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SF Small Businesses, Politicos, Hope Twitter Will Succeed Where Others Failed

Posted: Jun 21, 2012

SAN FRANCISCO — On June 11, Twitter, the popular social networking platform, announced its intent to move its corporate headquarters to the mid-Market Street area of downtown. The company’s decision follows a city declaration of tax exemption for new businesses in the mid-Market and Tenderloin neighborhoods — San Francisco’s latest attempt to revitalize a historically blighted part of the city.

Efforts to breathe new life into the mid-Market area began in the 1970s with the construction of BART and United Nations Plaza. Also around that time, billboards, widely considered eyesores, were banned by the city. Eventually, companies utilized Market Street’s abnormally large city-blocks to build spacious but unattractive office buildings, which became home to call centers and other customer services.

These decisions would prove ill fated. Resident companies ultimately relocated to the cheaper suburbs; meanwhile, long-term construction had discouraged potential investors from moving into the area earlier on. Proposition D, which would have allowed local property owners to transgress advertising regulations and put up new billboards, was rejected by voters in 2009.

But past efforts – and failures — serve as reminders of mid-Market’s latent potential. Today, Mayor Lee’s incentive-laden deal with Twitter looks to succeed where previous attempts have failed.

In a press release announcing their move, Twitter wrote:

“We aim to be a friend and good citizen to the many wonderful social service, arts and charitable organizations based here, and to do our part in renewing an historic — and newly promising — area.”

Twitter, a San Francisco startup, has experienced massive growth since its founding in 2006, despite the fact that San Francisco is singular among U.S. cities for its incorporation of a payroll tax (1.5 percent) on business labor costs — effectively penalizing local companies for hiring new employees or promotion old ones. Nevertheless, the company enjoyed a meteoric rise to success, with revenues growing from $45 million in 2010 to $139 million in 2011— a growth rate of 213 percent, according to a report by eMarketer. By 2014, global revenues are expected to reach $540 million. As such, Twitter represents an incredible asset to San Francisco’s economy, putting the city squarely back in competition with its neighbors to the south in the Silicon Valley, where tech companies have historically built their roosts.

According to Ed Lee, Twitter is poised to “grow from 350 to 2,500 (employees) in the next three years”. During periods of growth, hiring outpaces revenue, and profit margins decrease. Under current policies, the payroll tax would reap a sum disproportionate to Twitter’s revenue stream. For Twitter to stay in San Francisco during its period of growth would be counterproductive, a fact Mayor Lee acknowledges: “If you're going to grow the employees, why would we punish that?”

The solution, Mayor Lee concluded, was to exempt Twitter from the payroll tax for the next six years – an incentive that Lee hopes will encourage other businesses to relocate as well.

A Good Neighbor?

Allegedly, the compromise will be advantageous to both the businesses and city. Twitter is investing $20 million in its 215,000 square-foot office space in Market Square, a historic art deco building located at the heart of mid-Market. Twitter leases the building from Shorenstein, one of the largest commercial real estate funds in the U.S. who have also agreed to spend $80 million bringing the building up to earthquake standards. This, in combination with Twitter’s expenses, should amount to $100 million spent on the mid-Market economy over the course of a few years. By comparison, the payroll tax would have only accrued about $5 million a year, according to Lee.

Despite the economic implications of Twitter’s move, existing local businesses appear largely ambivalent. Bryan, a clerk at the retail-clothing store Rolo, was unaware of Twitter’s relocation. When asked for his thoughts on whether Twitter’s move would improve the local economy, and whether this was an important step in revitalizing a historic but neglected area, he responded: “I don’t know what the tech culture’s like. They get paid well; hopefully they have money to spend on clothes.”

Cornelius Washington of Out of the Closet, a nonprofit thrift store, was aware of the move and skeptical. Of Twitter’s tax exemption – he learned of it only when it was mentioned during the interview — he declared: “They should pay taxes like everyone else, because those taxes pay for goods and services that benefit the community.” Despite his assertion that Twitter should pay taxes, Washington is poised to reap the benefits of Twitter’s move: “I know they’ll shop here,” he asserts.

Opinions regarding Twitter’s tax-exemption are divided. Allen Musselman, who owns the medical marijuana dispensary, HopeNet, is hopeful that Twitter will alleviate the poverty endemic to the area: “It’s nice because we’re trying to keep the area clean… If Twitter opens up more security, more foot traffic will follow”, and eventually, “more tech companies will move in.” HopeNet also provides social services for the veteran and homeless populations, and Musselman thinks that tech companies will share his philanthropic concerns: “I welcome more tech companies. They’re open people, risk takers; they want things to work, to open new businesses.”

The most decisive opinion comes from a relative newcomer, Fana Moya, who brought her Ethiopian restaurant, Moya Cafe, to the mid-Market area just a few months ago. When asked how her business was faring, she said it was doing “alright,” and then elaborated: “You know, Twitter is coming at the end of this month, and we are hoping it will be even better.” Moya says that Twitter’s imminent arrival was the reason she moved her restaurant to the area, and her preparations for the move are immediately visible in the cafe’s interior — floor-to-ceiling windows and crisp metallic furnishings give the place a decidedly upscale air, in stark contrast to the older businesses surrounding it. Although Twitter’s new building comes equipped with a cafeteria, Moya is undeterred: “I hope we will get those people...Whether they eat here or not, I don’t think there will be any problems. If there’s anything, it would be a plus.”

Mid-Market businesses seem capable only of framing Twitter’s move in black and white terms: there will either be customers, or there won’t. And when asked whether the move could affect their community negatively, residents replied with a resounding “No.” Implicit in such hopefulness is not a sense of the future’s potential, but rather the past’s failures. Behind every assertion of Twitter’s promise, there is a question: “Could things get any worse?”

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