San Francisco is not in a “doom loop.”
That’s what the city’s top economist said at a Government Audit and Oversight Committee meeting on Thursday. But businesses and neighborhoods are adjusting unevenly to the current state of the economy, presenting new challenges for the city’s tax revenue and public services that rely on it.
San Francisco has earned a reputation for a slower economic recovery following the pandemic than many other metropolitan areas in the U.S. However, city officials presented a more optimistic outlook at the committee meeting.
“I don’t think the doom loop exists now,” Ted Egan, the city’s chief economist, said at the hearing, referring to a popularized idea around the city’s compounding economic and social problems. “It just isn’t growing very fast. That’s certainly a problem, but it’s not the problem that the doom loop people are pointing to. I certainly don’t think we are in one.”
Concerns about the state of San Francisco’s downtown have been high since the start of the pandemic when businesses shut down longer than in many other cities to prevent the spread of COVID-19. Sales taxes — which fund social services, affordable housing and many other critical city programs — plummeted in 2020 as a result.
Excluding downtown, total sales tax remitted from neighborhood businesses have largely bounced back to their pre-pandemic levels, data from the city’s controller’s office shows.
That’s especially true for restaurants, which have surpassed their 2018 sales tax levels in areas beyond downtown, according to city data.
But even in the city’s financial core — hardest hit by pandemic-related economic woes — restaurants have bounced back to nearly 90% of those levels.
“The city is rebounding in ways that we weren’t months ago,” Supervisor Catherine Stefani said at the hearing, which Supervisor Joel Engardio requested.
Retail businesses, however, are seeing a different, more downward trend.
Across the city, sales tax from retail businesses remain below their pre-pandemic levels. The city is recouping less than 80% of its pre-pandemic sales tax revenue, and that’s closer to 90% for the rest of the city.
That’s largely due to changes in overall shopping behavior, including the prevalence of online purchases for non-immediate needs, which began before the pandemic and is the cause of many major retail closures across the country.
Another significant challenge downtown faces is that commercial real estate and office buildings dominate the market, but many companies have adopted more relaxed daily in-person work requirements, so overall foot traffic in the area has declined.
“The more the district is relying straight on offices, the slower the recovery has been,” Egan said. “This is very tied to remote work.”
The problem isn’t only that businesses have closed but also that new ones are not opening as fast as they have in the past.
There were 4,000 businesses downtown before the pandemic, for example. Now, there are about 3,200, according to Egan.
“We have had fairly weak levels of business formation,” Egan said. “That accounts for the majority of issues downtown.”
The city has been actively trying to bring people back downtown for other non-work-related reasons to make up for the gap, like lively night markets in the South of Market neighborhood.
“With this shift to remote work, our downtown was overdue for a seismic imbalance. We need to continue to bring foot traffic and life to our streets,” said Engardio, who recently shepherded the creation of a new Sunset Night Market this summer. “We need to continue reforms to facilitate the adaptation and reuse of underused commercial space.”
To learn more about how we use your information, please read our privacy policy.