City Economist: Mayor's Payroll Tax Plan Would Create Thousands of Jobs -- Cost City $72M

Uncle Sam Jobs.jpg
But it's going to take money -- a whole lot of money -- to do it right, child
A report moments ago sent out by the city's chief economist, Ted Egan, claims that Mayor Gavin Newsom's proposed payroll tax revision will spur the creation of perhaps 4,300 jobs over the next two years -- but at a cost of $72 million to the city.

The controversial proposal has gotten much press because of Supervisor John Avalos' qualms about scheduling it for a hearing before the supes' Budget and Finance committee, which Avalos chairs. Avalos last week told SF Weekly he'd heard the proposal could cost the city some $60 million over two years, which he considered unacceptable. While he hasn't yet returned our call, it stands to reason that Egan's even higher estimate will only solidify Avalos' opinion.

No one could accuse Egan of beating the drum for the mayor's plan, which essentially would freeze payroll taxes at the 2009 level for the next two years, incentivizing the creation of additional San Francisco jobs. He notes early in his assessment that many businesses would have created jobs anyway -- and the city would be deprived of additional tax revenue this year and next. What's more, "because the city cannot run a fiscal deficit from one year to the next, the lost revenue would necessitate reductions in city services and staffing, like any revenue shortfall."

(English majors, chime in: Would it be ironic if a plan meant to spur job-creation in the private sector lead to large-scale job-losses in the public sector? Please weigh in below.)

Egan predicted the mayor's plan would create 1,430 jobs this year and 2,900 more next year -- offsetting between 5 and 8 percent of the city's job losses since the economic excrement hit the air conditioning in December of 2007. The average cost per job would be $16,500 -- "the proposed policy is one of the most cost-effective local economic policies available," noted Egan.

But, cost-effective or not, that money adds up quickly. "The job creation would come at a significant cost to the City's General Fund, of $28 million during the first year, and $44 million in the second year," wrote Egan. "This cost is net of the additional tax revenue generated by the jobs created by the policy. The policy can be further tailored to reduce the cost to the City, although reduction in the scope of the incentive will also reduce its impact on unemployment in San Francisco."

So, in Egan's conclusion, San Francisco has only two options -- and the hint of a third. You can have a "strong positive impact" on job creation by adopting this payroll tax freeze. But, accordingly, the money drained from city coffers will "make the city's serious current budget deficit worse and likely lead to significant employment reductions in the city's workforce."

Finally, you can scale back the costs to meet the city's dwindling budget, but this will lead to fewer jobs created. And the costs will always be high.

Update, 5:45 p.m.:
Supervisor John Avalos returned our call. He says Ted Egan's analysis has further convinced him that the mayor's proposal doesn't make fiscal sense. "I really don't like being right in this case. I wish we were able to help expand jobs without spending $70 million to do it. Unfortunately, for that price tag, we have to go back to the drawing board." Avalos notes that Egan's report stated that, even if the city does nothing, 20,000 jobs are projected to be created in the next two years -- making $72 million for an extra 4,330 cost-prohibitive.

The supervisor doesn't give an exact figure for what price tag would be acceptable, instead saying "I expect a long, arduous discussion about how we can stimulate the economy without blowing the bank." In fact, such a discussion may happen in Budget and Finance Committee as soon as next week or the week after; Avalos says he will schedule a hearing for no later than the 24th of this month.

Finally, Avalos, a college English major, answers our query of whether it'd be considered ironic if a plan meant to spur job-creation in the private sector lead to large-scale job-losses in the public sector. He thinks it would.

"It is irony. I see this as a train with an engine on either end pulling both ways," he says.

But isn't that an analogy? It is. "That is an analogy to show the absurdity of the irony."

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