The Fight Goes to the Ballot
The City’s transfer tax debate smolders on. Here’s the latest.
San Francisco’s Proposition I tax was sold in 2020 as a way to make the biggest real estate deals pay more and fund affordable housing. Now, with construction stalled and jobs on the line, the building trades, developers, and City Hall are pushing to roll it back. This is the second article in a series digging into the City’s transfer tax.
The effort to reform San Francisco’s real estate transfer tax has been put on hold, but the shelving of the BUILD Act hasn’t ended the debate over housing production, taxation, and public revenue.
Failed efforts in Sacramento, jockeying among competing November ballot measures, and the City’s precarious financial condition have merely intensified the debate.
What happened to the BUILD Act?
The BUILD Act — BUILD stands for Balanced Update to Incentivize Local Development — was introduced by Mayor Daniel Lurie and District 5 Supervisor Bilal Mahmood and supported by the SF Building Trades Council as an effort to roll back the transfer tax increase approved by voters through Proposition I in 2020.
Under the proposal, the tax rate on property transactions between $10 million and $25 million would have been reduced from 5.5% to 2.75%. The rate on transactions of $25 million or more would have been reduced from 6% to 3%, bringing San Francisco’s rates more in line with those levied in other major cities.
The proposal was aimed primarily at large apartment buildings, commercial properties, and development sites. Supporters have said that San Francisco’s high transfer tax rates make it more difficult to finance new housing and commercial development. That reduced investment and construction activity means less work for building trades members.
Critics pushed back against any proposal that would reduce city revenue during an already precarious fiscal period. San Francisco is projected to face a shortfall of more than $600 million over the next two years. Muni is also confronting a substantial operating deficit.
In June, the mayor and Mahmood decided not to proceed with the tax reductions. The SF Building Trades Council is shifting its focus to other pressing issues, including the parcel tax to help save Muni.
Meanwhile, in Sacramento…
At the same time, the transfer tax reform debate made its way to Sacramento — but only as a cameo before bowing out so that bigger fish could be fried.
The larger fight involved business groups, labor, taxpayer advocates, and state legislators, all negotiating over a statewide measure that could have raised the voter-approval threshold for certain local taxes and potentially challenged taxes previously approved by simple majorities.
Assemblymember Buffy Wicks (D-14) attempted to use the discussions surrounding that measure to establish statewide limits on local transfer taxes. Her proposal didn’t survive the negotiations. A broader agreement was eventually reached among state political and interest-group leaders, with transfer tax reform being left out.
Along Comes Dean Preston
Former SF supervisor Dean Preston, a supporter of Prop I, has pieced together what’s being billed as the Affordable Housing Guarantee Act, a proposed November initiative that would dedicate revenue from the Prop I transfer tax increases to housing and tenant programs. The money would be placed in a House SF fund.
The problem, however, is the same as with the BUILD Act: money coming out of the City’s general fund. Preston’s proposal would redirect existing revenue at a time when San Francisco faces projected budget shortfalls and municipal workers could confront layoffs, reduced services, and pressure on wages and benefits.
Oz Erickson, longtime SF real estate developer and founder and chairman of Emerald Fund, didn’t mince words when commenting on Preston’s proposal.
“I think it is basically a profoundly anti-union measure,” Erickson said. “What he’s doing is taking money away from union workers in the City. He’s taking money away from the firefighters and from the police and from the SEIU workers.”
Opponents add that Prop I was pitched as a general-purpose tax and passed by a simple majority. Had the revenue been restricted to housing, the measure might have required higher voter approval.
“Everybody should gather together to defeat this because it’s not going to the general fund; it’s being pulled apart from the budget, and it’s not a good solution,” Erickson said.
Onward to November
Preston’s Affordable Housing Guarantee Act is only one of several related measures that could end up reaching voters in November.
Mahmood’s foreclosure tax proposal could eliminate the longstanding transfer tax exemption for certain large properties acquired through foreclosure. Its revenue would remain available to the general fund rather than being automatically dedicated to housing.
Erickson is lukewarm on that proposal, saying it puts an additional tax on monies investors have already lost.
“It sends the wrong message,” he said, citing the high vacancy rate that persists downtown. “I would prefer that this be handled later, once San Francisco is really back.
“I’m not rejecting the idea in its entirety,” Erickson added. “I would prefer it to happen down the road.”
Lurie and District 7 Supervisor Myrna Melgar are also proposing a charter amendment to expand the City’s Housing Trust Fund. That plan would increase annual funding from approximately $52 million to as much as $125 million.
Erickson characterized it as “a much better proposal” than Preston’s.
Lurie is also supporting a separate charter amendment that would make it more difficult to place measures on the local ballot. The proposal would raise the signature requirement for most citizen-sponsored ordinances and generally require the support of six supervisors rather than four for a measure to appear on the ballot.