Twitter's last day in San Francisco

From the front door of X, which is closing up shop in San Francisco on Friday, Market Street runs straight through downtown to the bay. In 1905 the famed urban planner Daniel Burnham called this spot "the center of the city." He wanted to make it a concourse intersected by an array of grand boulevards, like the spokes of a wheel. The 1906 earthquake put the kibosh on that idea.

Now the city is living through a different kind of earthquake.

On the first floor of X's abandoned headquarters, a high-end food hall stands mostly empty, its grocery shelves half-stocked. Most of the eat-in counters have "for rent" signs. The surrounding streets are pockmarked by boarded-up storefronts, many of them fronted by puddles of urine. The Whole Foods that opened down the street in March 2022 is already gone, and the commercial vacancy rate in the neighborhood is a whopping 46%. Behind the HQ, young techies in workout gear share the street with folks living in tents. In July, Elon Musk tweeted that he'd "had enough of dodging gangs of violent drug addicts just to get in and out of the building." The neighborhood was too scary, the taxes too high, and the state too woke. So he was packing up X and moving it to Austin.

It wasn't supposed to play out this way. Back in 2010, when Twitter was threatening to flee San Francisco and move to the suburbs, the city put considerable effort into getting the company to stay put. In what became known as the Twitter Tax Break, it waived millions of dollars in taxes for the company to induce it to set up shop in a gritty building on Market Street. The goal was to spur other tech companies to follow suit. By attracting young, oversalaried nerds to downtown, along with the upscale shops and restaurants they liked, the city hoped to remake the neighborhood into a utopian Tomorowland. It was an audacious neoliberal plan: fix Market with the power of the market. Twitter went for it, and by 2012 it had moved into its shiny new headquarters.

It kind of worked. And then it didn't. Now, as X leaves its spot, Market Street is still suffering from all the same problems it had before Twitter. After handing over millions of dollars in tax breaks to one of the world's wealthiest corporations, San Francisco has nothing to show for it. So what happened? Why didn't Twitter make the kind of difference the city was looking for?

At the time, San Francisco was the only city in California that taxed companies for their payrolls. It wasn't much — a paltry 1.5%. But back in 2010, it provided the city with its second-largest source of revenue — some $345 million.

The problem was, the city didn't just tax salaries. It taxed all compensation, including stock options. Which meant that a booming tech company like Twitter would have to pay supersized taxes when its employees exercised their skyrocketing options. So maybe it wasn't a coincidence that Twitter started thinking about moving down Highway 101 to the town of Brisbane, where the rents were cheap and the taxes were Texas-style.

To keep that from happening, San Francisco cooked up what was officially known as the Central Market Street and Tenderloin Area Payroll Expense Tax Exclusion. At the time, the neighborhood was an urban wasteland. Drug dealing and homelessness were everywhere; even the peep shows were going out of business. And smack in the middle was a mostly vacant furniture showroom. Getting Twitter into it, city officials believed, would be the key to taking the neighborhood from scuzzy to glossy. According to their calculations, if the company's relocation spurred other businesses to occupy the more than 2 million square feet of commercial real estate on the verge of going vacant across the city, then granting Twitter a massive tax break would actually fuel payroll-tax growth — to the tune of $2.7 million a year.

"The large office properties in mid-Market hadn't been occupied, even through the dot-com boom of the late 1990s," Ted Egan, the city's chief economist, tells me. "It was sort of inducing tech companies to use office space that no one had used."

The Twitter Tax Break was wildly controversial; locals didn't want the city to gentrify downtown with a bunch of techies with fleece vests and iPods. But at first, it worked. Once Twitter got its big light-up sign installed on its shiny new headquarters, more tech companies moved in nearby: Square, Uber, Zendesk, Dolby. Construction cranes started arriving. An empty lot across the street turned into a glass tower; others went up, too, full of housing for the kind of people who expect WiFi to be included in their utility bill. And the restaurants! The neighborhood grew thick with the kinds of places that boast seasonal menus and ambitious cocktail programs — AQ, Alta, Oro, Bon Marché, Dirty Water, Fénix, Cadence, Corridor, Volta, Kaya, The Perennial. It was a time.

Even better, the tax deal required Twitter to contribute money, staff, and expertise to benefit the community. In 2014 alone, the company pledged nearly $1 million in purchases, grants, and donations to neighborhood groups, including a local center for low-income women and children and an arts program for disadvantaged youth. The Bay Area Video Coalition, a longtime hub for media makers in the Bay Area, received more than $130,000 in cash and in-kind donations from Twitter between 2014 and 2021 — including 25 Apple laptops that the organization gave to kids for remote schooling during the pandemic. "They were great community partners," says Paula Smith Arrigoni, the group's executive director. "They made the grant process easy, and they trusted our expertise."

But the good times were short-lived. By 2019, all those restaurants I mentioned had closed. Some of them didn't even last a year. Part of it was the neighborhood: Then, as now, restaurateurs complained about homeless people and drug-related crime. But mostly they griped about an unexpected problem. All the techies who worked at places like Twitter and Uber and Dolby didn't go out to eat in the neighborhood. Instead, they sat at their desks and enjoyed all the free food their companies served up in-house. They might work in the Tenderloin, but they ate their tenderloin at work.

"A lot of people, us included, missed our projections regarding how much foot traffic these offices would bring," one restaurant owner explained at the time. "Our likely clientele are staying in their offices and getting really high-quality food that's free." SF's Eater reported that the cafeterias in Square, Dolby, Uber, and Twitter served 10,000 people every day. That's a lot of people not going out for lunch.

So the Twitter Tax Break turned out to be a whiff. In 2019, Egan wrote a report for the city that looked at what happened. Over the six years the payroll-tax exemption was in effect, he found, the city gave up $70.1 million in tax revenue. But even though it lost money, it succeeded, at least briefly, in attracting hundreds of new businesses to Market Street. "The neighborhood grew faster than the surrounding city as a whole," Egan says. "It was a neighborhood that really didn't have any economy at all, and then sort of did have one."

But those days are over. And we can't blame the city's doom loop entirely on COVID. Even before the pandemic struck, the Twitter boom had already gone bust. Dolby's headquarters is still on Market, but Square moved to Oakland in 2020. Uber decamped to the shiny new Mission Bay neighborhood. And now Twitter, the original migrant, is X-ing out as well. The tech companies may have moved to the inner city, but they never actually inhabited it. Instead, they holed up inside shiny glass fortresses, enjoying their sushi and their kombucha on tap, while the neighborhood continued to crumble around them.

But the city's mistake was to assume that it was in an actual relationship with Twitter. In reality, it paid for what is known in the sex trade as a "girlfriend experience." It was transactional, and when the transaction ended, the girlfriend moved on.

I keep remembering a work trip I took to San Francisco in 1999, a few years before I moved here. Glitzy restaurants were opening in the once sketchy South Park to serve all the newly arrived web workers. It seemed like every old industrial building was stuffed with CD-ROM startups; everyone had an expensive light-up sign with a fancy logo. Sony had even opened what was essentially a reinvention of the shopping mall. It was called the Metreon, and it featured the country's first Microsoft store, a video arcade, movie theaters, and high-end restaurants. It was designed to be a neon-drenched symbol of the dot-com era, a mecca of high-tech fun.

Like the Twitter boom on Market Street, the Metreon's techie glamour didn't last long. By 2006, Sony had sold it to a mall developer. Today it's mostly a Target. It was part of the never-ending cycle of tech booms and busts. Things were great! Then they weren't. Then they were again! And now they aren't.

So what's to be done about Market Street? It's not all bleak, to be sure. A big new Ikea has set up shop, complete with a nice food hall. The city is working on streetside improvements, like trees and plazas. Mayor London Breed, facing a tough reelection fight amid concerns about retail crime and homelessness, is betting big on street festivals. But those approaches don't exactly seem sufficient to escape San Francisco's persistent doom loop.

I asked Breed's press representative how the mayor is thinking about X's departure, and the rep sent me a list of "what we're excited about." Social media? Never heard of it. Have you met our new savior, artificial intelligence? AI companies, the rep told me, have leased 4 million square feet of commercial real estate in the city. And 21 of America's top 50 AI companies are based in San Francisco. "Our focus remains on working with and supporting the many businesses that call San Francisco home," the statement reads.

It's a revealing response. If the history of tech busts teaches us anything, it's that you can't build a stable city on such an inherently shaky industry. It's not entirely San Francisco's fault; California's screwed-up governance forces the city to chase booms. Taxes on homeowners are capped in weird ways, putting severe constraints on the state's budget. So taxes on local businesses are to cities in the 21st century what gold and silver mines were to the 19th. The only solution is for the state to revamp its tax code so businesses don't have to shoulder the entire tax burden.

But economics is only part of the problem. In San Francisco, chasing after tech and its booms is also a kind of addiction. Railroads, shipping, banks, dot-coms, search giants, social media, AI — whenever a boom goes bust, as it has with Twitter, the city goes looking for new tech, like a junkie looking for a fix. When gold puts you on the map, you never stop craving the rush.

Adam Rogers is a senior correspondent at Business Insider.