Tax-break sponsor denies review of Twitter's promises

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Twitter's big tax break is zipping toward approval before the company has agreed to a community benefits package,

The Board of Supervisors Budget and Finance Subcommittee today sent the controversial Twitter/Tenderloin tax exemption zone to the full board, scheduling it for April 5 and denying the requests of community groups and Sup. Ross Mirkarimi that the public be allowed to comment on Twitter's community benefits agreement (CBA), which city officials are still negotiating.

“There should be public comment on the CBA,” Mirkarimi said. “Don't shortchange the process. It undermines the integrity of the process.”

Yet Mirkarimi and others also say integrity has already been lacking from a process he called “sleazy,” with properties being added willy-nilly to the tax-exclusion zone by a private power broker with an apparent conflict of interest; no fiscal analysis given to the Muni line, police foot patrols, and other perks promised to Twitter; and little thought given to the bad precedent this sets for other businesses (a point given real resonance today when Bay Citizen reported that Zynga is also threatening to leave the city if it doesn't get a deal similar to Twitter's).

But the main issue at today's hearing was why city officials are moving forward the agreement – in which Twitter would forgo paying about $17 million in payroll taxes over six years and another $40 million in taxes on its stock options – before the company has agreed to provide any community benefits, despite the fact that proponents of the measure cite benefits to the community as the main reason for doing this deal.

Sponsoring Sup. Jane Kim said that she and co-sponsor David Chiu, the board president and a candidate for mayor, would continue the item if a community benefits agreement wasn't completed by the day before the full board meeting. Considering that the only leverage the city has to get a good community benefits package is a threat not to approve the legislation, opponents weren't won over by that gesture.

Mirkarimi said both the Controller's Office and Budget and Legislative Analyst's Office should be given the opportunity to review the agreement, or at the very least the public should be given a chance to weigh in, something that would only happen if the legislation remained in committee or if the committee agreed to let it be heard by the full board sitting as a “committee of the whole,” which is the the only time the full board hears public testimony.

Kim considered the request for a moment, then whispered to committee Chair Carmen Chu, who announced that they would come back to this item and deal with the rest of the agenda first. Then Kim walked over to have a private chat with Mirkarimi – an apparent violation of the Brown Act, which requires public business to be conducted in the open rather than through private conferences involving two of the three committee members.

Kim and her board aide April Veneracion also conferred with Deputy City Attorney Cheryl Adams while the committee worked through other business and those interested in this item waited for a resolution. When the item was taken up again, Adams responded to questions from Kim and Chu by reminding the committee that supervisors are barred from intervening in contracts negotiated by city departments that involve less than $10 million or a 10 year term.

And because the tax exclusion legislation doesn't include any community benefits for the Mid-Market area – it is written only to be a tax exclusion, with a vague requirement that large companies negotiate a CBA with the city – that negotiation is separate from this legislation, just like the safeguards against gentrification, consideration of neighborhood improvements, paying for Twitter's other perks, and the possibility of a parcel tax on vacant commercial property. Kim has pledged to pursue those ideas later.

Critics of the measure were incredulous, openly asking why city officials would push through such a large tax giveaway without asking for anything in return as part of that agreement. As Mirkarimi said, “The city is blinking and blinking too soon.”

Perhaps the denial of public comment has something to do with how the tenor of the public comments today were markedly more critical of the deal than those last week. While several members of the South of Market Community Action Network (SOMCAN) criticized the deal and called for a delay so it could be more carefully scrutinized, perhaps the most poignant moment came from someone unaffiliated with any organized groups at the hearing: Kayren Hudiburgh, co-owner of Good Life Grocery, which she said played an important role in revitalizing the Cortland Avenue corridor many years ago.

"I pay my payroll taxes and I'm proud to pay my payroll taxes to support this city," she said, appealing to the civic pride of others in the business community. "I think it's socially irresponsible for Twitter not to want to pay its taxes."

Comments

You've spent weeks trying to stoke outrage over this perfectly normal incentive and nobody is biting except the usual suspects.

Sometimes you go fishing and they don't bite. You put your rod away, go to the bar and try again another day.

As the saying goes, you have to accumulate to speculate. For the city, that means giving a TEMPORARY tax break to secure the valuable presence of a world-class enterprise, providing great-paying jobs and revitalizing a derelict area.

Steven, WAKE UP! Twitter employees will generate more for SF in sales tax revenues from their Starbucks purchases alone then you want to stiff them over what is in any event arguably a tax on jobs.

Give it up. Please.

Posted by TheDoc on Mar. 23, 2011 @ 6:06 pm

how is Twitter world-class -- or even on-the-books profitable? What are its long-term business plans? How is it different from every other flash-in-the-pan web site from the 90s, expanding too much and too soon, burning through reams of VC, riding on hype, and presenting absolutely no solid business plan except to go public and cash in. Hiring more people and taking over a building is not a growth plan. Is Twitter launching any hugely ambitious initiatives a la Google that it can afford to see crash and burn due to portfolio diversification, or investing in anything that can provide real world dividends? Why should we pay for yet another  "visionary's" experiment in social media? 

Honey, I worked in that exact same MidMarket area in 2002 when I was the last person to turn the lights out on the glory days of Citysearch. What a sucker the city would have been to give Barry Diller a tax break then, ha. All he ended up giving the city was more pink-slipped fodder for the coke trade. 

Strange how we have to go through this whole Web boom bust cycle again and again ... eternal hopefulness! Such a Northern California goldrush mythology ... 

Posted by marke on Mar. 23, 2011 @ 9:50 pm

businesses failing, then you'd wouldn't burden them with a payroll tax.

It's not a tax on billionaires - the owners quite possibly don't even live in the City. A payroll tax is a tax on jobs and a tax on employees - it effectively comes out of their pay.

That's why Enterprise Zones throughout the world typically give companies a partial or total break on payroll taxes.

While if you don't think Twitter is a market-leading technology company, then I don't know what to say.

Posted by TheDoc on Mar. 24, 2011 @ 10:38 am

If this was just about a tax break for Twitter, then it would be illegal because government cannot direct policy to solely benefit any particular company.

If this was just about "revitalizing" Mid Market, then it would not address the Tenderloin.

If this was about stock options, then it would not leave existing employees with the sweetest option packages paying full payroll tax on their capital gains.

This is about using Twitter to clear the way to raise rent prices in Shorenstein's buildings and to deliver a well heeled workforce to drive real estate speculation in the parcels upzoned by Market Octavia and in Western SOMA where desirable housing is or will be assuming that current residents, many gay men, can be clear cut.

Unfortunately for this threadbare narrative, Zynga has gotten into the act, directly on stock options, and is throwing a hissy fit as well. If we're going to be giving these companies tax breaks on payroll, then that is in effect a public investment and we should be taking a slice of the windfalls. If they want to pay full freight on payroll tax, then perhaps the tax on stock options should be pared back to a de minimus level.

-marc

Posted by marcos on Mar. 23, 2011 @ 8:34 pm

Doc's right,

What did Leona Helmsley say? Oh yeah, "Only the little people pay taxes.". If you want to be fair by Chiu and Kim and Leona's standards you should give Twitter and any other billionaire corporation who asks the same deal Larry Ellison got. Yep, 66 years with no rent and they get to own the property.

Only fair, right?

Go Giants!

h.

Posted by Guest h. brown on Mar. 23, 2011 @ 8:46 pm

This really pisses me off that Kim and Chiu are trying to deny the public's right to review and comment on the CBA. Says a lot about what kind of mayor he would be.

Mark

Posted by Mark Barnes on Mar. 23, 2011 @ 9:57 pm

Ted Egan of the City Economist's Office said that the payroll tax exemption was ideal because it focused on one company and influenced their behavior and would not subsidize behavior that would occur anyway. Ha ha ha ha!!!!

Not if Zynga has anything to say about it....

Posted by Guest on Mar. 23, 2011 @ 10:08 pm

Guest's comments mischaracterize Mr. Egan's statement. Egan said payroll tax exemptions and enterprise zones have "spotty" track records at best and have shown no net new jobs in the past. Egan went on to say the city hopes narrowly tailoring the tax break to Twitter will avoid subsidizing most of the behavior that would occur anyway. So, even Egan agreed payroll tax breaks do not work, as did the controller and Supervisor Kim who said it was not something she really did not want to do.

Posted by Hope Johnson on Mar. 24, 2011 @ 12:33 pm

Not at all Hope. It is a direct quote from the committee hearing...."Not subsidizing behavior that would happen anyway."

Starting at 20:43 on the sfgovtv video

"Good morning supervisors, Ted Egan from the Controllers Office of Economic Analysis. In response to your question Supervisor Mirkarimi, as you know our report did include as a recommendation that the city look to ways to modify the payroll expense tax to remove the specific incentive the largest and most valuable companies have to leave San Francisco because simply of the value of their stock and stock options.

We did not however suggest that such a policy would in any way replicate what the current policy is doing. I think there are two things to keep in mind that are different about this current policy vs a wholesale reform of the payroll tax to deal with stock options.

The first is that this policy, particularly as it has been amended, is a highly targeted tax cut that is, in effect, aimed at one company or primarily affect one company, which based on our best analysis on the bubble as to whether or not it makes sense to stay in San Francisco or not and has now indicated that it will stay if the policy is enacted.

"THAT, AS I INDICATED IN MY COMMENTS LAST WEEK, IS AN IDEAL TAX CUT SITUATION, TAX INCENTIVE SITUATION, BECAUSE ITS FOCUSED ON A COMPANY, IT SEEMS TO BE CLEARLY AFFECTING THEIR BEHAVIOR, AND IT IS NOT SUBSIDIZING BEHAVIOR THAT WOULD HAPPEN ANYWAY, particularly with the amendments that were introduced last week."

Posted by Guest on Mar. 24, 2011 @ 1:42 pm

According to Zynga, the tax cut is no longer focused on just one company, and it clearly does affect the behavior of companies who planned to stay anyway.

My point is that Mirkarimi was right that Zynga and probably every other company will demand the same consideration as Twitter.

Its a slippery slope and it looks a lot like both Twitter and Zynga are more worried about stock options than the payroll tax, which is a paltry 1.5% for them but is the second largest source of funds for the general fund besides the property tax in San Francisco, and is extremely important to the city.

The way to stop the real estate vultures from gutting the payroll tax is to focus it only on stock options.

Jennifer Matz of OEWD said that was not possible because the city did not have the information broken down by category for the payroll tax.

But I don't understand how that matters because the City also does not have the information from corporations about how many options they issue, at least not until this year, so the city never enforced the tax on stock options to begin with.

This is the first year the city will be able to see how many options are issued. So since the city doesn't enforce the tax anyway, the impact is zero I would imagine?

Plus something else weird to me is that Matz herself admitted she would be before the board to cut the payroll tax even without Twitter, apparently despite the "spotty" record for enterprise zones that everyone agrees is accurate.

Either that or someone is saying whatever sounds good at the time to pass this crazy legislation.

The problem is stock options and the solution is to clarify that the city will not tax iso options.

I think what this whole thing really reveals is the amount of stock Twitter and Zynga plan to issue for the IPO, not a lot.

Posted by Guest on Mar. 24, 2011 @ 2:17 pm

We both agree Twitter doesn't need the tax break. But, Egan is saying the situation is ideal (focusing on a stake holder combined with other incentives) not the payroll tax break itself. Everyone at the committee agreed payroll tax breaks alone are ineffective, they just think this particular situation is ideal. It's an important distinction because this means any supervisor who votes for this is willing to implement a policy they all agree is bad (the tax break) in the hopes the "ideal situation" will promote business in the area.

Posted by Hope Johnson on Mar. 24, 2011 @ 3:27 pm

We definitely agree.

My only point was the three reasons listed for why this enterprise zone was ideal; that it was focused on a company, it was clearly affecting their behavior, and it did not subsidize something that would happen anyway (quote) are all invalid now that Zynga insists on the same tax break and refuses to relocate itself to Mid Market.

So why keep pushing for the payroll tax moratorium when Mirkarimi suggested that a simple clarification from the tax collector that SF does not intend to tax iso options will keep Twitter as anchor tenant?

Posted by Guest on Mar. 24, 2011 @ 5:22 pm

Google's offices over in Hills Plaza in Rincon Hill provide a cafeteria and make it relatively easy for employees to stay in the office until it is time to head home. Who is to say Twitter won't do the same thing... Especially if they are getting a new express bus line thrown into the deal?

Posted by Jamie Whitaker on Mar. 23, 2011 @ 10:45 pm

Sixty hours a week is the entire goal of the mega campus approach to software development, and that involves providing wrap around services in situ at the workplace, food, dry cleaning, gym, you name it.

-marc

Posted by marcos on Mar. 24, 2011 @ 8:44 am

The City collects payroll tax on all those ancillary jobs too, right?

It's exactly those types of trickle-out benefits that make companies like this so desirable.

Posted by TheDoc on Mar. 24, 2011 @ 10:40 am

Could we just give knives to Douglas Shorenstein and whoever owns Townsend Center and whoever walks out first gets the tax break for their tenant?

Posted by Guest on Mar. 23, 2011 @ 10:48 pm

Hilarious!

So many metaphorical "daggers" for folk like that, who knows where to start?

Posted by Guest on Mar. 23, 2011 @ 11:32 pm

Does this affect CPMC?

Now that's a real business. I've seen their notices for public hearings on both sides of Van Ness. Does this new zone extend across Van Ness? Is any part of the Cathedral Hill proposed campus included? If so, the giant health care provider will be bringing literally thousands of 'new' jobs into the area and we'll be talking about some serious lost tax bucks.

Go Giants!

h.

Posted by Guest h. brown on Mar. 24, 2011 @ 7:41 am

As silly as it might sound, CPMC is officially a non-profit organization and doesn't pay taxes in the first place.

Posted by James Tracy on Mar. 24, 2011 @ 6:43 pm

"safeguards against gentrification" ...only in SF!

...why we left years ago.

Posted by GuestFormer SF resident on Mar. 24, 2011 @ 12:44 pm

Personally, I have nothing against the principle of government aiding businesses to stay in the city. Businesses, whether corporations or worker collectives, help San Francisco to economically thrive.

However, in practice, every time someone talks about government providing a favorable business climate it always turns into cover for a business to rip off the city either financially or socially. The proposed Twitter tax exemption is the newest iteration of this problem.

What the deal's proponents have offered is way too much wishful financial thinking for me to feel comfortable with it. Has anybody bothered to do a fiscal worst case scenario in case things do not turn out as financially rosy as Chiu and Kim would like to claim? Judging from the Guardian's coverage and the haste with which this deal is being pushed, I seriously doubt this sort of reasonable planning has occurred.

This tax exemption deal is this year's version of the crappy Turlock-Modesto power contracts that the Board of Supervisors approved decades ago. A bad deal is a bad deal is a bad deal. If this proposed tax exemption passes, Supervisors Kim and Chiu will have publicly demonstrated their willingness to help see our city government get financially chumpatized.

Posted by Peter on Mar. 24, 2011 @ 1:52 pm

From a joint op-ed Mayor Ed Lee and President of the Board of Supervisors David Chiu (San Francisco Chronicle, March 23, 2011) wrote:

“The payroll tax exclusion gives the city a financial tool to stimulate local business development in an extremely challenging low-income neighborhood.”

It is not clear this assumption can be applied to all or even a majority of the Market Street real estate that has been incorporated into the “Payroll Expense Tax Exclusion in Central Market Street and Tenderloin Area” aka Twitter deal.
The evidence for this includes the purchase by the Shorenstein company of the SF Mart building for $110 million. Additionally, the current asking rent for a studio efficiency apartment across the street at Fox Plaza is $2155, the least expensive one bedroom apartment there costs $2194. Stroll down Market Street to the new Trinity Plaza development into the heart of "blight" and a junior one bedroom rents for $2449.

These economic facts offer context to the Mayor and President of the Board of Supervisors description of “an extremely challenging low-income neighborhood.”

At these rents, Jimmy McMillan may yet have a political future… in District 6.

Additionally, they write:

“This legislation will accomplish crucial policy goals and increase city revenues to help pay for basic services for us all.”

It is not clear how a six year payroll tax holiday can accomplish the goal of helping to “pay for basic services” when for Twitter alone, this deal translates into $17 million less in payroll taxes and potentially $40 million less from probable stock options than with the present tax structure. This is a $57 million general fund hit at a time at a time of enormous fiscal stress by a single firm at a single location. The argument is that this deal is essential because without it Twitter leaves, but even Jonathan Weber at Bay Citizen (2/18/11) in an overall positive account wrote:

“Frankly, I suspect the company wants to stay in the city anyway, for the obvious cultural reasons.”

The reality is that San Francisco does not need to make economic blackmail the centerpiece of its development policies.

The critical policy questions now are whether this deal is the only way to “save” Twitter, and did today's officeholders accept uncritically a deal crafted by a donor friendly and headline hungry Newsom Administration that left too much public money on the table. Sadly, they did so even before Ted Egan’s economic analysis could be produced.

Posted by Guest on Mar. 24, 2011 @ 3:23 pm

There's a wide consensus that if done correctly, a gross receipts tax is superior to a payroll tax. It's better to tax revenue than hiring and wages. I know that Chiu re-introduced this, but haven't heard much about it since. Anyone know what's up with this? Seems like it is the elephant in the room no one wants to talk about.

Posted by James Tracy on Mar. 24, 2011 @ 6:46 pm

A high-volume, low-margin business like Safeway's would be hit very hard. While a low-volume, high-margin business like a hedge fund or law firm would be hit very lightly.

Not that I like a payroll tax either.

Both are taxes on jobs. But the latter has far more logic to it, as receipts are a lousy indicator of either profitability or ability to pay.

A GRT would drive up food and energy costs and would, if applied to rents and mortgages, also drive up housing costs.

Posted by TheDoc on Mar. 27, 2011 @ 8:11 am

@James, I was just discussing this with folks in Jane's office today. What would a gross receipts tax on a startup that has no receipts but venture capital injections look like exactly? Could the fallback be that they pay a tax on their rent, as their business operation consumes some level of city services? Or would that expose the City to the same kind of theoretical dual taxation liability the likes of which more or less sank the previous safety valve payroll/gross receipts tax structure?

If the City subsidizes software startups (can we please stop using the term 'high tech?') with tax holidays or breaks, isn't that the same as an investment, then why shouldn't we take a slice off of their stock options.

No matter what, business will complain about whatever tax is on the table.

-marc

Posted by marcos on Mar. 24, 2011 @ 8:19 pm

@Marke. Should come as no surprise that the Board of Subservients limits public comment and participation, I think it's written in small print in the job description. However Chiu has to up the ante in order to compete with another mayoral wannabe, Herrera, who a few years ago went all the way to the State Supreme Court to deny over 30,000 residents the right to vote on yet another corrupted corporate giveaway.
Go Giants.
Bring on the torture.

Posted by Pat Monk.RN. on Mar. 27, 2011 @ 7:46 am

you mean Marc, obvs. 

Posted by marke on Mar. 27, 2011 @ 9:47 am

being mistaken for Marcos.

I just can't think of any right now.

Posted by TheDoc on Mar. 27, 2011 @ 10:33 am

Hey Marke,

Site's been on upward swing in all ways last few months. Forgive me being presumptuous when I say, good job. Particularly like the Tikkun thread. Some
really smart cowpokes there.

Come to Friday Salon, Pat Monk!

h.

Posted by Guest h. brown on Mar. 27, 2011 @ 10:33 am

and some great discourse as well ... 

Posted by marke on Mar. 27, 2011 @ 1:08 pm