Zynga is one of those high tech companies attracted to the glamour and glitz of San Francisco as a way of attracting talent for its social game products like CityVille. But it is threatening to move elsewhere in the Bay Area if San Francisco doesn’t friend it with benefits especially any that the City already gives Twitter, one of its rival.
Zynga leaked work that despite signing the largest commercial lease in 2010 for a 10-year deal 270,000-square-foot space for its new headquarters its fast growth means that it could just as easily go to another city that will love it more.
“We are looking at a variety of options to grow the company in the Bay Area, and as part of that, we are in serious discussions with the city,” the Chronicle story quoted a Zynga spokesman saying. “It would be premature to comment on those conversations at this time. We are encouraged that the city is engaging with us on this issue.”
You love Twitter more than Zynga! Zynga is thoroughly ‘tweeted-off’ that San Francisco offering a payroll tax break to Twitter and other tech companies in a push to rev up Mid-Market and Tenderloin districts in the City. Action on the tax breaks for Twitter is scheduled for action by the Board of Supervisors April 5th.
Here’s the problem:
San Francisco and every other city, for that matter, has no money to subsidize venture capital and fast growing firms. Giving Twitter a break just invites Zynga and every other firm to get in line with their hand out. Now that Governor Jerry Brown has proposed to strip cities of the ability to use redevelopment authorities to do these kinds of subsidy deals the onus is falling on the revenue bottom line for every tax break deal.
San Francisco is a magnet for business because the commercial real estate market has been soft and good deals can be found on class “A” office space in great locations. The City hurts its competitiveness by imposing regulations and costs of those doing business there that are not imposed elsewhere, but is unwilling to risk the wrath of its liberal constituencies by reducing its regulatory burdens. These venture capital supported firms are great at leverage and negotiating so they are squeezing San Francisco for every dollar they can extract as they should.
But if San Francisco used the cost of all the tax breaks it has handed out to reduce the cost of doing business in the city for everyone a rising tide would lift all boats—and San Francisco’s fog and magic would still make it a great place to be.
But the best part of the Chronicle story is going online to read the comments from readers which make you wonder, sometimes, why anyone in their right mind would want to do business there.
Here is a sample:
1:57 PM on March 26, 2011
Throw ’em out. No businesses allowed in SF.
9:56 AM on March 26, 2011
While their tactics reflect poorly on these well-to-do companies, they are beholden to their investors’ money interests and ultimately they’ll do whatever saves/makes them the most money.
Best strategy for SF is to drop the all barriers that make companies look south, keep the businesses here and enjoy extracting money from the business & staff through other means (property taxes, sales taxes, higher business activity in the mid-market, etc). It’s sad to admit but you’ll never be able to compete against an investor’s bottom line, and you shouldn’t give them reasons to show their cheapness – they and/or the stock market doesn’t care whether their workers are enjoying a high standard of living in SF or are in some bleak business park wasteland to the south. Sad, but that’s reality.
9:16 AM on March 26, 2011
The City needs to realize that providing tax breaks to firms that start and provide jobs here in the City will benefit the City in the long run. However, providing tax breaks to firms that operate as part of a chain or import themselves into the City because San Francisco is a ‘destination’ address, don’t need or deserve these tax considerations.
4:16 AM on March 26, 2011
I’m sick of the blackmail. If the internet brats want to move to Hooverville, let them go. They shouldn’t get a tax break when middle class residents and small businesses have to pay their taxes. These are taxes on the stock options of new MILLIONAIRES. I’m sure they didn’t hesitate to take advantage of the city-provided health care safety net and the city-provided clean drinking water, and the city-provided streets, and the city-provided fire protection while they were just a bunch of recent college grads with an idea. Count your blessings, quit complaining, and write your check. It’s not like they’re going to end up in the poor house.
3:15 AM on March 26, 2011
Zynga’s valuation is in the billions. The Company requires a work force that is diversified and able to contribute to the many challenges the Company will face as it continues to grow at its current pace. Zynga’s growing size will eventually utilize a myriad of shared service centers, developer locations, data center operations, and sales offices that are not within an arm’s reach of the Company’s headquarters (even though the newly signed lease is large at 270k sq. ft.). So when Zynga claims they are looking to “future expansion south of the city,” it’s only natural they will look to lessen the cost of living burden faced by their employees (which directly reduces their payroll costs); after all, can an accounts payable clerk or data center operations analyst making less than $70k a year afford to live comfortably in the city? Ultimately, if you want to keep every job a company like Zynga or Twitter can possibly provide you’re going to fail.
(Now for the periphery rants)
Let’s not blow this issue out of proportion and subsidize these fleeting jobs that are perceived as “precious.” After all, wasn’t the building that Zynga agreed to lease and the land Salesforce bought previously destined to cultivate a biotech/medical device industry capable of providing much higher tax revenues to the city; we have apparently forgotten that previously “precious” dream.
But if you’re stubborn and continue to claim these jobs are worth a San Franciscan’s arm and leg (or two) to save, then admit this: Caltrains needs a direct funding source because an increasing number of employees take the train to their SOMA workplaces because their home address is south of the San Francisco border.
11:59 PM on March 25, 2011
Let’s see… the city imposes taxes on businesses that can easily move outside of the city and still attract the same talent; now instead of collecting sales tax on the coffee, lunches, and other items those workers will buy in the city they can collect nothing!
All the Board of Stupidvisors does is dig the city into a deeper financial hole. They only want to tax the “rich” to pay for all the services forthe “poor” and pay a “living wage” to all the “poor” city employees. What they seem to forget is that the rich can leave and pay nothing; and you’re still stuck with the poor.
The fact that San Jose has surpassed San Francisco in size should be a huge wake up call; San Francisco will become to San Jose what Oakland is to San Francisco… second rate.
8:24 PM on March 25, 2011
The tax benefit is supposed to mean companies who put workers in blighted areas don’t pay city employment taxes for wages earned during the time the employees are working in the blighted areas. But the benefit to twitter goes backwards and also forgives taxes due on stock options paid while the workers were NOT in the blighted areas.
All of the other businesses have to pay taxes on such wages, but Twitter and Zynga want to sidestep them. They want to avoid the taxes due on the portion of compensation paid via stock options to workers before the move that don’t come due until after the move.
It’s bad policy to allow some companies to sidestep taxes that other companies have to pay. Either the taxes are bad or they aren’t. Telling some companies that they don’t have to pay taxes on wages accrued before the move and other companies who pay 100% in cash that they don;t get that same benefit is unfair.