Business Taxes

Holding corporations accountable for job creation claims


Amid the ongoing state budget impasse and an election season dominated by scapegoating public employee unions for public sector fiscal problems, Sen. Leland Yee (D-SF) today introduced legislation to hold corporations that receive tax breaks accountable for the jobs they claim to create, a bill that was quietly killed earlier this year after being approved by both houses of the Legislature.

Opposition to the bill by corporate interests should puncture the oft-repeated myth that tax breaks spur job creation rather than simply increased corporate profits, a myth that leads everyone from SF Mayor Gavin Newsom to Gov. Arnold Schwarzenegger to push business tax breaks that have hobbled the ability of governments to effectively function.

After intense lobbying against the measure by banks and the California Chamber of Commerce, SB 1391 fell one vote short on the concurrence approval it needed on the last night the Legislature’s regular session after some Southern California legislators who had originally voted for it decided to let it die. So Yee has reintroduced the bill as SBx6 20 for consideration during the upcoming special session that the governor called to deal with tax reform, which begins when legislators return to vote on the state budget as soon as this week.

The measure would require corporations that claim job creation tax credits to annually file information with the Franchise Tax Board listing how many full-time positions they offer. If the number of jobs at the company drops over a three-year period – a common occurrence in this era of outsourcing and downsizing – the corporations would be required to pay back taxpayers for their tax breaks.

“It is wrong for California to provide upwards of $14 billion in corporate tax credits without transparency and accountability,” Yee said in a public statement, also adding, “A working mother on CalWORKS or disabled senior receiving in-home supportive services has to jump through numerous bureaucratic hoops to receive minimal life-sustaining benefits, but if you are a Wall Street bank or big corporation looking for scarce tax credits, no one asks any questions.”

Numerous studies and books such as the Great American Jobs Scam have shown how the pervasive argument that cutting business taxes promotes job growth just isn’t true, even though it is taken as an article of faith by corporation and business-friendly politicians. But one need only consider the current jobless economic recovery – in which corporate profits have rebounded while unemployment remains stubbornly high – to doubt the Chamber of Commerce messaging.

Yee’s Chief of Staff Adam Keigwin tells the Guardian the measure simply makes sense, particularly in the context of a discussion about tax reform: “Here we have found a majority vote solution to a revenue issue and a fairness issue,” he told us. “If we’re going to give these tax breaks, fine, but make sure there’s accountability.”

Newsom’s budget and DCCC hypocrisy


Hypocrisy hung thickly in the air at City Hall today as Mayor Gavin Newsom refused to responsively address glaring contradictions on a pair of high-profile policy stances, pursuing naked self interest while cloaking himself in deceptive but high-minded rhetoric. Newsom used the city budget-signing ceremony to effusively praise the labor unions that he publicly shamed into giving back $250 million over two years to balance the budget without tax increases, a budget that cut services and increased various fees and fines.

“Labor has been under attack in this state and country. They’ve become a convenient excuse for our lack of leadership in Sacramento and around the country,” Newsom said without blushing, defending unions against pension reform measures such as Public Defender Jeff Adachi’s SF Smart Reform, which he opposes while continuing to support the need for pension reform.

But Newsom seemed unaware that the layoffs, forced furloughs, and voluntary pay cuts accepted by the unions that he publicly demonized just a couple months ago and now praises – whose support he needs for his current run for lieutenant governor – is connected to his steadfast opposition to new taxes, which he reiterated today: “We balanced the budget without raising taxes. I don’t believe in raising taxes, we don’t need to raise taxes.”

Despite the fact that just 10 percent of San Francisco businesses pay any business taxes to the city, Newsom opposed and this week helped kill a measure by Board President David Chiu to reform the business tax system in a way that would increase taxes on large corporations, lower them on small businesses, create private sector jobs, bring $25 million per year into the city, and expand the tax burden to 25 percent of businesses, including the large banks, insurance companies, and financial institutions that are now exempt. Instead, labor took a deep hit and the city still faces projected $500 million budget deficits each of the next two fiscal years.

But Newsom’s hypocrisy isn’t confined fiscal issues. After the ceremony, he told reporters that he was sticking by his November ballot measure to ban local elected officials from serving on the Democratic County Central Committee, even after last night insisting that body give him a seat, which they had to change the bylaws to accommodate.

At last night’s DCCC meeting, members of an elected committee that includes four progressive supervisors and three current supervisorial candidates called for Newsom or his proxy John Shanley to explain why he is pushing a policy to ban locally elected officials from serving on the DCCC, a body in which elected state and federal officials automatically get seats.

“This mayor is on record as saying local officials should not serve on the committee,” Sup. David Campos said at the meeting, calling for Newsom to clarify this policy contradiction and offer his reasoning for the policy: “We don’t want to do anything that is inconsistent with what the mayor has said so far.”

Chair Aaron Peskin translated Campos’s comments as indicating “some level of irony or hypocrisy,” but Campos objected, insisting “it’s not a personal attack” but a genuine desire to know why Newsom sought to ban local elected officials after progressives won a majority of the DCCC seats in June.

Both Shanley last night and Newsom today gave the same legalistic answers, noting that he’s not serving in his capacity as the mayor, but as an ex officio member who automatically gets a seat for being the Democratic nominee for a statewide office (although the DCCC legal counsel said Newsom wasn’t entitled to a seat because the bylaws only award a seat when the current holder of the office being sought is a Democrat).

But DCCC member Carole Migden objected to Shanley’s answer, saying of Newsom’s effort to unseat duly elected members, “That’s picking a fight, if we want to be clear…That effects my vote, I have to say. It’s disrespectful and unconstitutional.”

DCCC member David Chiu noted that Newsom’s ballot measure would explicitly ban supervisors and the mayor from serving on the DCCC and said that the mayor still had a few days before the deadline for him to withdraw the measure, which he single-handedly placed on the ballot using his authority as mayor.

But today, when asked by the Guardian, Newsom said he had no intention of either withdrawing the measure or explaining it to the DCCC. When we asked about the contradiction in his positions, Newsom said only, “If the voters support it then it would be the right thing to do.”

He was similarly dismissive when other reporters continued to ask about the controversy, gesturing toward me with a dismissive wave of his hand as he said, “Certain people with certain newspapers major in the minor.”

After being told that Newsom is sticking by his DCCC ballot measure, Chiu told us, “I hope the mayor can move beyond the politics of personality and build a party vehicle that is about unity.”


Newsom’s one bright spot (and even it’s a bit dingy)


Covering Mayor Gavin Newsom’s devious exploits for this story last week, watching as the ever-ambitious Newsom sacrificed the city’s fiscal future on the altar of political expediency and his increasingly rigid anti-tax ideology, it seemed as if there was nothing remotely redeeming about this callow, self-serving man. But then he does this, appointing Cheryl Brinkman – a strong and respected advocate for promoting alternatives to the automobile – to the Municipal Transportation Agency Board of Directors.

I’m not saying this one act redeems Newsom, not even close. In fact, some have speculated that he’s trying to coopt a qualified progressive or burnish his green credentials, an echo of the responses to when he appointed San Francisco Bicycle Coalition director Leah Shahum to the MTA board a couple years ago, a tenure Newsom ended prematurely after they clashed over creating more car-free spaces. Or maybe he’s trying to head off support for a ballot measure being considered by the Board of Supervisors to split appointments to the MTA. Who knows with this guy?

Yet it’s also true that being open to democratizing the streets of San Francisco has been a bright spot in Newsom’s otherwise dismal record as mayor. And I think that’s because the cost of admission to this movement is so low. He’s embraced temporary car-free spaces, supported more bicycling, and moved forward other green initiatives – all of which have little to no cost involved and no real political downside. So it’s been easy for Newsom to strike green poses when he chooses, just as it was easy for him to make the supposedly “courageous” decision to legalize same-sex marriage, which involved no heavy lifting and greatly improved Newsom’s political prospects.

But we’re reaching a moment of truth for San Francisco, a point at which the easy answers are evaporating and the bill is coming due – just as Newsom prepares to leave San Francisco for Sacramento. After doubling Muni fares since he became mayor and reaching a level where they really can’t go up anymore without diminishing returns and serious political consequences, Newsom and his appointees have run out of easy options for maintaining Muni in an era of declining state and federal support.

Now, the choices aren’t as easy: charge motorists more for parking, permits, or driving in the most congested times or places; cut Muni service or raise rates more; find ever more ways to nickle-and-dime everyone with various fee increases; or find more general tax revenue, which Newsom has been steadfastly unwilling to do, even though the big banks and financial services companies that caused the Great Recession are exempt from city business taxes.

Brinkman, who tells us that the Mayor’s Office placed no conditions on the appointment, now has a tough job, as do all of this city’s elected and appointed officials. But this is the moment when they must have the courage to make the tough choices about what’s best for San Francisco, choices that Newsom has been unwilling to make.

The “jobs” shell game


Written with Nima Maghame

While many San Francisco city officials have been trying to figure out how to close a projected budget deficit of more than $520 million, Mayor Gavin Newsom has spent the last month trying to make that spending gap even larger by aggressively pushing a variety of business tax cuts that economists say will do little to improve the local economy and could actually make it worse.

Newsom first proposed his so-called “local economic stimulus package” a year ago during his ill-fated run for governor, just as President Barack Obama was pushing his own economic stimulus plan. But unlike the federal government’s $787 billion plan, about a third of which involved tax cuts demanded by conservatives, Newsom proposed to cut local business taxes while also deeply slashing local government spending and laying off hundreds of city workers.

Most economists say that’s a terrible idea. In fact, a report issued at the time by Moody’s Investor Services made it clear that every dollar of direct government spending adds about $1.60 into the economy (or $1.73 if it’s on food stamps, the most stimulative spending government can make), whereas business tax cuts add only about $1 to the economy for every dollar spent.

We clashed with the Mayor’s Office at the time on our Politics blog (see “Mayor Newsom doesn’t understand economics,” 2/13/09), with Newsom’s spokesperson telling us the mayor was relying on the input of City Economist Ted Egan. But when we interviewed Egan about the issue, he agreed that it’s a bad idea to slash government spending to pay for tax cuts.

“We were in no way saying you should cut taxes to stimulate the economy, particularly if it means reducing government spending,” Egan told us then. And when we asked directly whether it’s better for San Francisco’s economy for the city to directly spend a dollar on payroll or to give that dollar away in a private sector tax break, he told us, “The consensus among economists is that most of the time government spending stimulates the economy more.”

The Board of Supervisors basically ignored Newsom’s proposal. But he revived it last month, expanding the proposals with even more private sector subsidies and making them the centerpiece of his Jan. 13 State of the City speech, publicly pushing it since then with a series of public events at businesses located in the city.

And this time — with the local economy still slow, projected city budget deficits bigger than ever, and little serious talk about how the city can bring in more money — it appears the proposals will be the subject of a series of hearings before Board of Supervisors’ committees in the coming weeks.

Newsom’s tax cut proposals include a proposal to waive the 1.5 percent payroll tax (the city’s main business tax) for all new hires; extend and expand the payroll tax exemption for biotech companies (see “Biotech’s bonanza,” p. 12); give small businesses tax credits for their spending on health plans; and allow developers to pass one-third of their affordable housing in-lieu fees onto future homeowners.

Newsom and his Press Secretary Tony Winnicker have spoken euphorically about the proposals, saying they’re desperately needed to spur the local economy. “We believe that enacting these tax incentives, particularly the payroll tax credit for new hires, is one of the single biggest things we can do for economic growth,” Winnicker said.

Despite repeated questions about the economists’ concerns over financing tax cuts with government spending cuts, we couldn’t get them to address the tradeoff directly. “The mayor will support critical public services,” was all Winnicker would say about the deep cuts that Newsom is expected to announce in his June 1 budget.

Sup. John Avalos, who chairs the Board of Supervisors Budget and Finance Committee, expressed more skepticism about the mayor’s proposals. “Do tax breaks have the intended effect of stimulating the economy? As we underfund government services, are we getting a net gain or are we getting something taken away? For the very small businesses in my district, it’s going to be trickle-down economics. It’s very unrelated and unmeasurable in benefit,” he told us.

David Noyola, board aide to President David Chiu, said his boss is supporting the biotech tax credit but reserving judgment on the rest. “It’s going to be a cost-benefit analysis,” Noyola said. “When we’re talking about jobs, we’re talking about public and private sector jobs, always.”

While Egan’s economic analysis predicts tax cuts will encourage some economic growth, even he is circumspect about the good it will do, particularly without finding a way to avoid deep cuts in city spending. “The truth of the matter is that our stimulus efforts are small because the city has relatively small power to affect the local economy,” Egan told us.

That’s the consensus economic opinion. Huge federal spending can help a national economy a little bit, but local economies are just different animals that local governments are largely powerless to really alter, particularly through tax cuts.

“I agree with Egan: city government has little power over the local economy,” Mike Potepan, an urban development economist at San Francisco State University, told the Guardian.

Both economists agree that tying tax cuts to job creation or development stimulus is better than general tax cuts, but that neither is good if it means laying off more city workers.

“Research shows that by cutting taxes you have more business activity where studies show it is likely to effect employment,” Potepan said. “On the other side, you have to think about revenue. Cities are going to have to balance their budgets, which could mean a cut in services.”

Author Greg LeRoy expresses a more critical perspective in his book The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation (1995, Berrett-Koehler), amassing evidence from economic studies and CEO surveys that corporate tax breaks, even those tied to new job creation, have almost no effect on private companies’ decisions about where to locate and whether to hire.

“How can companies get away with this? Because the system is rigged. Corporations have it down to a science. They have learned how to chant ‘jobs, jobs, jobs’ to win huge corporate tax breaks — and still do whatever they wanted all along,” LeRoy writes. “That’s the Great American Jobs Scam: an intentionally constructed system that enables corporations to exact huge taxpayer subsidies by promising quality jobs — and lets them fail to deliver. The other benefit often promised — higher tax revenues — often proves false as well.”

While proposing to forgo collecting millions of dollars in payroll taxes (the Controller’s Office is still working on a projected total for the tax cut package), the Mayor’s Office also wants to spur development of new housing with a proposal that would delay collection of needed affordable housing money by more than a decade.

After hearing mostly from a large crowd of desperate developers and construction workers during a Jan. 21 hearing on the proposal, the Planning Commission approved the package on a 4-3 vote, with the mayor’s appointees in agreement and the board’s appointees in dissent. It will be considered by the Board of Supervisors Land Use Committee sometime after Feb. 12.

The most controversial part of the fee reform package involves reducing the fee developers pay to support affordable housing by 33 percent, then charging a 1 percent transfer tax to subsequent buyers of those homes. Egan estimates developers would save almost $20,000 per housing unit, and that it would take an average of 16 years for the city to recover that money. But for high-rise luxury condos, the city would eventually recover about $27,000 per unit.

“It’s a classic make-an-investment-now-to-get-more-later strategy,” Michael Yarne, who crafted the policy for the Mayor’s Office of Economic and Workforce Development at Newsom’s direction, told the Guardian.

“If it makes it feasible for projects to be started, then it is worth passing,” Tim Colen, a representative of San Francisco Housing Action, said at the Planning Commission hearing, expressing hope that it will help create desperately needed construction jobs and new market rate housing.

But affordable housing advocates and some progressives criticize the policy as completely backward, saying that affordable housing development is desperately needed now, during these tough economic times, rather than a policy that encourages more market rate housing and bails out bad investments made at the height of the real estate bubble.

“What the city needs to do is directly build affordable housing, for which there is a demand,” affordable housing activist Calvin Welch told us. “The problem is that the banks don’t want to lend these guys money because they know nobody can afford to buy houses at the prices that these guys are demanding.”

Debra Walker, who is running for supervisor from District 6 and voted against the proposal when it came before the Building Inspection Commission (the sole vote on a commission dominated by mayoral appointees), agrees.

“The whole argument is that it stimulates development, but it doesn’t,” Walker said, arguing that the incremental gains (about 25 housing units per year, Egan estimates) will be offset by delayed affordable housing construction. “There would be more economic stimulus by using the fee to build more affordable housing.”

Instead, it simply shifts resources to favored entities: from home owners to developers, in the case of the affordable housing fees, or in the case of the tax credits, from the public to the private sector. But Newsom’s office just doesn’t see it that way.

“The Guardian believes in protecting public sector employees over private sector employees,” was how Winnicker formulated our understanding of what the economists are saying. “Most people don’t work for the city, and if we can support private sector jobs, that adds to sales tax revenues and benefits the economy. Despite a short-term impact of the tax credit, that’s a benefit.”

Adam Lesser contributed to this report


Biotech’s bonanza


By Adam Lesser

It’s difficult to measure the value a biotechnology company receives from locating in San Francisco. Most measures are qualitative: scientists talk about synergy with other biotech companies in the area, the intellectual community that thrives at the University of California-San Francisco, and support offered at the California Institute for Quantitative Biosciences (QB3).

But the quantitative costs are easier to calculate, beginning with rents that often are two to three times higher than in the East Bay or South Bay. Add San Francisco’s 1.5 percent payroll tax, and companies can begin to attach a dollar figure to the premium of being in San Francisco.

To incentivize biotech companies to locate in San Francisco, Mayor Gavin Newsom is asking the Board of Supervisors to extend the six-year-old Biotech Payroll Tax Exemption. The exemption allows any new biotech company to get a full 7.5 years without paying local business taxes as long as it files for the exemption by Dec. 31, 2014.

At a time when San Francisco city officials are struggling to close a budget deficit of more than $500 million — for which Newsom hasn’t offered any significant revenue proposals to help bridge the gap — some are questioning why the city should continue giving millions of dollars in tax breaks to the thriving biotech industry.

The core question of whether the payroll tax credit has worked in bringing more biotech companies to San Francisco is complex. While Newsom boasted of attracting 54 new biotech companies in the last five years during his Jan. 13 State of the City address, analysis of the credit by Ted Egan, the city’s chief economist, indicated that only eight companies had applied for the credit by the end of 2008.

The thriving research environment at UCSF-Mission Bay and the establishment of the state taxpayer-funded California Institute for Regenerative Medicine have played significant roles in creating a favorable environment for young biotech companies. The last five years also have seen broad growth in biotech as scientific discoveries have accelerated. Would biotech companies have come to San Francisco regardless of the payroll tax exemption?

The city’s Office of Economic Analysis looked at the question of how effective the payroll tax exclusion actually has been in spurring biotech growth. Because the size of the incentive — an exemption from paying a 1.5 percent tax on its total payroll — is relatively small, Egan felt that there could not be a conclusive link between the exemption and biotech growth. But he did feel there was some benefit, writing in his analysis that “in fact, the primary worth of the incentive may lie in its marketing value and how it signals to the industry that San Francisco is a credible location for biotechnology.”

Between 2004 and 2008, the biotech tax credit cost the city $1.2 million. If costs stay on pace with 2008, the existing Biotechnology Tax Exclusion will cost at least an additional $2 million. There are no cost estimates yet on extending the credit to give all biotech companies the full 7.5 years of payroll tax exclusion.

The extension faces opposition. Sup. John Avalos, chair of the Board of Supervisors Budget and Finance Committee, has expressed concern about the effectiveness of tax credits.

“I’m not sure the city is going to be able to show a direct connection between taxes and the growth of the biotech industry. The verdict is still out for me,” Avalos told the Guardian. “We’ve created the whole infrastructure for the industry around Mission Bay. That could have a lot to do with companies coming to San Francisco.” The city donated a portion of the land the UCSF-Mission Bay campus was built on.

Allopartis Biotechnologies is a small biotech startup in QB3 at UCSF-Mission Bay that has received venture capital funding. It saved $3,670 in 2009 by qualifying for the payroll exclusion. Allopartis has six employees and focuses on developing technologies to convert biomass into sustainable fuels.

“You pay a premium to be in the city, and it’s worth it,” said Robert Blazej, cofounder of Allopartis. “We’d like to stay close to this nexus of innovation and collaborators. But it’s going to be challenging with the cost of square footage.”

Interviews with other growing San Francisco businesses showed that their biggest concern was the cost and availability of commercial real estate. Zynga, a social gaming company in Potrero Hill, plans to add 800 jobs over the next two years. Newsom has asked for an additional waiver on payroll taxes for all new hires over the next two years, regardless of industry.

“We considered moving out of San Francisco for a couple reasons. One is the availability of commercial real estate. The other is the payroll tax,” said Chief Financial Officer Mark Vranesh. “The large blocks of space we would be looking for are hard to find.”

But as the city tries to plug gaps in dwindling city services, concerns are mounting about how much the city can give away to companies under the premise that tax credits create new jobs. In the debate about the biotech tax credit, objections have been raised about the fundamental fairness of giving a tax break to one industry while others still pay their share. Similar next generation industries with large up-front research and development costs such as solar energy or fiberoptic Internet do not receive payroll tax waivers.

Economists such as the Tax Foundation’s Patrick Fleenor are quick to point out that there are no political advantages to taxing everyone equally. “The problem is a political one. If you tax everyone the same, there aren’t politicians creating little fiefdoms. There aren’t ribbon-cutting ceremonies,” he said.

Avalos has equated judging the effectiveness of tax credits at creating jobs to looking into a crystal ball. But the price tag of each tax credit is borne in the present as the city contemplates laying off hundreds of city workers.

Adding to the political infighting have been public complaints by Sup. Michela Alioto-Pier that Newsom is trying to take credit for the biotech payroll exclusion, which she originally proposed and helped legislate in 2004. She requested an extension for the biotech tax credit in November. Her office has defended the bill. “We’re creating a hub so that other biotech companies can come to San Francisco,” said Bill Barnes, Alioto-Pier’s legislative aide. “When she was courting biotech, she was hearing that the payroll tax was an impediment.”

But other cities charge local business taxes comparable to San Francisco’s payroll tax. And if there was ever an industry that has been heaped with support from the public sector, it is biotech.

Proposition 71 passed with 59 percent voter support in 2004 and established the CIRM, which provides grants and loans for stem cell research. Stem cell research is an area within biotech that has seen significant political support, particularly since the time of the Bush administration, when federal funding for embryonic stem cell research was heavily restricted.

But appearing to be doing something about the economy remains politically important, even if the actual benefits are somewhat dubious.

“It’s a big political game that the mayor is playing. He wants to paint progressives as anti-jobs, which is ridiculous, and paint himself as the mayor for jobs,” Avalos told us. “We would be cannibalizing government services for the private sector.”

Newsom has been vague about whether he accepts that tradeoff or even understands its implications to city coffers and the local economy. Newsom Press Secretary Tony Winnicker recently told us, “He thinks it’s good policy to spur private sector job growth.”

Later, he added: “While not every company has taken advantage of it, we feel extending it sends the right message,”

Newsom’s faith-based economic plan


By Steven T. Jones
The theory that cutting taxes on corporations and the rich creates wealth that eventually trickles down to help everyone — a policy that drastically widened the income gap — is back, and in San Francisco of all places.

Is it “ideological” to question whether the business tax cuts that Mayor Gavin Newsom is proposing will exacerbate the city’s huge budget deficit, potentially doing far more harm than good? Press Secretary Tony Winnicker, who finally returned my call about the proposal, told me that it is.

But Winnicker denied that conservative economic ideology is behind Newsom’s belief in the healing power of business tax cuts, calling it simply “practical” and telling me, “The mayor doesn’t share your hostility toward the private sector.”

That may be true, but I don’t share his hostility toward the public sector, which would lose even more of the “jobs” that Newsom claims to value so highly in order to pay for his experiment in trickle-down economics. Winnicker grudgingly acknowledged that short-term fiscal reality – and the fact that they didn’t study how much revenue will be lost before proposing the plan, or in the year since it was first pitched — but argued that it will somehow help the city over the long run.

“We believe that enacting these tax incentives, particularly the payroll tax credit for new hires, is one of the single biggest things we can do for economic growth,” Winnicker said.

But he couldn’t cite any evidence supporting that belief, which is a matter of faith for economic conservatives. Yet even the city’s fairly conservative economist, Ted Egan, says that reducing government spending in order to cut business taxes just isn’t smart.

What’s wrong with San Francisco?


EDITORIAL In the end, Mayor Gavin Newsom got his way. The San Francisco supervisors made some significant changes to the budget and saved some $40 million worth of programs that the mayor wanted to cut or privatize, but the Newsom for governor ads will still be able to proclaim that the mayor solved his city’s budget problem without raising taxes or cutting police and firefighters.

Instead, this fall some 1,500 city employees are slated to be laid off, 400 of them in the Department of Public Health. Many recreation directors will get pink slips. Human services will lose at least 100 people. Nonprofit service providers will see much of their city funding disappear. The money to pay for public financing of the upcoming supervisorial and mayoral races is gone. Newsom’s pet (and expensive) 311 service will still be open 24 hours a day (with a lot of the money coming from Muni).

Not one of the city’s hugely redundant fire stations will close, even for a few days at a time. The bloated police budget will see no significant cuts, and the cops and firefighters will still get raises. The mayor will continue to employ five people in his press office.

And the only new revenue in the budget comes from fee increases on Muni, public parks, after-school programs, street fairs, restaurants, and the like.

Sup. John Avalos, chair of the Budget and Finance Committee, told us this was the best deal the supervisors could get, and it’s true that the board forced Newsom to add back a lot of money he wanted to cut. But the committee stopped far short of doing what it should have done — fundamentally changing the priorities of the Newsom budget.

Campos told us that he had "mixed feelings" about the deal and expressed concern about the board’s ability to shape midyear cuts and the lack of commitment from Newsom to support support placing revenue measures on the November ballot. Mirkarimi said he was happy with the dollar amounts of the add-backs but proposed holding in reserve some funding for the mayor’s pet projects — a tool for ensuring that Newsom consults with supervisors on the midyear cuts as promised — but Avalos opposed the idea.

Avalos said he’s relying on Newsom’s commitment to him: "The mayor has given me the assurance that he will not make unilateral decisions." But Newsom has a history of breaking such promises.

And the supervisors have not included any new tax revenue in the budget projections. Which puts San Francisco far behind Oakland.

The Oakland City Council has plenty of problems, and the mayor of Oakland, Ron Dellums, has been missing in action on a lot of the city’s problems lately. But when the mayor and the council had to address the budget problems, they came up with a solution that includes at least $6 million in new taxes. While that sounds like a small number, it’s almost 10 percent of Oakland’s budget shortfall. And the new taxes, which will need voter approval in a special July 21 election, are included as part of the budget plan for fiscal 2009-10.

Two of the new taxes — a levy on pot clubs (which the clubs themselves strongly support) and a loophole-closing measure that forces big businesses to pay their fair share of real estate transfer taxes — require only a simple majority vote to take effect. The reason: the council voted unanimously to declare a fiscal emergency and put the measures on the ballot. That allowed the city to avoid the state law that requires a two-thirds vote on most new taxes.

Measures C, D, F, and H make up a generally progressive package that has the support of Council Members Rebecca Kaplan and Jean Quan and Rep. Barbara Lee. We’re happy to endorse all four.

Measure C is a 3 percent increase in the city’s hotel tax, which would rise from 11 percent to 14 percent. Half the new money would go to the Oakland Convention and Visitors Bureau while the other half would be split between the Oakland Zoo, the Chabot Space and Science Center, and cultural arts programs and festivals in the city. We could argue with the distribution (arts festivals should probably get more money and the Visitors Bureau less) but overall, it raises the hotel tax to the level of most other cities in the area and would raise money for the sorts of programs hotel taxes typically fund.

Measure D is a technical amendment to the Oakland Kids First law that mandates spending on programs for children and youth. It changes the spending requirement from 1.5 percent of total city revenues to 3 percent of the general fund. That’s slightly less money than the program currently gets, but a lot more than it has had over the past decade. The coalition that put Kids First on the ballot in 1996 (and modified it in 2008) supports this modest change.

Measure F is a creative new tax. It would impose a 1.8 percent gross receipts tax ($18 per $1,000 in sales) on medical marijuana businesses. Most efforts to hike business taxes face bitter opposition from business owners, but in this case, the pot clubs are happy to pay. In fact, the four dispensaries in Oakland are among the measure’s strongest supporters. Paying taxes tends to legitimize the clubs — and while it’s going to be tricky to track sales in what is still largely a cash business where records have in the past been kept vague to avoid the threat of federal prosecution, this is a strong step in the right direction.

Measure H would prevent big corporations from cheating Oakland out of real estate transfer taxes. Under current law, a business that owns property in Oakland and is bought by another business (or becomes part of a merger) doesn’t have to pay transfer taxes on the property it owns. Closing that loophole could bring in as much as $4.4 million a year.

There’s a lesson here for the much larger city across the Bay.

San Francisco desperately needs new revenue. And while the mayor has talked, in vague terms, about maybe supporting some sort of tax measures in November, he hasn’t committed to anything. There are several proposals floating around the board, the latest of which is a Labor Council-supported tax on alcohol consumption, but no coherent package. The progressives on the board — both those who support the compromise Newsom budget and those who don’t — need to set aside those differences, now, and get to work on finding ways to bring in enough new money to deal with the impacts of further state cuts and stave off some of the layoffs slated for the fall.

The main obstacles are Sups. Sean Elsbernd and Michela Alioto-Pier. Everyone who cares about saving services in this city needs to pressure them to back away from their GOP-style no-new-taxes stands. If those two would at least agree to let the voters decide on new revenue measures, the city would likely get a unanimous board — and the ability to raise taxes with a simple majority vote.

Oakland’s pot club tax and real estate transfer tax are great ideas that can be directly imported to San Francisco. The city’s business tax could be made more progressive (and bring in new revenue) with a simple change in the tax rates (higher on the big outfits, lower on the small ones). We’re dubious about a sales tax increase — even a half-percent hike would bring the local tax rate to 10 percent. And, even though the alcohol tax isn’t exactly progressive, those ideas could be acceptable as part of a package.

The main thing is that the city will need, at minimum, another $100 million this fall, and probably ought to be looking at raising twice that much. Oakland — a city with far fewer resources, a much smaller business base, and radically less wealth — is managing to fight its deficit with progressive taxes. What’s wrong with San Francisco?

P.S.: Sup. Chris Daly was outspoken in his criticism of the budget deal, blasting Newsom and even taking on his former aide and longtime ally, Avalos. But for all his bluster about the mayor, Daly couldn’t bring himself to oppose Anson Moran, Newsom’s nominee for the Public Utilities Commission. Moran was a staunch ally of Pacific Gas and Electric Co. when he was the PUC’s general manager, and the full board should reject him. *

Beyond the bloody cuts


EDITORIAL There’s actually a bright side to the brutally depressing budget struggles in San Francisco and Sacramento. This could be the year Californians finally start to recognize that they can’t have a functioning state, with the services everyone wants, without paying taxes. It could be the end of the Republican lie that the budget problem is only on the spending side, the end of the famous no-new-taxes pledge — and the end to the requirement that two-thirds of the Legislature pass any budget, an archaic rule that is crippling California.

And with a little leadership from the new supervisors at City Hall, this could be the year San Francisco takes a serious look at how local government is financed.

This is no time for modest, cautious proposals. The budget situation is alarming. California is looking at $40 billion in cuts over the next 18 months — more than a third of the entire state budget. San Francisco is looking at $500 million in red ink — roughly half the discretionary spending from the general fund. Filling those holes with cuts alone would be devastating.

This isn’t your average budget battle, where everyone fights to save a few hundred thousand dollars here and a million there for a crucial program. This is, by all accounts, something of an order that the state and local government haven’t seen since the 1930s.

So small-time, piecemeal fixes aren’t going to work. Here’s what the state and the city need to be talking about.


The first thing that has to go is the two-thirds rule. It’s become almost a farce — a handful of Republicans, who have sworn never to raise taxes under any circumstances, are holding the world’s sixth-largest economy and a state of more than 37 million people hostage to their failed ideology. Enough talk: the Democrats need to mount a massive signature drive for a special election this summer to repeal that requirement.

There are many fair ways to raise taxes to bring in enough revenue to stave off devastating cuts. Raising the income tax levels on the highest wage earners makes the most sense. Gas prices are way down; raising the state gas tax by a few cents a gallon won’t bring prices even close to last summer’s level. We’re nervous about taxing services (medical care, for example, is a "service"), but a carefully crafted tax that exempts essentials ought to be on the table. California is the only oil-producing state that doesn’t tax oil at the wellhead; that’s a no-brainer. So is restoring the vehicle license fee; Gov. Schwarzenegger’s decision to eliminate that fee has cost the state $40 billion over the past five years.


Step one: the mayor has to recognize that there’s no way to solve a half-billion dollar shortfall with cuts alone. Step two: the mayor needs to back off from the layoffs and cuts for a few weeks until the supervisors and the community stakeholders have a chance to meet, talk, and look at all the options. Step three: some far-reaching changes have to be on the agenda, right now.

We like the idea of a city income tax. Technically, under state law, all the city can do is tax income earned within local borders, meaning that commuters would pay (good) and San Franciscans who work out of town would escape payment (bad). But overall, the concept is better than anything else out there. A local income tax that exempts, say, the first $50,000 (assuring that lower-income people pay nothing) with progressive rates skewed toward charging very high wage-earners the most could bring in significant revenue in the fairest way possible.

We’d like to see a progressive business tax — raise the rates on the biggest companies. We could live with a short-term hike in the local sales tax; frankly, we could live with most short-term revenue increases. The supervisors need to look at what new taxes make the most sense and prepare for a special election in the spring to put a revenue package before the voters. And everyone — including the mayor — needs to campaign hard for it.

The city also needs to look at the rainy-day fund, money set aside for bad economic times. Only a small amount of the close to $100 million now in that fund is available in any one year, but that rule might have to be changed.

This crisis is an opportunity — a chance to examine how the city’s current revenue sources are unfair, unstable, and unwieldy. Why are business taxes flat (big corporations and small businesses pay the same rate)? Why does San Francisco rely so much on property and transfer taxes, which shift radically with economic ups and downs? And of course, a public power system would generate enough money to cover a huge part of the deficit. The supervisors need to find an immediate revenue-based solution, but should also start creating a serious task force to overhaul the entire revenue side of the budget. Today.

MUD money


Originally published October 10, 2001 A San Francisco public power agency could buy out Pacific Gas and Electric Co., cut residential electricity rates by 20 percent, dramatically reduce the city’s reliance on fossil fuels – and still operate with a $18 million annual surplus, a Bay Guardian analysis shows. Our study’s figures directly contradict the argument that’s at the heart of PG&E’s campaign against public power: they show that a municipal electrical system can be bought and run at no cost to the taxpayers – with plenty of money left over. Our figures are all taken from public sources and are consistent with the financial reports of other major public power agencies in the state. In fact, if anything, our figures are conservative; the real benefits are almost certainly higher. The financial issues are essentially the same for a municipal utility district and for a city power agency, so our figures would apply to either the MUD, which would be created under Measure I, or the Water and Power Agency, which would be created under Proposition F. Calcuutf8g the financial feasibility of a municipal utility district or city power agency in detail is a complex process. Consultants typically charge upward of $1 million for detailed feasibility studies that use all sorts of models and assumptions to come up with the sorts of figures you can take to the bank (or to Wall Street to sell bonds). So our analysis isn’t anywhere near as detailed as what the MUD or the WPA will eventually have to produce. But we’ve covered all of the major revenues and costs; if we’re missing anything, it won’t radically change the bottom line. And it’s safe to say that we haven’t over<\h>estimated the financial viability of public power. The questions on the minds of most voters this fall are relatively simple: Can public power pay for itself? Will the MUD or the Water and Power Agency be a financial success? And our research shows that the answer is a resounding yes. We’ve run through two scenarios, a worst-case scenario and a best-case scenario. In each case, we’ve found, a San Francisco public power agency is more than financially viable. Our study is the rough equivalent of what a MUD’s or WPA’s annual energy report to the public would look like once the agency was up and running. In fact, we’ve pretty much followed the model of the Sacramento Municipal Utility District (SMUD) and the Los Angeles Department of Water and Power (LADWP), and we’ve relied on those two agencies’ figures to estimate some of what the city’s comparable costs would be. We’ve discussed our study with Ed Smeloff, the city’s top energy expert, and while he couldn’t verify our conclusions (since he hasn’t run the numbers himself), he said that there were no major costs that we had ignored. The results are summarized in the two accompanying charts. Where’s the money? Based on how other MUDs have been set up, the process in San Francisco would look something like this: The elected MUD (or WPA) directors would commission a detailed feasibility study outlining the financial future of the agency. Then they would begin negotiations with PG&E to buy the company’s local transmission and distribution system. If PG&E wouldn’t sell, the MUD or WPA would seize the system through the power of eminent domain. The agency would then issue revenue bonds to cover the cost of the acquisition and start-up, hire a staff, and go into the retail power business. Sales of electricity would bring in revenue that would cover operating costs and pay off the revenue bonds; any money left over at the end could be turned back to the city’s General Fund, used to reduce rates, or used for conservation and environmental projects. So the first step in analyzing the finances of a MUD is to figure out how much revenue would be available each year. That’s a relatively simple calculation. According to the California Energy Commission, PG&E currently sells about 5.4 billion kilowatt-<\h>hours of electricity to customers in San Francisco. (This figure doesn’t include energy used by the city government, since government agencies use power from the city’s Hetch Hetchy dam.) Residential, commercial, and industrial customers all pay different rates. If a MUD sold power at current PG&E rates (as provided to us by PG&E spokesperson Ron Low), it would bring in $562 million in revenue (enough to create a big annual surplus – roughly $36 million.) But a MUD or power agency almost certainly wouldn’t sell power at PG&E’s high rates – one major attraction of public power is that it offers cheaper electricity. So in both of our scenarios, we assumed that the rates would be at least 10 percent below PG&E’s rates. In fact, as our study shows, rates could drop as much as 20 percent without harming the MUD or WPA’s viability. What’s it cost? There are three basic categories of costs that the agency would have to cover. The first is payments on the bonds, the second is generating or buying power, and the third is basic operations and maintenance (paying the staff to keep the system up and running, to send out bills, to read meters, as well as operating the repair trucks, etc.). Electricity can’t just be delivered to the doorsteps of customers like canned ham in a UPS box. It has to be distributed through a network of transformers, substations, wires, and poles and measured with individual meters. And until the public power agency owns that distribution network, it can’t sell a single kilowatt. Unfortunately, the system that’s now in place in San Francisco is owned by PG&E – and almost everyone involved agrees that it would be cheaper, easier, and quicker for the city to take over that system than to build a new one from scratch. That’s what SMUD did and what most other public agencies that have gotten into the power business in the past half century have done. A MUD or a city power agency would have the right to seize PG&E’s property by eminent domain. But PG&E would be entitled under law to fair compensation for the taking of its property, and one of the most complex, bitter – and crucial – issues involved in establishing public power will be the price tag. “This is not an easy case at all,” Richard Epstein, a professor of law at the University of Chicago and a national expert on eminent domain, told us. “I can guarantee you that nobody, but nobody, has any idea right now what fair compensation would be.” The issue will almost certainly be settled in court. PG&E insists that its San Francisco property is worth a small fortune – as much as $1.4 billion. In a 1996 study the Economic and Technical Analysis Group suggested that the price could be anywhere from $315 million to $1.2 billion. The ETAG study, which was highly favorable to PG&E, suggested that the most likely figure was around $795 million. The reason those figures are so widely divergent is that there are numerous ways of evaluating what a utility’s property is worth. The simplest is to establish what PG&E originally paid for the property, then factor in depreciation. That’s how insurance companies decide what they have to pay you if your car is stolen. The process generally leads to a low figure favorable to the city. But courts have recently been somewhat more friendly to an analysis that recognizes that utility property is more valuable than, say, a private car, because the utility property produces income. One way to address that is by valuing the property at its replacement cost and factoring in the value of a “going concern” – which, of course, leads to a much higher price. Real market value But there’s another way to look at the issue, and that involves going to the state agency that appraises the actual market value of PG&E’s property for tax purposes: the Board of Equalization. Every year the board’s appraisers evaluate exactly what PG&E’s property is worth – and the agency’s record is pretty good. When California’s private utilities sold 22 power plants under deregulation, the board checked its appraisals against actual market prices, and while sale prices for some plants varied from estimates, the board was accurate to within 1 percent overall, chief appraiser Harold Hale told us. The Board of Equalization estimated that as of January 2001, all of PG&E’s property in San Francisco was worth $962,140,298. That includes property that isn’t at all relevant to running an electric utility. The value of the property actually used in the electricity business, the board says, is $753,978,471. But that figure includes PG&E’s huge 77 Beale St. headquarters office complex, which the city almost certainly wouldn’t want or need to buy in an eminent domain action. If you subtract 77 Beale St. (which one real estate expert we contacted said was worth about $225 million as of Jan. 1), then the value of the property the city might actually buy is about $528 million. It may be even less than that: the real estate market has fallen almost 15 percent since Jan. 1, according to our expert, a senior executive at one of the city’s biggest firms, who asked not to be identified by name. However, to be conservative, we’re sticking with the Jan. 1 figure. Epstein, who has worked as a consultant fighting municipalization efforts and thus isn’t inclined to be biased in favor of a public buyout, agreed that using the Board of Equalization figures is “certainly a good place to start.” There’s no guarantee that the courts will accept this approach (although, with PG&E in bankruptcy court right now, it’s also entirely possible, experts say, that PG&E might be forced to accept a much lower value for its property and sell it without a fight, in order to pay off some creditors with cash). So we also analyzed a worst-case scenario, essentially accepting the figures of ETAG’s much maligned report and assuming that, under a replacement cost-<\d>plus-<\d>”going concern” analysis, the city would have to spend $795 million to take over the system. (Even ETAG concluded that it’s unlikely the final price would be as high as PG&E’s estimate; nobody whose property is up for seizure starts off by quoting a realistic price.) No matter what the price, the bond sale will have to include some money for contingencies – the actual cost of the bond sale, start-up cash, etc. We’ve added $50 million for those costs. Paying the staff, buying power PG&E doesn’t publicly reveal its operating costs for San Francisco (or any other specific service area). And it’s difficult to use the company’s system-<\h>wide operating costs as a basis for estimating San Francisco costs, since the population of San Francisco is so much denser than in most of the company’s northern California territory. The denser the population, the cheaper it is to serve; the distance between customers is smaller, so you need less transmission line per customer. Reading meters is faster, since the employee doing that work doesn’t have to drive long distances between each house. Repairs and maintenance are cheaper for the same reason. And PG&E’s costs aren’t a fair comparison for a public power agency anyway: PG&E pays huge executive salaries (see “Public Power vs. PG&E,” page 24), which are included in the operations overhead. So we based our cost estimate on LADWP, which is about as close a comparison to San Francisco as we could find. Los Angeles is not quite as dense as San Francisco, so the L.A. figures are almost certainly higher than what San Francisco would pay, but they provide a reasonable, if conservative, estimate. LADWP’s cost per customer is $383; multiplied by the number of customers in San Francisco, that cost is $131 million a year. Then there’s the question of generating or buying the electricity. Here San Francisco has a huge advantage over other public power agencies: The city owns a large hydro<\h>electric dam that can generate enough to cover some of the local power needs – and it’s already paid for. Power from the Hetch Hetchy dam is cheap: the cost of operating the system is only about 2¢ a kilowatt-<\h>hour. Unfortunately, the city also has to pay PG&E to ship the power over its lines to the city borders, since the city has no complete transmission line to carry the power here; San Francisco pays PG&E $9.6 million a year in what’s known as “wheeling fees.” San Francisco currently sells most of the available Hetch Hetchy power to the Turlock and Modesto Irrigation Districts. Our analysis assumes that those contracts will be broken and that much of the power – 425 million kilowatt-<\h>hours’ worth – will be available to the MUD or WPA. The city also has a very expensive contract with Calpine to provide backup energy when water is low at the dam. The wheeling fees and Calpine deal boost the actual cost of Hetch Hetchy power to about 4¢ a kilowatt-hour. But the Calpine deal ends in five years, at which point Hetch Hetchy power will be far less expensive – and the MUD’s costs will go down. Green power Our analysis is based on the assumption that San Francisco will move as rapidly as possible to reduce its reliance on fossil fuels (see “Green City,” 9/26/01). Not all of the alternative-<\h>energy sources that should ultimately be part of the city’s mix are likely to be online when the MUD starts operating, so we’ve again been conservative, assuming in our worst-case scenario only a modest amount of solar power to supplement Hetch Hetchy power. In our best-case scenario we assume that the city will be able to develop 200 megawatts of solar and wind power – five times as much as projected in the solar bond measure, Proposition B, and enough to power 200,000 homes. The cost of solar and wind is easy to determine: it’s the cost of the interest on the bonds needed to buy and install the windmills and panels. Once they’re up and running, they cost very little to operate – and the fuel, of course, is free. Based on the San Francisco Public Utilities Commission staff’s analysis of Prop. B), 40 megawatts of solar, wind, and efficiency programs – the equivalent of 98 million annual kilowatt-<\h>hours – will cost about $7.5 million a year. Our ambitious plan – for five times that much solar and wind power- would cost $38 million a year. (Again, the actual costs will probably be lower; once a big agency orders a large amount of solar- or wind-<\h>generating facilities, the price goes down substantially.) The rest of the power the city needs will have to be bought on the open market. Because the market is so volatile, it’s hard to say exactly what that cost would be. But futures contracts for power are listed on the New York Mercantile Exchange Web site, and they’re currently running at less than 4¢ a kilowatt-hour. That price is expected to decline in the future. Again, we’ve stuck to conservative numbers, assuming the MUD or WPA would have to pay 6.9¢ a kilowatt-<\h>hour for power generated locally, by Mirant Corp.’s Potrero Hill power plant (one energy expert told us that Mirant is unlikely to accept less than the 6.9¢ the state is now paying for power), and 5.5¢ a kilowatt-<\h>hour for power bought from out-of-town sources. We assumed that the Potrero plant would operate at its capacity. The power the city would import can’t exceed the amount that can be carried along the one transmission line leading into San Francisco, and our projection meets that criterion. PG&E pays a substantial amount of taxes to the city, and almost all of the San Francisco-<\d>Brisbane MUD Board candidates have pledged to make sure that, at the very least, the city’s General Fund doesn’t lose any money if the private utility is replaced with a public agency. So part of the MUD’s expense would be the payment of a fee to replace what PG&E paid in taxes. The utility pays three major taxes: property taxes, a franchise fee, and business taxes. Based on the Board of Equalization’s assessed value for PG&E ($962 million) and the city’s property tax rate, PG&E’s property taxes are about $1 million. The franchise fee – 1.5 percent of sales – adds another $8.4 million. It’s impossible to say how much PG&E pays San Francisco in business taxes, since that figure is not public, but even at several million dollars a year, it wouldn’t significantly change our bottom line. Unanswered questions There are plenty of questions our analysis doesn’t – and can’t – answer, factors that are impossible at this point to predict with any accuracy. PG&E customers, for example, have to pay a substantial surcharge on their electric bills for what’s known as the CTC, or competitive transition charge. In essence, that’s the money ratepayers have been forced to cough up to cover the cost of PG&E’s bad investments in nuclear power. It’s possible that a San Francisco power agency would have to include some of those charges in its bills – but according to Mindy Spatt, media director at TURN, it’s unlikely. The CTC is expected to end next year and probably wouldn’t be a factor by the time the MUD or WPA was up and running. It’s also unclear whether the MUD or WPA would have to pay a share of the costs of the expensive long-term power contracts that the state Department of Water Resources has signed to buy power for the bankrupt PG&E. There would almost certainly be some substantial legal fees, possibly in the millions of dollars, that would reduce the surplus during the first few years (but not once the eminent domain issues were settled). Most of the MUD candidates have voted to shut down PG&E’s Hunters Point plant, and it’s unclear how much it will cost to decommission that facility. The MUD or WPA could also buy the Potrero plant (it recently sold for $330 million) and pay less for the power generated there. And, of course, it’s uncertain how much electricity will cost on the open market in the next few years. That’s why the MUD or WPA would probably want to move aggressively to increase its own generating capacity. But if power prices go up, one thing is clear: PG&E’s prices will go up higher, and faster, than the prices of a public power agency. Voters won’t have to take our word alone on the subject. The public will have more information on San Francisco’s energy plans in the coming weeks. The county’s Local Agency Formation Commission is planning to bring in experts on public power and energy for hearings, and Smeloff is hiring Amory Lovins’s Rocky Mountain Institute to assess the city’s energy alternatives. Both reports are expected before the Nov. 6 election. Our analysis isn’t that radical or unusual; it just confirms the experience of every other major public power agency in the state. We’ve found what just about everyone who’s gotten out from under the private utilities already knows: public power is cheaper. It’s that simple. Public power in San Francisco: Best-case scenario (Low rates, extensive renewable energy) Revenue1 Residential sales 1.481 billion kwh @ 11.5¢ per kwh $170 million Commercial/industrial sales 3.942 billion kwh @ 9.5¢ per kwh $374 million TOTAL $544 million Expenses Payment on revenue bonds $578.9 million @ 8 percent2 $50.9 million Cost of power * <\i>Hetch Hetchy 425 million kwh @ 4¢ per kwh3 $17 million * <\i>Solar, wind, efficiencies 500 million kwh4 $38 million * <\i>Potrero Hill plant 1.6 billion kwh @ 6.9¢ per kwh $110 million * <\i>Contract purchases 2.90 billion kwh @ 5.5¢ per kwh5 $160 million Operations and maintenance6 $131 million Replace PG&E’s city taxes7 $9.4 million Public benefits8 $10 million TOTAL $526 million Surplus $18 million This chart shows how a San Francisco public power agency could take over Pacific Gas and Electric Co., reduce the city’s reliance on fossil fuels, provide all of the electricity the city needs, and still have money left over. The analysis would apply to either a municipal utility district or a city water and power agency. Proposals for both are on the November ballot. (The MUD proposal would include both San Francisco and Brisbane, but since Brisbane is a very small area – only about 4,000 residents – and since it’s difficult to get accurate data on Brisbane’s current usage, our numbers include only San Francisco. The cost of providing service to Brisbane and the revenue from that jurisdiction would not significantly change the analysis.) The scenario presented here is an optimistic one – although, based on our research, the figures are quite realistic. All of the figures we’ve used are conservative – if anything, our analysis underestimates the financial viability of the MUD or a city WPA. The bottom line: Even with residential rates 20 percent below what PG&E currently charges, and with a huge investment in solar and wind power (five times the size of what the city is currently planning), the MUD or WPA would run a large surplus. This study reflects what a MUD or WPA would be facing several years into its existence. In the first few years, the agency would probably have to buy more power on the open market and would generate less from solar and wind (which take time to set up). But on balance that probably lowers the cost of power (solar is comparatively expensive). There are certain to be factors that we missed – although our cost and revenue projections are very similar to what we found in the annual reports of other large public power agencies such as the Sacramento Municipal Utility District (SMUD) and the Los Angeles Department of Water and Power (LADWP). But we’ve accounted for every foreseeable big-ticket item, and the projected surplus is large enough to cover unexpected costs. 1Revenue is based on sales of 5.4 billion kilowatt-hours: the amount PG&E currently sells in San Francisco, according to the state Energy Commission. A MUD or WPA could set rates at any level it wanted; for this analysis, we set residential rates at 20 percent below PG&E’s current rate of 14¢ a kilowatt-hour rate (which is projected to rise sharply). We assumed that commercial and industrial rates would be at the low end of PG&E’s scale. 2This assumes the MUD or WPA can buy PG&E’s assets at current market value, as assessed by the state Board of Equalization as of Jan. 1, 2001 (see story for details). Ken Bruce of the Board of Supervisors’ Budget Analysts Office told the Bay Guardian that 8 percent would be a reasonable projection for the interest on revenue bonds. 3Hetch Hetchy currently generates about 1.7 billion kilowatt-hours a year, and half of that goes for city government needs – Muni, the lights at City Hall, etc. We assumed that the city would pay the MUD what it pays now – the actual cost of generating the power – so the power sold to the city would be a financial wash. Thus it’s not in our analysis as either a cost or a revenue item. The cost we project for Hetch Hetchy power is high – it includes unfavorable contracts that will expire in five years (see story). The actual future cost would be closer to 2¢ a kilowatt-hour. 4The cost of solar and wind is based on financial estimates for Prop. B. 5It’s impossible to determine exactly what it would cost the MUD or WPA to purchase power in the future, but future contracts currently listed on the New York Mercantile Exchange are going for less than 4¢ a kilowatt-hour, and that price is expected to drop. Again, we took a conservative estimate; actual costs might be lower. 6Based on the cost per customer of operations and maintenance at LADWP (see story). 7The MUD would have no obligation to pay city taxes, but almost all of the candidates for MUD director have pledged to make sure the city doesn’t lose money – in other words, the MUD would almost certainly pay fees equivalent to what PG&E was paying in taxes (see story). 8The state mandates that power companies or agencies spend 2 percent of revenues on “public benefits” – conservation, environmental programs, and the like. Public power in San Francisco: Worst-case scenario (Moderate rates, less renewable energy) Revenue Residential sales 1.481 billion kwh @ 12.6¢ per kwh1 $186 million Commercial/industrial sales 3.942 billion kwh @ 9.5¢ per kwh2 $374 million TOTAL $560 million Expenses Payment on revenue bonds $850 million @ 8 percent3 $74.4 million Cost of power * <\i>Hetch Hetchy 425 million kwh @ 4¢ per kwh $17 million (includes wheeling and backup)4 * <\i>Solar, wind, efficiencies 98 million kwh5 $7.5 million Purchased power6 * <\i>Potrero Hill plant 1.752 billion kwh @ 6.9¢ per kwh $120 million * <\i>Contract purchases 3.098 billion kwh @ 5.5¢ $170 million Operations and maintenance7 $131 million Replace PG&E’s city taxes8 $9.4 million Public benefits9 $10 million TOTAL $539 million Surplus $21 million This chart shows how a public power system in San Francisco would operate if some of the worst-case assumptions are true: if, for example, the municipal utility district or power agency had to spend $800 million to buy out PG&E’s system (the highest likely figure, even according to pro-PG&E studies) and if the MUD was unable to fund and site affordable renewable-energy systems and was thus forced to rely on buying a large amount of its power from the Potrero Hill plant (owned by Mirant Corporation) and from other generators through long-term contracts. Even under those circumstances, the chart shows, the MUD could cut residential rates by 10 percent, keep commercial and industrial rates at the low end of PG&E’s rates, and still end the year with a surplus. As in all of our calculations, the numbers are very conservative; expenses would probably be considerably lower. 1The MUD could set rates at any level it wanted; for this scenario, we’ve set residential rates at 10 percent below PG&E’s current rates. 2The commercial/industrial rate is at the low end of PG&E’s equivalent rate. 3See story for details on the $850 million figure. The bond rate of 8 percent is based on an estimate from Ken Bruce of the Board of Supervisors’ Budget Analyst’s Office. 4See story and “Public Power in San Francisco: Best-Case Scenario” for details. 5This is the amount of solar and wind power projected in the city’s report on the solar bond measure, Proposition B. 6See story and “Best-Case Scenario” for details. 7Based on comparable costs per customer at LADWP. 8See story. 9See story.

A fall revenue measure


EDITORIAL If you think the June ballot was busy, wait until November. San Francisco will be electing six district supervisors. The mayor and organized labor are going to be pushing the mother of all bond acts, roughly $1 billion to rebuild San Francisco General Hospital. There’s likely to be a public power charter amendment mandating that the city mount a real effort to take over the electric grid. There will probably be a major affordable-housing initiative that includes a set-aside for low-income housing and perhaps some affordable-housing bond money. It’s shaping up as an election that will change the city’s direction for years to come — but there’s still a crucial piece missing.

There’s no money.

Public power will, of course, generate vast amounts of new revenue, but not immediately: the process of setting up the system and fighting Pacific Gas and Electric Co. in court could drag out for several years. That, of course, is all the more reason to get started — if the city had done this years ago, we wouldn’t have a budget crisis today.

But in the meantime, right now, San Francisco needs cash — and there needs to be a November ballot measure that brings in new revenue to pay for more affordable housing and to save the services Mayor Gavin Newsom is cutting.

It’s tough to pass new taxes in California. Most of the time, state law mandates a two-thirds majority vote by the people to enact any new form of taxation. But it’s a bit easier when the supervisors are up for election; on those ballots, the threshold is only 50 percent. And with at least four tightly contested supervisorial races bringing out voters, labor bringing out the troops for the General Hospital bond, and the Democratic Party pushing to get voters out for Barack Obama, the turnout should be excellent.

So if there’s ever a good time to try to pass a tax measure, November 2008 ought to fit the bill.

All sorts of tax proposals have floated around City Hall in recent years and some of them — for example, a higher real-estate transfer tax — were defeated at the ballot. Some groups will oppose any tax proposal, and it’s hard to find constituencies that want to work hard for higher taxes.

So the key to crafting a revenue measure is to ensure that it’s as progressive as possible, and that it takes into account the concerns of those small businesses and homeowners who aren’t rich and can’t afford huge new levies. We see two good options:

1. A city income tax. This hasn’t been seriously discussed since the 1980s, but it ought to be. California law bars cities from collecting traditional income taxes — that is, San Francisco can’t tax the incomes of everyone who lives here. But in 1978 the state Supreme Court ruled that cities can tax income earned from employment in the city. The upside is that a San Francisco employment income tax would hit commuters, a huge group who use city services and don’t pay for them. The downside is that people who live here but work, say, in Silicon Valley would escape the tax.

But overall, income taxes are the fairest method of collecting revenue, and a city tax could be set to hit hardest on the wealthiest. The city could exempt, say, the first $50,000 of earned income, levy a modest (say, 1 percent) tax on the next $50,000, then increase the marginal percentage so that people with enormous salaries pay as much as 2 or 3 percent.

The beauty of this: most of the people who paid the top-end income tax would simply write it off their federal income taxes — meaning this would be a direct shift of cash from Washington DC to San Francisco. And it would come primarily from people who have already received a huge tax windfall from the Bush administration.

Yes, some people would cheat. Some businesses would try to claim their employees all really worked out of a satellite office in another city. But New York City has a municipal income tax. So does Philadelphia. They manage to deal with the cheaters. The supervisors at least ought to consider the idea.

2. A new business tax. Almost everyone agrees that San Francisco’s business taxes are unfair. The city places a flat tax on businesses — a small merchant pays the same percentage as a giant corporation — and some partnerships, like law firms, get away with paying no city taxes at all. The best way to fix that may be to create a single, progressive business tax (probably on gross receipts), with no loopholes, that exempts the first $100,000 or so and actually lowers the levy on small businesses while significantly raising it on big ones. Most small businesses would get an actual tax cut while the big guys would pick up the tab.

Together, a tax package like this could bring in the $250 million a year or so the city needs — and some of the money could go to cutting, say, Muni fares or reducing the sales tax so working-class San Franciscans would pay less.

Almost everyone at City Hall knows the current tax system is unfair, regressive, and inadequate. We’ve been calling for the supervisors to do something about it for years now. November 2008 seems like an excellent time.

Editor’s Notes



I was having lunch with an old friend the other day, and, as usual, we got through our lives and kids pretty quickly and wound up talking about tax policy. I’m a great date.

I was explaining to her — well, yeah, I was lecturing, at some volume — about the problem with sales taxes and the value of parcel taxes and income taxes, and somewhere along the line I realized that the progressive leadership in San Francisco needs to think a bit more about small business.

See, my friend’s husband runs a small company, and she isn’t happy about the way the city’s universal health plan is financed. "If this is so important to San Francisco," she asked, "why aren’t we all paying for it, instead of just businesses?" Her idea: finance the program with a new sales tax.

Well, I support Healthy San Francisco and I think that, all things considered, Sup. Tom Ammiano did an amazing job of putting together a plan that is actually working. Ammiano told me last week that more than 20,000 people — formerly uninsured people — have signed up. This is a very big deal.

I realize it’s also a pain for a lot of smaller businesses, in part because the rules — specifically designed to keep unscrupulous employers from cheating — are complicated and hard to follow. And for companies that are barely making it, the tab for insurance can be brutal.

That, of course, is the overall problem with employer-based health insurance. But it’s the system we’re working under, and the complexity of creating a completely different model in one city would be, to say the least, daunting. In fact, there were a lot of employers in this city, many big retail outlets and national chains, that could well afford to pay for employee health insurance but instead dumped their workers on the overburdened public health system.

And restaurants, which are whining the loudest, have managed to stick their customers with the added cost, which frankly isn’t such a terrible thing: people who eat out a lot can afford an extra buck so the kitchen help can see a doctor when they’re sick.

And as I (ever-so-gently and quietly) explained over my $12 sautéed prawns, sales taxes are horribly regressive, even worse than small-business taxes. I’m right; she’s wrong. We had a hell of a lunch.

But I think her frustration ran a bit deeper than this one issue, and I hear it from a lot of others too: small businesses don’t seem to be part of the progressive coalition.

I understand why: a lot of small business people are conservative, particularly on fiscal issues. It’s really annoying how often small merchants side with the Chamber of Commerce and the big downtown forces. You can’t get small business groups to support any new revenue measures.

And the progressive supervisors have done a lot for small businesses — starting with enacting limits on chain stores, which have protected locally owned shops in several commercial districts.

There’s a lot more we can do: I’m still pushing for a progressive business tax (cut taxes on the bottom, raise them on the top). And a city income tax would pay for health insurance and a lot more.

But right now, many community merchants are feeling ignored, and our next progressive candidate for mayor needs to think about that. It’s a potentially powerful constituency — but for all the wrong reasons, it’s going in all the wrong directions.

A small business survey: fill it in


Here comes the Scott Hauge/Small Business California Survey. Deadline March l0.

By Bruce B. Brugmann

As attentive Guardian readers know, it is small businesses that generate the net new jobs in San Francisco and most every other community in the country.

We even did two pioneering job generation surveys back in the mid l980s to prove the point.

Yet small business people, particularly in San Francisco, feel as if they are a minority under siege from City Hall and most every political quarter.

Scott Hauge, founder and president of Small Business California, is working tirelessly to change this perception.
HIs latest project: his annual survey of small business owners and supporters and their opinion on the economy and issues they care about most.

Personally, I like to add in some of the Guardian issues to benefit small business: enforce the antitrust laws, enforce the Raker Act and bring Hetch Hetchy public power to San Francisco, bring in progressive income and business taxes, get candidates from the presidential candidates on up and down to promote small business issues etc. You get the point.

Fill in the survey. Join Small Business California and keep up on the sector of the economy that produces the jobs and enlivens our neighborhoods.

Click here to take the Small Business Survey.

How Oakland’s fearful politicos enabled waste: Part II


E.M. Health Services, a home health care company founded by a high-ranking member of Your Black Muslim Bakery, opened for business in July 1996, flush with a $1.1 million loan from the city of Oakland.

But shortly over a year later, signs of trouble already plagued the business — and a review of documents shows that the founders of the struggling company paid themselves lavish salaries, and lucrative consulting contracts went to bakery associates and family members.

More than a decade later, the city hasn’t received one penny in repayment for the loan, and questions remain over why city officials granted the loan in the first place.

Under the terms of E.M.’s loan, the company wasn’t scheduled to make principal payments for two years — until 1998 — but just 15 months after getting the money, CEO Nedir Bey asked to defer repayments until 2000.

The city, which had already questioned several invoices submitted by the company, did not approve the extension. Instead, officials responded by requesting an audit of E.M.’s books.

In his request for an extension, Bey did not mention that in May 1997, E.M. Health had applied to the California Department of Insurance for a $2 million loan to purchase a 4,000-square-foot office building on 17th Street in downtown Oakland.

In his application to the state, Bey cited Oakland’s loan approval as proof of his good reputation, even though by then the city was already questioning tens of thousands of dollars in operating expenses claimed by his company.

The $1.1 million loan agreement called for E.M. Health to begin repaying monthly interest and principal payments of $19,692 on May 1, 1998, the date the company was projected to have enough billable clients to break even.

But May came and went with no payments.

And, documents show, E.M. Health would ask for more.

But the story of how the business, a subsidiary of the now-bankrupt Your Black Muslim Bakery, received the money despite a flawed business plan and a disturbing criminal incident in Nedir Bey’s past illustrates the extent politics and pressure played in officials’ decision to approve the loan.

Bakery members also have been linked to several violent incidents, including the Aug. 2 shooting death of journalist Chauncey Bailey, as well as alleged real estate and welfare fraud and child rape.

Details of the company’s financial growth were outlined in correspondence between Nedir Bey and various city staff who reviewed documentation to support the original $1.1 million loan application, as well as documents surrounding Nedir Bey’s later attempts to obtain a $2.5 million loan that was never granted.

In a January 1997 letter to the city, E.M. Health said it had contracts with 13 patients between October and December 1996, which should have generated more than $23,000 in revenues for the three-month period.

The same letter said seven would-be home health aides had graduated from a training program run by a different company. Those aides could not be sent out to care for Medicare/MediCal patients until they passed their certification exams that month, the letter said.

The letter also reveals that E.M. Health had a goal of generating $1.2 million in income in 1997 by providing services to 50 clients. The company instead reported large losses in 1996 and 1997.

It started to pull in more revenue early the following year, according to a letter from former Economic Development Chief Bill Claggett addressed to then-City Manager Robert Bobb.

Clagget’s letter stated that the company had a net profit of $30,068 for the first two months of 1998, but was still experiencing delays in receiving reimbursements for its Medicare/MediCal clients.

By June 17, 1998, Nedir Bey stated in a letter to city loan department manager Teri Robinson-Green that E.M. was “doing about $80,000 a month.” In another letter listing E.M.’s achievements, Bey claimed the company had hired 55 people, trained 30 people and served more than 200 patients.

But still no loan payments.

E.M. Health’s agreement with the city stated that the company and its employees, many of whom were also trusted bakery associates and family members, would not profit from the business. Any extra income after expenses would be funneled back into Qiyamah, a nonprofit organization founded by the bakery to further Yusuf Bey’s community work. Qiyamah was E.M. Health’s parent company.

But the salaries, car lease and billing rates charged by bakery members who moonlighted as consultants to E.M. Health coupled with too few billable clients and delays in reimbursements by Medicare and MediCal all but ensured there wouldn’t be enough money left over to pay back the city’s loans.

“It’s interesting how that millionaire from the skating rink got $12 million and declared bankruptcy and never paid the city back,” Nedir Bey said, referring to the builders of Oakland’s downtown ice rink, who defaulted on an $11 million loan before E.M. Health Services was funded. The city took possession of the rink. “Is the city calling him and trying to ask him those kind of questions?

“The bottom line for me, I’m trying to move forward with my life. Everything that you’re discussing is in my past,” Bey said.

A popular message

E.M. Health’s business model resonated with Oakland’s black politicians who were eager to even the playing field for black businesses that had not gotten an equitable share of city contracts and loans. They lauded the accomplishments of Yusuf Bey — the controversial but charismatic founder of Your Black Muslim Bakery — and viewed the health care proposal as a continuation of his good works.

The plan also resonated with the U.S. Department of Housing and Urban Development and appeared to meet its criteria for loan funding. E.M. Health’s $1.1 million loan came from a $44 million pot of money the federal agency offered Oakland to fund start-up organizations that sought to provide jobs in low-income communities.

Still, in a June 4, 1996, letter to Kofi Bonner, Oakland’s then-director of community development, local HUD director Steven Sachs wrote that “E.M. Health Services business plan is still being developed …” with many “issues still to be worked out.”

Sachs urged the city to consider “providing a much smaller amount of financial assistance to this start-up business.”

That same night, despite Bonner’s warning that Nedir Bey had not yet provided several documents the city required for the loan, nor procured a provisional license from state health officials, the council voted to give the company a $275,000 advance on the $1.1 million HUD loan.

In fact, even though E.M. Health was $63,000 in arrears in its business taxes, the company ended up getting $538,000 in interim loans from the city of Oakland over the next six months, before HUD officials reimbursed Oakland for the money in April 1997.

Nedir Bey relied on that type of sentiment when he approached the city in February 1998 and asked for an additional $2.5 million — half loan, half grant — to buy a shopping center in West Oakland to house a new urgent care clinic, in addition to funds he sought unsuccessfully from the state department of insurance.

The shopping center plan lacked numerous financial details and included no downpayment or personal investment by Nedir Bey.

Nonetheless, he lined up his supporters and produced letters of recommendation from well-respected medical experts, including David Kears, director of the Health Care Services Agency for Alameda County; Michael Lenoir, president of the Ethnic Health Institute at Alta Bates/Summit Hospitals; and H. Geoffrey Watson, president of the Golden State Medical Association, which represents 2,000 African-American physicians in California.

Claggett said he would have loved to have someone revitalize that blighted shopping center, but nothing about E.M.’s finances by then suggested it could support a new business venture. City records show that E.M. Health incurred losses of $425,000 during 1996 and $343,000 in 1997.

E.M. Health was already three months behind on the payments for the $1.1 million loan, and a mere six months later, E.M. Health’s parent, the Qiyamah Corporation, would default on a

$100,000 bank loan originally signed by Saleem Ali Bey, also known as Darren Wright.

‘I don’t think they ever gave up’

Nedir Bey nonetheless again pressured the city into rushing the review of his new loan request. By July 1998, he sought direct backing from then-Mayor Elihu Harris, whose father was an E.M. Health patient for a short time, according to company records on file with the city.

“Staff should be more inform (sic) on the procedures and policies of the city of Oakland as opposed to me having to check with the mayor and then letting you know what you can and cannot do,” Bey said in a July 1998 letter to Gregory Hunter, now Oakland’s redevelopment agency director, apparently unhappy that the request had not yet been forwarded to the loan review committee.

Kears recalls Nedir Bey first approached him for a letter of recommendation, but that evolved into a request for money to finance outreach efforts for new patients. The county wound up giving Bey a $25,000 contract, the most it could provide without approval from the Alameda County Board of Supervisors. Kears said he doesn’t know whether E.M. Health ever submitted invoices to use any of the money.

The $2.5 million loan application eventually stalled as Nedir Bey failed to produce documentation requested by the city related to the first infusion of cash, the repayment of which was falling further and further behind.

By the time the city sent its first default letter to E.M. Health in December 1998, the payments were eight months past due and the company had crumbled.

City employees would later discover that the company’s offices had been cleaned out, office furnishings and computer equipment pledged as collateral gone.

Claggett said that not long afterward, he was questioned by the FBI about E.M. Health and Nedir Bey. The FBI’s San Francisco office did not return a call seeking comment about the probe.

No way to collect

The Oakland city attorney sued E.M. Health

in December 2000 in an attempt to recover $1.45million in loan funds and $98,600 in unpaid interest. The city won a default judgment, but no one could collect on it, in part because there was no personal guarantee made when the loan was awarded.

City Attorney John Russo said recently that it is up to the city’s Finance Department to collect on the $1.5 million judgment, which remains unpaid today.

The city wasn’t the only one left holding worthless paper when E.M. Health deteriorated. Orthopedic and Neurological Rehabilitation, Speech Pathology Inc. of Los Gatos sued Nedir Bey and Cecil R. Moody, an E.M. Health agent listed among business registration records, in 2000 to recover $8,700 worth of services it provided to the company’s patients over a two-month period. According to the lawsuit, E.M. Health billed MediCal and Medicare but never reimbursed the company.

In May, Daulet Bey, a Muslim wife of Yusuf Bey and mother of current bakery CEO Yusuf Bey IV, 21, and her daughter Jannah Bey filed papers to revive Qiyamah’s state business license. It’s not clear whether bakery associates plan to use Qiyamah to attempt a new business venture.

The license was promptly suspended again by the state Franchise Tax Board for failing to file an information report in 2005, according to spokeswoman Denise Azimi.

Nedir Bey’s costly experiment was finished and thousands in unaccounted for public funds were left in his wake.

MediaNews investigative reporters Thomas Peele and Josh Richman, KQED reporter Judy Campbell, and radio reporter Bob Butler contributed to this report. Cecily Burt is a MediaNews staff writer. G.W. Schulz is a staff writer at the San Francisco Bay Guardian.

A strong small-business agenda


EDITORIAL You read the academic journals these days, or peruse economic-development Web sites, and everyone seems to be talking about sustainable urban economics. It’s as if the mantra that was first put forward by Jane Jacobs, David Morris, and a few others a quarter century ago is very much in the mainstream today: Cities function best with diverse economies dominated by locally owned businesses, with money circuutf8g within the community. Cutting-edge restaurants talk about serving locally grown food. Beverage savants want local beer and wine. Just about everyone — including the mayor and the San Francisco Chamber of Commerce — wants to participate in a program called Shop Local.

It’s a wonderful, encouraging trend — but if it’s going to make any real difference in this city, it has to become a lot more than lip service. Consider: Just as Mayor Newsom was proudly signing on to a Shop San Francisco program, the mayor and the supervisors were busy approving plans to allow Home Depot — an anticompetitive out-of-town corporation that destroys local small business and undermines the entire concept of a strong local economy — to build a giant store on Bayshore Boulevard.

 It’s taken legal action by Sue Hestor and the neighborhood leaders to derail (for now) the mayor’s plans to build high-end condos all over the eastern neighborhoods — threatening hundreds of locally owned businesses.

Downtown business leaders and the groups they fund still push for policies that hurt most of the businesses in the city — and too many small-business people still go along.

Here’s the reality: Supporting small businesses — and moving San Francisco toward a sustainable economy — requires a lot more than a slogan. The people who are behind the Shop Local movement know that. They’re promoting a wide range of national and local policies designed to change not only attitudes but the direction of public policy.

San Francisco, a progressive city known for its wonderful, lively, unique neighborhoods, ought to be a national leader in the battle. But others (Philadelphia, for example) are moving way ahead. This city is still stuck in an ancient (and regressive) economic mind-set.

There are a number of key things the city can do to turn that around and become a truly small-businessfriendly place — and most of them go far beyond public-relations efforts and cutting through red tape. The basic approach to policy needs to change; here are a few ways to start:

 Stop allowing big chains to come into town. That’s not exactly rocket science, and it isn’t so hard either: Hayes Valley and North Beach both have "formula retail" laws that restrict the chains, and there’s talk of doing the same in Potrero Hill. But why does this have to be fought block by block? Why not a citywide ordinance that protects every neighborhood commercial district — and, more important, keeps the life-sucking big-box giants away from the city altogether?

 Make small, locally owned businesses part of the planning process. The city’s own (limited) studies have made clear that the type of development the mayor and the current city planning leadership has in mind would damage local businesses, particularly in the repair, distribution, and small manufacturing areas. That alone ought to be grounds to change directions. Why not a checklist for every new project that includes the question: Will this displace existing locally owned businesses? If the answer is yes, the project should be rejected.

Take progressive business taxes seriously. There’s almost certainly going to be an effort this fall to change the city’s business-tax structure, with one of the goals being an increase in overall revenue. That’s great, and it ought to happen — but the tax rates have to be shifted too, so that a tiny local retail outlet doesn’t pay the same amount as the Gap. (Socking big-box outlets with a special tax or fee — possibly based on the fact that they are by nature car-driven operations — might be a nice way to bring in some cash.)

You can’t be friendly to small local businesses these days without taking sides in the national economic war — and that means coming out against the big chains. Until San Francisco does that, all the talk of supporting local merchants will amount to nothing. SFBG