A Good Idea from San Francisco

Mark Farrell, a leading candidate for mayor of San Francisco has a new 20-year plan to revitalize that city’s downtown area which suffers from a 35% office vacancy rate. By comparison, the New York vacancy rate is 20%, which is still too high.?

Farrell wants to build tens of thousands of new housing units, provide tax increment financing to allow conversions of buildings to mixed use for both commercial and residential and create a world-class park in front of the famous Ferry Building in front of the San Francisco waterfront on Market Street. That’s fine as far as it goes, but this is fairly standard stuff for a big city politician.?

But here’s the kicker that most interested me. Farrell wants to offer tax incentives to companies that require employees to come into the office at least four days a week. In support of ?the plan, he noted that “one of the biggest issues in downtown today is that it is a ghost town” (I was there during the pandemic and he is right). Accordingly, Farrell said he would reduce the gross receipts tax that companies owe the city if they agree to bring their workers in for at least four days a week. Gross receipts are the total revenue of a business, including sales, services, and rentals. In 2022, the tax generated about?$800 million in revenue for San Francisco.?

Good ideas like this one which I have been promoting for years are always very welcome. I wholeheartedly support a similar tax credit to employers in New York, as well as a tax credit to be paid directly to employees who come to the office as well. And you don’t need to tie the credit to a specific amount of days in the office. Rather, the credit could be a sliding scale with increased tax credits to be paid to the employer and employee for each additional day an employee is on site, perhaps starting at three days a week.?

We need to try something new as our employee office attendance rate has barely budged in the past year and currently hovers just over 50%. Clearly, creative approaches such as Farrell’s proposal are essential. Although the tax incentives for new construction for partial or complete conversion of office buildings to alternative uses recently passed by the New York State legislature are a good idea, but they will take the better part of a decade or more to bear fruit.?

As a result, additional support to encourage office attendance needed here in the form of the Farrell proposal to provide a more immediate impact. However, work from home guru Nicholas Bloom of Stanford seemed quite panicked at the prospect that someone had an idea to revitalize San Francisco despite its well-known struggles. He revealed his remote work bias by deriding the suggestion, contending as quoted in Bloomberg: “What is the city going to do? Are they going to ask for swipe records? Are they going to use facial recognition software? How do you enforce it? You just can’t.”?

Methinks Professor Bloom protests too much. First, on a practical level office attendance is extremely simple to calculate. Most employees already have to swipe a card to get into the office. Second, this is a tax incentive, not a requirement. No company would be forced to bring its employees in for a four-day week. Further, any employee who doesn’t like their company's work from home policy is free to work somewhere else. But there is a larger issue here which is the revival of a great American city.?

In fact, Bloom’s cavalier attitude is very surprising given the study that his own WFH Research arm did last year which estimated that due to remote work Manhattan employees are spending at least $12.4 billion less a year due to 30% fewer days in the office. On a more micro level, the average NYC worker is spending at least $4,661 less per year on meals, shopping, and entertainment near their offices. Obviously, this has a disastrous effect on lost city and state sales taxes every year, as well as the small business ecosystem and its employees. In addition, this adversely affects property tax valuations as well.?

As a coincidence, it appears that the New York mayoral campaign for the November 2025 election is just getting started with city controller?Brad Lander’s entrance into the race this week. We would be well served if both Lander and Mayor Adams were to consider similar incentive programs to both create jobs and stimulate New York’s most important industry, which is real estate.?

The bottom line here is whether it is San Francisco, New York or anywhere else, new ideas are desperately needed to incentivize people to come to the office. Whether we like it or not, the office is the central driver of the economy of our cities. So let’s try these tax credit incentives for a few years and see what happens. The risk is minimal, and if the programs don’t work after a few years, we can drop them. Moreover,?as we know in real estate, business, politics, and life, sometimes the biggest risk is not taking any risk at all.

Thank you,

Ruth Colp-Haber