Predictions for San Francisco over two years

As San Francisco’s Covid degeneration and enthusiastic government mismanagement 1 continues, things are looking increasingly bad for the city. At this point we know the damage to its business and cultural landscape has been huge, and its out-migration substantial, but no one will be able to say quite how bad it all is until the smoke’s started to clear.

It’s cathartic to put predictions to paper, so here goes. These to be revisited in early 2022 and 2023.

  • ~Every customer-facing business (that’s not a grocery store) in the financial district and SOMA is gone. That’s bars and restaurants, boutiques, and even a lot of big chain retail who can no longer justify the expense (H&M, Uniqlo, and even The Gap have already permanently closed their flagship Union Square stores!).

  • Rents continue to slide. SF cheerleaders called the bottom months ago, saying it’s a great time to get in at a good rate, but they’re wrong. With continued downward pressure on salaries thanks to remote work, and general municipal evacuation, landlords simply cannot command the old prices anymore. This doesn’t mean they ever get cheap, but the days of the $2500/mo studio are over.

  • The age of tech comes to an unceremonious end. Many companies left during the last year, and many more will go. There are some left over, so it never goes to zero, but the city starts to equalize with better managed regions like Austin, Seattle, and Miami.

  • The budget imbalance isn’t just large (as already known), it’s catastrophic. Continued federal bailouts ameliorate this somewhat, but it’s so big as to be finally untenable. Breed avoids layoffs as long as possible (by further reducing public services instead), but is forced to eventually do so. Increasingly few services are provided as the budget becomes almost wholly salary and pension obligations.

  • Public transit reductions (initially claimed to be a Covid safety measure) are permanent. Naturally, there is no proportional reduction in operating budget.

  • “Slow streets” are entirely reverted, or so dramatically reduced as to effectively be (e.g. the SFMTA’s post-Covid plans for Twin Peaks). They’re popular with the community and an excellent safety improvement, but the SFMTA bows to pressure from the car/fire 2 lobby, which finds them very inconvenient.

  • SF’s Covid-sanctioned tent cities are still around, having lasted so long as to be politically fraught to unwind, and been informally made semi-permanent. They may eventually be shut down on a case by case basis if the land under them gets to the point where it’s right on the eve of active development (e.g. McDonald’s Haight, eventually).

  • SF voters continue to pass more “let other people/the future pay for it” ballot proposition taxes/bond measures. (This barely belongs on here – it’s a slam dunk.)

  • The central subway, ten years after the project started, is still not open.

Open questions/less sure:

  • Can restaurants/bars even in popular people districts like the Mission make it with just outdoor dining revenue? My guess is “no” if shutdown lasts another year, but it’s possible. The new outdoor system only works well in a handful of places where it’s actually nice to be (e.g. Valencia, Castro, Hayes Valley), which isn’t good for merchants not in those locations, but is having the effect of driving a lot of demand to those who are.

  • Property prices stay high, probably. There’s downward pressure here as well, but Fed money games continue to deliver cheap debt and inflate assets to counteract it. But this could turn around if it gets bad enough.

  • Parklets and outdoor alcohol consumption may or may not stay. Things look good for them currently (Scott Wiener has sponsored SB314, which makes outdoor seating and alcohol service permanent), but they’ve taken away at least on the order of dozens (gasp!) of street parking spots, and one should never bet against San Francisco’s parking lobby.

  • Public schools are still not up and running at old world capacity, and their quality has dipped even further to the point where no self-respecting parent will send their kids to one if they have any means to avoid it (this was already largely true pre-Covid, but the inequality gap continues to grow).

  • Busy bars, large events (e.g. standing room concerts, full-occupancy sports), and nightclubs are still illegal. Even years later, there’s enough ambient virus concern for ultra left-leaning cities to not allow any of these to happen.

As the budget collapses, an inevitable result will be City Hall starting to look around on what new taxes they can levy. As usual in San Francisco, no one ever considers that the problem with an inbalance might be that the city is spending too much (despite the budget more than doubling over the last decade, $6.5B in 2009 to $13.6B in 2020), it’s always that there just isn’t enough money.

Predicting the exact form of new taxes will take is practically impossible, but there are a few shots in the dark:

  • The addition of a “small business recovery tax” as a surcharge on all delivered products, especially gunning for larger companies like Amazon. It was Amazon’s fault that local businesses died of course, not that San Francisco politicians choked them to death for two years.

  • The city loves line item taxes to be nestled at the bottom of bills and checks at restaurants. How about a new one for “Covid city recovery”? It’s an awful idea as it makes it increases the price of patronage for already-struggling businesses, but in San Francisco-brand economics, all demand is 100% inelastic and no actions ever have secondary effects, so it’s perfect.

  • Politicians start looking around and seeing that the city has a lot of people who work in it, but for companies that don’t have an SF presence. The city used to indirectly tax the salaries of employees working in it through something called a “payroll” tax, which was eventually folded into a “gross receipts” tax instead, but neither of these applies for people working for non-SF companies. In California, municipal income taxes aren’t legal (see California tax code 17041.5). The payroll tax was a workaround for this, and it’s very likely that other, wider-applied workarounds are possible which target remote workers in the city. This would be incredibly popular (if say it landed on a ballot) because the perception would be that it would target evil tech workers, which is largely true. It would also make many more of those evil tech workers leave, and probably result in a net decrease in revenue, but that would also be cheered enthusiastically.

Although a lot of this sounds bad, against intuition, it’s actually a happy outcome for a large part of the city’s inhabitants. For the last decade there’s been a strong contingent of older property owners (or renters locked into sweetheart rent control) whose overriding ethos is “newcomers should go away”. They don’t go to SOMA, don’t have school age kids, entertain themselves largely by way of Netflix and take out, order everything on Amazon (while simultaneously denouncing Bezos as Lucifer manifest), and would never go near the unwashed masses on mass transit, so suffer no major losses. They’re also insulated from tax increases thanks to their favorite old friend, Prop 13.

They’ll finally get their wish as SF achieves its final, inevitable form as a bedroom community suitable only for the retired rich and the very poor.

1 Just in the last few weeks, see the SFUSD prioritizing renaming schools over education, and the SF government having to sue its own school board to get a reopening plan even started.

2 San Francisco’s fire department has a history of being one of the greatest opponents to road safety improvements, and has predictably been working hard to oppose slow streets.

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