Berkeley councilmembers approve controversial tax cut for innovation industry start-ups

BERKELEY — A proposal marketed as a support line for start-up research and development companies struggling to stay afloat in Berkeley was unanimously approved Tuesday by the city council despite pushback from some who argue the measure is actually a tax break for big corporations.

Berkeley councilmembers voted to expand a 2019 tax exemption on government grants given to small research and development businesses to now also include grants from philanthropic groups. The amendment also does away with a provision that limits the exemption to companies with no more than $100,000 in gross receipts and applies the exemption to all grant amounts instead of just the first $1 million received.

The measure is meant to help the start-ups by allowing them to focus their limited grant dollars on projects, said Elizabeth Redman Cleveland, chief strategist of sustainable growth with the city’s Office of Economic Development, during a meeting Tuesday.

Over the last five years, 21 businesses have benefited from about $45,000 in tax breaks. But, Cleveland said, the figure does not account for investments those companies have made in the local economy.

By growing Berkeley’s “innovation sector,” the city would also benefit from the creation of new jobs and a more robust tax base, said Mayor Jesse Arreguin, whose office was behind both the 2019 ordinance and Tuesday’s amendment. Those dollars could then go toward social programs to address issues like homelessness, housing and aging infrastructure, he said.

“This is absolutely critical, especially at a time when we face a hostile federal administration who may take away money from local governments like Berkeley who are proud sanctuary cities,” Arreguin said.

Critics of the proposal, including former Councilmember Kate Harrison, lambasted the council for attempting to approve the measure as part of the consent calendar during an Oct. 15 meeting. The consent calendar typically includes noncontroversial items that are routine in nature which are all approved in a single vote.

In addition to calling on the public to demand that the item be removed from consent, Harrison asserted the measure is “a giant giveaway to BioTech, National Defense and Big Pharma” that would create a budget shortfall residents and local retailers would have to fill.

“We welcome new technologies and new industries, but they shouldn’t get a free ride,” Harrison wrote in an online petition shared on her social media platforms on Oct. 14, a day before the council was to initially vote on the item.

Arreguin pushed back on Harrison’s characterization of the issue during the meeting Tuesday, calling it “misinformation” and “fake news” that’s contributed to a “broader issue of toxicity and polarization in local government.”

“It’s one thing to have a difference of opinion. … It’s another to lie,” Arreguin said. “I call on everyone to rise above, and to be better, to do better, and to make sure we create a civic culture where everyone is respected and everyone is heard.”

Harrison said in an email Wednesday that she appreciates that the item was removed from the consent calendar on Oct. 15 and given a public hearing on Nov. 12, but said she was “shocked that the mayor considers members of the public and mayoral candidates questions about city finances to be toxic.”

Harrison added that she supports tax exemptions on government grants for small research and development companies, noting she backed the original legislation. She also agrees that a $1 million cap is too low. But Harrison said she does not support a limitless measure and applying the exemption to philanthropic grants “that lack governmental guardrails.”

A mix of opinions were shared during public comment with some raising concerns that tax breaks weren’t being given to other small businesses while representatives from the innovation sector encouraged the measure’s approval.

Councilmember Sophie Hahn said she plans to bring forward a “First Year Free” initiative that will provide financial relief to small businesses in their initial year of operation.

“We’re taking this action today for this sector but we have other opportunities to support other sectors,” Hahn said. “We can care about more than one thing at a time.”

Hahn also took time during the meeting to refute claims she has a conflict of interest when voting on biotech issues. The allegations were made by Paola Laverde in a complaint filed with the Fair Political Practices Commission on Oct. 7.

In the complaint, Laverde said Hahn has a conflict of interest when voting on biotechnology issues because her husband works in the industry. Laverde also accused Hahn of improperly withholding information on her share of her husband’s income and stock holdings on her financial disclosure forms.

During Tuesday’s meeting, Laverde repeated her claims and asserted Hahn should recuse herself from biotech related issues, including the tax exemption policy.

Hahn ultimately joined her colleagues in voting in favor of the tax exemption amendments after reading from a Nov. 6 letter from the FPPC that stated the proper disclosures had been made and the financial interests raised in the complaint fall outside of Berkeley’s boundaries.