Proposition B - Affordable Housing Set Aside

What it does

Proposition B is an amendment to the San Francisco City Charter that would:

• establish a General Fund baseline appropriation for affordable housing
• dedicate a set-aside of property tax revenues of $25 of each $100,000 of assessed property value, to be spent on affordable housing
• require the City to prepare an affordable housing plan every three years and an affordable-housing budget annually.

The property tax set-aside is targeted to benefit lower income households and is more restrictive in the types of expenditures that are allowed, whereas the General Fund baseline is more flexible in its allowable uses and the income levels it targets. Both funding sources are restricted from paying for units that are under the jurisdiction of the San Francisco Housing Authority.

As with all City expenditures, both the General Fund baseline and the property tax set-aside would require that the proposed funding be included in the Mayor's budget and appropriated by the Board of Supervisors. However, under the San Francisco City Charter, the Mayor is not legally required to spend money that is appropriated.

Both funding sources would expire automatically after 15 years.

Budget Impacts

The amount of non-restricted General Fund dollars within San Francisco's budget relative to its Charter-based requirements (including set-asides) grows smaller every year. In fiscal year 2008-2009, discretionary funding capacity made up 40.4 percent of the General Fund spending capacity. In times of fiscal crisis, restrictions and set-asides can make it even more difficult to balance the budget and maintain the City's fiscal health.

It should be noted that there are two new revenue measures on the ballot this year: an increase in the property transfer tax and an increase in the payroll tax. While these two new revenue measures are in no legal way tied to the Affordable Housing Charter Amendment, they are anticipated to produce approximately $39.5 million annually, an amount which partially covers the combined impact to the budget of the property tax set aside and the increase in the General Fund baseline.

Why it is on the ballot

San Francisco is experiencing a housing crisis — one that affects very low-income, low-income and moderate-income households disproportionately. We need to find a way to increase the amount of affordable housing in our city.

While we exceed our production targets for market-rate housing, we under-produce housing for people with very low, low and moderate incomes. SPUR believes it should be the goal of an equitable and environmentally conscious city to increase the housing supply at all income levels — which means increasing the public funds available for affordable housing as we zone for more housing.

The primary constraint on the production of more affordable housing is the lack of public subsidy funds. While federal and state programs for affordable housing production exist, we need sources of local subsidies. Federal and state affordable housing finance programs typically require developers of affordable housing to demonstrate "leveraging points," meaning that federal and state funds are matched by local funding commitments. Because of these leveraging requirements, local funds often are a necessary first step in financing the development of affordable housing.

In recent years, there have been two efforts — one in 1996 and the second in 2004 — to pass local bonds to generate funds for affordable housing. Bond initiatives, unlike set-asides, require the approval of two-thirds of participating voters to pass. In 1996, voters approved Proposition A, a bond measure that generated $100 million for affordable housing production. Prop. A produced 2,125 new and rehabilitated affordable rental housing units, and beds in emergency and transitional facilities. The bond leveraged approximately $2.20 in outside funding per dollar during its life cycle.

The 2004 affordable housing bond failed at the ballot.

Prop. B, this year's measure, only requires the approval of one vote more than half of all participating voters to pass at the ballot. Proponents of the measure, concerned that another bond would fail at the ballot, instead put forward this affordable housing Charter amendment — and supported two unrelated revenue measures to enhance the General Fund.

Pros

Arguments in favor of Prop. B:

• Funding for affordable housing at the national and state levels has been declining, while housing costs in San Francisco have risen significantly. San Francisco's housing crisis is among the worst in the nation. We are falling behind on our affordable housing production targets. We have an obligation to try to address this crisis. This measure is predicted to produce approximately 6,000 to 7,000 units of desperately needed affordable housing.
• To access state and federal funds for affordable housing, San Francisco needs a stable long-term stream of local affordable housing funds. Without this measure, we will not be able to access as much outside funding.
• Having a stable long-term source of affordable housing funds will help the City and developers of affordable housing plan more efficiently to achieve San Francisco's affordable-housing goals.
• SPUR has analyzed San Francisco's 1996 Affordable Housing Bond in depth, and found that the program was very well managed and made efficient use of the funds it received. It is likely that Prop. B would be similarly well managed.
• This measure would not have a severe impact on the budget because two other revenue measures (a payroll tax measure and a property transfer tax measure) on the ballot could partially fill the budget hole created by the property tax set-aside and the General Fund baseline requirements. Those measures could provide $39.5 million of new funds annually.
• We need a way to fund affordable housing that isn't dependent on fees on new development. It is fair for all San Franciscans to help support affordable housing, not just those who purchase a newly developed unit.

Cons

Arguments against Prop. B:

• This measure would make it harder to balance the budget and would lead to budget cuts for many other City services that lack a set-aside. This is because the mechanisms to close a budget shortfall are limited. Only $1.2 billion of the City's $3 billion budget is discretionary — that is, available for the Mayor and Board of Supervisors to decide how to spend. San Francisco recently has faced budgetary shortfalls of greater than $250 million, or approximately one-quarter of all the remaining discretionary funds. A set-aside is understandably appealing to advocates for affordable housing because it provides a way around the two-thirds vote requirement for "special taxes" in state law. However, this approach is irresponsible public policy because it hides tough decisions and the budgetary cuts to other services it will cause.
• The revenue measures on the ballot are needed to simply close the holes in the budget that we will have in the very near future. The City faced a $338 million deficit last year, and projects a shortfall of more than $250 million in the coming year. There is no guarantee that these revenue measures will be passed by voters. Moreover, transfer-tax revenue is a very unpredictable revenue stream.
• There is no provision to suspend the measure in difficult fiscal years.
• The set-aside is targeted to households at 80 percent of San Francisco median income and less. While this helps very low- and low-income households, it does not address the need for moderate-income housing, which has the greatest production deficit of all income levels.

SPUR’s analysis

We are split on this issue. This is an example of where SPUR's good government agenda and good planning agenda are at odds with one another. While we are strong supporters of expanding the supply of affordable housing, we have an equally strong concern for the long-term fiscal health of the City. Sometimes we see an overriding public need for a particular service, and have in some cases supported set-asides (such as one for public transit). In other cases, we have opposed set-asides because they were overly restrictive (such as one for neighborhood firehouses). This charter amendment could well be damaging to the fiscal health of the City if the transfer-tax and payroll-tax measures on the ballot this November fail.

While we hold these fiscal concerns, SPUR also strongly believes that we need to create more affordable housing. San Francisco is experiencing an affordable housing crisis. While increasing the supply of market rate housing in San Francisco and other transit-rich parts of the region is critical to drive down the average cost of housing, our affordable housing crisis cannot be solved solely by increasing the supply of market-rate housing. As we wrote in our 2006 report "A Housing Strategy for San Francisco," there is a strong need to produce more housing made affordable through subsidy. The reason, we wrote, is clear: "Our society is marred by inequalities of income and wealth." There is only one way to produce housing for the most vulnerable members of our society — and that is to secure stable, long-term sources of revenue for affordable-housing production at the federal, state and local levels.

SPUR was unable to reach our 60 percent threshold needed to take a position on this measure. We therefore have "No position" on Prop. B.