supervisor chu: hello.

welcome to the regular meeting of the budget and finance subcommittee. my name is carmen chu, chair of the committee. unjoint by supervisors -- i'm joined by supervisors mirkarimi and kim. >> please turn off cell phones and pagers. if you wish to speak during public comment, please fill out a speaker card and had them in to myself. if you wish to submit a documentary committee, provided documents to the clerk for the file. items before the committee today will appear before the board of supervisors on march 30, unless otherwise stated. supervisor chu: thank you very much. quick announcement to the public -- i apologize, but i intend to call item 6 before i call items four and five, so i just want to make sure people know. can we go to item one please?

>> item 1, resolution designating those agencies qualified to bridges of it in the 2011 annual joint fund- raising drive for officers and employees of the city and county of san francisco. supervisor chu: thank you very much. >> good morning. i'm from the office of the city administrator, and we again reviewed the application, same as last year, for participation in the fund-raising drive as outlined in the resolution and the letter from the acting city administrator. we found all to be in compliance. supervisor chu: thank you very much. are there any questions from the committee? why don't we open this item up for public comment? are there any other members of the public who wish to speak on item 1? seeing none, public comment is closed. do we have a motion to send this item forward? supervisor mirkarimi: motion to advance recommendation. supervisor chu: we can do so

without objection. item two please. >> item two is no longer under the jurisdiction of the budget and finance subcommittee. it was acted upon at yesterday's board meeting. supervisor chu: thank you very much. there was a special meeting called of the subcommittee. this item was heard yesterday at 12:00 and was acted upon by the full board of supervisors in our special meeting of the board, so this item is no longer within the budget and finance committee's could fall. item three please. >> item three, ordinance de- appropriating $15,479,251 of market rate general obligation bond proceeds and re- appropriating $15,479,250 to the below market rate seismic safety loan program in the mayor's office of housing for fiscal year 2010-2011 and maintaining on controllers reserve the

appropriation equal to the unsold portion of the bonds. supervisor chu: thank you very much. >> good morning. i'm from the mayor's office of housing. we are requesting the de- appropriation of $57 from the market rate will to the below market rate loan program primarily because that is the use a loan program -- of $15 million. we are being requested to do this at the request of the controller's office. supervisor chu: thank you very much. this is primarily a de- appropriation from market regional bond proceeds to appropriate the below market rate seismic safety program. just a question for the office of public finance or perhaps mayor's office of housing -- whoever can best answer -- does this have an impact on property tax rates?

>> good afternoon, supervisors. [inaudible] i missed the question. supervisor chu: the question was -- the allocation of moneys from the market rate allocation bonds to the below rate market program -- the question is, because the below market rate seismic safety loan program is actually a subset is program, whether we expected to be an impact on the property taxes. >> yes, we do. the $360 million was authorized. $150 million loss for affordable housing. because the repayment of that was 1/3 of the interest costs, it has always been anticipated there would be an impact. supervisor chu: we had heard from an individual that there was a raging assumption in the

capital plan that assumed we would be levying property taxes in order to pay this. is this true? >> that is true. >> -- supervisor chu: we had assumed the market rate bonds would also be levied with property taxes? >> yes. in most instances, where historic fleet, it has shown that there is more below-market- rate loan demands then there are market rate load demands, so we had assumed the bulk of the $35 million would be below market rate loans. so that was reflected. supervisor chu: why don't we go to public comment quickly on this item? are there members of the public who wish to speak on this issue?

are there any members of the public who wish to comment on this item, item number ? seeing none, public comment is closed. colleagues, the item is before us. i wonder if we could entertain a motion to send the adam out without recommendation at this

time simply because i have some follow questions from the office of public finance, but i also do not want to hold up this item. supervisor mirkarimi: motion to advance without recommendation. supervisor chu: without objection. thank you. now, item six, please. >> item 6, ordinance amending article 12a of the business and tax regulation code to establish a payroll expense tax exclusion for businesses located in the central market street and tenderloin area. supervisor chu: thank you very much. this item is brought to us by a number of sponsors. supervisor kim, would you like to speak on this item before we begin? supervisor kim: yes, thank you. today, we are going before the budget committee with legislation that is going to incentivize small businesses to create new jobs. it does so by enacting a tax

exemption for any new job created here in the city and county of san francisco, for businesses that locate in the mid-market and uptown tenderloin area. we do have a number of amendments that we will be introducing today, which i have made copies of for the supervisors, and we have additional copies if anyone else would like to see it, to kind of unsure that the tax exemption if exemptionis -- that the tax exemption is targeted as possible to the result we would like to see. they-market is an area of san francisco where we see the highest vacancy is of any neighborhood in san francisco, close to 31% -- they-market. we have over 300 square feet of commercial real estate. we have many small businesses that struggle with additional costs, and we think that

bringing more employees to the area will not only increase public safety and foot traffic, but will also have a multiplier effects in terms of businesses succeeding with additional clients through sales tax, and also increased property tax through values. it is also a limited tax exemption. it is only for six years. this is a time where we are not seeing job growth because of the economic downturn. we are not doing this during a time when the economy is doing well. it is to create new jobs during this time. we think it is a temporary and targeted enough tax exemption that it will create the outcomes that we would like to see. i would just like to say, personally, the challenging legislation for me, it is an outcome i would like to see in the city, but it is a tool i did not like to see used. i completely understand the concerns that people have about using our general fund to subsidize jobs, but i want to

clarify that we were careful in making sure this was not a reduction to the general fund. companies in san francisco right now that a payroll tax will continue to pay their current base payroll tax. they will not get an exemption for jobs they have already brought to the city. this has been an incentive for companies that are going to create more jobs to come to an area that needs their help. i believe that we have several presentations to it. i am more than happy to make additional comments on amendments after those presentations. thank you. supervisor chu: i understand the amendments you are making today or proposing are substantive and would require that this actually has to sit a week, correct? ok, good. supervisor mirkarimi, did you have a question now, or did you want to go to the presentations? supervisor mirkarimi: i just want to make a note about

process. we were just informed that this item is being moved up over the america's cup. it is the authority of the chair to make the changes if the chair sees fit, and it is understandable, but in this particular case, by us not knowing until we came here that this was being moved up, and that the representative body of the chief executive's office is helping administer both of america's cup and the twitter deal in itself, it would have been, i think, more thoughtful and considerate of letting us know in advance that the schedule was being adjusted for this. you know that we have people coming later in the hearing because the hearing on america's cup would take more time as well, and it comes preceding the twitter deal that is now before us right now. it does not look right, but we understand that based on the critical process, that authority can be exercised. i would ask those in charge to

reconsider taking this out of order. whoever did make that request of taking this out of order should have at least had, i think, the basic courtesy of informing me and my office, since we are the one who commissioned the america's cup report, and yet, we were not notified. the fact that those who are in a leadership position of trying to advance the twitter deal -- they should have at least notify us as well. all i'm saying is i look forward to this discussion of what is before us. i'm sure it will be a thoughtful debate and exchange, but let's do it on the up and up to make sure there is no tape whatsoever to the process -- no taint whatsoever to the process. supervisor chu: thank you. point well taken. i take responsibility for not communicating every change we have at the committee. i also want you to know that we are going to be making amendments to this legislation, which would require this item

has to sit for a week, so we will be having public comment again at the following week, so there is no ambiguity in terms of the public's ability to weigh in on the changes. in addition to today's public, is, there will also be a public comment next week to allow for the full process to begin. in terms of changing the procedure, i do not believe that would be the case. why don't we move forward with those hearings. i know the supervisor chiu has joined us. would you like to say a few words? supervisor chiu: just a few words. i also as a co-sponsor of this legislation very much supports the efforts of individuals to think about how with the central market area and tenderloin area. the one thing i would add is this conversation we are having, from my perspective, is brought -- part of a broader conversation that we ought to be having, and i know many of our colleagues want to have about

reforming the business tax. we know our current payroll tax has been a job-killing, economic development disincentive policy, and i think the need for what we're doing today highlights the importance of us understanding that and, hopefully, what we are able to achieve here will be part of it half to broader business tax reform that i am working with our comptroller's office and others here at city hall to hopefully in the coming months put forward proposals on what we can do to get us to a better place in this area, but i look forward to the presentation and to public comment on this topic. supervisor chu: thank you. if we would go to the office of economic and workforce development for a presentation. >> good morning, supervisors. director of the office of economic and workforce

development. we are here today to provide some context and potential impacts of this proposal. the presentation this morning is going to be made jointly between myself and the director of neighborhood economic development, who has been leading our efforts and oversees the neighborhood marketplace initiative. amy will start. i will join in in the middle, and we also have regina from the director of the office of small business, who will speak towards the end of the presentation. >> thank you. by way of a little background, our office has been working in the neighborhood for several years. we have been working with community stakeholders to do a number of things, including working to help establish community benefit districts, which was an interesting

opportunity to begin working with many of the property owners in the tenderloin, many of whom are cash-strapped nonprofits who came together and said, "we do not want to see the neighborhood in this condition. we want to improve it." the city has been working on sixth street for a number of years, and we have seen some tangible improvements as a result of redevelopment dollars, but new businesses continued to struggle, and with redevelopment potentially ending, we fear it will take two steps back on sixth street. we spent the last two or three years trying to attract a full- service grocery store. we attracted interest from a couple grocery stores, but to no avail. the two stores that we had interest from backed out because they believed the area was not good for business. we also started working to improve the taylor street

corridor, in part to try to encourage the owners of original joe's to reopen after they closed three years ago due to a fire, but it has been challenging, and the owners are not yet convinced that it is worth their investment. we also worked with a broad coalition of community stakeholders to prevent the transfer of a liquor license, and we succeeded, but even so, residents of the neighborhood came out to the planning commission a month ago and said they still are really concerned for the safety in the area. in january 2010, we came together with a number of stakeholders to form the central market partnership. in recognition that these disparate efforts to revitalize the neighborhood have not been enough. the central market partnership, the idea behind it is that it takes a number of stakeholders, multiple city agencies, brought

private sector participation and investment in order to turn a neighborhood around, and we have learned as in other neighborhoods where we have done the commercial corridor worked. most importantly, for a neighborhood to turn around, it needs to fill its vacant storefronts and buildings with positive activity that will lead to increase retail services and much needed employment in the neighborhood. a payroll tax break for the area is not a silver bullet, but it is a game changing tool that is part of a comprehensive strategy that we think will help. there are a lot of challenges that have prevented the city from making real changes in this neighborhood. you can see from the slides, there are some things that i will not read. one of the main features of the neighborhood is the challenge of the indian underutilized

buildings. -- the empty and underutilized billings. there is real poverty in the neighborhood. there is a lack of retail services and jobs. there are open spaces that are tempting for criminal activity. the tenderloin is often home to a lot of families who only leave to take their kids to school and come back. we have a sample list of vacant buildings. we have been working with a number of community-based groups and the northern california loan fund to try to attract arts groups to the area. we have not worked on every vacant building, but this is just an idea of what we are up against. we work city-wide on struggling commercial corridors, and the storefront vacancy rate on central market alone is much higher than all the other neighborhoods in which we work. central market's commercial storefront vacancy rate is over

30%. that compares with our next toughest neighborhood, which is the view, at 24%. in terms of office vacancies, it is even worse. while we have a 15% citywide rate for office vacancies on central market, it is 51%. i'm sorry if this slide is actually wrong. it is 51%. i'm really sorry that change did not make it in. there is a concentration of crime in the area. it is not just a perception among businesses that there is crime. both violent crime and vice crime, including narcotics, alcohol, and prostitution. you can see where the payroll tax break boundary is. the community has come together to address crime and is trying, but it has been challenging. as i said, our strategy in part has been to build on the assets

in the neighborhood, so we are working with folks like the golden gate theater, like blick art materials, which recently came in. many stroke, and they want to see new businesses that foot traffic to help them keep their doors open. one of the things in particular that we are doing is trying to make sure that as new parts nonprofits come into the area, that they have sound financial situations, strong, long-term leases to help them stay, or even helping with folks who might potentially become owners of buildings, which is a great strategy for long-term stabilization. if you look at the next slide, we have a number of development projects in the pipeline. some of which are actually in title. but, you know, city place and 1095 market, which is the proposed upscale youth hostel --

a number of these are entitled but did not necessarily have the tenants in place, nor their financing. one of the development projects on this pipeline is a proposed project with american conservatory theater. this is an opportunity for them to: land -- to own land, to have a campus that would include a second stage for them, and the office space they need. it will also include retail space and housing. it is a $100 million project. we have begun to make a moderate investment in this, but it is going to take a lot to get it through the finish line. the system does not work in this neighborhood. there is a breakdown of the market, and i just want to explain very briefly that in order to fill vacancies, you

need to have a neighborhood that businesses and arts groups and any potential tenants want to be in. it is true that the property owners have led buildings go into disrepair. it has been over decades that that has happened, but now, we see a willingness on the part of property owners to lease and improve their space. what we are lacking is tenants who can come in, pay rent, and justify the investment that property owners, tenants, and potentially the city will make in order to do the major improvements that building in the area need. the strategy we are proposing is to improve those conditions in the neighborhood as well as create financial incentives that will allow businesses to actually consider coming into this area, leasing space, making an investment here. we have a number of neighborhood improvement strategies, some of which you heard about. we are trying to get more our programming on the streets. we are trying to develop our venues -- art venues.

we're working to promote cleanliness and unification. we recently formed a new civic center cvd. we're working hard to bring more safety resources to the area. we're working to try to ensure that police will patrol on market. we're trying to attract small businesses, big employers, housing, and we will be redesigning the street. in 2015, there will be an overhaul of market street. we have a number of tools that we are bringing to bear in order to make this revitalization happen, but it is going to take everything we can possibly muster. we have a loan fund we established for small businesses and commercial development, and it is useful, but there are some limitations. it is not no-interest, and it has some bureaucratic limitations that will prevent it from being useful to everyone who wants to come in.

we have some other tax incentives, but those might be going away. we have had a limited amount of grant funding. we have a grant from the national endowment of the arts to help with bringing in our non-profits and programming. we hope to get another grant from them, but it is not much money. we are working on zoning that will incentivize certain arts units and this incentivize some of the - uses that have been preventing these uses from coming into the area, but zoning alone does not do anything. it just creates the conditions to allow someone to come in. we were hoping to establish a redevelopment area. we thought this was a good use of tax increment financing, but it is unlikely at this point that tax increment financing through redevelopment will be an option. this is why we have proposed a payroll tax exclusion, to add an additional tool to the arsenal.

i need to say a couple of words about twitter and whitewater matters -- y. twitter matters. twitter is on its own economic revitalization tool for the area. if it comes in, it will send a signal of neighborhood transformation to other businesses, to the real-estate community, to the property owners, and to the folks who are there and maybe encourage them to dig in their heels a little bit and stick it out. it will lead to increase retail and services and then entertainment uses. it will support the arts groups in the neighborhood. other social media companies will want to co-locate, which will help us selling this vast amount of office space that we have here a big thing that i really like about twitter is that it will help us designate the area as a unique niche. it creates a sort of cutting edge nexus between technology

and the arts. you might have heard the burning man is interested in coming to the neighborhood. bernie mahon is committed to putting a headquarters somewhere near six and market, but burning man and twitter are very nice complements. we also have another group doing similar economies/arts work. business is important because it prevents us from just having this area be an extension of downtown shopping. it will not be just a formula of retail expansion area. it will be a unique place. finally, and i think you will hear more about this later -- we believe twitter and companies like it will engage meaningfully with the neighborhood and the city, and they are excited to do that. going to turn it back to jennifer to present the proposal. >> i wanted to take a few minutes to talk about the

actual payroll tax exclusion provision and the amendments that we are working with supervisor kim's office and introducing today. carla, small businesses would pay less than $250,000 do not pay a payroll tax in san for cisco. this proposal would allow businesses that do pay a payroll tax, that create new jobs in the area to be exempt for six of the next eight years. that eight-year window would allow us to use the program as an incentive to draw business in without having the clock immediately taking down. once a business is located in the area, it would be able to take the table tax exemption on all of their growth for six years and then pay full payroll tax on all of that growth, starting in year seven. the legislation includes first source hiring requirements, which mirrors that in the