Twitter Tax Deal Creates Classic San Francisco Row

SAN FRANCISCO (AP)  In the shadow of San Francisco's stately City Hall, sidewalks abound with transients, drugs & crime. In to this neighborhood, one of the world's hottest social media companies has promised to stride, offering urban rebirth in exchange for a tax break.

Tax incentives to bring businesses to blighted streets are not unusual. But this is San Francisco. & Twitter. The mayor supports the plan, but progressive politicians & now the city's largest public worker union  call the proposal a poorly crafted giveaway to the rich.

The conflict comes at a time when the city's high tech economy teems with energy not seen since before the first Net bubble burst over a decade ago.

At issue is the city's payroll tax. San Francisco is the only city in Los angeles to levy its business tax based on how much companies pay workers, than how much money they take in.

To do that, Twitter needs much more space. One option would be to run away to a sprawling suburban campus in Silicon Valley, where adding more employees would not mean adding to the tax bill.

Since Twitter emerged as a side project of a San Francisco podcasting company in 2006, the business has grown from a handful of employees to a few hundred. With investors pouring money in to Twitter, the company expects to grow to over 3,000.

For a company that expects to add thousands of new of employees in the next few years, the savings would add up quickly.

But earlier this month, recently appointed Mayor Ed Lee announced what appeared like a winning solution for everyone. Twitter had signed a letter of intent to sign a six-year lease on several hundred thousand square feet of office space in a historic building in the struggling Mid-Market neighborhood. The only condition: The city must agree to exempt Twitter from paying any new payroll taxes on any additional hires.

"This is the moment they have been waiting for," Lee said of the proposed deal. "The transformative nature of an anchor tenant like Twitter will revitalize this community."

Yet in San Francisco, where an overall economy largely untouched by the recession has kept actual estate prices among the highest in the country, some low-income residents worry that revitalization will lead to higher rents. & city employees facing layoffs & contract concessions thanks to a large budget shortfall resent what they see as a giveaway to venture capitalists & a bailout for landlords.

"Who are the (Twitter) investors?" Supervisor John Avalos told The San Francisco Examiner. "Probably some of the wealthiest people in this country. & they are giving them more wealth."

Last Tuesday, members of a neighborhood group protested outside Twitter's current headquarters, about a mile from the proposed new offices.

"The residents are feeling that if they are not going to benefit from this revitalization that the city is pushing for, it doesn't make sense for these companies to stay in San Francisco," said Angelica Cabande, director of South of Market Community Action Network.

They accused Twitter of not living up to its pledge to be a nice neighbor. They complained neither the city nor the company have thought about the low-income residents who would be adversely impacted by rising rents spurred by the prosperity Twitter could bring.

Due to the controversy, a lawmaker on the Board of Supervisors' progressive wing, Ross Mirkarimi, has proposed an alternative measure they says will fix an underlying legal flaw that has led to anxiety among hot tech companies looking to grow.

Twitter declined to comment on the tax-break fracas.

For tech startups, stock options are one of the most common ways to hold onto employees, when a lack of money doesn't let them offer competitive salaries. When blessed companies reach a point where they can make their preliminary public offering of stock, those options can turn in to a major windfall for workers.

San Francisco's payroll tax is unusual , but one provision makes it even more unique. The city in 2004 added language to the tax code to clarify that tax collectors thought about stock options an element of employees' compensation & hence taxable as part of the payroll.

But for companies in San Francisco, that windfall sticks employers with a immense tax increase right at the time they have issued the stock in an hard work to expand. Mirkarimi's proposal would place a two-year moratorium on taxing any company's stock options to ease the fears not of Twitter, but other San Francisco-based startups like social gambling leader Zynga & consumer review net site Yelp.

"You don't require to write law in a way that only helps one company or one neighborhood in one part of the city," Mirkarimi said.

The Board of Supervisors is scheduled to vote Tuesday on the Twitter package, & Mirkarimi predicts it will pass even without his vote. If that happens, Service Employees International Union Local 1021, the public employees union, may seek a ballot measure that could delay the deal until voters weigh in.

City economic officials paint any failure of the deal not as a loss to Twitter but as a loss for the neighborhood, where over half of the available commercial actual estate sits vacant. While Twitter is the giant fish the city is seeking to catch, any businesses within the geographic zone defined by the legislation would receive a similar tax break.

"The benefit they wish, which is jobs in this area, is not happening without some incentive," said Jennifer Matz, director of the city's Office of Economic & Workforce Development. Without such incentives, he said, the neighborhood has not seen improvement for a generation. "It resisted the last dot-com boom."