(Courtesy photo)

Lack of reporting requirements, enforcement doomed “Twitter tax break” deal with companies

Program was intended to give companies an incentive to stay in the struggling mid-Market Street area

The “Twitter tax break” was doomed from the start, Citizens Advisory Committee member Sam Dennison told City leaders Thursday.

Speaking at a Board of Supervisors hearing intended to gauge the results of a 2011 tax break offered to companies in the mid-Market Street area, Dennison said she became involved when the affected companies presented their first round of Community Benefit Agreements to the public.

“It was not a pleasant meeting. There was a lot of contention,” said Dennison. “It went really south when a Twitter tech liaison stood up and said, ‘I have to take this call,’ and walked out on a question that a member of the public was asking.”

“We knew then that it was going to go bad,” said Dennison.

In the eight years before its sunset in April, companies qualifying for the Central Market/Tenderloin Payroll Tax Exclusion, which was intended to revitalize San Francisco’s mid-market area by drawing in large corporations, avoided paying an estimated $70 million in payroll taxes on new hires.

City department heads at the hearing, which was called by Supervisor Matt Haney, were eager to point out that in many ways, the tax break accomplished what it was intended to do.

City Controller Ted Egan said that the tax break resulted in an over 600 percent increase in business tax revenue in the mid-Market area between 2010 and 2013, compared to a 47 percent increase citywide.

But its glaring failures were evident in the lack of data collected on more than a dozen private companies’ operations by The City over an eight-year period and in the number of promises that went unfulfilled.

For example, the companies benefiting from the tax break were not required by The City to report how many jobs they were creating. The City on Thursday was also not able to present data on the economic value of the community benefits it received from the companies.

A spokesperson for Twitter said Thursday that the company fulfilled it’s community benefit agreement, which ended last year and included $1.5 million in cash grants to nonprofit organizations in the area.

Supervisor Gordon Mar said that he was “disappointed by the lack of detailed and comprehensive reporting” around the community benefits for the companies that benefited from the tax break.

“There was over $70 million in tax breaks granted to 10 or 11 companies. There is a public perception the [community benefit] program has been very weak, if not a joke,” said Mar.

“I think the board and the public have a right to know what actual benefits were provided to the Tenderloin and South of Market neighborhoods, because that was a key rationale for granting the tens of millions of dollars in tax breaks to companies there.”

While median rents grew by 36 percent citywide, the increases were higher — up to 45 percent — in the zip codes surrounding the mid-Market area.

The City saw a 33 percent increase in high wage jobs such as computer engineering between 2013 and 2017, while the mid-Market area saw an over 120 percent increase.

The Citizen Advisory Committee was created to address issues such as displacement, but its members said they had virtually no enforcement power.

“Somebody who was writing that legislation knew there was a risk in that legislation and in that moment in time that there would be displacement,” said Dennison, who said that among the ideas floated was an acquisition fund to take affordable housing off the market “so it would not escalate.”

“The tech companies said, that’s not in our wheelhouse, we don’t know how to do that, we don’t want to do it,” said Dennison.

Other ideas from the CAC, like giving grants to Single Room Occupancy residents for electrical upgrades or ensuring that 30 percent of the companies’ catering budget be spent locally, also failed to gain buy-in.

“We then said, how about we provide Wifi to every family in the neighborhood – lets just do public Wifi?” remembered Dennison, to which the companies reportedly replied: “Well that’s just more effort than we want to do.”

“We saw this great resistance to any form of collaboration,” said Dennison.

Perhaps the City’s biggest misstep was approving the tax break without clearly setting expectations around the community benefits required from each company that benefited from the program, and failing to implement a true mechanism for enforcement, said Haney, who represents the mid-Market area.

“What we learned from this is that…we can’t just assume things will be worked out without having them be clear and concrete and enforceable. There was a lot of data that we should have gotten from these companies that we didn’t demand from them as the parents of this,” said Haney.

“If we are going to involve the community, which we always should, they should have real support and power from The City,” he added. “The fact that so many great ideas were put forward and ignored is one of the biggest shames of this thing.”



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