Corporate welfare boom: SF's business tax breaks jump to $14.2 million annually

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Twitter and Mayor Ed Lee
Photo illustration by Joe Fitzgerald Rodriguez
Two peas in a pod

Business tax breaks instituted by San Francisco Mayor Ed Lee and other corporate-friendly local politicians to stimulate growth in tech, biotech, and cleantech, diverted roughly $14.2 million from city coffers in 2012, records show. That's a staggering increase from 2011, when the city’s corporate welfare programs amounted to roughly $4.2 million.

The beneficiaries, mostly representing sectors that are enjoying supercharged growth buoyed by venture capital at a time when much of the economy is still floundering in the wake of the Great Recession, qualified for the tax breaks in exchange for doing business in San Francisco or setting up shop in the Central Market/Tenderloin area.

When the latest spate of business tax cuts were launched in early 2011 to keep Twitter in San Francisco and stimulate economic growth around its headquarters on mid-Market Street, critics took aim at Lee for sapping city resources with needless corporate giveaways. A 2012 New York Times analysis showed that the $22 million Twitter is expected to save over the six-year tax break makes it the largest incentive granted to a company in California, based on data going at least as far back as 2002.

The various payroll-tax exclusions — they're available for green technology and biotech firms, as well as companies operating in designated "enterprise" zones — waive a 1.5 percent tax on employee compensation expenses. Collectively, the forgone revenues from 2012 reflect taxes not collected on more than $680 million in employee compensation.

Since 2011 the amount given away has swelled as even more businesses lined up to take advantage of the handouts, and two additional tax breaks were made. The Treasurer & Tax Collector’s Office submitted the final figures in annual reports to the Board of Supervisors on Sept. 13.

Some of the tech companies receiving tax breaks are investments of venture capitalist Ron Conway, a behind-the-scenes power player with Ed Lee's ear. Read more of our coverage on Conway here.

The giveaways included $3.3 million for two companies claiming exclusions for stock-based compensation. In 2011, only Zynga qualified for this stock-based exclusion program, saving them $1.5 million in taxes. In 2012, a second company qualified for this break, more than doubling the amount given away as the value of Zynga’s tax break soared. 

A Central Market / Tenderloin payroll tax exclusion program waived payroll taxes for 14 businesses operating last year in that neighborhood — a long-impoverished area where tech and venture capital firms have been snapping up commercial office space. While the Central Market tax exclusion resulted in corporate giveaways totaling just $34,000 in 2011, the incentive resulted in about $1.9 million in forgone revenues in 2012.

Meanwhile, about $5.4 million stemmed from programs that didn't specifically benefit tech firms or mid-Market transplants. There was a payroll-tax exemption crafted to aid small business, and a surplus business tax credit, which distributed $500 to each of the 6,781 businesses that paid the payroll tax.

Speaking onstage at the TechCrunch Disrupt conference on Sept. 9, Mayor Lee touted the tech sector's soaring job growth, using an info-graphic to spotlight the city's 1,892 tech companies and 45,493 jobs that were recently added.

 

The eye-popping statistics prompted conference host Michael Arrington to query Lee on what is being done for San Franciscans who are finding it increasingly unaffordable to remain in the city. The mayor, who was sitting beside billionaire tech investor Ron Conway, acknowledged that Arrington had "a good point," and referenced an affordable housing trust fund approved by voters last year.

But at the end of the day, despite the growing imbalance, the current economic climate appears to be the exact effect Lee's administration had hoped for when it created these corporate welfare programs.

Ilan Moscowitz contributed to this report.

This report has been corrected from an earlier version.

Comments

obvious that payroll tax breaks will be worth more, because the payrolls are more and so the taxes are more. That's not investigative journalism - that's obvious and inevitable.

You could have argued that the tax breaks have boosted the local economy, benefiting the city far more than a lousy 14 million. But instead you stick to the SFBG script that success is bad and failure is better.

Posted by Guest on Sep. 16, 2013 @ 4:21 pm

So you support welfare for billionaires? Shouldn't they be able to succeed on their own without being subsidized by city taxpayers who are barely getting by?

Posted by steven on Sep. 16, 2013 @ 4:27 pm

was to keep companies like Twitter in SF and, moreover, to invest in a blighted part of the city that Progressives had had years to fix and done nothing about.

The money flowing into SF from that is far more than a tax break, and remember that taking into account federal, state and local taxes, these enterprises still pay a huge amount of tax.

They succeed despite that penalty and not because of it.

Posted by Guest on Sep. 16, 2013 @ 4:38 pm

With all due respect, that is exactly the point that the SFBG doesn't get. Or perhaps doesn't want to get.

YES, these companies should be able to succeed on their own. And they do. But they are also smart and will locate their businesses in areas that provide maximum advantage and benefit to their employees.

In this case Twitter already had one foot in Brisbane when Ed Lee came up with this deal.

How would they explain to their investors and employees that they are staying in San Francisco when they could have gotten significant tax advantages by moving to Brisbane?

Why would they have stayed here? Because they like the cute cable cars?

That is the part that the SFBG just doesn't get.

Posted by Guest on Sep. 16, 2013 @ 5:34 pm

What does the average citizen get out of higher taxes in the city? Nothing.

The city could raise taxes and the average citizen would still get nothing out of the deal. This city government is designed for it's employees to get over and finance non profits and out of town welfare types.

You have to make the case that the average citizen gains in some way by your schemes, which is a hard sell when you take talking points from SEIU and non profits.

Posted by Matlock on Sep. 16, 2013 @ 5:37 pm

The idea that SF residents will benefit more than City employees from increased tax revenue is - utterly laughable.

This 47 square mile City|County has an $8 billion budget and we can't get our streets paved.

Good gawd people are naïve.

Posted by Guest on Sep. 16, 2013 @ 9:51 pm

Everything you wrote is wrong, from the city's square footage to its budget size to our allegedly unpaved roads. This city spends ridiculous amounts of money serving businesses and tourists and not enough on improving Muni and other important services for the average resident.

Posted by steven on Sep. 17, 2013 @ 10:36 am

Most obviously, your assessment of the amount of tax revenue that is lost makes assumption about IPO's and the realization of stock options. For instance, many employees place their stock options in trusts. This means that there will be no tax paid at the time of the exercize or IPO. Such taxes are deferred until the trust is dismantled - maybe years later when the individual is in a different jurisdiction.

So your guesstimate of the lost taxes is over-stated.

Again, you make no allowance for the fact that the company becomes worth more precisely because their tax obligations are reduced. You're double-counting.

Finally you do no address the iniquity of a municipality taking stock options at all - the CA Constitution specifically outlaws a city income tax, and yet this is effectively exactly that.

Oh, and this city's per capita spend is the highest in the nation - a direct result of the bloated and unsustainable healthcare and pension obligations.

Posted by Guest on Sep. 17, 2013 @ 11:10 am

These figures comes directly from the Tax Collector's Office, they aren't "guesstimates." And the tax details that you cite are irrelevant because it's the company that is being taxed, not the individual, which also makes your point about the city income tax wrong (and you're also wrong that the California Constitution specifically bans such taxes, although caselaw has made them difficult to levy). And your final error was how you characterized spending by the city and county -- the only one in the California and a rarity nationwide -- of San Francisco. Our per capita spending seems high because we have both city and county obligations, as well as an airport, huge water system (which serves other cities as well), and other large, self-supporting enterprise funds. Blaming personnel costs is a red herring, and a tired old one at that. 

Posted by steven on Sep. 24, 2013 @ 10:28 am

argue that the unfunded pension and healthcare obligations of SF are not a significant concern to SF voters and taxpayers.

The reason why the BART workers are getting so little traction with their efforts to enlist public support is precisely because the average voter, farepayer and commuter does not have those benefits and resents paying for the,.

The wealthy pay the vast majority of all taxes and your testament to greed and even more confiscation is unattractive and smacks of the politics of envy and class warfare.

Posted by anon on Sep. 24, 2013 @ 11:28 am

It's a hoot that we keep getting told the city needs more money as the budget grows, the number of city employees climb, while expected services languish.

Why give the city more money when it will just be wasted?

While during the depths of the great recession the city's budget climbed, and we were told it needed more money, now tax revenue is going up and we are told the city needs more money.

It's just shocking that Steve thinks people are dumb enough to believe a further increase in revenue will go to something that actual benefits the average citizen.

Posted by Matlock on Sep. 17, 2013 @ 4:10 pm

convince us that government will always want to consume an ever greater share of our national resources and wealth, no matter what they say or what party is in charge. Politicians will always want to spend.

So the only remedy we have is to "starve the best" - cut off the oxygen to their mad ideas. Say NO to any and all tax increases and new taxes. And cut rates wherever possible.

Prop 13 was the best thing CA voters ever did.

Posted by Guest on Sep. 17, 2013 @ 4:28 pm

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 17, 2013 @ 8:41 pm
Posted by Guest on Sep. 18, 2013 @ 6:27 am

I didn't read the word "booming" in her article at all. You pulled that out of your ass where all those cameras are that you had installed because you have nothing to hide as a good bootlicker. If you would get out on occasion---rather than (paid) trolling on this site 24/7 for the one-percent---and look around, you will see that things are NOT "booming" at all. There are---what's the last count?---30+ empty store fronts in the Castro district alone. I wouldn't call that "booming." But then you wouldn't know that since you live in Los Ángeles.
Get out in Los Ángeles (get some sunlight) and see how it is down there. Quite the opposite of "booming."

Posted by Guest on Sep. 16, 2013 @ 7:37 pm

and I suspect to most people.

Oh, and I live in the Castro and there are very few vacant storefronts.

Posted by Guest on Sep. 17, 2013 @ 5:55 am

When was the last time you got out and took a break from trolling? I'll play with you for a moment and assume you even live here (when you don't). Let me name the empty store fronts for you. Let's start at Market and Castro:

1. There's the huge Diesel building that has been vacant for months and no it's not going to be turned into a gentlemen's strip club. That idea has been ruled-out.

2. The old Sprint store next to Diesel is still empty.

3. The old Injeanous store is still empty down the street from the old Sprint store.

4. The medical building down the street a ways is nearly completely empty where Marcus Conant MD had his office.

5. The old video store next to that building is empty.

That's just that one block on the West side of Castro. And then there's all the new retail in these "Luxury Designer Condo" dumps that remain empty and with a "For Lease" sign. There are many more. If you would just look up from your gadget and see the world as it really is, you would notice these things and you wouldn't need to come on here and troll for something to do.

Posted by Guest on Sep. 17, 2013 @ 3:49 pm

1) The owners are holding out for rents that are too high, or

2) Zoning or busybody local planning groups are opposing various uses, as we are seeing with Spade in the Mission

Posted by Guest on Sep. 17, 2013 @ 4:24 pm

Regardless of the reason, this puts to rest the lie from that resident troll from Southern California (who pretends to live in the Castro) that:

"and I live in the Castro and there are very few vacant storefronts."

Ha!

Posted by Guest on Sep. 17, 2013 @ 4:41 pm

my Zip Code is 94114.

And yes, I do see some vacant stores in and around Castro, but you have to ask yourself a few questions:

1) Is the LL deliberately leaving the place off the market because rents are rising?

2) Is the place under contract?

3) Is there a change of use, which delays the new tenant moving in?

4) What is the normal and natural turnover rate?

The old diesel store is a very special and expensive space - no surprise that is taking it's time. Hey, maybe BofA want it back?

Overall, non issue, businesses come and go - ask me if I care.

Posted by Guest on Sep. 17, 2013 @ 4:56 pm

I think we all know the answer to that question. You and other nihilistic conservatives commenting here have shown you don't care about people, "San Francisco values," the health of the planet, and now the small businesses that are the true engines of prosperity. The question is: what DO you care about?

Posted by Hortencia on Sep. 18, 2013 @ 8:40 am

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 18, 2013 @ 9:17 am
Posted by Guest on Sep. 18, 2013 @ 9:40 am

business is bad? Don't small businesses grow into big businesses?

Posted by Guest on Sep. 18, 2013 @ 9:38 am

Who requires or pays you to come here since you hate this site? The one-percent? All you ever do is whine, moan and complain. You're so bitter with your smug self. If you don't consider this or other articles, "investigative journalism" then go somewhere else where you can find what you're looking for. But I suspect that's not why you're here. You have other motives. You're very transparent. You're here to constantly cheer-lead for and eat ass of the one-percent no matter what they do. And what does that achieve for you? A paycheck from the one-percent? They really can't find someone better at the job than you to get their money's worth? Damn.

Posted by Guest on Sep. 16, 2013 @ 7:52 pm

And in San Francisco it is far higher than that so, yes, I am here for most San Franciscans - those who want prosperity.

Posted by Guest on Sep. 17, 2013 @ 5:56 am

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into deceptive, petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 17, 2013 @ 11:19 am
Posted by Guest on Sep. 17, 2013 @ 11:53 am

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 17, 2013 @ 8:44 pm

And you sort of stick to the Corporate script. And just how does not taxing the wage of someone who earns #300,000 benefit the City? Oh that's right, they eat out a lot, buy $2,000,000 condos, and buy exotic cars... all of which just add oddles to the City's coffers. Where did you get these incredible facts about benefits? The Heritage Foundation.

Posted by Guest on Sep. 18, 2013 @ 9:48 am

It's simply not true that people making 300k a year pay no tax. They pay far, far more tax than you do.

All we are talking about here is a payroll tax, and many would argue that that should not be applied to stock options anyway because that is a capital gain and not income. It involves risk.

Oh, and all those SF'ers making 300K a year in Google don't pay a penny to SF in payroll tax. Aren't you more mad about that?

Posted by Guest on Sep. 18, 2013 @ 10:07 am

because Ed Lee had the foresight to make sure they stayed in SF.

The small tax incentive is dwarfed by the revenues now pouring into the city from Twitter's success. That's the kind of far-sighted political instinct that the SFBG can only dream of, mired as it is in it's focus on failure and misery.

Posted by anon on Sep. 16, 2013 @ 4:31 pm

No, SF won't benefit from Twitter's IPO because Lee repealed the city law taxing stock options. Read the story, that dumb idea is why the city lost out on millions of dollars in tax revenues when Zynga went public. 

Posted by steven on Sep. 16, 2013 @ 4:36 pm

IPO. Those workers are in SF, probably live in SF, and will be spending and investing that money in SF.

See, Steven, that is how capitalism works. As the saying goes, you have to speculate to accumulate, and SF speculated by indirectly partnering with high-tech firms and now stands to reap the rewards.

Formula: San Francisco minus HighTech = Detroit.

Posted by Guest on Sep. 16, 2013 @ 5:17 pm

We're going to lose out on a bundle when Twitter IPOs because of Lee's deal with them.

Meanwhile, if they had just relocated to Brisbane we wouldn't we wouldn't be losing anything.

Don't know why you trolls have so much trouble understanding Steven's logic.

Posted by Guest on Sep. 16, 2013 @ 5:40 pm

Patronizing drivel.

The only money I see tech spending in this city is on booze and partying. They like to get drunk (to escape reality?). They're mostly heterosexual but they come to the Castro (WTF?), make an ass out of themselves and drink, hoot and holler and get drunk on Saturdays and Sundays. You can't miss them, especially on Market Street. They vomit on the sidewalk and then stagger back to where they came from. It's a repeat of obnoxious Lime. Of course the cops do nothing about this. They choose not to see it because that would interfere with the booze/bar business. Can't have that! Instead the cops go harass a homeless person bothering no one.

Posted by Guest on Sep. 16, 2013 @ 9:19 pm

because of course they don't live here, and they don't spend much of their money here, nor do they pay property taxes here

so the supposed economic benefits that these generation zynga yuppies were supposed to bring in, does not fucking exist

Posted by racer x on Sep. 17, 2013 @ 12:23 am

Doesn't that prove that they do live in SF?

But might not if local taxes were higher?

Posted by Guest on Sep. 17, 2013 @ 5:57 am

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 17, 2013 @ 11:21 am

I forgot that.

Posted by Guest on Sep. 17, 2013 @ 11:54 am

and really, you want to go comparing the vomit and mess on the streets these tech people may make on the weekends to that of the homeless population in SF? really?

Posted by Guest on Sep. 17, 2013 @ 8:20 am

How does he even know that the vomiter is a tech person? He probably saw someone and profiled, for whatever reason, to be a techie.

This board is always quick to tell the "trolls" what terrible people they are, but stereotyping and profiling is all fine and good if it is directed against tech people.

Remember the bicycle guy who allegedly bumped a passerby near the Google bus and didn't properly apologize? Tim Redmond devoted an entire article explaining how that one guy's behavior typifies the bad behavior of an entire class of people. You know..."those people".

Posted by Troll on Sep. 17, 2013 @ 9:56 am

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 17, 2013 @ 11:22 am
Posted by Guest on Sep. 17, 2013 @ 11:54 am

Oh Steven, now you know that "anon" can't be bothered reading anything. It is too busy trolling its pro-corporate and elitist willful-ignorance.

Posted by Guest on Sep. 16, 2013 @ 6:59 pm

Steven had no response to anon's last point.

Posted by Guest on Sep. 17, 2013 @ 5:59 am

this is simply a troll barrier

it is a signpost to indicate to the reader that other anonymous posters on this thread are beginning to purposely diminish the conversation into petty, mean spirited, personal attacks and irrelevant bickering

the barrier is put in place to signal that there is probably little point in reading more replies in the thread past this point

proceed at your own risk

Posted by troll barrier on Sep. 17, 2013 @ 11:23 am

Thank you.

Posted by Guest on Sep. 17, 2013 @ 11:55 am

Still holding onto it since the IPO?

Posted by Guest III on Sep. 16, 2013 @ 8:06 pm

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