City nurses, janitors and other workers marched to Twitter’s headquarters on tax day Tuesday to deliver a symbolic tax bill for tens of millions of dollars for the “corporate tax giveaway” that helped persuade the company to move to San Francisco’s Mid-Market area.
The protesters passed a craft beer hall, an artisanal burger joint and a 754-unit luxury condominium project that didn’t exist before the city in early 2011 offered the tax break to entice businesses to move to the long-forlorn stretch of Market Street and parts of the Tenderloin – areas where the aroma of stale urine would often drift past clusters of men smoking in front of boarded-up storefronts.
So was it worth it?
Three years later, the answer is mired in politics and obscured by an incomplete picture of just how much money the city left on the table – and whether it was recouped elsewhere. The answer also hinges on the disputed point of whether Twitter would have left San Francisco without the tax incentive.
Mayor Ed Lee, business leaders and many others in the city count the Mid-Market tax break as a “remarkable,” if still emerging, success story.
Since the tax break was approved, 18 technology companies, 17 small businesses and eight arts venues have opened in the area, according to Lee’s administration. About 5,000 housing units have been approved or are under construction in the neighborhood, growth that is anchored by Twitter, which expanded into the long-shuttered Western Furniture Exchange and Merchandise Mart building at 10th and Market streets.
“Today, Central Market is at the center of new job creation, housing production and the arts in our city,” Lee said in statement on the benefits of one of his initial policy moves. “The decades of disinvestment and abandonment by the public and private sectors in Central Market are over, and we will not turn back the clock on our promising efforts to create a healthy, vibrant and economically diverse community” in the neighborhood.
A convenient target
But in a city with stratospheric rents and an income gap that is growing faster than anywhere else in the country, a tax benefit for tech companies is a convenient target for progressives on the city’s political left, including the Service Employees International Union Local 1021. Politically active SEIU, San Francisco’s largest public employee union, is negotiating a new contract with Lee’s administration for the 9,500 city employees it represents.
“We welcome the tech industry coming in, but there is also a downside to the revitalization of a certain part of the city,” said Larry Bradshaw, a paramedic and San Francisco vice president of Local 1021. “It’s not a recovery that benefits everybody. We don’t begrudge the wealthy. They’re doing fine in this economy. Our job is to look out for those who aren’t doing so fine.”
The union, one of 27 whose contracts are up for negotiation, is seeking raises over each of the next three years, a minimum wage for city employees of $21 an hour and city-paid health care for individual employees. The city puts the cost of the proposal at almost $284 million over three years, a figure Bradshaw says the city has overstated by more than 30 percent “to demonize us.”
On Tuesday, a few hundred protesters, many in purple-and-gold SEIU shirts and wearing fake mustaches to mock Lee’s, carried signs reading, “All we need is a living wage” and “End giveaways to wealthy tech CEOs.”
“Corporations need to pay their fair share,” said protester Kathe Burick, 63, a dance and yoga instructor at City College of San Francisco, who toted a sign reading: “Human need, not corporate greed.”
SEIU contends the tax payments the city has forgone could have helped alleviate a shortage of 911 dispatchers and nurses at San Francisco General Hospital.
“Fifty percent of the time that emergency room is on diversion,” with patients rerouted to other hospitals, Bradshaw said.
The mayor maintains that the Mid-Market tax break – which caps payroll taxes at a baseline level for up to six years, allowing companies to grow without additional tax burden – has led to an economic resurgence and increased property and transfer taxes.
Gabriel Metcalf, executive director at SPUR, a smart-growth think tank, said the protest was misplaced given that “city revenues have never been this good.” The city controller’s latest budget update in February found a citywide revenue surplus of $48.5 million over projections, primarily due to increased property and hotel tax receipts.
“City tax revenues are up tremendously right now as a result of the tech boom,” Metcalf said. “What you have here is a great example of biting the hand that feeds you.”
But just how much the tax break will cost San Francisco is unclear.
Privacy rules prevent the city from disclosing tax information for individual companies, but combined, the city treasurer said, the Mid-Market tax break had cost the city $1.9 million through the end of 2012. Tax figures for 2013, which included Twitter’s lucrative initial public offering, are not yet available.
The city in 2011 estimated the cost of payroll tax not collected from Twitter would be about $22 million over the six years of the program, but that did not include tax on stock options.
Over $56 million now
In October, before Twitter’s initial public offering, a Chronicle analysis conducted with certified public accountant Jim McHale projected the cost to the city from Twitter’s tax break was $56 million when factoring in stock options.
That estimate was based on a stock price of $18.50 per share. Twitter stock was trading at more than double that at $45.52 after hours on Tuesday.
“The number would definitely be larger now, I can say that much,” McHale said Tuesday.
A separate analysis that Ken Sena, a stock analyst at Evercore Partners, performed for The Chronicle earlier this year projected the tax break including stock options was worth $21 million to $26 million to Twitter through the end of 2013, and would be worth $15 million to $18 million per year over the next several years.
If Twitter had left
Lee’s administration notes that there would be no “lost” tax revenue to the city if Twitter simply had left for the Peninsula, nor would there be any of the revitalization along Mid-Market, where the city has collected $8.4 million in increased property tax and real estate transfer tax since 2011.
Ted Egan, the city’s chief economist, projected in 2011 that the city’s long-term business tax revenue will actually see a net increase of about $2.7 million a year over 20 years with the “Twitter tax break” – totaling $54 million. That projection still holds, he said this week.
“The argument is that if Twitter would have left because of their payroll tax bill, and you can get them to stay by excluding part of their payroll tax bill, at a minimum you gain from the rest,” Egan said. “Then you gain further if you attract more companies to join the area. That frees up space in other areas of the city for more companies.”
John Coté is a San Francisco Chronicle staff writer. E-mail: email@example.com Twitter: @johnwcote