San Francisco is at a crossroads, and it’s not just about the empty storefronts or the quiet Fridays downtown. It’s about the math. Based on the recent report by the Bay Area Council Economic Institute (BACEI) released in May 2026, the city’s business tax structure has become the single greatest obstacle to its recovery. While other major hubs are finding their footing, San Francisco is grappling with a system that is, quite frankly, the highest-cost regime in the United States.
As we look toward the June 2026 ballot, the debate over Measure C and Measure D isn't just a political squabble: it’s a referendum on whether the city wants to remain a global hub for business development or settle for a permanent state of structural deficit.
The Problem: A $643 Million Reality Check
Let’s be blunt: the city is facing a $643 million two-year structural deficit. You can’t fix that with hope, and you certainly can’t fix it by doubling down on the policies that created the gap in the first place. Revenue from businesses, hotels, and real estate: the lifeblood of the city's general fund: has withered.
The most alarming statistic in the BACEI report isn't the deficit itself, but the collapse of new business formation. In 2017, the Financial District saw 711 net new establishments in sectors like tech, finance, and professional services. By 2025, that number plummeted to 25. That is a 96% decline. We aren't just losing existing companies; we’ve stopped the engine that creates new ones.
The Data: Why the "Remote Work" Excuse Doesn't Hold Up
For a long time, the narrative was that San Francisco’s struggle was purely a symptom of the remote work revolution. If everyone is on Zoom, why pay for a desk on Market Street? But the data suggests something much more targeted.
Look at the employment recovery stats from February 2020 to September 2025:
- Austin: Up 17.4%
- Raleigh: Up 14.2%
- Miami: Up 11.5%
- San Francisco: Down 8.6%
San Francisco is the worst performer among its ten peer cities. If remote work were the primary culprit, we’d see similar devastation in Seattle or Boston. However, Seattle (33% telework) and Boston (31% telework) have recovered significantly better than San Francisco (34% telework). The differentiator isn't the percentage of people working from their couches; it’s the cost of keeping an office open for the ones who want to come in.
Currently, San Francisco’s office vacancy rate sits at a staggering 33%. Compare that to Miami’s 15% or Nashville’s 16%. When a city makes it three times as expensive to operate as its competitors, businesses don't just shift to remote: they shift their zip codes entirely.
The Impact of Measures C & D: A Choice of Direction
This June, voters will decide on two competing visions for the city’s tax future.
Measure C is largely seen as the "relief" measure. It aims to simplify the gross receipts tax further, raising exemptions for small businesses and attempting to stabilize a system that has become notoriously complex.
Measure D, on the other hand, leans into higher levies on the city’s largest employers, particularly those with significant executive-to-worker pay ratios. While the intent is often social equity, the economic reality is that these surcharges frequently act as a "exit fee" for major employers.
At McFadden Finch Holdings Company, we view these measures through the lens of sustainable growth. A tax system that punishes scaling tech companies or thin-margin retailers doesn't just hurt the "big guys": it erodes the entire ecosystem of professional services and community-level businesses that rely on a dense, active downtown.
The Cost of Doing Business: The Outlier Effect
The BACEI report highlights four hypothetical companies to show just how far out of line SF has moved. Consider a multi-national cloud storage company with $750M in local sales.
- In Austin, Raleigh, or Boston, their local business tax is $0.
- In Seattle, it’s roughly $7.5 million.
- In San Francisco, it’s over $24 million.
Why would a growth-stage company stay? The "San Francisco Premium" used to be worth it for the talent pool and the networking. But in a world where talent is mobile, that $24 million gap is enough to fund an entire R&D department in a different state. Even for legacy firms, the math is becoming impossible. A national retailer with $80M in local sales pays nearly double the tax in SF compared to Pittsburgh, and infinitely more than in Austin.
The 2024 reform (Prop M) was a step toward consolidation, but for many office-based firms, it actually increased their burden. We are seeing a pattern where the four cities with the highest business tax burdens are the exact same four that lost tech jobs between 2021 and 2024.
Lessons from the Success Stories
If we want to see what a "reset" looks like, we have to look at the models that work. The BACEI report points to several case studies:
- North Carolina: Cut corporate rates and simplified personal income tax. Result? Multi-billion dollar surpluses and top-tier business climate rankings.
- Indiana: Lowered corporate rates and built a massive rainy-day fund while outpacing regional growth in life sciences.
- Ireland: Kept a headline rate of 12.5%, turning Dublin into a global headquarters cluster for tech and pharma.
These regions didn't cut their way to poverty; they lowered rates to expand the base. More companies paying a reasonable rate generates more revenue than a few companies paying an exorbitant one: especially when those few companies are actively looking for the exit.
The Path Forward: Strategy Over Subsidy
Street-level fixes like increased safety, cleanliness, and "activation" events are necessary, but they aren't sufficient. You can clean the sidewalks all day, but if the office behind the sidewalk is 300% more expensive to operate than one in Dallas, the desk will stay empty.
San Francisco needs a competitive reset. This involves:
- Simplification: Reducing the layered, "alphabet soup" of gross receipts surcharges.
- Competitiveness: Aligning rates with peer cities to disincentivize the "headcount move" out of the city.
- Predictability: Businesses can handle taxes, but they can't handle a tax code that changes every two years at the ballot box.
As part of our commitment to the Bay Area Real Estate Reset, we are advocating for a fiscal environment that rewards long-term investment. Whether it’s through our work in real estate services or our broader investment management, we know that the health of the portfolio depends on the health of the city.
Final Thoughts for the Civic Discussion
The June 2026 vote is a defining moment. If we choose to continue the cycle of taxing a shrinking pool of businesses to cover a growing deficit, the "death spiral" narrative becomes a self-fulfilling prophecy. But if we choose to reform, to simplify, and to compete, we can leverage the city's unique strengths: its AI leadership, its beauty, and its intellectual capital: to build something even better than before.
Here's the thing: San Francisco has always been a city of reinvention. From the gold rush to the silicon boom, we’ve proven we can pivot. It’s time for the tax code to do the same.
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McFadden Finch Holdings Company (MFHC) is a premier holdings and investment management firm dedicated to driving sustainable growth and long-term value. Our mission is to bridge the gap between visionary capital and community-centric development, ensuring tomorrow's infrastructure meets today's needs. Through strategic project management and rigorous market analysis, we empower our partners to navigate the complexities of the California economic landscape with confidence and clarity.
For more information on how MFHC can support your industrial or real estate investment strategy, contact us at (510) 973-2677 or visit www.m-fhc.com
Sources:
- Based on the report "The Cost of Doing Business" (May 2026) by the Bay Area Council Economic Institute (BACEI), authored by Jeff Bellisario and Abby Raisz.
- Employment and recovery data referenced from the U.S. Bureau of Labor Statistics and BACEI internal analysis.
- Fiscal projections via the San Francisco Controller’s Office.
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