Mayor Daniel Lurie and Supervisor Bilal Mahmood on Thursday announced a November ballot measure that, if passed, would tax sales of foreclosed commercial buildings and potentially raise $200 million over the next three years.
The tax would buoy city coffers as San Francisco still faces a budget deficit in the hundreds of millions.
“Corporate capital, hedge funds, corporate lenders — when they transact off of foreclosures, they should pay the same tax like every other seller in San Francisco,” Mahmood told Mission Local. “This ensures that those financial institutions actually give back to the community.”
In a statement, Lurie said the proposal would make the city’s tax code “simpler and fairer.”
“Consistency and certainty are critical for welcoming investment as we drive downtown’s recovery and keep our city moving in the right direction,” he said.
Sellers of foreclosing properties currently do not pay the city’s transfer taxes, which are imposed when real estate changes hands. The transfer-tax rate is currently 5.75 percent for properties worth over $10 million, and 6 percent for those over $25 million.
The city implemented an exemption for foreclosed properties in 1984, which Mahmood said has lost the city billions of dollars of potential revenue since then. The proposed ballot measure would undo that exemption.
Mahmood and Lurie initially proposed this tax to offset projected revenue losses from another measure of theirs, the proposed the BUILD Act.
But earlier this week the pair tabled that measure, which would have cut the city’s transfer tax rate in half. The measure was sold as a jobs and housing bill, but would have cost the city an estimated $400 million in the coming years, according to the controller’s office.
Mahmood said the pair wanted to focus on increasing revenue before proceeding. The BUILD Act raised concerns of a major hole in the city’s budget if voters rejected the accompanying Foreclosure Tax in November, and critics pointed out that the tax cut would apply even if no housing were built.
What’s more, Proposition D, a measure to increase taxes on companies with “overpaid” CEOs, failed to pass earlier this month, losing the city another revenue opportunity.
“The need to prioritize revenue at this time came first,” said Mahmood, who supported Prop. D and still says a transfer tax reduction is “the right policy” to spur development and create jobs. “Then in turn, once the city’s budget is in a better place, that’ll allow us to bring this back up later.”
The foreclosure tax excludes single-family homes, condos, and small properties with fewer than five residential units — Mahmood said he did not want to penalize people foreclosing their homes in distress.
The tax has wide support among the Board of Supervisors and is expected to qualify for the November ballot, with Supervisors Matt Dorsey, Myrna Melgar, Chyanne Chen, Shamann Walton and Alan Wong co-sponsoring the measure when it was introduced earlier this week.