California Democrats Propose Higher Business Taxes to Pay for Homeless Programs

The San Francisco Chronicle reported on January 14 that state and local Democratic leaders are pushing for an increase in California’s corporate tax rate to tackle the state’s homelessness crisis, a proposal that could generate billions of dollars in new funding but faces long odds to becoming law. A coalition of state legislators, big-city mayors and housing advocates introduced a bill Wednesday, AB71, that would raise the tax rate by nearly 0.8% for companies that earn more than $5 million in annual revenue in the state. It would also tax California-based corporations for the revenue they earn from intellectual property, such as patents and trademarks, held by their foreign subsidiaries. Supporters estimate the bill could generate $2.4 billion a year to build supportive housing and emergency shelters, offer rental assistance and provide other services to the more than 150,000 homeless Californians.

“Our state is facing an unprecedented homelessness crisis that is on the verge of becoming a full-blown catastrophe due to the economic impacts of COVID-19,” Assembly Member Luz Rivas, a North Hollywood Democrat who is carrying the measure, said at a virtual news conference. “It’s clear that our current structure and one-time investments from the state are not always working, and people know it.”

Under the proposal, an estimated 2,285 large companies would pay a state corporate tax of 9.6% rather than 8.84%, raising the rate back to its 1980 level. The new supplemental tax for California corporations’ foreign intellectual property would be set at half the corporate tax rate.

Proponents said the state needs a dedicated source of funding for homelessness programs.

“Each year, if we have to fight a budget battle with insufficient dollars and insecure dollars, not knowing where they come from, it makes this work close to impossible,” Los Angeles Mayor Eric Garcetti said. “We can’t beggar every year to try to get enough dollars.”

Republicans have long criticized California as unfriendly to businesses, and there have been high-profile corporate defections in recent months. But Oakland Mayor Libby Schaaf, one of the bill’s backers, said the tax increase would resolve a common business complaint “about the impacts of homelessness on their economic well-being.”

Business groups, however, issued a letter Wednesday urging the Legislature and Gov. Gavin Newsom to reject any new tax measures.

Rob Lapsley, president of the California Business Roundtable, said it was “insane” to consider raising corporate taxes when the state is projecting a $15 billion surplus in the next fiscal year. He said lawmakers should steer money California already has toward homelessness services, rather than approving Newsom’s idea for a $1.5 billion zero-emission-vehicles rebate program.

“That’s exactly the kind of thinking and governance that people don’t want to see,” Lapsley said.

 Assembly Member David Chiu, a San Francisco Democrat who is a co-author on the measure, said it includes funding goals and accountability metrics that create “a road map in how we address homelessness in a meaningful way.” He has unsuccessfully pursued a dedicated funding source for homelessness programs for several years.

Any bill raising taxes requires a two-thirds vote in both the state Senate and the Assembly, a heavy lift even before the coronavirus pandemic pushed California into economic turmoil.

Unveiling his budget proposal last week, Newsom said now is not the time to raise taxes. He specifically rejected calls to adopt a wealth tax or raise income taxes for the richest Californians.

The governor’s office did not respond to questions about the corporate tax increase bill.

Newsom’s spending plan includes billions of dollars in proposed funding for housing and homelessness programs, but much of it is one-time money, including $500 million in grants to pay for housing-related infrastructure such as sewers and roads, and $500 million in low-income housing tax credits.

The governor also proposed $750 million to extend Homekey, a pandemic program to convert buildings into permanent supportive housing for homeless people. Local governments that received grants have bought more than 6,000 units so far. Another $1 billion would be made available to apply the same model to mental health and senior care facilities.

“Another round of Homekey is welcome and it will have an impact, but unfortunately, it won’t end homelessness,” Sharon Rapport, director of the advocacy group Corporation for Supportive Housing, said Wednesday. “This is why we need a permanent funding source to support services and operating expenses for programs like Homekey.”