Proposed Tax on Vacant SF Storefronts on Track to Narrowly Pass

Updated Friday, 4:30 p.m.

Proposition D, known as the vacancy tax, has been one of San Francisco’s most contentious battles this election season. Empty storefronts pepper neighborhoods all over the city, and complaints have mounted over the years.

As of Friday afternoon, the measure appeared likely to pass, with about 69% support, inching past the necessary two-thirds majority threshold. But with many vote by mail ballots still being counted, the contest remained too close to call.

For up to date vote counts see KQED’s election result page. County election officials will officially announce whether the measure passed a month after the election.

The measure, championed by District 3 Supervisor Aaron Peskin, would tax property owners in the city’s roughly 40 commercial districts for keeping a storefront vacant for more than 182 days in year. The tax starts at $250 per street-facing linear foot of ground-floor retail space for the first year. That number would double to $500 the second year and again to $1,000 every year thereafter.

If it passes, it would be the first tax of its kind in any major U.S. city.

The tax would go into effect in 2021 and would pay into a new fund for small businesses in San Francisco. The city estimates it could bring in up to $5 million a year. This vacancy tax would not apply to certain nonprofit organizations.

The Yes on D campaign included business and merchant associations, as well as elected officials, including every city supervisor and Mayor London Breed. They argued that some landowners have raised rents to unaffordable levels as rising property values have pushed up rent prices.

“More often than not, in my experience, it’s been all about the rent, and there are many landlords that are holding out for businesses that can pay a higher rent, whether that’s a chain or restaurant or what have you,” said Rick Karp, owner of Cole Hardware. He added that property owners “have an economic incentive to keep a building vacant where they can write off the lost [revenue] that they’ve had from a previous tenant as an expense.”

After polls closed on election night, Yes on D campaign manager Daniel Anderson expressed optimism that Proposition D would prevail.

“What’s clear is that San Franciscans are excited with this measure,” he said. “They want to see something done to reduce these vacancies, to protect small businesses and to revitalize our merchant corridors.”

Those opposed to the measure included local real estate organizations and individual property owners, as well as the San Francisco Republican Party. They say businesses aren’t immune to economic forces, namely the rise of online shopping and changing consumer behavior.

“Online buying is impacting the marketplace of these neighborhoods,” said Mark Borsuk, a San Francisco real estate broker and attorney. He said this is especially true in San Francisco where “we have so many new residents — young and very savvy, using technology — who want to purchase things online and not necessarily go to the store.”

Borsuk said landowners want to rent out their spaces, and they’ve been trying very hard to do so. He argued that city bureaucracy has thrown wrench after wrench into their plans, including painstakingly slow permitting processes and multiple inspections.

Jay Cheng, public policy director for the San Francisco Chamber of Commerce, which also opposed the measure, agreed.

“I think Proposition D is not going to fully address the issue of storefront vacancies or helping small businesses thrive in San Francisco,” he said. “I think those solutions are much deeper. They’re within zoning reforms, they’re in planning code changes, they’re in more flexible rules for small businesses.”