Mayor London Breed formally introduced a tax break package on Tuesday intended to help lure businesses back to San Francisco’s deserted Downtown.
The tax incentives, first announced as part of Breed’s State of the City address last week, include businesses tax discounts and credits with an eye toward a broader reform proposal as a ballot initiative in 2024.
At the Board of Supervisors meeting on Tuesday, Breed introduced legislation that would delay tax increases for businesses hit hard by the pandemic, such as retail trade, food services and hospitality. Those businesses could otherwise see their tax bills rise because of Proposition F, a 2020 ballot measure that cemented the city’s switch from a payroll tax-based system to one based on gross receipts.
During the pandemic, San Francisco’s complicated business tax structure disincentivized in-person office work, in part, because taxes take into account how many employees physically work in the city.
Additionally, Breed is proposing an “Office Attraction Tax Credit” that would offer a 0.45% discount on office-based gross receipts, capped at $1 million, for any new company locating in the city. Office vacancies surged to about 27% last quarter, reflecting a growing trend since the pandemic.
“We must reduce taxes, fees and regulations so entrepreneurs have the freedom to create the next big thing to save our local economy,” said District 4 Supervisor Joel Engardio, who along with Supervisor Matt Dorsey has explicitly voiced support for the mayor’s proposal.
The tax legislation will need to pass a vote at the Board of Supervisors to become law.
The tax breaks are part of a broader “road map” for reviving San Francisco’s Downtown that could also include rezoning parts of the area for arts and entertainment. Breed said at a Board of Supervisors meeting on Tuesday that the tax initiatives are “just the beginning” of a Downtown makeover, and also introduced a $27 million budget supplement for police overtime to address drug crimes, retail theft and violence.
San Francisco’s Downtown lags behind other cities in the return of office workers after the pandemic, raising the likelihood of enormous deficits that could exceed $1 billion by fiscal year 2028.
Apart from lagging business taxes, high office vacancies could trigger a collapse in commercial property values that threatens property tax revenue—the city’s biggest cash cow—over the next several years.
Breed is also asking Controller Ben Rosenfield and Treasurer José Cisneros to help write a broader tax reform proposal for the 2024 ballot. That proposal will be aimed at mitigating disincentives for in-person office work, according to the mayor’s office.
“To be clear, I do not have any predetermined decisions about what that means,” said Breed at Tuesday’s meeting. “We need to make this decision on data and analysis […] so that we have a tax system that helps us to fund and deliver the services we care about while also setting a strong economic foundation.”