San Francisco Taxes: Where Does the Money Go?

This article was originally published on michaelsutyak.com

As a San Francisco tax payer, something I ask myself quite often is: where does the money go? Taxes have never been higher in San Francisco, but for the average citizen, I do not see things getting better in the city (which is why, along with a push from COVID-19 and WFH mandates, people are moving out of the city in droves).

The homeless population has increased by more than 14% since 2013 according to a 2019 ASR report, and has likely spiked even more as a result of the bungled response to COVID-19.

To show how incompetent the city has been during the COVID-19 crisis with relation to the homeless problem, the Tenderloin neighborhood is suing the city for its negligence. They argue that the city should be forced to clean the streets of crowded encampments and human litter, find housing for the homeless and stop brazen, open-air drug dealing.

Plaintiffs in the case, like Randy Hughes, 65, described “steering his electric wheelchair from his home at the Cadillac Hotel on Ellis Street to work at a Goodwill store each morning, weaving around tents, needles and piles of human feces on the sidewalks.”

The city has completely abdicated its responsibility to keep the city safe, clean and habitable for its citizens. For anyone that has walked through the city over the past few years, this is clear as day.

So, because I have seen very little improvement in the city that I love over the years, I wanted to track city expenditures. Surely with so much wealth swirling, the city can’t be constrained by resources.

Currently, the Budget and Finance Committee in San Francisco lists the city budget at just over $12 Billion. The proposed budgets for fiscal year 2019–2020 and fiscal year 2020–2021 are below:

From the proposed budget book itself, here is how SF city officials reason out the breakdown:

“Roughly half of the budget consists of self-supporting activities, primarily at the City’s Enterprise departments, which focus on City related business operations and include the Port, the Municipal Transportation Agency, the Airport, and the Public Utilities Commission. General Fund monies comprise the remaining half, which support public services such as Public Health, housing, support for those experiencing homelessness, Police and Fire Services, Recreation and Parks, and others.”

The thing that stands out to me, at first blush, is the $1.6B earmarked for “General Administration and Finance”. The city of San Francisco requires $1.6B for general administrative tasks? Those must be the highest paid certified public accountants on the planet.

I would also like to see a deeper breakdown of “General City Responsibilities” on their website, which has $2B earmarked. In my opinion, the city has dropped the ball in its responsibility to its tax-paying citizens. The city does not feel safe, clean or deserving of its reputation of world-class status (as many visitors and tourists can attest).

Digging a bit deeper, it’s quite interesting that the city has 31,800 employees on its payroll. On average, those city employees are being paid $175,004 per person (with salaries and benefits). The average income in San Francisco? $103,124. Something doesn’t sit right when civil servants are using tax payer money to out earn the tax payers.

We’ll get to the budget priorities in more detail a little later, but for now let’s look at how the city sources revenue.

Where does the money come from?:

“The City receives funds into its General Fund from a combination of local tax revenues, such as property, transfer, sales, hotel, and business taxes, as well as state and federal resources supporting health and human services programming, and fees for service.” — says the website.

The city has several income sources. Property taxes amount to about $3B per year. Business taxes bring in over $1B, other local taxes bring in $1B, and over $1B is provided by the State. ~$4B comes from charges for “services”.

As you can see, the coffers are full. $12+ billion for 881,549 residents makes for $13,612+ per SF resident for just 1 fiscal year. The question is, do we think the average citizen is seeing $13,612 in value? I would argue no.

The budget book also gives us a look into what is being prioritized looking ahead.

Budget priorities:

• Addressing housing affordability
• Preventing and reducing homelessness
• Responding to critical health needs in our community
• Making our streets cleaner and safer
• Improving accountability and responsiveness in public safety
• Supporting small businesses and workers
• Strengthening the social safety net
• Making government more accountable to residents

Based on these priorities, I wanted to focus on the ones that I think are most viscerally noticeable to the average San Francisco citizen:

Addressing housing affordability

Everyone knows that San Francisco is an expensive place to live in, largely due to housing costs. Even with people moving out of the city and rents coming down, the average rent in SF is $3,629. The average rent nationally? $1,468. This makes it exceedingly hard to live here.

A large part of the reason for this is the city was never meant for as many people to live here as there is demand. The modern tech goldrush took the city by surprise (most people that came to the Bay Area during the first boom lived closer to their offices in Cupertino, San Jose, etc…). An influx of young tech workers drove up demand and rents because they were drawn to city life.

The budget book shows us that the Mayor is planning on putting at least $1–2B of the budget into the endeavor to add more affordable housing.

Although this effort is laudable, it has had no impact on average rent prices in the city. And likely never will. It also hasn’t been very good at solving the problem it purports to. In 2018, there were only 645 affordable housing units built in SF. NIMBY’ism is partially to blame for some of this, but it still feels like the city is pouring money into a bottomless well that does not benefit the majority of the city residents.

Preventing and reducing homelessness:

It’s very clear for everyone to see that San Francisco has a homelessness problem.

I don’t think anyone in the city would argue that this isn’t a noble and justified cause. I think what would be argued would be the efficacy of the programs. Billions of tax dollars have been spent over the years by the city to “solve the homeless problem”. Yet, the homeless population has increased by more than 14% as of 2013. What is going on here?

It is a factor of failed policy and the squandering of resources. As mentioned earlier, the problem has gotten so bad that the Tenderloin district is suing the city for their negligence.

If that wasn’t bad enough, the city sanctioned tent encampments in the heart of the city near city hall.

If you remember above, the city of San Francisco has $6B+ earmarked to help for “Public Health, housing, support for those experiencing homelessness, Police and Fire Services, Recreation and Parks, and others.” And this was the solution city officials arrived at. This would not happen in any other city on Earth, let alone one that has vast wealth.

To read the budget book, you would think that the Mayor and her team are patting themselves on the back for their success:

“

Despite the on-going challenges of addressing homelessness, San Francisco has achieved significant successes since Mayor Breed took office in July 2018, including:

• Helping over 1,300 people exit homelessness
• Opening 412 new temporary shelter beds
• Opening 200 new units of permanent supportive housing
• Passing a shelter crisis legislative package to expedite the opening of new shelters and navigation centers
• Facilitating a 33 percent reduction in the number of tents on the street

“

It’s difficult to corroborate these numbers, but they don’t pass the eye test. There seem to be more encampments, and more homeless than ever. And that is true, given that there has been a 14% increase in homeless to date since 2013. The problem will never be solved if we aren’t reducing the number of people on the street YoY. The Mayor has not had success. She has failed spectacularly.

Making our streets cleaner and safer

It has almost become a trope that getting your car broken into in San Francisco is not a chance encounter, but an eventuality. I know speaking to my female friends, the vast majority do not feel safe walking down the sidewalk alone, even during the day time. The statistics bear this out, as SF has experienced an increase in property crime and decline in street conditions.

I personally have witnessed on many occasions open-air drug dealing and use in many different neighborhoods while police officers stand by and do nothing.

The plan to combat these issues is to deploy additional officers (about 250 to new beats) as well as 15 plain clothes officers in Union Square. Given recent events, it’s likely this plan changes as police budgets get defunded, and the streets become neither cleaner nor safer. But, as I noted above, more police do not solve the pressing issues if they are not actively making the city safer.

This seems less like a budget issue and more like a policy issue. Vehicle break-ins have surged after the passing of Prop 47 — which was intended to reduce incarceration rates. This amounted to 31,322 thefts in 2017 (one reported break in every 20 minutes). Prop 47 redesigned felony thresholds, making these smash and grabs misdemeanor offenses — even repeat offenders. This provides very little deterrent to would be criminals.

Even if the additional police officers budgeted catch these people in the act or afterward (something that rarely happens), they are not facing stiff penalties. This has also led to an increase in shop-lifting, and small businesses and shop owners are regularly terrorized.

That brings me to…

Supporting small businesses and workers

The earmarked amount for small businesses is telling — $9 million (out of a $12.3 billion dollar budget). $33.3 million is slated to increasing the minimum wage to $18.75 per hour for in-home care service workers.

Nothing is mentioned about supporting small businesses through absurd commercial real-estate costs. And it was very visible, even pre-COVID, that restaurants and companies were leaving their brick and mortar locations. Much of commercial real-estate looks vacant.

The state of California in general is not very kind to small or large businesses, demanding high tax rates and providing nothing in the way of support. It is not a wonder that many are leaving for other places. It will be interesting to see how this affects revenues in the city going forward and whether SF and the state will change their policies. As of right now, the city has no incentive to do so (as you can see, they are so flush with cash they are very comfortable spending it with abandon).

Making government more accountable to residents

Last but not least, one of the most amusing sections of the budget book is a section entitled “ Accountability and Equitable Outcome Plans”. This is meant to measure and track the performance of the various initiatives and whether or not they hit the mark. “These program evaluations will be used in future budget deliberations to determine if funding for particular initiatives should continue.”

This is like having a fox oversee a henhouse. The city has no incentive to come in under budget, nor do they have any incentive to hit performance marks. If this was a business, they would have changed management teams years ago.

Conclusion

The current San Francisco city officials are simply cogs in a long-running machine that has squandered an embarrassment of riches at the city level.

The citizens of the city should demand more. But instead, they are using this opportunity to move out. They’ve had enough and COVID has been the straw that broke the camel’s back.

It will be interesting to see how things shake out going forward. San Francisco will survive no doubt — it always will. It’s simply too beautiful a city in too desirable a location. Even if it is temporarily managed by incompetents.

The only way things will change is if there is more accountability and visibility into the actual spend. Who is collecting what and how, and the efficacy of the programs the funds are distributed to. If left to their own devices, local city government in recent years has proven they are not up to the task.

~

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