The San Francisco Bay Area is notorious for its great earthquakes….but the ripples and shockwaves don’t stop there- for the area is also famous for producing huge economic bubbles. When I moved to San Francisco in 1995 from Chicago, I got a job as Program Manager at KCSM-TV, a PBS station in San Mateo. I was lucky to have a friend to live with and was supposed to be there for just a month or so until I could find my own place. The Silicon Valley bubble was growing in a rapid manner and there were no rental vacancies in the City. It took me one year to get my own place and I only got it because a friend knew that another friend was moving out of a studio, I secured it before it was even listed. Those were the dot com years and I worked at a couple of those companies, On24.com and Eloquent, that had the culture of adding many new staff members each week, having fridges filled with beer and soft drinks, free of charge and the many catered parties for the staff. Millions of dollars of investment money was being thrown at them and the owners didn’t know what to do with it all. That bubble lasted a long time, until 2002…then it completely burst. The young millionaires lost everything and moved out of state. San Francisco was a ghost town. You could actually find street parking downtown! There were rental vacancies.
Let’s fast forward to 2007 when the housing bubble collapsed and the entire world felt the sky falling. We are still free falling from that today, in 2012, hoping for an economic recovery. There is a glimmer of light in the horizon. No, it is actually happening right now: a new bubble, a new tech bubble, again in the Bay Area. On Tuesday, April 5, 2011, the San Francisco City Council, under the urging of Mayor Ed Lee, approved an ordinance to give Twitter and other companies a tax incentive to move their businesses to the Mid- Market neighborhood. The neighborhood is just a block or so away from the gorgeous Union Square downtown but you would never know it from the pornographic theaters to the empty storefronts to the homeless people lining the streets.
I talked to my dear friend, Darcy Brown, Founder, City Strategies (she works closely with San Francisco city government) about the specifics of this new bubble. She says, “In the deal, Twitter and any other companies that move to the area are exempt from the payroll tax for six years. San Francisco companies with payroll higher than $250k have to pay a 1.5% payroll tax.” Companies that have taken advantage of this tax incentive so far are: Twitter, Yelp, Zynga, Zendesk and Benchmark. Darcy says that this deal is available to all businesses, regardless of industry. She told me that the incentive was meant to keep companies in San Francisco that were looking elsewhere to expand.
This is good news for our economy, yes? Like the anti-smoking laws and legal medicinal marijuana, many things begin in the Bay Area and ripple out into the rest of the world. We also saw this ripple effect happen during the Silicon Valley bubble of the mid-late 90’s. I think you will see a healthy influx of capital coming into the tech market, for the long term, at least until this bubble bursts. This is good for the nation!
The downside for San Francisco is that lower income residents are being pushed out of their homes by the new tech bubble group that inhabits the City. This includes many artists. It ends up hurting the cultural diversity of the City. The very same thing happened during the Silicon Valley bubble.
My wise friend Darcy says, “One thing that may temper the bubble is the poor showing of Facebook’ IPO which has scared a few companies and investors. I don’t think that they will be scared for long and I expect to see the same silliness we saw in the 90’s soon.” She also told me, “I sincerely hope that these companies who profit from our tax breaks will give something back to the community. For example, there are a lot of jobs to be had in these companies. I would like to see them start programs in our schools that present options of employment to our youth through internships, etc. I would also like to see them sponsor classes at City College and State so that our own people can be trained for all of the jobs and we aren’t importing workers to fill them thereby leaving our people behind.”
So what? Have some hope. If the past is any indication of the future, there is a real reason to have hope of economic recovery. Prosperity is a possibility for us all. But we must try to learn lessons from past bubbles. If you are lucky enough to recover and prosper, my advice is to spend cautiously and save for this bubble’s inevitable burst.
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