Committee advances broadened enterprise-zone payroll tax credit with state tie and 15-year sunset

The Government Audit and Oversight Committee on June 2 advanced an ordinance to expand San Francisco's Enterprise Zone payroll tax credit, broadening the categories of disadvantaged workers who qualify, aligning local boundaries with the State's, adding a 15-year sunset and requiring State Enterprise Zone prequalification for city benefits.

Emtine Metz of the Office of Economic and Workforce Development said the ordinance would remove the municipal requirement that an employer create a new job to qualify and extend the payroll tax credit to newly hired qualified employees, aligning local rules with the state program. She said the state program has evolved and now contains more categories of eligible workers and different boundary definitions; the proposed ordinance would bring the city program into conformance.

Ian Hart of the Office of the Budget Analyst presented a fiscal range, saying the ordinance "may cost the city as little as $152,000 and as much as $2.1 million" in lost payroll-tax revenues depending on participation and program design. Kurt Fuchs of the Controller's Office warned of higher exposure if the city expanded eligibility without safeguards, citing an upper-end illustrative scenario in which participation could translate into multi-million-dollar liabilities; he recommended making State prequalification a prerequisite, adding a sunset provision and considering a salary-cap mechanism to limit city liability.

Community and departmental speakers supported targeted expansion. Jessica Flintoff of the Public Defender's Office and Latifa Simon of the District Attorney's Office both endorsed inclusion of ex-offenders as a qualified group to support reentry and reduce recidivism. Terry Feeley of SF Works and Elaine Calhoun (workforce development) said tax credits can open conversations with small and mid-size employers and help employers retain hires.

During committee deliberations Supervisor Sophie Maxwell moved and the committee accepted several amendments: a 15-year sunset tied to the State Enterprise Zone's term; a requirement that firms be prequalified through the State Enterprise Zone application to receive the City credit; a change in WIA-related language to require enrollment rather than mere eligibility; and a limitation that the city credit be available only for hires who are San Francisco residents. With those changes, the committee forwarded Items 3 and 4 to the full Board with recommendation.

The amendments reflect a precautionary approach: they broaden access to the credit while using the State's existing certification process and a time-limited sunset to limit the city's fiscal exposure. The full Board will review the ordinance and the committee's modifications at a subsequent meeting.