Loophole May Permit S.F. to Raise Taxes, Avoid Cuts

Mayor Art Agnos, facing a predicted $179.6-million budget deficit, said Tuesday that his staff has found a loophole to raise taxes by $20 million to $30 million, avoiding the need for massive cuts in police, fire and other services.

Under an opinion by the city attorney, the city will no longer count court-ordered changes in services toward its Gann spending limit.

Agnos said that as a result, he will press for new business, hotel, parking and other taxes in an effort to avoid public safety layoffs.

“What this means is that the severe health, fire and police cuts outlined in the worst-case budget scenario do not have to take place,” Agnos said at City Hall.

The mayor’s announcement came one week after city voters defeated, by a margin of 56% to 44%, Proposition K, which would have allowed tax increases and an open-ended spending increase.

Agnos had argued that without this taxing authority, the city would have to lay off 160 police officers and 61 firefighters, close three fire stations and four branch libraries and make other cuts. He had proposed $32.7 million in new business, hotel, parking and other taxes to prevent the cuts.

The mayor backed down from his prediction of layoffs Tuesday, but continued to press for the tax increases, saying, “The leeway in the Gann limit certified by the city attorney enables me to pursue my original plan, and that is exactly what I intend to do.”

According to a memo by City Atty. Louise H. Renne, certain court-ordered costs can all be excluded from San Francisco’s Gann calculations, including costs for improving jail conditions, increasing staff at city hospitals and settling back-pay and employment-discrimination claims with city workers.

Agnos said the state government and other cities have used this budgetary formula to meet revenue needs for at least two years, but San Francisco never before faced such a large deficit.

Exactly how much revenue can be raised will depend on the new Gann limit that city budget experts calculate this week. State voters approved the Gann limit in 1979, putting a cap on how much tax money local governments may spend.

Among the steps Agnos has taken to trim the city’s $1.91-billion budget during his first six months in office was a freeze on city employee wages, a move projected to offset about $43 million of the $179.6-million shortfall.

Agnos’ tax plan calls for increasing the business payroll/gross receipts tax from 1.5% to 1.6%, a 5% rise in parking taxes, a 1% increase in the hotel tax and a $200 annual registration fee for small businesses.