Over the last year OpenAI’s revenue has almost tripled. Its valuation is ballooning by billions.
At the same time, it repeatedly lobbied the city for a tax break, records reviewed by The Standard show. Mayor London Breed’s administration didn’t give them what they wanted.
That was then. Now, it doesn’t take advanced artificial intelligence to compute the golden opportunity gift-wrapped for OpenAI by San Francisco’s mayor-elect.
OpenAI CEO Sam Altman is the star addition to Daniel Lurie’s transition team, even as his company lobbies the city to tweak its taxes to its benefit. OpenAI’s lobbyist, longtime City Hall insider Alex Tourk, is still on their payroll.
Not only will Altman have Lurie’s ear on policy issues germane to San Francisco – like say, its business policies – it also puts him in a position to recommend staffers for the Lurie administration who may agree with a more tech-friendly tax environment.
Breed said no to Altman’s company. But will Lurie?
“We have not discussed any tax breaks,” Lurie told The Standard in a Tuesday interview. “We talked about their investment in arts and culture. Investing in the city. He’s all in on our city, just like every co-chair on the transition team.”
Former San Francisco Ethics Commission president Paul Melbostad said Altman’s presence in Lurie’s transition team is an obvious red flag.
“I think it would be wise not to include him on the transition team if the company is currently lobbying for a tax break,” Melbostad said. “It creates an appearance of undue influence and special access, even if mayor Lurie and Sam Altman have the best of intentions.”
OpenAI is a burgeoning San Francisco darling. Not only is artificial intelligence one of the few glimmering stars in the city’s otherwise dim economic outlook, OpenAI signed a lease for 350,000 square feet in the former Old Navy site in September. That brings OpenAI’s office presence in San Francisco to just under 1 million square feet, a sorely needed anchor as businesses sail away from the city’s shores.
That star power didn’t bring OpenAI a sweeter tax deal, however.
Instead, voters may take more blood from companies like OpenAI by approving Proposition M this past November. The measure reforms business taxes to lessen the burdens on the city’s largest and smallest businesses, in hopes of stimulating the economy.
But someone’s got to make up the lost revenue: that’ll be midsize companies, which may pay more under Prop. M. The tax overhaul may also reduce how much taxes are calculated on business payrolls, and weigh them far more toward sales.
So if a middle-size company is about to skyrocket — say, like a tech firm expecting a boost in revenue — that company will pay higher tax rates than under the previous tax scheme.
Enter Tourk, OpenAI’s San Francisco lobbyist. In a bevy of virtual meetings, he met with the city’s office of economic and workforce development and the city’s chief fiscal officer in March to discuss tax reforms, lobbyist filings at the ethics commission show. He came into City Hall for the first meeting with Mayor London Breed, then hopped on Microsoft Teams with her staffers – in April, May, and September – also to discuss tax reform. In October, he met with the office of workforce development yet again.
Prop. M is done. Why are they still lobbying? Two major elements of its implementation are still in question. First off, how do you figure out what a San Francisco sale means for a company that sells something intangible, like software? It’s a complicated, ongoing rulemaking process going through the Treasurer & Tax Collector’s office.
The tax office is less easily lobbied. Politically, treasurer Jose Cisneros had been re-elected breezily. It is well-known lobbyists have little sway there.
But another way a lobbyist can negotiate a tax benefit is going to the Board of Supervisors or mayor’s office to seek a tax carveout. One carveout that may ring a few bells is the “Twitter Tax Break,” which was seen as a sweetheart deal for tech companies in mid-Market that failed to improve the area long term.
Lurie’s team tried to dispel any whiffs of impropriety. They circulated a code of ethical conduct for all members of their transition team to sign, which notes “I will take all steps reasonably necessary to avoid abusing or misusing my position with the Transition Team for personal gain.”
In a statement, an OpenAI spokesperson said, “Sam has not discussed tax reform with Mayor-elect Lurie and will comply with the ethics pledge required by the transition team. San Francisco is where OpenAI got started and we’ll continue to advocate for policies that ensure the city remains a hub for innovation.”
Melbostad called that ethical pledge “meaningless” in a legal sense. He also served on a mayoral transition team — for former mayor Art Agnos, in 1988 — and he knows how influential the position can be. The shape of the new administration flows from such a team, he said.
“The people appointed to the transition team know people who have skills that would be helpful to the incoming mayor,” Melbostad said. “The purpose of the transition committee is not to allow persons or entities seeking influence to obtain tax breaks to have an inside track.”