What the Measure Would Do

Prop. E would allocate a portion of San Francisco’s existing hotel tax for arts-related programs and financial support. The hotel tax is currently 14 percent of hotel rent revenue and generates approximately $370 million a year. Revenues generated by the hotel tax are currently deposited into the city’s General Fund for discretionary spending on a range of city services.

This measure would set aside a portion of the tax for the following allocations:¹

• $16.3 million to the city administrator for grants to nonprofit arts and cultural organizations

• $6.4 million to the San Francisco Arts Commission for programs that move the city’s arts funding toward cultural equity

• $3.8 million to the Arts Commission to support the operation and programming of city-owned cultural centers

• $3 million to the Mayor’s Office of Housing and Community Development to support city-designated cultural districts

• $2.5 million to the Arts Commission to address the needs of the arts community, as determined by a cultural services allocation plan² 

The remainder of the tax would continue to go into the General Fund.

The allocations amount to 8 percent of total current hotel tax revenues. The controller’s office estimates that in fiscal year 2018–19, Prop. E would distribute $5 million more to these uses as compared to current spending; the allocations would grow to an additional $13 million in fiscal year 2021–22.

The allocations are structured to fluctuate year to year with the tourist economy and the growth of the hotel tax overall. The controller’s office estimates that hotel tax revenue will grow an average 4.5 percent per year.

Finally, the measure would make several adjustments to the proposed allocations in the first several years, for example, to focus on cultural equity funding for the first two years.

The Backstory

San Francisco’s hotel tax was created in 1961 by Mayor George Christopher, and revenues were partially dedicated to funding for the arts on the grounds that the city needs cultural facilities to attract tourists. It was a groundbreaking policy at the time, inspiring similar hotel tax allocations in cities around the country. The tax rate in San Francisco was initially set at 6 percent and was increased incrementally to the current rate of 14 percent.

During economic downturns, the hotel tax was repeatedly amended to distribute funding to other programs, and in June 2013 the Board of Supervisors removed the allocation to arts programs and dedicated all hotel tax revenues to the General Fund.

Today, arts and culture programs in San Francisco are funded by the General Fund, primarily through five major city arts departments: the Arts Commission,³ the Asian Art Museum, the Fine Arts Museums,⁴ Grants for the Arts and the War Memorial.⁵ 

In 2016, a coalition of arts organizations and homeless advocates put a measure on the ballot that would have allocated revenues generated by a portion of the hotel tax to a variety of arts and culture organizations, as well as to programs to end family homelessness — what amounted to about $210 million based on current hotel tax revenues. The measure failed to get the two-thirds majority vote needed to pass. In 2018, a coalition of many of the same arts organizations negotiated a new proposal, revising down the allocation amounts and dedicating funding only to arts and culture programs.

This measure was placed on the ballot by a unanimous vote of the Board of Supervisors. As a dedicated tax, the measure requires two-thirds approval to pass.

Pros

• The hotel tax was created to promote arts and cultural activities that bring tourists to San Francisco. Prop. E would restore this intention and reverse some of the diversion of hotel tax revenues to other programs over the years. The arts continue to draw visitors from around the world, and the revenue source for this set-aside would be appropriately tied to its expenditure purpose.

• At 8 percent of hotel tax revenues, the allocations set out in this measure are reasonable, and the measure’s tie to increases and decreases in overall hotel tax revenue means that the impact on other needs funded by the General Fund would likely be small.

Cons

• As a set-aside, this measure would reduce the amount of General Fund revenue that would be available for other public purposes.

• Any future changes to these allocations would require another vote at the ballot. It’s best to give the legislative budget process the flexibility to determine priorities for city funding year to year.

• Prop. E does not need to be on the ballot. The Board of Supervisors could decide to dedicate these revenues without bringing it to the voters.