Tech CEOs are staying out of a fight to fund California schools — except for Zuck

Every year since she moved to San Francisco, Google engineer Rachel Myers has tried to do her homework before Election Day. "Every time it's time to vote in California, I'm like, 'Oh my god. There's so much work to do,'" she said.

So she was enthusiastic to make a very early start when, in January, a friend of hers invited her to brunch with a small group of fellow tech workers to learn about a wonky and controversial ballot measure coming up for a vote this November called Proposition 15. "It seemed like a very unique opportunity," Myers said.

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The brunch, it turned out, was being organized by a nonprofit called TechEquity, which urges tech employees to back policies that it believes will make the tech economy more inclusive. Proposition 15 is one of those policies. It would close a decades-old loophole that allows businesses to pay taxes on the purchase price of their property, not its current market value, and would use the new tax revenue to fund schools and local communities throughout the state.

It might not seem obvious why the tech industry would have a stake in that fight. But to TechEquity's Executive Director Catherine Bracy, the case is clear. Because the majority of tech companies are young and haven't owned their property as long or don't own it at all, Bracy argues the current loophole means they're effectively subsidizing the property taxes of California's legacy behemoths like Walt Disney Studios. And that's all while the schools that tech workers send their kids to and the public infrastructure they (at least used to) use to get to work remain dramatically underfunded.

"All the investments any company needs to grow well and sustainably in transportation and public education and basic public services aren't happening at the same rate or level as the growth is happening, so the growth becomes unsustainable," said Bracy, who ran President Obama's tech field office during his 2012 presidential campaign. "On the back end, tech is getting blamed for all of the social ills and the affordability crisis we face. So they're getting it coming and going."

Catherine Bracy runs the nonprofit TechEquity, which organizes tech workers around policies to make the industry more inclusive.Photo: Getty Images for TechCrunch

Bracy and her team have spent the last year organizing house parties like the one Myers attended, recruiting tech workers to phone bank on behalf of the campaign and trying to convince some of the biggest names in tech to endorse the measure. The pro-Proposition 15 campaign has already received small donations from employees at Tesla, Apple, Google, Lyft, Square and a cross section of smaller tech startups.

We've seen decades of disinvestment in local communities in California.

But rank and file tech workers have been far more receptive to the message than their billionaire bosses in the industry, who have been notably silent. That is, with one exception: Facebook CEO Mark Zuckerberg and his wife, Priscilla Chan, have become some of the biggest financiers of the campaign, contributing more than $6.3 million to date through their philanthropic group, the Chan Zuckerberg Initiative.

"We've seen decades of disinvestment in local communities in California, and now with COVID-19, we're seeing schools struggling, hospitals and clinics struggling, and local services struggling even more deeply," Chan told Protocol in a statement. "This proposition is a major opportunity to unlock a stable stream of resources for our communities that need it most."

Bracy is trying to push Zuckerberg's fellow tech CEOs to at least endorse the measure before November. If they really mean what their press releases this summer have said about making the industry more just and equitable, her pitch goes, backing Proposition 15 would be one way to prove it.

Battling billionaires

It wouldn't be unprecedented for tech leaders to stick their noses into this kind of local civic activism. In 2018, Salesforce CEO Marc Benioff and Twitter CEO Jack Dorsey famously squabbled over San Francisco's Proposition C, which imposed a gross receipts tax on businesses in the city to fund homelessness services. Benioff, who vocally supported the measure, accused his fellow billionaires who opposed it of "hoarding" their wealth and being unwilling "to be a San Franciscan." Dorsey, meanwhile, argued that Proposition C wasn't a systemic fix to the problem and was just a "quick ac[t] to make us feel good for one moment in time."

Neither Dorsey nor Benioff have taken a position on Proposition 15. Salesforce declined to comment for this story. Twitter spokesperson Giovanna Falbo also declined, noting that Proposition 15 "applies to commercial real estate, and we lease our space."

To Bracy, this reticence isn't uncommon. She said she's "had conversations with most of the big companies who own land and who lease office space" in the Bay Area, and has gotten nowhere. At the same time, those very companies have been donating to charity and setting goals for making their companies more inclusive. Salesforce recently committed $20 million in grants to schools, including in Oakland and San Francisco, and Dorsey personally contributed $10 million to help Oakland schools buy remote learning equipment.

"That is laudable," Bracy said. "But what they can do on their own pales in comparison to the money that would be raised for schoolchildren across the state by reforming this property tax loophole."

Closing a loophole

Proposition 15 would raise as much as $12.5 billion a year for schools and local communities. Of that, as much as $800 million a year would flow to San Francisco County. Proposition C, which passed but has been tied up in court, raises less than half that. The new ballot measure would raise these funds by changing a law that was created in 1978 through another ballot initiative, Proposition 13.

Proposition 13 allows property owners to pay taxes on the purchase price of their property and only reassesses those taxes when there is a new majority owner. That has enabled savvy investors to skirt tax hikes when purchasing new property. One oft-cited example: In 2006, tech billionaire Michael Dell bought Santa Monica's Fairmont Miramar Hotel with his wife and two investors, structuring the deal so that none of them owned more than 49% of the property, thereby avoiding an extra $1 million a year in property taxes.

Proposition 15 would change the part of the law that applies to commercial properties, leaving the residential loophole alone. Under the new law, beginning in 2022, commercial and industrial properties would get reassessed every three years, rather than when they're bought and sold. It would exempt small businesses with less than $3 million in holdings in the state. It would also exempt agricultural land, though opponents say it would lead to tax hikes on "fixtures and improvements" to farmland. The pro-Proposition 15 campaign, Yes on 15, estimates that just 10% of businesses in California would end up paying 92% of the new taxes.

California teachers unions, labor groups and virtually every mayor in the state support the measure, as does California senator and vice presidential nominee Kamala Harris. Meanwhile, business groups like the California Chamber of Commerce, real estate investors, agricultural organizations and a range of civil rights organizations including several branches of the California NAACP have come out against it. They argue that while its intentions may be good, the measure could crush small businesses because landlords would pass the tax hike on in the form of rent. "We're concerned about its impact on Black business owners," said Tecoy Porter, California state chair for the civil rights organization National Action Network. "It may drive out businesses that are already being impacted by COVID."

Yes on 15 takes issue with that point, arguing that the market is what ultimately determines the rent. "What we see right now is two buildings side by side that pay wildly different property taxes, but pay the same in rent," said Alex Stack, head of communications for Yes on 15. "You're not going to get a deal from a landlord because he pays lower property taxes."

The pushback from businesses is one reason why Stack says it's so important for tech leaders to speak out on this issue, given that, with some exceptions like Intel and IBM, the majority of them aren't currently reaping the benefits of the loophole. "They carry a lot of weight in the state, and they are a huge driver of the economy in California," Stack said.

Zuckerberg's millions

Mike Troncoso, head of justice and opportunity at the Chan Zuckerberg Initiative, said backing Proposition 15 was a no-brainer for the organization, which focuses on criminal justice reform, housing affordability, immigration policy and education, among other things. "It turned out we couldn't not get involved," Troncoso said. "It touched on every single one of those issues."

Through the Chan Zuckerberg Initiative, Mark Zuckerberg and his wife, Priscilla Chan, have donated more than $6.3 million to the Proposition 15 campaign. Photo: Ian Tuttle/Getty Images for Breakthrough Prize

CZI made a series of small grants to the campaign in 2018, followed by a $1 million contribution in 2019. In July of this year, after the measure qualified for the November ballot, CZI poured another $4.5 million into the effort. "We went into it eyes open that this was a significant and very impactful policy campaign," Troncoso said. "This isn't a place where you can nibble and give $100,000 and virtue signal. This is one where you really just have to do the work."

This funding hasn't guaranteed Proposition 15 a victory. A December 2019 poll of likely voters showed 58% of respondents supporting the initiative. By April, after the COVID-19 pandemic began, that figure fell slightly to 53% in polling by the Public Policy Institute of California. Recent internal polling from the Yes on 15 campaign reviewed by Protocol showed a similar figure. It's possible that the pandemic and ensuing economic crash have reoriented voters' priorities, making them more wary of boosting taxes. But Troncoso believes the pandemic has only made this type of action more essential.

"All of the preexisting inequalities communities have already been facing are going to be multiplied by 10, and are going to be multiplied not just now, not just this year, but for years to come," he said. "This seems just as important if not more important than it was before." Indeed, a recent poll found a whopping 76% of Latinx voters support the measure.

Despite his philanthropic donations to the campaign, Zuckerberg has yet to say anything publicly about Proposition 15, and Facebook declined to comment, referring Protocol to CZI instead.

So far, according to Bracy, the only tech company to publicly support Proposition 15 is Postmates. In this fight, at least, that makes the delivery service an unlikely ally of the very labor groups it's battling on Proposition 22, another ballot measure that would make some gig companies exempt from classifying drivers and delivery people as employees.

"We have a vested interest in ensuring everyone who lives, works and goes to school in the state of California is able to be successful," said Vignesh Ganapathy, head of government relations at Postmates. "If having a sustainable tax structure for the state can contribute to that, we're all on board for it." Ganapathy said in addition to its financial contribution, Postmates is working on hosting seminars and roundtables for employees related to Proposition 15.

The haves and have-nots

Even if tech CEOs aren't buying Bracy's pitch — not enough to do anything about it, at least — it seems plenty of tech workers are. To them, Proposition 15 is one way to correct inequities in the Bay Area that they have largely benefited from.

Tesla engineer Auros Harman said he decided to donate and collect signatures for the campaign because he doesn't want California to "develop into a place where we have a landed gentry, lording it over a serf class of renters."

Theodore Hong, an iCloud engineer at Apple who donated to the campaign, said he heard about Proposition 15 from other parents at his kids' school. "We live in a well-off district where the parents can raise money, but there are a lot of other schools that are less well-off, and they can't," Hong said. "Those kids are missing out."

The only way we're going to fix that toxic civic dynamic is to get tech workers participating.

According to Megan Abell, TechEquity's director of advocacy and a former member of Airbnb's public policy team, getting tech workers involved in these issues is critical to bridging the yawning divide between the haves and have-nots in the region. "I've seen how my friends born and raised in the Bay Area have a lot of resentment for the tech sector," Abell, who grew up in the Bay Area, said. "I think the only way we're going to fix that toxic civic dynamic is to get tech workers participating and working shoulder-to-shoulder with other folks in the community that come from different backgrounds."

That's what ultimately drew Lillie Chilen, a software engineer at the startup BackerKit, to the cause. "There has been a lot of benefit to having so much tech money here, but there have also been a lot of drawbacks," Chilen said. "It's really helpful for individual tech workers as well as tech companies to come out to try to help make the Bay Area and California as a whole a better place to live."

So in January, she decided to co-host that TechEquity brunch and invited her friend Myers to join. For Myers, the experience was eye-opening. She'd heard about Proposition 13 in the past, but hadn't considered how it might be contributing to the inequality she saw every day in San Francisco. She left that day determined not only to vote for Proposition 15, but also to contribute to the campaign.

"I like Baby Yoda as much as anybody else," she said, "but I think Disney can afford to pay property taxes."