Fight looms on downtown revival

Breed’s plan calling for tax incentives hits pushback from supervisors’ budget chair

Mayor London Breed’s plan to use tax breaks to attract new companies to downtown San Francisco is facing early pushback from an influential critic on the Board of Supervisors.

Supervisor Connie Chan, the board’s budget chair, on Wednesday questioned whether the mayor’s proposal could have unintended consequences, particularly in light of the city’s projected $728 million two-year deficit caused largely by reduced expectations from business and commercial property tax revenues.

In light of the deficit, Chan indicated to reporters that she is worried that the proposed tax breaks could reduce revenue for critical city services such as public safety. Breed said in February that she wanted to grant new companies that move to San Francisco up to $1 million off their gross receipts taxes for no more than three years in a bid to fill some of the abundant commercial vacancies that plague downtown San Francisco. Chan’s committee will consider the legislation Breed proposed to implement the idea.

Chan’s latest remarks, which echo comments she made after Breed announced the tax break proposal last month, indicate that the moderate mayor may have difficulties getting all of her ideas to revive downtown approved by the progressives who dominate the board.

Breed will also have to contend with Chan’s ideas for responding to downtown’s dire financial condition and its implications for city finances after the mayor submits her budget proposal this spring.

In a meeting with reporters, Chan unveiled several “guiding principles” that she said will shape her approach to the upcoming city budget negotiations. Her ideas include temporary permit waivers to help pop-up businesses quickly set up in vacant storefronts — a strategy already supported by the Breed administration — and tying funding for city departments to performance audits to reduce waste.

Chan said she also wants to advocate for more ambitious pro

posals such as securing state and regional funding that could help make Muni free, first for low-income residents and eventually for the city’s entire population. Her office said free public transit could boost the city’s economic recovery by improving ridership. Breed previously vetoed legislation that would have made Muni free for a three-month pilot program.

Chan also hopes to advocate for a more regional approach to reducing homelessness, as well as expanded child care services for working families.

“We’re not going to sacrifice these things at the expense of, if I may be frank, downtown interests,” Chan said. “We have to think of the city as a whole and not just one area. We have to take a step back and hold ourselves accountable.” But the city’s empty downtown has dire consequences for the city budget, which partly relies on taxes collected from commercial properties and large businesses with employees based in San Francisco. Even if the city’s year-end savings materialize as expected, the twoyear deficit would still stand at about $652 million, according to a recent estimate from the controller’s office.

Breed spokesman Jeff Cretan said in an email that the mayor’s plan for downtown was intended to “reinvent and reimagine” the area “so it can be the economic driver for our city and region.”“So many of the programs and services funded in our budget come from businesses located in the Downtown area, so any initiatives to recruit new businesses and stabilize our existing ones are a long-term investment in our entire City,” he said. “San Francisco has the opportunity through this Downtown plan to show that we are serious in confronting the challenges we are facing, and that we are willing to make the right investments for the long-term health and success of our city.”

Downtown San Francisco now sees nearly 150,000 fewer office workers each workday than it did before the pandemic, according to a recent report from the board’s Budget and Legislative Analyst that was prepared at Chan’s request. Office attendance downtown was just 43% of its pre-pandemic level as of last month.

In addition to the efforts to attract new offices, Breed has also proposed delaying tax increases companies are supposed to see due to a 2020 ballot measure that is phasing out payroll taxes in favor of gross receipts taxes.

Chan said she’s on board with that idea. But she is not embracing a separate suggestion the mayor has directed her administration to pursue: a potential 2024 ballot measure that would more broadly reform the city’s business tax structure. While the mayor and her administration have not said exactly what tax changes they want to put before voters, some progressives have cast the idea as an unwarranted giveaway to large corporations. “I’m fine with pausing for temporary, for short term, just to see how things can recover,” Chan said. “But I do not think we are in a space where we need to completely revamp our tax code. I’m not in the same mind” as the mayor.Chan said her approach to any structural tax reform would be more about making sure that everyone is “paying their fair share.” Breed asked the city controller and treasurer to work with businesses, public officials and community groups on developing the 2024 tax measure. Her office said the goal would be to reduce disincentives for in-person work, make the budget less reliant on a small number of large companies and help San Francisco compete better with other cities.