The City of San Francisco released a five-year budget plan as now required by voters. It was more than a bit disturbing. Here I was thinking that the recession is over, city coffers would become flush again. The heart break and travesty our community has endured with multiple years of budget blood spatter, the closure of so many shelters, drop-in centers, treatment programs, cuts to disability, In-Home-Support Services, supportive housing has certainly caused a whole lot of pain. Literally. Whether it is longer waits for a disabled elder to get off the streets, or disease caused by lack of access to water, or back pains from sleeping on the cold concrete. Painful as in losing an after school program or a childcare slot for your child while you work, or having to leave your job to care for a parent who has Alzheimer’s and whose day treatment program shut down. It is pain. Painful as in losing your good city job.
What makes it most painful is that it never had to be this way. There are a myriad of ways the budget could be solved. At the state level, many of us remember when Proposition 13 passed – sports almost immediately disappeared from public schools. It has plagued the state ever since, as the major beneficiary has not been little old ladies as advertised by the tax Jarvis creeps, but corporations with large properties – properties that get taxed on the original value even after they merge with other large companies.
Here we have two plans we are presenting – one to solve the state budget crisis and the other to solve the local budget problem.
The State Budget Crisis:
Presented by California Tax Reform Association
The following summarizes 10 measures, which will spread the burden in a way, which arguably have a minimal impact on economic growth and recovery. These include eliminating new loopholes recently opened, taxing untaxed windfalls, ending tax breaks with no benefits, imposing taxes on the very rich, and increasing sin taxes. In addition, without adding to the current burden of taxes for the general public, the state could maintain some part of the previous increases for broader-based taxes, such as keeping the vehicle license fee increase and lowering the sales tax only 1⁄2 cent, rather than the expected 1 cent. Taken together, these continued taxes could avoid cuts, which are damaging to the recovery and to our future, and arguably would have little negative impact on economic recovery. Note: The revenues are not the same in every year, since some do not take effect until fiscal year 2011-12. The Legislative Analyst’s Office calls for a long-term workout, and these revenues would provide that. For a more complete explanation of tax options, surf to http://caltaxreform.org/?p=101.
1. Enact an Oil Severance Tax at 9.9% ($1.2 billion)
California is the only state, and the only place in the world, that does not tax oil production. 9.9% is the rate proposed by Governor Schwarzenegger. Contrary to oil industry claims, California has the lowest tax on oil in the nation—about 60 cents per barrel—when other states are at $6-$7 per barrel or more at current prices. This tax will have no effect on the price of gasoline or on oil production.
2. Eliminate Secret Corporate Tax Loopholes ($1.7 -2 billion)
Enacted in Recent Budget Agreements The Legislature passed new permanent corporate loopholes in secret—loss carry-backs, credit sharing, and an elective single-sales factor, that will all take effect in 2011. These are de-stabilizing and costly, and repealing them now would not increase any taxes. They are also egregious, giving multinational corporations the ability to manipulate the system to lower their tax burden.
3. Broaden Sales Tax Base to Include Untaxed Commodities ($2 billion or more)
There is virtually unanimous agreement that our sales tax base is too narrow. The Governor has supported broadening it, and the first steps should include taxes on entertainment, admissions, parking, golf and skiing, hotels (i.e., the temporary rental of space), and digital products—all of which are commodities easily subject to tax and would result in $2 billion. Beyond that, sales taxes on telecommunications, cable and satellite would generate an additional $2 billion. And beyond those, there are many services, which arguably should be taxed, for billions more.
4. Reinstate Top Income Tax Brackets to 11% ($4 billion)
The top 1% of earners earns an unprecedented 25% of income in California. While that may decrease due to the recession, the recovery of the stock market means capital gains for the wealthy are likely to recover, while ordinary incomes in a slow economy are not. State income taxes have no impact on the location of the wealthy or investment in California, and this revenue will grow faster than economic recovery.
5. Close Corporate Property Tax Loopholes ($2 billion)
Statutory definitions of change of ownership are thoroughly loophole-ridden. CTRA research has identified numerous cases where properties have not been reassessed at market value following a change in ownership. We estimate that tightening corporate property tax loopholes would raise $2 billion. The Legislature can act by statute to close this loophole.
6. Maintain Vehicle License Fee (VLF) at 1% ($1.3 billion)
The VLF is supposed to be an in-lieu property tax, but was cut from 2% to .6%, then raised temporarily to the current rate of 1.15%. A long-term resolution of this issue would put the VLF at the Proposition 13 rate, 1%, beginning in FY 2011-12.
7. Close Useless Corporate Tax Loopholes ($1 billion)
Enterprise zones have been demonstrated to have no impact on jobs ($500 million). Avoidance of capital gains on commercial property sales—so-called like-kind exchanges—are driven by federal, not state considerations ($350 million). Placing offshore tax havens in the water’s edge stops blatant tax manipulation ($150 million). Impact on economic decisions: zero.
8. Increase Tobacco and Alcohol Taxes ($2.4 billion)
Taxing products with negative impacts on society has positive effects. Enacting a tax at 10 cents per alcoholic drink would generate $1.4 billion. Proposals to increase tobacco taxes have been estimated to generate $1 billion.
9. Improve Tax Collections ($1.5 billion initially, less ongoing)
Governor Schwarzenegger vetoed legislation which would have provided an initial $1.5 in improvements in collections, including withholding on independent contractors, tightening nexus (Amazon issue), and proposing a bank records match. That amount would fall as others, above, phase up.
10. Lower Current Sales Tax by 1⁄2 Cent ($2.5 billion)
The temporary 1-cent sales tax increase will expire July 2011. Extending—but lowering—the sales tax to 1⁄2 cent would grow revenues to $3 billion, particularly with a broader base. This could phase down by 1⁄4 cent/year as the state’s fiscal condition recovers. Many of these tax changes would have little or no negative economic impact, particularly when contrasted to a state unable to finance infrastructure, that allows its higher education system and schools to deteriorate, that forces cutbacks in local government, and that shreds its safety net for its poorest citizens.
San Francisco’s Budget Crisis
The popular rhetoric is that the pensions are bankrupting the city – the reality is that the city is paying more into the pensions because the banks screwed the working man – and the pensions stopped making money. Nonetheless the workers are giving back year after year, and the poorest of the poor are paying with their lives. Isn’t it time for everyone to share the pain?
In the City’s five year budget plan, by year 2015/16, they are planning on bringing in $100 million in unidentified additional revenue – but saving twice that, $200 million, on employment and pension costs. While it is difficult to imagine what else they would cut – the deficit, and the ensuing cuts to social services, don’t get any better over the next five years. For example, public documents demonstrate that public health has cut $33 million from health care over the past four years, and $32 million from mental health, substance abuse and homeless programs. We have lost 1/3 of our shelter beds and over ½ of our resource centers. The savings through budget cuts to city services range each year from $63 million to $87 million over the next five years according to the plan – for a total of $311 million in savings from reductions over the five year period. Ouch!
Platform For An Equitable City Budget
I. Steps to Take Right Now:
~Change of Ownership- Collection on Existing Mergers/Acquisitions
Under Proposition 13, when a property changes hands, the property is reassessed and the taxes are based on the new purchase price. In addition, when property changes hands, the city collects a property transfer tax from the buyer – it is just tacked onto the purchase prices and folded into the loan. SEIU and the Revenue Coalition has been working to make sure that recent mergers have property reassessed – so far, we have forwarded names to the Assessors office that have led to new revenue for the city. These have included the JP Morgan/Chase merger, and the Blackton purchase of Hilton. Most recently, the Assessor has gotten lost revenue back from Jiffy Lube change of ownership as well. This work must continue as there are at least 25 more properties where change of ownership has occurred from which the city did not reassess or get transfer tax.
To stop this tax evasion from occurring in the future, we are recommending that a penalty be applied to companies who fail to report on a change of ownership or merge. This could be passed by legislation.
Lots of folks don’t think foreclosures are a big problem in San Francisco. They are wrong, we have had a couple thousand and many are long time homeowners who put out seconds on their homes. Once the home is foreclosed upon, the deed passes to the bank. Unfortunately foreclosures are not being registered with the city, and we have no means to collect both the transfer tax and to reassess the property value.
One idea is to have a registry. Banks would have to register on every foreclosure and they would have to register again when the deed is passed onto another bank, and another. This will allow us to collect reassessed property taxes and transfer taxes EACH time the property changed hands. We also could include in this legislation rights for property owners who are losing their homes – rights that could protect them from the foreclosure.
~Property Tax Appeal Reform
Big corporations have no reason not to appeal their property tax assessments – it only costs them $60! The city is losing right now over $20 million in appeals to lower taxes. Bank of America just requested $4 million on 555 California properties and 1 Market requested $8 million. Appeals are almost always granted at least in part.
Legislation could be passed to create criteria for appeals on commercial property, and the city could assert fines and penalties for frivolous appeals. This could save the City and County of San Francisco millions.
~ Blight Ordinance Lots of big property owners simply leave their properties vacant instead of reducing rents on commercial properties. The result is boarded up buildings and public safety issues. The City could expand the blight ordinance fines to include boarded up $1,000 a day. Here at the Coalition on Homelessness, we are aware of quite a few empty large apartment and residential hotels that are sitting vacant. The fines would generate revenue, and hopefully bring rents down.
II. For November 2011
~ Vacancy Parcel Tax
Vacant lots are often the result of land speculation, and ironically cause decreased property values and other problems for neighborhoods. One way to bring in revenue and to address this situation is to have a parcel tax specific to vacant lots. South of Market Community Action Network is pushing this proposal for the South of Market area.
~ Merger Transfer Tax
As Proposition 13 doesn’t count change of ownership on mergers, so localities miss out on a whole lot of income from property reassessments and transfer taxes. Our above proposal of a fine on not registering mergers would go a long ways in ensuring San Francisco gets all those transfer taxes, however a new idea is to pass a “merger” tax specific to mergers to capture some of that lost revenue. This could go on the November ballot and would not hurt everyday San Franciscans.
~Revenue Impact and Maximization Report
We need to know if San Francisco is collecting what is should be in revenue, and who is paying that bill. This initiative would force the city to look at disparities in tax burdens and where there is lost revenue. This could help all of us move forward for a more equitable budget.
III. For November 2012
San Francisco used to collect both gross receipts taxes (or profit tax) and payroll taxes. A lawsuit from 7 of the more powerful downtown interests changed that, and we ended up with a payroll tax. This is a regressive tax that hurts small business. If we changed to a gross receipts tax, that business that is pulling in the insane bucks would have to pay more. This would require voter approval and bring in an additional $30 to $60 million a year.
Well there you have it. We don’t present a federal plan – just slash the military budget bring every impoverished American out of poverty, into decent housing with full stomachs to boot.
We can move forward with the vision of a thriving and just San Francisco, where all our citizenry is treated fairly and basic human rights to healthcare, housing and freedom from hunger are embraced.