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

I believe that is the net loss of revenue to the city, and its $7 BILLION budget. The city has a spending problem, not a revenue problem. And thanks in part to the Mid-Market tax breaks, one of the lowest unemployment rates in the country.

Posted by Richmondmam on Sep. 17, 2013 @ 8:09 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 @ 9:00 pm

Is it that expensive to adopt a comment system similar to the one used by Burning Man?

http://eplaya.burningman.com/viewforum.php?f=275&sid=8f39269be0d0cac1497...

On their system users can be "ignored". A registration date and the number of their total posts alert readers to the history of a particular poster. And even though people can obviously register multiple times, seeing that a user is relatively new alerts readers to the potentially trollish nature of their posts. A provocative post by a long time poster is very different than a provocative post by an infrequent or new poster that is much more likely to be posted by a troll. Troll posters like anon are easier to spot and the user can be quickly put on the "ignore list." Even better would be a tally of the number of people ignoring a particular poster so they maybe get the idea that no one is reading their rants and trollish posts. It's effective communication when we avoid or walk away from unpleasant people at work or at parties, and it should be equally effective on the internet when we find that very few people are reading our posts. Eventually we get the message and most of us will go away.

Posted by Guest on Sep. 17, 2013 @ 9:38 pm
Posted by racer x on Sep. 17, 2013 @ 9:51 pm
Posted by Guest on Sep. 18, 2013 @ 6:04 am

Smart trolls set up whole groups of "sleeper" ID's that can be used at various times as needed. That way the ID's look like established ones even though they are not.

They can also write "dummy" posts to establish a track record, as a trojan horse for future mischief.

And of course a proxy server enables posts to appear to be coming in from many different locations.

I actually like the SFBG system where everyone can post as Guest as that prevents stalking, imp'ing and enables us to focus on the message rather than the messenger

Posted by Guest on Sep. 18, 2013 @ 6:03 am

Having tech companies in San Francisco is not benefitting locals. The people who work for these companies are not from San Francisco Therefore, we should not have to foot the bill for them to be here.

Posted by Guest on Sep. 24, 2013 @ 11:12 am

ridiculous to suggest that someone who comes here for work is not as valid and valuable as resident as someone already here.

And tech brings in billions into the city, and probably leads to the revenues that enables you to be hired, whatever you do. If you work at all, of course.

Posted by anon on Sep. 24, 2013 @ 11:30 am

Tech companies bring in droves of people with your attitude. So busy staring into your phone that you can't see what's happening right in front of you. How is Twitter helping society? Give me a break. None of that money is enriching the city as far as I can tell. Local businesses are being forced out and the population is being homogenized. Yes I do work - at a fortune 500 company that was here long before any of you were. Our city was doing better before you and your ilk showed up.

Posted by Guest on Sep. 24, 2013 @ 1:57 pm

has been in SF for 20 years and someone who just arrived.

And I say that as someone who has been here for 20 years.

Posted by Guest on Sep. 24, 2013 @ 2:35 pm

BTW, if you just moved here and assume that anyone who doesn't work for a tech company is unemployed, that you're responsible for the culture and that you actually enable locals to be hired, you're NOT a San Franciscan and never will be. You're a transplant. How many locals work at your company? How many are over 30?

Posted by Guest on Sep. 24, 2013 @ 2:11 pm

21st century knowledge work economy.

There may be other locations more suited to you.

Posted by Guest on Sep. 24, 2013 @ 2:35 pm

The twitter tax break has already led to huge rent increases for low income tenants in Mid Market, as well as an owner giving eviction notices to empty out his sixty units of housing, so the building can be converted to commercial space, commanding $45 or more per square foot. Where is Ed Lee and his affordable housing promises now?

Posted by Jonathan Bonato on Oct. 06, 2013 @ 5:03 pm

Can you share more information? Off to investigate.

Posted by Guest on Oct. 06, 2013 @ 5:55 pm
Posted by Guest on Oct. 07, 2013 @ 7:32 am

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