The Big Vote Is Today: Will San Francisco Hang on to Twitter?
techcrunch.com
techcrunch.com
That part of SF Twitter is likely moving to (Market street between 6th & Van Ness) is really blighted, most business left the area some time ago except for 2-bit retailers, and it has become a skeevy dump over a 20 year period. The tax break is for companies over a certain size who lease space for a minimum of 5 years; Twitter would be one beneficiary, but behind them is SF property management company Shorenstein, who has much more to gain/lose depending on the outcome. Due to long-standing existing plans, several firms/organizations are set to move out of that area this year and next - Bank of America, the CA public utilities commission, SF county health commission. BofA is moving some operations out of town and others into vacant space in its financial district offices, the CPUC has been waiting for construction on its new HQ to be completed, SFCH is also moving into new premises.
The upshot of all this is that an already blighted area is anticipated to see the departure of ~8,000 employees to other parts of downtown and 3 million square feet of newly vacant office space - which means imminent death for other local businesses like coffee shops, convenience stores and drugstores which serve the needs of office workers. Besides office workers, the only other traffic in that area comes from the Warfield (a popular live music venue), two tired-looking strip clubs, and a few discount stores selling clothes, cellphones or DJ equipment. Not only is it desperately in need of new business, it's in need of a younger population with different standards and demands.
Anyone who's been thinking of opening an office in SF ought to look into it; besides the possible 1.5% stock option exemption for the next 5 years, right now prospective tenants have about as much negotiating power as they will ever have. Monthly rent in that area is under $3/sqft. and although it is tatty at street level, it has the same transit connections as the rest of downtown.
I'm watching the SF supervisor's meeting so you don't have to - I'll post the outcome of the vote. They just begun discussing it right now (2:15pm). I anticipate it will pass 8-3 or so.
EDIT: passed, 8-3 as predicted. A lot of talk during the meeting about suspending or scrapping the share option tax, and maybe even the payroll tax.
My 20 person company is financed through cash flow. We pay around $1.5 million in payroll each year and our after-tax profits are around 8% of revenue. San Francisco's payroll tax reduces our after-tax profits to around 6%, which is equivalent to the city charging a 20% income tax on top of the existing Federal and State taxes. This brings our total tax burden to well over 50%.
But the article is wrong in one point: a move to Brisbane would be a painful quality-of-life sacrifice. True, in most major US cities, eight miles doesn't count as a commute, but as a transplant from the suburbs to San Francisco, I can assure you that I appreciate a city where I can walk or take transit most places. Most of my friends and I would take San Francisco over "most major US cities" in a heartbeat. Exorbitant rents and all.
Indeed, although I own a car, many of my friends don't, and I wouldn't be surprised if more than a few Twitter employees are now happily doing without. You can't reasonably get to Brisbane without a car.
> You can't reasonably get to Brisbane without a car.
Perhaps, but you can't reasonably get to the Tenderloin with a car, so working at Twitter is now inconvenient for those who don't live close to one of the Bay Area's few good public transport options.
Besides, most of the big tech companies in Si Valley nowadays run shuttle buses to San Francisco -- there's nothing to stop twitter from doing the same.
Good point.
> Most of the big tech companies in Si Valley nowadays run shuttle buses to San Francisco
Good point again. Maybe there won't be the mad rush on car dealerships that I was predicting.
Still, most of the tech people I know who work in Si Valley are annoyed that their jobs are not in SF. My sample is biased (I met all these people in SF), but I do think having your job in the city is a substantial perk.
That said, my point is more that it'd be a bafflingly tiny reason for a company as large as Twitter not to move. There are far more significant issues in the decision than how it looks on their letterhead.
Mountain View and Google is a little more complicated, but back during the first dotcom bubble Mountain View was hotter than San Francisco is today. I remember seeing vacation pictures of people who came here and got their pictures taken in front of the Netscape business park sign.
Google took over Silicon Graphics' wacky old buildings, which is yet another part of Silicon Valley's storied history that has nothing to do with Twitter. In fact, Twitter has none of this kind of history period, so really, if you think about it, Twitter should think "San Francisco" is important. It's pretty much the only real history they have aside from the fail whale and Ashton Kutcher. Think more "Wired Magazine" than Apple or Google.
And really, you're right, they could move to Brisbane and all of my critiques would fall flat. I'm not saying they won't, but I'm also not going to agree that Twitter doesn't see value in "San Francisco." Heck, how many man-hours are they spending in order to secure this kickback? That certainly implies an internal level of value somewhat north of "trivial."
It doesn't seem to offer any real advantages over, say, Palo Alto or Sunnyvale or Cupertino or San Jose, and the tax situation sure seems like a significant disadvantage.
High quality jobs improve the tax base, lessen the demands on social services, indirectly increase property values, and create fewer negative externalities (waste, pollution, noise, crime). They also have lower turnover, are less seasonal, and are more likely to result in SF homeowners as opposed to itinerant renters.
There's a balance to be struck, to be sure; "hedge fund manager" is a very, very high-quality job, but having 1 hedge fund manager isn't better than having 100 software developers, no matter what the numbers might say.
Except in this case, not only is Twitter asking to be relieved of $500K/yr in payroll tax burden, but also to get $250K in additional police presence in the area.
To put this in perspective, if 2000 Twitter employees purchase lunch near the office 5 days a week at an average price of $10, the sales tax revenue will offset the cost of the payroll tax holiday - not to mention the benefits of an extra $5m/year flowing through the neighborhood economy.
2000 lunchers to the tune of $100,000 spent in the neighborhood per week, are you saying that Twitter is not going to have their own on-site cafeteria?
* Fantasy numbers do help when they illustrate the scale of the dollar figures we're talking about. It is helpful to measure things in "Twitter employee lunches to break even". It's actually more helpful than "$250,000" is, even though the latter number is more "factual".
* If you don't believe it matters whether the city will even out in side-effects†, you're basically arguing there's no point to discussing incentive programs. All of them are cost-benefit investments (or gambles). Make the argument that they're bad gambles, sure. But it's probably not worth making the argument that the city shouldn't try incentives; you'd be howling into the wind, since every city in the country has, in the city council and at the ballot box, decided this already.
† And, tip, which I learned here the hard way: watch out for the double quotes; they can mean, "reader, this is what the person who I'm responding to just said; would you get a load of it?". You'd be surprised how irritating this can be to people. I re-learn this at least once every couple months.
The article says "Going public from San Francisco could cost companies like Twitter, Zynga and Yelp as much as half of the IPO proceeds in taxes." I can't back this and would be interested in anybody who has more details about whether this is true, but if it is true, this isn't a company that is asking for special tax breaks that nobody else gets. This is a company that literally can not go public under a regime like that as it is, as the article says, an immediate failure to honor their fiduciary duties. They literally can not continue to function and grow normally and must leave.
(However that number seems high to me, even assuming it's 50% of what's left after everybody else gets their taxes. I have no inside information but my BS detector is twitching.)
Yeah, that part is total BS. The tax is 1.5% on payroll, and treats stock option gains like payroll. So if Twitter IPOed at $12 billion, and employees owned 1/4 of the shares via options, it could cost...$40-50 million. It would only be half in relation to the nominal value of the share options at time of issue, rather than post-IPO. Having said that, though, nobody is strenuously supporting the 'IPO tax' - not even the unions or the reflexively anti-corporate Bay Guardian. Almost everyone sees the point that share options are a carrot to attract talent to a startup business that could otherwise afford to go elsewhere, and the gains are the just reward for risk + economic growth, so any taxes should be on the low value of the share options at time issue.
The objections I've been hearing are towards other aspects of the plan, like the payroll exemptions for existing businesses and the expansion of the area to include properties owned by large commercial landlords, and less about Twitter than the headlines suggest.
Still, there’s a lot of groups in the city lobbying against
any change in taxes, confusing the issue with “corporate
welfare.” I’ve read through some of the materials they are
sending out, and while a lot of this is politics, there seems
to be a lot of genuine confusion between the nature of the
way big companies, small businesses and startups work.
Hey, if Twitter doesn't like the SF tax code, they're free to move somewhere else, right? It's not like companies are running away from SF otherwise.
Hey, I know I'm going against the grain here. I'm a big boy.