help the growing number of unsheltered people on their streets: Asking businesses to pay a greater share in funding aid.
Last week, a coalition of homelessness advocates, non-profits, and tenant groups in San Francisco secured an initiative for November’s ballot that, if passed, would almost double the city’s spending on homeless shelters using an increased gross receipts tax.
“There’s so much wealth in San Francisco that we can [use to] address a longstanding issue,” said Mary Howe, the executive director of San Francisco’s Homeless Youth Alliance. “This is an opportunity for all of us to come together: We all benefit from seeing people move beyond poverty and homelessness.”
This news comes just weeks after Seattle—home to companies like Amazon and Starbucks, along with the third-largest homeless population in the country—capitulated on a similar plan. After weeks of debate, the city’s council had passed a per-employee tax on Seattle’s largest corporations that would have raised $47 million for affordable housing and homeless initiatives. Though the charge had already been negotiated down to almost half its original size after an ultimatum from Amazon, a broader anti-tax coalition formed swiftly: The e-commerce giant, along with Starbucks, Vulcan, and other city-based outfits, campaigned hard to put a referendum on the November ballot. And, mere days before their repeal was slated for approval, Seattle’s city council voted to overturn the measure themselves.
“The opposition has unlimited resources,” one Seattle city council member put it, tearfully, as she voted against the head tax that she (and every other city council member) had once supported.
The rapid reversal of Seattle’s tax raised alarms—surrender was swift and complete—but the blow hasn’t yet deterred other cities from similar efforts. San Francisco’s proposed initiative, called Article 28, falls in line with plans out of other California cities: Mountain View, home to Google’s headquarters and 23,000 of its employees, will put an increase of their business license tax to a vote in November, with a plan to use the revenue for local transportation and housing projects. Cupertino, which hosts a large Apple presence, demurred on passing a head tax of its own this year, but Cupertino mayor Darcy Paul reportedly attended Mountain View’s planning meeting to glean inspiration for a future tax draft. And in June, Philadelphia’s city council passed an extra tax on construction projects by a slim margin, which will raise $22 million to spend on affordable housing. (San Jose, Redwood City, and Sunnyvale already have per-employee taxes, but the funds aren’t earmarked specifically for housing projects.)
It’s no coincidence that the tension is especially apparent in cities with large tech presences, where rapid economic growth has often been coupled with rising inequality. In San Francisco, that discrepancy is increasingly stark. Based on a 2017 count, more than 7,000 people experience homelessness in San Francisco each night. One in five of them are under 25. The shelter system has a 1,000-person wait for its 2,500 beds.
“San Franciscans should not have to step over homeless people or walk out their doors and see tents on sidewalks, and homeless people should not be forced to live in these conditions,” the initiative reads. “The intent of voters in adopting Article 28 is to significantly decrease the visible presence of homeless people and tent encampments on City streets by eliminating chronic homelessness.”
Already, the city spends almost $300 million on homeless initiatives each year. Interim mayor Mark Farrell increased the city’s homelessness spending by $29 million this spring, directing most of the budget towards programs “intended to keep people from falling back into homelessness,” including opening four new navigation centers. But proponents of the initiative want to double the budget, and allocate the extra money not only for homelessness prevention or recidivism reduction, but to help people currently on the streets by building more housing.
“The city spends about 3 percent of its $10-11 billion budget on housing and homelessness,” said Kate Chaloemtiarana, a volunteer with the Coalition on Homelessness, one of the San Francisco-based organizations that drafted the bill. “The reason we feel that that isn’t enough is that most of that is spent on people who are currently housed—that leaves only 1 percent on people that aren’t.”
California cities aren’t able to implement local income taxes of their own, notes the city’s Chamber of Commerce Vice President Jim Lazarus, so an increase to the gross receipts tax like the one proposed is the closest they can get. Each year, the existing gross receipts tax nets the city $800 million in revenue from the largest 900 to 1,000 businesses that operate in San Francisco.
Article 28 proposes hiking this tax up by an average of half a percent, allowing the city to use the excess $300 million to decrease shelter wait times, fund mental health and substance abuse care facilities, and raise the resources needed for the city to implement the Housing First model of prioritizing permanent housing. Within five years, proponents of the initiative hope to house at least 4,000 homeless people and set up 1,000 more shelter beds.
“We understand that businesses making a ton of money aren’t going to be happy to hear they have a new tax coming,” said Chaloemtiarana. “But we operated on making sure that this measure was as much of a no-brainer as it possibly could be: That’s why it’s a half a percent tax.”
Chaloemtiarana is right: Even though it might seem a small change to the businesses making $50 million-plus a year, not everyone’s happy. The most vocal critiques so far have come not directly from local tech giants like Twitter, which hasn’t commented, but from San Francisco’s Chamber of Commerce, which was consulted in the drafting process. Though the Chamber hasn’t yet taken a formal stance, vice president Lazarus says that the proposal is just bad tax policy: In 2012, San Francisco started a conversion from a payroll tax to the current gross receipts tax that still hasn’t been fully completed. Keeping the rates and exemptions straight is getting soupier, says Lazarus, and adding another structural change to the gross receipts tax without fully phasing out the payroll one would be premature.
“Meanwhile, a childcare tax [is being decided], there’s a transportation network company tax at the Board of Supervisors, there's now a homeless gross receipts tax, and a cannabis gross receipts tax,“ he said. “We have all these moving pieces. So that’s one of our concerns: Tax policy generally.”
However, he acknowledges that San Francisco’s tax isn’t as onerous—nor as doomed—as Seattle’s was. “That was a head tax [charged per employee], which is even more difficult to justify when you’re trying to retain jobs,” he said. And, as Jason McDaniel, a political science professor at San Francisco State University, told the Associated Press, “I suspect that local companies don’t have the same kind of relationship to the political establishment as they do in Seattle. There’s no Amazon here. It’s not like a company town.”
By getting the initiative on the ballot via petition, advocates appealed to public support, but now, they’re hoping to galvanize city leaders. San Francisco’s new mayor London Breed, who made housing and homelessness a key part of her campaign, has not yet commented on the proposal.
Mountain View’s tax is less radical, and has the full support of the mayor, Lenny Siegel, who helped draft the bill. In June, the city council voted unanimously to push it through to the November ballot. Rather than focus on affordable housing or homelessness specifically—projects with clear community benefits but with a less direct impact on high-earning Google employees—Siegel says the city will use 80 percent of the funds for transportation projects, including infrastructure to connect Google’s autonomous bus fleet. “We’re talking about spending the money on things that will benefit our employers,” he said. Ten percent will go directly towards building more affordable housing.
And unlike in Seattle, where opposition from Amazon was fierce and immediate, Google hasn’t yet publicly commented on the measure. “Google had their chance—if they were going to oppose it, they should have done it by now,” Siegel said. Google declined to comment.
Siegel says the city’s relationship with companies is not antagonistic, and, citing favorable public opinion polling, he predicts the tax will pass easily. Nonetheless, its fate was, for a moment, stickily entwined in a broader tax controversy; one that, too, pitted state politics and business interests against one another. To counter a proposed state-wide soda tax in California, lobbyists for the beverage industry had weighted the state ballot with a measure that would require a two-thirds vote on any local tax initiative, instead of a 50/50 one. It was a move state senator Scott Weiner called “truly vile” and Governor Jerry Brown called “an abomination”—and that would have made it virtually impossible to pass any local taxes in Mountain View or elsewhere. “We easily have enough for majority vote but not quite enough for a two-thirds vote,” Siegel said. (A spokesperson for the American Beverage Association, meanwhile, insisted in a statement, “Our aim is to help working families by preventing unfair increases to their grocery bills.”)
In the end, it was Big Soda that emerged victorious. By June, Governor Jerry Brown had preemptively banned soda taxes state-wide, prompting the soda lobby to strip the ballot of their offensive measure.
The win was a fraught one: Although it will give Mountain View’s tax a greater chance of passing, it served as another example of who has been winning when businesses and government’s priorities come into conflict.