It’s only been a few years since San Franciscans voted to tax local businesses with high executive pay. Now voters are being asked to meddle with those tax rates via a pair of warring propositions on the June 2 ballot.
It seems with nearly every election, there’s not just a long list of measures, but at least two at odds with each other. There were dueling measures in 2022 and two pairs in 2024. Often one party will put up a measure to befuddle voters and hamstring an opposing measure.
That’s the story behind Propositions C and D. If you haven’t mailed in your ballot or intend to vote on Election Day, you might still be sorting through the differences.
“Particularly when people are asked to deal with taxes, it gets confusing,” says Mark Baldassare, survey director at the Public Policy Institute of California.
There’s a lot at stake. Any day now, Mayor Daniel Lurie will submit his proposed budget for the next two years. He’s already cut 127 positions, and the city — with more than 34,000 employees and a $16 billion budget — is bracing for more, plus cuts to grants and contracts that nonprofits warn will result in more than 1,000 layoffs.
The Trump administration’s cuts have started to trickle down. Lurie’s office said last week they’ll pull $34 million from an emergency fund, set up for just this reason, to help people with food and medical benefits.
Prop D backers say raising the existing ‘overpaid CEO’ tax will help refill city coffers at a crucial time. Its opponents say now’s not the time to raise taxes. Prop C goes in the opposite direction; it’s a slight reduction of the current tax. Only one can win. If both pass, the more popular wins out.
What’s Prop D?
Right now, SF levels the overpaid executive tax (OET) on certain businesses if the CEO or highest paid managerial employee makes more than 100 times the median pay of their SF employees. The tax applies only to businesses that make more than $5 million in gross receipts. (It does not apply to individuals.)
The tax rate is between 0.02 and 0.12 percent, depending on the CEO’s salary. Under Prop D, the rate would increase to between 0.183 and 1.121 percent.
If an SF business crosses the CEO-employee 100x threshold and more than half its payroll goes to in-house management services, its “overpaid” tax is even higher, between 0.08 and 0.48 of payroll. Under D, that would jump to between 0.75 percent to 4.47 percent.
In addition to these increases, Prop D changes a fundamental metric of the OET. It makes companies compare their top executive’s pay to the median pay of all employees, not just the ones in San Francisco. With SF’s relatively high salaries, the shift will likely create a bigger gap — and a higher tax rate.
With all these changes, urban planning think tank SPUR estimates the revised tax would apply to “nearly any large company with at least $1 billion in San Francisco sales and more than 1,000 employees globally.” That includes some retail, pharmacy, and grocery chains that were not previously caught up in the net.
Prop D would prohibit the Board of Supervisors from cutting taxes on these companies without voter approval.
Aren’t those taxes going up anyway?
Yes. Under the current OET, rates on these companies will increase in 2027 and 2028, although by much smaller margins than they would under Prop D. SF approved the tax in 2020, and it has rate hikes built in.
Ideally, this is the kind of thing the Board of Supervisors, city economist, city attorney, and treasurer should sort out. But in SF, it’s illegal to increase any tax without voter approval, leaving Prop D backers no other choice if they want to boost the overpaid CEO tax.
Who supports Prop D?
Eight of the city’s 11 supervisors back Prop D. It also has endorsements from a dozen local unions and from progressive groups like the Harvey Milk LGBTQ+ Democratic Club and League of Women Voters.
Former Speaker of the House Nancy Pelosi and U.S. Sen. Bernie Sanders also support the hike. With SF’s budget in the dumps, Sanders calls the tax increase a tool to “fund services that have been devastated by Donald Trump’s cuts.”
Who’s against Prop D?
Mayor Daniel Lurie, Board of Supervisors President Rafael Mandelman, and board members Matt Dorsey and Stephen Sherrill are all against it.
Business-friendly groups like theThe SF Chamber of Commerce and GrowSF are also against it. Mandelman tells The Frisc this is the wrong time for Prop D, calling it “a tax on the very businesses we’re trying to entice back” to downtown right now. He argues that the negative effect on retail services isn’t worth it.
Which side is right?
SF is staring down a $643 million budget gap and will need new revenue streams to avoid service cuts.
On one hand, the city controller estimates the new rates would bring in an additional $250 million to $300 million a year. On the other hand, the controller projects that businesses will respond by cutting jobs and raising prices — 944 jobs and 0.1 percent higher prices over 20 years.
The controller also warns the higher tax would encourage “further relocation out of the city,” estimating that retail companies will end up paying more than big tech outfits.
What does Prop C have to do with this?
If passed, Prop C would speed up the OET schedule. The small increase due in 2028 would take effect in 2027 instead. It would also effectively serve as a tax break for a new cohort of small businesses. Under the current OET, businesses with $5 million or less in annual gross receipts are exempt. Prop C raises the exemption to $7.5 million.
But most significantly, Prop C’s authors included a “poison pill” rider to kill Prop D; if both C and D pass, only the one with the greatest number of votes will actually go into effect. The other will be thrown out.
How would that affect the city?
The controller estimates that Prop C’s higher exemption would cost between $30 and $40 million a year, and that the impact on employment and price inflation would be “very small.”
Who’s for C? Who’s against C?
The measure has financial backing from companies like PG&E and business groups like the SF Chamber of Commerce.
Some SF politicos such as Lurie and Mandelman are a no on both C and D. Mandelman tells The Frisc that while he likes the idea of a tax break for small businesses, “I’m not sure we can afford it in the current fiscal environment.” He says C should be put off until the city closes its budget gap.
Why do voters have to sort this all out?
In a perfect world, the mayor and supervisors would handle complex business and tax measures in-house and voters would rate their performance come election season.
“I’m sure people are tired of overlong ballots that are cluttered with measures upon measures,” says San Jose State University professor Glen Gendzel, who specializes in California history.
But in SF, many tax hikes must go to the ballot. And the relative ease of getting others there makes this kind of brinkmanship inevitable.
Gendzel says this kind of direct democracy was popular in the early 20th century as a guard against public corruption. But wealthy interests learned they too could access the ballot for their own ends, moving the fight for influence from backrooms to ballot boxes.
Research shows that when faced with long ballots and complex measures, many voters simply vote no on everything.
In this way, Prop C backers have hedged their bets, hoping to defeat D either by garnering more votes or by complicating the ballot to the point that it suppresses the vote all around.
They have recent history on their side. The last three “poison pills” all succeeded.
In 2022, Sup. Connie Chan and others countered Mayor London Breed’s attempt to streamline affordable housing (Props D and E). Both failed to reach 50 percent.
In 2024, two measures competed to winnow the thicket of city boards and commissions. One (Prop D) was more harsh than the other (Prop E). Prop E passed, and Prop D foundered under the weight of campaign finance improprieties that resulted in a record fine. The slow-play version, Prop E, looks like it will fizzle out.
On that same ballot, a grassroots effort to fund Muni by taxing Uber and Lyft won 56 percent of the vote (Prop L), but crashed into a much bigger tax overhaul (Prop M). Prop L had to outpoll Prop M to survive. It did not.
Prop M, which won 69 percent of the vote, actually lowered the overpaid executive tax by 80 percent but compensated by raising SF’s gross receipts tax on other businesses. Think tank SPUR is against the new tax because it fiddles with Prop M so soon after its passage: “Changing the business tax structure so quickly would undermine the predictability of doing business in San Francisco.”
Then again, a lot beyond San Francisco’s control has changed since voters went to the polls in November 2024.