Most of S.F. lost sales tax revenue in 2023
San Francisco’s sales tax revenue, a key measure of economic activity, fell across most of the city in 2023, a sign of an overall slowdown and continued pain in the downtown area.
Revenue declined in 33 of 39 neighborhoods tracked by the city compared to 2022, adjusted for inflation, and only five neighborhoods are above 2019 levels.
Citywide sales tax in 2023 fell 7.2% from the prior year and is down 28% from before the pandemic based on neighborhood data and adjusted for inflation. (Businesses with multiple locations in different neighborhoods have sales tax revenue averaged out among the locations.)
Some of the hardest-hit business sectors include department stores, which saw a 59% drop in sales tax revenue compared to 2019, adjusted for inflation. That is likely to worsen with the closure of Nordstrom last year and the expected closure of Macy’s in Union Square. Hotel and motel revenue was down 45% as tourism remains below 2019 levels. Restaurant revenue was down around 20% from before the pandemic.
The Financial District and South Beach, which generates the most sales of tax of any district, saw revenue plunge 38% in 2023 compared to 2019, a loss of nearly $16 million per year adjusted for inflation. Last year’s revenue was down $2.7 million compared to 2022. Nearby South of Market saw an even steeper 42.6% drop between 2023 and 2019.
In hard-hit downtown, many census blocks have lost more than half of their sales tax revenue compared to 2019, and parts of MidMarket have seen drops of over 80%.
Ted Egan, the city’s chief economist, cited mass tech layoffs in the past year for decreased spending.
“We had a big run up in tech employment in 2022. Most of that’s gone away,” Egan said. “We’ve been negative on job creation since the middle of last year. … That ripples throughout the other sectors of the economy.”
One of the steepest drops during the pandemic has been in the Tenderloin area, which reported 2023 sales tax of $5 million, one-third below 2019 levels.
Chris Foley, who owns the Market grocery store inside the headquarters building of X, formerly Twitter, has seen the economic devastation in the area first hand.
With thousands of tech workers gone from MidMarket and constant crime challenges, his annual sales have plunged 94%, from $20 million in 2019 to $1.2 million last year, he said. “It’s totally depressing there,” he said. “The world has been crushed.”
Individual blocks around Mid-Market have seen sales tax revenue drop by more than 80%, some of the worst losses in the city.
The Market paid $150,000 last year for security and closed its hot bar because people would come in and eat directly with their hands. Numerous vendors have closed inside the food hall, including, most recently, Filipino restaurant Manila Bowl, Foley said.
The lack of customers can be attributed, in part, to X owner Elon Musk’s mass layoff of around 80% of staff. A block away, tech firms Uber and Block closed headquarters at 1455 Market St. where thousands worked before the pandemic.
The city government is now preparing to lease space in the building, and Foley believes the best way to boost the beleaguered area is if city workers come to the office more, along with a focus on public safety. Mayor London Breed has emphasized public safety and touted a citywide drop in crime last year. But Foley said issues like theft and drug use remain major problems.
For now, the Market has been able to hang on, in part, because it has been given free rent, Foley said.
Neighborhoods that have surpassed 2019 sales tax levels include Japantown, Seacliff, Oceanview-MercedIngleside, Treasure Island and the Presidio.
The Presidio has seen strong leasing activity as access to open space became more of a priority after the pandemic. Sales tax revenue grew to about $888,000 in 2023, up 65% from approximately $539,000 in 2019, adjusted for inflation.
The Presidio’s former military buildings, which total 2.2 million square feet, were 97% leased at the end of last year to a diverse mix of tenants including restaurants, a preschool, tech companies and investors. Additional commercial buildings are now being renovated for occupancy.
Lisa Petrie, a spokesperson for park manager the Presidio Trust, said business activity at hotels, the Presidio golf course and commercial leasing has recovered to pre-pandemic levels.
But falling tax revenue in 2023 across most residential areas including the Castro, Inner Richmond and Haight-Ashbury indicated that the “‘neighborhoods are doing fine’ theory” is “not totally true,” said Egan, the city’s chief economist. But they are generally doing better than downtown, he said.
Egan said he believes there is still a low risk of recession, but recovery from the pandemic remains “elongated,” with the return-to-office rate stuck at around 45% of 2019 levels for the past year.
Less inflation and lower interest rates will help lift the economy, he said. But a federal report this past week showed a 3.5% consumer price index increase in March compared to the previous year, a larger jump than expected. That will lessen the chance of an interest rate cut by the Federal Reserve.
The city’s sales tax weakness “is not just a downtown problem, this is a (broader) economy issue,” Egan said.