San Francisco Wins Legal Battle Over Disputed Childcare Tax

A decision by the California Supreme Court to let an earlier ruling stand will free up approximately $146 million per year for San Francisco’s childcare and early education programs.

San Francisco, as seen from the Marin headlands. (Courthouse News photo / Chris Marshall)

SAN FRANCISCO (CN) – The California Supreme Court on Wednesday unlocked hundreds of millions of dollars for San Francisco’s childcare and early education programs by refusing to consider an appeal in a case challenging a voter-approved tax increase.

The state’s highest court declined to review a decision finding a tax on commercial landlords making $1 million or more per year was legally passed by a simple majority vote and did not require approval by two-thirds of voters as opponents had argued.

“This cements our victory and ensures long-term help for working families,” San Francisco City Attorney Dennis Herrera said in a statement Wednesday. “That’s what the voters approved, and it’s needed now more than ever as we work together to get our lives, our economy and our communities back on track.”

Measure C, labeled by proponents as a “universal childcare” proposal, was supported by 50.9% of San Francisco voters in a June 2018 special election. It imposes an extra 1% to 3.5% tax on commercial landlords making at least $1 million in revenue per year. It was expected to generate an extra $146 million annually, 85% of which must be used to pay for childcare and early education programs. The remaining 15% can go to the city’s general fund or be used for any public purpose.

Joined by three property owner and business groups, the Howard Jarvis Taxpayers Association sued the city in August 2018, arguing a state law requires ballot measures that raise taxes to be approved by two-thirds of voters if a government official is substantially involved in supporting the measure.

The Jarvis Association made a similar argument when it challenged another tax approved by San Francisco voters in 2018. That proposal, also known as Measure C in an election held five months later in November 2018, imposed a tax on corporate revenues above $50 million to fund homeless relief programs. This past September, the California Supreme Court also declined to review an appeals court decision upholding that tax as legitimate.

In a Jan. 27 decision, California’s First District Court of Appeal rejected the Jarvis Association’s position that two previously approved statewide ballot measures — Proposition 13 in 1978 and Proposition 218 in 1996 — mandated a two-thirds approval requirement for certain tax-raising ballot initiatives.

Borrowing from the court’s prior decision on San Francisco’s homeless tax, the three-judge panel concluded that a super-majority obligation is only required for ballot measures introduced by city officials, such as a mayor, board of supervisors or school board.

The Jarvis Association argued that a San Francisco supervisor became so involved in supporting Proposition C that he transformed it from a voter-proposed initiative to a ballot measure backed by the government. The supervisor submitted a written “Notice of Intent to Circulate Petitions” for the initiative, turned in signed petition pages and signed ballot arguments in favor of Proposition C, according to the appeals court ruling.

The panel found that degree of involvement did not rise to the level of demonstrating that “the official effectively controlled the initiative.”

“Neither the text nor ballot materials provide the requisite ‘unambiguous indication’ that the enactors of Propositions 13 and 218 intended to constrain the initiative power when an official is involved in the initiative process,” First District Justice Mark Simons wrote for the panel.

The freed-up tax money from Proposition C will make childcare and education services available to children up to five years old whose parents earn 85% or less of the state median income, which was $75,000 in 2019. It also makes those programs available to children up to age 3 whose parents earn 200% or less of the area median income, which was $121,000 in 2018.

City Attorney Herrera called the high court’s decision to let the First District’s opinion stand a “victory for San Francisco families.”

“From the beginning, this case has been about upholding the will of the voters,” Herrera said. “San Francisco voters have the right to direct democracy and self-government.”

The Howard Jarvis Taxpayers Association did not immediately respond to an email requesting comment Wednesday.

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