>> to you have something you want to get rid of? >> why throw it away when you can reuse it? >> it can be filtered out and used for other products. >> [speaking spanish] >> it is going to be a good thing for us to take used motor oil from customers. we have a 75-gallon tank that we used and we have someone take it from here to recycle. >> so far, we have 35 people. we have collected 78 gallons, if

not more. these are other locations that you can go. it is absolutely free. you just need to have the location open. you are set to go. s >> item 2, be presentation of the small business commission certificate of honor. the small business intern, my lin chung, director.

>> -- mylinh chung. >> did we do roll call? >> commissioner adams. >> here. >> commissioner dooley. >> here. >> commissioner o'brien. >> present. >> commissioner riley. commissioner clyde. >> here. >> commissioner kasselman. >> here. >> commissioner o'connor. so pardon me. president o'brien: item 2, presentation of small business commission certificate of honor to small business intern, mylinh chung. >> good evening, commissioners. don't i want to recognize mylinh chung, who is our small business -- office of small business youth works intern, and mylinh has been with our office since october 12 of 2010 and has worked in the office on the average of 10 hours a week and has really helped us with

our getting caught up on our sales force data information. so this week is her last week with us, and then she graduates and goes off to college. so i wanted to thank mylinh for her time at the office of small business and present her with this certificate from the commission on our appreciation. so on this monday, may 9, the small business commission recognizes mylinh chung, the office of small business youth works intern, from october 16, 2010 to may 13, 2011. mylinh has been a tremendous asset to the office of small business and helped complete tasks, such as entering client data into sales force, maintaining the stock of all forms and information, materials at the small business assistance center and assisting in preparation of the small business week commission meetings -- excuse me, small business commission meetings. the small business commission is pleased to recognize your

hard work and dedication to the development and improving your job skills. mylinh possesses the key attributes that are important to the work environment from excellent punctuality, dedication and focus and meeting deadlines, developing a standard of quality of work and she's met all expectations of our office. as a result of her dedication and focus in assisting staff and entering clients cases, which is now we're at 98% of entering and your many contributions, the office of small business wishes you much success in college and in your future endeavors. >> thank you. [applause] >> i would like to thank my supervisor, re gene narcs chris, mother and jane for giving me this opportunity to

work at the office for small business and i really enjoyed working with them, and thank you very much. plauseplalls [applause] [applause] president o'brien: commissioners, you are now on item number three. approval of the match 14, 2011 meeting minutes, explanatory

documents, draft march 4, thrench minutes. -- march 14, 2011 minutes. anybody got any objections to the minutes? >> i motion to approve the minutes of march 14. >> second. >> all those in favor? >> aye. president o'brien: commissioners, number four will be continued to the june 14 meeting. item five, public comments. at this time members of the public may comment on matters within the purview of the commission and for future consideration. do we have any public comment on any matters not on the agenda this evening? seeing none, next item. >> ok.

you want to call it up? did you want to get some direction on that, mr. president? president o'brien: well, we're on number six, right? >> yeah. >> ok. so i see we have two supervisors here. we feel very privileged to have both of you here. welcome. and i think we're probably going to hear from both of you and we're going to hear that before we hear from the controller, right? so i believe supervisor mirkarimi's proposal was first to come into play, right? >> yes. it was introduced, i believe, on april 5. >> so i guess in keeping with protocol we'll call supervisor mirkarimi up. >> ok. commissioners, you're now on item number six and item number seven. item six is to make

recommendations to board of supervisors on file 100337, business and tax regulations code, excluding stock compensation from payroll expense, tax years 2011 through 2013. i believe it was amended since the agenda was posted. and number seven, discussion of possible action to make recommendations to the board of supervisors on board of supervisors file number 110462, business and tax regulation code, payroll tax expense, tax exclusion for tax-based compensation. president o'brien: welcome. >> good evening, honorable commissioners. i'm ross mirkarimi, supervisor of district five. thank you for hearing our legislation on stock option exemption. i will give you a little bit of context and what the legislation actually does. i introduced my stock option

legislation during our deliberations on the mid market twitter tax break discussion and debate. i and others have believed that a twitter tax break on one hand was singularly focusing just what was self evident on one company, benefiting one company and one particular neighborhood, and on the other, gave that one company an exclusion that we anticipated would likely catalyze great interest by a number of other companies because of the exclusion which was for twitter, both payroll and stock option. our anticipation was held correct where a number of other companies had asked when that deliberation was taking place, that they would like to see some benefit, too, at risk of potentially losing their business located in san francisco. of them moving. we were mulling over the

question at the time, which i raise concerns about our deliberations on twitter. is it sound policy to singularly create a break for one company, or should we do so for a whole genre of companies, so that we are not held in the reactive incremental posture of constantly having to legislate particular remedies in order to stave off the potential hemorrhaging of companies from san francisco, or to try to incentivize them to come to parts of san francisco that they otherwise may not. it made a few things clearer during the twitter tax break that are reflected in my legislation, that after more than a decade of discussing the idea of re-evaluating its business tax structure, the city must immediately, i think, engage with what kind of business tax reform would best be sound for retaining,

nurturing and growing businesses in san francisco and us being able to intervene to do what we think is best, without any significant adverse impacts to our general fund. devicing a business tax that is fair and equitable allows san francisco to compete with other cities, especially because we're the only city that taxes both payroll tax and stock options in the state of california. we're not the only city that taxes stock options in the country. new york city does it as well. and it's important that the revenue that is generated is not revenue that subverts or undermines our expectations of our general fund strength. tid yes egan has opined on this quite a bit about the analysis of why our legislation is able to focus on a very discrete

population of companies that are pipo's, that are not yet public, and that by us being able to provide an incentive for companies like twitter, there's other companies like twitter that are considerably larger or comparative to their size that are in that stage of eventually becoming what would be a public company. but before doing so, the twitter deliberation has shed light as to what can we do to make sure that this industry, this population of companies within this industry, pre-i.p.o., do not leave san francisco as well. my legislation does the following -- it only applies to pre-i.p.o. companies that then undertake an i.p.o. in san francisco for a discrete period of time for approximately six years. so by the time the legislation

would be implemented, plus six years. then the city will have the ability to decide the best approach in that interim of how else we may want to reform our tax structure. there has been contemplation of us supplanting the payroll tax for gross receipts tax. that's something that would obviously be considered by ballot, and that's not likely to occur in 2011. this time frame of our legislation recognizes that companies may not be ready to take advantage of the exclusion medley upon its approval of this legislation and give them certainty in signing leases, which typically run for five years. ergo, our determination of assigning a six-year period. the amount of stock-based compensation eligible for exclusion is above -- all companies will be paying at least $750,000 in stock option taxes before they can receive the exclusion. this number is based on

companies that have stayed in san francisco and what they've been willing to pay over the past 13 years without leaving san francisco. according to the controller's office, mr. egan, who's here, can have the policy advantage of providing a tangible benefit to a few successful companies, reducing their incentive to leave san francisco, while leaving the majority of taxpayers and the city's payroll tax revenue unaffected. mr. egan has estimated that the effect on the city's general fund, with this limited stock option exclusion, would be minimal in annual tax revenue and that the loss would be more than recaptured by making sure that companies are retained and sustained in san francisco. so that we are then in the proactive business of making sure their companies are nurtured and that our employee base grows, and from that employee base, because we're not going after payroll tax and just stock option, that we be able to benefit from their

contribution into the employment base increasing into either payroll tax or whatever the new business tax that would supplant that in the future. that is the legislation that is before you. it really focuses, as i said, on a discrete population, narrow. so we are able to gauge i am peer rickly what that impact -- empirically what that impact can mean. what a more larger, sweeping version of boss pre-public and post-public companies would look like. it might be difficult to be able to understand what that impact is, but it's important that we do know. and for us to gauge, i think, that sort of immediate and m&l long-term impact by dealing with this population that we have narrowly defined, that would benefit from stock options. there's an important lesson for

the city, for the treasurer, the tax collector and for the controller's office and the economists to be able to answer the hard questions -- is there any adverse impact that we depend on from our general fund or revenue stream that would certainly belie the very reason for us to be able to do this? based on the report that we have received by the controller, there appears to be nothing with regard into the adverse impact compared to, in contrast, to the benefits of making sure that she is companies stay here. i personally have been in contact with a number of companies that this would qualify for. these companies were watching certainly with great interest of what the potential outcome would be with a twitter tax deliberations and the tax break, and safe to say that it is certainly, i think, a given that they would have liked to see the exact same kind of benefit or something similar to

enhance their interest in staying and what sometimes is seen as a challenging city in order to start and sustain business in. so we believe that there needs to be more sweeping reform across the way. but to get to that place we see this as an incremental step that helps us guide that path and that enables the city's analytical machinery to understand what those true impacts are. as it stands now, and when you speak to mr. egan, i think you'll be able to get a better sizing up of what exactly we are able to gauge and assess of where those true impacts are, versus anecdotal information about more sweeping reform, which is currently where it's at today. so i'll be more than happy to answer any questions. thank you for your consideration on this piece of legislation.

president o'brien: thank you, supervisor. i think we were going to hear both supervisors and then hear from the controller. >> it's up to you, commissioner, whether you want to answer questions at this time or move immediately into the next presentation. president o'brien: i think we should move right into the next presentation, and then we can rally all our questions together at one time after we hear from the controller. >> very good, thank you. president o'brien: thank you. welcome. >> do you need to call the next item? president o'brien: no, i think we called it already. >> commissioners, thanks for having me here tobblets. it's a pleasure to be here and to follow up on supervisor mirkarimi's presentation to you. let me just first say that i think what supervisor mirkarimi and i are both doing is to try to advance the ball here in

terms of this discussion. i don't believe our legislation is mutually exclusive. it takes a bit of a different angle. to give a bit of a different background from my perspective on my impetus to talk about this legislation, it arrived in connection with the mid market tenderloin debate, which was ultimately deemed the twitter debate here in san francisco and in staal. the one thing that came out of that, -- and in city hall. i know the report supervisor mirkarimi is referring to, but the report that came out afterwards said that we are the only major city in the u.s. that taxes stock options or stock-based compensation. new york is part of a potential formula, a greater-of formula, but we're the only city that explicitly does it because of our payroll tax and that's what really caught my attention. my previous careers were in the private sector in, the technology world as an investor and a finance person. to be the only city in the country taxing stock-based compensation or stock options to me puts us at a very big

competitive disadvantage. now, beforehand it never really came to light. people didn't realize it. we didn't have an environment now where we have the twitters of the world coming through san francisco lining up to go public. we have a great problem here in the city right now, and my idea, what i want to focus on, is how do we capture that and move forward. so the goal of my legislation was to acknowledge that what we are doing in terms of collecting taxes on stock options is wrong. this isn't a proactive piece of legislation in my mind that says we need to start giving people breaks or incentives. this is saying we realize what we're doing in san francisco is wrong. no other major city does this. it's very easy, as we've seen over the years, for companies to locate in silicon valley, locate across the bridge over in oakland, locate in austin, texas, or in new york or in the carolinas. we need to be competitive as a city in terms of attracting businesses, and in my mind taxing stock options after we've realized that we're the

only major city to do that is a bit of an issue. so my goal was to make a statement to say, let's put a halt to this practice, but also be mindful of the fact that we have a big budget problem right now in san francisco and to make sure we craft legislation that does not create a budget deficit, that does not create any budget problems compared to last year. that was my goal. so the legislation itself states that we're going to take the higher of 2010 or 2011, and whatever you paid in payroll tax that year, attributable to stock options or stock-based compensation, that's your maximum going forward. so if you think about private companies today that don't pay that, they're not going to pay it in the future. public companies that pay today, we're going to take the higher of 2010 or 2011 so there's no gaming the system and say that's going to be your maximum going forward. so, therefore, we're going to have a situation where we can make a statement and say we acknowledge this is wrong. we want to create a

competitively economic environment here in san francisco. at the same point in time we want to make sure we capture the revenue we've captured in the past going forward. because of supervisor mirkarimi and i and mayor lee are struggling right now. we have a big budget deficit and that's going to grow in the future years. three points about my legislation specifically -- again, one, an i definitely do believe that taxing stock options is wrong. and we cannot continue to do that here in san francisco if we want to create that broader economic environment that's attractive to our companies and attractive to business in san francisco. that's points one. so mine is retroactive. in the past what we've collected previously, i want to make sure we continue to collect, but i don't believe that we should continue down this path now that we understand it's wrong and now that we understand we're the only ones doing it. that, to me, is dangerous. i also think it's dangerous -- and this is where i think

supervisor mirkarimi and i have different approaches. they're different absolutely in, that i believe just addressing private companies today, without also addressing public companies, is very dangerous. we have public companies here in san francisco that employ thousands and thousands and thousands of employees, and they are hiring people outside of san francisco now. they're adding people in texas, adding people across the bay, adding people in silicon valley, and just like supervisor mirkarimi, i spent time speaking with plenty of c.e.o.'s and c.f.o.'s of private and public companies here in san francisco, that this is the type of legislation that if we don't think about it as a city in the to at that time here in san francisco, we don't address all companies across the board. that's a real problem for them and it's a perpetuation of this business environment we've been creating over the years here in san francisco. from may point of view we need to address both. lastly, i do believe here in san francisco and in city hall

are roles to create that competitive economic environment and to create that broader perspective, where companies don't -- we don't, in city hall, ask the question, well, will they really leave if we don't tax them? will they really leave if we tax them a little more? let's instead say let's create the best economic environment possible and then we'll have it where companies want to come locate here, we'll provide the jobs for san franciscans that we need and that, to me, is the way forward. thank you for hearing from me tonight and i'm happy to answer any questions whenever the time comes. president o'brien: president o'brien: thank you, supervisor farrell. i think hearing both presentations, we should hear from the controller who will clearly give an objective analysis of the impact on the figures for the city budget, et cetera. mr. egan? >> which one do you want?

>> ted egan, chief economist in the controller's office of economic analysis. i'm here to share with you this evening a review of a report we issued last week on supervisor mirkarimi's legislation. i understand that you're considering both pieces of legislation side by side. we're still in the process of working on the analysis for supervisor farrell's legislation so don't have any findings to share with you on that piece of legislation now so i do have the results of supervisor mirkarimi's legislation. i should also tell you too the report that we issued last week, we issued prior to supervisor mirkarimi making amendments to his legislation, and he has outlined those amendments. they're closely aligned with what we recommended in our report, and i will try and clarify the points in my report here where the legislation has been superseded by the amendments that supervisor

mirkarimi has made. zwroust go to the presentation as both supervisors told you the city included the stock values of exercise stock options and its payroll expense. although it is recently highlighted in the wake of the central market policy discussion, this has always been the city's practice. so this is not a new tax practice of the city. according to the treasurer's office, businesses have always been liable for this part of the tax and paid it. one of the things we did learn during the debate regarding twitter is that the stock options piece of the payroll tax for person types of companies, companies namely that are as valuable as twitter in the multiple bills of dollars at this this point could be looking at an extremely -- extreme payroll tax payment when they go public, specifically from tax options. twhe go public, twitter would be owing considerably more payroll

tax from stock options than its wages and salaries on employees. i will talk about that on the slide. what is it about the i.p.o. event that could create such a tax lie abt for a very valuable company? in the wake of that discussion and and our report on that issue, wreelly determined it was twitter's tax liability related to stock options that was the bulk of the difference in the cost twitter would pay between a location in san francisco and a location in san mateo county when you consider rent and transportation and the rest of the payroll tax and everything else, it was really the tax on stock options that made the difference. in our report, we recommended that the city take a look at a more general modification of the payroll tax out of awareness of the fact the central market tax exclusion solved a problem for twitter, but there were other companies out there that faced a similar issue and there likely will be in the future. and that recommendation was the

genesis for this legislation. what i've done here is i should say from the outset is for supervisor mirkarimi's legislation that we have reported on and for supervisor farrell's legislation that we will report on, we do not have detailed information on what companies have paid in the way of payroll tax on stock options. the city does not require businesses to say here's your compensation, tell us your compensation for wages and salaries and then tell us your compensation for stock options. it's all one lump of compensation and it's all taxed at the same 1 1/2%. so consequently, we do not have records of what businesses have paid for in the way of tax on stock options. so what i have done here on this chart is basically, this is the simulation model of a business that's worth $5 billion when it goes public might pay. this is an i.t. company when it went public and the blue lines are what it's paying on the

payroll tax salary, including the head count grows dramatically and accelerates when it grows public and slowly afterwards. the red bars are what is paying on stock option. the paying on charge is to show in the event of going public is when the total size of the payroll tax really accelerates dramatically and the bulk of the growth it's associated with stock options and the reason it's so high in that period, and actually tapers off going forward is because that year of the i.p.o. or event of the i.p.o. is when all of the stock options have been granted ever since the country has been founded, when the company had a very low valuation, can suddenly be exercised and potentially the shares sold. if the company is very successful at a very, very high level of profit. so what happens in a situation where a very successful technology goes public is everyone who's gotten stock options suddenly makes a lot of money exercising those stoc