Keeping tax on stocks a bad option for 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.

Misleading titles take bite out of pension-reform measures

All poodles are dogs, but not all dogs are poodles. If I wanted to collect signatures for an initiative requiring all poodles to be named Muffin, the title of that law should be “Poodles Must be Named Muffin” and not “An Act to Rename Dogs.” The latter is technically correct, but doesn’t really communicate what the law is about.

So, who makes sure the titles (and summaries) of ballot initiatives are accurate? The City Attorney’s Office. State law requires that titles and summaries be a “true and impartial.”  

A few weeks ago, Public Defender Jeff Adachi submitted three proposals for pension reform to the city attorney. The titles and summaries are in, but the word “pension” is nowhere to be found despite the fact that it appears 59 times in each measure. Instead, the language refers to “retirement benefits” and “retirement system.” In other words, pensions are poodles but the title and summary only refers to dogs.

Monday, Adachi officially registered his complaint about the language in a letter to City Attorney Dennis Herrera. In it, Adachi helpfully cited the Merriam-Webster dictionary, where “pension” is defined as “a fixed sum paid regularly to a person” – which is what city employees get and what Adachi’s initiatives are designed to amend.

“Retirement benefits,” on the other hand, is defined as money that is “set aside . . . to be spent after retirement.” It can mean 401(k)s, Social Security, deferred compensation or any number of things. Sure, a pension is a kind of retirement benefit, just like a poodle is kind of a dog, but obscuring the narrow subject under a broad term is, as Adachi wrote, “inaccurate and therefore potentially misleading.”

Two of Adachi’s proposals include changes to retiree health care benefits, which are currently (and redundantly) called, “Retirement and Retiree Health-Care Benefits for City Employees.” Adachi’s letter asks that such proposals be entitled, “Pension and Retiree Health-Care Benefits for City Employees.”

Rumors abound that certain persons associated with public employee unions lobbied the city attorney for the elimination of the word “pension.” In other words, this could be a case of the tail is wagging the dog.

Supes fatten election fund

When the budget process heats up in a few months, Supervisor John Avalos is going to march out his pitiful pleas to save jobs and services from cuts, and when he does, I want you all to remember what happened last Tuesday.

In that meeting Avalos led the charge to appropriate $1.3 million dollars from the city’s general fund reserve – our $25 million dollar “in case of emergency break glass” stash of cash – and into the account used for public financing of candidates.

Was the public financing account suddenly out of money?

No. There are $5 million dollars in that coffer and $2 million more will be added in next year’s budget. The Legislative Analyst report estimates that the fund only needs $4.7 million in this fiscal year.

Sharing in Avalos’ hallucination that having a bloated fund for politicians is worthy of snatching from the emergency reserve were: David Campos, Jane Kim, Eric Mar and -- undaunted by any ethical pangs -- candidate for mayor David Chiu and candidate for sheriff Ross Mirkarimi.

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Melissa Griffin

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