San Francisco’s long-running struggle to recover from the pandemic is colliding with another fierce political fight over taxes, as voters prepare to decide whether the city should dramatically expand taxes on major businesses and highly paid executives.
A new report released Wednesday by the Bay Area Council Economic Institute is intensifying concerns that the city’s business climate is already pushing employers out the door — and critics warn the latest ballot measures could accelerate the exodus.
The report paints a bleak picture of San Francisco’s economic recovery. Payroll employment remains 8.6% below pre-pandemic levels, office vacancy rates have climbed to roughly 33% — the highest among major American cities — and downtown business formation has virtually collapsed.
According to the study, the number of new downtown businesses plunged from 711 in 2017 to just 25 last year.
The findings arrive just weeks before voters decide between two competing business tax proposals on the June 2 ballot: Measures C and D.
Both proposals would reshape San Francisco’s business tax structure, but critics say one in particular could deepen the city’s economic troubles at a time when companies are already reconsidering whether to remain in the Bay Area.
The report highlighted just how expensive San Francisco has become for employers compared to rival cities.
Researchers found that a hypothetical payment processing company would owe roughly $60.5 million annually in San Francisco business taxes, compared to just $5.1 million in Seattle. A mock cloud storage company would face a tax burden of approximately $24.2 million — more than triple what similar firms would pay elsewhere.
“San Francisco continues to offer extraordinary advantages in talent, innovation, and global connectivity, but this report makes clear that the city’s tax structure has become a growing competitive disadvantage,” said Jeff Bellisario, executive director of the Bay Area Council Economic Institute.
Bellisario noted that other tech-heavy cities dealing with similar post-pandemic disruptions have recovered more successfully than San Francisco, arguing that tax policy is becoming an increasingly important factor for companies deciding where to invest and expand.
Measure C, backed largely by business groups, would expand tax exemptions for smaller companies by raising the revenue threshold from $5 million to $7.5 million. At the same time, it would accelerate already planned tax increases on larger firms, including higher taxes tied to executive compensation beginning in 2027.
Measure D, supported by labor unions but opposed by Mayor Daniel Lurie and the San Francisco Chamber of Commerce, goes much further.
The proposal would broaden the city’s CEO tax by calculating it based on a company’s entire workforce instead of just employees located in San Francisco. It would also sharply increase tax rates and make future reductions significantly harder by requiring voter approval.
Opponents argue Measure D effectively locks in a permanent expansion of executive taxes at a moment when San Francisco is already struggling to retain major employers.
“Every other city is rolling out the welcome mat for businesses while Prop D’s proponents are trying to lock the door,” said Steven Buss, co-director of the advocacy group GrowSF.
“Prop D doubles down on the exact policies that are driving jobs out and driving vacancies up,” Buss added. “Prop D is how we turn our recovery into a collapse.”
The report repeatedly compares San Francisco’s weak recovery to faster-growing cities such as Austin, Texas, where employment has surged by more than 17% since 2020 while San Francisco continues losing ground in key office-based industries like technology and finance.
Remote work has compounded the city’s problems. Weekday foot traffic downtown remains around half of pre-pandemic levels, while monthly sales tax revenue has dropped from roughly $39 million before COVID to about $26 million today.
Meanwhile, San Francisco faces a projected two-year budget deficit of approximately $643 million. Mayor Lurie has already begun layoffs, issuing 127 pink slips last month, with hundreds more cuts potentially coming as officials attempt to stabilize city finances.
Lurie sharply criticized both ballot measures, arguing they reflect a dysfunctional political system that repeatedly sends complicated tax battles back to voters.
“That’s a clear sign of a broken system that rewards insiders at the expense of everyday San Franciscans,” Lurie said.
The mayor added that “neither measure moves San Francisco forward” and announced plans to pursue broader reforms to the city charter and ballot initiative process later this year.
