A small-business neighborhood

San Francisco’s downtown has fundamentally changed. No longer is it big buildings filled with big businesses. It still has big buildings, but the vast majority of tenants are small- to medium-size firms that employ less than 35 people.

With corporate giants like Chevron, AAA, Matson Shipping and others leaving The City, most office space is occupied by enterprises that often operate on slim profit margins. These entrepreneurial companies are the backbone of San Francisco’s economy. Buildings like the Bank of America building — now called 555 California St. since Bank of America no longer owns it and has moved its headquarters to Charlotte, N.C. — often host more small businesses than Valencia Street or Union Street.

Of San Francisco’s 80,000 businesses, most are small and struggling to survive. In 2009 alone, 9,899 companies closed their doors. This has had a dramatic effect on San Francisco’s commercial real estate.

Office occupancy declined another 254,322 square feet in the second quarter of 2010, pushing the vacancy rate up to 16 percent. Since 2008, local businesses have vacated more than 3.5 million square feet. This dramatic occupancy decline equates to every neighborhood storefront in The City being vacant.

San Francisco’s fragile economy is at risk. Normally high property values generated by downtown office buildings have given San Francisco a disproportionately high tax base from which to fund a vast range of services. But this tax base is getting riskier as government officials plan new burdens on it.

Today, local Class A office space can be leased for approximately $30 a square foot, a rate not much different from the late 1970s. This is leading to a decrease in the value of downtown buildings. That means less tax revenue for San Francisco and fewer services for residents.

San Francisco’s economy is no longer layered with small neighborhood businesses and big downtown businesses. It is dominated by small businesses that are burdened with some of the highest taxes and fees in the nation.

It is time to take drastic action to jump-start San Francisco’s economy. The only way to grow The City’s tax base in a reliable and consistent manner is to expand economic activity. The focus at City Hall should not be on more taxes and higher fees, but instead on taking concrete steps to stimulate economic growth with lower government costs. Ultimately, this will draw in business that will lead to more sales tax revenue, higher property tax values and a more vibrant city.

A coalition of local business groups has come together to fight for a healthy prosperity in San Francisco. Economic Recovery San Francisco is opposing tax measures on this November’s ballot that will hurt our city’s economy and cost thousands of jobs. Please join our effort to create an economic resurgence in San Francisco. Visit www.economicrecoverysf.com to learn how. We think local leaders must deal with our economic crisis in a responsible way — supporting job creation rather than curbing the entrepreneurial spirit and creating more uncertainty about the future.

Marc Intermaggio is executive vice president of San Francisco’s Building Owners and Managers Association.

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