Public Comment

On the evening of October 10, someone forwarded to me an email from Kate Harrison’s mayoral campaign, signed by Harrison and asking recipients to protest a proposal on the council’s October 15 consent calendar that would “exempt the taxation of businesses that receive research and development [R&D] grants.” [bold in original] 

Harrison called this proposal “nothing more than a giant giveaway to BioTech, National Defense and Big Pharma—industries that already profit from government grants and venture capital funding, and that aren’t an appropriate investment of our hard-earned tax dollars.” 

She added: 

“Worse yet, the Council is trying to slip this past the public by putting it on the consent calendar [approval without deliberation] without sufficient public scrutiny. If this change in the tax ordinance passes, the associated tax waivers will leave our city facing a budget shortfall, forcing Berkeley residents and local retail to make up for the losses. Most of these startups research profit-making products. 

We welcome new technologies and new industries, but they shouldn’t get a free ride.” 

She asked: 

“Why is there no demand in this proposal for these firms to hire local people to qualify for the exemption? Why are we helping create a dangerous mono-economy, making the city increasingly beholden to the ever-changing fortunes of just a few industries?” 

Harrison urged recipients to sign the petition attached to the email demanding that the proposal be “taken off consent and given the full hearing, as any proposal that would risk our City’s financial future should require.” 

The email was signed “Always for Berkeley, Kate Harrison.” An afterword states: “Kate is running for Mayor to defend our unique city’s culture, protect our environment, and restore our city’s democracy.” 

Arreguín’s October 15 proposal 

Protesting the tax exemption for businesses that receive R&D grants sounds like a worthy cause. I was about to sign the petition, but then decided that I needed to read the actual item, which is #21, “Amending BMC Section 9.04.165-Tax Exemption for Research and Development Grants,” on the council’s October 15 agenda. 

The proposal is accompanied by a cover note from its sponsor, Mayor Arreguín, who presents the tax exemption as a defense not only of R&D business but of UC Berkeley and startups founded by its faculty and students. “These companies,” he writes, “are undertaking research and development in the public interest,” pursuing “solutions for society’s pressing health and environmental problems, all while providing our community with jobs and opportunities for wealth creation.” 

Unfortunately, in Arreguín’s view, 

“For startups and R&D companies that are dependent on R&D grants as their primary source of financing the City of Berkeley’s gross receipts taxation of such grants poses a discentive for them to locate or grow in Berkeley, as Berkeley’s business license tax rate is already one of the highest among Bay Area cities. It also creates a perception that Berkeley is not startup-friendly, despite the city’s status as a hub of intellectual creativity and technological innovation.” 

“As such, in 2019, my office with support from the Office of Economic Development and finance Department, brought forth an item to provide tax waivers for Berkeley small business that have received governmental R&D grants, which was approved by the Council on May 28, 2019. The Berkeley Municipal Code (Section 9.04.165) was amended to include the following local tax exemption: 

Any person subject to a license under provisions of this section with less than $100,000 in annual gross receipts, as defined in Section 9.04.025, net of governmental research grants, may exclude from gross receipts up to $1,000,000 received from governmental research grants, providing that a list of those grants and the amounts of payments received are reported to the City as defined by the Director of Finance. 

The problem, according to the Mayor, is that: 

“Since then, 21 companies have received a R&D grant tax waiver, of which four (almost one-fifth) have reached the $1 million maximum; and several companies have been denied the waiver because they either had other gross receipts exceeding $100,000 (e.g. from interest income on equity investments made in the company, tax credits, or subcontract awards for R&D services) or received a R&D grant from a non-profit philanthropic organization, rather than government entity.” 

Seeking to address this situation, Item 21 would amend the Berkeley Municipal Code 

“to recognize both government and philanthropic R&D grants, and provide the benefit to any business receiving such a grant, regardless of the size of the grant or other income, will enable more startups and R&D companies to grow in Berkeley, thereby leading to more potential overall business tax contributions to the City in the long run. Simultaneously, it will allow the full amount of R&D grant awards to be used to achieve the social, environmental and health challenges that these companies seek to address, and lessen local companies’ incentives to move to another location with a less onerous tax structure.” 

The “RATIONALE FOR RECOMMENDATION”: 

“Providing a tax exemption on government and philanthropic R&D grants will greatly benefit innovation companies that rely on these grants to move forward on projects which are in the interest of society and the environment. Updates to the current ordinance could enable Berkeley’s smaller companies to become tomorrow’s engines of the economy. It will also provide an incentive for such business to remain in Berkeley and contribute to the city’s tax base in the long run, thereby contributing to Berkeley’s future economic vitality.” 

The cover note offers no data in support of its claims that the favored businesses contribute to the Berkeley economy or tax base. In short, this proposal is not only a giveaway to R&D businesses, but more broadly and importantly, Arreguín’s latest attempt to facilitate UC’s ongoing spatial and economic takeover of the city. It needs to be defeated. 

But I’m not signing Harrison’s petition 

Heres’s why. When the original tax exemption came before the council in May 2019, Harrison supported it. She even seconded Arreguín’s motion to approve the item, as the Annotated Agenda shows: 

44. Tax Exemption on Federal Research Grants 

From: Mayor Arreguin 

Recommendation: Adopt a first reading of an Ordinance to add a subsection to Berkeley Municipal Code Section 9.04.165 to create an exemption on the taxing of business gross receipts relating to federal research grants. 

Financial Implications: See report 

Contact: Jesse Arreguin, Mayor, 981-7100 

Action: 1 speaker. M/S/C (Arreguin/Harrison) to adopt first reading of Ordinance No.7,655-N.S. Second reading scheduled for June 11, 2019. 

Vote: Ayes – Kesarwani, Davila, Harrison, Hahn, Robinson, Droste, Arreguin; Noes 

- None; Abstain – None; Absent – Bartlett, Wengraf. 

Moreover, Harrison co-sponsored now-former Councilmember Rigel Robinson’s proposal September 2022 item “to encourage the growth and retention of Research and Development (R&D) in Berkeley,” which included a proposal to deregulate biolabs (Item 30), allowing them in commercial districts next to residential areas. The item was approved on consent. The council referred the proposal to the Planning Commission, which affirmed the proposal this June and sent it back to the council for final approval. 

To my knowledge, Harrison, who resigned from the council in late January, did not challenge the proposal when it came before the Planning Commission. 

Apparently she’s changed her mind about privileging R&D in general and biolabs in particular. That’s fine, not to say admirable. What’s not fine is that she’s concealed her former robust support for such privileging and is using her newfound opposition to it to shore up her campaign persona as a mayor who would fiercely defend Berkeley against the imperial university. 

Our city desperately needs such a mayor, albeit one who’s upfront about her record. Harrison needs to explain her switcheroo. 

In any case, Berkeleyans should tell the council to reject Arreguín’s proposed expansion of the tax exemption for R&D. Better yet, tell the council to repeal the original tax exemption. You can email the mayor and council at council@berkeleyca.gov. 

Coda 

On October 12, I sent Kate Harrison the following email: 

Dear Kate:

Someone forwarded to me the petition your campaign is circulating asking people to tell the council to reject Arreguin’s proposal to expand the tax exemption for R&D. I think that’s a good ask.

But I have a few questions: Why haven’t you acknowledged that you supported Arreguin's original R&D tax exemption when the item came before the council in 2019 (that one passed on consent), as well as Robinson’s 2002 item urging deregulation biolabs in Berkeley (which you co-sponsored)? Why haven’t you explained why you’ve suddenly changed your position on this policy. To my knowledge, you didn’t object to the biolab deregulation proposal when it came before the Planning Commission in June; did I miss your opposition?

I would appreciate clarification.

Thanks.

Zelda 

I followed that email up with a correction noting that it was the 2022 item that passed on consent. 

Less than a half hour later, Kate Harrison replied: 

Dear Zelda,

The previous vote was for an extremely small grant of $1 million and gross payroll of only 100,000. This is a massive expansion without limits. I believe Sophie voted for the first one as well. I hope she thinks better of this. In addition time we have been turning to the voters for more and more tax measures so it seems particularly a bad time to be talking about tax breaks for companies.

I will be sending out something about the planning commission vote when it comes to the council.

Thank you.
Kate