'That's Just Really Sad': Supervisors Lament Results of Twitter Tax Break

It seems unlikely that San Francisco will ever again undertake a corporate tax break like the one that allowed companies to avoid paying payroll taxes in exchange for moving to and investing in the city's Mid-Market neighborhood over the last decade.

"This policy was poor policy that was poorly implemented by the city," said Supervisor Gordon Mar at a committee hearing on Thursday to discuss the community and economic benefits of the so-called Twitter tax break. "It really just resulted in a handout to the tune of $70 million to a small number of corporations."

The tax credit, officially known as the Central Market/Tenderloin Payroll Tax Exclusion, was championed by city leaders, including then-Mayor Ed Lee, when it passed in 2011 as a way to revitalize the dilapidated Mid-Market and Tenderloin areas -- and simultaneously keeping and attracting corporate tenants like Twitter, which was threatening to move to Brisbane at the time.

In exchange, those tech companies were supposed to invest in the community and provide "robust community benefits," in the words of Supervisor Matt Haney, who represents the area and called for the post-mortem hearing on the credit after it expired last month.

But the consensus from supervisors throughout Thursday's hearing, as they heard reports from several city departments on the tax break's impacts, was that the tech companies did not deliver those benefits, in part because the legislation that created the credit did not specifically outline what those benefits should be.

"They got to decide what was important and how they were going to benefit the community," said Supervisor Vallie Brown of the companies that took advantage of the tax break, "and I think that's just really sad because they didn't know the community, and they came in and said, 'This is what we're going to do.' "

Ted Egan, the city's chief economist, told supervisors that the city lost out on about $70 million in payroll taxes because of the credit, but that it's hard to tease out what amount of economic benefit in the area can be attributed to the credit since a lot of other factors — including improvements to the overall economy and increased housing costs — have changed since it went into effect in 2012.

"I would note that the area was not known as a location for large technology companies before, and now it is," Egan said. "And that includes businesses that have received the tax credit and businesses like Uber and Dolby that were not in buildings that received the tax credit."

But he added that the economic impacts of the community benefits that were supposed to go along with the tax credit were probably "relatively small."

This was the main point that supervisors returned to over and over again during the extended hearing: The tax break did not seemingly deliver on its promise to give back to the community in a meaningful way and to put a dent in the neighborhood's vacancy and homelessness problems.

They grilled representatives from several city departments, particularly the city administrator's office, which was responsible for overseeing the community benefits program, to provide evidence of tangible community benefits.

City administrator spokesman Bill Barnes provided several anecdotal examples of corporate philanthropy in the area, including Twitter's NeighborNest program, but supervisors wanted more specifics and a better plan moving forward on how to think about corporate responsibility that doesn't, in Haney's words, "rely on hope and prayers."

"If we continue to do it this way, we're going to keep getting what we get," said Haney. "A lot of feel-good stuff and a lot of impacts on the community that are often not positive."