Few streets in America capture the modern city’s political climate quite like Market Street in San Francisco. All the narratives about booming wealth and inequality spring to life there: new glass-and-steel office buildings occupied by tech giants such as Square, Uber, and Zendesk rise alongside payday-loan shops and groups of strung-out homeless people. Market Street is also the site of one of the most contentious battles in recent San Francisco politics: a recently ended tax exemption for businesses.
In 2011, San Francisco was still reeling from the recession. Unemployment stood at 9 percent, and Twitter, about to add thousands of new employees, was threatening to move out of the city to the cheaper suburb of Brisbane. Then-mayor Ed Lee, allied with the moderates on the city’s board of supervisors, pushed for an exemption from a 1.5 percent payroll tax, for companies moving into or staying in the Mid-Market and Tenderloin districts, some of the worst neighborhoods in the city. Quickly christened as the “Twitter tax break,” it was heralded by Lee as “a powerful tool that will help us bring in much-needed jobs, services, and retail.”
And to a large extent, it succeeded. Mid-Market has become a booming area for new businesses. Fifty-nine companies large enough to qualify for the exemption moved in or were created in Mid-Market. The number of retailers grew by 3 percent, even though retail declined slightly in the city overall. And the exemption only reduced city revenues by about 70 million dollars, according to San Francisco’s chief economist, chump change compared with San Francisco’s 11-billion-dollar budget.
The “Twitter tax break” kept large employers that may have otherwise left in the city, helped retail grow, and attracted giant tech firms such as Uber, and it was cheap. Oh, and tech companies agreed to contribute millions to local nonprofits and offer volunteer hours for community outreach. So why are San Francisco’s progressives complaining?
In a recent Board of Supervisors hearing called to assess the just-expired exemption, newly dominant progressives on the board vented their spleen. Board president Aaron Peskin called it “a terrible piece of public policy that should have never been passed.” Supervisor Matt Haney said, “The scale of expectations needs to be much higher in terms of what these companies can contribute.” Their grievances are twofold. First, they complain that Mid-Market still faces persistent homelessness, crime, and accompanying vacancy. Second, they say that the affordability crisis is made worse by an influx of wealthy tech workers.
The first point is true. Walking through Mid-Market today, one is almost guaranteed to see open-air drug dealing, hear the yelling of mentally disturbed homeless vagrants, and smell urine on the sidewalks. Property crime is rife, and many storefronts still stand unused, because retailers are afraid to commit to such a seedy area.
There’s a lesson for conservatives in there: Job creation and economic prosperity can sometimes fall very short of solving certain social problems. Tech startups and swanky hotels exist alongside deprivation and homelessness. Especially in San Francisco, homelessness is at least partly untethered from the housing market: Drug abuse and serious psychological problems are rampant. Many of these people are simply incapable of helping themselves.
However, it is unclear why exactly this is the fault of the Twitter tax break and by extension the tech companies’ as well. While the “community benefits” promised by firms may have fallen short of expectations, the companies did make real contributions. Millions of dollars went to nonprofits such as Episcopal Community Services and the creation of NeighborNest, a Twitter-built community center that provides computers and child care to homeless families. Blaming tech and retail companies for not solving the as-yet-unsolved homelessness crisis is an exercise in scapegoating, an unconscious (or conscious) effort to divert blame from the city government. And companies best contribute to the common good by creating jobs and prosperity, not by serving as a cash cow for politically popular civic projects.
But progressives’ second complaint, about affordability, is where their resentment of startups really goes off the rails. The affordability crisis is real: The median rent in San Francisco stands at about $3,700 a month. But it’s telling only half the story to complain, as Peskin does, that “the employees of this industry [tech] are very well paid, and that is a driver of housing costs in San Francisco.”
The other piece of the puzzle is that San Francisco has some of the worst housing-creation statistics in the country. Huge swathes of the city are zoned only for single-family housing, and projects are regularly delayed for years or cancelled because of extensive regulations and local opposition. What’s the end result? Starting in the 1980s, when San Francisco joined many other cities in seeing renewed population growth, the city should have averaged 5,000 new housing units a year, according to CityLab. It built 1,500. In short, the city has abysmally failed to meet growing demand with adequate supply.
But instead of facing the brute fact that a nightmarish regulatory system has intensified the housing crisis, progressives blame the influx of tech workers. In short, they lament that well-paying jobs are flowing into the city.
Progressives also resent tech firms for not paying more taxes — in San Francisco, of all places! — which is why the Twitter tax break was so controversial. But again, firms don’t exist to pay taxes. And without the tax break, Twitter and the other companies might well have left the city or never located there in the first place.
While San Francisco is in some ways the worst offender, many of the West Coast’s largest cities face the same problems. Seattle, Portland, and Los Angeles all face rising levels of homelessness and housing costs, even as their economies grow rapidly. And consistently, “yuppies” and “gentrifiers” are blamed for it all, at least by many progressives. But supposedly progressive policies that restrict housing, increase the cost of living, and attract the homeless to migrate to cities are making these places increasingly inhospitable to middle-class and working families.
Tech firms have become a popular punching bag for both the Left and the Right. But blaming them for urban woes is pulling the wool over the eyes of these cities’ beleaguered citizens.