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Twitter Tax Break Passes

Mayor hails mid-Market payroll tax freeze as "a powerful tool" to revitalize blighted neighborhood

Updated April 5, 2011 at 7:06 p.m. with additional quotes and information

San Francisco lawmakers on Tuesday approved a controversial proposal to freeze payroll taxes in the mid-Market and Tenderloin districts for six years, a move that all but guaranteed Twitter’s short-term future within city limits.

The San Francisco Board of Supervisors will take a final vote next Tuesday to ratify the tax break legislation, which city officials offered as an incentive after Twitter, the burgeoning social media company, warned late last year that it was considering leaving the city to pursue cheaper real estate options. The company said last month that it had reached a tentative agreement with the landlord of a building on mid-Market Street on condition that the city pass the tax exemption legislation.

In recent months, city officials, including Mayor Edwin M. Lee, have argued that keeping the growing company in the city and facilitating its move to a vacant building in the blighted mid-Market neighborhood would be in the city’s economic interest. Officials, including the city's economic forecasters, believe that the presence of Twitter — a company that some expect to grow tenfold in the next few years — in the mid-Market area would be an instant boon to nearby businesses as well as new ones that would take root.

Lee, in a statement Tuesday, hailed the vote as a “real step forward in the effort to revitalize and transform the Central Market area,” which he said had been burdened with high vacancies and blight for decades.

The tax break legislation, he said, “is a powerful tool that will help us bring in much-needed jobs, services and retail, as well as help enhance the growing arts district here.”

The legislation passed by 8-3 on Tuesday, with three members of the board’s liberal wing — supervisors John Avalos, David Campos and Ross Mirkarimi — voting in opposition.

Increasingly emotional debate over the measure, set against the backdrop of government cutbacks and the broad economic downturn, has dominated civic discourse in San Francisco in the past month. It has touched deep nerves in a steadily gentrifying city that — despite a timeworn reputation as a hippie-dippy enclave — has been increasingly influenced in recent years by the cultural and economic forces of Silicon Valley. (Facebook and Apple, for instance, hire daily buses to transport young engineers from the Mission District to the Peninsula.)

The measure came under especially pointed attack by the city’s restive political left, including San Francisco’s most powerful labor union, the Service Employees International Union Local 1021, which has been locked in intense negotiations to address the ballooning pension and health care benefits of city workers. The union began an email and robocall campaign last week to urge residents to call supervisors David Chiu and Jane Kim, two of the tax bill’s sponsors, to oppose what the union called a “taxpayer handout” to Twitter at a time when the city was in fiscal crisis. At one point, union leaders raised the possibility of a referendum, which would have subjected the legislation to a popular vote on the November ballot.

On Tuesday, Alysabeth Alexander, the political action committee chair for Local 1021, said: “The legislation was something that we opposed and we continue to oppose.”

But she refrained from taking the combative stance that SEIU officials had previously taken, instead applauding Chiu on his proposal to form a commission to thoroughly re-evaluate the city’s payroll tax.

“We are optimistic that Supervisor David Chiu has committed to putting together a commission to look at how tax policy benefits the city as a whole instead of piecemeal,” she said.

The payroll tax exemption would apply to any anticipated spikes to Twitter's tax bill in the event that it goes public and a large number of employees cash in on their stock options. (The city's unique tax code considers stock options to be taxable compensation when they are exercised.)

Many other tech startups on the verge of initial public offerings, like Zynga, have clamored for a similar payroll tax exemption in recent weeks. Broader legislation proposed by Mirkarimi to revise the tax on employee stock options is still pending. Chiu and Supervisor Mark Farrell are also understood to be working on sweeping overhauls of the city’s business tax.

Chiu applauded Tuesday's vote as “positive step to revitalizing” downtown.

“Twitter’s commitment to move to this challenged stretch of Market Street and stay in San Francisco shows that we are not content to simply become a bedroom community for Silicon Valley,” he said. “The companies that are born here should grow here.”

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