When the Mayor's office lauds the success of the still controversial 2011 "community benefit agreement," alternately referred to as a tax break and a tax incentive, which aimed to anchor businesses like Twitter in San Francisco, it's becoming difficult to argue — but important to clarify.
A stroll down Market Street will take you past other recipients of the city's 1.5 percent payroll tax exemption, like Zendesk, one of 20 primarily tech businesses to take advantage of the program. You might also stop in at a few of the many new restaurants highlighted in the recent New York Times dining article, "A San Francisco Street Transformed by Food." Clearly a revitalization, of a specific kind, is taking place.
But in 2014, according to data provided by the City Controller's office and parsed by the Chronicle and the Business Times, the city lost out on $34 million in taxes through the debated program. That's a full $30 million more than the taxes the city forewent in 2013. It should be noted that in that year, the city still received $3.4 million from businesses in the tax-exempt zone. But where did that huge jump come from?
That's easy. As city officials explain, San Francisco includes stock options in its payroll tax calculation. A year after the incentive/break went into effect in 2012, Twitter held its $25 billion initial public offering. Zendesk followed, at $100 million, the next year. Those weren't included in 2013's figures, but have now been taken into account for the 2014 tally.
Critics of the "Twitter Tax Breaks" effects point to the disparity in wealth, endemic in America and on full display in San Francisco.“There needs to be a balance in the kind of investments that we’re making,” Angelica Cabande, director of the South of Market Community Action Network, told the Chronicle. “Not only does this drive up rent and drive out small mom-and-pop businesses, it’s displacing working-class people who work in jobs that help the city run.”
“I am not apologetic,” Lee has told the Chronicle of the move and of the success of the city's technology sector in general. “I am quite enthusiastic about what has occurred.”
In a statement today, the Mayor added that "[s]ince 2011, new energy and investment has created a transformation along Central Market with 17 technology companies, three co-work spaces, two venture capital firms, and 40 new storefront businesses, which has realized $40 million in additional taxable sales and saw a 17 percent increase in sales tax from 2010 to 2014."
More broadly, "[T]he area is now home to 15 new arts venues, such as American Conservatory Theater’s Strand Theater and the new CounterPulse theater opening on Turk Street this month. Ten of these arts organizations were relocated from at-risk real estate to a new Central Market/Tenderloin location so they could secure a long-term home.
For decades, Central Market suffered from some of the highest commercial and storefront vacancy rates in our City and stubbornly resisted well-meaning attempts at revitalization. Today, Central Market is at the center of new job creation, affordable housing production and the arts in San Francisco, bringing millions of dollars in new revenue to fund vital City services.
His conclusion: "This transformation — which benefits all residents of the Central Market and Tenderloin neighborhoods and our entire City — simply would not have occurred without the Central Market/Tenderloin Payroll Tax Exclusion."
At such criticism, Lee would, and does, point to the city's unemployment rate, which has gone from 9.4 percent in 2011 to 3.6 percent today amidst his "jobs, jobs, jobs" mantra, or the city's budget, which is up to $8.6 billion from $6.8 billion in 2011. But his critics are pointing to the intangible, and perhaps incalculable, cost of "success."
Keeping up to date: In 2014, just six companies qualified for the tax program, down from 11 in 2013. And while critics harp on the $34 million "lost," figures on the net gain from businesses in the payroll tax-exempt area for 2014 have not yet been released.
Last year, San Francisco chief economist Ted Egan said that the net increase in long-term business tax revenue from the tax break was estimated to be $54 million over 20 years.