Case Study

San Francisco Engages Tech Companies Through Community Benefits Agreements

Objective: To examine how San Francisco has implemented Community Benefits Agreements to engage the private sector in efforts to revitalize disadvantaged neighborhoods.

Initiative: Community Benefits Agreements in the Central Market and Tenderloin Area

City: San Francisco

Major Participants: San Francisco City Administrator’s Office; San Francisco Office of Economic and Workforce Development; Citizen’s Advisory Committee for the Central Market & Tenderloin Area; local businesses, residents, and community organizations.

Background: San Francisco’s technology-based economy and entrepreneurial culture allowed many small and startup tech companies to grow into highly successful and industry leaders. As these businesses expanded and added new employees, they required larger office spaces, which were hard to come by in the city with the lowest office vacancy rate in the country as of July 2013.  San Francisco’s Central Market and Tenderloin areas were among the last neighborhoods with available space for expansion, though they were also home to high levels of poverty and had been largely disconnected from economic growth. Recognizing an opportunity to transform these distressed areas into the “next frontier” for economic growth, the City of San Francisco implemented a strategy using tax incentives and community benefits agreements to both retain companies, and engage them in the revitalization of the area.

As the only city in the country with its own payroll tax, San Francisco was able to create a unique tax incentive for large companies to locate in the Central Market and Tenderloin neighborhoods. In 2011, Mayor Ed Lee and the City’s Board of Supervisors announced that businesses located in the Central Market and Tenderloin neighborhoods could claim up to six years of payroll tax exemptions for any new jobs created in that timeframe. This incentive is particularly attractive to growing technology businesses, and lured big name companies to these neighborhoods, including Twitter, Zendesk and Yammer. In order to counteract the potential negative effects of large companies moving into the area, including gentrification for both businesses and residents, the city instituted a policy requiring companies with more than $1 million in payroll expenses to negotiate a Community Benefits Agreement (CBA), a contractual obligation to engage in community and economic development efforts.

How It Works: Any company, regardless of size, seeking to take advantage of the Central Market and Tenderloin Area Payroll Expense Tax Exclusion must first submit an application to the City’s Office of Economic and Workforce Development (OEWD), and enroll in the city-run First Source Hiring program, which connects local residents to entry-level jobs. Complete applications are then reviewed by OEWD, and companies are notified of their eligibility. At this point, any business with payroll expenses greater than $1 million is referred to the City Administrator’s Office, which facilitates the CBA process.

Upon receiving the referral, the City Administrator’s Office and the Citizens’ Action Committee hold a town hall meeting, inviting local residents, non-profits, and community stakeholders to voice any concerns they may have about the company, or areas of need that the company may be able to address in its CBA.

The company seeking the tax benefit drives the process of drafting, negotiating, and finalizing a CBA. Using a framework developed by the Citizens Action Committee (CAC) and City Administrator’s office, the company must propose strategies that prevent local resident displacement and ‘build the community’s capacity to sustain healthy and happy lives.’ These efforts include initiatives to support local workforce development and community programs through contributions of time, money, products, and services and generally address the needs of the community surfaced through town hall meetings. The company must also designate a liaison to oversee these efforts and report back annually to the city and community at town hall meetings.

While the tax exclusion is available to eligible companies for up to six years, compliance to applicable CBAs is required for annual renewal of the tax exemption. Company liaisons must attend public meetings and present progress reports, and the City of San Francisco and the CAC determine the company’s level of compliance. Companies that have achieved a minimum of 80% of their outlined objectives and have shown a “good faith effort” to fulfill their obligations are eligible for renewal the following year. Though it has yet to happen, companies that fail to uphold their CBA are disqualified from the tax exclusion.

Results of the Program: In 2012, the City of San Francisco granted $1.9 million worth of payroll tax exclusions to 14 companies in the Central Market and Tenderloin area. While it’s difficult to measure the exact value of the company’s fulfillment of community benefits agreements, the City Administrator’s Office estimates that the return to the community exceeds the foregone tax revenue. Examples of benefits to the community:

  • Twitter: Supported nonprofits through grants and in-kind service donations valued at approximately $130,000; provided tutors at Tenderloin Tech Lab, which helps build technology-related vocational skills for local residents; provided mentorship and job shadow days through partnerships with SMART, College Track, and Girls Who Code, all programs that focus on preparing underserved youth for future education and career opportunities
  • 21Tech: Has collaborated with San Francisco’s First Source Hiring program to recruit local interns and employees
  • Yammer: Has supported local organizations engaged in workforce development, including a $496,000 software donation to Hire Up, which prepares homeless and at-risk youth for employment opportunities, and $16,000 worth of equipment to the Tenderloin Tech Lab.

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