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Monday, March 31, 2014

What a City Gets (and Doesn't Get) When It Gives Tech Companies Tax Breaks for Building in Low-Income Areas

Posted by on Mon, Mar 31, 2014 at 6:00 AM

One could easily imagine this idea being proposed in Seattle, so it's worth checking out the fine print:

A series of tax breaks given to tech companies to ensure that they stay in San Francisco seems to be benefiting both start-ups and the city, if even just a little.

The tax break, called a “community benefit agreement,” makes it possible for companies housed in specific low-income areas of San Francisco to receive breaks on some of the city’s payroll taxes, but to do so, they must perform a number of tasks that help improve their neighborhoods.

Okay. But, then we meet a company called Zendesk, valued at $1.5 billion, whose wealthy employees are served meals by homeless people who inhabit the low-income area the company has picked for its offices. The total value of the tax breaks that Zendesk and 14 other companies got in one year as a result of locating in low-income San Francisco neighborhoods: $1,903,321.

The amount that Zendesk spent in 2013 to pay the homeless people feeding its employees: $3,500.

Even if you take Zendesk's total spending in 2013 on "donations and hiring local businesses"—according to this New York Times story, $100,000—and then assume the 14 other companies, on average, spent a similar amount, you end up with local government losing about $400,000 in tax revenue.

This is a complicated project, with hard-to-calculate benefits like volunteer hours and redevelopment involved. But, if Seattle were to go down a road like this, it would be wise to make sure the city benefits as much as the tech companies.

 

Comments (18) RSS

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1
And negotiate for benefits to the neighborhood that are more structural and less condescending than hiring the local homeless to wait on their economic superiors.
Posted by jnonymous on March 31, 2014 at 6:12 AM · Report this
2
The govt never benefits as much as the company. Otherwise the company wouldn't take the tax break. File under: 'how capitalism works'
Posted by Foonken2 on March 31, 2014 at 6:14 AM · Report this
seandr 3
you end up with local government losing about $400,000 in tax revenue.

That's assuming the companies would be willing to pay $1,903,321 per year for the privilege of being located in San Francisco as opposed somewhere in sunny Silicon Valley. The city can't "lose" $400,000 that it never had.
Posted by seandr on March 31, 2014 at 8:01 AM · Report this
Joe Szilagyi 4
@3 there's actually a resurgence of tech companies wanting to be positioned in San Francisco these days.
Posted by Joe Szilagyi http://www.zombo.com on March 31, 2014 at 8:22 AM · Report this
sperifera 5
But those tech companies are JOB CREATORS!!! Won't somebody think about all the jobs they create?
Posted by sperifera on March 31, 2014 at 8:27 AM · Report this
seandr 6
@5: They'll create jobs where ever they are located. The question is, do you see benefit in having them located in low-income SF neighborhoods? If so, offer them incentives. If not, don't.
Posted by seandr on March 31, 2014 at 8:38 AM · Report this
VelhoSorriso 7
@ 2 Foonken2 said it.

I've yet to read where municipalities win on tax breaks for companies. Maybe the entities can approach it like dating -- if a company wants to locate in an area ~ fine, show off the best assets of the area. But don't give them a tax break for doing it.
Posted by VelhoSorriso on March 31, 2014 at 8:42 AM · Report this
8
it's insane to suggest we should allow corporations to get subsidies in exchange for hard to calculate benefits. How many city of seattle auditors at $125K a year do you think we'd have to have to do it fairly?

just have general laws with few exceptions. a general wage. a general tax law. everyone pay up. and if THEY can get the subsidies, how come I, a person with a small business working at home, can't get a subsidy? I do shit, too. I mow the neutral strip and pick up garbage on the street in front of my home. I cut the branches above the street that the city wouldn't take care of. I cleared out ten years worth of pine needles building up five inches deep on the street end filling the yard waste container about 12 times this winter with city owned stuff left on a city owned street. That's a public service. where's my subsidy? what about the folks volunteering at the library or at their church or in giving sick people meals on capitol hill, where's their subsidy? why do we fucking continually pander to business and exalt it's slightest contribution and think we have to reward it with a subsidy?

are they the enfant terribles we can't govern any other way? what a spineless approach. how about this approach: they get stuff from society, we allow them absolution from personal responsibility of the owners, we can fucking tax them like we fucking want to tax them and we make all taxes apply to all businesses sort of equally without special deals, special breaks and what not which is just another form of corruption. you want to deal with cost of housing immediately raise the MW to 15 then immediately allow all manner of cottages basement dwellings do broad based general things that actually help not bullshit little bandaid things that don't do hardly anything at all. here's another thing: stop raising taxes all the time, the Times reported on that this weekend, we're piling on levy after levy as if it doesn't add to the cost of housing.
More...
Posted by what about my subsidy? on March 31, 2014 at 9:47 AM · Report this
9
Uhm, in general I don't think the tech boom has been good for San Fran, in any sense. I've lived here for two years, and more and more I think I can ascribe the problems I encounter on a daily basis are related right back to the tech industry.

Tech workers, as a rule are pretty socially awkward. The amount of socially awkward I encounter here is sometimes above and beyond what I can parse. Imagine an entire office full of that one awkward girl at the party. Sometimes it's cool but it often sucks when you are actually trying to accomplish anything.

This means social venues like clubs, restaurants, bars, concerts, etc are pretty watered down because tech is their main client. I get so much bad service here it's not funny. But tech guys don't notice, so they still get big tips, leaving places with horrible service doing the briskest business in the city!

There is a lot of elitism here. But not a lot of 'taste'.

Yes, the tech business has brought a lot of money to the bay area, but it caused a lot of the current problems because it brought a lot of people here without any infrastructure to support them. Traffic is horrible, housing is out of control (3k a month for a dumpy 'college' style apartment), there is an acute water shortage. And because things got so expensive, plenty of the more interesting cultural things to do either got so expensive that you can't afford to go (200+ dollars to go see the ballet, and that's the just-in-front-of-nosebleed-seats) or they just folded up and left.

Pay can't keep up with the rising costs.

The tech industry is trying to solve the problem by building their own housing, but that's fraught with other problems, and you've all read about the google buses.

Uncorralled tech is not a good idea for any city.
More...
Posted by MameSnidely on March 31, 2014 at 9:53 AM · Report this
You_Gotta_Be_Kidding_Me 10
"and then assume the 14 other companies, on average, spent a similar amount"

Journalism at its finest!
Posted by You_Gotta_Be_Kidding_Me on March 31, 2014 at 10:38 AM · Report this
Supreme Ruler Of The Universe 11

I guess I just don't have the super brain power that lets me understand.

The logic was the "Cities" are so overwhelmingly great and fantastic that all high tech is moving there.

Well, except for Google, Apple and Facebook, who have to provide their own buses to let people leave the city crime zones for healthful, brand new campuses.

But leave that aside, these Cities are so great and perfect they have to lure people in with tax breaks that exceed the benefits accrued. The benefits that justified the tax breaks! The tax breaks which shouldn't be necessary because cities are so superior to suburbs. Which don't need to give tax breaks...
Posted by Supreme Ruler Of The Universe http://www.you-read-it-here-first.com on March 31, 2014 at 10:55 AM · Report this
12
If having a tech company nearby increases property values on the surrounding properties by only a few percent above the neighborhood mean, the program has just paid for itself. A large(ish) loss on one program is made up by the aggregate gains in property tax revenue throughout the community.

Criticize the program for increasing the breadth of gentrification pushing low-income people out of the city, but don't say it doesn't make financial sense.
Posted by Ryan the MUP on March 31, 2014 at 11:52 AM · Report this
Will in Seattle 13
Tax breaks are bad

Another way of giving the rich more, paid for by the poor

Detroit is because the State of Michigan won't give Detroit the legal share of state sales tax collected
Posted by Will in Seattle http://www.facebook.com/WillSeattle on March 31, 2014 at 1:08 PM · Report this
Doctor Memory 14
@9 complains that abundance of tech workers is bad because they tip service staff too well, so those staff no longer bow and scrape for @9's tips.

Well, that's novel at least.
Posted by Doctor Memory http://blahg.blank.org on March 31, 2014 at 4:26 PM · Report this
Doctor Memory 15
@13: as a former Michigan resident, let me just say that your analysis of Detroit's problems is as accurate as your analysis of comparative wine prices.

In other words, put a sock in it.
Posted by Doctor Memory http://blahg.blank.org on March 31, 2014 at 4:41 PM · Report this
16
@14 -- I leave very good tips for good service, often more than 20% of the bill. But the service is laughably bad more often than not -- wrong order, dinner more the 1 hour after ordering, poorly made drinks (this long island tea tastes like coffee?) Dirty tables. I could go on.

I've seen tech workers drop 30% on shitty, shitty service.
Posted by MameSnidely on March 31, 2014 at 7:20 PM · Report this
Doctor Memory 17
Wow, you're really committed to this whole "tech workers are bad because they give too much of their disposable income to service workers" line? Okay then.
Posted by Doctor Memory http://blahg.blank.org on March 31, 2014 at 11:03 PM · Report this
18
I leave 20-25% tips too, not bc I'm loaded (I work retail), but bc i used to be a waiter. Btdt.

Btw Anyone look into plans for the high (ish) rise development planned for the Rainier Lowes/Pepsi neighborhood? It's big news on NextDoor but haven't seen it discussed elsewhere.
Posted by lazy on April 1, 2014 at 7:33 AM · Report this

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