How the Twitter tax break grew into an expensive giveaway that involves police patrols, a new Muni line — and a lot of real estate
A Guardian review of the voluminous e-mails and other public records behind the proposed Mid-Market tax exclusion zone shows how public officials and private power brokers promised millions of dollars in benefits to Twitter and greatly expanded the tax-exclusion zone to unrelated properties with little explanation, concern over impacts, or understanding of how it would affect city finances.
The result was a proposal that could cost the cash-strapped city more than $17 million — a cost that even the city's fairly conservative economist Ted Egan told the Guardian isn't justified for many of the properties that were included in the proposal, particularly the large commercial office buildings along Market Street and the small businesses in the Tenderloin.
"It's giving taxes away to properties that are going to fill up anyway," said Egan, who recommended several changes to lessen the proposal's cost, even though he supports giving a tax break to Twitter and thinks the deal will be a net positive if it stimulates business development as much as its backers hope.
The proposal would exempt companies in Mid-Market and the Tenderloin from paying the city's 1.5 percent business payroll tax on any new jobs they create for six years. It was sweetened even more for Twitter — city officials promised the company a new Muni line, police foot patrols, and various other tax credits and exemptions to improve Twitter's cash flow, the documents show.
The Mayor's Office of Economic and Workforce Development worked almost full-time on the deal for several months to keep Twitter from following through on its threat to leave town. Indeed, OEWD staffers don't even acknowledge that the tax break is a loss to city coffers, arguing the city would lose money if Twitter leaves and keeping the company here will increase property taxes and rents in the Mid-Market area.
Yet there is little in the documents to indicate how real that threat is or whether the legislation will convince the company to stay here, and Twitter hasn't responded to inquires from the Guardian or other media outlets.
Egan pointed to a reason for Twitter to leave that hasn't been part of the public discussion to date. The city's payroll tax applies to stock options — and Twitter would be on the hook for as much as $40 million in taxes if the company goes public. But he said that could be addressed more directly without the broader giveaway.
OEWD head Jennifer Matz said she trusts Twitter executives and "they are out the door if we don't do this." She also said she disagrees with Egan that the city is giving away more than it needs to and "there is no question in my mind it will bare its fruits."
Yet she also acknowledged the difficult precedent this deal is setting and said she's already fielded regular calls from other companies asking for their tax break. "I've had multiple conversations like that," she said. "We tell the other businesses, 'we're sorry.'"
Not everyone shares her faith in the power of tax breaks, with progressives and the city's biggest public employee union opposing the deal. Critics have said Twitter is a rich company that is essentially trying to shake down city taxpayers, despite previous assurances to remain here. After then-Mayor Gavin Newsom made one of many visits to the company on March 10, 2009, Twitter officials wrote on the company blog, "We assured Mayor Newsom that as Twitter grows, we'll continue to keep our headquarters here in San Francisco."
That all changed the next year as Twitter officials looked to expand and relocate into the SF Mart building at Market and Ninth streets.
"OEWD staff has been actively engaged with Twitter since February of 2009," Matz wrote in a Jan. 18 memo to Sup. Jane Kim soliciting her support for the tax breaks.
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