In the last week of an otherwise divisive struggle for San Francisco mayor, all five major candidates appeared together alongside elected officials and the city's business community to advocate for Proposition M to pass on November 5.
"If you care about the future of small businesses, if you care about the resilience of our economy, if you care about the revival of downtown, if you care about the services that are provided by our general fund — whether that be police, fire, our social services for vulnerable folks, or our public transportation — you must vote yes on M," said gay District 8 Supervisor Rafael Mandelman, who played a role in starting the effort for the proposition. "It's too important to play games with."
Like most tax policy, Prop M is complex; but essentially, it changes the sources of San Francisco's general fund revenues to be less dependent on where businesses are located and more dependent on the categories under which they are classified. It would also raise the amount that exempts a business from business taxes from $2.25 million to $5 million, and prevents a tax increase scheduled to kick in next year.
San Francisco Mayor London Breed, a straight ally, said at the October 29 rally that the measure is meant to update tax policy in line with the city's post-COVID business climate, where there's fewer office workers downtown and several large employers have pulled up stakes. Prop M would make the city's tax revenue less dependent upon large businesses.
"The top five companies pay the top taxes in San Francisco, which makes us very vulnerable if one of those five companies decides to leave," the mayor said.
The measure would reduce payroll taxes to encourage companies to stay.
The San Francisco Standard reported that the top five corporate taxpayers in the city pay 29% of overall business taxes; the city controller and treasurer are prevented from stating which companies these are, but the news outlet speculated Salesforce, Visa, Uber, Pacific Gas and Electric, and Airbnb may be among them.
"Last year after talking to businesses over and over again about what the challenges were, we had discussions about having a fairer, more predictable tax system that meets the needs of big businesses and small businesses alike," Breed continued. "So Supervisor [Aaron] Peskin and I, alongside Supervisor Rafael Mandelman, we came together alongside our departments and the controller's office and it took a lot of experience to help reach a consensus of Proposition M that will create a fairer, structural tax system that will have a significant impact on our city, and in a responsible way, for years to come."
Proponents estimate that the business tax exemption will apply to 2,700 small businesses throughout the city. One small businessperson in support is Mat Schuster, a gay man who is owner and chef of Castro neighborhood Spanish restaurant Canela Bistro and Wine Bar.
"San Francisco has just become increasingly difficult for small businesses to stay and operate, so anything that helps small business stay here is great," Schuster said. "We're a small, 50-seat restaurant. We're in our 14th year. We're bringing home less money than ever before. Expenses are super high, and these days we need all the help that we can get. This is something, I think, that will help a lot of small businesses."
Not everyone is so sanguine on Prop M, however. Proposition L co-author Chris Arvin told supporters of their "Fund the Bus!" measure to skip over Prop M. Prop L is a gross receipts measure that would add a 4.5% tax on the revenue of Uber, Lyft, and Waymo in the city to fund public transportation.
The reason is because Prop M contains language that nullifies another gross receipts tax if the other tax passes with fewer votes than Prop M.
That language is contained in Prop M because of the potential for a competing measure in case the negotiations between business and labor groups that crafted Prop M along with Breed, Mandelman, and Peskin failed, the San Francisco Examiner reported. It was not intended to stop Prop L.
If Prop L passes with more votes than Prop M, then both measures would go into effect.
"People can and should vote for both," Mandelman told the B.A.R. "There are some people who are telling people to vote no on M or not vote on M. I think that's a pretty dangerous message."
San Francisco Controller Greg Wagner predicts that for the first three fiscal years (2024-25 to 2026-27), Prop M would reduce revenues by $40 million annually.
"While uncertain this projected loss may be smaller if the measure helps enable the city to reduce reserves for disputed taxes in the future," he stated in a financial analysis of the measure. "Beginning in 2027, scheduled rate increases would generate positive revenues of approximately $50 million annually in FY 2028-29 and thereafter. By FY 2029-30, the total positive revenue resulting from the rate increases would offset the reduced revenue in the first three years, making the total amount of business tax revenue over that period comparable to current law."
After 2029-2030, Prop M is expected to continue to generate $50 million more in revenue annually than would be generated otherwise, Wagner concluded.
Prop L, on the other hand, would result in $25 million more in revenue annually starting next year, Wagner stated in a separate analysis. However, the San Francisco Municipal Transportation Agency's annual deficit is in the hundreds of millions. Prop L revenues could be used only for maintaining or increasing service levels, preserving or improving routes that serve schools, libraries and parks, and discount programs for the elderly, youth, students, low-income, and/or disabled San Franciscans.
Cyrus Hall, campaign manager for the Yes on L campaign, stated to the B.A.R. that, "We can have business tax reform and save over 10 bus lines next year if Prop L gets more votes."
"Unfortunately, Prop M includes a conflict clause that would invalidate Prop L if Prop M gets more votes, even though there is no substantive conflict between the two measures," Hall stated in an October 29 email. "We specifically wrote Prop L in a way that would not conflict with business tax reform, which is why both L and M can go into effect if L gets more votes."
Peskin, a straight ally who is president of the Board of Supervisors and running for mayor against Breed, thanked the many people who came together, including the labor, large and small businesses, and entertainment communities.
"There is nothing more taxing than tax policy, but this is what happens when we all work together and we all listen," he said. Thank you Mayor Breed, thank you Supervisor Mandelman, and in particular thanks to all of the different interests that came together and listened to one another ... Everybody came together and had to compromise."
District 11 Supervisor Ahsha Safaí, a straight ally who is running for mayor, said the measure will help small businesses like those in his largely working class district.
"When you talk to small business owners, it's death by a thousand cuts in this city," Safaí said. "Sixty-nine fees are going to be eliminated that are going to help businesses put money back in their pocket, invest in their small businesses and begin to hire more frontline workers. This is particularly important to people that are struggling — mom and pop businesses in this city — the backbone of what makes San Francisco special and unique."
Candidate and former interim mayor Mark Farrell, a straight ally, also showed up to say Prop M is "truly a consensus measure."
"I'm here because I believe there is no more important measure to the economic success of our city, to the thousands of small businesses that exist in San Francisco today" Farrell said. "They represent the heart and soul of our city. They employ the most people throughout San Francisco in our commercial corridors, in our neighborhoods."
Candidate Daniel Lurie, a straight ally who is an heir to the Levi's fortune who later became founder and CEO of the nonprofit Tipping Point Community, said he appreciated Breed, Peskin and Mandelman for their "good work."
"Yes on M is going to be an important first step to bring small businesses back," Lurie said. "When this city is at its best, we are the greatest city in the world. We know this. We're not there yet; we will be; yes on M will help us get there."
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