on the right side of this table, the less than $250,000 to stay, the 250,000 to 1 million stays the same, the 1 million to 5 million stays the time. a new bracket from $5 million to $10 million is created, going from 1.5% to 2%, and a new bracket from $10 million above and that goes from 1.5% t 2.5%^ ^. designed in this way, the increase to this tax would almost exclusively go to commercial properties, and in particular office properties in the city. in terms of the fiscal impact of this, the transfer tax is the city's most volatile source of tax revenue, estimating in any given year changes to the tax for the amount of revenue the tax generates always involves a lot of uncertainty. if the tax of these rates had been in effect over the past nine years, in some years the

city would have generated as little as $6 million from this increase. in other years, the city would have generated as much as $90 million. because this is a tax on the upper end properties, and there are relatively few of them, and their volume is quite volatile, this is really the most volatile part of our transfer tax base where this new revenue would be coming from. if you average the experience over the past nine years -- and that's a fairly good record, some good years, some bad years -- the average revenue gain for the city is $35 million. and that's the value that we used in estimating the economic impact of the legislation. as i mentioned, the vast majority of properties affected by this tax increase would be commercial real estate, in particular offices. the effect of the tax increase would be to reduce the value of the property for two reasons. first of all, the current owner of the hospital woul property we

higher a payment on transfer, and the buyer would pay less for the property because they would have a higher tax transfer when they sold it. the higher tax rate would effectively get built into the property value in a negative way. for this reason the seller of a property would not be able to pass the tax on to a buyer during a transfer. a buyer would not be willing to pay more for the property, simply because the seller wished to share the cost burden with them. on the contraction a buyer would be willing to pay less. what that means is the direct effects of the tax is to reduce the value of the assets as currently owned, and to reduce, if you look at the -- at a commercial office building as an asset that has an origin and an ending point, when you buy and sell the property, the overall net income generated by the owner would be reduced by this tax. office owners will respond to that by trying to raise the rents and raise the net income of the assets from their current

tenants. we believe that the market would largely be successful, because this does affect almost every office building in san francisco. they would all be similarly situated in terms of facing this additional tax burden. and in the same way that another tax measure that's before you, the progressive payroll measure has a commercial rent tax component that we project leads to higher rents for businesses, we would project this too would lead to commercial property owners to try to raise rents to recover the value of their asset. so the -- supervisor avalos: supervisor maxwell. i apologize. supervisor maxwell: are you saying, then, instead of them recouping, trying to recoup it on the back end when they sell it, they would recoup it during the time that they own it? >> that's correct, because they can't recoup it at the back end because their buyer would pay less for it actually. supervisor maxwell: they would try to recoup it? >> if you're a tenant, you know,

you have two choices -- deal with the landlord who wants to pass a higher tax on to you or move out of san francisco. in the same way that with the commercial rent tax, although the taxes on the commercial property owner we project that the bulk of that tax will be passed on to the tenant, this works the same way. it's because it affects all the property owners at the same time that you really don't have a choice. if you don't like the offer from one landlord who wants to raise your rent, you go across that street. that landlord is in the exact same situation. >> if we're looking at the bay area, i mean, would that person be very successful in finding somebody that doesn't have a transfer tax or doesn't have some kind of tax that's comparable to this? >> i think the question is, comparing things to the status quo as they are now. they would be successful looking in other jurisdictions, unless those jurisdictions also passed the transfer tax of the same magnitude at the same time. >> but would it be just a transfer tax or is it the value of the property, period?

i mean, our land values tend to be higher than, say, other places, lafayette maybe. i mean, i don't know. >> right. >> supervisor maxwell: it seems they could have the same taxes that we do, but because the base is different it would be lower. >> that's certainly true. the way things are right now some businesses elect to be in lafayette for those reasons. some businesses elect to be in san francisco despite the higher costs. but when you're analyzing the effect of a change in cost, you would expect 32 be some change in behavior on the margins. businesses that said -- and again i don't -- as you'll see from the magnitude of the impact we're talking about, it certainly isn't most businesses or many businesses, but some businesses will say with the additional rent that i'm getting that decision of san francisco versus another place tips the other direction. supervisor maxwell: all right. but it's a modest group that would do that, because they're probably on the margin anyway?

>> that's correct. supervisor maxwell: okay. thank you. supervisor avalos: let's take a building that's $333 million. $500 million transfer tax. there are 100 offices in that building. how does that $5 million get translated into higher rents and higher leases for those offices? how is that spread out over, you know, the lifetime of that lease? what with amount would that be and how significant is that increase on the tenant? how would that range in terms of a building of that size? >> the property owner would like to recoup the $5 million they would eventually pay in additional rent over the life of the building. that's what a competitive real estate market would tend to want to do. i won't try to do the math on the fly.

i would certainly say, based on the employment changes that we're projecting, that rents will rise enough for some businesses to leave, but certainly not most businesses to leave. the main point i'm trying to make here is that every potential landlord that a business would go to in san francisco is going to all be looking to ship their piece of the transfer tax on. and so that is the way in which we would project that the bulk of the tax would eventually be paid by business tenants in the city i'd have to spend time with a spreadsheet to figure out your exact example. supervisor avalos: and at the same time commercial landlord who purchased the building -- could be purchase a value that's at a higher value than the previous landlord, so there's already kind than of a -- on the assumption that the market landlord will be purchasing the

building that there could be additional costs on to tenants because of the new purchase price. >> that's possible, too. although that's not, you know, not directly covered by the policy, so that's not part of our analysis. it's worth pointing out that a seller, despite a higher transfer tax, may be well selling a building at more than what they paid for it. so that income would sort of come out of their property of the income. but it's -- supervisor avalos: that's often the case. >> that's often the case. it's less often the case now, but during good times it certainly is the case. but everything is relative to sort of -- supervisor avalos: people buying buildings now, we expect that will be the case, because they're buying at the trough in our -- >> if they're buying right now, yes. but if you look over the past two years, there have been a number of buildings that have sold at a loss. in any event, it's all relevant on what the expected return on equity was when the building was purchased.

when there's a sudden negative surprise on that, the reaction of the building manager is to say i need to try to recoup that income. if all of them are facing the same situation, there's going to be wide special to raise that money from someplace. it not the totality of the fund paid by the tenant, but the significant share. in our analysis, based on work we did during our business tax reform research, we think about 80% of the commercial real estate that would be affected by this legislation is occupied by renters, and 20% that would also be custody by this legislation is owner occupied. when those owner occupied buildings sell, that just has to be swallowed by the business. there's no one to pass that on to. but of the 80%, again, keeping with our research on the other item, we think that about 90% of that tax responsibility will go on to the tenant.

and so the analysis that i'll present on the next page is basically the consequences on one hand an additional $35 million for the city a year, and, on the other hand, an additional $35 million of expense coming out of the private sector with roughly a third coming from the commercial real estate sector, and the rest coming from industries that are major occupiers of downtown office real estate, professional financial services and corporate headquarters. supervisor avalos: supervisor elsbernd has a question. supervisor elsbernd: thank you. just listening to the comments about how this tax could lead to increased commercial rents i had a thought about posing this question to you about. the analysis you've presented on each of the individual tax analyzes potential job creation, job loss, if that individual tax passes. does the analysis change in any way if this tax and the commercial property tax measure

passes? so you'll have two measures that will result in commercial property taxes -- or commercial property rents going up. do i take a look at how many jobs are created by one, how many are deleted by the other? i would imagine the analysis a little more complicated than that. >> the model that we used to make these estimates i think is more sensitive than that. i could certainly offline run what a combination would look like. i don't think it would be wildly different, but i don't think it would be exactly the same. supervisor elsbernd: thank you. >> so as i was saying, what this impact analysis, which shows the impact we're projecting each year over the next 20 years on public sector employment, on private sector employment, and on the two together, is based on a scenario in which the city's revenue increases by $35 million a year, and $35 million of

higher costs is shared between the real estate sector and sectors which are major consumers of downtown real estate. the impact of the legislation throughout the 20 years, i think it's fair to say in the context of the san francisco economy, is very small. there are about 550,000, maybe slightly fewer now, wage and salary jobs in san francisco. we're talking about between 0 and 250 private sector jobs being reduced in any given year over the lifetime of this analysis. so it's, you know, considerably less than .1% of employment that's at stake here. nevertheless, in the early years, the legislation has a net positive impact as a number of local tax measures do, because the stimulated impact of supporting public sector employment kicks in immediately, it takes a while for the contractionary impact of higher taxes and higher rents to have

an impact on public/private sector employment. so for the first three or four years of the legislation we see a net employment effect that's positive because it sustains public employment in public sector spend, but in time the effect of higher rents on sectors like professional financial services, corporate headquarters, reduces -- basically results in those businesses that we were talking about shifting in the neighborhood of 100 to 200 private sector jobs out of the city. i should also point out, this is not, in no particular year, will san francisco see a drop in jobs of 200 jobs. for example, we've lost about 50,000 jobs in the city since the recession started in late 2008. if the job recovery begins to be robust, we could see 20,000 jobs come back in a year. even if it's not robust, we could see 5,000 to 10,000 jobs come back in a slow year.

in the context of that we're not talking about an enormous number of jobs, but in terms of moving the needle in one direction or another, this is going to cost jobs for the city's economy after 2014. it also has an impact on overall g.d.p. in the city that we estimate is $30 million over a year over the next 20 years. the city's g.d.p. is around $85 million a year, a small fraction of that, but a negative number. that concludes my report. i'd be happy to take further questions. supervisor avalos: supervisor maxwell. supervisor maxwell: thank you. this is somewhat related, but have you done any studies that show what services that cities can do, or that they do, that make people feel or think that this is a part of why they pay taxes? and is there something that we don't do that they don't feel they're getting the value? >> i mean, i think to answer your question directly, i

haven't done that kind of study here. but if i can build on your point, one of the things that we don't consider in our economic impact analysis of tax legislation is what specifically the city does with the additional money that's a budget decision outside of the context of how you get $35 million. than the discussion of how that's spent becomes a different matter. in general it's certainly true that you can't have a healthy private sector unless the public sector is doing things that are -- you know, that a high-performing economy needs. and our economy hinges on the public sector in lots of different ways. so i never mean to minimize that. it's just we can never go into any more specificity than saying in general what's $35 million mean in terms of city employment based on the average salary of a city worker. in general, what's $35 million

mean in terms of the city spending on contractors and the city government as an economic engine. and so the city is a piece -- as it's not the same thing as the investing in a park or infrastructure which might catalyze economic development. supervisor maxwell: dune of any municipalities that do that, some that have a robust public sector? new york that is a whole agency that deals with thei businesses^ . do you know if they do something that gives people an idea of where that money is going? >> candidly, i don't know of cities that do rigorous cost/benefit analysis of what they do. every city has an economic function that's responsive to

business, but i don't think that's the same question you're asking. supervisor maxwell: do you think that's something we should consider, even though businesses don't do it -- i mean, people don't do? is it something we should consider and would it benefit us any? >> it would help the city overall in terms of what are the high impacts. supervisor maxwell: give me an example. >> what's the impact of spending on -- well, i think a park is an interesting example, because it's not a direct business benefit, but it does increase the amenity value. it makes it easier to attract and retain workers, improve the quality of life, and directly is an ingredient to business recruiting. that would be an interesting thing to try to quantify versus investment in expanding bugs transit, for example, which also has business benefits in terms of shortening commutes and

reducing the cost of transporting workers to work, things like that. almost everything that the government does benefits business directly, or indirectly, because it benefits people directly, which are the labor force that drives that business. but i'm not aware of sort of systemic studies. my office doesn't get into the economic impact of specific appropriation decisions. i do think it would be an interesting exercise to sort of look at potential high impact things the city could do. like, what are the things that the city spends money on to have, you know, greater employment benefit than others? supervisor maxwell: thank you. >> okay. supervisor avalos: colleagues, any other comments or questions? we can go into public comment. thank you, mr. eagan. public comment is open on item number two related to the real

estate transfer tax on our special meeting. >> good afternoon, budget and finance committee. i'm walter paulson. ♪ property tax you know it's not new ♪ come on board we're expecting to transfer to you ♪ and property tax won't hurt anymore ♪ and you know there's no tax on a water boat tax shore ♪ and tax money. ♪ want to take it all away ♪ we're gonna see you ♪ you're going to have transfer tax today. ♪ welcome on board the lower tax. ♪ welcome on board the lower budget vote water shore tax ♪ and ever since budget's been

leaving me for the tax i've been wanting to cry ♪ now you know what budget tax meant to transfer tax meant to me-stroke. me ♪ now you know i wouldn't lie ♪ i don't want budget tax to say good-bye ♪ now i don't want budget tax for transfer property to say good-bye ♪ ever since property tax has been leaving me i've been wanting to die ♪ now i want what tax meant to me and i surely wouldn't lie ♪ now i don't want property tax to say good-bye ♪ no i don't want it to say good-bye ♪ supervisor avalos: next speaker, please. >> district 6 neighborhood activist.

of course he doesn't do studies on whether increasing funding for a park is going to create jobs or not, because those studies are almost impossible to tell one way or another. you know, it's one thing one way, one thing the other way. the fact is if this body and the city spends its money wisely and properly, it will create jobs and will be a benefit to the economy. if you do poorly, then you lose jobs. this idea that somehow in 14 years it's going to be a net job killer, well, that would -- the only way that would be the case is if the money was poorly spent. you know, ronald reagan said taxes should hurt. in fact, of course, he was wrong. we try to design taxes that are bearable, that hit people who are the most able to pay. and as much admitted that this tax does that, it hits people most able to pay, it's bearable. when he said the that, was volatile, what was he saying? he said when people have a lot of money, when the money is moving around, that's when this

tax kicks in. that's exactly what you want in a tax. i still think the city could save money by defunding the city comest's line item. supervisor avalos: thank you. any other member of the public who would like to comment on item number two? i will close public comment. [gavel pounded] colleagues, since the plan is supporforward all of these measo the full board i'm fine sending them without recommendation. we could have a discussion there, where we'll give them our approval for the november ballot. so if we're okay to move forward without recommendation? without objection, very good. [gavel pounded] i'm not sure if president chiu is coming for his. want to go on to the parking one? i'll check in with his office. okay. let's hear item number three, please, madame clerk.

[clerk reads item number three] supervisor avalos: thank you, madame clerk. we'll have a discussion of this at the full board as well. this was an item that. chiu presented last week. so he will not be here today to do that. or his legislative aide? >> good afternoon, committee members. judson true from david chiu's office to answer any questions you may have. i apologize for not being here earlier? supervisor avalos: colleagues, any questions? okay, we'll open this up for public comment.

any member of the public who would like to comment on item number three. >> ♪ elvira ♪ my payroll tax is on fire ♪ i need it lowered down ♪ budget money looks like heaven-stroke. ♪ money like payroll tax wine ♪ i sure want that payroll tax lowered to shine ♪ i got this budget feeling up and down my spine ♪ as long as i know that expense tax is lowered down fine ♪ elvira elvira ♪ i want the tax down ♪ snow please fire the tax down ♪

supervisor avalos: okay. if there are no other members of the public to comment on item number three,we will close public comments. [gavel pounded] motion to move forward. colleagues? okay, without objection. to the full board without recommendation. and madame clerk, if you could mideast call item number four. [clerk reads item number four]

supervisor avalos: thank you, madame clerk. supervisor mirkarimi. supervisor mirkarimi: thank you, chair avalos. like the other tax measures, i look forward to continuing this discussion at the full board. i believe that we had, i thought, a thorough review over the last two committee hearings. this of course is adding a 10% bump to the parking tax as well explained, i think, by the city's economist, economic analyst, as to how there would be various impacts, positive, and where our revenue would also be generated, upwards to about

$17 million to $20 million. we're following on the -- on the lessons learned from proposition r, passed in 1980, the last time that san francisco had passed a parking tax, so 30 years ago, which was it was increased from 15% to 25% in 1980. interesting that all the same arguments that we've heard in opposition to the -- or doubt or concern about the current tax that we're proposing are literally mirrored in the arguments in 1980 to proposition r, which is then placed by then mayor feinstein and supported by

so with the ones expressed back in 1980. i have asked the treasurer's office if they could come and speak briefly for one thing. there has been assertions by a number of the parking garages that the city is not doing the job that it needs to do to try to recover funds from the nearly 550 funds that exist. a want to keep in mind the reality. i have asked the treasurer's office to provide for me what the recovery strategies are and what the numbers look like. it has been asserted that there is upwards of $20 million of

unrecovered funds and that have to be substantiated by an audit and to the accounting of where those dollars are. let's get into the precise math. >> think you. i am happy to be here to talk about the parking tax collection. i would like to address the questions that were brought up and talk about the data that we have. that is something that we know about. i would like to show what is on the overhead projector. what this shows is that our audit practices. there are two lines here, the first