Proposition E - Parking Tax

What it does

This measure would increase San Francisco's existing gross-receipts tax on parking from 25 percent to 35 percent, and extend the tax to cover valet parking. The measure is a non-dedicated general tax whose proceeds would go entirely to the General Fund, unlike the current tax which has historically dedicated 40 percent to the General Fund, 20 percent to Muni and 20 percent to senior programs. In the proposed Prop. E tax increase, a percentage of the General Fund is allocated to Muni through the Metropolitan Transportation Agency as provided for in 1999's Proposition E.⁵ As a general tax, Prop. E must be on the ballot for a general election (such as when members of the Board of Supervisors are also up for election). If this were not on the ballot in 2006, the next possible ballot would be 2008. Prop. E requires a simple majority vote to pass.

Why it is on the ballot

San Francisco first passed a parking tax of 25 percent in October 1970, with all of the proceeds going to the General Fund. Since then, the tax has varied, with portions of the tax going to specific services. The tax was reduced to 10 percent in 1972. In 1977, the tax was increased to 15 percent, with the additional 5 percent dedicated to senior programs. The tax was increased again in 1980 to 25 percent, with the additional 10 percent going to the City's General Fund.

In 1993, voters passed Proposition M, which rededicated much of the parking tax's revenues. Forty percent went to Muni (now the MTA), 20 percent to senior programs, and 40 percent to the City's General Fund. This allocation remains today.

In 2004, Flying Dutchman, a parking operator, sued the City over the parking tax. The court ruling on the Flying Dutchman case invalidated the allocation to senior programs, which had been implemented after the passage of state Proposition 13, though without the required two-thirds vote, but the ruling left the dedication to the MTA intact. The Flying Dutchman ruling also invalidated the City practice of collecting parking tax on valet operations, as the original text specified that the tax was on parking spaces, rather than parking services. Since 2004, the Board of Supervisors has continued the set-aside for senior programs by budgeting a like amount of General Fund support. Although there has been an agreement that 20 percent of the parking tax revenues would be dedicated to senior programs, that allocation is not legally defensible.

Pros

Those who support this measure claim:

• The parking tax generates needed revenue to the City - up to an additional $22 million per year.
• Past increases in the parking tax encouraged commuters to shift to public transit, which furthered the City's transit-first policy.
• A higher parking tax discourages long-term commuter parking, which frees those parking spaces for short-term parking that supports downtown retail and entertainment uses.
• A parking tax increase discourages commute-period trips and reduces traffic congestion downtown, which improves Muni reliability, decreases Muni costs, and improves air quality and pedestrian and bicycle safety.
• Parking taxes get non-residents to pay their fair share to support San Francisco's roads, public transit and other city services. Past increases in the parking tax encouraged commuters to shift to public transit, which furthered the City's transit-first policy.
• An increase in the parking tax could reduce congestion, which would directly benefit Muni through increasing its speed. A recent study for the Planning Department noted that what is hurting Muni most might be congestion not the cost of providing additional capacity (i.e. seats on the bus). Anything that can be done to reduce congestion is a benefit to Muni. If there are fewer cars on the road, then Muni can run more quickly which results in fewer trips and drivers and thus cost savings.
• The parking tax is a "green tax" that encourages environmentally friendly behavior, discourages congestion and pollution, and shifts the tax burden away from things we want to encourage, such as new housing and job growth.

Cons

Those who oppose this measure claim:

• This measure should have been a dedicated tax that would go directly to Muni. There should be a direct connection between the parking tax and the increase in transit funding. Placing all the money directly into the General Fund undermines the relationship between reducing driving and increasing transit. Given past practices, a maximum of only 40 percent of $22 million would possibly go to Muni (and this is not even required or legally permitted to be required).
• It is unclear exactly how far this tax will be implemented. The current law leaves open the possibility that many more locations will be subject to the tax - such as employee-provided parking or rented parking spaces within apartment buildings.
• Increases in the parking tax could result in a decrease in visitors coming to shop in San Francisco. As we move toward being more of a location for high-end regional shopping (such as the new Bloomingdales) this may negatively affect shopping, and thus sales-tax revenues.
• The new tax may inadvertently reward parking operators who are evading or underpaying the parking tax. Since the existing tax is poorly collected, some operators may simply use the new tax as an excuse to raise their parking rates without ever sending the city any additional revenue.
• This is a punitive tax, since many people cannot take public transit to get to where they need to go. Many of those people may use parking garages for short trips. They will be affected negatively.

SPUR's analysis

The current 25 percent parking tax raised $55.18 million in the 2005-2006 budget year, of which $33.12 million went to the General Fund and $22.06 million went to the MTA. Twenty percent of the total goes to fund senior programs. The City projects that a 35 percent tax would generate approximately $22 million in additional annual revenues. The entirety of these additional revenues would go into the City's General Fund. This is because a dedicated tax requires a two-thirds majority and the proposed tax only requires a simple majority. The only amount of the new tax revenues guaranteed for Muni would be based on Muni's share of General Fund revenues to the MTA per the city charter. And because of the Flying Dutchman case, no amount of money can be dedicated to senior programs.

Despite these limitations, it is expected that the Board of Supervisors will observe the historic 40 percent/40 percent/20 percent split of the new revenues. The board has continued the allocation to senior services despite the Flying Dutchman ruling, and in recent years has allocated greater funding to the MTA from the General Fund than the minimum guaranteed by the charter.

Most large U.S. cities have a parking tax. At 35 percent, San Francisco would have one of the higher tax rates in the United States, although not the highest. The highest known tax is Pittsburgh, which has a 50 percent tax.

There are several ongoing efforts to assess the parking tax on areas other than the traditional public and privately owned parking garages. Until a few years ago, hotel parking paid into neither the parking tax nor the City's hotel tax, but the Treasurer's Office has been working to collect the appropriate tax on hotel parking. Employer-provided parking does not pay the tax, although the treasurer is investigating whether it should do so.

Unlike many San Francisco taxes and fees, the parking tax is shared by residents and non-residents alike. A recent study found, for example, that 62 percent of monthly parkers in city-owned garages downtown reside outside of San Francisco. Increasing this tax could result in these commuters shifting their mode to transit (which would reduce some congestion on the region's roadways).

It is uncertain how the additional parking tax will affect demand for parking and whether parking operators or consumers will bear the increase in costs. If parking demand is inelastic, increasing the parking tax will not result in a reduction of drivers and parking operators will pass all of the parking tax increase on to consumers. If parking demand is elastic, parking demand will decrease as taxes increase. In that case, parking-garage operators would simply bear most of the cost of the increased tax rate in order to not lose further business. It is expected, however, that the elasticity of demand for parking will vary by the type of consumer ? whether resident or non-resident, short-term or commuter.

A study of the effects of San Francisco's alteration of parking tax rates in the 1970s found that commuters were much more sensitive to price increases than were shoppers and recreational users, so an increase in the parking tax might serve to discourage commuter parking to a much greater degree than short-term parking. If we can assume these behavioral changes still apply today, the 62 percent of monthly parkers who are nonresidents would shift away from driving. This reduction in commuter parking could then reduce congestion within the city (and thus increase the speed of Muni service) and free up additional spaces for short-term parking.

In general, however, parking demand and parking rates are more strongly driven by factors such as the amount of parking available and the strength of the downtown job market. Parking rates would likely increase more during a downtown job boom than as a result of a 10 percentage point increase in the tax. Overall, the biggest indicator of demand for parking is the strength of the economy - not the price of parking.

The proposal for a 35 percent parking tax emerged from SPUR's recent paper "Muni's Billion Dollar Problem" (March 2006). In that paper, SPUR called for an increase in the parking tax as one of the solutions to Muni's structural deficit. SPUR made the case that most or all of the new revenue from a parking tax should go to support Muni. SPUR also supports policies that encourage downtown parking to be dedicated primarily to high-turnover visitor parking rather than commuter parking and to reduce the traffic congestion that results in Muni delays. SPUR also supports shifting taxes and fees onto environmentally unsustainable activities, such as congestion and pollution, and away from productive activities, such as housing construction or job creation. In other words, SPUR policy supports taxes on waste, not work.

This is a general tax that requires a vote of the people and must be on a ballot for a general election (such as when the Board of Supervisors is also up for election). If this were not on the ballot in 2006, the next possible ballot would be 2008.

Our Board of Directors was unable to reach the 60 percent majority we require to take a "Yes" or "No" stance. While SPUR did call for increasing the parking tax to 35 percent in our March 2006 paper "Muni's Billion Dollar Problem," our policy proposal called for a dedicated tax, not one that simply goes entirely to the General Fund. SPUR believes that the parking tax is generally a benign and environmentally beneficial source of revenue. However, we strongly believe that the parking tax should pay for increases in transit service. Making this a general tax rather than one dedicated to Muni does not meet our standards of how parking taxes should be used. Although a dedicated tax would have required a two-thirds majority and would have been much harder to pass, that would have made the case for the parking tax much clearer. The ordinance has many merits, but the lack of dedicated funding fails to directly tie increasing the costs to automobile drivers and demonstrated improvements in public transit.

SPUR takes "No position" on Proposition E.

⁵ In 1999, San Francisco voters approved Proposition E, which combined the Municipal Railway (Muni) and the Department of Parking and Traffic (DPT) into a new agency, the MTA. Among the many hoped-for benefits of the merger was the prospect of better management of the city's streets, in keeping with a strengthened "Transit First" policy, which would both improve Muni service and make the streets friendlier to pedestrians and bicyclists.