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Originally published March 30, 2014 at 7:39 PM | Page modified March 31, 2014 at 6:43 AM

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San Francisco's price for tax breaks to fuel tech growth in low-income areas

One of the tax breaks given to tech companies to ensure that they stay in San Francisco — called a “community benefit agreement” — makes it possible for companies in specific, low-income areas to receive breaks on some of the city’s payroll taxes, if they help improve t


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SAN FRANCISCO — On one side of a long, wooden table at Zendesk’s offices here, 80 software engineers who are collectively worth tens of millions of dollars stood with empty paper plates waiting to be fed.

On the other side of the table, serving, were half a dozen homeless men and women who had cooked and delivered trays of grilled chicken, rice and salad.

The idea of homeless people cooking lunch for the tech elite — Zendesk, a customer support firm, is worth an estimated $1.5 billion — goes against the stereotype that rich startups and San Francisco’s economic problems don’t mix.

Yet a series of tax breaks given to tech companies to ensure that they stay in San Francisco seems to be benefiting both startups and the city, if even just a little.

The tax break, called a “community benefit agreement,” makes it possible for companies housed in specific low-income areas of San Francisco to receive breaks on some of the city’s payroll taxes, but to do so, they must perform a number of tasks that help improve their neighborhoods.

It’s yet to be seen if the infusion of tech companies like Twitter can truly bring San Francisco’s homeless population out of poverty or deter crime in the neighborhoods where the tax breaks apply.

The homeless people cooking for Zendesk’s offices, for example, are part of a program called CHEFS, Conquering Homelessness through Employment in Food Services. CHEFS works with startups to cater events with the hopes of eventually finding the homeless students in the program employment in kitchens.

This is an instance of the system working. But others contend that the money these companies save is more than they give back.

David Augustine, San Francisco’s tax collector, said in a memo that 14 businesses had been approved for the tax breaks, which excluded them from paying 2012 taxes on a total of $126,888,132. That’s $1,903,321 in taxes that these companies did not have to pay in 2012 alone.

Last year, Zendesk spent just under $100,000 in donations and hiring local businesses. This included $3,500 being spent with CHEFS. The company has also donated computer equipment, provided volunteers and held fundraisers.

Twitter, which also benefits from the tax break, spent $200,000 in the Central Market neighborhood with local businesses and donated $75,000 to nonprofits. The company also recently installed Wi-Fi at the Bessie Carmichael/Filipino Education Center school, near the company’s headquarters, and more than 400 Twitter employees regularly volunteer in the area.

For some startups in the city, giving employees the opportunity to have a hand in revitalization efforts has even become a recruitment tool, and it has helped these tech companies compete with the flashy campuses of Google and Facebook, 35 miles to the south.

“We feel the community- benefits agreement, and this entire process, has been one of the best things to happen to our company,” said Tiffany Apczynski, the director of social responsibility at Zendesk. “It’s become a huge recruitment tool, especially when we’re competing with superpristine campuses.”

These efforts go against the assumption from some city residents that all tech workers want nothing to do with the city’s problems and simply hop into Uber taxis after work to be whisked away from grimy neighborhoods. This is not the side of Silicon Valley where one founder last year disparaged the city’s destitute, saying they were “crazy, homeless, drug dealers, dropouts and trash.”

Al Leddy, culinary training manager at CHEFS, said the program was as important for the shelters as it was for the tech companies, helping homeless people learn new skills as well as interact with tech workers in ways they normally wouldn’t.

“We go into these offices and serve food, and the students feel a sense of pride talking to the tech workers,” he said.

The philanthropic actions and volunteering have spread to companies that are outside the tax zone. Zynga, which does not receive the city tax break, has hired a homeless woman from CHEFS to work in the company’s kitchen. One King’s Lane, an e-commerce company for home décor and furniture, recently redesigned a shelter to make it more comfortable for residents.

The system has come under fire by some officials, who have complained that companies that receive tax breaks do not have to report every aspect of what they donate. And some say monetary donations are still low.

Bill Barnes, project manager for San Francisco’s administrator’s office, noted that the average median household income in the Tenderloin neighborhood, where these tax breaks apply, was still $23,000. “That’s extraordinarily low,” he said, adding that the tax breaks were working, but tech companies “could be doing more.”

Some shelters noted that volunteer efforts have been beneficial, but monetary donations were still too low.

“Our funding has been relatively flat during the past several years,” said Ken Reggio, executive director of Episcopal Community Services, which provides housing and food for thousands of city residents. “Yet we have a lot of tech folks that are donating their time.”

Todd Rufo, director for San Francisco’s Office of Economic and Workforce Development, said the tech companies were, for the first time, bringing other businesses into the Tenderloin district, too. He noted that since the tax-break program was put into place, 17 tech companies, two co-working spaces and one venture capital firm had moved into the Central Market area, occupying more than 2 million feet of office space that was once vacant.

It’s yet to be seen if the infusion of tech can truly bring the homeless out of poverty or deter crime in the neighborhoods where the tax breaks apply.

The evening before the members of CHEFS were cooking for the Zendesk employees, a drive-by shooting across the street injured seven people. Apczynski noted that last year there were two slayings in the parking lot behind Zendesk’s offices.

But she said that isn’t going to deter the company, or others, from volunteering and donating money.

“Even when our agreement expires in a few years, we will still continue to do this,” she said.



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