The sorry state of San Francisco’s downtown is spurring local policymakers to survey the damage—and the possibility of remaking the city’s complicated tax code.
District 8 Supervisor Rafael Mandelman sent a letter asking budget officials to analyze how the slow recovery of San Francisco’s downtown—which ranks dead last in the nation, according to researchers at UC Berkeley—will impact tax revenue from businesses and the commercial buildings they occupy.
“There are things in our business tax structure that need some work,” said Mandelman in an interview.
San Francisco lost population during the Covid pandemic, and lost even more commuters as remote work became the norm for many downtown companies. Major companies have dumped office space, leading to some 25 million square feet of commercial space on the market and the threat of a serious hit to the city’s tax revenue.
San Francisco’s commercial property values could fall as much as 43% and trigger a loss of up to $240 million in property taxes, according to a study published in November by the Institute of Taxation and Economic Policy.
What’s more, the city’s business tax revenue—which amounted to more than $1.16 billion in the last fiscal year—is also at risk from remote work, with those taxes tied to the number of employees physically working in the city.
Mandelman’s letter asks the Office of the Controller and the Treasurer & Tax Collector to gauge the magnitude of those trends, and to make recommendations on what to do about it. Members of the city’s tech community have complained for years about what they view as a business-unfriendly climate in San Francisco, and the city’s complicated tax code disincentivizes bringing office workers back.
“There are some parts of [taxes affecting financial technology] where the incentives to locate outside of the city are strong enough that they’d be foolish to locate their business in SF,” Mandelman said. “It doesn’t seem ideal.”
Block (formerly Square) CEO Jack Dorsey and Stripe CEO Patrick Collison were among those who complained that Proposition C, a 2018 ballot measure that added a new tax for homelessness services, unfairly penalized fintech companies. Both Block and Stripe have reduced their presence in the city.
Mandelman’s request was preceded by another letter in July by Supervisor Catherine Stefani, who asked the budget office to quantify declining demand for office space. Likewise, Supervisor Ahsha Safai plans to call a hearing to discuss ways to bring workers back downtown, telling The Standard in an interview that an “honest conversation about the current tax structure” is warranted.
The earliest opportunity to remake the city’s taxes would be in 2024—and it may be a long road to analyzing the issue and finding consensus among competing views on taxation at City Hall. Mandelman’s letter is seeking analysis and recommendations by April 2023.
“We’re going to have to see what the tenor at the Board of Supervisors is, the tenor at the Mayor’s office, the perspective of the business community—I think they’re not going to be super excited for an effort they see as further shaking them down,” Mandelman added.