San Francisco’s big business tax to fight homelessness is a warning for tech

Who will pay?
Who will pay?
Image: Beck Diefenbach/Reuters
We may earn a commission from links on this page.

San Francisco’s Proposition C offers a peek into the future of tech companies’ already tense relationship with America’s most vibrant cities. The San Francisco ballot measure to combat homelessness, which passed on Nov. 6 with 59.91%. of voters support, will bring in as much as $300 million each year by taxing large businesses, doubling the city’s budget for the problem. The daily sight of misery on San Francisco’s streets has become politically untenable in one of America’s most liberal, and richest, cities.

Tech is increasingly seen as the villain, and the savior, for urban voters facing challenges the digital economy is bringing to their cities. The issue quickly evolved into a battle of the billionaires. Mark Benioff and his firm Salesforce, collectively contributed $7 million to back the measure. Twitter and Square CEO Jack Dorsey, the CEOs of Stripe and Zynga, as well as prominent venture capitalists opposed it. Zynga’s Mark Pincus called it the “dumbest, least thought out prop ever” in a tweet a few days before the election. Benioff retorted that “there is no other plan to deal with our homeless crisis. We can not wait any longer for a ‘better’ or ‘more fair’ plan.” Jennifer Friedenbach, executive director of the San Francisco Coalition on Homelessness, a principal architect of Prop. C, argued (paywall) that “It’s a comprehensive plan that’s been carefully thought through.”

After its passage, Benioff celebrated (Pincus pledged to help make it a success).

While not limited to tech, the measure was framed as a way to force big companies in the city to pay for a problem to which they contribute. The tech industry is booming and, rightly or wrongly, takes blame for sending housing prices soaring in the Bay Area. In 2017, the number of homeless in San Francisco was estimated to be 7,499 (4,353 of those were unsheltered). While that’s up from the 3,000 or so chronically homeless in 2004, it has remained stable for the last decade or so as the city has poured hundreds of millions into the problem to keep pace.

Its visibility has grown, however, as tony new apartments (or even just affordable ones) enter once off-limit neighborhoods or industrial districts. All of this has coincided with the tech boom since 2011. It’s easy enough to draw the connection: condos for tech workers earning (base) $140,000 a year and Google shuttles are the enemy of affordable housing. With talented tech workers clamoring to live in the most desirable and expensive cities, this tension will only growing.

Measures up and down the West Coast to address homelessness seemed to target tech, reports Wired. A tax on commercial office space in East Palo Alto (Measure HH) to fund low-income housing passed with 77% of the vote. Down the street, Mountain View voters passed an employee tax for affordable housing and the homeless that’s expected to raise $6 million a year—about half of it from Google. Earlier this year, the Seattle City Council unanimously passed (and then a month later repealed 7-2) a $275 per employee tax on Seattle businesses to fund affordable housing and prevent homelessness. Amazon ended construction on a downtown tower, suggesting it sublease instead amid negotiations on the tax. Rattled city officials backtracked, and activists accused Amazon of shirking the problem it helped create.

Don’t expect these measures to go away. They’ve been on the ballot for two election cycles in San Francisco, and cities will need to find the funding somewhere. In 2016, San Francisco voted (paywall) for Proposition J to fund homelessness and transit programs with a higher sales tax hike, yet rejected its companion proposition to actual raise the tax (San Francisco politics are sometimes contradictory). That led to the 2018 business tax under Prop C.

Of course, such measures tax more than just tech companies. Prop C, for instance, hits firms earning at least $50 million in annual revenue with an average 0.5% tax on gross receipts in San Francisco (a separate 1.5% tax applies to certain companies’ administrative offices’ payroll expenses). That applies to roughly 400 San Francisco businesses comprising 20% of the city’s job base, many with far lower profit margins than Salesforce, says state senator Scott Weiner who opposed the measure alongside the city’s progressive mayor London Breed.

Weiner argues Prop C dashes carefully crafted tax brackets in earlier legislation that eased the burden on retailers, car dealerships, shipping firms and other local businesses now saddled with relative higher tax burdens than firms like Twitter. Weiner expected some businesses would stop hiring in the city, or move entirely. Just 3% of the city’s tax-paying businesses will now pay 67% of the city’s business tax revenue, up from 57%, according to urban research and advocacy group SPUR. That will eliminate as many as 875 jobs over two decades, reports (paywall) the San Francisco Chronicle (an impact San Francisco’s city’s chief economist characterized as “small”).

But Wiener warned that deterring tech or any industry from creating more jobs in the city was a “very, very dangerous path,” since their loss could take the middle-class and service jobs with them. “Tech did not create the homeless problem,” he says. “The homeless problem exists because we had bad housing policies in California and allowed…safety nets to deteriorate.”

It’s easy for such nuances to get lost in the heat of popular ballot initiatives which, by necessity, are blunt instruments designed to direct the will of the people against a specific problem. As the homeless problem has grown, the frustration of voters sought an outlet, it often found it in the direct democracy of the ballot box.

Yet the problem dates back decades, springing from multiple sources, many relating to voters themselves. “This problem has been caused by our collective indifference for 35 years,” says Daniel Lurie, founder of Tipping Point, a non-profit in the Bay Area that has raised $200 million to lift people out of poverty. “To say this it is a tech problem and tech has to solve it, is absolving all of ourselves for what we are seeing on our streets.” Housing restrictions in California, and the Bay Area in particular, have crippled attempts to develop new homes and encourage higher density that would have brought down prices. In the San Francisco census area (which includes Oakland), only one new home was built for every 6.8 new jobs created between 2010 and 2015. The number is even worse when considering San Francisco alone.

No feasible amount of rent control or subsidized housing can overcome the forces of supply and demand: more renters competing for relatively fewer properties will send prices soaring, often beyond what middle-class earners can pay, not to mention those further down the income ladder.

Now that Proposition C has passed, it’s not clear if it will solve San Francisco’s problem. Weiner says he hopes it will, and sympathizes with those who think it necessary. “In the end, people are at the end of their rope about homelessness in San Francisco,” he says. “I can’t in any way blame the voters. We have a huge problem. It’s gotten worse and worse.”

More money will certainly help. Half of the $300 million fund is earmarked for permanent housing for the homeless, a quarter for mental health services, 15% for homelessness prevention, and 10% for emergency shelters. Advocates claim the measure will house at least 5,000 people and furnish 1,000 shelter beds.

But the money Proposition C carved out for homelessness is unlikely to hit the streets for years. A legal battle over previous tax measures—lawsuits argue budgetary ballot measures demand two-thirds majorities to pass, while the city contends it is a simple majority— means that the homeless funds from Prop C will likely be swept up in the pending litigation. In the meantime, the city has said (paywall) it will collect the tax, and then hold it in escrow while the court decision is finalized.

Even then, Lurie says, Proposition C must catalyze an all-out effort in order to work. He cited examples such as the ONE System effort that consolidated 14 city databases for tracking and supporting homeless and at‐risk youth into one unified system with help from Google and government agencies. Tipping Point itself says it helped house 166 people through a $2.7 million program that moved people into independent, private rental units using unclaimed Section 8 housing vouchers from the US government. That’s a relative bargain compared to the health and policing costs associated with people living on the street.

Yet money without cooperation among citizens means it won’t address the underlying cause. A crucial element is reversing California residents’ decisions, which mirror those in urban and suburban areas around the country, that effectively close the doors to lower-income residents by preventing the construction of new, affordable, urban housing.  “We need the 60% of the public that voted yes [on Prop C] to also say yes to new housing development in San Francisco,” Lurie says. “If you’re in favor of increasing taxes on businesses, which is easy to do as a citizen, you also need to be willing to say yes to new housing.”