>> good afternoon, everyone. welcome to the regular meeting of the government audit an oversight committee. i am the chair of this committee. i would like to thank our clerk and the sfgtv staff covering this meeting. do we have any announcements? >> silence all cell phones and electronic devices. items act upon today will appear

on the supervisors agenda unless otherwise stated. >> can you call item number one? >> ordinance amending the business and tax code. >> we have a few people who will be speaking on this matter. i want to make a few comments. this is something that i have sponsored with a number of co- sponsors. this bill creates jobs and supports our small business community. we have done a lot here in city hall in terms of job creation over the last year and a half. we have not done much in the way of small businesses. i believe this is changing here in city hall. this legislation is a big step in that direction. this will allow small-business

this with a payroll under $500,000 to expand their peril of to $250,000 a year. -- their payroll up to $250,000 a year. it extends through fiscal year 20 -- calendar year 2015. this will create hundreds of jobs for san francisco residence. the notion of underemployment, i am sure many in this room and watching know a lot of friends, former colleagues, that are currently working, but may be working less hours and making less wages. hopefully, this will also fuel our economic recovery and continued to do that in san francisco. we currently have a 7.4% unemployment rate in the city. that is dropping. this is time to accelerate it. before turning over to the

speakers, supervisor campos. supervisor campos: thank you for allowing me to sit in on this item. i want to thank supervisor farrell. this is something we have worked with his office on for quite some time. we have had many discussions in the last few years about the pros and cons of the tax cut. i know there are very strong opinions on either side of that issue. from my perspective, the reason why i am supportive of this item is it is an issue of fairness. i think that if tax breaks are going to be provided to certain companies, certain industries, i think it is important for us to also do something for the small business, which is the one that is the real economic engine that

makes this economy work. the vast majority of jobs are created by small businesses. it is especially the case that small-business is have a unique commitment to job creation in specific neighborhoods. what i have seen in my district, and whether it is the mission, is that when the small business owners in those neighborhoods higher, they hire people from the local neighborhood. it is not just about creating opportunities for them to hire new people. it is also to deal with the issue of underemployment. what this legislation does in addition to allowing them to raise the payroll by hiring new people, it also allows these businesses that might be on the fence about giving an employee more hours to work, it allows

them, incentivizes them to actually give that complete the additional hours. it is not just unemployment, it is under employment, that is a big concern. i appreciate the approach that supervisor farrell has done because it reflects the reality of what is happening in these communities. the numbers we have seen in terms of the numbers of businesses we have the neighborhoods like the mission, the vast majority of businesses in that neighborhood have anywhere from five to 20 employees. these are the kinds of businesses that this legislation is targeting and trying to help. the other thing that was important for us was to make sure that we also recognize that it is important to reward businesses that are following the spirit of the laws around the treatment of workers.

i am appreciative that the supervisor was willing to work with us, which is also interested in helping small businesses, to include language that insures an order to benefit from this tax break, there can be no finding of misconduct by the office of labor standards. i think that is a very good thing because we want to promote people following the rules and playing by rules. the vast majority of businesses do that. we want to reward those. i am very proud to support this piece of legislation. colleagues, i look forward to your support. thank you to everyone who has worked on this. >> i'd just wanted to make a couple of introductory comments on this as well.

reforming their payroll tax is something i have been working on since my days on the small business commission. i want to sink the small business leaders that are here. we all know that we have a tax system that is not only a disincentive for hiring, but has disproportionately impacted our small business community. over the past half year, working closely with our city economist, and our treasury's office, we have been engaged in a conversation around comprehensive business tax reform so that we figure out a proposal to replace wholesale the payroll tax that we have. i do hope we will be able to move forward in the coming weeks to work on a proposal that we can put on the november ballot. i want to thank members of the business community who have been working on this. this legislation we have in

front of us today is important to move forward because of our -- are small businesses need all the help they can get. we do not have time to waste. >supervisor farrell: we did sped a lot of hours together, working with a lot of the neighborhood merchants. i think they were very valuable in terms of the template and what we did with this legislation today. -- input and what we did with this legislation today. >> good afternoon. i will give a very brief overview of our report. if you have questions, now or later, i can respond to them. we did look at this program. i am not going to summarize it

unless you want me to, but it would provide -- based on the first year perrot. we estimated -- payroll. we estimated that the reduction in revenue to the city would be about $2 million per year. we raised a couple of policy considerations. one is it would apply to any increase in payroll, not just new hires. one of the second issues we raised was that as a business expense -- expands, we continue to apply to them. we do consider this to be a policy matter. supervisor farrell: questions?

thank you. much appreciated. i asked our city chief economist to come up. i think one of the things we should -- i should think you personally. if you have any comments or the one thing i do want to ask, we talk about $2 million from harvey's office, we also talk about the job creation. if you could address that. >> our office reviews all legislation introduced at the board for material economic impact. as the work on this item, we determined that it would not meet our threshold likely. because i did work would supervisor farrell, i would

be happy to offer with the drop in tax might be. we had provided the estimate to the budget analyst and we did despite modeling what this legislation would have cost in 2010 -- we did it based on what this would have cost in 2010. we are more in an economic recovery and i would expect the cost of the policy to go up. $2 million per year is a reasonable estimate. in terms of the job creation, payroll taxes increased to the cost of labor. it reduces their affected cost of labor and incentives for job creation. the chief question when designing a payroll tax cut is the tax cut sufficiently designed to minimize the amount of forgone revenue that is spent on payroll and job growth.

i do think this policy measure is carefully tailored in three ways that makes the cost per job lower than a straight payroll tax cut. first of all, it is a payroll tax reduction only for net new pay row. it is an incentive for businesses to add payroll and at employment or hours or salaries. it does not provide incentives to businesses that are contracting in the city. secondly, by focusing on small businesses, businesses with less than $500,000, that is a broad range of businesses in the city. with estimated that to 30,000 businesses. -- we have estimated that to 30,000 businesses. the fact that the new peril is capped a $250,000 in one year. it does mean that you are eliminating the risk of subsidizing a business.

you are limiting their exposure to any particular growing business to $250,000. on that basis, i would estimate the cost per job is somewhere between $6,500 and about $10,000 a job. that would mean the job creation you could expect is somewhere between 150,200 50,000 job -- $150,000 and $250,000 jobs. >> we normally say if it is less than $10 million a year, that is not material for the purpose of our reporting. supervisor farrell: next speaker. one of the offices we worked with was the tax collector to make sure we insure that this was a relatively small piece of legislation that could be

implemented easy. thank you for being here. >> good afternoon. i do want to thank the supervisors for their willingness to work with our office. it will be straightforward for us to implement. this exclusion would be granted for all qualifying businesses that make a timely filing of their payroll expense tax returns. what is going to be helpful is this is gone to be automated as part of our existing tax return process. it does not require us to collect and track any additional pieces of data. that is why our costs were relatively limited. we've started the conversations with the office of labor standards enforcement as to how we will incorporate the recent amendment to make sure that

those businesses that have of finding against them for violating wage laws are not included. it is going to be a process very similar to how we handle other exclusions. i am happy to answer any questions. supervisor farrell: questions? thank you. thank you for your work on this. last, we have the small business commission, office of small business. >> good afternoon. i am the director of the office of small business. this year's small-business weak theme was saluting the heroes of our economy. -- small business week the muzzling the heroes of economy. the commission heard reviews of -- the amendments you have proposed fall in line with what

the commission would support. it would very much support what you were wanting to accomplish with that. the commission had the same similar findings as what was noted by supervisor campos in terms of this getting to our small neighborhood businesses and helping not only had with the underemployment, but also with job growth. just want to express our appreciation and responding to the need that -- when we have had the enterprise tax credits, we have heard from businesses, how come is not in our area? when we do sector based tax credits, businesses have also said, why not our sector? this will cover a broad range. we are very much appreciative, thank you. supervisor farrell: thank you. colleagues, any other comments?

we would like to open it up to public comment. still free to step forward and line up over here. i see a number of colleagues here from our small business community. everyone will have two minutes. >> thank you. thank you for introducing this. we truly appreciate it. the other part that is not looked at is when more folks are hired and folks are making more money, they will be in the community's spending more money. that comes back in a different way. there are also -- there are other effects that are helpful in many aspects. i want to address supervisor farrell. you reached out and said, how can we do this?

can you work with us? that was a wonderful way to do this. that way you got some input from small-business. the only feedback i got that was not 100% for this, what happens in november? what happens if things change in the tax structure? if you do not do something, who knows what is going to happen? we do not truly know what is going to happen. there is not a reason. just push forward, let's move it forward. again, i wanted thank you very much for what you have done. we think is a wonderful move forward. supervisor farrell: thank you. before you begin, i want to thank the number of my other co- sponsors. in particular, supervisor elsbernd.

>> good afternoon. i really applaud the supervisors for putting this through. being a small businesses, we are the folks who operate with two or three employees. it is usually a mom-and-pop operation. there are folks that do walking tours of around the city. maybe she will be able to help somebody -- helper do this. one of the hardest working people i have ever seen. the guy is just amazing. we need to be aboard these people. i think that is what you are

doing, -- we need to reward these people. i think that is what you are doing. i think you will find most like what they do. they like the community their work with. this is excellent legislation. thank you very much. supervisor farrell: next speaker. >> good afternoon, supervisors. san francisco chamber of commerce. i think we have to recognize that steps like this will have an impact on hiring. it is going to counter a decade of very costly impacts on businesses. we have calculated in the last decade, it cost 50% more in san francisco than the surrounding

area to hire an entry-level employees. add that up, and there is a disincentive to hiring. in 2000, there were 600,000 people working in san francisco. that recession brought it down to 510,000 people. we never made it back. in the last increase in the economy to that 600,000 level during the first decade of the 21st century. the first time coming out of recession san francisco's employment did not increase above the prior high point. even though unemployment is dropping. unemployment was four% five years ago. even though our total employment -- we are working our way out of the national recession. we are leading the state of california. we appreciate this and support

your action today. supervisor farrell: mr. maxwell? >> supervisors, i am the president of the council of district merchants. i want to thank supervisor campos and farell for pushing this forward. one big criticism of the payroll tax has always been that it is not -- when you get to $250,000, when you make that leap, you get presented a bill. that is oftentimes been the criticism, it is certainly a disincentive. to give you a microcosm picture

of what that looks like out there, it is actually, for the first time, we have not had are sidewalk sales as part of small business week. to have an additional employee on staff to be outside and watch your produce, products, keep an eye on that and be able to staff, it is just about impossible under the current conditions. hopefully, this is going to move that forward, create a lot of jobs. small business is the backbone of the economy in san francisco. supervisor farrell: next speaker, please. >> good afternoon, supervisors. i was looking over today's

schedule and i noticed that three out of four items were originally scheduled for budget and finance. for the record, i would like to oppose this because i think it is being misplaced into this committee. the last time i looked it said government audit and oversight. i look at these four items and i do not see any audits an oversight. unless you want to stretch the definition of the word audit and oversight. if you would like to -- if you would like some suggestions, we could try the department of public health. we could try all the drug dealing on the east side of the park. we could always revisit the department of building inspection. i am sure does not want to -- i am sure the city does not want to get the fbi involved again. >> i wanted to say that i am

very much for this legislation. i hope you are able to get this through. it is something the city needs. supervisor farrell: any other members of the public who wish to speak? just a few closing comments. the reason this item -- we actually have two fiscal committees at the board of supervisors. during budget season, that is the reason why we have a second fiscal committee. that is why we have these items in front of us. i just want to thank all the speakers who came out and the members of our city staff and departments to cannot to speak. always have -- who came out to speak. san francisco is incredibly unique because of our different neighborhoods. small businesses are the backbone of our neighborhoods. we think this is an important piece of legislation.

i want to thank my colleagues. supervisor campos: i want to add something. i do want to thank the lord 24th street merchants association -- lower 24th street merchants association. to make sure the perspective of how this would work on the ground was taken into consideration and to make sure that it was something that was done in the most expedited and easiest way to use possible. i want to thank them for their input. thank you, supervisor farrell. supervisor farrell: comments? can we do that without objection? so moved. thank you, everyone.