Facing mounting budget woes this election year, as spending far outpaces revenues, the City of San Francisco is scrambling to reform its infamously large and complex tax burden on business.
San Francisco’s five largest employers now account for nearly a quarter of the city’s total business tax revenue, according to an April 14 report in the San Francisco Examiner. If any were to relocate outside of the city, such would leave San Francisco—currently facing an $800 million budget deficit—vulnerable.
As such, Mayor London Breed and city officials are currently negotiating with business and labor leaders to devise tax reform measures for the November ballot that could simplify its tax code and even out the load on top businesses, the San Francisco Examiner reported.
In particular, city officials say they would like to see changes that would not incentivize businesses to move jobs out of San Francisco, since the city’s largest employers are required to pay a disproportionate amount of business taxes.
But shifting the tax burden elsewhere, such as increasing the city’s already large sales tax, could hurt a retail sector that has been decimated by a flurry of closures in recent years, analysts say.
City Controller Greg Wagner has said the complexity and number of new taxes passed by voters in recent years combined with a poor economy have increased tax disputes between the city and large businesses, according to Alyssa Sewlal, a spokesperson for his office.
Such disputes include a legal demand from General Motors for more than $121 million in tax refunds, as well as tens of millions of dollars in refund claims, and settlements and lawsuits on behalf of companies who say they were overtaxed such as Deloitte, Gap, WeWork, AppLovin, Chime Financial, and Block—formerly Square—since 2020, according to the San Francisco Examiner.
At the same time, the mayor’s office has been trying to direct more attention toward helping tourist-reliant businesses including hotels, restaurants, and arts and entertainment groups, including launching new small business grants and laying out plans to revitalize its downtown. Several such businesses have denounced the city’s street conditions, crime, costly permitting, and escalated taxes.
Factors such as a struggling office market aided by the rise of remote work, retail and commercial vacancies, poor recovery from the pandemic, and lagging tourism have played a role in revenues not keeping up with city spending that has increased significantly over the past decade.
Currently at $14.6 billion, San Francisco’s budget rivals most major U.S. cities. Because it is forecast to escalate by more than $1 billion over the next five years, the city will be on track to post a deficit surpassing $1 billion by 2027 barring major changes, the San Francisco Examiner reported.
City employee salaries, pension benefits, and health care costs are projected to increase by about $500 million within the upcoming four fiscal years, according to Ms. Breed’s office.
The mayor, who is up for re-election in November, told city departments in December they will be required to cut their budgets by about 10 percent in the upcoming fiscal year, and that they must also consider an additional 5 percent in cuts as a “contingency reduction.”
The city’s next budget, which goes into effect July 1, is scheduled to go before the San Francisco Board of Supervisors for a vote June 1.
