even greater tax benefits, on the order of $61 million, from the america's cup. and they are not investing in any of the improvements to prepare for the america's cup. so basically we have a case of misaligned benefits and cost. when we are proposing here is, out of future development from these america's cup sites, the city could capture shawsome of t share to fund their time projects. essentially, payback phase 1 investment or go to phase 2. we do not expect this to occur for another 10 years. all of those would be subject to board supervisor approval,

along with the developments. we are also early in the legislative process. we have a long way to go in sacramento. supervisor kim: 7 to 10 years, so this could go back to paying the debt in phase one, but we would not really see an impact in the construction? so we are really just talking about repayment of debt, but does not cover the shortfall . >> if the bill passes and we have the ability to capture a share, we would be in a stronger position to offer a bridge of financing to cover the phase 2 shortfall, knowing that we had a secure source to repay it. supervisor kim: what is the estimated time line, some level

of certainty from sacramento, potential passage of the bill? >> it would typically go to the governor's desk in october. i think that we would have a much clearer signal from the legislative process before then. potentially, august or september. supervisor kim: a couple of things. i feel uncomfortable improving -- approving the fiscal feasibility of the project as is. i would like to see a terminal plan -- a plan that does not include the $11 million, if that was the worst case scenario -- to feel comfortable approving. i have some personal opinions around a water park and being part of a g.o. bond as part of

park and representative. our parks are drastically underfunded. to allocate $9 million of that to a waterfront park seems to me a bit ambitious at this time. i am not quite sure if it would serve many of the families that currently have a lot of needs with the current parks situation. we need lights, park improvements, better rec centers. so i have a couple of questions about the plan over all. so i do not feel comfortable supporting this proposal, as it is. i am not sure if we can get a plan that excludes what a working terminal would look like without the $11 million shortfall. if we had that, i would feel comfortable supporting the proposal. supervisor chu: thank you. why don't we go to public comment on this item. is there anyone from the public that would like to comment on

this item? item 4. seeing none, public comment is closed. given the questions that we have seen from this item. i know both supervisor mirkarimi and supervisor kim had outstanding questions about it. if i could suggest the committee send this forward without recommendations at this time, and perhaps we can follow up with members of the committee and others to address those concerns. supervisor kim: at this time, i do not feel comfortable boarding with recommendations, so i would be voting no. supervisor mirkarimi: just one preface to that. i agree a lot with what supervisor kim had inquired about. i would be more than happy to push this forward, but i will reserve open consideration about

what some of my reservations are that are in line with what supervisor kim's are, too. supervisor chu: thank you. then the articulate why i think it is important to move this item forward. the requirement we put together, and the fiscal feasibility study, was a reason requirement that is very good and insightful, thinking about how we move forward with projects, thinking about long-term funding sources for things. it is also something that is absolutely necessary to move forward, if we want to move forward with the eir for the america's cup. given a timeframe, it is important that we keep that schedule. the thing that gives me comfort is the fact that the fiscal feasibility study simply shows a road map as to how the department is thinking about funding the gap, solving the budget solution. there is nothing in this resolution that ties us to those

allocations, and of course, is dependent on many things. i think the department has put forward a number of reasonable ways in which to meet the $12 million gap in the future. of course, we know there is some uncertainty with regard to issuance to a 2012 rec/park bond. i know the plan is not perfect, but we have moved forward with other projects, simply by saying here is a road map, intended to pursue. will things change between now and 2014? i expect they will, and we may find the revenue sources that could change this picture. because of the importance of moving this item forward, even to publish a draft ceqa study for the america's cup, it is important to move this forward. so i will be supporting the motion to send this forward to the full bore without recommendations, at this time, simply to allow the process to

continue. supervisor kim: will this be forwarded to the following tuesday? is that enough time to respond to some of the questions? is it possible to get another week? >> through the chair, that will give us ample time to provide explanations and provide answers to your questions. supervisor chu: thank you. let us take a role, now on sending this item forward without recommendations. >> [roll call] the motion passes. supervisor chu: thank you. item five please. >> item 5. ordinance amending the san francisco administrative code, section 6.22, public work construction contract terms and working conditions, by amending subsection 6.22(e)(8) to further delineate due process procedures for administrative

hearings on appeals by public work contractors and/or subcontractors from a certification of forfeiture made by the city's labor standards enforcement officer or responsible department head for non-compliance with prevailing wage requirements; and to additionally conform distribution of forfeiture provisions to state law. supervisor chu: thank you. we have the comptroller's office for this item. >> good morning. the comptroller's office is the hearing entity for any appeal that comes before the city related to the office of labor standards enforcement of penalties and their findings that wages have not been paid in accordance to the city's requirements. we have been acting as the appeals office for a number of years and have noted, in some instances, there are delays within the hearing process that

we believe these amendments will expedite. first, the amendment before you proposes that a meet and confer process be implemented prior to a fair hearing being conducted. that is what happens in some of the instances. what this amendment does is it would require that meet and confer be afforded to both parties prior to any appeal. it also allows the controller to appoint a hearing officer from both outside administrative officers as well as administrative law judges currently employed by the rent board. we use those administrative law judges and other non- construction appeals that come before us. we find that is more efficient because they are available, cheaper, and they have the skills and training necessary to act on these cases.

we believe that will enhance the efficiency of the hearing process. lastly, the city attorney has made a few non-substantive amendments that has allowed the administrative code to comply with the current rules of regulation in state law and so forth. we do believe this amendment before you will expedite the hearing process. right now, both the city attorney and office of labor standards does everything they can to keep the process going, but we believe we can make minor improvements. supervisor chu: thank you. i do not believe we have a budget analyst report on this item. if we do not have any questions, i would like to go to public comment. is there anyone from the public that would like to comment on this item? are you coming forward, mike, for item 5?

>> san francisco building and trade council. i have no objection to the amendment as a whole, but i do object to two points. if you go to page 10, 622 e8c, inclusion of an administrative law judge, someone with experience in construction law, both are problematic to me. if any of you had had any conversation with me, you know it is not an easy matter to understand what they do. i do not believe it is sufficient to bring someone in who does not have any experience of that to consider our work and how prevailing wages should be determined in specific instances.

so an administrative law judge, while cheaper in the short term, is not necessarily more efficient. the quality of your decision will not necessarily be as good. also, someone with experience in construction law, at first glance, may seem like someone ready to answer these questions, but construction law deals with contract matters before the work is performed, after the work is performed, matters of payment, construction defects. someone with construction law experience will also not understand what we do. it really requires someone with experience and knowledge of our trade and how they function. so i would ask that those two revisions be stricken. supervisor chu: thank you. are there any other members of the public that the bike to speak? seeing none, public comment is closed.

i do think that there is language in here that is not just alj. given the combination of expertise that is indicated here, i believe it would cover the issues that would arise. do we have a motion for this item? supervisor mirkarimi: motion to accept. supervisor chu: motion, 2nd. without objection. could you call items 6 and 7. >> item 6. ordinance amending article 12-a of the san francisco business and tax regulations code by adding section 906.4 to establish a payroll expense tax exclusion for that portion of an eligible person's payroll expense that is attributable to stock compensation. item 7. ordinance amending the san francisco business and tax regulations code, article 12-a, by adding section 906.5 to establish a payroll expense tax

exclusion for stock-based compensation and amending section 902.1 to exclude stock options from the definition of payroll expense. supervisor chu: thank you very much. these two items are brought to us by a number of individuals, primarily supervisor mirkarimi and supervisor farrell. from my understanding, supervisor farrell has introduced substitute legislation as of yesterday. he has asked that his item, item seven, b continue to the call of the chair to allow the budget analyst to report those changes. we could take that motion later on so that we could allow for public comment, but that is the intention. there will me -- there will not be a presentation on items seven today. supervisor mirkarimi? supervisor mirkarimi: thank you.

what is before you is our response to something that came up in a profound way, asking san francisco to do what it can to help provide and retain twitter. this was before us a blittle longer than one month ago. during those deliberations, i said i would like us to try to furnish policy that speaks to a whole host of companies that we anticipated that would also request and require a similar consideration, as it had been applied to one company. this is not something new that came to our attention, city hall's attention, as it seemed

to spike during the deliberations, but this is something that we have known about for years, tech companies that are pre-ipo, that aspired to be public, that would like to see as much assistance as they possibly could so that they can stay, grow, and prosper in san francisco. in return, san francisco city hall, by doing so, from those companies. san francisco is the only city in california that levies a payroll tax. one of the few in the nation to tax stock options. this legislation we are putting forth today, co-sponsored by president david chiu and supervisors david campos and eric mar, helps retain companies who are undertaking an ipo

status in san francisco while the city studies its overall business tax code. that review is underway and will be furthered through this legislation. meanwhile, the comptroller's office, through a report published by our economist, finds future tax liability associated with stock options appears to be a significant incentive for successful companies to locate outside the city. a solution is a specific stock option exclusion for a discrete period of time, which is why we have always decided to pursue this process of looking for that discreet population so that we can understand what its impact our and be able to measure a more proper cage in making sure our general fund is not

adversely affected. more to the point, how we can actually benefit exponentially from the retention of these companies, by modifying the stock option payroll, stock option levy. according to the comptroller's office, and efficiently designed stock option exclusion can have a policy advantage of providing tangible benefits to a few successful companies by reducing their incentive to leave san francisco while leaving the majority of taxpayers and the city's payroll tax revenue unaffected. in my opinion, that gives us an effective in terms step to move forward in addressing the needs of the number of companies who have also come out of the woodworks, since the discussion of twitter, remarking that their longevity may be in question, if in fact, san francisco did not

seek some modification in the question of these stock options requirements imposed upon them. i have discussed with president choo's office at length about the approach, and with supervisor mark farrell. i have very much welcome their inside and input in refining this legislation. i have an amendment. i know president chiu has amendments that i anticipate welcoming. we also believe supervisor farrell had some input that is reflective of our amendments as well. i want to thank the office of work force and economic development for their input, the comptroller's office, mr. eagen, in particular, who will be expanding on this, and the

mayor's office. we had conversations about the ablution of this legislation, especially as we were coming out of the deliberations with twitter. thank you as well to my staff for their round-the-clock facilitation of the many discussions. and treasury's office, of course. that is what is before us. i have an amendment. i would be more than happy to make that amendment now. one amendment that i will motion -- i would like to extend this from two to six years. right after this legislation, we realized the two years was a place holder so that we could gain some foothold in getting some affirmation back from the comptroller's office about why others were talking about eight years, six years, five years. we were looking for the most

effective member. based on the fact that companies may not be ready to take advantage of the exclusion that we are potentially advancing today, immediately upon the approval of this legislation, to give the uncertainty in signing leases. typically, leases in san francisco run for an average of five years. we thought the six-year basis helps zero in on the majority of those that would be able to benefit from this legislation. what we see from this is san francisco significantly changing its approach towards business retention. two companies that we believe will have a long time future, here in san francisco, and being able to address companies like zynga, who is actually four times the size of twitter, who

have expressed concerns about longevity, durability, remaining in this city. that allows us to laser in on what we think is a win-win solution to help them with their growth, so that when they grow, we grow with our revenue stream because of the job force that will also grow with their success. it is also a revenue stream that comes back to the city and county of san francisco because we are not affecting the payroll tax. so with that said, chair chu, i would be more than happy to pass this onto president david chiu. supervisor chu: i know that there are a number of amendments coming. the one that you laid out, the six-year period.

if you could describe the amendment, then we will take public comment. >> absolutely. i wanted to thank supervisor mirkarimi as well for his legislation and provide some context from my experience. before i joined the board, i ran a small tech company. like many of us, we have viewed the payroll tax as an impediment to economic growth. ever since i came into office, a number of us have been advocating for a more comprehensive business tax reform. i am very glad that this topic is finally getting the appropriate attention, given the conversations recently involving twitter, zynga, and other companies. at this point, there is a widespread belief in the business community at san francisco's unique payroll tax need to be replaced with

something else. likely, gross receipts business tax. i think it is worth remembering that we are still an incredibly innovative city. in fact, "the chronicle" reported on a study from price waterhouse coopers that found san francisco to be the third most rich opportunity city in the world. i think we know there are growing companies with real incentives to lead our great city. there are also mature companies that leave our city or are looking elsewhere. it is important for us to do better. i think this piece of legislation helps to do that. a number of weeks ago, i asked the office of the comptroller, tax collector, office of economic work force and development, to study different options to these challenges that would reduce the incentive for growing technology companies to leave san francisco while minimizing the impact on our

budget. it just so happened on that same day i introduced a formal request, supervisors mirkarimi and mark farrell introduced their versions. it is very appropriate be consider all of these items together. i want to thank ted egan and the comptroller's office for their report, which responds to our legislation, which charts a good path forward to deal with the potential fight -- spike in peril tax liability for private companies that could go public with significant valuation. i would like to take a moment to talk about the other amendments on supervisor mercury's -- mirkarimi's amendments, and then i am sure mr. egan will go into them in more detail. there are a set of amendments to change the proposal that had initially focused a two-year tax exclusion to only tech

companies who had been founded after 2001, that were larger than 100 employees. i would suggest that we not omit this legislation to just as companies, that we need to have the exclusion open to any private company that undertakes either an initial public offering on a public stock exchange, or experiences a change of control prior to any such public offering, as in through an acquisition, during the period that the agreement is in fact. supervisor mirkarimi has proposed that we change that time from two years to six years. in the mn and that you have, i also suggest we amend the definition of the stock option compensation to be more precise. the definition that i think we adopt is a language from supervisor farrell's legislation to ensure compensation that the stock based includes incentive

and non statutory stock options, including all underlying stock related to such options restricted to stop, stop units, or stock acquired as a result of employee purchase plans. i also think for us to understand the impact of this legislation, we need annual reporting as well as at the end of the six-year period, a study similar to the study that was done for our biotech payroll tax is exclusion. finally, in supervisor mirkarimi's initial legislation, a $1,500 per individual employee item. it had been proposed that we exclude stock options above $750,000. this is a change based on the research that has been done on companies that have gone public

in our city. that being said, i hope the committee will support these amendments and i look forward to discussing this legislation, as well as supervisor farrell's legislation. supervisor chu: thank you. we will now go on to the presentation from ted egan. >> good morning, supervisors. ted egan, comptroller's office of economic analysis. we provided a report to supervisor mirkarimi's legislation also responded to david chiu's work. i would lead to summarize the findings of our report. the first thing to be clear about estimating comedy there the economic or fiscal impact of excluding stock options is, the city does not have clear information how much in taxation

these companies are actually paying. what i tried to do is initially develop a model of what a typical highly valued tech company would pay for stock options. i also did some research with the assistance of the treasurer's office that allows us to make a rough estimate of what we think companies may have paid in the years immediately they went public. at the crux of the issue, if we could go to the overhead screen, -- because the city taxes stock options and most cities will only experience a peril tax liability from that after they go public or another change in public control, in that year you could see a highly valued company see a highly exonerated increase in the apparel tax liability. --