An effort to implement business tax breaks to encourage job growth for San Francisco’s ailing economy is dead before arrival, according to one progressive supervisor who leads the powerful budget committee.
Mayor Gavin Newsom is pushing the Board of Supervisors to adopt three tax break proposals as part of what he calls a local economic stimulus plan for San Francisco.
But Supervisor John Avalos says the tax breaks will never be approved through the board and therefore should not be introduced.
Newsom’s plan “doesn’t make sense” and it’s “doubtful” it would have any positive impact on The City’s struggling businesses, Avalos said, adding, “Whether this is actually going to spur the economic growth the mayor talks about I really doubt.”
The City is currently suffering from a historic 10 percent unemployment rate, and empty storefronts and building vacancies continue to increase. Newsom hopes the tax breaks will work as incentives for companies to both keep jobs in San Francisco and create new ones.
However, progressive members of the board generally frown on providing tax breaks for businesses and often advocate for increased business taxes to offset cuts to city services and government employee layoffs.
The recession has cost city coffers tens of millions of dollars in tax revenue, which is used to pay for basic city services such police, fire, and street cleaning and paving. The City is facing a second consecutive year of having to close a half-billion-dollar deficit due falling tax revenue and cuts in state funding.
The ideological battle of tax breaks has come to a head, as Newsom called on the Board of Supervisors during his annual State of The City address Jan. 13 to “immediately” act on the package of tax breaks.
“There are three pieces of legislation that I haven’t been able to pass,” Newsom said during the address. “In fact, I have had a hard time getting them calendared at the Board of Supervisors.”
Avalos, who chairs the Budget and Finance Committee and determines what is heard by the committee, continues to resist Newsom’s request.
“I don’t expect they will be able to pass out of committee,” Avalos told The Examiner on Wednesday. “It doesn’t make a lot of sense to put something on the calendar if it doesn’t have a chance of passing.”
One measure provides a two-year payroll tax “holiday” for new hires, and another would provide a $2,000 payroll tax credit to employers with 20 to 49 employees who can show they are complying with The City’s Health Care Security Ordinance.
A third would allow new biotech businesses to enjoy a payroll tax break for 7½ years no matter when they open for business. Currently, a biotech payroll tax break is in effect, but it’s set to expire in four years.
Newsom has quite a different opinion, according to Jennifer Matz, the mayor’s managing deputy director for the Office of Economic and Workforce Development.
“These three measures will provide significant, meaningful financial relief to San Francisco’s businesses and encourage job growth in The City,” Matz said.
Avalos also said the plan is misguided when The City is looking at laying off “hundreds, perhaps thousands, of city workers because we have a revenue shortfall.”
Ted Egan, a chief economist with the City Controller’s Office, said the two-year tax break on new hires — which is the most significant of the proposals — is “one of the most cost-effective ways” to create jobs in the private sector. “It will not make The City money,” he said.
Egan would, by law, have to provide a detailed analysis of the proposal if it would be voted on by supervisors.
On Friday, Avalos is expected to meet with the Mayor’s Office for a briefing on the proposals, according to Matz. It’s unclear if an agreement could be reached for the committee to hold a hearing on the proposal.
Doing business in The City
9.9 Percentage of people unemployed in San Francisco
80,000 Number of businesses in S.F.
6,000 Number of businesses that pay payroll taxes
2 Number of biotech companies in S.F. before tax break
56 Number of biotech companies in S.F. today
Sources: City controller, Mayor’s Office
Tax break incentives
Mayor Gavin Newsom has proposed three tax breaks for businesses in order to retain and create jobs as The City’s unemployment rate hovers at about 10 percent:
•No payroll tax on any new employee hires for two years
•A $2,000 payroll tax credit for businesses employing 20 to 49 people that provide health care to their employees
•Extension of biotech payroll tax exclusion; the tax incentive program expires in 2014, but would be extended to allow biotech firms to be exempt from payroll tax for 7½ years
Source: Mayor’s Office