Under current tax law, San Francisco businesses with $250,000 or more in payroll expenses pay 1.5 percent of those expenses to the City. Under a gross receipts tax structure, companies would be taxed based on how much revenue they make, as opposed to how many employees they have on hand.
The current tax structure is not well regarded among executives from up-and-coming city industries.

The technology industry especially dislikes the current tax model. Tech firms tend to have high employee numbers, but low revenue levels. Their executives have argued that because they have had to pay the city for every new employee they have hired, they have been unable to steadily grow their profits and their workforces. An elimination of the payroll tax would be beneficial to them.

Upset by the gross receipts idea are large, established San Francisco businesses. The established businesses have had steady employment numbers for a number of years. If their revenue streams were suddenly taxed, they could end up paying the City significantly more in the upcoming years.

Small businesses may be affected by the gross reciepts tax as well. Small businesses, which tend to have a low number of employees, have not been heavily taxed under the City’s current business tax structure. If city small businesses were taxed based off of their revenues, they could see their taxes increase significantly in the upcoming years. With less profit, the businesses could have trouble growing.

As an alternative to the gross receipts tax, Rosenfield and Egan have prepared a reformed payroll tax plan. In the alternate plan, the City would give a $1 million payroll holiday to all businesses in their first year of operation. However, the City would raise business license fees and, for the first time, force non-profits to pay business license fees. The City would also introduce new licensing fees for real estate and parking facility operators.
Rosenfield and Egan are expected to incorporate one of their tax proposals into a ballot initiative for the November elections.

David Campos’ flawed measure on S.F. health care

Supervisor David Campos has identified a legitimate concern: A few San
Francisco businesses are finding ways to evade a city requirement that
they provide health insurance to their workers. Unfortunately, Campos
has responded with an overreaching measure that would unduly punish the
vast majority of businesses that have been doing their best to comply
with the city’s landmark health care law.

The issue is whether employers who set up accounts to reimburse their
workers’ health care costs – one of the options under the 2006 law – are
making a good-faith effort to allow employees to draw on those funds. A
company with 20 or more employees is required to put $1.36 into an
worker’s account for each hour worked; the rate is $2.07 for businesses
with 100 or more employees.
Any funds that are not used are returned to the employer – and that has
amounted to about 80 percent of the money that is poured into health
care accounts by about 4,000 San Francisco businesses each year.
Why the low rate of usage?
Campos suggested that some companies are intentionally keeping their
workers in the dark about this benefit. In some cases, he said,
employers are severely restricting the types of medical expenses that
are eligible for reimbursement. He acknowledged that the “vast majority”
of businesses are “clearly following not only the letter, but the intent
of the original ordinance.”
The challenge here is to address the problem without creating bigger
ones. Campos’ plan fails this basic test. It would require employers to
roll over any unspent funds into the next year – which can amount to
locking up hundreds of thousands of dollars a year for businesses that
may be on the margins of profitability.
“There’s a bandwidth of knowledge that’s missing (at City Hall) about
what a crippling effect this would have,” said Steve Lombardi,
third-generation owner of a San Francisco sporting goods store.
Lombardi Sports offers health insurance to its full-time workers. Its
part-time workers are providing with the reimbursement accounts – and
the store makes sure they know about the benefit. Still, the store’s 50
part-time employees typically file about “two or three claims a quarter”
for reimbursement.
Why so few? The part-time employees at Lombardi, as at many retailers,
are relatively young and healthy.
A coalition of business groups has stepped forward with a much more
practical and effective solution to the problem identified by Campos:
Require employers to inform workers of the benefit and to keep them
updated on their account balances through the year – and require them to
reimburse all IRS-eligible health expenses.
“We’re quite frankly embarrassed by restaurants that are adding 3 or 5
percent (employee health care surcharges) to the bill and using it as a
profit center – that’s not right,” said Scott Hauge, owner of an
insurance firm and president of Small Business California. He suggested
the problem could be addressed without “adding to the layers” of costs
associated with hiring in San Francisco.
“It won’t be long before people find yet another reason not to open a
business in San Francisco, or move away, or find another way to handle
it,” Lombardi said.
The city’s business leaders have shown their willingness to work with
supervisors to craft a reasonable, well-targeted measure to tighten the
health care law. Campos’ proposal is scheduled to reach the full board
Tuesday. It needs to be sent back to committee for further review and
revision.

The legislation introduced by Supervisor David Campos to rewrite Healthy San Francisco was pulled from committee after just one hearing to be acted on by the full board of Supervisors.

This legislation will hurt businesses in San Francisco and cost the City jobs.

Campos Amendment will triple health care compliance costs for many local businesses. Employers that use Health Reimbursement Accounts as the primary means of complying with Healthy San Francisco would see a significant increase in costs. An additional 10% – 15% would be added to their labor costs, and their health care compliance costs would more than triple.

The proposed amendment would have such a high price tag for employers that it would force them to reduce their workforce, cut hours and potentially close operations all together.

Campos Amendment rewrites Healthy San Francisco with one hearing in six weeks. The original legislation was written over the course of a year with input from dozens of individuals and organizations. Healthy San Francisco has worked because of this broad range of input into the original legislation.

Creates a system that is not flexible for employees or employers. Supervisor Campos’ amendment to Healthy San Francisco would effectively eliminate the use of Health Reimbursement Arrangements (HRA) and Flexible Spending Accounts (FSA), creating a “one size fits all” health system. Many employees will see their quality of care and benefits decrease.

Campos Amendment would place massive new administrative burdens on local businesses. The proposal would require businesses to manage health accounts for their former employees indefinitely.

These additional costs will put local businesses at a further economic and competitive disadvantage to businesses in neighboring counties. This legislation will drive businesses to choose other counties when starting or when expanding.

Businesses are willing to work with the City to improve Healthy San Francisco. For example, we support adding a notification requirement that directs an employer to inform employees quarterly of their benefits and how they can access these benefits, which this proposal does not do.

Please contact the supervisors below and ask them to oppose the Campus amendment to Healthy San Francisco:

Supervisor David Chiu Supervisor Scott Wiener
David.Chiu@sfgov.org Scott.Wiener@sfgov.org

Supervisor Malia Cohen Supervisor Jane Kim
Malia.Cohen@sfgov.org Jane.Kim@sfgov.org

Eighty percent of the $50 million San Francisco businesses paid last year into city-mandated health care reimbursement accounts for their uninsured workers was never used and instead went back to the employers, City Hall officials said Thursday.

Now, Supervisor David Campos and six of his colleagues want to close that perceived loophole, despite complaints from business groups that a change would trigger layoffs by cutting too deeply into employers’ bottom line.

Ted Egan, the city controller’s chief economic analyst, said the change could cost the city about 460 jobs in a year, less than 3 percent of the projected annual job growth expected by 2013.

Under the Health Care Security Ordinance, approved in 2006 to help uninsured workers in San Francisco get health care, covered employers have three ways to comply: purchase employee health insurance, contribute to a city-run system that makes use of the city’s public health clinics and hospitals, or pay into a health reimbursement account.

The law applies to businesses with 20 or more employees, and eligible workers must work at least eight hours a week. Approximately 4,000 of the city’s 51,000 businesses are affected.

Last year, 860 companies chose to comply with the law by contributing a combined $62.5 million to health reimbursement accounts. But according to the city’s Office of Labor Standards and Enforcement, only $12.4 million, or about 20 percent, was used to reimburse workers for health care costs; the remainder was pocketed by the employers, who are under no obligation to roll the balances over from year to year and can scoop back any money that goes unused.

Part of the problem, said Matt Goldberg of the city’s labor office, is that some individual employers tailor their plans so restrictively that it’s difficult for workers to tap into their accounts. At some businesses, he said, employees can’t get reimbursed for such expenses as dental work and health insurance premiums.

The amount of the annual employer contribution ranges from $2,828 to $4,252 for full-time employees. It’s less for part-timers.

The Campos amendment would require that any unused money in an employee’s account would have to carry over and be available to the employee, surviving spouse or domestic partner or dependent for reimbursement of future health care expenditures. The proposal also would require employers to give their workers written details on how their health care accounts work.

“For me, it’s really about leveling the playing field for the workers who are not getting the intended benefit, leveling the playing field for other businesses who are following the intent of the law, and, finally, leveling the playing field for taxpayers who have to foot the bill for people who rely on the public health system,” said Campos.

If the amendment were approved, more employers likely would switch to one of the other two options, resulting in better health coverage for more people, Egan predicted.

Most business representatives who testified Thursday at a City Hall hearing opposed Campos’ proposal. While the notification requirement is something they could live with, the opponents said, the carryover provision would be a nightmare to administer and be too costly.

Adam Levin, who runs the small chain of Escape From New York Pizza restaurants, said his full-time employees get regular health insurance. But his part-time workers, who make up about two-thirds of the 100 or so people he employs, are given health reimbursement accounts. About a quarter of the money in those health accounts is spent annually. Levin said he uses the money that’s left over, which has amounted to $15,000 or more per year at each location, to cover payroll and other operating expenses. “I might have to close a shop otherwise,” he said.

No decision was reached on Campos’ amendment. It will either be heard again at the committee level or Campos may use a legislative maneuver to bring the proposal to the full board.

E-mail Rachel Gordon at rgordon@sfchronicle.com.

Today’s report that a miniscule 18,000 jobs were added in June, and the sharp downward revision of May’s already small estimate of a 54,000 gain to just 25,000 provides the clearest evidence yet that the recovery has stalled. These numbers will play directly into the debt negotiations that may culminate in a White House meeting Sunday, playing into Democratic arguments against immediate spending cuts, and GOP arguments against tax increases. A stalled recovery would put President Obama’s re-election in clear jeopardy.

Economists at IHS-Global Insight called the report “a shocker. It was far worse than expected, and weak on all key dimensions — job creation, unemployment, the length of the workweek, and hourly earnings.

“The recent pattern of jobs suggests that the economy hit a brick wall in May. It added an average of 215,000 jobs per month in the three months ended April, but only 22,000 per month in May and June.

“Supply-chain disruptions and bad weather are unconvincing as explanations for the extent of the weakness. A delayed response to the cumulative impact of surging commodity costs during the first half of the year is a more plausible explanation, but this report has dashed hopes that the economy was about to accelerate again now that those costs have eased back. The employment report is showing a much bleaker picture than other indicators…We must hope that it is overstating the extent of the slowdown in the economy — at face value it shows stagnation.

“For policy-makers, this news makes their tasks more difficult. The economy does need a long-term deficit reduction plan, but it does not need fiscal austerity now. And more bad news like this in coming months will bring QE3 onto the agenda at the Fed.”

The Brookings Institution’s Hamilton Project puts the new “jobs gap,” or the number of new jobs needed to return to pre-recession levels, at 12.3 million. That gap cannot be closed between now and November 2012. The group also found that people are working much longer hours than a generation ago to maintain their living standard: “In 2009, for instance, the typical two-parent family worked 26 percent longer than the typical family in 1975.”

Here is Obama’s response today to the unemployment report.
Posted By: Carolyn Lochhead (Email) | July 08 2011 at 08:05 AM

Read more: http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=92773#ixzz1Rusl1TTf

San Francisco supervisors unveiled new plans that would give companies a tax
break on stock options as an incentive to keep them in the city.

San Francisco is the only city in California and one of the few in the nation
that taxes gains on stock options – tucking the provision into the city’s
payroll tax, which also includes salaries, wages and bonuses.

The issue emerged amid discussions on the proposal approved by supervisors
last month exempting companies that move to or remain in the Mid-Market and
Tenderloin districts from paying the payroll tax on new employees for six years.

“An efficiently designed stock options exclusion can, therefore, have the
policy advantage of providing a tangible benefit to a few successful companies,
reducing their incentive to leave San Francisco, while leaving the majority of
taxpayers – and the city’s payroll tax revenue – unaffected,” said Ted Egan, the
city’s chief economist.

Two pieces of legislation were introduced to address the issue.

One, discussed but not voted on at the Board of Supervisors’ Budget Committee
on Wednesday, would offer private companies a partial payroll tax exclusion on
employee stock granted before an initial public offering. For high-value
companies, the worth of the stock can skyrocket once the company goes public,
resulting in a much bigger tax burden for companies in San Francisco.

Those companies “would like to see as much assistance as they possibly could
so that they could stay, grow and prosper in San Francisco,” said Supervisor
Ross Mirkarimi, chief sponsor of the legislation.

Under the proposal, an individual company would have to pay no more than
$750,000 a year in business taxes on gains derived from stock-based
compensation. Companies still would pay payroll tax tied to other forms of
compensation.

Egan said it is likely only a handful of companies would benefit from the
proposed tax break because the worth of their stock options would exceed the
$750,000 cap.

“We are greatly encouraged by the progress on the issue and the discussions
that took place today,” Zynga, an online gaming company that could potentially
benefit from the legislation, said in a statement.

The proposed tax break would sunset after six years, giving city officials
breathing room as they craft plans to overhaul San Francisco’s business tax.

“This legislation takes away the incentive for private companies to leave as
they consider an initial public offering,” said Supervisor David Chiu, a
co-sponsor.

Supervisor Mark Farrell, meanwhile, has a proposal that would offer a break
on stock-option compensation to both public and private companies. The part of a
company’s payroll tax tied to stock options would be capped at what it paid
either last year or this year – whichever amount is greater – in perpetuity.

It is unclear whether the two pieces of legislation will be amended and made
into one proposal or whether each will be considered independently.

The Central Market/Tenderloin Payroll Tax Exclusion,sponsored by Mayor Edwin Lee, Board of Supervisors President David Chiu, Supervisors Jane Kim, Mark Farrell, Scott Wiener, Malia Cohen, and Carmen Chu, will promote job growth and provide more economic opportunity for local businesses. This will mean millions more in payroll taxes to the City that will help save critical City services that are being slashed because of the budget deficit.

This important legislation has earned a rare combination of support from labor, business and local community groups. For the list of supporters, click here.

This week is the best opportunity to make this a reality. Let the Board of Supervisors know that we need more jobs in San Francisco, not delays.  This legislation is a chance to make that happen, so please take a moment to contact the Board of Supervisors now to let them know that you support keeping jobs, businesses, and economic opportunities here in San Francisco.

Join us and help continue our economic recovery!

More information:

Bay Area needs Twitter to stay in San Francisco

Twitter deal has San Francisco looking for ideas to help more companies

San Francisco tax-break vote delayed as Twitter deal lags

P.S. For more information and more frequent updates, please follow Economic Recovery SF on Facebook and share this email with your friends who want more jobs in San Francisco!

Supervisor Ross Mirkarimi, who advocates banning things like plastic bags, cat declawing and foie gras, wants to stop it.

Supervisor David Chiu, the census-loving mayoral candidate, wants to form a committee to study it.

And Supervisor Mark Farrell, the newbie with a venture capital background, wants to eliminate it altogether.

I’m referring, of course, to San Francisco’s tax on stock options.  

The City’s plan to revitalize the mid-Market area with tax incentives for companies like Twitter sent other local businesses reaching for their dusty copies of the local tax code. What they found was that we have a tax on the books that requires companies to pay The City 1.5 percent of the difference between the market value of the stock and cost to the employee.

For a company considering going public, this can mean a tax bill of tens of millions of dollars. And it is a tax bill that can be avoided with a simple step outside our beautiful bubble; reportedly, no other city in the nation imposes such a tax.

Conventional wisdom is that the stock option tax isn’t being enforced, but I spoke with City Treasurer and Tax Collector Jose Cisneros, who tells it differently. Companies are supposed to be paying the tax and in the course of auditing hundreds of businesses each year, city investigators do account for the sale of valuable stock by employees.

The law that expressly added a reference to stock options to the city tax code was passed in 2004 and was sponsored by Susan Leal, who was the city treasurer and tax collector. It was carried through the Board of Supervisors by then-Supervisor Fiona Ma. Now an assemblywoman, Ma told me that the stock option amendments weren’t hotly debated and pointed out that the law passed unanimously at the Board of Supervisors and was quickly signed by 2004’s shiny new mayor, Gavin Newsom. (Ma also added that she is not a fan of the payroll tax system as a whole.)

As Cisneros explained, The City’s payroll tax has always applied to all types of compensation for services, not just paychecks. The 2004 language just clarified that, like anything else, stock options in exchange for employee sweat and tears do qualify as compensation.

So, where do we go from here?

Assuming one believes driving away companies right before they go public and unleash the purchasing power of an army of millionaire geeks is a bad thing, Supervisor Farrell’s idea of simply excluding stock options from the definition of “compensation” for payroll tax purposes is the easiest and most logical answer. It will therefore die a quick death in the chamber of complications known as City Hall.

The details of Mirkarimi’s proposal for a two-year moratorium on the tax (just long enough for Mirkarimi to run for sheriff) amount to clunky nonsense, which is what happens when companies that don’t know much about legislation work with city employees who know equally little about taxes.

In the end, Supervisor Chiu’s proposal for an ad hoc commission to study the issue and make recommendations will be left standing. Let’s just hope it will work quickly so that affected companies will exercise the option to stay in our fair city.

Forbes is out with a new list of the top “15 cities where the economies are getting worse.”

Number six: San Francisco.

(By this Forbes means the government-defined San Francisco metropolitan area, which includes Oakland and Fremont but not San Jose).

To make its call, Forbes used data provided by Moody’s and the government, including the unemployment rate, the percentage of mortgages that are 90 days delinquent, migration and job projections.

With an aenemic job growth projection of 0.34 percent and a net population loss of 3,030 expected this year, San Francisco appeared to be slightly better off than Bakersfield and slightly worse than Sacramento.

And if that makes it seem like a lot of California cities are among the worst, we’re just getting started.

Riverside was in for the worst economic news in the country, Forbes said, followed by Stockton, which was named the most miserable city for the second time in three years. Los Angeles was number four.

“All of these cities have double-digit unemployment rates and paltry job growth projections. All except LA have housing markets in which prices continue to decline or remain stagnant,” Forbes reported.