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San Francisco's Tech Tax Breaks Are Broken

Spotify is set to receive San Francisco's so-called "Twitter tax breaks" in exchange for "giving back" to the community. Meanwhile, the city has shut down the means to keep companies accountable.

Posted on June 11, 2013, at 5:11 p.m. ET

A mural on the Warfield building, Spotify's new home, depicts the Mid-Market street life.

Spotify, the streaming music company, is moving its San Francisco offices to the city's Mid-Market tax haven, where it can qualify for the city's controversial "Twitter tax breaks."

Any company with offices in the neighborhood that has over $1 million in annual payroll expenses is eligible for tax exemptions: 1.5% on payroll taxes on new hires for six years. Currently, Spotify's 15 San Francisco employees are in a Financial District office — but their new three-floor digs in the Warfield building, home to San Francisco's famous music venue, has space for around 90 employees.

Spotify's tax break wouldn't go into effect immediately: The application for eligibility is Nov. 1. But Spotify has already begun conversations with the city.

Spotify, like the other seven companies that get the breaks, would have to sign a Community Benefit Agreement (CBA), outlining how they will "give back" to the community. Other companies' CBAs have included a combination of volunteering, charitable donations, and in Twitter's case, $60,000 in promoted tweets. "The thing we're most excited about is working within the community artist groups and helping with workforce development," says Spotify. "We have had discussions primarily with the city looking at introductions to the specific groups."

But making sure that companies keep their word to "give back" is a complicated process. The city designated the City Administrator Office to oversee the CBA process, but the oversight system has broken down.

A major part of the review process is an 11-member Citizens Advisory Committee (CAC), which has been providing input to the companies about specific things the community needs, ways the companies can help, and what is and is not working. For example, many companies prefer one-day large volunteer events, which are easier to organize and dispense with service pledges quickly, but only organizations like soup kitchens are equipped to handle that volume of volunteers. The committee holds public meetings, coordinated by the city, as well as one-on-one sessions with the companies.

The CAC has no formal decision-making powers — that is up to the City Administrator Office — but they play a key, and highly symbolic, role in making sure the companies live up to the promises they made to the city in exchange for major tax relief.

Last month, with only hours' notice before the May meeting, the CAC was temporarily disabled. It was claimed that the four members were dismissed due to too many unexcused absences. Three other seats were already vacant — one due to maternity leave, another because of a conflict of interest (his organization received a grant from Twitter), and another that was never filled — leaving the committee without a quorum.

"There is now no public forum to discuss what is working what isn't working," says CAC member Mara Blitzer. "There is no way for the companies to be accountable to community. That is something we have asked for from the start. The challenge will be community transparency."

This leaves SF's tax haven beneficiaries without real public oversight, and at a crucial time: The six companies handed in their first progress reports last Friday, and the city won't yet publicly release their contents. According to Bill Barnes in the City Administrator Office, the city is moving forward anyway, and even speeding up the review process.

"The public wants to provide input in design of the reporting document, but ultimately [reviews of the CBAs] are the city administration's decision," says Barnes. For now, citizens can mail in written suggestions.

The effective dismantling of the CAC is illustrative of the disorganization and miscommunication that has rifled San Francisco's most recent tech courtship since the start. "The city administration was open to community input but was not organized in how to received it," says Dina Hilliard, former CAC committee chair, now on maternity leave. "It isn't their fault," she adds, however. "They don't have the resources."

Often meetings were scheduled and canceled extremely last-minute, say members of the CAC. They reported having difficulty obtaining meeting minutes and didn't know how to get an absence excused, which ultimately resulted in removals.

The legislation that created the CBA process is also questionable. It was created by a former city administration staffer and doesn't reflect the current process. For example, originally the CAC would meet quarterly, so missing four meetings meant missing all of them. Over the past 12 months, the CAC has met 15 times, making the absentee process much stricter, in effect. "When [my office] was alerted of the rule, we weren't taking attendance on a regular basis," says Barnes, who adds he was "frustrated" by the process.

"I don't think it was nefarious," says Blitzer. "But [the city] got caught not upholding the rules and instead of having moment of working through it, they took the most extreme response they could."

Since the CAC's dissolution, the city has appointed a new staffer to work part-time with the Mid-Market group.

The CAC has already provided four months of feedback to the city and companies about the CBA progress. "It is not like the community has had no input," says Hilliard. "It is really disappointing that we will miss out on community input on the specifics of the CBAs."

Before the CAC was disabled, its members were urging the city to ask the companies for specific quantitative details in the progress report instead of using a more basic reporting form. The city has since rejected the idea.

The city is accepting new CAC applicants. The timing of the appointing process is not finalized, but the citizen committee should be up and running in time for the mid-year CBA approval.

Ironically, complaints about the unexcused absences came from members of the community who want more committed representatives. Now they have none.

H/T: Central City Extra community newspaper.

A BuzzFeed News investigation, in partnership with the International Consortium of Investigative Journalists, based on thousands of documents the government didn't want you to see.