Business Taxes

Time to enforce the law

Andrew Lam
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EDITORIAL The new tech companies that are making waves in San Francisco — Airbnb in the short-term rental business and Lyft and Uber in the taxi industry — may describe themselves as innovative and disruptive, and they may be appealing to investors.

But there’s a more accurate word that describes their relationship to the city:

Cheaters.

The way these companies are luring customers isn’t really about high-tech applications or brilliant business models. They’ve just found a way to get around the rules that everyone else has to obey.

Some city officials are talking about hearings and new legislation, all of which is fine. But in the rest of the business community, when someone flagrantly, openly violates the regulations, the City Attorney’s Office cracks down. That’s what needs to happen here, and soon.

Airbnb has a slick and appealing promise: You can rent out your house or apartment on the Internet to someone who wants to stay in the city for a few days, but is looking for an alternative to a traditional hotel. The homeowner or tenant gets some extra bucks; the visitor gets to stay in a cool neighborhood at a bargain price. What’s not to like?

Well, for one thing, most leases in San Francisco bar unauthorized sublets, so renters who offer their places on Airbnb face problems with their landlords, including possibly eviction. City laws also bar the use of residential property for commercial purposes. And, as we’ve pointed out repeatedly, Airbnb isn’t collecting the transient occupancy tax that every other hotel operator in the city has to pay. The total tab: At least $1.8 million a year.

Lyft and Uber say they’re using creative apps to offer an alternative to the screwed-up taxi system. Drivers offer rides to people who can “volunteer” to pay at the end — but if nobody pays, the whole business model fails and the venture capitalists who put up the money lose. So everyone knows that these are pay-for-hire taxis.

Except that San Francisco requires every taxi driver to have a permit, called a medallion — and drivers have to go through training, background checks, and carry extensive insurance. If a driver overcharges or refuses a fare, a customer can complain to the city, and get recourse. The startups don’t follow the same rules.

There are reasons the city regulates cabs and charges hotel taxes. Cab drivers are ferrying people, some of them vulnerable; it’s only a matter of time before a rogue driver who sneaks into the new unregulated startups winds up in a horrible crash or criminally preying on riders.

Driving a cab without a medallion is illegal. Failing to pay city taxes is, too. City Hall can debate and dither and try to avoid offending the mayor (who, unfortunately, is trying to help Airbnb slide). But this is a clear-cut case of businesses flouting city law. Herrera needs to put an end to it.

 

The (bad) Warriors deal, by the numbers

Zelda Bronstein
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The (bad) Warriors deal, by the numbers

Rudy Nothenberg, who ran Muni and the city’s water system, was chief administrative officer, negotiated the deal for the Giants ballpark, and served under six San Francisco mayors, stopped by the office last week to talk to us about the Warriors Arena. We’ve had our fights with Nothenberg (as we would with anyone who was that close to Willie Brown and Dianne Feinstein) but the guy knows more about City Hall, public works, private development, and infrastructure finance than almost anyone alive. So we were happy to hear what he had to say.

Let’s be clear, here: Nothenberg lives near where the arena is slated to be built, and, as he was quick to tell us, he doesn’t want it in his backyard. But he also presented a compelling case that San Francisco is getting ripped off. And he had a few pointed things to say about the lack of negotiating skills among the members of Mayor Ed Lee’s administration.

Back when Nothenberg was talking to the Giants about a stadium at Third and King — at that point a district of dilapidated and underused warehouses — always kept a card in his back pocket. “I always knew that if things didn’t work out and we didn’t build the stadium, that would be okay too,” he said. In other words: You can’t get a good deal if you’re not prepared to walk away. And when it comes to the Warriors proposal, the mayor has made it so clear that this is his legacy that the team knows the city will never walk away. So one side of the talks can demand pretty much anything, and the other side has no leverage.

Oh, and it doesn’t hurt that just about every development lawyer, political consultant, and lobbyist in town is already working on the project. “They have co-opted everyone,” Nothenberg — no stranger to the dark side of politics — told us.

The exact terms of the deal are still not public, which is a bit odd since the city has already started its environmental review. (Can you really do an environmental impact report on a project when you don’t know what the project actually is? Two difference state courts have come to opposite conclusions, so for now the answer is: maybe.)

But there’s enough information out there for Nothenberg to give us a basic rundown on the financing — and it doesn’t look good. “The Port is really not getting anything out of the deal,” he said. The city will get some increased sales and business taxes, and the Warriors will have to pay housing and transit fees. But there won’t be a lot of new property tax revenue, since that will all go to pay for the arena.

Here’s how Nothenberg laid out his analysis:

The Warriors have to spend $120 million to replace Piers 30-32. (Costs a lot to build such a huge structure over the water.) To make the team whole, the city will sell the Warriors a seawall lot on the other side of the Embarcadero for $30 million, then give the $30 million right back to the team. Then the city will set up an Infrastructure Finance District — the 2013 equivalent of a redevelopment agency — use the future tax increments to fund a $50 million bond. The Warriors get the bond money; the city pays it back. Oh, and then the city gives the team $30 million worth of rent credits, meaning the Warriors will probably never pay any rent at all for the use of that public property. And to make it sweeter, San Francisco will pay the Warriors 13 percent interest on the rent-credit money.

Meanwhile, the local taxpayers will have to come up with a huge amount of money to increase Muni capacity, since the existing transit can’t possibly handle the load of the new arena. Yes, the Warriors, like any developer, will have to pay a modest transit impact fee — “but it’s laughable to thing that this will ever cover the capital and operating costs,” Nothenberg said.

To summarize: The wealthy owners of a professional sports team will get free waterfront land to build an immensely valuable new arena. The city will pay to bring the fans there and get them home, deal with the traffic impacts — and get almost nothing in return.

Good one, Mr. Mayor.

Will narrow business interests continue to dominate SF’s political agenda?

Sasha Cuttler
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44
Will narrow business interests continue to dominate SF’s political agenda?

Will the narrow, deceptive, and disempowering “jobs” rhetoric of the last two years continue to dominate San Francisco politics in 2013? Or can San Franciscans find the will and organizing ability to create a broader political agenda that includes livability, sustainability, and affordability?

If it’s up to the San Francisco Chamber of Commerce – whose perspective has been aired in both the Examiner and Chronicle over the last two days – private sector profits will continue to be our only metric of civic success.

Just take a look at the “Pinkslips and Paychecks Scorecard” that the Chamber released yesterday, rating members of the Board of Supervisors based on a series of 16 votes for tax cuts and public subsidies for businesses, approvals of projects serving the rich, rollbacks of government regulations, business surcharges on consumers, maintaining PG&E’s dirty energy monopoly, and blocking an expansion of developer fees to improve Muni.

That aggressive neoliberal agenda, which is shared by Mayor Ed Lee and his big corporate backers, was reinforced by Chamber VP Jim Lazarus in an op-ed in today’s Examiner. Ignoring the rising housing and other living costs that plague the average San Francisco, Lazarus uses hopeful language about how we’re all “poised for success in 2013,” burying the Chamber’s aggressive and exclusive agenda in the subtext.

At the top of his agenda are: “Approval of the California Pacific Medical Center rebuild, reforming San Francisco’s California Environmental Quality Act appeals process, and rule-making for the upcoming gross-receipts tax.” In other words, let CPMC have what it wants, make it more difficult to challenge developers on environmental grounds, and ensure business taxes remain as low as possible.

And to ensure supervisors get the message, he closes by noting that business leaders are “energized and ready” to push their agenda with tools such as the Alliance for Jobs and Sustainable Growth, which waged some of the nastiest and most deceptive political attack ads on progressive candidates in the last election cycle.

The progressive movement of San Francisco has its problems and issues, including a recently widening schism between environmental and transportation activists on one side and the nonprofit housing and social justice faction on the other. And in the current economic and political climate, both sides too often find themselves partnering with corporate and neoliberal interests to get things done.

But now, more than ever, San Francisco needs to broaden into political dialogue, and that means a reconstitution and expansion of its progressive movement. That’s something that the Guardian has long focused on facilitating and publicizing – something that will be my personal focus as well – and we have some idea percolating that we’ll discuss in the coming weeks and months.

Then maybe all San Franciscans can be poised for success in 2013 and beyond.

Endorsements 2012: San Francisco propositions

Andrew Lam
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85
Endorsements 2012: San Francisco propositions

PROPOSITION A

CITY COLLEGE PARCEL TAX

YES

The scathing accreditation report by the Western Association of Schools talks about governance problems at the San Francisco Community College District — a legitimate matter of concern. But most of what threatens the future of City College is a lack of money.

Check out the accreditation letter; it’s on the City College website. Much of what it says is that the school is trying to do too much with limited resources. There aren’t enough administrators; that’s because, facing 20 percent cuts to its operating budget, the college board decided to save front-line teaching jobs. Student support services are lacking; that’s because the district can barely afford to keep enough classes going to meet the needs of some 90,000 students. On the bigger picture, WASC and the state want City College to close campuses and concentrate on a core mission of offering two-year degrees and preparing students to transfer to four-year institutions. That’s because the state has refused to fund education at an adequate level, and there’s not enough money to both function as a traditional junior college and serve as the training center for San Francisco’s tech, hospitality and health-care industry, provide English as a second language classes to immigrants and offer new job skills and rehabilitation to the workforce of the future.

It’s fair to say that WASC would have found some problems at City College no matter what the financial situation (and we’ve found more — the nepotism and corruption under past boards has been atrocious). But the only way out of this mess is either to radically scale back the school’s mission — or to increase its resources. We support the latter alternative.

Prop. A is a modest parcel tax — $79 dollars a year on each property lot in the city. Parcel taxes are inherently unfair — a small house in Hunters Point pays as much as a mansion in Pacific Heights or a $500 million downtown office building. But that’s the result of Prop. 13, which leaves the city very few ways to raise taxes on real property. In the hierarchy of progressive tax options, parcel taxes are better than sales taxes. And the vast majority of San Francisco homeowners and commercial property owners get a huge benefit from Prop. 13; a $6 a month additional levy is hardly a killer.

The $16 million this tax would raise annually for the district isn’t enough to make up for the $25 million a year in state budget cuts. But at least the district would be able to make reasonable decisions about preserving most of its mission. This is one of the most important measures on the ballot; vote yes.

PROPOSITION B

PARKS BOND

YES

There are two questions facing the voters: Does the San Francisco Recreation and Parks Department need money to fix up badly decrepit, sometimes unsafe facilities, and build out new park areas, particularly in underserved neighborhoods? Has the current administration of the department so badly mismanaged Rec-Park, so radically undermined the basic concept of public access to public space, so utterly alienated neighborhoods and communities all over the city, that it shouldn’t be trusted with another penny?

And if your answer to both is yes, how the hell do you vote on Prop. B?

It’s a tough one for us. The Guardian has never, in 46 years, opposed a general obligation bond for anything except jail or prisons. Investing in public infrastructure is a good thing; if anything, the cautious folks at City Hall, who refuse to put new bonds on the ballot until old ones are paid off, are too cautious about it. Spending public money (paid by increased property taxes in a city where at least 90 percent of real estate is way under taxed thanks to Prop. 13) creates jobs. It’s an economic stimulus. It adds to the value of the city’s resources. In this case, it fixes up parks. All of that is good; it’s hard to find a credible case against it.

Except that for the past few years, under the administrations of Mayors Gavin Newsom and Ed Lee and the trusteeship of Rec-Park Directors Jared Blumenfeld and Phil Ginsburg, the city has gone 100 percent the wrong way. Parks are supposed to be public resources, open to all; instead, the department has begun charging fees for what used to be free, has been turning public facilities over to private interests (at times kicking the public out), and has generally looked at the commons as a source of revenue. It’s a horrible precedent. It makes us sick.

Ginsburg told us that he’s had no choice — deep budget cuts have forced him to look for money wherever he can find it, even if that means privatizing the parks. But Ginsburg also admitted to us that, even as chief of staff under Newsom, he never once came forward to push for higher taxes on the wealthy, never once suggested that progressive revenue sources might be an option. Nor did any of the hacks on the Rec-Park Commission. Instead, they’ve been busy spending tens of thousands of dollars on an insane legal battle to evict the Haight Ashbury Neighborhood Council’s recycling center — entirely because rich people in the Haight don’t want poor people coming through their elite neighborhood to cash in bottles and cans for a little money.

So now we’re supposed to cough up another $195 million to enable more of this?

Well, yes. We’re not happy to be endorsing Prop. B, but the bottom line is simple: The bond money will go for things that need to be done. There are, quite literally, parks in the city where kids are playing in unsafe and toxic conditions. There are rec centers that are pretty close to falling apart. Those improvements will last 50 years, well beyond the tenure of this mayor of Rec-Park director. For the long-term future of the park system, Prop. B makes sense.

If the measure fails, it may send Lee and Ginsburg a message. The fact that so many neighborhood leaders are opposing it has already been a signal — one that so far Ginsburg has ignored. We’re going Yes on B, with all due reservations. But this commission has to go, and the sooner the supervisors can craft a charter amendment to give the board a majority of the appointments to the panel the better.+

PROPOSITION C

AFFORDABLE HOUSING TRUST FUND

YES

This measure is about who gets to live in San Francisco and what kind of city this will be in 20 years. If we leave it up to market forces and the desires of developers, about 85 percent of the housing built in San Francisco will be affordable only by the rich, meaning the working class will be forced to live outside the city, clogging regional roadways and transit systems and draining San Francisco of its cultural diversity and vibrancy. And that process has been accelerated in recent years by the latest tech bubble, which city leaders have decided to subsidize with tax breaks, causing rents and home prices to skyrocket.

Mayor Ed Lee deserves credit for proposing this Housing Trust Fund to help offset some of that impact, even if it falls way short of the need identified in the city’s Housing Element, which calls for 60 percent of new housing construction to be affordable to prevent gentrification. We’re also not thrilled that Prop. C actually reduces the percentage of housing that developers must offer below market rates and prevents that 12 percent level from later being increased, that it devotes too much money to home ownership assistance at the expense of the renters who comprise the vast majority of city residents, and that it depends on the passage of Prop.E and would take $15 million from the increased business taxes from that measure, rather than restoring years of cuts to General Fund programs.

But Prop. C was a hard-won compromise, with the affordable housing folks at the table, and they got most of what they wanted. (Even the 12 percent has a long list of exceptions and thus won’t apply to a lot of new market-rate housing.) And it has more chance of actually passing than previous efforts that were opposed by the business community and Mayor’s Office. This measure would commit the city to spending $1.5 billion on affordable housing projects over the next 30 years, with an initial $20 million annual contribution steadily growing to more than $50 million annually by 2024, authorizing and funding the construction of 30,000 new rental units throughout the city. With the loss of redevelopment funds that were devoted to affordable housing, San Francisco is a city at risk, and passage of Prop. C is vital to ensuring that we all have a chance of remaining here. Vote yes.

PROPOSITION D

CONSOLIDATING ODD-YEAR LOCAL ELECTIONS

YES

There’s a lot of odd stuff in the San Francisco City Charter, and one of the twists is that two offices — the city attorney and the treasurer — are elected in an off-year when there’s nothing else on the ballot. There’s a quaint kind of charm to that, and some limited value — the city attorney is one of the most powerful officials in local government, and that race could get lost in an election where the mayor, sheriff, and district attorney are all on the ballot.

But seriously: The off-year elections have lower turnout, and cost the city money, and it’s pretty ridiculous that San Francisco still does it this way. The entire Board of Supervisors supports Prop. D. So do we. Vote yes.

PROPOSITION E

GROSS RECEIPTS TAX

YES

Over the past five years, Board of Supervisors President David Chiu estimates, San Francisco has cut about $1.5 billion from General Fund programs. It’s been bloody, nasty, awful. The budget reductions have thrown severely ill psych patients out of General Hospital and onto the streets. They’ve forced the Recreation and Parks Department to charge money for the use of public space. They’ve undermined everything from community policing to Muni maintenance.

And now, as the economy starts to stabilize a bit, the mayor wants to change the way businesses are taxed — and bring an additional $28.5 million into city coffers.

That’s right — we’ve cut $1.5 billion, and we’re raising taxes by $28.5 million. That’s less than 2 percent. It’s insane, it’s inexcusable, it’s utterly the wrong way to run a city in 2012. It might as well be Mitt Romney making the decision — 98 percent cuts, 2 percent tax hikes.

Nevertheless, that’s where we are today — and it’s sad to say this is an improvement from where the tax discussion started. At first, Mayor Lee didn’t want any tax increase at all; progressive leaders had to struggle to convince him to allow even a pittance in additional revenue.

The basic issue on the table is how San Francisco taxes businesses. Until the late 1990s, the city had a relatively rational system — businesses paid about 1.5 percent of their payroll or gross receipts, whichever was higher. Then 52 big corporations, including PG&E, Chevron, Bechtel, and the Gap, sued, arguing that the gross receipts part of the program was unfair. The supervisors caved in to the legal threat and repeal that part of the tax system — costing the city about $30 million a year. Oh, but then tech companies — which have high payrolls but often, at least at first, low gross receipts — didn’t want the payroll tax. The same players who opposed the other tax now called for its return, arguing that taxing payroll hurts job growth (which is untrue and unfounded, but this kind of dogma doesn’t get challenged in the press). So, after much discussion and debate, and legitimate community input, the supervisors unanimously approved Prop. E — which raises a little more money, but not even as much as the corporate lawsuit in the 1990s set the city back. It’s not a bad tax, better than the one we have now — it brings thousands of companies the previously paid no tax at all into the mix (sadly, some of them small businesses). It’s somewhat progressive — companies with higher receipts pay a higher rate. We can’t argue against it — the city will be better off under Prop. E than it is today. But we have to look around our battered, broke-ass city, shake our poor bewildered heads and say: Is this really the best San Francisco can do? Sure, vote yes on E. And ask yourself why one of the most liberal cities in America still lets Republican economic theory drive its tax policy.

PROPOSITION F

WATER AND ENVIRONMENT PLAN

NO, NO, NO

Reasonable people can disagree about whether San Francisco should have ever dammed the Tuolumne River in 1923, flooding the Hetch Hetchy Valley and creating an engineering marvel that has provided the city with a reliable source of renewable electricity and some of the best urban drinking water in the world ever since. The project broke the heart of famed naturalist John Muir and has caused generations since then to pine for the restoration of a valley that Muir saw as a twin to his beloved nearby Yosemite Valley.

But at a time when this country can’t find the resources to seriously address global warming (which will likely dry up the Sierra Nevada watershed at some point in the future), our deteriorating infrastructure, and myriad other pressing problems, it seems insane to even consider spending billions of dollars to drain this reservoir, restore the valley, and find replacement sources of clean water and power.

You can’t argue with the basic facts: There is no way San Francisco could replace all the water that comes in from Hetch Hetchy without relying on the already-fragile Delta. The dam also provides 1.7 billion kilowatt hours a year of electric power, enough to meet the needs of more than 400,000 homes. That power now runs everything from the lights at City Hall to Muni, at a cost of near zero. The city would lose 42 percent of its energy generation if the dam went away.

Besides, the dam was, and is, the lynchpin of what’s supposed to be a municipal power system in the city. As San Francisco, with Clean Power SF, moves ever close to public power, it’s insane to take away this critical element of any future system.

On its face, the measure merely requires the city to do an $8 million study of the proposal and then hold a binding vote in 2016 that would commit the city to a project estimated by the Controller’s Office to cost somewhere between $3 billion and $10 billion. Yet to even entertain that possibility would be a huge waste of time and money.

Prop. F is being pushed by a combination of wishful (although largely well-meaning) sentimentalists and disingenuous conservatives like Dan Lungren who simply want to fuck with San Francisco, but it’s being opposed by just about every public official in the city. Vote this down and let’s focus our attention on dealing with real environmental and social problems.

PROPOSITION G

CORPORATE PERSONHOOD

YES

If San Francisco voters pass Prop. G, it won’t put any law into effect. It’s simply a policy statement that sends a message: Corporations are not people, and it’s time for the federal government to tackle the overwhelming and deeply troubling control that wealthy corporations have over American politics.

Prop. G declares that money is not speech and that limits on political spending improve democratic processes. It urges a reversal of the notorious Citizens United vs. Federal Elections Commission Supreme Court decision.

A constitutional amendment, and any legal messing with free speech, has serious potential problems. If corporations are limited from spending money on politics, could the same apply to unions or nonprofits? Could such an amendment be used to stop a community organization from spending money to print flyers with political opinions?

But it’s a discussion that the nation needs to have, and Prop. G is a modest start. Vote yes.

Why do Lee, Chiu, and others want to stifle economic growth?

Sasha Cuttler
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Why do Lee, Chiu, and others want to stifle economic growth?

Why do Mayor Ed Lee, Board of Supervisors President David Chiu, and San Francisco’s two major daily newspapers want to punish success? Because that’s exactly what their proposal to create a new gross receipts tax for businesses – in which corporations would be taxed more as they grow, thus encouraging economic stagnation – would do.

Right now, the city taxes businesses through a payroll tax, levying taxes based on the number of employees the company has. But under a gross receipts tax that would replace the payroll tax, employees have a disincentive to be productive and efficient and increase their companies’ profits because that would expose those companies to more of the city’s onerous tax burden.

Why would investors and employees want to grow a business in San Francisco when that would only submit them to higher taxes. Clearly, this is anti-business measure that is likely to plunge our local economy back into the depths of the recession. Don’t our leaders understand the need to help this fragile economic recovery?

Okay, okay, in case you haven’t guessed it yet, the previous three paragraphs are satire of the ridiculously overblown and misleading political rhetoric used by Lee and other critics of the city’s payroll tax, which they deride as as “job killer” that makes companies not want to hire new employees.

“Mayor Lee and Board President David Chiu proposed a gross receipts tax as an alternative to the City’s current payroll tax, which punishes companies for growing and creating new jobs in San Francisco,” Lee’s office wrote in a press release it distributed last week.

Yet my argument that a gross receipts taxes “punishes companies for growing” is just as logically sound as Lee’s argument that the payroll tax discourages companies from “creating new jobs” – and both arguments are also complete hyperbolic bullshit. But it’s seductively simple and widely parroted bullshit.

“To attract more companies to San Francisco and encourage existing employers to hire more employees, it is past time to do away with this tax,” our new neighbors down the hall, the editors of the Examiner, wrote in their editorial today, a oft-repeatedly refrain from the Chronicle and SF Chamber of Commerce as well. It later added that switching tax methods “wouldn’t penalize companies for employing people or paying them well. And city policy wouldn’t give employers any incentive to shed employees during a downturn.”

But the reality is that the 1.5 percent payroll tax is too small to really be a factor in the decision by corporations to add new employees, something they are already loath to do unless forced to by rising demand. It is simply one imperfect gauge of the size of a company and its ability to pay local taxes, just as the gross receipts tax is.

Health insurance costs, which Lee’s CPMC deal doesn’t adequate contain, is a far bigger factor in a company’s hiring decisions. So is commercial rent, which Lee’s corporate welfare policies are causing to go up downtown and throughout the city.

For decades, conservatives have tried to sell the general public on bogus trickle down economic theories that we all benefit from corporate tax cuts and that people will simply stop working if you tax them, ideas that should have been discarded as they were discredited. But they’re back with a vengeance, in supposedly liberal San Francisco of all places, actively peddled by key Lee supporters like billionaire venture capitalist Ron Conway, who only recently dropped his Republican party affiliation in favor of declined to state.

But it’s time to call out this voodoo economics for what it is: self-serving bullshit that ought to be rejected by citizens of a city that prides itself as being more educated and enlightened than the rubes in the flyover states that have been so thoroughly manipulated by the Republican Party and Blue Dog Democrats, to the detriment of our entire country.

Now, the Examiner’s argument that the business tax reform proposal would broaden and stabilize the tax base is a sound and meaningful argument, which is why the concept enjoys widespread support from across the ideological spectrum and is worth doing (although progressives rightful argue that if the tax base is being broadened then the city should reap some benefits from that, logic that Lee inexplicably resists).

Yet as the City Hall debates that will shape the details of business tax reform begin in a couple of weeks, it’s time to drop this misleading “job killer” label that has been promulgated by Republicans and other fiscal conservatives over the last decade and have an honest debate over what’s best for San Francisco’s private and public sectors.

No deal yet on business tax reform as competing measure are introduced

Sasha Cuttler
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21
No deal yet on business tax reform as competing measure are introduced

Mayor Ed Lee and his business community allies failed to reach an agreement with labor and progressives by today’s deadline for submitting fall ballot measures to the Board of Supervisors, leading progressive Sup. John Avalos to introduce a business tax reform measure that would compete with Lee’s proposal.

The Avalos measure would raise $40 million in new General Fund revenue to restore recent cuts to city services while Lee’s would essentially be revenue-neutral, although Lee did tweak the formulas to raise about $13 million in new revenue that would be dedicated to a new Affordable Housing Trust Fund, which would be created by another ballot measure that Lee was having a hard time funding in the face of business community opposition.

“I don’t believe trickle down economics works, except for the 1 percent,” Avalos told the Guardian, arguing the importance of recovering revenue that the city lost when the biggest downtown corporations sued the city in 2001 to invalidate a gross receipts tax. Both the Lee and Avalos measures would gradually convert the current payroll tax into a new version of the gross receipts tax, which is preferred by most of the business community.

So, will voters in the fall be faced with competing ballot measures? Probably not, according to the same sources from the business and progressive sides of the negotiations who told us last week that it appeared a deal was in the offing, something they still believe.

“This is the beginning of the negotiations,” said the business community source, noting that both measures won’t be approved until next month, with discussions about merging them ongoing. “I’m sure this is part of the process and they will agree on a number.”

Our labor source agreed, predicting the two sides will come to an agreement because neither side wants competing ballot measure, but noting that Lee appears to be trying to create divisions between the progressive revenue coalition and the affordable housing advocates. “That’s just positioning on their part, but it doesn’t feel like good faith bargaining,” the source said.

Mayoral Press Secretary Christine Falvey seemed to leave the door open for compromise, telling the Guardian, “The Mayor believes that to be successful, we should continue building consensus around business tax reform and that it’s important that the business community continue to be key partners in that effort.”

Lee is trying to placate an emboldened business community, which has taken a hard line position on opposing new taxes even while seeking ever more tax breaks and public subsidies. In fact, Sup. Mark Farrell had another business tax cut on today’s board agenda, cutting the payroll tax for small businesses at a cost of more than $2 million to city finances.

“I believe we need to do all we can to incentivize job growth in our small business community,” Farrell said.

Avalos said he agrees with helping small businesses – which is why both his and Lee’s business tax reform measure shifts more of the tax burden to the large corporations that have been so profitable in recent years – but that “we should not be putting a hole in the city’s budget to do so.”

In a sign of just how strong the business community has become at City Hall compared to the progressive movement that had a board majority just two years ago, the tax cuts were approved on a 10-1 vote, with only Avalos opposed.

What small business owners care about

Zelda Bronstein
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14
What small business owners care about

Since the mayor’s office still insists that any business-tax reform ought to be revenue-neutral, and since he and other continue to talk about the myth that a payroll tax hurts job growth, I found the latest Bank of America survey of local small business owners fascinating.

Here’s what the survey found: Small business owners are concerned about (1) the cost of healthcare (2) access to credit and (3) finding qualified employees. Local taxes aren’t even on the list.

Now, if you ask almost any business operator whether he or she would like to pay lower taxes, most will probably say, sure. And I agree that a gross receipts tax is a better way of spreading the burden around. But the notion that slightly raising business taxes would hinder job growth in any significant way isn’t supported by reality.

In fact, if you used higher taxes to improve the schools (and thus the education of the future workforce) it would do more to keep employers from leaving San Francisco than cutting taxes. If the state of California went to a single-payer health-care system — dramatically reducing the cost to employers — it would do more to attract jobs to this state than all the tax cuts in a Republican’s wet dreams.

And if Bank of America and Wells Fargo would start loaning money to small businesess, you’d see almost immediate job growth.

How’s that for a Small Business Week agenda?

Low taxes are bad for business

Zelda Bronstein
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29
Low taxes are bad for business

The teachers at San Francisco’s public schools are talking about going on strike. The contracts talks with the district are at an impasse. Things look bleak.

Well, they don’t look as bleak as things in Philadelphia, but that’s not really much in the way of good news.

Part of the issue: The district wants the teachers to accept up to nine furlough days next year. Even if the governor’s tax measure passes, four furlough days are still on the schedule.

The teachers are complaining — with good reason — that the forced days off and other concessions cost them money, as much as $5,000 a year. But there’s another issue here: Furlough days are horrible for working parents — and for the businesses that employ them.

Ron Leuty has a nice column on this in the San Francisco Business Times, which doesn’t let you read all the stories unless you subscribe, but here’s the gist:

For parents, SFUSD parents who already have barely managed through four furlough days each of the past two school years, nine each year becomes intolerable. That totals up to nearly two school weeks for which we must find some sort of childcare or one-day mini-camps — and it’s cash out of our pocket. Or it means time off. For businesses, that means lost productivity, down work time and employees who are paying more for — and worrying more about — childcare.

For low-income parents who have to miss a day’s work and a day’s pay every time the kids are out of school, it’s a serious economic issue. And the local businesses, particularly small businesses which aren’t equipped to deal with excess employee absenteeism, it’s a nightmare.

Leuty doesn’t place any blame or explain how we got to this situation, so I will: Prop. 13 (and later, Prop. 218) made it really hard to raise local taxes, and a handful of Republicans are making it hard to raise state taxes, so there’s not enough money for the schools. Americans today, particularly wealthy Americans and corporations, are taxed far less than they were for most of the century, certainly the post-War era.

Local business leaders love to talk about the value of public schools. I don’t think many serious people who have looked at the finances believe that the SFUSD is fat, bloated, or wasting a lot of money; these days, even the anti-government folks have to admit it’s a pretty lean operation.

So why won’t those business folks (and, for the matter, the Business Times) start campaigning for changes in Prop. 13 to allow communities to fund the schools and avoid these debilitating furlough days? What, is this problem supposed to get fixed by magic?

 

The failure of Lee’s business tax plan

Zelda Bronstein
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The failure of Lee’s business tax plan

The Mayor’s Office and city finance officials are circulating drafts of a new business tax plan that would largely abolish the payroll tax and replace it with a levy on gross receipts.

Ben Rosenfield, the city controller, and Ted Egan, the chief economist, have been meeting with business groups and presenting what’s described in the documents they’re circulating as “one possible idea.” And there’s some very positive news about the proposal: It would greatly broaden the tax base (only about 10 percent of the city’s businesses are hit by the payroll tax) and it’s designed to be somewhat progressive: Businesses with higher gross receipts would pay a higher percentage tax.

The plan is complicated — since some types of industries (retailers, for example) have high gross receipts compared to payroll, and some (financial services) have high payrolls compared to gross receipts, the levies are broken down into four schedules. At the lowest end, companies with comparatively large gross reciepts would pay between 0.05 percent and 0.125 percent. At the highest end, the tax would go from 0.220 to 0.535.
But there’s one central — and simple — element of the proposal: At this point, it’s entirely revenue neutral. In fact, finance officials say, over time the total tax burden paid by local businesses would go down, since payroll tends to rise slightly faster than gross receipts.

That, sources say, is something the mayor has made clear he doesn’t want to budge on. He’s not willing to accept a plan that raises the total amount of money the city gets from business taxes.

Which puts him in synch with what some business groups want: “The business community thinks this should be revenue-neutral,” Scott Hauge, who runs Small Business California, told me.

But in a city that faces a large structural budget deficit, some supervisors have other ideas. “I want to look at new revenue possibilities,” Sup. John Avalos said.

And even the current proposals would let banks, which are exempt from local business taxes, escape without paying anything.
In reality, the proposals are less then revenue-neutral. Rosenfield and Egan project that the new tax system would lead to the creation of 2,500 jobs a year — mostly because businesses over time would be paying lower taxes.

Hague told me that he’s not sure exactly how business leaders feel about this. “We don’t know yet how it will affect people,” he noted. But some political leaders have been clamoring for years for the elimination of the payroll tax, which, by taxing employment, appears to be a damper on job growth.

That’s actually a myth. The payroll tax is so minor that it can’t possibly influence any individual hiring decision. It’s true that if city business taxes in general are reduced, companies will have more money — and some might spend that on new hiring. But San Francisco, like most major cities, has to have some kind of business tax — and I can already hear some downtown types complaining that a gross receipts tax “punishes growth and success.”

This proposal is a long way from what Sup. David Chiu suggested a year ago. His plan would have included a commercial rent tax — ensuring that financial institutions that get away with paying nothing would have to contribute like other businesses. Like most local taxes, it wasn’t perfect — state law bars cities from imposing corporate income taxes and limits what else municipalities can do — but together with a reworked gross receipts tax, it was projected to bring $28 million more dollars into the city treasury — without any job loss.

But the Chamber of Commerce and crew fought bitterly against that idea, and Chiu withdrew it.

At this point, Chiu said, he’s working with the mayor and trying to get the business community to accept the idea of a change in the tax structure. But this is a rare opportunity to do two things — to make the local tax system more fair, and to raise taxes on the biggest companies to bring additional revenue into the city.

The plan will probably have to go to the ballot anyway, so why not do it right?

Who will push progressive taxes in 2012?

Zelda Bronstein
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Who will push progressive taxes in 2012?

Mayor Ed Lee talked to the Examiner about his plans for the next year, and it’s a lot of the usual political crap: I’m going to create jobs, I’m going to bring people together and promote civility, ho hum. But he did mention, briefly, the need to change the city’s business tax, and here’s how he put it:

We have given ourselves four months to reach out to all the business groups. There will be different views and opinions. You can have a hybrid [between a payroll and gross receipts tax], and you can also have a phase-in period of time. We want to have a good conversation with everybody and get their best ideas, and then use those ideas to craft what we think could be on the ballot. We’re not saying it has to be on the November ballot, but it could be. We want to have something that is not job punishing, but also something that does not decrease our revenue.

First: He’s going to reach out to all the business groups — but what about everyone else in the city? The level of business taxes has a direct impact on city services; is that not part of the equation? Clearly, he’s talking about something that’s at best revenue-neutral, something that “does not decrease our revenue.”

And please, don’t tell me about “job punishing” — it makes me even crazier than I already am. Look: There has to be a business tax in San Francisco. And any time you tax businesses, you take money for the city that could be used for other things. In some cases — not that many — the extra money might be used to hire a few people. In reality, for most businesses, the payroll tax is absolutely NOT a factor in job creation. It sounds bad — Gasp! a tax on jobs! — but the truth is that payroll is a rough approximation for the size of a company, and that’s what the city uses as a tax base.

Of course, we could change that to a gross receipts tax — another rough approximation for the size of a company. It’s also imperfect — some companies have a lot of money (VC funding, for example) and a lot of employees, but at this point not much in the way of sales. Some companies (supermarkets, for example) have high gross receipts but relatively low profit margins. And, of course, if you do a gross receipts tax the same people who complain about the payroll tax will have a new line: The GR tax penalizes growth! It penalizes success! The more money you make the more you pay! Unfair! Un-American! Job killer!

Because some people in this town (mostly big business types) just want lower taxes, period — not different taxes, lower taxes

So let’s get rid of the “job killer” rhetoric and start talking about what the city’s tax policy should be. And it should go like this: The individuals and businesses with the most money should pay the highest tax rates. The rich don’t pay their fare share anywhere in the U.S., and while the mayor and the supervisors can’t change federal policy, they can do their part on a modest level at home.

This a great year for tax reform in San Francisco. The spirit of Occupy is very much alive. There is, for the first time in decades, a national discussion about income and wealth inequality. There’s strong evidence that the middle class is vanishing in San Francisco. And, thanks to the wierdness of state law, in 2012, when there’s an election for the Board of Supervisors, a tax measure can pass with a simple majority vote In many ways, this is the single most important policy issue in the city, the one that defines who pays for what and who gets what and whether (public sector) jobs are created or destroyed and what kind of a city we want to be.

So let’s take it seriously. Instead of allowing Mayor Lee and the (big) business folks set the agenda, the progressives really need to move forward on a tax-reform plan that looks at making big business pay more and small business pay less — and that brings in another $250 million a year for the local coffers If gross receipts is the flavor of the day, I’m good with that — but not a flat tax. Exempt, say, the first $250,000 (or the first $500,000, whatever, run the numbers and see what we can afford). Put a 1 percent tax on the next million, a 1.5 percent tax on all receipts between $1.5 million and $5 million, a 2 percent tax on $5 million to $10 million and 3 percent on everything higher. Adjust the numbers either way, but that’s the general idea. Then add in a tax on commercial rents (again, exempt the first $500,000 or whatever) to make sure the the big landlords (who get away with murder under Prop. 13) are paying, too. And yes, based on market supply and demand, some will try to pass that on to their tenants, but companies (including a lot of law firms) that rent enough space to be paying millions of dollars a year in rent can afford to modest tax hike.

It will take the city controller or the city’s economist to do the math and see what the options are and how you get to $250 million net new revenue, so my proposal is just a start. But somebody needs to take this on, some member of the Board of Supervisors — or else we’ll just be responding to what the Chamber of Commerce wants. Who wants to be the champion of Tax Reform for the 99 Percent? Time is getting short.

Dick Meister: Strange bedfellows: Labor’s Tim Paulson and the Chamber’s Steve Falk

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By Dick Meister

Dick Meister, former labor editor of the SF Chronicle and KQED-TV Newsroom and a former city editor of the Oakland Tribune, has covered labor and politics for a half-century as a reporter, editor, author and commentator. Contact him through his website, dickmeister.com, which includes more than 300 of his columns.

It’s hard to imagine organized labor and the thoroughly anti-labor Chamber of Commerce on the same side, especially in a city like San Francisco with a major union presence.

It’s especially hard to imagine it at a time when unions everywhere are joining with Occupy Wall Streeters to demand justice from anti-labor business and corporate leaders like those who control the Chamber.

But consider what Tim Paulson, executive director of SF’s Labor Council, and President Steve Falk of the SF Chamber of Commerce had to say in a joint statement about the results of Tuesday’s election.

They were downright overjoyed about the passage of Proposition C, which will raise the amounts city employees must pay toward their less-than lucrative pensions and limit future cost-of-living raises. That’s a way to avoid raising business taxes to maintain city services in these recessionary times.

Perhaps most distressing, the passage of Prop C shifted control of the City Health Service System from the employees who are covered by the system to City Hall appointees who won’t have to demonstrate any particular experience in health care matters.

At least Paulson and Falk said they were pleased with the defeat of Public Defender Jeff Adachi’s outrageous Prop D – even though it would have changed the city pension system in almost exactly the same ways as Prop C.

In any case, the difference between C and D was not necessarily their content, but how they got on to the ballot.

Why, exclaimed Paulson in a separate, self-congratulatory statement, the results “sent new shock waves across San Francisco and America as workers demonstrated that collaborative democracy is the best way to set public policy.”

Collaborative democracy? By that I guess Tim was referring to the joining together of labor leaders and public employee unions and Chamber of Commerce members in a coalition with city officials, non-profit social agencies and community groups to put Prop C on the ballot.

The collaborators didn’t even include representatives of the retired employees whose health care would be seriously affected and who were quite active in helping elect labor-friendly candidates.

Paulson, a generally ineffective leader who always seems to be seeking approval of the City establishment, singled out billionaire Warren Hellman for being one of the principal collaborators.

Paulson boasted that every city employee union joined in what he actually described as “a real San Francisco way of doing things.” Hardly. If there really were such a thing, it would be a far cry from the “collaborative” approach that involved labor giving in to the wishes of its anti-labor corporate and business opponents.

Paulson and Falk claimed the approach will be “a model for the rest of the country.” Thankfully for the rest of the country, that seems highly unlikely given the widespread demands for actual reform triggered by the Occupy Wall Street protests.

Negotiations between labor and management eventually reach agreements that both can live with, albeit often uncomfortably. But no agreement can be reached, or should be reached, when one party – the Chamber of Commerce in this case – is not seeking real compromise with an enemy – namely unions – that it would like to put out of business, or at least seriously weaken. Unions, of course, have the same feelings about union foes like the Chamber.

Tim Paulson actually declared the election results “a great victory during difficult times.”

Dick Meister, former labor editor of the SF Chronicle and KQED-TV Newsroom and a former city editor of the Oakland Tribune, has covered labor and politics for a half-century as a reporter, editor, author and commentator. Contact him through his website, dickmeister.com, which includes more than 300 of his columns.

 

Warren Buffet’s money

Zelda Bronstein
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Warren Buffet’s money

Just about everyone I know has been emailing and posting and talking about the Warren Buffett New York Times oped piece on the mega-rich (and I’m not alone — it’s the single most emailed piece on nytimes.com today). I appreciate what Buffett has to say; I’m glad he’s willing to point out that the “shared sacrifice” we’re hearing about from Washington doesn’t include any sacrifices at all from the people who can most afford to give up a little. But that’s not my favorite line; here’s the real crucial argument:


Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.


I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.


Get it? Raising tax rates on investments and on the income of the very rich doesn’t impede job creation. RIch people don’t stop working or investing when they have to pay higher taxes. (And local business taxes don’t have a measurable impact on job creation or preservation in San Francisco.)


Here’s where Buffett’s argument bothers me: The guy’s got more money than he can ever spend. He’s going to give most of it away. If he really believes in what he wrote, why doesn’t he use some of that vast wealth to fund a campaign to educate American voters about the truth about taxes and jobs? Imagine what a billion dollars — a modest fraction of his wealth — could do to change the political dynamic in this country. Imagine a concerted advertising and PR campaign, similar to what the right wing has used over the years to promote its pro-corporate agenda, making the case that higher taxes on the rich are good for the economy, that government spending on job creation is a positive thing and that the central dynamic that dominates discussion in both parties is entirely wrong?


Warren: You can do it. I know there are plenty of great charities out there that can use your money, but that won’t change the world. This might.

Editor’s Notes

Jesse Hawthorne Ficks
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Editor’s Notes

Tredmond@sfbg.com

Back in the early 1990s, when the city was hurting for money even more than usual, Sue Hestor, the environmental lawyer who is always full of good ideas, called me up and suggested that the city start charging banks a fee for every storefront ATM. "They have turned the public sidewalks into their bank lobbies," she said. ATMs can lead to congestion and are magnets for crime; why shouldn’t the banks (which made a lot of money replacing human tellers with machines and costly private space with public property) help pay for some of those impacts? After all, banks escaped most local business taxes.

I ran that one up the old flagpole, and got nowhere. Back then, the city attorney was Louise Renne, who wasn’t known for aggressive approaches to revenue generation; she immediately told me it wasn’t legal. Back then, at least nine of the 11 supervisors were guaranteed to vote against anything that would offend big business.

A few years later, Tom Ammiano, who had become the only supervisor serious about brining in new money for San Francisco, suggested that the city put a tiny tax on transactions at the Pacific Stock Exchange. A similar tax in New York City had brought in millions. The exchange quickly marched up to Sacramento and got the state to outlaw the idea.

Down in Los Angeles, they’re trying to put a severance tax on oil production. Great idea. Too bad (not really) we have no oil wells here.

Lots of good ideas. It’s time for some more.

Things in San Francisco are really, really dire, and the district-elected supervisors are far more open to progressive approaches to the budget crisis. And if you’re willing to stipulate — as I am — that San Francisco has a revenue problem as much as a spending problem, and that the rich and big businesses are radically undertaxed, then its time for a comprehensive look at the ways this city might bring in some more money.

There are some nice concepts floating around. David Chiu, the Board of Supervisors president, is talking about reforming the city’s business tax. Sup. John Avalos tried to put a nickel-a-drink impact fee on alcohol wholesalers. Sup. David Campos thinks downtown should help pay for Muni service. I still like the notion of a city income tax.

But what we need is a long list of options — a complete guide to how a charter city and county in California in 2011 is legally allowed to raise money.

Dennis Herrera, the city attorney, is a smart guy; he’s figured out all kinds of ways to use his office to go after polluters, scam artists, and crooks. I suspect that with a bit of a nudge, he could help develop a few dozen legally sound ways to tax the wealthy individuals and institutions. That ought to be priority one for the Budget Committee.

I’m not sure what would work best, and nobody else is either. But we ought to have all the options.

Class of 2010: Scott Wiener

Jesse Hawthorne Ficks
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3
Class of 2010: Scott Wiener

rebeccab@sfbg.com

Scott Wiener, who is 40, gay, soft-spoken, and remarkably tall, seems to have made an impression on voters with his successful campaign for District 8 (the Castro, Noe Valley) supervisor. On a recent Wednesday afternoon, several patrons of a Market Street café stopped to say hello and congratulate him. “I saw millions of signs about you!” one exclaimed.

A deputy city attorney, Wiener claimed one of the most decisive victories among contenders vying for seats on the San Francisco Board of Supervisors. He’s more fiscally conservative than Rafael Mandelman, who was his progressive opponent in the race, and is more in step politically with Mayor Gavin Newsom than San Francisco progressives. Yet Wiener stressed to the Guardian that he should ultimately be viewed as an independent thinker. “For me, it’s about having mutual respect for everyone,” he said. “Even if you disagree on some issues, and even if you disagree on a lot of issues, you can always find areas of agreement.”

Asked about his priorities in office, Wiener put public transit at the top of the list. Over the next few decades, the population of San Francisco and the Bay Area will dramatically increase, he said. “And at the same time, we’ve been underfunding public transportation, and particularly our roads. It could potentially be a catastrophe if we’re not able to not just keep the system as it is, but actually expand it. That is a really big priority.” To raise money for Muni, he doesn’t support extending parking meter hours, but does support a local vehicle license fee. There’s some question surrounding that prospect since California voters approved Proposition 26, which requires a two-thirds majority vote for fees. But Wiener said he wanted to be involved in efforts to implement a VLF in San Francisco.

Another priority is finding ways to stimulate job growth. He approves of the city’s move to use a tax credit for biotech industry businesses as a means of encouraging job creation, but said that mechanism should be used sparingly since it creates a revenue hole. Instead, Wiener said he was more in favor of looking at payroll-tax reform — but only if it doesn’t result in a tax increase.

Wiener also places importance on supporting the city’s Entertainment Commission and preserving San Francisco’s vibrant nightlife. “That’s an issue that I’ve always worked on and I’ll be speaking at [the California Music and Culture Association] next Friday, which I’m hoping will become a really effective voice for that community,” Wiener noted. “It needs a really unified and strong voice. and I want to make sure that we are really prioritizing having a vibrant nightlife and outdoor festival scene, and that we’re not blaming the entertainment community for societal ills like gun violence.” He also mentioned bolstering the Entertainment Commission’s budget.

But might that pro nightlife stance place him at odds with the San Francisco Police Department? “In some ways, I’m from a public-safety background,” he said in response. “I’ve been involved in a lot of safety issues on a neighborhood level. I’ve worked closely with SFPD and I am supportive of Chief [George] Gascon. In a way, I think that gives me some credibility.”

Speaking of working closely with people, whom does Wiener see himself forming alliances with on the new board? “I definitely have a great relationship with Sean Elsbernd and Carmen Chu, and I will be working closely with them. But I don’t agree with them on everything,” he said. Board President David Chiu and Sup. David Campos were both his classmates at Harvard, he noted, so he feels confident in his ability to work with them even if they don’t always see eye to eye. “One thing I see about this board that I’m optimistic about is that I think it’s going to be a more collegial board,” he added.

On the question on everyone’s mind — who will succeed Mayor Gavin Newsom to serve as the interim mayor? — Wiener said he thinks the best idea is to appoint a caretaker mayor. “Next year’s going to be really hard year,” he said and a caretaker mayor could “help make some really hard choices that need to be made. I may not like all of those choices, but they can do something that someone who’s a brand new mayor seeking reelection may be timid about doing.”

Who might he support if the new board selects the successor mayor? “There are some really solid names that have been bandied about, like [San Francisco Public Utilities Director] Ed Harrington or [Sherriff] Mike Hennessey,” he replied.

Wiener’s going to be mostly a fiscal conservative when it comes to the budget. Any new revenue, he said, “should be very policy-based,” for example transit-oriented instead of raising business taxes.

And he has plenty of cuts in mind, including “the way we contract for nonprofits,” looking at shared overhead, and consolidation. He also said that “we need to continue moving forward with pension and benefit reform [and] aggressively address overtime in all departments.” And what can voters expect from Sup. Scott Wiener that’s different from Sup. Bevan Dufty, a mayoral hopeful who currently represents D8? Wiener didn’t go too far out on a limb on that one. “There have been some tenant issues that Bevan voted against and I supported,” he said. “We’ve had times where he’s been to my left, or I’ve been to his left, but I can’t speculate as to the future. It’s going to be case by case.” *

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