Budget committee forwards narrow stock-based payroll tax exclusion to full Board; broader exemption continued

The San Francisco Budget and Finance Committee referred a narrowly framed ordinance that would exclude certain pre-initial-public-offering stock-based compensation from the city's payroll expense tax to the full Board of Supervisors without recommendation, while continuing a broader bill that would apply to both private and public companies.

Supervisor John Mercurini (pronounced in meeting Mercurini) told the committee the measure is targeted at pre-IPO firms and structured to be accountable: the proposed exclusion would apply for a six-year period, require that a company pay at least $750,000 in stock-based payroll taxes before claiming the exclusion and limit eligibility so that few firms would qualify. "It is a 6 year time frame, after which the tax exclusion can sunset or be renewed," Mercurini said, describing amendments that refine the definition and calculation of stock-based compensation.

Supervisor Mark Farrell presented a separate, broader alternative that would cap future payroll tax growth attributable to stock-based compensation at a company's 2010/2011 base year and apply across public and private companies. Farrell said his approach is designed to avoid disadvantaging mature public companies and to promote long-term economic stability in San Francisco. He urged waiting for a fuller economic analysis before advancing his proposal.

The Office of Economic Analysis and the city economist have been preparing impact estimates. An economic-analysis representative told the committee the narrow amendments addressed recommendations in the office's report and that a fuller analysis of Supervisor Farrell's legislation would be targeted for release within about 30 days. The representative also said the $750,000 figure was chosen as an excess of what, based on the office's review of 14 companies that went public in the prior 13 years, any single company had paid in stock-compensation payroll taxes.

Public commenters included business groups, labor and community advocates. Jim Lazarus of the San Francisco Chamber of Commerce urged passage; Jay Monahan of Zynga said Mercurini's proposal "strikes exactly the right balance" and that Zynga would remain in San Francisco if the narrower plan passed. Labor representatives praised the local-hire conversations and urged the board to pursue workforce benefits alongside tax policy changes.

Chair Carmen Chu and other supervisors expressed concern about general-fund impacts and noted the analysis was incomplete. Supervisor David Chiu moved to forward the narrow pre-IPO exemption (item 3) to the full Board without recommendation and to continue the broader exemption (item 4) to the call of the chair pending the economist's analysis. On roll call, Supervisors Mercurini, Kim, Weiner and David Chu voted yes; Chair Carmen Chu voted no. The motion passed.

Next steps: item 3 will go to the full Board of Supervisors for consideration; the Office of Economic Analysis said it would deliver further analysis on the broader proposal within about 30 days. The committee continued item 4 to the call of the chair for further vetting and potential revision.