Boom for whom?

Why isn't San Francisco's hot economy creating a budget surplus to address its costly byproducts?

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Workers rally at City Hall for an end to corporate welfare programs.
GUARDIAN PHOTO BY JOE FITZGERALD RODRIGUEZ

steve@sfbg.com, joe@sfbg.com

San Francisco's economy is booming these days, fueled by the latest dot-com bubble and a hot real estate market, sending more than expected tax revenue into city coffers. So why doesn't San Francisco have a big budget surplus to help address the gentrification and displacement triggered by the boom?

The lack of satisfying answers to that question is adding to the populist political outrage that is now animating the city, from the regular street protests against evictions and rising income inequality to the corridors of City Hall, where labors leaders and progressive activists are calling for a repeal of the corporate welfare policies adopted by the Mayor's Office.

The city's charter-mandated, biannual Five Year Financial Plan Update, released March 6, shows projected annual city budget deficits growing steadily from $66.7 million in 2014-15 to $339.4 million in 2017-18, demonstrating that even the hottest of economies can't overcome the city's structural budget deficit.

Revenues are indeed growing, but not nearly as fast as the cost of running the city, a mismatch that has only been exacerbated by tens of millions of dollars in tax breaks given to Twitter and other growing companies along mid-Market Street and those that offer stock options.

Changing the business tax from a payroll to gross receipts tax also failed to address that structural deficit, and it may have even exacerbated it, particularly for the big tech firms that came out ahead in the switch. Bottom line: The city isn't bringing in enough revenue to balance its bottom line, even in good years.

Last week, members and allies of the largest city employee union, Service Employees International Union Local 1021, stormed through City Hall demanding its share of the city's wealth, promising to return this week when a delayed Board of Supervisors Budget and Finance Committee hearing will finally be held.

This year's city budget process could emerge as a key narrative in the tale of two San Franciscos that is being told here and by watchers around the world.

 

ENOUGH IS ENOUGH

Nearly 300 SEIU members and their supporters protested the business tax breaks on the steps of City Hall on March 19, in advance of the scheduled budget hearing inside. Their chants took a unique twist on a familiar theme.

"Whose city?!" Sup. David Campos asked the crowd. "Everyone's city!" they shouted back.

And that's the rub. It's not about excluding tech and corporations from San Francisco, the protesters said, it's about fairness.

"There's a great deal of wealth in San Francisco, and it's wealth that leaves behind many of us," Campos told the crowd of purple-clad protesters. "It's time to put working people in front of the line."

The giveaways to corporations and the tech industry are at a breaking point, the protesters said. Twitter alone is getting an estimated $56 million tax break, with millions more going to the companies in its orbit. The Google buses are only paying a dollar per stop, bringing in budgetary decimal dust from a corporation worth $390 billion. City taxpayers paid $5.5 million to subsidize Oracle CEO Larry Ellison's America's Cup last summer.

The numbers are adding up, and the union workers were asking how the city can give away hundreds of millions of dollars to the wealthy tech industry while the city struggles to provide basic services while bridging budget deficits. Mayor Ed Lee and his allies emphasize his economic policies stimulate the economy and create jobs, but the workers say that's only increasing the cost of living here.

"I have a family of five and I couldn't afford to stay here," said Brandon Dawkins, an employee in the Department of Public Health. "I was born and raised in San Francisco and we had to move to Oakland. And now that's expensive and we're going to have to go to Sacramento and I'll commute here for work."

Comments

But if you want to know why SF will have a deficit even if we continue to boom, look no further than SEIU and the insanely generous healthcare and pension benefits that city workers get at our expense.

Even in the most favorable outcome, we cannot afford that. In a bust, we will be decimated just like various other cities have already found out.

Posted by Guest on Mar. 25, 2014 @ 5:17 pm

in perpetual boom.

Posted by Guest on Mar. 26, 2014 @ 8:00 am

to Brisbane?

Steven cannot answer that question.

Posted by Guest on Mar. 25, 2014 @ 5:19 pm

Your question assumes they were really going to move to Brisbane, and I've seen no evidence supporting that (not that the City Hall neoliberals in tech's pocket needed evidence to start handing over taxpayer money to the same people who then fund their political ambitions). And even if it was true that Twitter would have left, it's always a bad idea to give in to extortionists because it only encourages more, as we saw from Zynga shortly after executives there saw that it worked for Twitter. San Francisco is world-class city and these companies want to be here for many reasons, so we should have some self-respect and stop pandering to them.

Posted by steven on Mar. 26, 2014 @ 2:11 pm

Twitter had moved.

And you want evidence they were thinking of moving. They said they were and had researched RE options there.

Tax breaks to attract and retain important employers is routine, and competition between cities is healthy.

Posted by Guest on Mar. 26, 2014 @ 2:36 pm

Wait a sec. You say that SF is a world class city and these companies want to be here for many reasons. But then why the hell do they have the buses that you hate so much? Apple's campus is in Cupertino. Genentech's is in South San Francisco. Facebook's is in Mountain View. But I guess if Twitter did move to Brisbane there'd be Twitter buses so at least you'd have that to complain about.

Posted by Guest on Mar. 26, 2014 @ 3:21 pm

Ed Lee and his allies emphasize his economic policies stimulate the economy and create jobs..."

For people who don't live here.

The jobs created are for people who don't live here. That's what this man Lee consistently fails to say when he's going on about "creating jobs" ad nauseam. He fails to tout that he is an outsourcing mayor. His "creating jobs" bull shit is a form of outsourcing. Because these anorexic-looking techie people (the females especially look anorexic***) didn't live here to begin with. They came here from elsewhere for the job. They've done so in mass numbers to the point that this city is quickly becoming unrecognizable to many locals. This is really just another form of outsourcing---and outsourcing is not good---instead of local-hiring.

*** Maybe if they ate more of the food that they take pics of to upload, they wouldn't look like they have an eating disorder.

Posted by Guest on Mar. 26, 2014 @ 9:06 pm

planned SF economy, then why are they here at all?

We need people with the right skills and not a bunch of lowers and hangers on.

Posted by Guest on Mar. 27, 2014 @ 5:46 am

A "planned" economy sounds commie, watch out

Posted by Guest on Mar. 27, 2014 @ 7:47 pm

we need the people we need and not the people we happen to have

Posted by Guest on Mar. 27, 2014 @ 7:59 pm

was given a tax break because they agreed to put their offices in what can only be described as a shitty part of the City. Since then, that area has become less shitty, although it clearly has a long way to go. But the needle is definitely moving in the right direction. Kinda hard to put a price tag on that, but if when all is said and done a cesspool is transformed into a place where businesses are willing to open up and people are willing to live, I'd say the lost tax revenue would have been well worth it.

and, of course, you are looking at the tax break Twitter received. How much revenue would we have lost if they did leave the City? puh-lenty

Posted by guestD on Mar. 27, 2014 @ 1:43 pm

and departments. Why the special flowers need a department of environment or labor is a mystery, why SF needs 100 or so commissions is also mystery.

If SF's massive budget isn't enough in relative good times, there is a structural problem.

Posted by Guest on Mar. 26, 2014 @ 7:56 am

and their benefits are insane.

There isn't too much I need from the city - mostly public safety and fixing the streets. If the rest were privatized, outsourced or closed down, I probably would not notice

Posted by Guest on Mar. 26, 2014 @ 8:13 am

The $11.5 million we lost hosting America's Cup surely didn't help.

SF needs to quit sucking the balls of the High Tech Barons.

Tax the crap out of them (like any other business) if they want the cachet of being based in City zip codes.

Posted by Guest on Mar. 26, 2014 @ 10:54 am

related spending by the competitors and spectators.

Anyway, I'd rather have a world class event here than throw even more cash at the city family

Posted by Guest on Mar. 26, 2014 @ 11:46 am

The public sector take was negative. Private corporate income from a publicly subsidized event does not count on the public balance sheet other than a sea of red ink.

Posted by marcos on Mar. 27, 2014 @ 11:28 am

spending in the form of sales tax, hotel tax etc.

Anyway, we put on these world-class events not for the money but for the prestige, standing and long-term reputation of the city.

Posted by Guest on Mar. 27, 2014 @ 11:40 am

The America's Cup took money from the general fund and that includes accounting for tax revenue.

Look here. I said something false, but what really matters is this.....

2+2=5 if I say so.

Posted by Guest on Mar. 27, 2014 @ 1:17 pm

But that ignores the value of the intangibles

Posted by Guest on Mar. 27, 2014 @ 2:08 pm

penis and balls obsession is abnormal.

Posted by Guest on Mar. 26, 2014 @ 5:05 pm

I Find These Interesting:

Twitter's IPO Is More Proof That Tech Is In A Massive Bubble
http://www.forbes.com/sites/jessecolombo/2013/11/07/twitters-ipo-is-more...

The economy has stalled
http://www.marketwatch.com/story/the-economy-has-stalled-2014-03-19

Posted by I Find These Interesting on Mar. 26, 2014 @ 6:20 pm

Related:

Can instant messaging damage your health? Doctor warns of 'WhatsAppitis'
Echoing the 1990s 'Nintendinitis' scare, repetitive strain injury to smartphone user's hands leads doctor to report new condition
http://www.theguardian.com/technology/2014/mar/26/can-instant-messaging-...

Posted by Guest on Mar. 26, 2014 @ 9:36 pm

If it's on the internets, it has to be true. I think there's $165 million available for the SEIU leeches if we can finally put together a Hunger Games for the homeless. I'm going to run it by Larry Ellison...

Posted by Chromefields on Mar. 27, 2014 @ 7:38 am

This article is a great help if you want to understand the Progressive mind set.

1) Revenues are increasing but expenses are increasing even faster.

2) So the only question to ask is "Then why aren't revenues increasing fast enough to cover the growth in expenses?"

There IS no other side of the equation.

And why, oh why, did we do something that helped the businesses that are creating the revenues??????

Posted by Guest on Mar. 27, 2014 @ 8:39 am

These are the highest paid City employees in the United States if not the world.

WHY IN GAWD'S NAME ARE THEY COMPLAINING?? The money is going to fund their benefits - do they think their extraordinary benefits are cost-free?

AND pension and health benefits are still not fully funded...by a longshot.

Public employee greed in CA from firefighters to SEIU has no bounds.

Posted by Guest on Mar. 27, 2014 @ 8:46 am

Your claim is unfounded. If you'd read the article, you'd see that the five-year budget projection assumes employee pay will only rise with the cost of inflation, about 2 percent per year, which wouldn't even costs inflationary costs for those employees living in rapidly gentrifying San Francisco.

Posted by steven on Mar. 27, 2014 @ 11:31 am

It's interesting that you believe that pay raises for city employees should exceed the level of inflation given rising costs in SF. And then you can immediately turn around and support rent control rent increases of only 60% of the inflation rate. I guess the rising costs of landlords are not deemed important.

Posted by Guest on Mar. 27, 2014 @ 1:21 pm

Last I checked the cost of their pension benefits were increasing $100 MILLION per year and who knows how much their health benefits are increasing. Again even with these large increases in the general fund budget for employee benefits - these benefits are not fully funded. This means that since the City does not fully accrue for these exorbitantly expensive benefits (instead reporting them as unfunded liabilities), City employees are "earning" even more than the City Controller reports.

I don't get it - you either believe the gold-plated benefits paid to the gazillion City employees have no value - or you believe these costs are being paid by little green elves. Which is it?

The idea that City employees are underpaid (a city employee's compensation (wages & benefits) is far greater higher than the average private sector worker in SF) is patently absurd.

Posted by Guest on Mar. 27, 2014 @ 2:01 pm

workers that will have us in hock for the rest of the century unless the problem is fixed.

Posted by Guest on Mar. 27, 2014 @ 2:09 pm
Posted by Guest on Mar. 27, 2014 @ 8:48 am

They remind me a bit of Tony Soprano. Anytime anyone in his territory made any money Tony had to have his cut respectfully delivered to him.

They also remind me a bit of the zombies on The Walking Dead. They smell money somewhere; they stagger over so that they can sink their teeth into it.

Posted by Guest on Mar. 27, 2014 @ 9:41 am

The same thing is happening at the MTA, where the major driver in budget growth is claimed to be pensions.

The SFBG should do a forensic accounting investigation of how the neoliberals have staged the budget such that pensions become the driving force in the structural deficit as revenues rise.

I believe that this was engineered to produce dual outcomes, first a diminished confidence in the public sector as a rationale towards privatization and to coerce public employees to cast their lot with defined contribution versus defined benefit retirement plans.

Plumbing the politics of this via ballot measure and budgetary manipulation would be beneficial.

Posted by marcos on Mar. 27, 2014 @ 11:55 am

the vast right-wing conspiracy to make lefties look bad?

Sorry but you guys achieved that all on your own.

Posted by Guest on Mar. 27, 2014 @ 12:52 pm

It's really quite sad to see a grown man decline so quickly.

Posted by Guest on Mar. 27, 2014 @ 1:07 pm

Why must you shift the conversation from policy that makes you uncomfortable to an individual every time? Why does the SFBG tolerate such internet trolling behaviors?

Posted by marcos on Mar. 27, 2014 @ 1:28 pm

post here. If they are known and discredited, or have admitted failure as you have, then that debunks your narrative.

A troll is simply someone who disagrees with you

Posted by Guest on Mar. 27, 2014 @ 2:09 pm

trolling with his "barrier" shtick, SFBG blocked him. Just like SFGate blocked him.

But the free exchange of ideas here is not trolling. It is free speech and a celebration of diversity.

Posted by Guest on Mar. 27, 2014 @ 2:20 pm

initiative on there.

The blame for the pensions mess is broadly spread.

Posted by Guest on Mar. 27, 2014 @ 1:06 pm

Campos is ready to give the city away to real estate developers, but tries to play like he is a populist. The in-law legislation needs to include a provision to re-assess properties that are converted to multi-unit REVENUE producing properties. These property owners (who own in-law units) need to pay more in taxes if they are going to tax city services. That is a much bigger givaway than a Mid-Market exemption to businesses who are hiring people.

Posted by Richmondman on Mar. 27, 2014 @ 12:11 pm

SFH into an income building. Costa-Hawkins is very clear on that.

Posted by Guest on Mar. 27, 2014 @ 12:55 pm

Legally, perhaps - but the reality is that adding an in-law does change the nature of the property. Legalizing in-laws changes the economics of single family homes. Every SFH in SF will be priced based on the potential revenue per square foot, which makes them even more out of reach to home-buyers. And most of these are not owner-occupied anyway!

Posted by Richmondman on Mar. 27, 2014 @ 1:05 pm

My point was that the property tax cannot change, except insofar as the cost basis increases by the value of any work done to create an in-law or bring it up to code

Posted by Guest on Mar. 27, 2014 @ 2:05 pm

How about a fee for changing a SFR to a multi-family. How about fining landowners who have made illegal property modifications? How about requiring everything being brought to code, and increasing property taxes based on the increased costs related to the construction? None of these revenues are being considered by a supposedly progressive group, yet there is no doubt these units drive additional city costs, for police, fire, MUNI schools and other city, county and state provided services.

Posted by Richmondman on Mar. 27, 2014 @ 4:02 pm

idea at all. The idea is to encourage property owners to create and maintain in-law units in order to prove more housing and, in particular, affordable housing since in-laws are usually cheap.

So hitting owners with taxes hikes and fees would have the opposite effect. This idea is a carrot and not a stick.

And incidentally that is why Chui's new legislation is purely voluntary for property owners. They will not be compelled to legalize their in-laws, nor keep them at all. And they would decline to participate if it meant extra fees and taxes.

Rather the idea is to incentivize them to put them on the city's books because then they are easier to preserve - right now any owner can demolish an in-law unit either by seeking a demo permit or just doing it.

Of course, Chui could have gone further and offered an exemption from rent control - that really would have been a major benefit. But at least it's voluntary.

Posted by Guest on Mar. 27, 2014 @ 4:23 pm

How about charging a fee based on the amount of unpaid subsidized rent, rent controlled tenants get. Why not make them share some of their city supported savings with the populace for the common good? Why should they get financial advantages no one else gets?

Posted by Guest on Mar. 29, 2014 @ 5:12 pm

amount of the rent they save.

I believe France has an "imputed rent tax" so there is precedence.

Posted by Guest on Mar. 29, 2014 @ 5:32 pm

But renters=good, tech companies=bad, right? Just like poor people=interesting and noble, rich people=boring.

Posted by Guest on Mar. 29, 2014 @ 5:47 pm

that all my beliefs are politically correct and approved by the central communist committee.

Posted by Guest on Mar. 29, 2014 @ 5:59 pm

Funny how service workers are bitching about people not paying their fair share in taxes when a big chunk of their income is not taxed. Hypocrites.

Posted by Guest on Mar. 27, 2014 @ 3:11 pm

Stay the course Ed Lee. Don't listen to a bunch of imbeciles with megaphones who obviously know nothing about economics.

Posted by Guest on Mar. 27, 2014 @ 3:15 pm

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