Behind the tweets

How the Twitter tax break grew into an expensive giveaway that involves police patrols, a new Muni line — and a lot of real estate

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In 2009, Twitter vowed to stay in SF, something it now says it won't do without a multimillion-dollar tax break

steve@sfbg.com

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.

Comments

Motherfucker can't even choose the correct spelling of bear. Fruit is borne, douche, not... ursine. Prometheus in the dark he ain't.
Of course, if one still gives a shit, there are more substansive problems: The article neatly sidesteps issues of business retention and the mess of Market. Or where they are addressed, it is only addressed in hostile fashion. We can't unionize the homeless, and if we did, against whom would they strike?
SF needs more than nonprofit drains upon city coffers; some one must actually make, buy or sell things. I know, I know, highly distasteful. But the "progressive" alternative to a mid-Market tax break answer is currently Buck's Tavern. Boo. Alt.newsweeklies are supposed to be the bastions of hard-hitting, thoughtful journalism, not reflexive and frankly plain old lame-assed laziness. Boo! I submit a FOIA request on this asshole's ability to comb through thousands of pages of Harry Potter, much less actual civic documents.
In sum: Lazy! Poorly Written! Counterproductive!

Posted by Guest on Mar. 15, 2011 @ 9:26 pm

Wow, the supporters of this legislation seem to have one thing in common: they use personal attacks as a mechanism of distraction.
The problem they have is that the policy arguments are not on their side. Their Over and over again today, I have seen a variety of personal attacks all day long against any one who opposes the legislation in multiple forums. It shows weakness on many levels, and desperation that I am surprised to see.

Posted by Guest Gabriel on Mar. 16, 2011 @ 12:26 am

Your policy argument "I'm entitled."

You work for SEIU right? And your complaining about ad homonyms?

Put the bong down.

Posted by matlock on Mar. 16, 2011 @ 8:06 am

Judging from how they acted so far I'd say Twitter will be a bad corporate citizen and San Francisco should cut it lose before it causes more trouble.

If I were a supervisor I'd ask Twitter/JP Morgan how they could help during a time of desperate need, not talking dirty to them over the phone like one of Willie Brown's street walker mistresses.

A 'bad' corporation can cause a lot of damage that far outweighs any benefits. They have gone to the dark side.

Posted by Guest on Mar. 16, 2011 @ 1:11 am

Gosh I'm really beginning to understand why Randy Shaw was so into Jane Kim.

I bet Debora Walker didn't put up with his crap for one second, did she Randy?

Posted by Guest on Mar. 16, 2011 @ 1:50 am

"It's giving taxes away to properties that are going to fill up anyway,"

I went into that building once a month at least all through the 90's, it was always 2/3rds full at best.

Now after a recession its going to fill right up?

As the establishment progressives make up things endlessly, there is even less reasons to care about their class ravings.

If you don't like what moves in, don't go there. I avoid 24th street and some of the TL. If mid Market isn't bum filled enough for you, go to the 200 block of Turk St.

Posted by matlock on Mar. 16, 2011 @ 2:37 am

Trolls apparently aren't diligent readers: that quote is from the city's economist, who is no progressive, and it doesn't refer to SF Mart as you seem to think. As for the first commenter: One "bare" typo in a 2500-word article based on reviewing thousands of documents, including hundreds withheld until a few hours before my deadline -- is that really the best ammo you've got? Apparently my article is even more solid than I thought.

Posted by steven on Mar. 16, 2011 @ 8:50 am

plural means more than one, the article is about Twitter.

You're quoting him to further your position.

Posted by matlock on Mar. 16, 2011 @ 10:27 am

Beautifully written,

What an edition y'all have today. Have to admit that I'm amused by 'Gabriel' (I'm assuming that's Haaland) waxing poetic against, "personal attacks". He's the biggest back stabber in SF and that ain't easy. Or, weren't your attacks on Adachi personal, Gabe? Pot ... kettle. Pot ... kettle.

Bulldog sees the big picture.

Our economy is anchored on two fragile legs sunk in quicksand. Tourism (one car bomb will destroy that) and, office rentals (they're always looking for a better deal and not reliable).

We should encourage growth of our schools and add more. Students don't run away because they have finals next week and mom and dad have paid their tuition and rent for the entire year. I managed property all over the East of Van Ness area covered in this deal and always had at least 10-15% students.

So, how's the City and the Bay Guardian react to a San Francisco institution like the Academy of Art University growing by leaps and bounds?

The City and Brad Paul and the Guardian and Calvin Welch try to extort 30 million out of AAu. While it offers to add an entire bus line (at our expense) for Twitter, the Guardian and Brad Paul complain about the free buses that AAU provides for their students.

We have over 100,000 students in SF (bet you didn't know that).

We should have 200,000 and more.

"How does a duck know which direction South is?"

"And, how to tell his wife from all the other ducks?"

Good questions, all.

Go Giants!

h.

Posted by Guest h. brown on Mar. 16, 2011 @ 4:53 am

"and now the next leg of our tour we go into an abandoned building, instead of productive employment this building is kept vacant so that ideological purity can be upheld.

Here are some hobo likenesses scrawled on pizza boxes of our cities secular welfare state saints;

Gabriel Haaland, this saint complains when SEIU doesn't get tax money to hire more SEIU employees

Chris Daly, this saint complains about Nimby's while beimng one

TIm Redmond, this saint supports classism while complaining about it

...now onto our next tour spot, a shooting gallery in the garage"

Posted by matlock on Mar. 16, 2011 @ 8:15 am

If you read this right any employees will be taxed in SF on their stock options but not in many other bay area cities like Brisbaine.

So to encourage start ups to stay in SF there is now an area (which were previously undisirable), where Start Ups can locate without this tax.

Surely it is a progressive policy to use the tax code to encourage behaviour, like locating to Mid Market?

Ofcourse if you don't like the idea of successful and not so successful start ups even existing in SF then you would oppose this tax break.

This has highlighted that the pay roll tax should be re-examined in SF, and how it does discourage employers loacating here.

And look I am in support this tax break, but have made no personal attacks.

Posted by Chris Pratt on Mar. 16, 2011 @ 8:42 am

Stated like a true Koch Brother, a "founders circle" member of the Club for Growth, mixed in with millennial Christians who "believe" in the second coming of greater tax revenues when you cut taxes.

-marc

Posted by marcos on Mar. 16, 2011 @ 9:25 am

Jane Kim ha ha ha!!

I like the lipstick on that slut's teeth.

Posted by Guest on Mar. 16, 2011 @ 10:12 am

This tax break and other favors shifts the tax burden to the rest of the tax base.
This socializes the business risk while privatizing the profits.
Subsidizing Twitter comes out of your wallet.

Posted by TCB on Mar. 16, 2011 @ 3:11 pm

The payroll tax applying to stock options is new info to me but can we get further explanation how that would work? When does the tax on stock options apply? When granted/given? Or when they're actually exercised? And not clear if this exemption applies to everyone or only new hires? So if only new hires doesn't that mean most of the stock options will go to existing employees and therefore be taxed?

Thanks for the coverage of this issue.

Posted by justin on Mar. 16, 2011 @ 3:27 pm

Egan told me that the stock options get taxed as part of the payroll when the company goes public because that's when they get their value. Twitter hasn't shared any financial data with the city, so Egan's estimates are based simply on news reports, but his estimate is that the IPO will be for about $12 billion, about half of which goes to the venture capitalists who now bankroll the company and a quarter each goes to employees and those who buy stock after the IPO. Subtracting out an estimated 10 percent of their value that Twitter employees paid for those options, that leaves $2.7 billion in compensation that is subject to the 1.5 percent payroll tax, leading to a one-time payroll tax obligation of about $40 million.
Now, the deal as it's now structured would exempt Twitter stock options from the payroll tax for eight years, for both new and existing employees. He also said it would be possible to just exempt Twitter stock options, which he said it preferable to the larger giveaway that has been crafted, but he couldn't say whether that would be enough to keep Twitter in town. In the letter Twitter wrote, the CFO claims it would cost the company $30 million over five years in "incremental rent, taxes, and other expenses compared to moving the company out to the peninsula," but he didn't provide any support for that figure.
I hope that helps clarify things.

Posted by steven on Mar. 17, 2011 @ 10:29 am

ISOs are liable for capital gains tax once exercised no matter if the company is public or not providing the employee's total liability is in AMT territory - the IRS calls it "phantom gain" i.e. capital gain on something that can't be sold on an open market but has a gain between the grant price and the FMV as judged by an accredited accountancy firm. That's why employees receiving ISOs would be well advised to exercise iteratively to avoid a large tax liability.

e.g. 10,000 ISOs puchased at $0.10 cost the employee $1000 dollars. If the current FMV is $5.00 then the employee is liable for capital gains tax on the difference i.e. $4.90x10,000 = $49,000. Of course this just an example.

Twitter employees may be able to sell their exercised options today on a private market as many Facebook employees are doing, providing their grants don't specifically forbid it, though I'm not certain an option grant can legally prevent that.

Posted by Guest on Mar. 17, 2011 @ 10:58 am

The reason people don't provide data is they have something to hide?

Posted by Guest on Mar. 17, 2011 @ 12:59 pm

Below is an similar explanation, apparently from a corporate attorney at Google.

Apparently the IPO can be expected to raise an estimated $100 million in cash, so $40 million is a lot to pay for a city payroll tax.

Serious flaw in the business model?

http://techcrunch.com/2011/02/18/san-francisco-wants-to-tax-your-stock-o...

"...Say a company like Twitter, valued at $3.4 billion in its last funding round, goes public at a $10 billion valuation and raises $100 million. There’s a good chance that most founder and employee equity would be tied up in ISOs, meaning as much as $3 billion – $6 billion of the $10 billion valuation could be tied up in stock that was originally an ISO. If it were half – $5 billion – then Twitter would get a tax bill from San Francisco for $75 million. 75% of the $100 million they just raised would be paid to San Francisco."

http://techcrunch.com/2011/02/18/san-francisco-wants-to-tax-your-stock-o...

Posted by Guest on Mar. 17, 2011 @ 1:19 pm

Something else kind of interesting -- apparently if Titter moved to avoid the payroll tax then San Francisco could sue and argue the value was created while Twitter was located in SF and charge the tax anyway.

To me this seems like a bargaining chip.

"...Is it possible that a company could move to San Mateo the year before an IPO? Yes. But could the city sue and allege that the value of those options was created in San Francisco? Yes, again. Because few other cities have local payroll taxes to begin with and the Federal government doesn’t subject these options to payroll taxes, there are almost no precedents here."

Posted by Guest on Mar. 17, 2011 @ 1:38 pm

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