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tv   Government Access Programming  SFGTV  April 30, 2019 9:00pm-10:01pm PDT

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[cheers and applause] >> good morning. the meeting will come to order. this is april 24th, 2019 a regular meeting of the budget
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and finance committee. i am sandra lee fewer, chair of the committee. i am joined by supervisor stephanie and raphael a madwoman our clerk is linda wong. i would like to thank helena mendoza and samuel williams from san francisco government t.v. for broadcasting this meeting. madame clark, any announcements today? >> silence also phones and electronic devices. completed speaker cards or any documents can be included and submitted to the clerk. items acted upon today will appear on the april 30th board of supervisors agenda unless otherwise stated. >> thank you very much. can you please item number 1? >> one is resolution designating those agencies qualified to participate in the 2019 annual joint fundraising drive for officers and employees of the city and county of san francisco >> thank you very much. i believe we have joan here from the safety administrator's office. >> good morning. >> the goal of our office is to
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review all the applications are coming from federations in terms of how they comply with requirements of the municipal code. those requirements are in your resolution in terms of having ten or more organizations being 501 c3, and they also submit some of their statements. this year, all sex who applied match the requirements of the code. >> thank you very much. there is no b.l.a. report on this. let's open it up for public comment. any members of the public who like to comment on item number 1 public comment is closed. comments or questions from colleagues? i would like to make a motion to move this to the board with a positive recommendation and we can take that without objection. thank you very much. please call item number 2. >> item number 2 is resolution approving the specialty retail concession lease between brookstone and the city for a term of seven years in a minimum annual guarantee of $325,000 for
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the first year of the lease to commence upon board approval. >> thank you very much. i think we have deanna here from the airport. >> good morning, supervisors. the airport is seeking approval for an electronics and travel retail concession lease internal tomato with brookstone for lease term of seven years. rent is that great of a percentage structure minimum annual guarantee of $325,000 for the airport commission approved the lease in 2018, however staff decided to hold the process until bankruptcy proceedings with brookstone had concluded and brookstone confirmed its intentions to continue operating as two airport locations. the budget analyst has reviewed this concession lease and recommends approval. i'm happy to answer any questions. >> thank you very much. any questions from colleagues? seen none, let's pivot to the b.l.a. >> good morning, chair fewer and members of the committee. and from the budget analyst office. just to repeat, the airport
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selected brookstone to provide an electronics and travel retail concession in 2017 through a competitive process. we summarized the terms of this agreement on table two on page 3 of our report. book stone would pay the greater of the minimum annual guarantee at 325,000 per year, or percentage rent and the expectation is they will be paying percentage rent to the airport. the minimum airport at the rent that the airport would receive is approximately $2.3 million and we recommend approval. >> thank you very much. let's open this up for public comment. any members of the public would like to comment on item number 2 seen none, public comment is closed. i would like to make a motion to move this to the board with a positive recommendation. we can take that without objection. thank you very much. please call item number 3. >> item number 3 is resolution authorizing the public utilities commission to execute a memorandum of agreement with the
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united states department of the interior for a copy hands of management of watershed supply in the san francisco regional water system for an amount not to exceed $33.2 million in a total term of four years in july 1st 20,201,330th 2024. >> thank you very much. we have steve ritchie, the assistant general manager of water for the public utilities commission. >> thank you. we are seeking approval for the memorandum of agreements that is with the national park service. i believe this is the third or fourth iteration of this memorandum of agreement or we are paying them for watershed management services for the primary protection of our water supply from the reservoir and international parks. it does provide additional funds for security services and scientific studies as well, but the bulk of this is really a core component of our water supply. we very much request your approval of it you very much. can we please hear the b.l.a.
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report? >> this is a new agreement with the national park service for the p.u.c. to reimburse the national park service for the cost of watershed management. it is a required agreement. there is an existing agreement of the board previously approved that goes through june of 2020. this agreement begins in july o. they may 7.8 million in the first year and it goes up 4% per year over the term for a total agreement of $33.3 million. we do show this budget in table one on page 6 of our report and we recommend approval. >> thank you very much. are there any members of the public would like to speak on item number 3 increasing then, public comment is now closed. colleagues, any comments or questions? seen none, i would like to make a motion to move this to the board with a positive recommendation -- positive recommendation and we take that without objection. thank you. madame clark, please call on
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item four. >> the resolution authorizing the directive leo state -- 258 a laguna honda boulevard to commence on july 1st... >> okay. i thought we would have patricia lee, but i see we have somebody else. please introduce yourself. >> i'm the deputy managing director of real estate. >> like you very much. -- thank you very much. >> thank you. >> good morning, supervisors. this resolution is for a five year option to extend the public defender charge at least four staff members who appear and defend clients at the adjacent juvenile courts. the public defender has leased
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this office space, about 1800 square feet at the site since 2004. the board previously approved a five-year lease in 2014 and this is the one-year option that went with that lease. it will commence in july 2019 and terminate in june 30th 2024, the rent is an increase of approximately eight% from the existing 4700 plus per year to about 51,000 plus per year, which is 95% of the fair market rate which was required under the lease. it will continue with 3% annual adjustments under the lease, and will continue -- the city will continue to be responsible for utilities and services for lease does include and it continues on three dedicated parking spaces at no additional cost. the cheshire is here if you have any programming questions, and we ask for your positive recommendation. >> thank you very much. can we hear from the b.l.a., please? >> the public defender natasha office has been an for space
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since 2004. this would exercise the five-year lease extension, increasing the rent to 95% of fair market value, event in the first year is about $28 per square foot. there is no appraisal on this property because it does come under the appraisal threshold acquired by -- required by the administrative code. over the five-year term he asked me rent and utilities of about $328,000, and we recommend approval. >> thank you very much. are there any members of the public that would like to comment on item number 4 ethically seen none, public comment is now closed. colleagues, no questions? let's move this in to make a motion to move this to the board with a positive recommendation and we can take that without objection. thank you, very much. please call item number 5. >> item five is a hearing on the impacts of multiple san francisco-based companies reportedly planning to hold initial public offerings in the near future including impact on
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the tax revenue, housing cost and gentrification. >> thank you very much. we are joined by gordon mark who is the -- supervisor gordon marr who is the main sponsor at this item. thank you very much for joining us. >> thank you, chair fewer. thank you for allowing me to hold this hearing on such an urgent topic. thank you to members of the subcommittee and thank you to supervisory -- to the other supervisors who have cosponsored this hearing. as we have all seen in these past weeks alone, ridesharing went public valued at $24 billion. cooper publicly filed with the securities and exchange commission with an expected valuation of over $100 billion. meanwhile, uber drivers are protesting unfair wages and treatment, and other tech companies in our city are reportedly planning i.p.o. including therapy and the cath
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post meets, slack and cloud fire the new york times warns that san francisco will drown in millionaires and let offend acquired that post- i.p.o. employees alone could buy every home currently on the market in the city. we have seen the aftermath when the major startups go public before, hinting at thousands of millionaires and billionaires overnight. this tech i.p.o. earthquake beginning to shake our city is unprecedented in scope, and it is also not an accident or natural occurrence. over the past decade, the city enacted policies to grow the tech sector in our safety three tax cuts and exemptions. these policies have been extremely effective and, dominates our economy and the sector has added over 100,000 jobs, high-paying jobs in recent years. the boom field by tax breaks has also been a primary cause of so many of the major challenges we are now grappling with as a
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safety and as a board including wealth and equality, housing affordability, gentrification, homelessness and traffic congestion. these ipos also aren't happening in a vacuum, but in a city with the largest income gap and the highest housing cost in the country, with impacts on workers , housing, transportation , our middle income families and our most vulnerable populations, small businesses and nonprofits. in a country where, for decades, within a massive distribution of wealth from working people towards the top 1%, it exactly -- is exacerbated by the vesting from social services, trickle down economics, a stagnant minimum wage, attacks on the labour movement and tax breaks for big corporations. that is the expense -- at the expense of everyday people. , in fact, there is a loophole that allows corporations to write off the vast evolve the gift of their top executives and
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i.p.o. as a tax layoff, and corporations that misclassified or give workers as independent contractors and the evading millions of dollars in taxes. i believe we have a moral responsibility to stand up in the face of growing wealth inequality and require the forces feeling these disparities to pay their fair share for mitigating them, the purpose of this hearing is to talk in depth about wealth and equality, to understand past and future i feel and stock-based compensation policy and the city 's history of tax policies that incubated and serve the tech sector, today i have asked the budget and legislative analyst to guide us through i.p.o. and their impacts. they will present their analysis which was published as a b.l.a. reported ahead of this hearing. i've also asked the chief economist to guide us through stock-based compensation and the city charge of tax policies related to the i.p.o. representatives from the treasurer and tax collector's
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office and the office of economic and workforce development are available to answer questions as well. thank you all for being here and i look forward to the conversation. we are on a tight timeline so i would like to welcome brett to talk about i.p.o. inequality. >> thank you, members of the committee, supervisor -- supervisors. i'm going to report this morning on our report on i.p.o. and income inequality in the slides are now up on my screen and i thank you also have them, okay
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so just start just a brief overview of how they work particularly in the technology industry, startup companies generally start with initial funding not from going public that from venture capital firms, private investors who put money into a company to get it going and as it achieves a certain level of success, it may plan to go further and needing greater capital may go public or enter the public trading of stocks in the company. not every company does this, that certain ones do when they achieve a certain level of success, growth, revenue. they work with investment bankers to determine the valuation of the company, and then they plan to go public. there are number of filing requirements that they must make with the sick -- u.s. securities and exchange commission detail.
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their business and plans for the future, and how many shares are going to be offered, and ultimately what the price of the shares will be, as the initial public offering, that is when the shares will become available to the public occurs, the final price is said in the companies go public, and we have seen many of these in reach . it is part of the compensation package and many companies to get a certain number of shares that can be exercised at a later date, it serves as additional compensation, but also an incentive for the employees to stay with the companies and help them succeed. the options are usually subject to a vesting schedule, so there's a certain amount of time before they can sell them, or
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before they can buy them at a set price which is usually greatly discounted from what the market price will be on the difference and the difference becomes part of their income up. there is a date that first establishes when they can get all their stock options. in the u.s., data on the number of i.p.o. in san francisco is not readily available from public sources, but we did have a way of estimating how many have occurred. here are the number in the u.s. from 2010 through 2019. 1,372 through april of this year , and you can see on the bar chart that there are waves of ipos. they go in and out of favour, sometimes companies are more inclined to do them, some for a while and companies were shying away from them because of the cost and all the regulatory requirements, but estimates from
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other sources say that of these ipos shown in the chart, about 25% of them are attributed to bay area companies. this is definitely a hotbed nationally in terms of ideo activity. a quick history, and a lot of this goes back to the 1990s, a particular boom period for ipos in the bay area. over the period of starting in the 1980s and then through the nineties, venture capital firms grew and appeared in the bay area and expanded so that by the end of 1999, there were 800 firms located in the bay area largely to invest in tech companies. they certainly invested in other companies as well. there were three major investment banks established cisco serving the technology
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companies 1980s. erect shift from the new york-based financing industry to the opportunities that existed here for investors and wealth creation and a number of firms is indicative of that. there was a large boom in the late 1990s with a lot of wealth creation and company expansion. there was -- known as the. com boom. an early web browser went public in 1995. the company had existed for barely a year and have never been profitable and stocks took off on its opening day, doubled or tripled and continue to do so in the following periods. and that ignited many other companies' interest in going public. there was quite a rave of them in the 1990s. the total venture capital investment in the u.s. by the year 2,000 was $100 billion,
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approximately 33 billion of which was directed to the bay area and bay area companies, and 25% of all ipos were for bay area companies during that period. it didn't last forever. the irrational exuberance of the market in the late 1990s did come to a crash in the early to thousands. the level of activity decreased in the stock market declined. there was periods where there's quite a decline, and it continued on through the recession. but i come back -- i come back as a recession ended in a brings us up to today, so ipos are in the news and seemed to be favoured by a number of companies. these are the likely and actual ipos in san francisco, for san
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francisco companies in 2019. two of which have already occurred. others on the list, you see here airbnb nb, post mates,/, and uber. levi strauss also went public this year. we did not include them since we are focusing on the tech industry and their practices and characteristics. for these companies that have gone public or are expected to this year, we have 7,999 -- 7,990 employees estimated in san francisco. we did not get the pinterest number, that would bump it up even higher. these companies have more employees worldwide, but we focus on those in san francisco because that is where we will feel the impact when the exercise their stock options. we prepared an estimate of what the impact could be of the i.p.o. on san francisco housing prices and that is shown in this
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chart, and how we went about this, first of all, there are many variables to consider when you are attempting to do this. one of the key ones being how many employees are going to have stock options when they will be allowed to exercise them, how many shares they get, what the price of the shares will be, so all of that needs to be estimated, assumed to come up with some idea of how many employees might actually choose to buy real estate with their proceeds. what we found is that a number of studies have been done on this topic, so we borrowed from them there were three studies that we looked at in particular. the one we used was prepared by three finance and business professors from ucla and penn state university. we also looked at one prepared by cillo which showed about a four -- a four% increase in real estate, housing prices and areas
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adjacent to facebook. we look at census tracts were facebook employers were employees were likely to live and estimated the differential in housing prices there compared to comparable neighbourhoods further afield from the facebook headquarters, and a similar study done by some other academics showed, and even higher impact, like a 33% impact on high and real estate adjacent to company headquarters. we jews of that conservative of the three studies. this was done by the ucla state team. they found, and he looked at 725 ipos in california between 1970 and 2017. is a very extensive analysis and what they found was the impact was 1.8% for an i.p.o., that is an average in average, summer higher, similar lower, we took
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that as the standard since it covered a wide variety of companies and economic cycles and we are all based in california. we have shown the value, starting with the current median value of residents in san francisco and then we applied the 1.8% to each i.p.o. that could occur this year. if one occurs, it is 23,000, formed and $76 added to the median value of the home, and that would be separate from any other increases that would occur just in the natural course of your real estate sales in san francisco. and then the charge goes on to show that if all the ipos occur, there is a key ledge of effect. after we get to the bottom on
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the sixth, or about 11% added to the median value of the home. just in terms of the second part of this analysis and something that supervisor marr asked for was some context in which this is occurring, which particularly is this issue of income inequality and how it is playing out in san francisco. so picking up from the boom years and then the recession, starting again in 2010 and going forward and the great recession has had more bloom. real estate pressures we see on the stable population growth, job growth, 60,000 jobs added during that time of 2010 to 2017 79,000 residents. housing units did not keep up with the growth in population as
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we all know, so there there is only an increase in 13,434. that did not help in terms of real estate prices. there was already great pressure , high prices when we started in 2010. the influx of population and jobs put more pressure on the housing stock that was available you can see the median housing price reflects that going up from $690,700 in 2010 to $1.1 million in 2017. a 60-point 7% increase. it has gone up since then since we had the 1.3 million that i just reported from two months ago. the booking institution measures inequality indexes. here is the numbers they reported in 2017 that compares the year of 2016 and 2014. at that point, san francisco
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ranked sixth of all of the 100 largest u.s. city is in terms of income inequality, and you can see the report -- they report and cup at -- income at the 95 th percentile, which means 95% of the households enchantment cisco have income less than that. 5% have more and they reported of the 20th percentile, same concept of 20% of the population below that amount and 80% is above. so there you see the differential of 15.9 between the 507 -- 507,000 at the 95th percentile and others of the 20 -- 20th percentile. and that multiple, the difference between those two groups has grown. it is an indicator of increased income inequality. it was 14.5 when you go back to 2014, and now you can see the multiple is 15.9 in 2016.
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not shown on the chart, but another measure was prepared by bloomberg news in 2017, which reported san francisco having the highest level of income inequality. there measure is a little different. they measure the 95th percentile or high income versus middle income. it is a different way of measuring it, but again, the same trend of growing income inequality and in that case, as i mentioned, san francisco was the top one on the list. this chart shows changes in income distribution in san francisco between 2010 and 2017, and you can see going back to 2010, there were 12% of the population with incomes over $200,000 a year, and that has increased to 21% as of 2017. same trend with households with income between 100,199,000 going
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from 25% to 28%, and a decline in households with income on the lower end of the scale between 35 and 99,000 in just a few other measures. we looked at a number of academic studies on this topic, and there are many, but one that was interesting we thought was by the authors, they showed a close association in san francisco between high wage and low-wage jobs. while the last chart showed a decline in the number of low-income households, they haven't gone away, and there's still a lot of low-income jobs in san francisco. we hear a lot and talk a lot about the high income jobs, the growth in population, but this information showed, and this is from the employment -- employment development department his occupations, $25 an hour and under, and those
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jobs in 2017, so comparing the number of jobs in may 2012 to may 17, there was an increase in those numbers, and similarly for jobs earning $40 an hour or over in those increases, and you can see looking at the may 2017 numbers, they are substantial. 376,100 earning under $125 an hour, but many earning over $40 an hour. and the mean hourly wages associated with that is shown. what is interesting is that the occupations at the low-end, under 25, go -- grew by 14%. there is growth in those jobs and there is still a need. is often said, high income need to the low income people to provide a lot of the services that they use.
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retail services, personal assistance, personal-care, all of those things are still in demand, with a wage differential is greater. similarly, wage growth, if you look on the right-hand side, you will see that the increase for wages in occupations that turned $25 an hour and under grew by 15 % and the growth was greater for those of the high-end, so those earning over $40 an hour with the mean hourly wage grew from $49.5 in 2012 to $59.2 in 2017. so a 20% increase at the high-end versus a 15% increase at the low-end. and then the multiples at the bottom, we took the highest paid occupation group, which is what bd calls management, and compare that to the lowest which is personal-care and assistance, and again, we saw the same trend
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of an increase in the difference in 2012, there was a four-point to multiple at the high-end versus the low-end by 2017 that we increase to multiple a five-point to. the high-end is going up in the low-end isn't keeping up at the same level. and other academic study, just to point out, we talked about the housing crisis in san francisco and this was karen chappell and she defined not as a housing crisis but as an income crisis, and some of these numbers bear that out where we see the difference in wage growth. just one more on that, this is the two fastest-growing occupation groups in san francisco between 2012 and 2017. computer and mathematical occupations as they are classified by the employment development to develop -- departments that includes systems analysts, engineers, and
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a lot of professions that we associate with the tech industry , and you can see the growth in mean annual salary here from $102,096 in 2012 to 126 salzer -- personal-care and service occupations, these will be home health care workers, childcare workers, those types of jobs. they had a decline in their wages. the annual mean in 2012 was 33,992. it went down to 31,943 in 2017. a decrease of 6%, even, though the number of jobs has increased same idea here with the multiples shown at the bottom. the difference between these two groups has increased from the multiple of three in 2012, to a multiple of four in 2017. this table has a lot of information on it. i will highlight a few things,
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but it is showing the top and bottom five wage occupation categories. we have management at the top, personal-care and service at the bottom, but another thing that was pointed out, and this is the economic prosperity strategy study that spurred -- that was conducted a couple years ago, and they tracked the decline of low-income wages relative to high income in their study, but another points they made is the middle income type jobs which were decreasing. that is office workers, for example, office and administrative support as they are called, in education, training, and library occupations. there is a decline in the number of jobs between 2012 and 2017. personal-care and service, i mentioned already had a decline. they are the lowest paid, but they also had a decline between the two years measured. 2012 and 2017.
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this bears out a lot of what this study found in terms of decreases in middle income and greater growth at the top from the bottom. i mentioned the increase in median home prices a few minutes ago but i wanted to bring that back this now shows 2009 to 2019 , almost a doubling in-house values between those years. and so it is in that context with all of these factors about income inequality, high housing prices, increases in housing prices that we are now facing the prospect of six i.p.o. and the potential impact on housing prices that that will cause, and
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again, we looked at the six, and apply the one 20% average, something -- some companies would have a greater impact, certainly cooper, the largest one on the list, with the highest valuation. it would probably be on the high side, higher then the average, maybe some of the smaller ones might be lowered, but taken together, we felt that the 1.8% was a conservative and good measure to use. so facing the issue of income inequality, we did present a few policy options as supervisor mart requested. i will run through these very quickly. first of all, there are a number of programs in place already in the city that attempt to address income inequality. many of them are workforce development efforts, economic development programs, affordable housing programs, subsidized childcare, these are the types
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of things that do exist, and the board of supervisors could consider for additional funding, particularly if they are aimed at low and moderate income residents and workforce. enhancing safety programs aimed at financial empowerment, administers the -- trade minister a number of these programs. enhancing taxes, they are in place such as the payroll or grocery receipts -- seats tax with making proceeds available for affordable housing, childcare, workforce development , establishing differentials between c.e.o. pay and worker pay. portland, oregon has established -- established such a tax. establish the differential is 100 or greater, and then they have a tiered system where the surtax goes up as the
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differential gets higher between c.e.o. and average worker pay. establishing other taxes on larger high-value companies, other cities facing some of the issues in san francisco the past such taxes in and the november election in mountain view has established what is called a tax where companies are taxed on the base of the employees that they have. they are being squeezed years after being overlooked and that has established a parcel tax but it is on commercial properties. $2.50 per square feet of commercial space. both cities are using those -- the proceeds from those taxes for various transportation needs and various initiatives to address the impacts of these large companies and the wealth they've created on some of the lower income residents.
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another option is provide incentives and assistance to other income plans. there is a plan operated to the state of california to get more employees in small companies with low incomes to sign up for and put some of your income into retirement plans, and then finally, changes to federal and state tax policies, obviously all of the matters have just been discussing don't just exist in san francisco, many of them are tied to policies. it is quite likely san francisco can solve these problems. some of these need to be addressed at a different level. but the other policy options we believe are doable at this city level could be considered by the board of supervisors to address
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these issues. that is the summary of our report. linden who was the staff analyst on this project are here and happy to answer any questions about this now or later. >> thank you so much for the very informative presentation. i do had -- i do have a few questions, so the first one is just around all the information that you have provided on the i.p.o. process and the history of that i.p.o. in our city and nationally. i was wondering if the fact that we have six -- i think they those that are reportedly a few other additional companies that are planning to go public within a short amount of time over the next year, whether there has ever been a similar situation in our city or any other city in
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the country as far as the scope of the i.p.o. that we are dealing with in san francisco. >> right. i don't have that history, but i can say, certainly in california and the bay area, they have probably been that many in the year, but spread out across the region, a lot of the tech companies historically have been in santa clara county and san mateo county. there are more now in san francisco, so it maybe unusual to have this many and this many at this size. there are a lot of ipos that take place with companies that i have never heard of, for example, and these are larger and more visible. i think it is unusual in san francisco history, probably not for the bay area as a whole. >> thank you. following up on that, for the analysis that you have presented on income inequality that has
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already been growing and being a problem here in san francisco as a -- during the spectrum and the housing affordability crisis, did your analysis incorporate a cumulative impact of so many tech companies going public just in a small city like san francisco? >> do you mean prior to now, in other words, not looking back at the i.p.o. in the past? >> maybe i am asking more, like looking ahead. we're not just talking about one or two, but we are talking about six or more concentrated right here in san francisco. it seems like there is a key millage of impact of all of that >> yes, i see what you are saying. absolutely. the way that we calculated the impact, it is cumulative. we took all six and added them to each other. one i.p.o. has the impact of 1.8
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% increase, and then the prices are affected that way, and then there is another one, and that has another 1.8% increase. is per i.p.o., and that is why the cumulative adds up if all six companies go public. >> rates, and i just had a few questions about your analysis about the impact on housing affordability and how this tech i.p.o. earthquake would further exacerbate having affordability challenges in crisis is. so you had, based on your analysis, you had projected -- if all six companies do go public, approximately 11% increase in housing costs, and i noticed in your full or analysis , in the report, there were several different studies that you referenced that looked at the impact of i.p.o. on housing prices, and it seems
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like the study that you used to create that projection of 11 plus percentage and increases as the most conservative of the studies. so for the other two studies that maybe had a less conservative analysis, do you have a rough projection of what the housing impact would be on the tech i.p.o.? >> the other studies showed greater impact, that is correct, and we did choose a more conservative one. it gets a little trickier, for example, the study which showed a four% entrapped -- increase around facebook headquarters after their i.p.o. -- it is unique to facebook and unique to that market. we felt the broader study with a
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1.8% was more representative of a mix of companies and a mix of real estate markets, so if you took the study, it would be applying a 4% impact to real estate adjacent to an i.p.o. company headquarters, which would be much greater than what we presented. 4% per i.p.o. using the same approach. the third study showed, an even greater impact and it was over 30%. that again was limited to very expensive real estate, so i think it was aimed more at what the founders are some of the high liver -- high-level investors would have done with some of their proceeds, for all those reasons, we did choose the lesser. it is an average, in the office of the study we used do state
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that larger ipos, with more employees, higher valuations, will have a greater impact then the 1.8%. so when we look at some of the companies on the list now, uber being the primary one, air b. and b. is another, they are pretty big companies. on that basis, the impact would be larger than 1.8%. >> thank you. just to clarify this point, if you used the study as a basis for your analysis, he would have found a much larger impacts on housing affordability in san francisco as a result of the tech i.p.o. earthquake and it sounds like it might be in the range of 20 20% or more in housing increased cost. >> correct. if we apply the 4% differential that they found for the facebook i.p.o. to our six i.p.o.s
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expected this year, yes, it would be in that range. >> thank you so much. colleagues? do you have any questions. >> i do have a clarifying question. on page 11, this study is looking at the bay area. is that correct? what are we looking at here? >> page 11 of the report. >> of your. >> sorry. >> san francisco? >> yes, let me see. >> this is the employment development department data, and that is san francisco, redwood city, south san francisco. it includes san mateo county. >> that contributes to the numbers. they will be higher than just san francisco, with a line chart jet share being in san francisco
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>> that was san francisco and san mateo county. >> okay. thank you very much. i think it is much easier to do these projections around the real -- the real estate market and how much the market will go up. that is an assumption if they all decide to invest in a real estate. but would it be possible to do a projection about how this might affect the rental market? >> it certainly would. there would be some trickle down , i would guess, if housing prices in general are going up, but i think in general the impact is because employees are receiving a large injection of cash, so we focus on the home market because it allows people to make downpayments, or they suddenly have more money for
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this very expensive undertaking of buying a house in san francisco, but that is not to say others would choose to move up to a better apartment or move out of living with roommates? so i think that is right there would be an impact, but it is not something that we focused on for this analysis. it could certainly be done. >> it could be done. i'm just asking because majority of people who live in san francisco are renters, and so i think we are seeing a huge crush in the affordable rentals and i'm wondering how this influx of cash would impact that. i think that is great. >> it just adds, we have read quite a bit about this now and certainly housing is a big concern, but many employees would exercise their options and have all this additional cash and it could be used for many things. that is also to say, you know, more restaurants would feel the
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impact, or more automobiles would be purchased, so it would trickle throughout the economy, what housing is the big one for this purpose. >> right, okay, thank you very much. >> supervisor stephanie? >> to the chair, one quick question. on page 10, you talked about the decline in wages and the service occupations by 6%, and i'm wondering if we know why there is such a decline and who is paying them off -- who is paying the most. >> i don't know why, i'm just going to flip to the slide on page 11, which shows great growth in the number of jobs, so one interpretation could be there are many more people entering the field and so wages are reflecting that.
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it is the fastest-growing number of jobs in the region during this period that we have reviewed, and that might be a factor. in terms of who pays people, it is a good question. they have a lot of personal care assistance and childcare workers , so i imagine a lot of it is individuals paying them versus institutions and big companies, but it would certainly, you know, they would be company is paying them as well, but i think the nature of these kinds of jobs, a lot of it is between individuals. >> thank you. colleagues, any other questions? maybe we can move to the next presentation. and from the chief economist, ted egan will be co- presenting with the policy director at the treasury and tax collector office on the physical impacts of i.p.o.
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>> good morning, supervisors. i'm the chief economist and the controller's office. i'm going to speak to a number of topics related to the physical impacts of i.p.o. supervisor mar had asked us to prepare for this hearing. i'm also joined by a manager from the treasury office you will speak about how they are taxed by the city. just by way of a bit of background, the i.p.o. that is under consideration 2019, with the exception of levi strauss are in the tech industry, and the tech industry has grown very rapidly in san francisco over the past decade. by way of context into thousand and eight, 4% of the private sector jobs in san francisco were in the tech industry, and
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about 7% of total private wages. by 2017, which is the most recent annual data that we have for the city, it is now 13% of all private sector jobs and 24% of other private sector he just private sector wages. that is a tripling of its importance to the city economy in a ten-year period. according to the technology directory crunch space, there are 4,900 active technology startups in the city that have been founded since 20,008. and according to price waterhouse at the money tree, over $134 billion of capital invested in that area, which is essentially area failed. as we have discussed, some of these startups are going to the point that they are considering an i.p.o. or have had an i.p.o. recently, these i.p.o.s give employees and investors an opportunity to sell their stock to exercise their stock options
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as well as giving the first opportunity for members of the public to invest in these companies. because the i.p.o. event is normally associated with an influx of wealth, particularly for employees and founders were in the area, that has a broader economic and fiscal impact. and it speaks how the city tackett his -- taxes relate to that end amanda will speak to that. >> good morning, from the office of the treasurer and tax collector. i'll get to the core of your question first. stock option compensation is taxed in san francisco, but as i think many of you know, nothing in the tax world is that simple, so before ted dies into the rest of his slide, i'll give you a primer on business taxes and i'm always available for more detail , either today or at another time. until copy passed in 2012, san francisco levied a one point 5% tax on the payroll bands bends
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of businesses in the city. the expense is a broad term. think anything accompany pays to its employees, and yes, it will definitely include staff based compensation. the payroll expenses happens in staff based compensation when an employee exercises that options kick the easiest way to think about it is when an employee would receive a w-2 from the company reflecting the income earned from that transaction. our staff, our audit team and our director of compliance is here today and they are very familiar with staff based compensation in the process by which we examined the company has correctly included staff based compensation in their payroll expense filing as a relatively straightforward, so back to my earlier statement, yes staff option compensation is packed in san francisco, however , as i think many of you have noted, the tax rate is
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relatively low, currently, the payroll expense tax rate will remain at this rate until there is action taken by the board or voters. so the primary business tax, for most businesses in san francisco is now the gross receipts tax. gross receipts means the total amounts received or accrued by a person or business entity includes all amounts that constitute growth, income for federal income tax purposes. of course, as my attorney was here, you'd want me to give many caveats to that definition, but for the purposes of today, inc. anything a company in his gross receipt. so it is important for the purposes of the discussion today to understand the gross receipts tax is less directly impacted by a spike in compensation. that is a small but important
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connection between this compensation and gross receipts. i'm not gonna try to explain how the whole tax is calculated today, you are welcome, but from many businesses, how much employee compensation they have in san francisco does in packed their calculation, so significant change in payroll expense after an i.p.o. is likely to increase the amount of gross receipts taxes a business pays the city, and i will now turn it back to ted to walk you through the numbers. >> thank you, amanda. supervisor mark also asked me to give a little bit of history about local tax policies, and amanda has touched on some of these details so i will go relatively briefly. as you may know, the city, they had a gross receipts tax and prior to 2,000 which was repealed after a court challenge in 2001, they were later -- they
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were later attempts during the 2,000 to pass a new tax that was not adopted or did not go on the ballot. instead, with the city did was essentially adopt piecemeal tax policies that address aspects of the payroll tax which was reviewed as unfavourable to businesses in san francisco and those would include the exclusions and clean tax and two exclusions that ultimately spoke to this question of how much payroll tax business would all after an i.p.o. essential market was passed in 2011 that would essentially allow a company to pay only it's base year payroll and exempt growth in its payroll tax liability for a number of years after the base year provided that it located itself in the central market area. some companies used this
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exclusion during a period of their initial public offering and likely excluded significant amounts of stock-based compensation his as a result of that. the other one was the prei.p.o. stock compensation that would allow a business anywhere in the city to exclude prei.p.o. stock compensation but not exclude compensation after it went public. in 2012, voters adopted a new business tax system that phase in the gross receipt tax and phase out the payroll tax or reduced the payroll tax to its current rate of 0.8%. this chart illustrates that phase in process, the phase-in of gross receipts began in 2014. he completed in 2018, so businesses are now paying the maximum tax rates. the payroll tax was set i a
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formula that the controller charge office calculated during the phase and years, and essentially the payroll tax was only reduced to the extent that overall business tax revenue was unchanged vis-à-vis what it would have been for the old system. essentially the new gross receipts tax does not fully replace what the original payroll tax would have brought in, and therefore the tax rate did not fully phase out. this chart is just indicating what business tax revenue between gross receipts and payroll tax was under our new system, which is indicated in the blue bar, and what it would have been had we not change the business ask, which is indicated by the orange bar, and it is really just indicating that as intended, the new system is tracking what we would have had under the old system during the phase-in period, and the reason this is relevant to discussion about i.p.o. is there were a number of