San Francisco, California, Proposition C, Commercial Rent Tax for Childcare and Early Education (June 2018)

• Text of measure
  • Ballot question
• Path to the ballot
• See also
  • External links
  • Footnotes
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  • Local ballot measures
  • State ballot measures
  • Local politics

Proposition C: San Francisco Commercial Rent Tax for Childcare and Early Education
The basics
Election date:
June 5, 2018
Status:
a Approved
Topic:
City tax
Related articles
City tax on the ballot June 5, 2018 ballot measures in California San Francisco County, California ballot measures Local property on the ballot
See also
San Francisco, California

A commercial rent tax for childcare and early education was on the ballot for San Francisco voters in San Francisco County, California, on June 5, 2018. It was approved. It received 51 percent approval from voters, and San Francisco city officials certified the measure as approved. A lawsuit was filed arguing that the measure required a two-thirds (66.67%) vote to pass, but courts sided with the city and upheld the approval of the measure.

A yes vote was a vote in favor of authorizing an additional tax on the lease of commercial property for landlords with annual gross receipts over $1 million. The measure was designed to levy a new tax in the amount of 1 percent of gross receipts for warehouse space and 3.5 percent of gross receipts for other commercial properties to fund childcare and early education programs.

A no vote was a vote against authorizing an additional tax on the lease of commercial property in the amount of 1 percent of gross receipts for warehouse space and 3.5 percent of gross receipts for other commercial properties to fund childcare and early education programs.

San Francisco Supervisors Jane Kim and Norman Yee led the citizen initiative campaign for Proposition C. The measure was known by proponents as the Universal Childcare for San Francisco Families Initiative.

Proposition C competed with Proposition D, a measure designed to fund housing and homelessness services by taxing gross receipts from the lease of commercial property at the rate of 1.7 percent. Proposition D was defeated.

Click here to learn more about competing measures in California.

Aftermath

Lawsuit

  

Lawsuit overview
Issue: Whether Proposition C required a two-thirds supermajority vote or a simple majority vote for approval
Court: California First District Court of Appeal; originated in Superior Court of San Francisco
Ruling: Ruled in favor of defendants, stating the measure required a simple majority, not a two-thirds supermajority; appealed, lower court ruling upheld; appealed, declined by California Supreme Court
Plaintiff(s): The Howard Jarvis Taxpayers Association, the Building Owners and Managers Association of California, the California Business Properties Association, and the California Business Roundtable	Defendant(s): City and county of San Francisco
Plaintiff argument: Proposition C is invalid because it should have required a two-thirds supermajority vote due to the specific designation for tax revenues (childcare and early education).	Defendant argument: Proposition C is valid because California Cannabis Coalition v. City of Upland declared the citizen initiative process separate from the actions of local governments, allowing local governments to require a simple majority for local citizen initiatives, including tax measures that designate funds for a specific purpose.

  Source: Superior Court of San Francisco

The Howard Jarvis Taxpayers Association, the Building Owners and Managers Association of California, the California Business Properties Association, and the California Business Roundtable filed a lawsuit challenging Proposition C on August 3, 2018. The groups said that the proposition should have required a two-thirds (66.67%) vote for approval, stating that the measure was a special tax with funds designated to specific projects.

John Cote, an official from the city attorney’s office stated that “San Francisco is confident that when voters act through the initiative process a simple majority vote is required, rather than the two-thirds majority required when local officials act."

On January 27, 2021, the First District Court of Appeal ruled that the supermajority requirement did not apply to Proposition C and only applied to measures placed on the ballot by the city council, board of supervisors, or school board. Howard Jarvis Taxpayers Association President Jonathan Coupal said the group was prepared to sponsor an initiative to require a two-thirds supermajority vote of the people for local tax increases for specific purposes.

Vote requirement for special taxes proposed through citizen initiatives

See also: Laws governing local ballot measures in California

Superior court ruling and appeal

San Francisco Superior Court Judge Ethan Schulman ruled on July 5, 2019, that two measures (both called Proposition C) on the San Francisco ballot in June and November of 2018 were properly certified as approved by city officials. Schulman ruled that Proposition C (June 2018) and Proposition C (November 2018), which proposed tax increases for specific purposes, required a simple majority for approval because they were put on the ballot through a citizen signature petition. The ruling stated that the two-thirds supermajority vote requirement for local special taxes in California applies to tax measures referred to the ballot by lawmakers but not to citizen initiatives.

Christin Evans, a supporter of November’s Proposition C, said, “Obviously, we’re thrilled. We felt that Prop. C was on firm legal ground from the beginning, and the judge’s opinion left no question that voter-led initiatives will be possible going forward to allow the people to help shape city policy.”

Rex Hime, president of the California Business Properties Association and representing the Howard Jarvis association and the California Business Roundtable, said, “We are disappointed in today’s ruling but will continue to fight to uphold the will of the voters. Prop. 13 and Prop. 218 are unambiguous — voters want a two-thirds vote requirement for special taxes. We will be filing an immediate appeal.”

Appellate court ruling on Proposition C (November 2018), 2020

On June 30, 2020, a panel of three California First District Court of Appeal judges upheld Judge Schulman's ruling and said that the city was correct to apply a simple majority requirement, rather than a two-thirds supermajority requirement, to Proposition C.

California Supreme Court denial to review rulings, 2020

On September 9, 2020, the California Supreme Court denied a request to review the lower courts' rulings.

California appeals court ruling on Proposition C (June 2018), 2021

In August 2018, the Howard Jarvis Taxpayers Association filed a lawsuit seeking to invalidate Proposition C, alleging that it required a two-thirds supermajority requirement to pass. On January 27, 2021, the First District Court of Appeal ruled that the supermajority requirement did not apply to Proposition C and only applied to measures placed on the ballot by the city council, board of supervisors, or school board. Howard Jarvis Taxpayers Association President Jonathan Coupal said the group was prepared to sponsor an initiative to require a two-thirds supermajority vote of the people for local tax increases for specific purposes.

On April 28, 2021, the California Supreme Court declined to hear an appeal of the ruling on Proposition C (June 2018), leaving the lower court ruling in place and allowing the city to continue collecting the tax and to spend the revenue from the tax.

Fresno Measure P ruling

In Fresno, a judge ruled that special sales tax initiative Measure P required a two-thirds supermajority to pass despite being put on the ballot through a signature petition drive. Click here to read more.

The ruling was appealed to the Fifth District Court of Appeal. In December 2020, the Fifth District Court of Appeal overturned Judge Gaab's ruling and stated that the measure required approval from a simple majority to pass. Representatives of the city said that it would not appeal the ruling further. The Fifth District Court of Appeal ruled that California's Proposition 218 (1996) does not apply to tax measures put on the ballot through a citizen initiative signature petition drive.

Background and arguments

An August 2017 California Supreme Court decision raised questions about how to interpret the state constitution’s voting requirements for special taxes proposed through citizen initiatives.

California voters approved Proposition 218 in 1996, adding Article XII C Voter Approval For Local Tax Levies to the California Constitution. The article includes the requirement that local governments may only enact, extend, or increase a special tax with a two-thirds (66.67%) vote of the electorate. Following the passage of Proposition 218, the two-thirds supermajority vote requirement was applied to legislative referrals, referendums, and citizen initiatives.

In August 2017, however, the California Supreme Court ruled in California Cannabis Coalition v. City of Upland that one requirement contained in Article XIII C—that general taxes must be put on the ballot during general elections—did not apply to citizen initiatives. The court categorized taxes imposed by citizen initiatives as separate from taxes imposed by local governments. This ruling brought the two-thirds (66.67%) vote requirement into question for special taxes proposed through citizen initiatives.

City and county officials in San Francisco argued that the court's 2017 decision meant that a simple majority—not a two-thirds supermajority—was required for the approval of local citizen initiatives, including tax measures that designate funds for specific purposes. Based on those arguments, the city certified the measures as approved. The Howard Jarvis Taxpayers Association filed a lawsuit against the city and county in August 2018 stating that the commercial rent tax for childcare initiative did not receive sufficient votes.

The association stated the following on its website:

“	Because the tax is expressly for a special purpose, it required a 2/3 vote of the city’s electorate under both Propositions 13 and 218. But it did not pass by that margin. Rather, the tax proposal, designated as Measure C, received a scant 50.87% vote.	”
—Howard Jarvis Taxpayers Association

Del Norte Deputy County Counsel Joel Campbell-Blair defended the simple majority requirement in the following statement regarding Measure C, the Hotel Tax Increase for Crescent City Harbor District (November 2018):

“	Based on the reasoning of the California Supreme Court in California Cannabis Coalition v. City of Upland, it is County Counsel’s position that, because Measure C was submitted to the electorate by voter initiative, rather than a local government, a simple majority is sufficient for approval, even though it is a special tax. Measure C has therefore passed.	”
—Del Norte Deputy County Counsel

Initiatives in 2018 to establish special taxes

In 2018, eight local citizen initiatives in California proposing special taxes were approved by more than a simple majority but less than a two-thirds (66.67%) vote. Local officials declared two of the measures to be defeated based on the two-thirds supermajority requirement. The other six measures were certified as approved. In one case, Oakland Measure AA, the impartial analysis of the measure stated that it required a two-thirds supermajority vote for approval, but the city council certified the measure as approved after it received 62 percent approval. Measure AA was ruled unenforceable by Alameda County Superior Court Judge Ronnie MacLaren on October 15, 2019. MacLaren wrote that "the court determined that the city is barred from enforcing Measure AA because the ballot measures prepared by the City unambiguously advised voters that Measure AA would require two-thirds of the votes to pass." These measures are listed below:

• Avalon, California, Measure T, Traveler Tax to Fund Hospital Initiative (April 2018)
• Del Norte County, California, Measure C, Hotel Tax Increase for Crescent City Harbor District (November 2018)
• Downieville Fire Protection District, California, Measure C, Parcel Tax (June 2018)
• Fresno, California, Measure P, Sales Tax for Recreation and Arts (November 2018)
• Oakland, California, Measure AA, Education Parcel Tax Charter Amendment (November 2018)
• San Francisco, California, Proposition C, Commercial Rent Tax for Childcare and Early Education (June 2018)
• San Francisco, California, Proposition G, Parcel Tax for the San Francisco Unified School District (June 2018)
• San Francisco, California, Proposition C, Gross Receipts Tax for Homelessness Services (November 2018)

Election results

San Francisco Proposition C
Result		Votes	Percentage
Yes		120,199	50.87%
No		116,085	49.13%

Results are officially certified.

Source

Measure design

Proposition C was designed to levy a tax on commercial property leases in addition to the existing tax, which ranged from .285 percent to .3 percent at the time the measure was placed on the ballot. Proposition C exempted commercial landlords with less than $1 million in gross receipts, along with rents for nonprofit, government, arts, industrial, and non-formula retail uses, among other state exemptions.

City officials estimated that the tax under Proposition C would bring in approximately $146 million a year, with 85 percent of funds designated for childcare and education among children from birth to five years old and 15 percent of funds available for general city purposes.

Text of measure

Title and summary

The title and summary of the measure were as follows:

“

TAX ON COMMERCIAL RENTS TO FUND CHILD CARE AND EDUCATION The City collects a gross receipts tax on many businesses operating in San Francisco. That tax is generally based on the total gross revenues a business receives in San Francisco. Those revenues include rents from leasing commercial property, such as office buildings, warehouses and other industrial buildings, and retail spaces. For gross receipts between zero and five million dollars, the maximum rate for the City’s gross receipts tax applicable to commercial rents is 0.285%. For gross receipts above five million dollars, the maximum rate for the City’s gross receipts tax applicable to commercial rents is 0.3%. Beginning in 2021, for gross receipts over $25 million, the maximum rate for the City’s gross receipts tax applicable to commercial rents will be 0.325%. Businesses with one million dollars or less in total gross receipts within San Francisco are generally exempt from the gross receipts tax. Certain other businesses, including certain non- profit organizations, banks, insurance companies, are also exempt. The State Median Income (“SMI”) is a level of income based on all incomes earned within the State of California. Half of all households in the state have incomes above this level and half have incomes below it. The Area Median Income (“AMI”) is a level of income based on all incomes earned within San Francisco. Half of all households in San Francisco have incomes above this level and half have incomes below it. In addition to the existing gross receipts tax, this measure would impose a new gross receipts tax of: 1% on the amounts a business receives from the lease of warehouse space in the City; and 3.5% on the amounts a business receives from the lease of other commercial spaces in the City. This additional tax would generally not apply to businesses exempt from the existing gross receipts tax or to amounts received from leases to non-formula retail sales establishments or industrial or arts spaces. 85% of the revenues the City collects from this additional tax would fund: child care and education for children from newborns through age five whose parents earn 85% or less of the SMI; child care and education for children from newborns through age three whose parents earn 200% or less of the AMI; investment in services that support the physical, emotional and cognitive development of children from newborns through age five; and increased compensation for people who provide child care and education for children from newborns through age five. The City could use the remaining 15% of funds collected from this additional tax for any public purpose.

”

Impartial analysis

The following impartial analysis of the measure was prepared by the office of the San Francisco Controller:

“	Should the proposed ordinance be approved by the voters, in my opinion, it would generate additional net annual revenue to the City of approximately $146 million. The proposed ordinance would raise the gross receipts tax paid by commercial landlords in San Francisco. Eighty-five percent of the revenues from the tax would be designated for child care and early education, and 15% would be available for any public purpose. Total tax collections would change over time at the rate of inflation of commercial rents in the City. The current gross receipts tax was passed by the voters in November 2012 and replaced the former 1.5% payroll tax with a gross receipts tax that varies by the size and type of business. Commercial landlords generally pay a rate between 0.285% and 0.3% of gross receipts currently. The proposed ordinance would add a new tax of 3.5% for most commercial spaces and 1.0% for rents from warehouse spaces, in addition to the current gross receipts tax. The proposal exempts commercial landlords with less than $1.0 million in gross receipts, rents paid from non-profit tenants, government tenants, arts, industrial uses and non-formula retail uses as well as other exemptions required under State law. We estimate that these exemptions represent approximately 20% of the tax base, and therefore that 80% of commercial rents paid in the city would be subject to the tax. As noted above, total tax revenues that would be generated are estimated to be approximately $146 million annually based on the current tax base, exemptions and rates, and would change over time at the rate of inflation of commercial rents in the City.	”
—San Francisco Controller

Full text

The full text of the measure is available here.

Support

Proponents

Yes on C - Universal Childcare in San Francisco led the campaign in favor of Proposition C.

A list of endorsements for Proposition C compiled by Yes on C - Universal Childcare in San Francisco can be read here.

Groups that endorsed a "yes" vote on Proposition C included:

• Children's Council San Francisco
• Democratic Socialists of America, San Francisco chapter
• San Francisco Child Care Providers' Association
• San Francisco Labor Council
• San Francisco Women's Political Committee
• SEIU Local 1021
• SF Berniecrats

Arguments

Yes on C - Universal Childcare in San Francisco made the following statement on its website:

“	San Francisco’s commercial tax rate is currently set incredibly low at .3 percent. Established almost a decade ago, the City’s commercial tax rate is significantly lower than other major urban areas. By increasing the commercial tax rate to 3.8 percent, still below that of New York City’s and the state of Florida, San Francisco can create an annual revenue stream of $130 million. As American corporations are set to have record breaking years of profit, due to the recent historic Trump and Republican tax break, it is fair to require companies pay their fair share. ... Even though medical and child development specialists and scientific research have uniformly found that the most critical time in brain development is from birth to 3 and the brain’s capacity is 90% developed before a child reaches age 5, San Francisco has more than 2400 children on the waitlist for quality care and more than 1600 of these children are under the age of 3. When 66% of the children on the waitlist are infants and toddlers, it dramatically illustrates the unmet need in this age group and the critical and urgent need for targeted investment akin to the level of support that we have given to our 4-year-olds.	”
—Yes on C - Universal Childcare in San Francisco

Opposition

Opponents

Groups that endorsed a "no" vote on Proposition C included:

• The Edwin M. Lee Asian Pacific Democratic Club
• The San Francisco Chronicle
• The San Francisco Republican Party

Arguments

• The San Francisco Chronicle Editorial Board made the following argument in opposition to Proposition C:

“	Among the many problems with Prop. C is its obliviousness to the reality of commercial real estate’s volatility. To link an expensive new program to a revenue source that is certain to shrink in the next downturn is simply irresponsible. There is also a cynical political element in Prop. C: 15 percent of its revenue, about $20 million a year, would be set aside for the general fund where it could be spent for any purpose, a provision that sponsoring Supervisor Jane Kim acknowledged was a concession to the San Francisco Labor Council. ... The hefty 1,100 percent gross-receipts tax increase in Prop. C could be a tipping point for some commercial tenants to leave San Francisco. It is noteworthy that the city controller’s office has projected that the Prop. C surtax would have a negative net economic cost with a drop in employment and disposable income per capita.	”
—The San Francisco Chronicle Editorial Board

Path to the ballot

See also: Laws governing local ballot measures in California

San Francisco Supervisors Jane Kim and Norman Yee led a successful citizen initiative campaign to place Proposition C on the ballot. In San Francisco, signatures equal to 5 percent of the votes cast for mayor in the preceding election are required to put an initiative on the ballot. The requirement for 2018 initiatives was 9,485 valid signatures. The campaign collected the necessary amount of signatures and replaced a council-referred version of the measure. The council-referred measure would have required a two-thirds (66.67 percent) supermajority vote, but Proposition C required a simple majority of 50 percent plus one for approval. The competing measure, Proposition D, required a two-thirds (66.67 percent) supermajority vote for approval. Only one measure could be approved.

See also

Local measures

• Local measures in 2018
• City tax on the ballot
• Local property on the ballot
• San Francisco County measures

California

• June 5, 2018 measures in California
• Local ballot measures, California
• San Francisco, California

News and analysis

• State and local preemption conflicts
• Measures advancing national agendas

External links

Suggest a link

• Search Google News for this topic
• San Francisco County Elections Office website