San Francisco’s Proposition A

CommentaryProposition A is a bond measure with the spurious title of “MUNI Reliability and Street Safety,” yet it fails to require that the money go to any specific transit programs or priorities. Instead, it delivers an untethered blank check into the hands of the San Francisco Municipal Transportation Agency’s management—the same team that brought San Francisco the delays, cost overruns, and failures of the Chinatown Central Subway, the Better Market Street Project, the rehabilitation of the Twin Peaks Tunnel, and multiple other fiascoes. Proposition A offers nothing in the way of “safety” for commuters targeted in incidents of hate or violence, as sold by the proponents, and few actual MUNI transit improvements. Instead, it prioritizes more bike lanes at the expense of reduced auto and parking lanes, promotes diesel buses over underground modes of transportation, ends competitive bidding on MUNI-related projects and jobs, and lays down concrete barriers that make Slow Streets permanent. Proposition A is an unnecessary bond obligation that would pour hundreds of millions of dollars into an already well-funded but highly inefficient government agency. Mayor London Breed and the Board of Supervisors, who put Proposition A on the ballot, claim that issuing $400 million of MUNI bonds will not raise taxes. They say that the city “retires” older bonds as it issues new bonds, but this is where the trickery comes in. In reality, voters have approved more general obligation bonds since 2008 than in the previous 50 years combined. This included a curious $850 million authorized during the pandemic for Affordable Housing and Homeless Services, which are not typically considered infrastructure. Taxpayers are now on the hook for $4 billion in interest and principal payments to bondholders. An additional $1.4 billion of bonds have been authorized but not yet issued. Infrastructure bonds are coming up for the Seawall and Earthquake safety, but San Francisco’s borrowing capacity is strained. The city hasn’t retired its last round of MUNI bonds—far from it. Just last year, the San Francisco Municipal Transportation Agency (SFMTA) borrowed $125 million under its 2014 bond program, of which $100 million remains unspent. With bond debt multiplying, what will happen to taxes? Let’s dig deeper. The California state constitution limits local, as well as state, taxes on the assessed value of private property. San Francisco can levy a 1 percent fixed tax, plus whatever additional tax rate is necessary to make annual principal and interest payments on “general obligation” bonds and other taxpayer approved bonds, including bonds issued by the county and overlapping jurisdictions such as the Unified School District, Community College, and BART. The county tax assessor recalculates this “bond add-on” property tax rate every year. San Francisco can impose no other property taxes based on assessed value. Since 2000, the “bond add-on” property tax rate has (with some variance) increased steadily. In 2002, the San Francisco rate was 0.12 percent of assessed value per year; by 2021, it was 0.20 percent—a 67 percent increase. In 2022, the assessor dropped the rate to 0.18 percent, a 10 percent reduction—the rate in effect today. Why the tax cut? A factor has been historically low interest rates, with 20-year general obligation bonds yielding less than 1.5 percent between May 2020 to January 2022. The truth of the matter is that the county has been issuing bonds much faster than retiring them. In 2020–21, the county paid off $550 million of its general obligation bonds, but issued $1.4 billion of new bonds. Interest rates were so low that, although borrowing skyrocketed, annual payments declined. Last summer, Mayor Breed and the supervisors hatched plans to accelerate the general obligation bond program further, with Proposition A in the lead, blissfully assuming that low-cost borrowing would never end. The MUNI $400 million bond measure had originally been scheduled for the ballot in November 2025, according to the San Francisco 2018 10-Year Capital Plan. Here’s the rub. City Hall has put San Francisco on a collision course with a bond market in turmoil. Highly sensitive to inflation, rates have skyrocketed. The general obligation bond program is buckling. In April of this year, the county “refunded” $327 million in older bonds to reduce interest costs. These offerings take time to bring to market; by the deal date, rates had doubled and they continued to rise. In May, the yields on the 20-year MUNI bonds San Francisco issued just last year reached highs of 3.5 to 4 percent. The week of May 9, BART launched a $760 million bond offering, then pulled it from the market because the bonds did not sell. Remember, the value of assessed real estate rises only 2 percent per year (until sale) under Proposition 13. If San Francisco pays higher rates on its MUNI bonds, the “bond add-on” property tax will rise by definition. City

San Francisco’s Proposition A

Commentary

Proposition A is a bond measure with the spurious title of “MUNI Reliability and Street Safety,” yet it fails to require that the money go to any specific transit programs or priorities.

Instead, it delivers an untethered blank check into the hands of the San Francisco Municipal Transportation Agency’s management—the same team that brought San Francisco the delays, cost overruns, and failures of the Chinatown Central Subway, the Better Market Street Project, the rehabilitation of the Twin Peaks Tunnel, and multiple other fiascoes.

Proposition A offers nothing in the way of “safety” for commuters targeted in incidents of hate or violence, as sold by the proponents, and few actual MUNI transit improvements.

Instead, it prioritizes more bike lanes at the expense of reduced auto and parking lanes, promotes diesel buses over underground modes of transportation, ends competitive bidding on MUNI-related projects and jobs, and lays down concrete barriers that make Slow Streets permanent.

Proposition A is an unnecessary bond obligation that would pour hundreds of millions of dollars into an already well-funded but highly inefficient government agency.

Mayor London Breed and the Board of Supervisors, who put Proposition A on the ballot, claim that issuing $400 million of MUNI bonds will not raise taxes. They say that the city “retires” older bonds as it issues new bonds, but this is where the trickery comes in.

In reality, voters have approved more general obligation bonds since 2008 than in the previous 50 years combined. This included a curious $850 million authorized during the pandemic for Affordable Housing and Homeless Services, which are not typically considered infrastructure.

Taxpayers are now on the hook for $4 billion in interest and principal payments to bondholders. An additional $1.4 billion of bonds have been authorized but not yet issued. Infrastructure bonds are coming up for the Seawall and Earthquake safety, but San Francisco’s borrowing capacity is strained.

The city hasn’t retired its last round of MUNI bonds—far from it. Just last year, the San Francisco Municipal Transportation Agency (SFMTA) borrowed $125 million under its 2014 bond program, of which $100 million remains unspent.

With bond debt multiplying, what will happen to taxes? Let’s dig deeper.

The California state constitution limits local, as well as state, taxes on the assessed value of private property. San Francisco can levy a 1 percent fixed tax, plus whatever additional tax rate is necessary to make annual principal and interest payments on “general obligation” bonds and other taxpayer approved bonds, including bonds issued by the county and overlapping jurisdictions such as the Unified School District, Community College, and BART.

The county tax assessor recalculates this “bond add-on” property tax rate every year. San Francisco can impose no other property taxes based on assessed value. Since 2000, the “bond add-on” property tax rate has (with some variance) increased steadily.

In 2002, the San Francisco rate was 0.12 percent of assessed value per year; by 2021, it was 0.20 percent—a 67 percent increase. In 2022, the assessor dropped the rate to 0.18 percent, a 10 percent reduction—the rate in effect today. Why the tax cut? A factor has been historically low interest rates, with 20-year general obligation bonds yielding less than 1.5 percent between May 2020 to January 2022.

The truth of the matter is that the county has been issuing bonds much faster than retiring them. In 2020–21, the county paid off $550 million of its general obligation bonds, but issued $1.4 billion of new bonds.

Interest rates were so low that, although borrowing skyrocketed, annual payments declined.

Last summer, Mayor Breed and the supervisors hatched plans to accelerate the general obligation bond program further, with Proposition A in the lead, blissfully assuming that low-cost borrowing would never end.

The MUNI $400 million bond measure had originally been scheduled for the ballot in November 2025, according to the San Francisco 2018 10-Year Capital Plan.

Here’s the rub. City Hall has put San Francisco on a collision course with a bond market in turmoil. Highly sensitive to inflation, rates have skyrocketed. The general obligation bond program is buckling.

In April of this year, the county “refunded” $327 million in older bonds to reduce interest costs. These offerings take time to bring to market; by the deal date, rates had doubled and they continued to rise.

In May, the yields on the 20-year MUNI bonds San Francisco issued just last year reached highs of 3.5 to 4 percent. The week of May 9, BART launched a $760 million bond offering, then pulled it from the market because the bonds did not sell.

Remember, the value of assessed real estate rises only 2 percent per year (until sale) under Proposition 13. If San Francisco pays higher rates on its MUNI bonds, the “bond add-on” property tax will rise by definition.

City Hall should level with taxpayers: either the general obligation bond programs of the county must be put on hold—potentially for years—or property holders get ready. Your taxes are going up significantly.

Proposition A is rushed, ill-conceived, unnecessary, and not practical at today’s high interest rates: $400 million would contribute only 7.3 percent to the SFMTA’s 10-year capital budget of $4.8 billion, which is fully funded already by local, regional, state, and federal sources.

Last December, the city controller discovered a $550 million surplus in SFMTA finances, missing from the agency’s official forecasts — more than the total funds in Proposition A. The Transportation 2050 Working Group (2021), the city’s planning initiative for the future of MUNI, forecasts a permanent post-COVID decline in revenue, but offered no proposal for expenditure reform. City leaders suggest taxpayers should finance perpetual MUNI deficits. Renewal of the 1/2 cent sales tax is headed for the ballot this November—12 years early—because MUNI has already borrowed $500 million against future tax revenue.

A NO vote on Proposition A will send a message to City Hall to end frivolous projects and the financial mismanagement, and get serious about re-envisioning MUNI for San Francisco in 2022. We should demand qualified and expert planning when it comes to the administration and budgets of the SFMTA and related agencies, for the best interests of all San Franciscans. Taxpayers should not be held hostage by leaders who misuse the bond market to rack up obligations they can pawn off on property owners using a loophole in Proposition 13’s protections against local property taxes.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


Follow

Tony Hall is a former supervisor for San Francisco's District 7. He has held executive and administrative positions positions in seven different City departments in all three branches of government- Executive, Legislative, and Judicial over a 33 year period. He is also a highly regarded vocalist-entertainer in the Bay area.


Follow

Larry Marso is a graduate of Stanford Law School and the Woodrow Wilson School graduate economics program at Princeton University. In New York, he practiced law at Cravath, Swaine & Moore, worked as an M&A investment banker at Morgan Stanley, and ran financial institutions M&A for UBS Paine Webber. He is now a Bay Area M&A adviser, technology consultant, and political data analyst.