San Francisco Supervisor Mark Farrell is drafting drastic changes to the payroll tax in an effort to keep startup tech companies from leaving The City before they make it big.
But he also has a personal stake in changing the rules.
Farrell’s legislation, which has yet to be introduced, will call for the current payroll tax to be amended so employee stock options would not be taxed 1.5 percent when cashed out. Companies such as Twitter, Zynga and Yelp have expressed concern that if they go public on the stock market, those taxes could drain them of cash.
Farrell also has a stake in at least one company that may go public one day. He is managing director of Quest Hospitality Ventures, a venture capital fund with investments in three companies, according to filings with the Ethics Commission.
One of those businesses is San Francisco-based bCODE, a privately held company that produces technology that allows businesses and consumers to transmit bar-coded information via mobile phone.
Farrell said he has a “small ownership stake” in bCODE of close to $100,000, but it has nothing to do with why he will introduce the legislation. He also added that the company is a long way from going public.
“My interest in this legislation is purely for the city of San Francisco, to make sure we are in an economically competitive position as it relates to attracting not only technology but all our companies,” Farrell said.
California Fair Political Practices Commission regulations allow an elected official to make a policy decision on a law that directly benefits that official economically as long as it also affects a large number of businesses, according to Deputy City Attorney Jon Givner.
That would be the case with Farrell’s proposed legislation.
A similar thing occurred with Mayor Gavin Newsom, who actively opposed and later vetoed a tax on alcohol proposed by Supervisor John Avalos. Newsom’s Cade winery sells alcohol in The City, but since the fee would’ve affected thousands of businesses in San Francisco, there was no legal conflict of interest.
Farrell is not breaking the law, but there could always be the perception that he will benefit financially from a change in the law, according to Robert Stern, president of the Center for Governmental Studies and an ethics expert.
“Bottom line, since he has an investment in bCODE I, would’ve recommended to him that he not be one to push his own legislation because it looks like he’s affecting his own company,” Stern said.