to make sure san francisco is being fortified in being competitive, securing, recruiting benefits without a giveaway so that it does not subvert what the original intent is. at the same time, i think requiring us to be very clear of what those long-term ramifications are. speaking of which, and this has been floated out there too, does this in some way put us in a defensive posture if other companies should suggest it is a cost-prohibitive city, which is well known, probably one of the most majestic on the planet, cost prohibitive, san francisco. should they get into a similar conundrum on whether to locate or relocate from san francisco, how do not bind ourselves

potentially in a similar discussion where all of the sudden we have got to reconcile the hardships of what it means, stay true to our principles and values, and not succumb to the kind of pressures that would put us in that defensive or reflective position and make it clear that this is a deal that would be treated unlike others. i have not heard a clear answer to this prospect that may happen. >> that's a great question. let me add to the first part before i answer it the second part, which is about the long- term ramifications of this. i do not foresee a scenario in which twitter is receiving some sort of tax windfall from the city. my feeling is based on our analysis, if this legislation is not enacted, it would level the

playing field between us and the san mateo county locations and the city loses all of their future payroll tax revenue and future payroll tax -- at current payroll tax revenue. let's say they get bought and relocated. it is still a benefit because you have two or three years of twitter acting like a magnet. if the legislation is amended, the only risk you are stuck with his one large building that does not have twitter, that has this exclusion and something else goes in there that it's a payroll tax cut that does not have the same economic development impact as twitter. that's the only risk. to your second point, we can tell that businesses are more likely to move out of san francisco than they are from other bay area locations. we know that san francisco's business attack -- san

francisco's business tax are higher than anywhere in the bay area. the challenge the city has to have if it does not want to get into a situation of we can only be competitive by being taxed- competitive this to be competitive on other things. for example, we did not just look at rent or taxes in what is twitter's decision cali look at how easy is it for them to get labor in some detail as opposed to san francisco. there is great transit access and transit is a cheap way to travel. but the way it works in the bay area is it is also a very slow way to travel. so consequently, even though it is well-positioned for in the structure of getting vast numbers of people there, the net is it is no greater advantage than being in a suburban office park in sierra point or on the san bruno mountain. so those are not tax measures

that affect san francisco's business competitive the city can work on without getting into a situation of our taxes are higher than $50 per employee and we will never compete. to your point about one business at a time, i think that's an important caution. it's one of the reasons we are recommending the city take comprehensive look at this issue of stock options and what it does to the payroll tax liability of a successful technology companies. it seems less than optional -- less than optimal that every time a big company threatens to leave to do it big district or small district or any sort of policy measure just because of them. it feels better from a policy point of view to say this is our business tax policy, we are confident in it, we think it makes it competitive given what you get in san francisco, and some people will like it and some people will not. we're comfortable with what ever the outcomes are.

supervisor mirkarimi: then why didn't the comptroller's office lead with this particular remedy if what is before us come up with other companies that have left or threaten to leave san francisco or want to come here but not locate? the only time we really have anything on some similar course is with the biotech industry. with the biotech industry, we incentivize a particular alleviation of credits and yet it's not clear if that nexus shows if biotech did come to san francisco because of that particular alleviation, correct? >> what we know about the biotech tax credit is following the adoption of that tax credit, the city reasonably quickly got a higher share of regional biotech activity that had it passed. disentangling the tax credit

from build out at mission bay is challenging to do and that's what our report concluded. frankly, i was aware of this issue of stock options of the payroll tax until i received this legislation and looked into the issue. it has not come up in our previous economic impact reports and that's the reason why it is a recommendation now. supervisor mirkarimi: on the amenities services, to make this a very attractive package, there have been references made about the need for dedicated muni line or some specialized service, enhanced policing, those services. i think a statement was made and they said that the system does not work in this neighborhood. my response to that is i think the system does not work in a number of neighborhoods in san francisco.

i can make the same argument through this level of confusion to resources in those neighborhoods as well. but what is before us is mid market. how do we know that by then giving this kind of special treatment, this upgrade of services that this is exactly what is really part of the formula that is needed as well? and back to the budget analyst controller, when you come around to it, i did not see anywhere in the analysis and assessment of those services in the financial analysis before us. it certainly was not part of our report of the additional cost and with a budget analyst speak to those costs. >> i think they can speak specifically to the impact here, remember what we're talking about doing is building a vacant

office space that already exist. to the extent infrastructure is in place to serve buildings that have been constructed in the past, i would not anticipate there would be a significant new requirement before city operations or infrastructure as a result of filling these offices if we are talking about developing major new towers that would require major new and the structure, that might feel different. but what we are talking about here is filling vacant space that has existed in the past and will exist tomorrow. supervisor mirkarimi: is a proportional to the office space that is commensurate to the police services? i'm not sure i understand. >> my point is i know we do talk about the incremental service impact of land use decisions that are before you. often, we are quantifying in those cases where we are

building out part of the city or building up part of the city that is not currently served by infrastructure. with that density in mind, we talk about this at treasure island and hunters point shipyard where there is not infrastructure designed there to accommodate the expected future the new development holds. in this case, we're talking about the urban core and talking about filling office space that has existed in the past and presumably for which it the structure in the past was designed to serve. supervisor mirkarimi: feel free to now or later if you like. >> i would like to address the supplemental transportation and police services. in our conversations with twitters to relocate, they expressed concerns are around safety and transportation. we sought to address those

concerns by looking at what the city is currently planning on doing in that area regardless of whether or not twitter occupies the building. one is the service restoration from the express bus to the caltrans station to the civic center that was approved completely independent of the possibilities of that building in december of 2010. that is subject to budgetary appropriation in the budget but it was a service restoration independently approved that we brought to their attention that would probably benefit a great number of their employes that come up to the peninsula by providing service to very close to the sf mart. if twitter or another employer brought thousands of employees to that building, our office would advocate for funding that line because we would see increased use for it. the offer was to extend the

existing patrol that and that market and ninth street, one block with existing revenues. we said when you move in and if your tenant improvements are completed, we will work with the police department to expand the existing program by having those foot patrol officers walked one additional block. we did not anticipate it would have a general fund or any other revenue impact. supervisor mirkarimi: it was also reference to a police substation. >> the police substation has been long in the works. it's completely independent of the tenant and something the community has been desperately seeking to address crime concerns on -- in the neighborhood. the substation -- as supervisor kim is aware, would be located on sixth street. it's a partnership between the police department and funded by the redevelopment agency subject to approval independent of these

conversations and would allow police officers working in that neighborhood to not have to return to southern station to perform their police duties. supervisor mirkarimi: as a longtime champion of foot patrols, it's music to my ears, but it is an unneeded assessment because when we hear of the distribution of police forces that are desiring and instructed to walk beats, i think is pretty erratic whether they are walking beats in the neighborhood and it seems to be much more disciplined of a structure they are doing in market street. i caution this conversation a little bit because it just shows up bit of an uneven rationale in how we are doing this. we just recently had a hearing last week. three and half, for our hearing on the policing. the chief and his staff testified that of the 80 foot

beats they have the city wide, and they are not contiguous, that is the ones of approximately 25 of that 80 that are all signed down to market street in that perimeter of downtown. i just want us to be careful that if this is part of the package then that should be analyzed accordingly. and it is not analyzed. >> it is not part of the legislation whatsoever and the legislation is not contingent on expanding foot patrols or budgetary allocations for a previously approved muni line. supervisor mirkarimi: it obligates us more because its part of the presentation. when this part of the presentation, you cannot make a go through the revolving door of what is best happening and will happen at the same time twitter

is born on market street or as a result of twitter going in. i feel we have to follow through on that analysis which has not taken place yet. >> we worked with an eta on making the statements -- we worked with mta on the statements we made regarding the foot patrol. we worked with twitter and staff. supervisor mirkarimi: i appreciate the time, colleagues, on asking these questions. i will wait to year from budget and i will return to some more. >> i have a couple of questions. i want to thank you for your comprehensive report and the work you have done on this and i want to thank this public and the community that have been a engaged in conversations in recent months. this is an important discussion we're having, hopefully for the future of the city.

want to follow up on the conversation you had with supervisor mirkarimi around some of the programs yet had in the past and understanding why this is different. my understanding is there are two reasons that i want to make sure i get this clear. if this were the only policy initiative we are doing in that central market area, you probably would not recommend it. but given how many we attempted in this area that have not led to economic fruit or economic development or jobs in the area, you do think that's a reason that distinguishes what we're doing from other traditional enterprise zones in the past? >> that is correct. the research proves more beyond a doubt that enterprise zones alone have a very spotty track record. president chiu: a second reason

this is different from other enterprises own projects is we have had numerous properties in the area that have remained vacant for many years. from my standpoint, if we do not do this, we will continue to see many more years of vacant buildings. but i wanted to ask you to comment on that. >> i think that is certainly true. a big that's a distinguishing feature of this area. almost by definition, there is a dysfunction or a broken system in place in depressed areas within cities that see disinvestment instead of investment. it is particularly stark in central market street where you are a couple of blocks from being in square. it raises questions, but i don't think it's unique about this area. you might consider this policy along with other things for this area. president chiu: another topic i

want to get more understanding -- imagine our city has a history of retaining growing businesses. i was struck by some of the figures you have on the rates of business move out comparing san francisco to other big counties. in san francisco, we have had literally in the time you look at colin double the rate of business move out compared to santa clara, 50% higher compared to alameda county. could you talk about that they and some of the reasons why you think that might be the case? >> there is a data set out there i believe called the national employment -- president chiu: the national employment time series. >> the data is done at year after year and allows you to study the size and location of individual companies from one year to the next sequentially.

what allows you to do, and i would credit your oversight effort the data i got, but it allows you to see on companies that were there in your 1 who were not there in year to by location. this is analysis i did for each of the bay area counties. it shows san francisco with a much higher percentage, double santa clara county's move out. there is one of immediate obvious answer an economist would give added is only partly right. it is that san francisco is more expensive. when companies become a certain size, they look for more mature businesses, more self-contained businesses and they don't need to be in a dense, urban center anymore and they get to alameda or solano county. if you are already there, you are less likely to move again.

that does not explain why we have such a high-risk move out rate. frankly, a lot of places are more expensive than san francisco. we do not seem to have those non-cost factors that hold businesses here that they do in santa clara county whereby you have businesses in that county with multiple thousands of employees in one place in that county even though it is a very expensive place. there is something about san francisco -- maybe it's just a stage of evolution of our technology industry and we are in a state of transition, but we do not have those attractiveness factors. we are great at attracting talented people and grated having talented people start companies, but once they get to the size of major enterprises, we are not as good as keeping them here. that goes back to some of the

major infrastructure backers as well as other companies. president chiu: i would like to explore what other things we can do to retain the company's their birth tear and grow here, but seem to when they get larger, flee to other counties. one topic that is a big difference between our county and others is we are the one city and county in california that does levy a payroll tax. you have studied this last year, looking at the payroll tax and is not an efficient tax to in cent job growth. can you talk about that for a moment? not all of my colleagues were here when he presented that study last year. could you talk about some of the issues with the payroll tax more generally? >> certainly. in that research last year, we looked at columbia economic and fiscal impact from changing the

1.5 -- looked at the up fiscal and economic impacts changing it from one plan 5% and switching it to a more progressive payroll tax with a gross receipts tax on commercial rents or a wholesale replacement of the payroll tax with the gross receipts tax including commercial property owners. the crux of the economic benefit and one of the interesting things, at your request, a supervisor, was we were trying to increase jobs and be an economic benefit to the city and raise revenue to this city. this was only possible because the payroll tax was a particularly discouraging tax because of falls directly on the price of labor. if we were to say, for example, and i am not recommending this, a flat for business tax, that would not encourage businesses to do one thing or another as opposed to hiring. but when we say we are going to

tax your labor bill, that tells companies i'd better keep my labor bill down. when the list that tax, you get i am no longer this incentivized to hire people and there'll be a job boost from that. if you find the revenue from something else that's less discouraging of hiring like commercial rent or inputs or gross receipts, you can receive more -- you can achieve more net hiring or you can achieve more revenue and net hiring. our report did investigate ways which you could find fiscally better economic alternatives to the payroll tax. i just want to say that the focus goes on the payroll tax and i don't think that's mistaken, but i would not want anyone to think i believe the payroll taxes a major reason businesses leave san francisco. labor costs are significantly higher in san francisco than the rest of the bay area counties.

that goes directly to housing costs. if housing is expensive, you have to pay laborers' more who work here. it's not clear that transportation is the advantage it could be. at adds to cost as well. there are a number of things, including the payroll tax. president chiu: one last question -- i know folks have been concerned this particular tax policy will lead to a hit to the general fund. what i have been saying until i saw this report was i expect it to be neutral. if a company like twitter or other companies leave and are not creating employment in vacant buildings, zero times 0 equals 0. one of the statistics i was surprised to see is you believe if twitter does stay here, and there is a cluster of technology companies around the central market area, you expect to see

$2.7 million per year on average additional payroll tax growth over the next 20 years. that does not include amount related to additional sales tax, hotel tax, utility user, or transfer tax revenue. could you estimate what those numbers might be? >> i cannot estimate those numbers that want to place too much credence in the exact numbers. it is very clear that based on our analysis, this would create jobs on a net basis. because it creates jobs, it create tax revenue associated with job growth, hotel tax, utility tax and so forth. the real question is since you are using the payroll tax and an exclusion from the payroll tax to generate growth, does it hurt payroll tax specifically or not? our assumptions are not based on any crystal ball but on a wide range of potential futures.

we make more payroll tax revenue in the long run than we give up in the short run because attracting twitter to the area leads to economic development and higher payroll tax revenue in years seven and beyond that we could expect to otherwise receive. we could further increase that benefit by following the recommended amendment we have in relation to the large commercial properties. >> thank you. supervisor chu: why don't we go to the budget analyst report? >> we have a rather detailed report. i will try to be brief and summarize a few of the highlights. on the top of page seven, we state that assuming twitter was able to relocate into the central market tenderloin area and there is no change in the average annual twitter salary,

this would result in over a million dollars of payroll expense taxes to the city in 2012 and approximately $4,054,500 in 2013. this assumes twitter would remain in the city without payroll tax exclusion. if the number of employees at twitter remains relatively stable at approximately 3000 employees, when the payroll tax expires, twitter would pay approximately a total of $4,590,000 annually to the city. we also point out on page 7 that under the proposed ordinance, of twitter relocated to the central market and tenderloin area and went public with an six years of their participation, the proposed payroll tax exclusion would be a value of such stock

options as has been indicated would also be excluded, such that twitter would only pay their base per -- based payroll tax of $535,500. on the bottom of page seven, we point out some administrative costs that would be incurred if this legislation isn't -- if this legislation is approved. there would be some one time costs from the tax collector of $162,000. in addition come on an annual basis, approximately $186,000. we have one recommendation i will mention in a minute to address that. on page eight, we state that if the proposed payroll tax exclusion is not approved, twitter may not stay and grow their business in san francisco such that san francisco would lose the estimated $535,500 in annual payroll taxes and -- that

twitter currently plague -- that twitter currently pays to the city. if twittery to the central market and tenderloin area and grows there business, the proposed payroll tax exclusion, and if that is approved, the city would forgo up to $4,054,500 in excluded payroll tax annually overall for the sixth year time frame that twitter could obtain the payroll tax exclusion, this could result in a little over $22 million of foregone payroll taxes to the city. then we state it twitter relocates to the area and grows there business as has been previously discussed, after twitter receives the payroll tax exclusion, the city would begin to receive significantly greater peril taxes from twitter.

with respect to your question, supervisor mirkarimi, about services on the top of page nine, we stayed in negotiations with the office of economic workforce development, that office has agreed to address twitters concerns regarding public safety, neighborhood conditions, and a central market in the tenderloin area which could result in additional costs to the city. 8 -- the police department has agreed to expand its foot patrol to 10th street and in addition, the mta has been requested to provide a non-stop express service during prime commuting hours between the caltrans station at fourth and king streets and the civic center bart station at ninth and market streets. t