Business tax breaks plan back in the mix 

A business tax plan that’s intended to create jobs, but became a political hot potato, has been revised in hopes of gaining support from city supervisors.

As San Francisco faces a 9.4 percent unemployment rate, Mayor Gavin Newsom introduced three business tax break proposals last month, including a two-year payroll tax credit for new hires. Another proposal would provide a $2,000 payroll tax credit to businesses with 20 to 49 employees who can show they are complying with The City’s Health Care Security Ordinance. He’s also championing the extension of a biotech tax break set to expire in four years.

But as The City faces a $522 million budget deficit, progressive members of the Board of Supervisors blocked the tax breaks and refused to allow debate. Supervisor John Avalos refused to schedule a Budget and Finance Committee hearing to discuss the proposals, saying they would fail and it would be a waste of time.

However, today, Newsom will release a revision to the controversial payroll tax proposal that’s scheduled to go before the Budget and Finance Committee. There were no amendments to the Health Care Security Ordinance tax proposal, which is also being heard today. The biotech tax break is pending. 

The new payroll tax plan will give credits to businesses that hire anyone who has been unemployed for at least two months. However, businesses must show job growth and retain those jobs for two years before they qualify for the tax break. 
This plan would cost less than $45 million and employ roughly 2,000 people, according to Jennifer Matz, managing deputy director for the Mayor’s Office of Economic and Workforce Development. Newsom’s original plan would have cost The City $72 million during a two-year period, generating more than 4,000 jobs.

“It’s a direct incentive to hire the unemployed,” Matz said of the payroll tax break.

Avalos said the revised plan seems to be “moving in a better direction,” but he wasn’t prepared to endorse it, saying he still has concerns about potential costs.

“I’m interested in hearing what the mayor’s ideas are,” Avalos said. “I’ll give him the committee time.”

The revised plan gives city policymakers two years to determine how to cover the cost of the tax breaks, since businesses would not benefit financially until the end of 2011, Matz said.

The Mayor’s Office said the plan was reshaped based on discussions with members of the business community, many of which have embraced the concept, Matz said. However, the tax credit incentives aren’t worth it to many struggling businesses, especially if it means they must retain that job growth for two years.

“It’s not going to inspire me to hire,” said Stephen Cornell, owner of Brownies Hardware on Polk Street. “Businesses are struggling for cash, loans are dried up and [Small Business Administration] money is dried up, so if I have to put this money out upfront and wait two years to get it back — I don’t think that’s an incentive to me.”

Doing business in The City

9.4 Percentage of people unemployed in San Francisco
80,000 Number of businesses in city
6,000 Number of businesses in city that pay payroll taxes
2 Number of biotech companies in city before tax break
56 Number of biotech companies in city today

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