San Francisco has spent tens of millions since the pandemic on programs aimed at reviving the hollowed-out downtown core. Now, amid a budget crisis, funding for those initiatives is on the chopping block. At risk are city grants for storefront beautification, small-business support, and entertainment meant to draw visitors downtown.
To offset the cuts, Mayor Daniel Lurie is looking outside of government to the wealthy individuals who make up his Rolodex to take on a role traditionally filled by the city. While those likely to be affected by the cuts say they understand that difficult choices are necessary to balance the budget, they express worry about entrusting such an important mission to individuals with little or no experience working with the city’s bureaucracy and have doubts as to whether such handouts can be a long-term solution.
“Part of the theme of the day right now for all of us is the unknown,” said Steve Gibson, executive director of the Mid-Market Business Association and Foundation. “What we do know and is pretty obvious is that there will be less money to give out.”
City Hall’s efforts to boost downtown over the past few years could be characterized as a “spaghetti at the wall” approach featuring an array of programs — from free rent to street fairs — with varying degrees of success. Lurie campaigned on creating better street conditions, and part of his strategy is to outsource economic development programs to philanthropy and the private sector.
“Government’s job is to create the conditions for business and our economy to thrive,” said Charles Lutvak, a spokesperson for the mayor. “We are doing that in this budget and every day by prioritizing the core services like public safety and clean streets that are driving San Francisco’s recovery.”
Lurie’s vehicle for bringing in private money is the San Francisco Downtown Development Corporation, a nonprofit public-benefit corporation spun up by his allies. To do this, the mayor’s office obtained a special waiver that allows public officials to solicit private donations for city projects or initiatives through the DDC.
There’s a simple reason for the mayor’s focus on downtown recovery. Although it makes up a small portion of San Francisco’s footprint, downtown provides 40% of the city’s tax revenue and is the site of 40% of jobs. Critically, it’s often the lens through which outside observers judge the city’s overall health.
Previously, much of the downtown revitalization effort was run through the Office of Economic and Workforce Development, which is charged with boosting small businesses, training workers, and investing in commercial activity.
OEWD is one of the departments that saw its budget cut most significantly in the mayor’s proposed budget — reduced by nearly $57 million, or 40%. The agency’s economic development division faces an even steeper cut of 62%.
A major portion of the OEWD cuts come from a $26 million ambassador program that is being moved to the Department of Emergency Management. Still, among the cuts is $15 million worth of grants and programs that went to downtown pop-ups, tourist-area patrols, and street-level improvements last year.
Lurie has also shaken up OEWD leadership, moving its executive director, Sarah Dennis Phillips, to head the Planning Department instead and elevating director Anne Taupier to replace her.
Downtown is also being singled out in the zero-sum battle for resources with other neighborhoods. Despite the cuts, the mayor’s office touted that the proposed budget has preserved funding for programs that support events and activations in the Mission, the Castro, and Chinatown.
“Our administration is laying the groundwork for downtown to succeed, and we are leveraging every tool in our toolbox, public and private, to drive downtown’s recovery,” Lutvak said.
The DDC, which launched in April, is based in the Hearst Building at Third and Market. The nonprofit’s board — led by David Stiepleman, co-president of private equity firm Sixth Street — has since added three billionaires (Chris Larsen, Bob Fisher, and Meg Whitman), Tipping Point Community CEO Sam Cobbs, and influential union leader Olga Miranda.
The organization has raised seed money — although fundraising has yet to start in earnest — and is in the midst of hiring its first CEO. Tech executive and former Obama administration staffer Tyler Brandon was hired as chief operating officer.
Initially, the DDC will focus on the so-called Hospitality Zone — an area encompassing the Moscone Center, Yerba Buena Gardens, and Union Square. Lurie has already dedicated additional police units to the area, which frequently functions as a welcome mat for tourists and business travelers.
Even though the DDC has been meeting with stakeholders in each downtown neighborhood, as well as OEWD officials, there are open questions as to what its role will be in determining the city’s economic development policies, according to sources who have met with the organization.
Gibson, who is trying to revive one of downtown’s most beleaguered neighborhoods with the Mid-Market Business Association, said his group has hired a consultant to pursue private funding in anticipation of leaner city support.
“It’s not the most fun time to be an executive director,” he said.
In a recent interview at the Bloomberg Tech conference, Lurie described private dollars as start-up capital — meant to be replaced down the line by public funding once programs are off the ground.
“It’s not about being sustainable, it’s about giving us test cases,” Lurie said. “Those funds help kick-start something that we can continue to pay for in the out years.”
It’s a similar playbook to the one he employed while running Tipping Point Community, where a $65 million donation from Charles and Helen Schwab helped develop the nonprofit’s homeless housing project at 833 Bryant St. But public funding for that development has largely failed to materialize since the model used to construct the building is politically impossible to replicate in San Francisco.
Those working on transforming downtown for the post-Covid era say changes will take place over decades, rather than on a quarterly reporting schedule.
That’s the kind of responsibility that has historically belonged to the government. For example, OEWD is leading a legislative effort to fund downtown commercial-to-residential conversions using tax increment financing over the next 30 years. If approved, the plan would let developers use additional property tax revenue from new housing to offset construction costs.
That type of long-term planning might eventually be in the DDC’s purview. According to its website, one of the organization’s goals is to “identify long-term public financing tools to support downtown San Francisco’s health and evolution for generations to come.”