William Shakespeare excelled at many things, but marketing was not one of them. Of course “a rose by any other name would smell as sweet” — but it wouldn’t be as marketable.
The Bard was also no whiz at politics. Of note, he bequeathed his “second best bed” to his widow.
In San Francisco, politics has, in large part, been subsumed by marketing. And that brings us to the ingeniously marketed “BUILD Act,” which Mayor Daniel Lurie, Supervisor Bilal Mahmood and the Building Trades tell us is a Balanced Update to Incentivize Local Development.
You know all those multifamily housing developments that aren’t being built and all those downtown offices sitting empty? The BUILD Act would purport to fix this by cutting the taxes sellers of real estate must pay when properties worth more than $10 million — big apartments, office buildings, ostentatious mansions — change hands.
That would roll back Proposition I of 2020, which doubled that rate.
Some 58 percent of voters six years ago went for Prop. I — in part because its backers, also, deployed damn good marketing. Did you know that Donald Trump is a part-owner of the Bank of America building? Would you like to sock him with a bigger tax bill when that building changes hands? For San Francisco voters, that smelled pretty sweet.
Conversely, Would you like to give Donald Trump a tax break? is bad marketing in this city. But that’s just what the BUILD Act would do.
Oof. That’s when you know you need to come up with a really killer acronym.
Is the BUILD Act a bad idea? Objectively no, at least not in the way that driving on the railroad tracks is a bad idea.
There are sound claims to be made that the city’s present approach to taxing large real estate transactions is suboptimal or even counterproductive. Ted Chandler, the senior adviser to the AFL-CIO housing investment trust fund — which has put hundreds of millions of dollars into developing more than 1,000 units in the city — sums it up well: “San Francisco is not in the position to impose materially different taxes than the surrounding area.”
Indeed, San Francisco’s transfer taxes were on the high end even before we doubled them. And, with more than a third of our offices downtown now sitting vacant and residential construction stalled, we can’t be as reflexively demanding as we once were. Still, you’d think there’s a middle ground between “Richie Rich can afford it, no matter what the city economist says” and the BUILD Act’s Reaganesque Field of Dreams “lower the tax and more investment will come.”
The BUILD Act, as its (killer acronym) name implies, is ostensibly about building. But it does not actually require the building of anything. If a giant office tower or apartment complex changes hands and no housing is added, no work is done and the structure continues serving its prior purpose, the seller still would get a tax break.
Our specific questions to the mayor’s office and legislative quarterback Supervisor Bilal Mahmood regarding why the BUILD Act was not more narrowly tailored to apply to the building of things the city so ardently desires did not receive straightforward answers. Fine.
But that won’t be an option when the BUILD Act is, at a to-be-determined date, debated before the Board of Supervisors.
Expect legislators to ask questions about why it’s a good idea to keep these tax breaks broader instead of narrower — leaving revenue uncollected during famine times. But expect more than questions: Legislators could potentially introduce amendments moving to limit the scope of the tax breaks. That would force BUILD Act proponents to explain why a local tax break marketed as a golden spigot that will pour out housing and union jobs does not contain any stipulations for these ostensibly desirable things.
Would rolling back taxes help dispel the vibe among buyers and sellers of large real-estate properties that San Francisco is “anti-business?” It could certainly help.
But the problem with vibe-based governing is that you can’t quantify anything. But you can certainly quantify the haul of Prop. I. Since its enactment in January 2021, it has amassed more than $500 million for the city general fund. The controller predicts that eliminating it would blow a $400 million hole in the city’s general fund over the next four years.
Mahmood pledges that this won’t happen. He says he’s promised public sector unions — which are sensitive about revenue reductions, that, by their nature, trigger job reductions — that this tax break will be revenue neutral.
A spokesperson for the controller’s office confirms that it’s plugging and chugging numbers, but nothing is yet complete. Mahmood said he expects the tax cut to lead to a 20 percent spike in real-estate transactions. But that alone won’t offset the tax breaks, so Mahmood is working on a November ballot measure to repeal tax exemptions on foreclosure sales. Between these two, he anticipates revenue neutrality.
Now, there are a lot of moving parts here. And modeling is harder to do now, because the ebbs and flows of earlier real estate investment never resembled today’s post-COVID, post-everybody works from home in their pajamas, post-AI world.
But is it realistic to expect that slashing the transfer tax — one of many issues real-estate buyers and sellers must deal with on the municipal, state, federal and global levels — will lead to one-fifth more transactions? The smart people I talk to say that it is realistic — but on the optimistic end of realistic. They also say that the city would reap more money by establishing taxes on foreclosure sales than it would by cutting transfer taxes to encourage big real-estate transactions.
This has the makings of an intriguing future discussion at the Board of Supervisors. Because, naturally, a less sweeping tax break would be easier to sell as “revenue neutral.”
San Francisco, alas, has entered an era of permanent deficits — and, in this town, the notion of handing tax cuts to the extremely wealthy has never been an intuitive or easy sell. It could be even tougher after June 1, when the mayor’s preliminary budget may spark a fiscal bloodletting rivaling the last scene of “Hamlet.”
If the labor-backed Prop. D loses on June 2, and some $300 million fails to materialize for the city’s general fund, the notion of giving hefty tax breaks to anyone, let alone the wealthy, becomes that much harder to countenance.
It may take more than marketing to push the BUILD Act over the finish line. Perhaps, if matters go truly sideways, someone will call it the CRAP Act — Capital Requires a Prize.
They can’t all be killer acronyms.