June ‘Poison Pill’ Ballot Duel Looks Good For Office Space Landlords

What do the Republican tax cut, the Central SoMa Plan, and two dueling propositions on the June ballot all have in common? Commercial real estate giants keep winning.

A pro-Prop. D sign posted in a window, aptly placed next to a flyer for mayoral candidate London Breed. Photo by Garrett Bergthold

Supervisor Norman Yee remembers when he first learned that another proposition was gunning to raise the same tax as his via the June ballot.

It was Jan. 17, the first day after the deadline to file with the Department of Elections. Nearly a week prior, Yee and Supervisor Jane Kim had succeeded in getting Proposition C on the ballot after months of community outreach. If passed, Prop. C and its 3.5 percent tax increase on commercial property owners would pay for universal child care, early-childhood education, and increased compensation for child-care workers. Things looked good.

Then came the phone calls. Yee and Kim suddenly had a problem. Another proposition had snuck into the department’s office at 5 p.m. on the day of the deadline. Prop. D sought to target the same tax opportunity as Prop. C, but it asked voters for half as much. The money would be split between homeless services and middle-class housing, with a sliver to fund single-room-occupancy buildings for San Franciscans earning up to $41,450 a year. A so-called “poison pill” had also been inserted, meaning that only one of the two could win.

“I was shocked,” Yee says. ‘I was like, ‘What’s going on here?’ ”

It turns out that while Prop. C’s supporters were out collecting the 16,000 signatures needed to get childcare services on the ballot, moderate forces back at City Hall were working fast on another plan to defeat them, behind closed doors, without signatures or public input. With the blessing of the San Francisco Chamber of Commerce, a plan was hatched to give commercial real estate landlords a break. They could eat a 1.7 percent tax with Prop. D and therefore avoid the 3.5 percent with Prop. C. Best case scenario: Votes would be siphoned away from Prop. C and both would lose.

But Prop. D’s sponsor, Supervisor Ahsha Safaí, says the initiative wasn’t intended to spoil Prop. C’s chances in true “poison pill” style, but instead to address what he calls the crisis of today: housing. More specifically, it would “expand the definition of affordable housing” to include San Francisco’s middle class, something Safaí campaigned on in 2016. A large chunk of Prop. D’s funds would subsidize housing for middle-class families of three earning between $74,600 and $159,850 a year, or 70 percent to 150 percent of the Area Median Income.

“If you look at all the statistics, we’re doing well at building our low-income housing,” Safaí tells SF Weekly. “We have the housing trust fund, the low-income housing tax credit, the affordable housing bond. It’s all been focused on those making 55 percent of Area Median Income or slightly less. But there’s nothing for working and middle-class families.”

If passed, Prop. D’s funding would be split between the Department of Homelessness and the Mayor’s Office of Housing and Community Development. Safaí says it’s estimated to raise $1 billion by 2030, making it the “largest affordable-housing initiative in the city’s history.” The city controller says it will generate $70 million a year compared to $146 million under Prop. C.

When asked about the city’s disappearing middle class, Yee says Prop. C would help them faster. If struggling families can save $20,000 a year on child care immediately, Yee says, that money can be saved for rent or other expenses. Prop. C would help pay for child care for San Franciscans earning up to 200 percent of AMI, or $207,500 a year for a family of three. It would raise wages for child-care workers struggling to stay in the city alongside the teachers, firefighters, and janitors Safaí likes to mention while pushing Prop. D.

“The two biggest expenses for families with young children are housing and child care. For housing, relief takes years,” Yee says. “Prop. C would be immediate relief.”

The Chronicle’s editorial board doesn’t seem to think so. Last month, the paper endorsed Prop. D with reasoning reminiscent of something out of a Reaganomics textbook. While calling Prop. C “oblivious to the reality of the commercial real estate’s volatility,” the Chronicle sided with the “more modest” Prop. D out of fears commercial real estate tenants would ditch the city if overtaxed.

“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,” the Chronicle’s recommendation says.

Their reasoning bears a striking resemblance to an op-ed that ran in the Examiner earlier this month written by Tallia Hart, president and CEO of the San Francisco Chamber of Commerce, who said Prop. C would “so significantly raise office rents that some may relocate or move their workforce out of San Francisco.”

But Jason McDaniel, an associate professor of political science at San Francisco State University, described the situation as the standard moderate vs. progressive political fight here in the city.

“The dueling propositions reflect a combination of a) the polarization between the two major political factions in S.F., and b) close level of competition between them for control of government and policy,” he said.

Tax increases aside, San Francisco is still the place to be in the global commercial real estate scene. Prices per square foot are among the highest in the nation. In 2016, The New York Times reported San Francisco had the most expensive office rents in the country after prices rose 14 percent the previous year, pulling the city ahead of Manhattan. And last quarter, global commercial real estate firm Cushman & Wakefield produced its quarterly report, praising San Francisco’s commercial real estate market for seemingly endless demand for commercial office space; 100 percent of the office space set to hit the market next year will be leased before construction is even finished.

“Large block demand continues to outpace supply,” the report reads. “There was 8.7 million square feet of new leasing activity in 2017, the fourth-highest figure ever recorded in San Francisco.”

In terms of their tax burden, San Francisco’s commercial property owners are doing just fine. Republicans have their back at the federal level. Moderates at City Hall toe a similar line at home. And voters may easily get confused and hand them a 2018 for the record books, all thanks to whoever thought it was a good idea to pit San Francisco’s most pressing social issues against each other for a political victory.

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