San Francisco’s Proposition C Almost Claims Its First ‘Victims’

San Francisco’s Proposition C Almost Claims Its First ‘Victims’

Making it more expensive to drink in San Francisco is not one of Proposition C’s objectives. But it was nearly one of its initial effects.

Young’s Market Co., a wine and spirits distributor based in Tustin that does business across the western U.S., recently advised local bars it would be raising its fees. The company announced that, effective Jan. 1, it would be more than doubling its wholesale surcharge rate of 0.16 percent to 0.335 percent on its San Francisco customers, who would then surely pass on their cost increases to their customers. Young’s Market “cited the cost of Prop. C as the reason,” according to the San Francisco Chronicle.

Prop C, approved by nearly 61 voters in November, aims to raise as much as $300 million a year for the homeless in San Francisco. It levies a gross receipts tax on businesses when they take in more than $50 million in revenue in the city, or a payroll tax on businesses generating more than $1 billion in revenue.

Elaine Beliakoff, Young’s Market senior director for communications, told PRI Friday that the distributor “has since decided that it will no longer include the Prop C local receipts surcharge” when it invoices its San Francisco customers. She said the company was responding to concerns raised by its customers. The initial proposal nevertheless shines a spotlight on the effects of Prop C. While Young’s Market reconsidered its decision, others won’t, and they will pass on their costs. In many cases, consumers will eventually be the source of revenue for the Prop C program.

Consumers won’t be the only “victims.” The effects will trickle down to workers, and those looking for work, as businesses are bound to leave the city for locations less hostile to their operations. The San Francisco Controller’s Office admitted as much. In its September economic impact report on the ballot measure, it projected “a net average annual loss of of 725-875 jobs” over 20 years, “and a city GDP loss of $200-240 million per year.”

Earlier in 2018, while the Seattle City Council considered, then passed, then repealed a $275 per-employee business tax to fund homeless programs, various scholars were warning city hall of the downside of the ordinance. Paul Guppy, vice-president for research at the Washington Policy Center, said the city should expect larger firms to “locate new business elsewhere . . . and all employers will worry about what new taxes and restrictions Seattle may impose in the future.”

“Basically,” he added, “the head tax sends a signal that Seattle is not friendly to job-creators and has a political dynamic that is hostile to business owners, investors, and innovators.”

Charles Hughes, a Manhattan Institute policy analyst, predicted some businesses could “eschew low-wage workers and contract out to other firms to avoid the tax.”

“Most of these maneuverings from affected companies would have reduced the number of opportunities for workers in Seattle, many of them lower-wage workers who are also grappling with the high cost of housing in the area.”

Should the lawsuit against Prop C fail, San Francisco would be wise to find a way to unwind voters’ mistake. If it doesn’t, Seattle’s conceptual problems will become San Francisco’s real problems.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.