Supes Hash Out Revenue Proposals

by Jacob Schneider on February 13, 2009

The Board of Supervisors began the long process of digging San Francisco out of its projected $576 million budget deficit on Wednesday by considering three tax measures that voters may consider in a June special election (or possibly later.)

The Budget and Finance Committee passed the three measures — one creating a tax on business receipts, one to increase the sales tax, and one to expand the definition of small businesses for tax purposes — on to the full board without recommendation after its members split on the efficacy of increasing taxes in a time of economic hardship.

If approved by the voters, the measures would generate $120 million in new revenue –according to projections from the Controller’s Office. While that alone would not nearly balance the budget, it would decrease the number of city services and jobs that will need to be cut in order to eliminate the deficit, which amounts to around half of the city’s discretionary budget.

But the additional short-term revenues would come at a long-term cost both in terms of jobs and a less competitive market for business in the city. Discussion at the committee meeting thus centered on differing opinions about the magnitude of the current budget crisis.

“For a very long time we’ve been working way too much in the short term. That has caused much of our problem,” said Supervisor Carmen Chu, who reiterated her opposition to the June special election because she believes that it is unwise for the city to increase the tax burden on businesses during an economic recession.

But several speakers said the City must work quickly to bring in new revenues to bolster dwindling city services which recently endured drastic mid-year budget cuts.

“We are looking at a complete restructuring of our safety net…and in many places a devastation of our safety net,” said Debbie Lerman of the San Francisco Human Services Network.

Robert Haaland of SEIU Local 1021 said that the city must take whatever steps it can to increase revenue at a time when it is asking city workers to renegotiate contracts to help solve the deficit.

“Unless you have a plan that shows a way to get at least $100 million in addition you’re acting in bad faith with the city of San Francisco,” said Haaland, who said he anticipates as many 2,000 SEIU workers will be laid off. “Our members are willing to come to the city and play our part, but we need to know that we’re not the only ones.”

Supervisors Ross Mirkarimi and John Avalos also asserted that they believe that the revenue measures represent steps in the right direction.

The gross receipts tax proposal drew particular ire from Chu, as well as the Chamber of Commerce officials at the meeting. The item which voters may consider in June would impose a 1 percent tax on all business except for commercial real estate, which would be taxed at a rate of 1.395 percent. Chu took issue with the fact that the proposal would tax all businesses at the same rate regardless of industry or business structure.

But the Controller’s Office estimates that the gross receipts taxes would net $72 million in additional revenue for the city.

The proposed 0.5 percent sales tax increase would raise an estimated $51 million annually before it sunsets in 2012, though it would come at the cost of a few hundred jobs a year as the additional tax has a chilling effect on retail sales.

Finally, the third measure is a proposal to modify the definition of payroll tax-exempt small businesses to include businesses that spend less than $300,000 on payroll rather than $250,000 and to decrease the tax rate for businesses spending up to $400,000.

All three items must now be approved by the full Board of Supervisors and will require a two-thirds vote in June in order to become law.

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