supervisor chu: welcome to a special meeting of the budget and finance subcommittee. do you have any announcements? >> please silence all cell phones and electronic devices. completed speaker cards and copies of any documents included as part of the file should be submitted to the clerk. items acted upon today will appear on the july 24, 2012 board of supervisors agenda unless otherwise stated. supervisor chu: thank you very much. would you call items one and a wheel? >> item 1, ordinance amending the business and tax regulation code to enact new article 12 a-1

to impose gross receipts tax and gross expense tax on persons engaging in business activities in san francisco, amending article 12 a to reduce business payroll expense tax rates based on the amount of gross receipts tax collected under article 12- a-1, and in the current business registration fee to generate $13 million in additional revenue. item two, motion ordering submitted to the voters and ordinance amending the business and tax regulations code to impose a gross receipts tax and gross expense tax on persons engaging in expenses activities in san francisco, amending the ordinance to reduce business payroll expense tax rates based on the amount of gross receipts tax collected, amend the article to establish business registration fees based on gross

receipts in gross expenses, amid the current business registration fees to generate $40 million in additional revenue. supervisor chu: thank you very much for reading both items. i know these are brought by a number of sponsors. i just ask whether any members of the committee would like to speak on the items before we begin. i just want to note we have been joined also by the president of the board. supervisor chiu. supervisor chiu: thank you, and i appreciate your consideration of this matter. there are a number of proposals which have been moved forward to contemplate how we reform our current payroll tax to a gross receipts tax as well as increases to our business license fee. i want to thank supervisors avalos for his leadership as well as mayor lee for the proposal he and i have been working on. i want thank our city economist for the tremendous amount of work that they have done over the past six months to move this

forward. colleagues, today, there are a number of technical amendments that i would like to make to the measure that mayor lee and i had, and i believe supervisor avalos will be making the same technical changes to his version. in general, they are language cleanups, technical corrections to definitions of financial services, other clerical corrections. if it makes sense to have controller walk through some of the specifics, i would suggest that, but otherwise, these are mostly technical amendments to be hopefully adopted today. it is my hope we can continue this item -- these items to next week's hearing, at which time we will hopefully have more clarity about whether we can move forward with one measure as opposed to to a video or have a bit more of a robust discussion on these different matters. supervisor chu: thank you.

for members of these public -- for members of the public, both these items have been called. i know a number of amendments will likely be proposed today, which will require we continue these items. rather than go forward with a full presentation today, my intention is that we will be going through the full presentation of the specific proposals in the coming week. supervisor avalos: thank you. just want to thank my co- sponsors for this measure. very similar to the mayor's measure. we are proposing replacing in great part the payroll tax with a gross receipts tax, a new version of our business tax that will not be taxing jobs and job creation in san francisco. this work could not be done without -- this measure could

not be done without the great work of the comptroller's office -- the controller's office that are reaching out to the business community to get input on how to craft a measure that can really achieve its objectives, lifting up our job creation abilities in san francisco and looking at how to create a fair tax structure in the city. i will not go into detail about the measure, but i want to make sure that both the measure i have and my colleagues are supporting are really looking at how to support small businesses in san francisco. we have an exemption of businesses whose revenues below $1 million will be exempt from any of the gross receipts tax provision. that is something i think is significant as we are moving forward as a city. i am looking at how we can have a measure that can generate some revenue to meet the increasing demands on our public infrastructure and that is

increasing when our economy is also burgeoning. that is something i think we will have a clear discussion about in the weeks to come. i am hopeful we can have one measure that can go to the ballot, and, hopefully, it is one that will have broad support between the mayor's office, the mayor, and the board of supervisors, the business community and non-business community and labor groups supporting the measure i am working on as well. that would be great for the passage of the measure as we go forward. i have. i would like to submit a motion to accept these technical amendments, and our controller is here to talk about what we are introducing today. these technical aspects of the new version. i do believe there was

discussion about where my measure is silent on the business tax exemptions that were enacted or have been enacted in the past eight years or so, the mid-market exemptions -- my measure is actually currently silent on this, meaning the it does not actually actively take them away. there is a phase-out of the payroll aspect of our business tax. my measure does not mention taking away the exemptions, but they will be phased out. but i believe there is still discussion about continuing those exemptions in the newest version, and i am open to that as a way to actually come to some consensus on a measure going forward. >> thank you -- supervisor chu: thank you. i would ask the controller's

office to speak to the specific amendments. it sounds like they are acceptable for both items one and two, so i would like the office to walk through those changes for us. >> good morning, supervisors. we have provided a one-page summary to the committee members, which is also available to the public on the podium of the amendments that have been moved to both measures today. generally speaking, we have organized these into three different buckets, so there are general changes throughout. clean up language, correcting typos, clarify definitions versus the amendments introduced a month ago. there are higher registration fees than the initial introduce measures. it would have been paid in fiscal year 2015 -- 2014-2015.

although the licensees differ, the schedule of them differs by one year. the phase i and formula, which is critical to the measure had technical errors in the math. those have been corrected now in both measures. secondly, there are changes to the treatment of administrative offices. again in the measures that are before you, if a company finds itself defined as an administrative office, it ends up paying administrative office tax. we have placed titers greens regarding the definition of what is an administrative office for purposes of that tax. it now not only requires 50% of a company's payroll expense, but it also has u.s. receipts of over $1 billion and over 1000 employees.

we further in this section more clearly define examples of what constitutes an administrative function and what is not an administrative function to provide fleet into greater clarity to taxpayers and make the measure more straightforward to administer for the treasurer's office for purposes of the 50% test. we have excluded stock-based compensation from the payroll based. that is for purposes of determining whether you are an administrative office or not. it does not change the underlying tax, so stock compensation remains part of the base for the tax itself should a company find itself in this group. leslie, general clarifications that the administrative office tax shall be calculated on the same means basically as the current payroll tax. there are other changes throughout to clarify or amend what constitutes a taxable

receipts, including some additional exclusions and definitions versus the introduction 30 days ago. first of all, a clarification that an individual doing business -- or that an individual in the city doing nothing but managing their own money does not become a taxpayer. we heard this as a possibility from many different taxpayers' reading of the legislation. so we clarified. and individuals returns from their own capital are not subject to the tax. next, we have clarified -- and again, i think this is -- was the intent, and clearly was the -- our internal team's intent for the initially drafted legislation, but given some confusion and concern we have heard from taxpayers, we are

clarifying that certain activities, the various investment funds in and of themselves, do not establish nexus with the city for purposes of becoming taxpayers. so there are a number of different specific examples in revisions you have before you wear those activities in and of themselves do not mean these kind of very passive investment funds are actually doing business here. third, in this category, we clarified that distributions from a flow through ntt -- entity that has already been taxed shall not be taxed another time when they make distributions. again, this is a means of avoiding double taxation as a fund might flop through different legal entities. next, we clarify that gains from the sale of financial instruments in real estate shall be calculated on a net basis.

we can talk in greater detail next week regarding the theory behind the taxation for financial services, but it is, generally speaking, treated in other places as a net concept, which means it shall be applied that only to financial instruments sales but also to real estate sales. also, we exclude from taxable receipts tax refunds, governmental grants, so that is a summary of the major changes you see in the amendments before you. supervisor chu: thank you very much for that presentation. colleagues, and questions? why don't we open this up for public comment. we will have an opportunity for this item to come before us again next week, but are there any members of the public who

wish to speak on items one or two? >> jim lazarus, san francisco chamber of commerce. i want to thank everyone involved for the process that has been under way for months now regarding the redrafting of a business tax structure for san francisco. we have consistently supported an outcome we tax revenues and not job creation. i think we are close to reaching a broad-based agreement on reforms. i had a chance to speak a couple of days ago with a colleague of yours from many years ago who was the author of the gross receipts tax in the late 1960's, and that was to replace some lost revenue because of a lawsuit on the city's property- tax formulas for business versus residential property. $35 million was what was needed in the gross receipts tax in the late 1960's. i do want to say that any

outcome of this process, which is dealing now with a payroll tax that brings in over $400 million a year, the number two source of revenue behind property-tax for the city, has to be fair and equitable to the broad business community, small business, mid-size, or large business. we have gone into this process with the understanding that on the gross receipts tax rate structure, the goal is revenue neutrality. we support that. we also believe that there is a business license fee structure in the ordinance that has not been adjusted for decades, and there is room for reasonable revenue growth in a reasonably restructured business license fee, but i want to make it clear that we do not believe that the change in the court case, 10, 11 years ago left on the table this suppose it $40 million of revenue that the city lost in

2001. in the last 11 years, the rate of inflation on average has been 2.5% in the bay area and in san francisco. yet, the payroll tax growth on average has been 5%, double the rate of inflation. the business community employers in san francisco have paid a fair amount for the privilege of doing business and hiring people in this city. so we want to just keep that on the table, that we believe we can come up with a fair process for gross receipts that minimizes winners and losers because any tax change, even revenue neutral for the city, will not be revenue neutral to every taxpayer based on circumstances or gross receipts. we look forward over the next few weeks to working this out and coming back here -- i guess over the next few weeks -- with substantive rate changes and license fee changes that can meet the needs of the city, the needs of your employment

community, and that can result in one measure on the ballot, resulting in the removal of the competing transfer tax measures, and we can go forward to passing the measure in november. thank you very much. chu -- supervisor chu: thank you. are there other members of the public who wish to speak on items one or two? seeing none, public comment is closed. supervisor kim: i would like to introduce an amendment for item two, which is the business and tax code, the one that is being co-sponsored by supervisor avalos and myself. i would like to add in the same language that is currently in the mayor's proposal and president chiu's proposal amount

tax exclusions that have been put in. supervisor chu: to the city attorney or controller's office, would you indicate what that language looks like? >> do you know what section you are talking about? it would help us go through supervisor kim: i am looking right now. >> hold on. we have to locate the language. >> i am looking for it as well. my apologies. i should have brought copies with me. i merely want to replicate that

language said that it is identical on both charter amendments. supervisor chiu: i believe part of it starts and section 921 with the charter amendment, but i will look for other pieces.

>> supervisors, the language you are referring to, i believe, is section 960. i believe those are the existing payroll tax-based exclusions. supervisor chu: to be clear, you said page 28? >> yes. supervisor chu: what was the other one? >> page 28, section 960, and then page 29, section 961. supervisor chiu: i think that is in the version mayor lee and i have proposed. supervisor chu: it looks like

it is on page 27. >> that is the pagination given the amendment that is before you today. supervisor chu: 962, is that correct? supervisor chiu: i think it is 96961. >> i apologize, in the amendment before you today, it is on page 30 and 31. supervisor chu: ok, colleagues. looks like what we are looking at, item one does include those sections. item two does have those two sections removed, it looks like. i am imagining your motion is to reassert the same language in section 96961, correct? supervisor kim: yes, that is my

motion. just to speak to this motion, this is an issue i have been really thinking about and struggling with over the last couple of weeks as we begin opening of discussions around tax exclusions that were already controversial previously, and after some discussions with some of our companies that do currently benefit from these tax exclusions -- i just have to say i have always been very clear that if we ever reform how we do business tax, that these tax exclusions might not continue, but in conversations i have had, because some of these companies also are trying to continue community benefits or begin them and work on relationships with neighborhoods and communities that they are in, i thought that it was important to be able to continue that, regardless of

which measure moves forward. i think these companies have also offered kind of in their good faith both support for these efforts in november and also their ability to partner with generally like to initiate. supervisor avalos: 90. these amendments -- sank you. these amendments i will accept in a measure -- thank you. these amendments i will accept in a measure i am is sponsoring. the discussion we have had around payroll tax exemptions, whether it was clean tech, biotech, enterprise, or amid market was really about trying to do something around the payroll tax that was inhibiting job creation. while we are replacing the

payroll tax with a gross receipts tax, i do believe we are doing that, but a thing the argument supervisor kim has put forward that there already is something in process between the community and business groups moving into the area means we should allow the process to go forward. i also believe if we are going to be able to find consensus around having one measure going forward, this is something that i believe is a minor part of that discussion that i am willing to see going forward continuing the business tax exemption so we can be more successful. supervisor chu: thank you. looks like there's a number of motions on the floor. i want to articulate them again. i believe that there is a motion to accept the amendment as a whole of the documents we have

talked about. they are primarily technical in nature, have general changes to some cleanup language, administrative language, and other receipts and exclusions, so these i believe are fine for both measures, so there is a motion to amend both items one and tip o'neill. finally, there is a motion on the floor to add items for sections 96961 into item two. i would also say if we could amend that motion to allow the city attorney and controller's office to allow any legislation necessary to implement that that they can go ahead and do that. i apologize, we should have done this in advance, but it was a last-minute amendment that i wanted to motion for this morning after some conversations i have had, so if we could work with the controller's office, we

are happy to work with you on at least ensuring uniformity of that aspect. supervisor chu: thank you, supervisor. can we take those motions without objection? that will be the case appeared on the two items as a minute, can we continue this to wednesday july 18? we have that motion? we will do it without objection. thank you. do we have any other items before us? >> that completes our agenda. supervisor chu: thank you. we are adjourned.

>> there are kids and families ever were. it is really an extraordinary playground. it has got a little something for everyone. it is aesthetically billion. it is completely accessible. you can see how excited people are for this playground. it is very special. >> on opening day in the brand- new helen diller playground at north park, children can be seen swinging, gliding, swinging, exploring, digging, hanging, jumping, and even making drumming sounds.

this major renovation was possible with the generous donation of more than $1.5 million from the mercer fund in honor of san francisco bay area philanthropist helen diller. together with the clean and safe neighborhood parks fund and the city's general fund. >> 4. 3. 2. 1. [applause] >> the playground is broken into three general areas. one for the preschool set, another for older children, and a sand area designed for kids of all ages. unlike the old playground, the new one is accessible to people with disabilities. this brand-new playground has several unique and exciting features. two slides, including one 45- foot super slide with an elevation change of nearly 30 feet. climbing ropes and walls, including one made of granite. 88 suspension bridge.

recycling, traditional swing, plus a therapeutics win for children with disabilities, and even a sand garden with chines and drums. >> it is a visionary $3.5 million world class playground in the heart of san francisco. this is just really a big, community win and a celebration for us all. >> to learn more about the helen diller playground in dolores park, go to sfrecpark.org. commissioner wiener: welcome, everyone, to the san francisco county transportation authority finance meeting. are there