S.F. tech tax break program grows up
Twitter, other firms put money into Mid-Market
Twitter is pledging to donate $388,000 to a school and charities in San Francisco’s Tenderloin neighborhood.
Yammer is going to provide free software to nonprofits and at least $50,000 in grants to support seniors, the homeless and education.
Zendesk will chip in $50,000 for housing and reading programs, along with scores of volunteer hours.
And gone is any mention of employees using Yelp reviews as a means to give back to the community.
Entering its third full year, San Francisco’s program of providing tax breaks to companies that locate in the long-forlorn Mid-Market area and much of the nearby Tenderloin is evolving.
The program, which is backed by Mayor Ed Lee and other officials, has been credited with jump-starting the revitalization of Mid-Market, which for decades was more like Skid Row and now is a still-gritty hub of the city’s burgeoning tech sector.
But there has also been a backlash against technology firms, which have been blamed — fairly or not — for soaring rents, increased evictions and inflated property values. Critics on the city’s political left have blamed the tax breaks for helping line the pockets of the tech elite while doing too little to support local youths, artists and others in a gentrifying San Francisco.
In exchange for the tax break, which the city treasurer and tax collector said has cost the city $1.9 million through the end of 2012, large companies had to agree to provide a package of community benefits, which might include volunteer hours and donations.
Benefits questioned
Last year, the first time the agreements were in place for most companies, the broader benefits of some of those efforts were questioned.
Microsoft subsidiary Yammer, for example, paid for 30 employees to attend performances by Alonzo King Lines Ballet and held a monthlong in-office dance series as a way of supporting local arts programs, documents filed with the city show.
The company also provided about $500,000 worth of computers and software to Larkin Street Youth Services, but almost a year later the software has yet to be utilized because it entails overhauling the nonprofit’s entire network, an executive there said.
“It’s not up and running,” said Kathie Lowry, the nonprofit’s chief development officer, who nonetheless described it as a “very, very generous” gift. “We’re really happy with the support, and I want to make sure these companies know it.”
$10 per Yelp review
Online dating service Zoosk, while donating computers and putting in volunteer hours, was criticized for paying employees up to $10 every time they published a Yelp review for any Mid-Market merchant.
“We think it served its purpose, which was never to tell local people where to eat,” said Allison Braley, vice president of communications at Zoosk. “It was to get our employees to experiment and explore the local area.” Still, this year the company ended the program. Instead, it will take on more interns, donate more computers and increase its volunteerism, Braley said.
City Administrator Naomi Kelly, who approves the community benefit agreements, said this time around there is a focus on tangible benefits — specific dollar amounts coupled with directed volunteer hours.
“While the companies meant well, the specifics are important,” Kelly said. “We’re focused on measurable outcomes. We are looking for basic deliverables.”
That’s something Zendesk, the customer-service software firm viewed by city and civic leaders as the gold standard in fulfilling community benefits, has been praised for after it became the first firm to ink an agreement in 2011.
Twitter, the anchor tenant the city was most keen to keep in town with the tax break, will increase its donations from $75,000 last year to $388,000 this year, plus commit to purchasing $500,000 worth of goods and services at local merchants, according to its draft agreement.
7 firms get the tax break
Acitizens advisory committee that reviews the proposals also pushed for more concrete language than the use of terms such as to “encourage” volunteerism. Twitter, in response, specified that its employees, among other things, would provide at least 100 hours of free legal assistance in 2014.
Companies with a payroll of $1 million or more that seek the tax break have to sign an approved community benefit agreement.
Seven companies — Twitter, Microsoft, Zendesk, Zoosk, Spotify, Advisor and One Kings Lane — are submitting community benefit agreements to get the tax break in 2014.
They have to be approved by Jan. 31 to qualify.
Companies can take advantage of the tax break for up to six years in the eight-year life of the program. The firms cap their payroll tax at the amount they were paying when they qualified for the tax break. Any increase in payroll, whether from new hires or additional compensation for existing employees, would not face the city’s payroll tax, which was 1.5 percent in 2013 and is 1.35 percent this year.
New millionaires
Acity budget analyst initially estimated the tax holiday would cost the city about $22 million, but that did not take into account stock options for employees in companies that go public. The amount of that untaxed income is unknown. Twitter’s initial public offering last year made an estimated 1,600 new millionaires. Lee’s office notes that if Twitter had left town, the city would have received no tax revenue from them.
He and others say it was worth it.
Twitter, Yammer and Zendesk employees have been regular tutors at De Marillac Academy, said Michael Daniels, president of the Catholic elementary school that serves low-income families, most from the Tenderloin.
“They’re very interested in being part of the community here,” Daniels said.
One De Marillac graduate got an internship at Zendesk and another secured one at Zoosk, Daniels said.
“Those are both neighborhood kids,” Daniels said. “To me, that’s the dream come true.”