while it is a very important and sent -- incentor, not every business thinks it is. we estimate that over 250 clean tech businesses in san francisco with approximately 20 taking advantage of the targeted tax breaks. we believe the tax proposal is also sound land use policy. promotes the concentration of of women in an urban core that has outstanding transit and promotes development and revitalization of a struggling neighborhood. we also believe we have heard concerns around displacement. we move that there are extraordinary other policies within the city that prevent displacement with in these neighborhoods. over 45% of the city's permanent affordable housing is located either in or adjacent to this -- to the boundaries of the central market and tenderloin payroll tax exemption. there is the sro payroll

ordinance. the land use ordinance in effect provides multiple opportunities for the city to review conditional use permits, a plethora of development projects, including demolition, rehab, replacement of formula retail, creation of residential dwelling, and all searches. current zoning controls established a western soma planning area and the citizens task force is charged with updating plans to solidify zoning controls for the proposed special use district. formula retail is conditional affirmative and triggers the review process. there are prohibited uses within this area, etc. the next slide shows the concentration of affordable housing within the proposed boundaries. at this point, i'm going to turn it back over to a need to talk about the outreach and supporters we have -- back over

to amy. >> thank you. you should have a packet with a list of supporters and some letters we received in support. a number of folks have expressed support, many of whom are here. american conservatory theater, burning man, theater bay area, and brad ericsson. such a city hospitality is here. central market arts festival. bockscar theater. the original joe's restaurant, and john dugan senior year to date. showed odds restaurant. archetype boutique. -- show dogs a restaurant. pearl's restaurant will be opening in a couple of months. daniel hertado is here from

central market community district. urban solutions is supportive. spur is supported. there may be people here who i have not seen. we have alexander quinn, an economic consulting firm. we have support from san francisco beautiful. we have some residents of the soma grande who have submitted a petition. we have the holiday inn civic center. we have group our development, which owns a building on mcallister. we have davis realty. we have troika construction. byron ye, who owns the renoir hotel.

kim bender, a resident. john and michael are both here. marlon word. we have kate of sfmade, who is supporting the proposal. there are other folks who i think will speak for themselves today, and i'm just going to turn this over to regina to make a couple of comments in closing on behalf of the small business commission. >> on monday, the small business commission heard this recommendation and gave full a condition to the board of supervisors to approve and pass it. while many of our points have been clearly outlined about the

job growth, the residual money that the city will receive from these jobs and the increase in job growth in that particular area in revitalization, but another point that the commission thought was very important for them in terms of approving this piece of legislation is that not only will the small businesses in that particular district benefit, but the small businesses where the employees live within the city of san francisco will also benefit from those individuals shopping, dining, doing their groceries in their neighborhoods. also want to point out that on page four in the comptrollers' economic analysis report, it made a comment that small businesses would not benefit from this payroll tax exclusion,

and that is because what is defined by the control of -- comptroller -- controller's office is those who do not a payroll tax, but our definition is under 100 employees. so you might take a look at a business that might have five employees, and they would be able to benefit from this by being able to add $1 two employees. restaurants would be able to benefit from this, and we think of them as small businesses as their business picks up from having twitter come in and other businesses come in. they will be able to benefit from this as well. as identified, the business to business component that will be able to be developed, many of the business to businesses that will come in, being attracted by an entity like twitter, black

arts foundation, are sold -- are small businesses, so it will be an attractive tool for them. the small business commission, just to reiterate, you have received a written recommendation, which encourages you to approve and support this legislation. supervisor chu: thank you very much. does that include the office of economic development's presentation? ok, why don't we move over to the controller's office, with regards to the economic analysis. >> good morning, supervisors. our office yesterday issued an economic impact report on this item, which you have before you. i would like to briefly summarize some of the main points, and i would be happy to take questions about our work.

first, i would like to show you on the overhead if i may another map of the district, which i have -- [inaudible] if i could color-coded. i color coded it because there are four types of properties with respect to how this legislation impacts the economy, and i'll go through them in order. property here in red on market street between ninth and 10th is the complex, and that is the site where it has been reported that twitter is interested in locating. the properties interested in blue. these properties are the large commercial properties that are in the district. these properties are also notable because they are either vacant or will become vacant, as well as the sfmart within the

next year to 18 months. i would also mention that the large commercial property not in the district, the aaa tower at van ness and hayes, is also nearly completely vacant. you have a situation in which the bulk of commercial real estate in the district will be vacant in the forthcoming period, which has profound implications. i wanted to just start off on that point. i will come back to that when i go through some of the details. you have already heard the details of the policy, the fact that it is a six-year exclusion for net new payrolls, that expires, and that it only applies to net new payroll within this defined area. this type of policy is something that is familiar in economic development. it has a fairly long history

now, and it is similar in a policy to enterprise zones in which basically a zone is derived defined around an economically depressed area, and taxes are used to incentivize growth and business locations within that area. there are differences with this policy, of course. it is a local only policy. we have a state enterprise program here in many enterprise policies are focused on jobs for residents within the district. this is an across the board payroll tax break. but it has a similar spirit, which is to say it is using tax incentives to try to incentivize business location and job creation within an area. the literature i think is fair to say is next. there was a major, for example, study by the public policy institute of california last year that evaluated california's enterprise policy, which is the largest economic development policy, state and local, in the country, and found that it created no new jobs on average. on average means some places it

does and some places it does not. but it is not, let's say, a reliable by double source of job creation. it does not work automatically. looking at the literature, there's three things to consider in doing a policy like this, to sort of checked to make sure that the details of the place and the policy match these best practices. one of which is to make sure that the only thing you are doing is not tax cuts. i believe in this case, and i believe as a detailed for you, the city has done a lot, and in the process of doing many of the things, and this is a complementary initiative. not simply throwing a tax cut in area in the hope that something will happen. it is, i think, one piece of the process of cattleization that might happen in the area. second, care must be taken to make sure you are not subsidizing business location and job growth that would happen anyway.

this is basically a cost of a tax-cut policy that is broadly offered, that people will be eligible for the tax cut and be able to take the tax cut for doing things they would have done anyway. to the extent possible, the policy should be tailored to minimize that and insure that it does not happen. one way is to focus it onone wae there is a clear market area, blighted area or other conditions outside of the real estate market telling businesses and commercial tenants not to locate in an area. there are parts of the tenderloin area that fit the bill. the third thing is enterprise zones are criticized because you give tax cuts to create an incentive for businesses to go in the area. the tax cuts expire and the business has no reason to be in the area and you really accomplish nothing.

the trick to tax cuts and a more comprehensive approach is how do you do the tax cut in such a way to kickstart a sustained process of economic development? one of the key ways to do that is used tax cuts to get companies that will be routed to the area and will attract other companies, employees and investment to the area. so when the tax cuts expire, there is something left. there is a reason to be in central market tenderloin after this legislation expires. this is the most important of the criteria to keep in mind -- twitter limbs or large because twitter potentially coming to this area as an extremely fast growing, extremely well known and valuable technology company has already created a clustering affect in the south market area and will migrate that cluster of

technology companies to this area which, as i started off saying, is basing an enormous amount of vacant space coming on the market in the near future. the first question to understand the impact of this legislation is will this affect twitter's decision? will twitter come if you pass the legislation? will they leave if you do not pass of the legislation? it is a fair point that business taxes and local business taxes particularly are not the biggest cost factor businesses face. businesses have to pay rent and labor costs. workers have to worry about getting to work and they're out of pocket commuting costs. all of those things work together with taxes to present a net cost of different locations a business basis. what we did in this analysis

was compare what the listed rents are in the current commercial market reports for the location. one of the locations twitter has said to be considering in san mateo county -- the other is not listing reds and i don't know what that is, but my suspicion is it makes it more disadvantageous to the city. focusing on a property in south san francisco, we looked at twitter's expected growth in terms of what they need, what their rents are at what the relative tax burden would be in the two jurisdictions. hear, the particularities of the tax comes to the for particularly as they relate to twitter. san francisco has a payroll expense task of 1.5% of employee compensation. that refers to any consideration granted to an employee.

their wages and salaries, stock options they're granted, or anything else the business gives the employee in exchange for the services the employee provides. because the payroll expense tax includes stock options, for a valuable technology company like twitter -- for a point of context, twitter had a round of outside investment funding to years ago where it was valued at $250 million. it had another round of funding in december of last year where it was valued at $3.7 billion. there was a website or stock options owned by employees in twitter can be traded in other companies. for the price of those stock options, you can get an empress it -- get an implicit price of twitter, which is roughly double what it was three months ago. for a company like twitter and many technology companies, twitter grants stock options to

its employees. they will very likely result in what would be considered compensation for our payroll tax purposes. that particular aspect of compensation would not apply to another company that is the same size as twitter and has the same salary as twitter but did not grant stock options. our analysis suggests it is reasonably close between san mateo county and san francisco county if you do not consider stock options. we don't know what the payroll tax liability they're facing for tax options. it could easily be in the tens of millions of dollars and that would create editor incentive to leave san francisco than anything else we have been able to analyze. our analysis proceeded -- and we don't have any information on what twitter is thinking or even their version of the numbers we have been using, but as far as we can tell, where would stand

to save a significant amount of money by moving out of san francisco because of the stock option issue. they would be relieved of that if their stock options were realized as compensation within the next six years and this legislation were and out -- were enacted. our analysis proceeds of the notion that water would come or remain in san francisco had come to the area if this policy was enacted and it would not be in its financial interest to stay in san francisco if it was not enacted. the second key question is what difference does make to the area that twitter comes as opposed to leaving? our analysis focused on the areas i have identified as blue because that is the ball of the vacant commercial property within the district in the next six years. these green properties along market street are for the most part very high vacancy

properties, chronically high vacancy properties. they would benefit from including twitter, but the size of those properties is not a hugely significant on a city- wide basis. there are potentially between 10,000 at 12,000 jobs that could go into these properties if the economic development is successful in the next few years. similarly, the tenderloin areas are primarily composed of small businesses to are not subject to the payroll tax. public sector employers who are not subject to the payroll tax. there is less commercial vacancy -- there is a risk of net new payroll filling up in the yellow area than in the blue area. some of the fiscal risk is that as those properties fill up

naturally and go from 0% occupancy to whatever level they find, much of that would be net new payroll from the perspective of the legislation, but much of that would occur anyway. that's a potential cost of the policy. our analysis suggests that it twitter comes, you are going to see a very different evolution of this area, the blue and red properties of the next 20 years than if twitter stays. i will briefly review some of the assumptions we used to assess that. we believe it twitter does not come, you are left with these properties -- this is an area of the city that has been losing tenants for a long time. the demand for public sector tenants is stagnating. there's our risk it will take quite a long time for the market in this part of the city to

reset and as buildings to be occupied. we project maybe it takes 10 years from the point they're all vacant to the point you are at 75% occupancy. if the future looks like the fat -- looks like the past, there is no reason to think it would change. the bulk of the tenants would not be subject to the payroll tax. they would be public sector and nonprofit. we would not be getting a lot of payroll tax revenue from them. the average wage in the city is significantly less than the age of -- than what twitter is paying and that ties into the payroll tax revenue. if twitter comes, we are projecting a faster preoccupation of these buildings. instead of 10 years, we project five years. that would be because twitter is acting as a magnet for other companies.

we have one of the largest technology companies in town coming to area companies have avoided, basically making the move and we believe -- there is reason to believe that would create a clustering effect in that area. the occupancy would be more dense and a high percentage would be subject to the payroll tax. their average salary would be higher, such that even if you are writing off the first six years as most of this is happening, over 20 years -- and discounting future revenue, over 20 years, the advantage of long- term sustained economic development in the area pays for itself and the terms of the first six years of foregone payroll growth. not only is that exceed, you have a positive payroll tax effect from this. it significantly exceed on an annual basis what we would expect to happen in terms of the payroll tax if twitter does not

come to the area because of the limited prospects of other private sector drop -- private sector job growth engines. that's the second main conclusion of our report. first, this legislation does seem to be important to the financial considerations twitter would have decided to stay in san francisco. second, having twitter come to the area would be more advantageous not just in terms of jobs and tax revenues that flow from increased jobs that the staff talked about, but even payroll tax over 20 years in comparison to what could be expected to happen in the area without water. having said that, we -- without twitter. having said that, we have two recommendations about the policy to make it more efficient and targeted. two other considerations on related matters that address

some of the same concerns this policy is trying to address. i think this is just a technical issue. the way legislation is originally written, it allows any payroll tax paying business that opened the premises in the area to basically deduct -- to get net new payroll free. -- tax-free. it does not say net new payroll in the area, so it creates the incentive for a company to open a branch office and get city- wide net new payroll to be tax- free and i don't think that's the intent of the policy. second, our analysis suggests pretty strongly that twitter is the decisive element in making this advantageous from a fiscal and economic point of view. nevertheless, the exclusion applies to a wider set of area than the one twitter is considering going into. for the green areas i highlighted before, i think a tax cut is reasonable.

those are areas i have suggested before. that is for the market failure is and, in combination with the other efforts going on there, that could very much help and have a relatively low cost for the city for those few small properties on market street. similarly, with the tender land properties, there is very little payroll tax thereby including those properties in the district. however, the large properties, the ones i indicated in blue would likely reoccupy without this. that creates a situation where the city would be getting a tax break for job growth that would happen anyway. yet those properties will still benefit from having twitter in the neighborhood. if those properties were blighted or have high vacancies, that would be another matter. but those are properties that have been occupied recently and there's no reason to think they could not be occupied in the future.

we have made a recommendation that the large commercial properties with the exception of the sf mart be excluded from the zone. the other recommendations we have our future policy recommendations. part of the economic concern for this area going forward is what happens to these large vacant commercial properties. there is a history in this part of san francisco and the city wide of commercial property being left vacant for long periods of time. the property owned the property in hand and is not forcing tenants to pay rent to make payments, it there is not a market force driving the property owner to ensure the property is occupied. there are certain incentives that would make a property

owner keep a property of the market in hopes of an area turning around so they could get a higher and tenet later in the future. the city might wish to consider whether that behavior is in its economic interests or its more in its economic interests to ensure a continued occupation of its commercial property and continual occupation of the infrastructure that serve up property. one way to do that is to impose a parcel tax on commercial properties that are vacant. without speaking to the legal issues involved, i believe that's something that could be done. >my last point -- it does appear in twitter's potential consideration of this policy measure that the issue of twitter stock options, it's a

decisive issue because twitter is a valuable company and its stock will likely be very valuable at some point in the future, it would have a nice payroll tax liability. the city may wish to consider a modification to the payroll tax that could reduce the incentive for a company like twitter or any other company that issues stock options that becomes successful from having that incentive to leave san francisco. the city does have a track record of being good at incubating technology companies but not as great as keeping them in a town where they grow. investing in ways to do that would be good in the future. i'd be happy to take any questions you have. supervisor chu: i know a number of people have put their names on the roster.

would you like to wait until after the budget analyst are asked questions now? i think there is a general idea to enter -- to ask questions now. supervisor kim: thank you for your report. i know you spent an immense amount of time putting this together and we appreciate it. my goal in putting this forward is achieve outcomes of want to see as efficiently as possible. how much real-estate -- how much of the real estate in the aaa building? >> i remember adding up all of the buildings and totaling about 3 million square feet. supervisor kim: is this all property that is vacant or will soon be vacant over the next 18 months or two years? >> that's my understanding. supervisor kim: