The Newsom Era Ends With A Whimper

 
San Francisco Mayor Gavin Newsom
File photo by Luke Thomas

By Milkcluber

October 28, 2008

Republican presidential John McCain got a surprising endorsement for his economic recovery strategy last week. It came when San Francisco Mayor Gavin Newsom copied McCain’s plan for a San Francisco version combining tax breaks for business, layoffs of city workers, and fast-tracking billion dollar contracts likely earmarked for major corporations that will hire non-city residents.

Unsurprisingly, Newsom made his announcement with a coterie of business leaders, including the Chamber of Commerce.

It will be sheer luck for Newsom if McCain doesn’t begin using San Francisco’s mayor in his ads, bolstering his case for a trickle-down strategy against Obama’s message of change by aiming the stimulus at the middle class.

Newsom’s decision comes after he won a budget that already loaded more costs onto the city’s middle class while offering more of the city’s treasury to the city’s businesses.

For Newsom and McCain, the belief that business tax benefits trickle down into job creation has the status of theology. Like other religious beliefs, it is a matter of faith making a showing that actual jobs were created by the tax credits an irrelevancy.

To date, the city has no system to correlate actual new hires to the tax forgiveness to businesses located in one of several “empowerment” zones. Major corporations have refused to open their books, claiming it would reveal proprietary information. The city itself operates no oversight program to independently audit a match-up of tax breaks with job creation.

San Franciscans for Tax Justice and Mark Norton have consistently raised this issue, with no response from City Hall.

There is good reason to wonder about it. Businesses claiming the tax credit say they have increased their hires. But the city’s unemployment rate is rising and the city’s office market has seen the biggest quarterly drop in leasing since the dot-com bust six years ago, according to the Business Times.

Newsom does not offer a plan to monitor for results.

The city can and should play a role in fostering an improved economy. The role ought to be to get money in the hands of people most likely to spend it in our local economy, creating the kind of multiplier effect that business often claim but just as often fail to deliver.

The ones most likely to use any improvement in their household budgets are those living paycheck to paycheck, or who have postponed needed expenditures. Newsom’s budget, however, adds to their burden rather than easing it. His economic stimulus proposal omits them entirely.

A first step should be an aggressive outreach to San Francisco families earning less than about $42,000 a year. These families are eligible for the IRS’ Advanced Earned Income Tax Credit that amounts to as much as $4,000 per family. The money is available now, doesn’t cost the city budget, and rewards those who work but who make too little to qualify for the type of tax credits and benefits that go to businesses and higher-income tax filers.

While San Francisco has had a program to publicize the program, what is new is that the funds are available now, although tax year isn’t complete. An employer fills out the forms, and the money is added in every worker’s paycheck at no cost to the employer. Previously, the program only operated after the tax year was over.

There could be thousands of low-wage earning San Franciscans who could qualify for this credit immediately, and it would help them and the neighborhoods where they shop.

San Francisco’s own version, Working Families Credit, adds another ten percent to what families receive. It now needs to adopt the advance credit feature of the federal program.

Next, the Board of Supervisors should revisit some of the cuts, fees and costs that fall most heavily on everyday San Franciscans – particularly in those cases where the impact would again have a multiplier effect.

Newsom’s proposal instead focuses on revisiting fees paid by businesses, not families and individuals.

The cost of home repairs grew when the city adopted higher permit fees, from replacing a window to exterior painting. The mayor proposed increasing the cost of at least 120 different categories of permits – from environmental reviews to special use approvals – in this year’s budget.

It went so far as to impact DIYers. The San Francisco Tool Lending Library reportedly had thousands of people who borrowed hammers or saws, wheelbarrows or cement mixers. Newsom’s budget cuts closed it this year.

Costs to visit the city’s landmarks also went up. Last week, Mayor Newsom showed up to mark the 75th anniversary of Coit Tower. No one mentioned that he has raised the cost of visiting the tower to $5, which might have been on the minds of the hundreds who then lined up for the one-day free entry.

Entry fees for other attractions also rose, including a doubling of the entrance fee for seniors visiting the Japanese Tea Garden.

The Fire Department raised the cost of responding to an emergency call from $195 to $260; if a trip to the hospital is required, the cost goes up to $1,053 from $700.

Parking in your neighborhood got more expensive, as did the cost of a parking ticket and even more for a boot clamp.

The effect of these fees and costs is to transfer money out of the pocket of middle and low-income San Franciscans – the ones most likely to put their money back into the economy – into the city’s budget.

Newsom’s budget passed down higher costs rather than new jobs. His budget increased annual permit costs to neighborhood-serving small businesses like Laundromats and restaurants, which has to pass the costs on to patrons.

Fees also were implemented on developers who build affordable housing as part of a residential project. As the Chronicle noted, earlier those fees were exempted to encourage the development of low-cost housing.

The most glaring defect in the Newsom stimulus package is its lack of a strategy to bolster our economy in the next 12 months, when the downturn’s effects will hit hardest.

Newsom’s proposal to fast track projects won’t deliver jobs in our economy until long after Newsom is out of office.

He cites as opportunities the San Francisco General’s rebuild, the proposed Transbay Terminal and the airport construction, which have yet to be financed much less break ground.

Even with bids, the development contracts will likely go to companies like Tutor Saliba that hire out-of-state workers, have a record of high cost overruns, and a mixed record on hiring minorities.

Once again he throws into the mix a rebuild of San Francisco’s dilapidated public housing, although he has failed for five years to apply for federal funding to pay for it.

Establishing a China desk to lure businesses to locate offices here may be a wise future investment, but the payoff is at least three to five years away. It takes any company that long to decide when or where to locate another office, much less to relocate internationally.

The point is clear: this is not a job creation strategy, whatever it might be called.

There is a very good argument for creating new incentives that foster business and job creation. There is also a good argument that a modest stimulus can be jump-started with the right mix of initiatives.

A city tracking system should immediately be included in the Mayor’s office on business to ensure that current tax breaks given to encourage new jobs actually produce jobs – or that the tax credit be refunded to pay for other job creation programs that deliver results.

Federal rules that require local hiring in federally funded projects, including rehab at public housing, needs strong city oversight to overcome the historic reluctance to hire outside the union hall.

A micro-loan program to encourage residents to begin their own businesses can work. In the past, the use of community development funds helped local residents create, on average, one new childcare facility per month – creating jobs for the care providers and opening the way for single parents to accept employment.

Other micro-loans in the past established video studios, gardening businesses, locally produced food products and other ventures. In addition, city-funded business incubator programs created offices where high cost office expenses are shared for copy machines and reception staffing.

Little creativity has gone into encouraging more local and more specialized visitors to the city that brings revenues to neighborhood and local businesses, rather than a heavy emphasis on hotel conventions.

A program of weekend of cooking demonstrations and classes coordinated between various cooking schools and businesses would allow a visitor to experience three or four different venues in a single visit, and highlight even the city’s outstanding restaurants and resources.

A special tour of the only-in-San Francisco retail outlets on a nearly daily basis in advance of holiday shopping would likely have an immediate benefit. Not all great shops are at Union Square, and neighborhood retail is increasingly sophisticated and attractive for buyers looking for quality merchandise.

Marketing a visit to the city’s movie locations can be tied to film festivals or award programs, with a tie-in that lets the visitor eat where Sam Spade did, or shop on the street where Harvey Milk had his camera store. No other city can offer as many iconic locales and vignettes.

Other existing funds should be re-examined to see if they can better target job creation and retention, from Grants to the Arts to Open Space to the revenue departments of the Port and Airport.

The city’s retirement fund, now pegged at over $10 billion, could use its stockholder votes to push for improved economic outcomes while protecting the city’s fiduciary obligations to retirees.

It is naïve to expect these initiatives to deliver a significant improvement in the city’s economy. Their impact would be at the margins, but with a potential to grow into something more significant.

More importantly, such initiatives signal to San Franciscans of all economic status that they have a place in building solutions, and that their contribution has value. This is no time to divide San Franciscans into a ruling and ruled class, those who make decisions and those who live by the decisions made by others.

But Newsom has drawn his inspiration from other sources.

For the past several years, Newsom has made it his priority to fly to Davos, Switzerland to take part in the World Economic Forum – even when it meant bypassing the U.S. Conference of Mayors annual meetings. The mayors generally have more prosaic, practical items on their agenda, like leveraging funds to do more with less.

Davos, “the ultimate Wall Street jamboree” in the words of a recent Bloomberg financial news service profile, saw the world economy as its private playground.

“We catered to what the financial leaders wanted: solo speaking slots, luxury hotels and VIP treatment we wouldn’t afford anyone else,” the event coordinator said. “We gave them a soapbox. It was all political.”

Newsom enjoyed being singled out as a “Young Global Leader” at Davos whose organizers now say they were obliged “to publicly massage the viewpoints, wishes and status of their superstar guests.”

“The most-discussed housing issue among some delegates centered on Davos’ Belvedere Hotel,” one leader told Bloomberg, “where corporate chieftains and their deputies were more interested in entering into bidding wars to secure the biggest party room…”

Bloomberg’s report, worth reading in its entirety, points out that those gathered at Davos ignored all the warnings of a collapse of the housing market, the leveraging of mortgages, and the lack of responsibility for its impact on the world’s economy.

“The partying crept in,” says Klaus Schwab, the 70-year- old WEF founder and executive chairman. “We let it get out of control, and attention was taken away from the speed and complexity of how the world’s challenges built up.”

It was a long way from the prosaic concerns of America’s other mayors preoccupied with running a city.

There is a better model the city should consider in moving forward in these challenging times. It comes from a San Francisco mayor who served thirty years ago.

In June 1978, Mayor George Moscone faced the fall-out of Proposition 13 and its devastating impact on the city’s economy.

He proclaimed a state of emergency, an increase in payroll, parking, business and property transfer taxes, and patched together a budget that decreased just five percent. For his courage, he faced a recall at the ballot.

“I’m not going to abandon the poor now that it has become fashionable to be hard-line and ultrarealistic about social goals,” Moscone said. “That would make a farce of my previous beliefs.”

“George Moscone was a power broker for the poor,” said former Lt. Governor and Assembly Speaker Leo McCarthy, mourning Moscone’s death.

In seeking a path forward, San Francisco would do well to understand and embrace George Moscone’s legacy.

FCJ Editor

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