Empty offices drain tax revenue
With high-paid staffs working remotely, S.F. misses out on millions
In its early days, the pandemic seemed like it might displace our way of life for a few weeks. But as weeks turned into months, and more, many workers realized a return to the office wasn’t on the horizon and began cramming desks into living spaces and bedrooms as proof that the virus had changed working life — maybe for good.
More than a year and a half later, many of us are still waiting for the return to our offices. In COVID-conscious San Francisco, things may never go back to the way they were as companies are reducing their office spaces with more workers preferring to continue working from home. But while remote work has kept people safe, it’s having an ill effect on the city’s tax revenue — with losses that could reach into the millions.
“The city’s business tax base, which is our second largest revenue source next to property tax, is based in part on where people are working from,” said San Francisco City Controller Ben Rosenfield.
For many employees in tech and other high-paying but still largely remote industries, that is not San Francisco.
For example, “We don’t tax all of Google’s revenues by the San Francisco tax rate,” said San Francisco Chief Economist Ted Egan. Instead a share of that money generated in San Francisco is what gets skimmed into city coffers. Despite city voters ratifying Proposition F’s shift to taxing businesses on their gross receipts instead of payroll, determining how much of that revenue should go to the city is still largely based on who is working where.
Companies pay a variety of taxes to the city, including on their gross receipts. In fiscal year 2020-21, that money accounted for more than $800 million in city revenue, or about 13.3% of the city’s general fund. Mayor London Breed signed a $13.25 billion budget for the upcoming fiscal year in July, along with $12.75 billion for the next year.
The money goes into the general fund and isn’t allocated to a specific service, although impending city layoffs last year that were narrowly avoided gave a sense of how funding gaps can impact municipal services.
According to Rosenfield’s office, the 100 largest companies in the city measured by their 2020 San Francisco gross receipts reported a 14% decline compared to 2019 gross receipts. That equated to a drop of $7.9 billion reported on their tax filings and included a 13% drop in reported gross receipts in the city among information (tech) and financial services businesses.
The controller’s office said that drop is likely because of telecommuting, and it expects much of the same once 2021 wraps up, with remote work becoming more entrenched.
That could also pose a problem because Prop. F envisions business taxes on both of those industries that increase from 2020 to 2024. In 2024, under the measure, the city’s information industry is expected to pay $43 million more compared with 2020, while the financial services sector will see its tax bill increase by $25 million over the same period.
With many offices still closed, it’s not clear whether all of that expected tax money will materialize in the city treasury. It’s also not clear exactly how many people are working remotely for San Francisco companies. About half of all jobs in San Francisco can be done remotely, according to a study by the Bay Area Council.
While some of that revenue is likely to ebb, the city is also reaping less money from other industries hit hardest by the pandemic. Retail, service businesses, manufacturing, arts, entertainment and recreation, accommodations and food services will see tax cuts in 2021 and 2022 as a pandemic relief measure before their rates increase in 2023.
In terms of what business revenue the city will see, “2022, 2023, that’s where it becomes more of a guessing game,” said Rosenfield, the city controller, adding that part of the answer will depend on major employers’ long-term