the commercial part of the proposal. >> i wanted to make points. and i would be happy to answer any questions that you have. oar provide you details for example on the legislative timeline from here on out.

here on out. >> at our special meeting, a gentleman came upper -- came up , and we used a new example, 65,000 or less, so what about that? >> the question is, is there a way to prevent the pass-through? and the answer is no. under california state law, there is no rent control, and that would likely be perceived as such, but the bottom line, if you are a commercial attendant who is not increasing -- if you are a commercial tenant, not to see that.

we can also talk to the city attorney about potential disclosure provisions about the ballot measure that could make it very clear to tenants that they are not increasing the tax. we are going to continue to explore that, but we believe that there are conversations with the comptroller's office, that that could be an issue in some cases, but not primarily. a lot of commercial landlords have buildings where, first of all, businesses are outside of downtown, in a commercial district, where all of the commercial properties would likely be under the threshold, so that would likely not be the possibilities for commercial rand. one of the possibilities that the other gentleman made et -- for commercial rent. one of the possibilities that the other gentleman made, again, many of those businesses that

were mentioned were already winners under the payroll tax, and it did not in any way mitigates against the benefits of the progressive payroll tax. but i appreciate the question, and it is part of an ongoing discussion. commissioner: would there be language on the legislation to say that it cannot pass through? >> my understanding is at this point, we are not able to specifically prohibit any pass- through. we are looking for ways to strengthen the commercial tenants' hand, to understand ways in which they are or are not affecting the tax responsibility of their landlord, and it is also possible that we could end up making those sorts of

requirements but ordinance, -- by ordinance. disclosure requirements, for example. they would not have to go back to the voters. i am happy to communicate with the commission and with the commission staff as we move forward on that piece of it. president yee riley: yes. commissioner o'brien? commissioner'brien: it is my understanding that they asked the controller's office to a study with respect to the negative effects, exploring ways to change it to a form of taxation that would not be such a job killer. is that correct? >> that is correct. commissioner o'brien: was that

part of the conversation when you were putting together the target objective? increasing the revenue generated into the city budget as part of that process? or was it just not even mentioned? or, you know, how did we get to increasing this revenue to $32 million, with these amendments, has now gone down below $30 million, which is now rather significant. >> i think the chief economist might be able to speak directly to the conversation, but i do believe that supervisor chiu, in conversations with a variety of stakeholders and colleagues looked at the structural budget deficit that the city faces, and seeing a potential business tax reform, and as we as a -- have shown with these amendments,

long-term structural budget deficit, and, frankly, the short-term budget deficit, and looking at the payroll tax at the same time, whether it was any discussion between supervisor chiu or the mayor's representatives or the d-con is, i cannot speak to that directly, but i can say that supervisor chiu was pleased that this has enabled a process which this point what is to a proposal that really is a win-win for the city economy and for the city budget. that is a very challenging outcome. but with regard to that specific conversation, i would defer. >> commissioners, at the start of the process last fall, remember our first meeting. there were some stakeholders who

said what ever you guys do, i wanted to raise $40 million, and there were people who said, what ever you do, i do not want to raise another dollar, because we are taxed enough in san francisco. that was deferred until the end of the process, and everybody recognized that we need to have a conversation about the tax structure. , how much we taxed. then everybody agreed that the payroll tax would be a job killer, and then you could move to a payroll tax or not rely on the payroll tax at all. that could conceivably create a lot more jobs at the revenue level, or it could create a lot more revenue at a jobs neutral level. in other words, my office has a research task, to find a better

task which was -- a better tax. that is a decision for the policymakers, but i think the feeling of the group was there was value in having a research effort identifying a better business tax structure. our report identified proposals that generated more revenue and jobs, but we were very clear in that report that we were not taking sides prepared in millie. were not taking sides. -- were not taking sides. the supervisor initially elected to introduce a tax that had all revenue with the jobs, and now he has brought down the revenue numbers and increased the jobs numbers, but those targets should be, do we need more revenue? do we need to have more revenue? we deliberately deferred until the end of the process because we wanted to identify a better

business tax structure. commissioner o'brien: thank you very much. commissioner: can you explain why you changed it? >> yes. it saves about $6 million to reduce the size of the tax credit. it benefits relatively few businesses, because it only benefits businesses that already pay the payroll tax, and those businesses are already getting a reduced payroll tax rate, and the supervisors' desire was, at as i remembered, and doing it with the commercial pass- through, so our proposal, originally, the idea was that we want to take the burden off of the businesses, in particular give the small businesses to pay the payroll tax a big break, and pass the burden on to all of the businesses that rent. the supervisor has elected to

redistribute that benefit to businesses that might otherwise experience it caught the pass through. president yee riley: the church shows that -- the chart shows that. 2017. that is a long time, six years. some businesses may not even survive. is there something we can do to >> the nature of the businesses, it takes awhile to face that in. -- to phase that in. you know, i imagine that there may be other rates with less revenue in create private-sector

jobs right off of the bat, but i have not gone looking for that. i would point out that in the context of the san francisco economy, we are talking about a very small number of jobs. approximately 50 private sector jobs during the first several years, and that is a fraction of 1% of our jobs in san francisco, and another thing i would stress is because the total employment impact is positive, your overall economic growth in effect, the effect on the city's gdp, is also positive. it is doing that by keeping the public sector at a higher level than it otherwise would be, but the private sector is a large part of the economy. to measure the overall goods and services produced in san francisco every year during this proposal, it would be more than it would be under the current taxes. it would take five years or so for the private sector jobs to

kick in. commissioner: is there any analysis about what does jobs are? where in the private sector does that fall? >> we could certainly provide a breakdown of the employment by sector for each of these years if you're interested in that. commissioner: i would be interested in that. >> the businesses that have a higher payroll experience less of a benefit from the progressive payroll, so they will see higher rents and less in payroll tax cuts, in this would be benefits -- businesses with higher wage workers, and the businesses with a lower wage workers are the ones that tend to pay less in rent and have a lower payroll costs, so they tend to benefit more from the payroll tax cut. commissioner: so would it be fair to say that this would hit the finance sector harder than

maybe the manufacturing sector, or -- >> we cannot pass the financial corporations directly. it takes an industry that we can tax, like law firms, for example, where professional services are our biggest source of payroll tax. it is more than people think. . the one third, maybe 40% of the payroll in that sector is less than $85,000. an industry like hotels or restaurants or retail trade, where most of the work force is below $85,000. there tends to be an expensive i read in downtown building, and they tend to spend more than $65,000 on rent, so they are not going to be eligible for the tenant exclusion, and they will not see much of a payroll tax cut, and they will not get as much of the pass-through.

commissioner: cells of 96 the street or 96 avenue, you rent tax is 3.9% -- south of 96 street. this is because of exclusions, right? >> anytime you compare the san francisco business tax burden it places outside of california, you are immediately struck by the fact that the property tax component is much higher in other places and the other is much lower. commissioner: is there any concern or differential between but this tax rate at almost 2% and that in oakland of 1.4%? >> i think you have to look at the question of competitiveness. the broader perspective, rather than just focusing on one issue. san francisco, and let's be very clear about it, has the highest

tax burden of anyone in the bay area and possibly in california. this does not change that. it does not change it to the better, and it does not change it for the worse, so the idea that you rent tax is higher than in oakland when the payroll taxes coming down does not really affect our competitive situation against oakland. we have always had higher taxes and oakland. we have always had higher taxes than everywhere. this proposal does not change it very much korea note vice president remote change it very much. vice president clyde: it does not change the overall rate. >> in the types of businesses where we are competing, do you want to go to oakland, or do you want to go to san francisco, it will be for those businesses that want to occupy class b

office space, and they may see a tax change. i would not want to put words in his mouth, note -- in his mouth, but the rent tax is one piece. your tax responsibility in the city that are located is only one piece of the reason8, of located a business there. when you are located in san francisco, there are prestige factors, access to a regional work force, the education of the work force. there are lots of other things that draw businesses to san francisco despite the fact we of the highest business tax burden certainly in the bay area. -- the fact that we have the highest business tax. this tax proposal does not significantly shift that one way or the other. even though it creates a new kind of tax. some of this " get passed through. vice president it clyde: i want

to thank you for that. we have to find a way. we cannot keep going back to the same well. hawaii has 4% across the board on all economic activity,é#ú e state of hawaii, everything, from growing food out of the ground to everything. i mean, advertising revenue. >> it is certainly true, commissioner, that some have a very high tax burden and others have a very low tax burden if you compare it around the country, and i would also stress that while 74% of businesses would fall under the small commercial tenant exclusion, it would still work in directly. picking up boat -- in directly picking up -- indirectly picking up some, and it is different than chicago or others. they are also pre-empted under

the california constitution. oakland is competing. financial services. they are doing well, compared to those places. vice president clyde: ok. president yee riley: the chart, the green dotted line, a public sector jobs, wrote -- public- sector jobs, and then what happened? >> what is happening is remember the rent tax is phased in over three years but -- over three years. a second part is collected in 2012, and in 2013, it is at its full level. the payroll tax reduction comes the year after, because we need to know how much rent we have

before we decide how much to reduce before the formula established as the reduction in the following year, so it ramps up begins short baisley collecting the rent tax, and then in subsequent years -- it ramps up because you are collecting been granted tax to -- the rent tax because you are collecting it. $20 million in 2011. $39 million in 2012. $48 million in 2014, and then it starts coming down, and that is because we have fully phased in the rent tax, and we are giving back by reducing the payroll tax, so at 2015, we are at the baseline level, and the lower bracket tax rate is set at that point.

president yee riley: 80. all right, any more questions? -- thank you. commissioner: i have set observations -- i have some observations. oh, dubee a public comment? i am sorry. i was just going to say that the non-profit sector is exempt -- do we have public comment? for the nonprofits that would not be exempt, i would like to know a little bit more about, are they medical services? i think it is important for the public to remember that they are exempt from the payroll tax. i do agree that the higher exempting payrolls under

$85,000, is giving them a lower rate, that is extremely beneficial. i would like to know if by ordinance the community benefit districts, note business improvement, community benefit districts, by ordinance if we can address some of those concerns, because they have agreed to tax themselves for additional services and not rely so heavily on the general fund. i do think we need to look get equalization. it is very difficult when you have got 15 employees, and your neighbor has 23 employees, or you are the one with 23 employees, in youruu neighbor hs it team, to remain competitive in that instance is very difficult, if it is a negative impact on job creation, and that is not with this tax, on both

sides of city hall, i think we really need to look at that, and, frankly, the last five years, since 2004, our small businesses have absorbed the cost after cost after cost coming out of both sides of the aisle, and it is a difficulty for small businesses, competing in the region, coming from both sides, and i hope we can look forward and figure out that even though it will be difficult. , and we should really be looking at that, so those are my comments. president yee riley: public comment? >> at this time, the commission will take public comment, and

public comment will be limited to two minutes. >> commissioners, my whole problem with this is that this is an unfair tax. if i own my building or my neighbor as their building, there is no commercial rand fee addressed to them. -- no commercial rent fee addressed to them. it is very difficult to operate when one area of the city does not pay taxes, another area gets the brunt of all of the taxes. it is unfair. commissioner o'brien, you had it right earlier. we need to address the over bloated budget. what they're paying in pensions as well as current payroll, it will be outrageous. nobody wants to address the issue. they just want to keep taxing. everyone has their own proposal. every supervisor has their own proposal to nickel and dime us

to death, and you have to tell them know. it is time to stop it. -- you have to tellx the city has not charged anybody that is parking on seventh street that should have been paying rent for 10 years. the city has not collected those fees. this is another example that they are not doing their job. yes, they are paying boat, 10,000 more employees than they had years ago on the city payroll -- they are paying more. there is one person or the title is the assistant director of capital planning programming of the city administrator. in the southern neighborhoods, there is an additional tax and fees in the district for them to take care of their own additional cost for rail and regular services that the city

should be paying. until the city can fix their own problems with their bloated payroll and collection, -- corruption, we have to tell them to stop. that is all i have to say. commissioner: i want to ask about a soft cap. does that not help to equalize things? 250 thousands? >> commissioner, i guess the short answer is yes. the payroll tax credit, the $750 payroll tax credit, is a soft cap. it is like raising the small- business exemption because if your tax payment is less than $750, it takes you one way, and if you are a little over, the $750 still gives you a big

break. it is hard to estimate what it costs. how much $65,000 of tenant exemption really matters in terms of revenue the city gets and how much jobs the economy gets. it is hard to guesstimate that, but i would agree it is not preferable to do that, but it is all about the tax code. is everywhere. it has the sorts of incentives. if you are at 251 thousand dollars, you pay 4.1%. it is sort of the same thing around the healthy san francisco thing. there are stories of businesses having serious disincentive with 19 employees and not wanting to grow to 20 in san francisco.

people pay in proportion, but when everybody pays a little bit, then you take away the disincentives around that. bu vice president clyde: it is actually not progressive, because progressive would start at a level and then go up and then go up incrementally as opposed to hitting hard at the level and taken from zero all of the wake up. >> progressive in eight. all of the way up. >> it certainly means higher brackets taking note -- and take you from 0 all of the way up. >> progressive means it takes you up. it is sometimes greatly preferable to do it that way rather than to have everybody with their first x dollars, but

certainly, from our point of view, it is easier to estimate what that would look like. president yee riley: let me ask if there is any more public comment? seeing none, public comment is closed. not commissiono'b -- commissionr o'brien? commissioner o'brien: the work has been done to make the changes, but i think it has come up a little bit short. the people that i speak with on a regular basis are just, they talk about the tax in san francisco, and they compared with other cities with accurate statistics and otherwise.

it does not matter. is perception. this is one of the most expensive places on the planet to try to run a business. -- we are going to raise a war chest. i know that is not a good term. but that is kind of, i think, a big part of the issue that we have with this, you can slice it and dice it a lot of different ways. at the end of the day, you are looking at an increased budget for the city that was originally $34 million, $35 million. i have a concern that we're just going to raise the city budget $30 million when it was originally $34 million. we still have this negative impact on the private sector jobs.