With San Francisco facing a half-billion-dollar budget deficit, Mayor Gavin Newsom will pledge to make job creation and new business development his priorities in his final two years in office, the mayor’s office said today.

Newsom is scheduled to give his annual State of the City address at 6 p.m. tonight.

“By focusing all our energies on creating jobs and economic growth and by investing in people and place, together we will overcome the challenges we face today and emerge a global leader for innovation and investment,” Newsom said in prepared remarks provided by his office before the address.

“There’s a limit to how much more we can tax and cut, but there’s unlimited potential in how much more we can create jobs and grow our economy,” Newsom said.

Newsom’s new local economic stimulus plan for the city will include no taxes on new hires for two years; tax credits for small businesses with 21 to 49 employees that offer health care to their employees; and an extension of a payroll tax exclusion for biotech companies until 2014.

The plan will also include an “innovation fund” offering $11.5 million in loans to new and existing clean technology, biotech, new media and information technology businesses in the central and southeastern parts of the city. Newsom said the fund would provide jobs for low-income people.

Newsom’s plan also features $11.5 million for redeveloping the mid-Market Street area in downtown San Francisco to return it to “a shining retail and entertainment district” with affordable housing and transit-first policies.

Newsom additionally wants to accelerate capital construction and make sure local firms are competitive on those projects; to pass a $652 million jobs and infrastructure bond for seismic and public safety on the June ballot; and to allocate $5 million for GoSolarSF, which offers discount solar power products.

The remaining focus of Newsom’s address will be education, homelessness and government and budget reform.

Newsom plans to address chronic truancy and low graduation rates in some San Francisco schools, especially in underprivileged communities, with the launch of the Truancy Abatement Resource Center.

The center will be a joint effort of the city’s Juvenile Probation Department, police, city providers and the school district.

It will offer a drop-in facility to provide resources to truant youth, to include “creative incentives” to keep students in school, according to the mayor’s office.

Newsom also will pledge a 50-percent reduction in street homelessness and a 30-percent reduction in overall homelessness by the end of the year.

As part of that pledge, he will make Project Homeless Connect, begun in 2004, a permanent program. By the end of the year, in addition to 24-hour drop-in service and referrals, it will become “a full-fledged response to the root causes of homelessness,” including help for those with substance abuse and mental health issues, the mayor’s office said.

The city’s $500 million estimated budget deficit for the coming fiscal year will require “painful choices,” including service cuts and the need to find new revenue sources, according to Newsom.

Newsom said he will oppose any “must-spend” legislation offered by the Board of Supervisors, which he argues would “hamstring” his office’s ability to respond quickly to fiscal crisis. He added that such legislation would require him to spend money the city doesn’t have, and jeopardize the city’s credit ratings.

Newsom will hold a series of budget town-hall meetings in February to address the latest budget projections.

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