a ticket for a -- an airplane ♪ ♪ your groin on the fast plane ♪ and i'm writing you a letter ♪ ♪ you will be on a fast break ♪ you will be getting it to get -- you will be getting a ticket to ♪ ♪ and going away ♪ >> -- chairperson chu: thank you, walter. i will close public comment. do we have a motion on that item? thank you. i will take a motion to rescind items one through three so that supervisor kim can border on those items. we can do that without objection. and on items one, two, three, do we have a motion to send those

-- to rescind those. thank you. item number 6. >> contract cs914 for construction services jacobs and incorporated. where are authorized to increase the agreement by $1.5 million for a total agreement amount of $26 million. chairperson chu: thank you. we have juli from the puc. >> this is an item that pertains to a consultant agreement with jacobs engineering group. it is one of multiple agreements for the water

improvement program. it was awarded in 2008. it has a value of $25 million and a duration of four years, 10 months. budget analysts did an excellent job of describing the scope and the reason why an amendment is needed at this time. the main reason, actually, is that we need additional services to help us address archeological and paleontological discoveries at various sites under a critical pipeline that we're building. at one side, we discovered a human remains and it was determined to be most efficient and cost-effective to tunnel under the area. in summary, we are seeking your approval to increase the agreement from $25 million to

$26.5 million, a 6% increase. the projects will be completed shortly, so we do not seek an extension of the agreement. there are also some related items to the findings. i will be happy to answer any questions. chairperson chu: thank you. budget analyst report. >> on page 3 the request of $1.5 million additional, we do recommend that you approve this resolution chairperson chu: are there members of the public who wish to comment on this item? item number six. >> ♪ here comes the clean water again ♪ ♪ reining in my head like a memory ♪ ♪ i want to dive into your budget ♪ ♪ is it raining which you

♪ budget, make it good ♪ make it good ♪ like you should ♪ city, make it good ♪ like you should. -- like you should ♪ ♪ and i hope you make it clean ♪ and make it like a dream ♪ to flood a million streams of the motion ♪ ♪ and you can make it might be clean ♪ ♪ and make it like the best water dream ♪ ♪ to flood a million streams of the motion -- ♪ of -- ♪ with this motion ♪ chairperson chu: seeing none, -- seeing none, public item is

closed. >> item number 7, the city will contribute funds up to $9,000 to acquire the nallen range and conservatory easement of which the city will be one-third partner and provide a permanent endowment of $125,000 for the conservatory easement and authorize the public utilities commission to execute document and take certain actions in furtherance of this resolution. chairperson chu: i believe we have tim ramirez. >> yes. i'm from the natural resources and land enterprise protection

program. this one is at the top of the headwaters of the watershed itself at the peak of mount hamilton. because its does not adjoined the property we manage, the senate has agreed it will be co- managed with grant county park. i will be happy to answer questions. chairperson chu: what we go to the budget analyst report. >> madam chair and members of the committee, on page 5 of the report, we report that the puc 's $866,000 purchase price, there one share for the purchase of the ranch, and additional costs are -- of the -- nolan range, and additional

costs are $333,000. the puc would pay a one time $125,000 as an endowment fund to the nature conservancy to protect the construction easement. and that would be in perpetuity. recommend you approve this resolution chairperson chu: are there members of the public who wish to comment on item 7? >> phil paulson, my father, he worked at central shops. it ♪ i should have listened to my old man ♪ ♪ i should have stayed on the on ♪ ranch man ♪ ranch man ♪ and all the science i don't

understand ♪ ♪ is just my job every day of the week ♪ ♪ branch man ♪ ranch man ♪ ♪ i'm having daydreams about ranching ♪ ♪ in the middle of the afternoon ♪ ♪ and every night, you make my ranch dreams come true ♪ ♪ i'm having ranch dreams ♪ ♪ about budget things in the middle of the afternoon ♪ ♪ and every day, every night, every year ♪ ♪ you make my ranch dreams come true ♪ ♪ chairperson chu: thank you very much. any other members of the public who wish to speak on this item? seeing none, public comment is closed. public comment is closed.

we have a motion to send this forward. the next item before us? >> adjournment. >> -- chairperson chu: thank you. we are adjourned. 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