San Francisco aims to spend as much as $30 million to jump-start small businesses in one of the world’s priciest cities.
The First Year Free program, run by the city treasurer, will waive the cost of initial registration, license and permit fees for certain small businesses. The businesses must be in a ground-floor commercial space, be new to or opening up a new location in the city and have $2 million or less in estimated or reported San Francisco gross receipts. Formula retailers, defined by the city as those with 11 or more outlets with “standardized features,” don’t qualify.
“If you are an aspiring entrepreneur or small business owner who is considering opening a new storefront, now is the time,” Mayor London Breed said in a statement.
“San Francisco is here to help.”
The program will automatically apply to qualifying businesses that register with the treasurer’s office between Nov. 1 of this year and Oct. 31 in 2022. The city estimates it will cost between $12 million and $17.4 million in lost fee revenue and administrative costs for this fiscal year and between $7.5 and $12.45 million for 2022-23.
That assumes the number of qualifying businesses will be between 968 and 1,613, based on pre-pandemic business activity. The Board of Supervisors has set aside $12 million to fund the program for the first fiscal year. Spending more than that could mean budget shortfalls for the nine city departments, including public health and fire, that get funding from the fees.
City storefronts have been hard hit by shelter-in-place orders that forced many small businesses to close or limit capacity. Local businesses didn’t pay between $174.1 million and $404.5 million of commercial rent related to COVID-19 from April 2020 to December 2020, according to a Budget & Legislative Analyst report in March. The report estimated that as much as 63 percent of small businesses couldn’t pay rent in full and that up to 98 percent of unpaid rent was owed by storefront retail, services, restaurants and bars. A June 2021 report estimated that more than 45 percent of small businesses remained closed.
“It’s no secret that the pandemic hit small businesses hard,” Treasurer José Cisneros said in a statement. “We all want to see our commercial corridors thrive again.”
First Year Free is the latest in a multipronged approach to help small businesses. In July, the board passed a law that forgives commercial debt for some pandemic-impacted businesses, though it is being sued by landlord groups over its legality.
It also approved legislation waiving or deferring payroll taxes, business registration and license fees for certain existing businesses during fiscal years 2019-22. In November 2020, San Francisco voters passed Proposition H, which streamlines certain commercial permitting processes.
San Francisco had been reckoning with vacant storefronts even before the pandemic. At the time, the city took more of a stick than a carrot approach by passing Measure D, which taxed building owners who kept their storefronts empty for more than six months. The measure garnered 70 percent of the vote less than two weeks before the city shut down in March 2020 and was due to begin in January 2021. Implementation has been delayed until January 2022.
The struggles faced by small businesses during the shutdown alerted some board members to how difficult the city was making it for them to succeed.
“Right now, opening a restaurant in San Francisco requires about twenty different permits while opening a retail shop requires up to eleven,” Supervisor Hillary Ronen, who sponsored the First Year Free program, said in a statement. “Each of these permits comes with a fee. First Year Free is a message to new, small businesses: We value your contributions, we recognize the obstacles before you, and we are here to make it easier for you to open up in this great city.”