keeping promises with our labor representative is critical to building trust and to make sure that we carry out and we honor all that they do every single day in carrying out services for us. to all the department heads and your wonderful staffs, thank you. i also want to make sure i acknowledge all of our labor unions, all of our representatives. for years you've worked with us and sacrificed and bemoaned the bad budget years, but you've stepped up in every occasion. for the department heads and non-department heads who we've shared challenges with, thank you for sacrificing so many years. and now we get to, i think, a budget that has some relatively good news and a good foundation. this year we begin the hard work of presenting the city's first two-year budget. and we began that year with a

$263 million deficit for our general fund. and then the coming year, the second year of $375 million shortfall. that's what we faced at the very beginning. but because of the fiscal discipline that we put in process, a discipline that's reflected in the great work of ben rose enfield and his staff and the controller's office that keeps reminding me of the credit ratings of our city and that we must make sure that we do things in a very solid financial way, we made investments in job creation and we made commitments to reform with that guidance. now san francisco's economy is recovering and reserves are going. in fact, during the last nine months the controller has reported that our revenues were $172 million more than projected. this is good news. this is good news, but it did not come without commitments, without sacrifice by everybody

and all the groups represented in this room. i would like to again thank owe employee unions for working with us to find a common goal, saving more than $28 million in your contract negotiations with us. i'm happy to report that i'm presenting a responsible and balanced two-year budget. while we spare the city the deep cuts we've experienced over the last several years and one that i present to you in a san francisco economy that's recovering, in this budget you will see investments. investments that ensure that people who live, work and visit our city feel safe, investments that protect our social safety net that supports seniors and youth, low-income and working-class families, investments that support our neighborhoods, our infrastructure and our commercial corridors. this budget reflects a lot of collaboration and partnership with our san francisco community. one thing we agreed on early

was that in a time of state and federal cuts, protecting our social safety net is more important than ever, and in this budget i've rejected all service reductions in our health department and human service agencies. [applause] s i've included full restoration of federal cuts to programs and services that serve people with h.i.v. and aids. the loss of redevelopment has been a severe blow to our city, especially for this first street corridor. so we will invest in economic initiatives in the heart of bayview to stabilize businesses and attract new ones. [applause]

we will also continue our investment in central market and especially sixth street, where the elimination of redevelopment has left a gap in services. with our community partners and including the very spirited arts community that's been so wonderful in helping us lead that effort, we'll support businesses in that sector, attract new ones, and keep the area clean and safe. we will also invest in the youth of sfsk and in their education. i will propose releasing the $6 million in rainy day funds to support our public schools, to offset the state's deep cuts to education. [applause] most importantly in this budget we are putting san franciscans back to work. you've heard me say on many occasions recently our unemployment rate dropped from 9.6% in early 2011 to 7.4%

today, our lowest since 2008. [applause] we, as a city, along with our business partners and every neighborhood, we created 22,500 net new jobs in san francisco in just the last year. [applause] that's good. that is really good, but we need to do more. with this budget we are continuing to invest in strategies and incentivized job creation, training, and place our residents for their jobs for the 21st sent re. we are creating a climate that gives entrepreneurs and investors confidence in our city, allowing them to work with us to innovate, grow and create jobs, whether they are in neighborhoods, small businesses or tech start-up or a thriving global headquarters. in neighborhoods, we are more than doubling grants available

to small businesses, and we are including $4 million for neighborhood commercial districts through our new invest in neighborhood strategy. that includes job squad and the recapitalize the small business revolving loan fund. we are bringing staal to the neighborhoods -- city hall to the neighborhoods where it belongs, to support small businesses. my proposed budget includes $4 million in smart capital investments and $441 million in smart capital investments in our city's 10-year capital plan to improve and invest in the city's infrastructure. [applause] over the next two years we'll invest in and improve or water system and continue investing in our waterfront. we will also continue to invest in our parks.

and i've joined the members of the board of supervisors to introduce $195 million bond measure to keep our parks clean and safe. [applause] all told, over the next two years enterprise departments will spend more than -- will actually support more than 8,700 jobs in san francisco by infusing $1.3 billion into our local economy. as our economy grows and as we add jobs, we must redouble our efforts to expand housing opportunities and build more housing for people at every income level. i get it. i know there's anxiety out there, because rents are start together creep up again in every neighborhood as our economy recovers. but the answer to scarce housing and rising rents is not to stop growing our economy or creating jobs. that's why we proposed the

housing trust fund measure for this november, to create a permanent source of housing and revenue to fund the production of housing at every level of our economic spectrum. i am pleased to share with you, too, that my budget also includes a six-year police and fire hiring plan. [applause] this hiring plan for police and fire will train the next generation of san francisco public safety personnel. we are planning for anticipated retirement, reducing overtime and making sure our public safety departments are appropriately stand. mow, of course, this submission of the bubt is not the end of the process. i've looked forward to working with the full board to ensure that our residents receive quality services while we balance the budget and continue in our economic recovery. i again want to recognize

supervisor carmen chu and the board of supervisors for their steadfast leadership and commitment to building a collaborative process, backed up with our board president, david chiu. thank you steve cava, chief of staff, thank you budget office, director kate howard, and to best rosenfeld, thank you to you and your wonderful staff and i will advance, thank you harvey rose, for his work he'll be doing. this is very less dramatic presentation, i know that. but all the work that's been done in a very comprehensive way, and i want you to know that the values of the city are intact, we are moving forward, and we are investing in all of our neighbors in san francisco. thank you very much. [applause]

ok, back to work.

>> 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