California High Court Lets San Francisco’s Disputed Homeless Tax Stand

A man lies on the sidewalk beside a recyclable trash bin in San Francisco on April 26, 2018. (AP Photo/Ben Margot)

SAN FRANCISCO (CN) — The California Supreme Court on Wednesday freed up millions of dollars for San Francisco’s homeless relief programs by refusing to review a decision upholding a special business tax approved by voters in 2018.

With 61% of voters in favor, San Francisco approved Proposition C in November 2018. The ballot measure, supported by Salesforce CEO Marc Benioff, would add about $300 million to the city’s annual $380 million homelessness budget to fund new affordable housing units, shelter beds, mental health care, addiction treatment and other services.

The money, which has been partly held in escrow pending legal challenges, comes from a 0.5% gross receipts tax on corporate revenue above $50 million. A 2018 economic analysis found the tax would affect 300 to 400 companies in San Francisco and cause 725 to 875 jobs to be lost over 20 years. 

It also found the proposal would likely reduce the city’s homeless population. San Francisco had more than 8,000 homeless residents in 2019.

Opponents led by the Howard Jarvis Taxpayers Association challenged the voter-backed business tax in court, arguing the California Constitution requires a two-thirds majority of voters to approve special taxes placed on the ballot by government officials.

An image of the docket entry noting that the state Supreme Court denied the petition for review.

The Jarvis Association had previously contested another special tax approved by 51% of San Francisco voters in June 2018. That ballot measure, also labeled Proposition C, would raise $145 million annually for childcare and early education by imposing a new tax on commercial rents.

San Francisco Superior Court Judge Ethan Schulman upheld both ballot measures in July 2019, finding the state constitution does not bar approval of special taxes by a simple majority of voters.

In June, California’s First District Court of Appeals upheld that decision but only as it pertains to the special tax for homeless relief programs.

On Wednesday, the California Supreme Court denied a petition to review the case, allowing the appeals court ruling to stand.

“We’re pleased that this legal victory will free up millions of dollars to provide services, housing and mental health treatment for those in our city who most desperately need it,” San Francisco City Attorney Dennis Herrera said in a statement Wednesday.

Timothy Bittle, legal director for the Jarvis Taxpayers Association, said he found the court’s decision “very puzzling” because this case appeared to be a prime candidate for review by the state’s highest judicial authority.

One of the most important factors for deciding whether to review a case usually centers on whether a conflict exists between different appellate districts within the state, he said.

“Here you’ve got that,” Bittle said in a phone interview.

The anti-tax lawyer cited a 1987 decision by California’s Second District Court of Appeal in Altadena Library District v. Bloodgood, which held that a two-thirds majority is required to approve special taxes.

However, San Francisco argued that ruling was superseded by a 2017 California Supreme Court decision, California Cannabis Coalition v. City of Upland, which held the drafters of prior ballot measures imposing a two-third approval requirement for special taxes “did not contemplate that they were affecting the power of voters to propose taxes via initiatives.”

Herrera said in a statement Wednesday that his was the first public law office to adopt that position in court.

“We have said since the City of Upland decision was handed down, we’re confident that when voters act through the initiative process, a simple majority is required,” Herrera said. “From the beginning, this case has been about upholding the will of the voters.”

Bittle said he believes the state supreme court missed an important opportunity to clear up confusion on the question of whether special tax initiatives require two-thirds approval or a simple majority.

He suggested the court may have been influenced by a safe sleeping site, or sanctioned tent encampment for homeless people, that the city established in May next to Civic Center Plaza, which is across the street from the California Supreme Court building in San Francisco.

“It’s almost like the city was doing this as a daily reminder to the court that it needs more money for homeless assistance,” Bittle said.

The attorney said other cases challenging special tax initiatives approved by less than two-thirds of voters are still percolating through the courts at this time. He hopes the high court will take up one of those cases soon.

“There are other cases in the pipeline and we hope the Supreme Court will grant review in one of these cases and will do so before we see any ripple effect from its decision today to not grant review,” Bittle said.

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