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San Francisco is known internationally for its celebration of food. The city can boast of top restaurants; nationally acclaimed grocers, bakers and butchers; a thriving fleet of food trucks; and bountiful farmers’ markets. But these food retailers are not distributed equally across the city. While San Franciscans in many neighborhoods can take a short walk or ride and find a greengrocer or supermarket, in some parts of the city, food access is more difficult.

The Department of Public Health has mapped the distribution of existing food retailers as part of its Sustainable Communities Index program. The results show that a number of neighborhoods — including Treasure Island, the Tenderloin, Hunters Point and Visitacion Valley, among others — have limited to no fresh food retail options.

While a full service grocery store is never more than a couple of miles away in a city as dense as San Francisco, the lack of quality, fresh food access within a convenient distance has both quality of life and public health impacts. Week to week, having to travel further for groceries – whether by foot, transit or car – takes up time and money. This travel is an additional cost that few San Franciscans would enjoy, but it’s especially difficult for low-income residents, many of whom live in neighborhoods with the least convenient access to fresh food.

In addition to the quality of life impacts, a neighborhood’s access to fresh food is also strongly connected to the health of the neighborhood. As Policy Link, a national non-profit organization pointed out in its Grocery Gap report, proximity to fresh food is strongly correlated with levels of obesity, diabetes and other diet-related diseases. Though recent articles in the Washington Post and New York Times have questioned how much the introduction of a new food retailer into a neighborhood positively impacts public health, food access advocates have in turn raised questions about the studies that are cited and pointed out that providing fresh food retail outlets is only one part (albeit an important part) of a campaign to improve diet-related public health. 

Recognizing the importance of food access, Supervisor Eric Mar introduced legislation on September 25 to better coordinate the city’s efforts on the issue.  The ordinance would establish a Healthy Food Retailer Incentives Program housed in the Office of Economic and Workforce Development. On the supply side of the equation, the program would be responsible for coordinating the city’s food access initiatives within a “one-stop shop” that links new or existing small food retail businesses (those less than 20,000 square feet in size) with incentives and technical support ranging from permit expediting and design assistance to grants and loans.  The program is also structured to encourage convenience stores and small grocers to reduce the amount of shelf space they dedicate to tobacco and alcohol products. On the demand side, the legislation calls for the new program to pair its support for businesses with community engagement (like that piloted by the Food Guardians and the Southeast Food Access Working Group.)

Promoting healthy food retail has the additional potential benefit of providing economic development. Studies have shown that grocery stores and thriving corner stores can not only provide jobs but can also serve as anchor retailers that lift the fortunes of nearby businesses. 

Even with a new coordinated focus from a city agency, addressing food access will not be easy. The changes will take money: retailers investing in new store designs and products, and consumers buying enough fresh food to make it pencil out for the retailer. And gauging the impact will take time. Supervisor Mar’s legislation has energized conversation about what the city can do to better address food access, and SPUR will continue to track the proposal’s development.

SPUR’s San Jose office is convening a task force of city officials and planning and development thought leaders to tackle a vexing question: How can the nation’s tenth largest city transform its historically suburban built environment into one that supports an active street life, greater use of transit and a stronger urban fabric? San Jose has charted an ambitious course through its new 2040 General Plan; one of the major goals is to concentrate development in key areas called urban villages. These villages, mostly located along major transit lines, aim to support reductions in solo driving and associated carbon emissions while creating a more engaging, livable city that can compete for the creative workforce that is driving today’s tech economy.

As the city initiates a local planning process for these areas, a critical opportunity emerges to get the placemaking details right. SPUR’s initiative will focus on physical planning and urban design. We will address site planning; building placement, orientation and access; the design of streets and blocks; the design and use of open space; and the organization of land uses. In short, we will look at all the ways a land use program is translated into a place that either does or does not support walking, cycling and transit.

Efforts to achieve better urban design outcomes are nothing new in San Jose. In fact, sound urban design principles have been articulated repeatedly in city guidelines since the 1980s. But despite great strides in the downtown and some gradual improvement elsewhere, development in San Jose is still overwhelmingly auto-dependent and has not produced the kinds of pedestrian- and transit-friendly neighborhoods that can truly support a shift away from the private car. Financial pressures and fierce competition for employment uses have hampered the city’s ability to uphold the principles espoused in its plans.

SPUR’s task force will reach well beyond planning and urban design, drawing from all the disciplines that shape the built environment, from development and traffic planning to lending and marketing. We will drill into the policies, processes, decisions and compromises that shape real-world projects and identify impediments to urban design excellence. We will also develop a collection of precedent projects from places similar to San Jose to show what success can look like — and how it can happen under complex real-world constraints. Finally, the task force will produce a report recommending changes to the development process that can yield improvements on the ground. Once these recommendations are in place, SPUR will support their implementation through the urban village planning process and help city officials make this ambitious vision everything it can be.
Read the San Jose 2040 General Plan >>
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San Francisco’s technology sector is booming once again, the real estate market appears to be in full recovery mode and office vacancies are at record lows. The city’s economy is quick to catch fire, but it’s also prone to downturns. This has benefited the city’s coffers and the public services they support, but it forces difficult decisions when fortunes turn for the worse.

These boom and bust cycles have exposed the importance of consistent sources of revenue for the city. Repeated economic fluctuations — as well as the recent recession — have shown the inherent volatility of the city’s business tax. A flat 1.5 percent tax on all payroll expenses above $250,000, the business tax is the city’s second largest source of revenue for the general fund (it brings in approximately $410 million per year), behind only the city’s property tax. But the payroll tax has fluctuated dramatically from year to year. In fact, it has increased more than 10 percent year-over-year four times in the last decade and actually declined on four separate occasions in the same period.
 

Growth in Property Taxes, Business Taxes and Employment in SF

Click to enlarge chart >>

While property taxes have grown in almost all of the last 10 years, the payroll tax has experienced four years of losses. These fluctuations do not reflect growth or loss of employment.Source: San Francisco Consolidated Annual Financial Reports and California Employment Development Department.

To address this volatility, Proposition E on the November ballot would replace San Francisco’s payroll tax with a gross receipts tax, a more common and more stable tax structure found in cities throughout California.

As we explained in a previous post, the gross receipts tax is common in California, but it wasn’t the first choice of the state’s largest cities. From 1970 to 2001, San Francisco’s business tax required companies to pay either the city’s gross receipts tax or the city’s payroll tax, whichever was greater. Los Angeles used a similar system. Following legal challenges in both Los Angeles and San Francisco (the requirement to pay the higher of the two options was found to be unconstitutional), San Francisco agreed to a settlement of approximately $80 million and subsequently eliminated the gross receipts tax and applied a flat tax of 1.5 percent of payroll to all businesses. Meanwhile, Los Angeles implemented a gross receipts tax.

In the decade since the legal settlement forced the city to choose between the payroll or gross receipts tax, there has been general agreement that San Francisco’s business tax needs to be reformed but little consensus about how that might happen or what might succeed the payroll tax. SPUR and much of the business community have argued that we should restructure the city’s tax system to remove disincentives to hiring inherent to the payroll tax. Reform has been attempted at least three times in the last decade, but those efforts were ultimately unsuccessful. Instead, the city has more recently adopted a new tactic: payroll tax exemptions, also known as “governing by exception.”

Since 2001, the city has granted payroll tax exemptions to a number of companies to keep them from leaving San Francisco once they grew large enough to be affected by the payroll tax. Prior to 2011, these exemptions were used exclusively to grow the biotechnology sector. But in 2012, separate exemptions were also granted for stock-based compensation and for new businesses locating in the Mid-Market area, exemptions targeted largely at growing technology companies. These incentives have unquestionably been effective: Zynga and Salesforce maintained their corporate headquarters in the city, and technology companies have been attracted in droves to Mid-Market, starting a renaissance that has failed to take root in the neighborhood ever since the construction of BART down Market Street.

But something else has happened in the years since the city opted for the payroll tax: Two significant downturns and three economic booms have driven uneven growth. In fact, the city’s budget has increased by nearly 50 percent in the last 10 years while inflation grew only 31 percent. These cycles have been further exacerbated by the fact that these funds are driven by less than 10 percent of businesses in the city: Only 7,500 of the city’s more than 96,000 registered businesses pay business taxes.

Business taxes are certainly not the only reason that companies come to — or stay in — San Francisco. There are myriad factors that play into location decisions. But given the volume of voices that have called for tax reform, as well as some prominent relocations of major companies, it certainly can’t be ignored.

Proposition E would replace the city’s payroll tax with a gross receipts tax. Gross receipts taxes are significantly more complex than a payroll tax, but also have a number of different benefits:

• Slower growth and more jobs.The proposed gross receipts tax will grow more slowly over time than the payroll tax, and is projected to generate more jobs than the existing tax.
• Greater stability.Through various economic cycles, payroll tax revenues can vary wildly; gross receipts tax revenues are projected to be significantly more stable and predictable over time, with less dramatic shifts in revenue than with the payroll tax.
• More equitable.The payroll tax is a flat rate for all companies, regardless of size or profit margins that can vary dramatically by industry. By contrast, gross receipts will bundle industries by their ratios of payroll to gross receipts to approximate ability to pay. This structure generally mirrors that used in other California cities with gross receipts taxes, but it simplifies that structure with fewer schedules. What’s more, the gross receipts tax will apply to businesses located in tax shelters such as the Presidio of San Francisco. (Tenants there have enjoyed payroll tax exclusions under federal statute. Prop. E would end these tax shelters.)

How does a gross receipts tax work? To be honest, it can get very complicated, very quickly. But there are four main ways that Prop. E changes how businesses will be taxed in San Francisco:

1.  Industry-based rate schedules. Separates the business tax base into seven groups based on industry sectors. This structure mirrors that used in many other California cities but simplifies the structure with fewer schedules.
2. Progressive rates. Transitions tax rates from a flat tax to a structure in which rates increase as earnings increase. Companies pay a higher rate as they earn more. Conversely, companies pay a lower rate if they earn less.
3. Marginal rates. Creates tiers of rates that apply only to the specific range of gross receipts, rather than the entire amount of gross receipts, similar to personal income taxes. For example, a company in schedule 1 (see sample below) would pay 0.1 percent tax on gross receipts from $1 million to $2.5 million and 0.35 percent on all gross receipts from $2.5 million to $25 million. Companies in all schedules are exempt from the tax until they make at least $1 million.
4. Broadens the tax base. Increases the number of businesses paying the payroll tax to 15,500 from only 7,500 in 2010.

Sample Gross Receipts Schedule Under Prop. E

Schedule 1: Retail trade, wholesale trade and certain types of services.

More important than the sum of these benefits is the road traveled to develop Prop. E. Discussions with such far-reaching implications are frequently contentious, and several reform attempts in the past decade have ended with no change at all. This process, however, was marked in its collaboration and communication. In the first six months of this year, San Francisco Mayor Ed Lee and Board of Supervisors President David Chiu worked with City Controller Ben Rosenfield to conduct a months-long outreach process. Involving literally hundreds of companies and other stakeholders, and informed by detailed analysis, the final proposal is the result of sustained engagement and extensive collaboration. This level of complexity seldom yields perfection, but this is certainly a preferable route to contentious fights that lead to no change.

One of the compromises achieved by this process was around new revenues. Though not the original intention, Prop. E generates $28.5 million of new revenue for the city’s General Fund. These funds are not programmed for anything specific at this point, but strong commitments have been made to direct funds to SPUR priorities such as affordable housing and the Housing Trust Fund, as well as to Muni maintenance and operations.

Given this level of complexity, the road to passage will be anything but easy for Prop. E. With a number of other important measures on the November ballot, tax reform is a topic to which few voters pay attention. Previous efforts, while not as well developed or supported, have suffered at the ballot for lack of understanding. And regardless of the collaboration and extensive agreement, the minutiae of the measure could complicate matters significantly when it reaches voters.

But for all of these reasons, Prop. E also presents a tremendous opportunity. The stars seldom align to present the voters with a unified front for such a complex change, and we should seize the moment — and the momentum — to make the transition.

This is the time for San Francisco to move past the payroll tax. Join us in supporting Prop. E on November 6.

Still have questions? Look for our complete ballot analysis in the SPUR 2012 Voter Guide.

Richard Carranza has been an educator for more than twenty years.  He has seen firsthand how student learn better when they’re healthy and nourished.  And, as a father of two daughters enrolled in the city’s public schools, he’s heard firsthand that students want better food in their cafeteria.  Professionally and personally, he understands that school food is integral to the lives of students and the success of the District.  And, as the new Superintendent of San Francisco Unified School District (SFUSD), he is in a position to improve the school meals program.

But, as Superintendent Carranza made clear at a September 6 forum at SPUR, he and the District face significant obstacles. 

Primary among the challenges is funding.  The $18 million budget of the school meals program is supported mostly by revenue from the 27,000 breakfast and lunches as well as the 6,000 snacks that Student Nutrition Services serves each day. In San Francisco, like in many other urban school districts nationwide, the majority of the students eating school meals receive the meals for free.  In exchange for providing the meal, the federal government, in the current school year, will send the District a reimbursement of about $2.90 per lunch and $1.55 per breakfast.  The students who don’t qualify for a free meal pay $3.00 per lunch and $1.50 per breakfast.  The combined revenue of reimbursements and sales is used to cover the costs of the school meals program: food, labor, distribution and management.  In San Francisco, the revenue has not been enough to cover the costs and the District has offset shortfalls in the school meals program by transferring money from the District’s general fund. Student Nutrition Services has begun reducing this deficit in the past two years and may be able to increase efficiency more in the coming years.  But, even with greater efficiency, the District will continue to face a difficult fiscal position so long as increases in food and labor costs continue to outpace increases in the federal reimbursement rate.

Compounding the difficulty of raising revenue is the criteria that defines who qualifies for a free or reduced meal.  The federal government, which sets the standard, has one threshold for the entire lower 48 states, with separate rates for Hawaii and Alaska.  A family of four only qualifies for a free meal if their household income is less than $30,000 per year – regardless of whether they live in San Francisco or a small town in Mississippi. In San Francisco, 50% of public school students meet that threshold, which is a sobering statistic.  But, according to the Food Security Task Force, a family of four in San Francisco could be food insecure even with an income twice that. The result is that many hungry students receive free meals from the District, which has a policy of feeding any hungry student regardless of their ability to pay, but the District cannot receive a full reimbursement for that meal because those students don’t fall within the poorly calibrated federal definition of poverty.

A third significant challenge for the school meals program’s financial picture is that fewer students are choosing to eat the meals.  They are, as the Superintendent put it, “voting with their feet.” The number of SFUSD students eating school meals (called the “participation rate”) is significantly lower than that of comparable districts and has declined since 2009.  And, the fewer students who eat the meals, the less revenue SFUSD receives. 

Despite these challenges, Student Nutrition Services has made considerable improvements in the past few years.  They have, among others successes, installed a point of sale system that expedites meals service and provides valuable data to managers, reduced the paperwork for enrolling families in the free and reduced meals program, and improved the nutritional standards of the food that is served.  This has helped SNS begin to reverse the deficit trend including recently lowering the deficit covered by the District’s general fund from $3.5 million in 2009-10 to $2.5 million in 2011-2012 (see: 2 hours and 43 minutes into the video).

Alongside these improvements, however, kids continue to vote with their feet. Many choose to eat bag lunches from home, off-campus, or not at all.  As a study recently published by the San Francisco Food Bank details, many factors influence their choice: the amount of time they are given to eat, social pressure and stigma, the number of meal options, the cafeteria environment, and, perhaps most of all, the quality and appeal of the food itself.  The report, which was inspired by a goal of “more kids eating better food” at school, provides an extensive list of recommendations for how SFUSD can improve the current program, including calls for: increasing the number of management staff (which the District has begun to do), remodeling of both kitchen facilities and cafeterias, soliciting greater participation in the free and reduced lunch program, and many management suggestions. 

Long-term, though, the question for how to substantially improve the school meals program in San Francisco remains.  Superintendent Carranza reported that the District is beginning a planning process to produce a 5-year strategic plan addressing the issue and is also reissuing its meal service contract for competitive bid among contractors.  The challenges for improving SFUSD’s school meals program are considerable, but these steps and others outlined by the Superintendent are strong indications that there is a new energy, focus and commitment to tackling the issue at the highest levels of the District.