Did Prop C Deliver?

SF’s massive 2018 tax increase was supposed to fix homelessness. Did it?

“Tent encampments in city parks. Sidewalks strewn with heroin needles & covered in feces. An infectious-disease expert from UC Berkeley found parts of the city are more unsanitary than the slums of some developing countries. Yes on Prop C!”

Marc Benioff, 11/5/2018

“Prop. C suggests that money, alone, is the cure-all to homelessness. It is not. Vote no on C.”

San Francisco Chronicle Editorial Board, 10/1/2018

In 2018, a group of far-left politicians, including Jane Kim, David Campos, Dean Preston, and Hillary Ronen, submitted enough signatures to put the largest tax increase in SF history on the November ballot. Prop C would double SF’s dreaded “gross receipts tax” on businesses with over $50M in revenue. The goal was to vastly expand the budget of SF’s Department of Homelessness and Supportive Housing (HSH). The funds would be divided equally between homeless housing and “services”.

The measure was funded primarily by billionaire and Salesforce CEO Marc Benioff, who said SF’s homeless-filled streets were hurting his business:

“One of the things about being the largest employer in San Francisco is my customers are coming here, my employees are here, & I have never seen as huge an impact on my business as it is with homelessness.”

Prop C’s opponents argued that the bill wouldn’t fix Benioff’s problems, for three main reasons:

Problem 1: Localized homeless spending is self-defeating

Vastly expanding homeless services in a single 47 square mile area only ruins that area, as the world’s drifters and addicts concentrate there. Gavin Newsom, then Lt. Governor, made this clear to anyone who would listen:

“Put another $400 million in the homeless problem and I promise you this: Your problem is going to get a lot worse…It’s not a San Francisco issue; it’s a regional issue.”

Gavin Newsom

Newsom grew up in SF, and was both a supervisor and mayor here. Nobody knew the local homeless situation better than he did. Except, maybe, the head of San Francisco’s homeless services, Jeff Kositsky, who reached the same conclusion in explaining why so many homeless wash up here:

“San Francisco attracts unsheltered people to our City due to a lack of real enforcement and the many amenities we provide to folks.”

Head of San Francisco Homeless Services Jeff Kositsky

Homelessness is a national problem, and must be solved at the federal level, not at a single spot on the map. And if you were going to pick such a spot, the place where a 1BR apartment costs $750,000 to build probably isn’t it.

Problem 2: Lack of flexibility and accountability

Prop C provided no money or mechanisms for accountability of the funds spent. No auditing, no reporting requirements, no success metrics, no nothing.

Mayor Breed tried to explain that even the current (2018) $300M homeless budget was unaudited and poorly tracked, and more money without accountability was likely to be wasted.

When Jack Dorsey, CEO of Twitter and Square, who would be paying a good deal of the tax, suggested the Yes on C group and Mayor Breed meet to work out this disconnect, Dean Preston reacted with snarky hostility:

Meanwhile, our state senator, Scott Wiener, raised alarm bells about how the money could be used, regardless of changing need:

“These funds would be dedicated in perpetuity to homeless services and housing and could never be used for any other purpose, no matter the circumstances or changing needs.”

Scott Wiener

And David Chiu, then SF’s state assembly rep and now its city attorney, agreed regarding the lack of safeguards, and argued against the measure:

“I agree that businesses should contribute more to the solution, but it needs to happen through a collaborative process that increases our business tax to pay for homeless services with real accountability,” Chiu said. “Until then, I believe that Prop. C is not the right answer for the crisis that all of us see every day.”

David Chiu

Problem 3: Such a large tax would cause businesses to flee the city

Politicians warned against a tax increase of this scale:

“San Francisco’s largest employers, which already pay about half of all business taxes, would see their taxes double overnight.”

Scott Wiener

So did business leaders. Dorsey argued that the tax, which was based mainly on gross revenue, was poorly designed, as smaller companies could face a greater tax burden than larger ones. Meanwhile, Patrick Collison, CEO of Stripe, another major taxpayer in the city, criticized the measure, arguing against both its cost and lack of accountability.

Nonetheless, with millions in funding from Benioff, 60% of voters supported Prop C in the Nov 2018 election. A two-thirds majority is normally required for tax increases under state law, so opponents sued, but on Sept. 9, 2020, the California Supreme court refused to overturn a lower court ruling that the two-thirds law applied only to increases created by governing bodies. Prop C had been placed on the ballot by a signature drive. It thus became law.

The results so far (7/4/22)

With ongoing Prop C funding, HSH’s budget has more than tripled since the first year of the Department’s operations [2016].

HSH budget report

Prop C’s funding was delayed due to legal challenges. However, covid-related federal and state grants to the HSH more than made up for them until the Prop C money began flowing, so the effect was the same:

FY 22-23 began July 1, 2022, so we’ve had three full years where the HSH budget has averaged $629M, versus $253M for the three years prior. The HSH got their money. Did the warnings above come to pass?

Problem 1 (localized spending makes the problem worse): Proponents of Prop C claimed it would “Bring back the clean, healthy streets that San Franciscans deserve”. But every local knows SF’s homeless problem is worse in 2022 than in 2018 by any measure, from sidewalk tents to open-air drug markets to graffiti. There is no evidence so far that the vast spending increase of the past three years has improved anything.

In a New York Times opinion piece, Benioff argued that providing generous services (SF now provides everything from cash payments to food to healthcare to housing) wouldn’t attract new homeless to our city. As well as failing the common sense test, the homeless themselves will tell you over and over that they do in fact gravitate toward service-rich areas – see links in my post here.

Problem 2 (lack of accountability): Proponents of Prop C angrily denied that lack of accountability could be a problem:

They were very, very wrong.

As the HSH budget doubled, and the Chronicle headline below says it all:

“SF’s [$700M] Homeless Department Has No Oversight”

San Francisco Chronicle, 7/6/22

It goes on to say that -stunningly- it would take a months-long election process and voter approval to even create a commission to oversee the funds. Is enacting a tax, spending the money for years, then thinking about oversight good policy?

Lack of accountability breeds corruption. For example, the organization hired to clean up the Tenderloin was fired in 2022 after egregious findings that workers “sold drugs, slept on the job, harassed residents and generally failed to carry out their duties.” Prop C funnels hundreds of millions of dollars into this same corrupt vortex of shady non-profits and no-bid vendor contracts.

Problem 3 (higher taxes driving businesses away): This is, without question, already happening. As soon as Prop C was found to be legal, Stripe moved its headquarters to Ireland and began actually paying workers to leave SF. And in June, 2022, Square, one of the biggest payers of the new tax, announced it would be leaving as well. Wells Fargo, the city’s second largest employer after Salesforce, abandoned its main SF office tower in April 2022. And Salesforce itself began gradually abandoning SF.

Conclusion (as of July, 2022)

Prop C proponents argue that it’s too soon to tell if the HSH’s enormous budget increases have fixed homelessnees here. Covid and Prop C’s legal challenges, they say, have delayed the wonderful benefits our city will soon enjoy.

It’s a weak argument. After 3+ years, the benefits Benioff promised – tent and needle free streets – show no signs of even beginning to occur. What did the extra billion dollars the HSH spent over that time buy us?

I’ll continue to monitor the situation and update this post. So far, though, the warnings from the No on C crowd, like the one below, seem prescient.