Taxing Tech: California Cities Look North

Seattle’s controversial tax on big technology companies garnered significant backlash from the business community. Bay Area proposals promise a similar spectacle.

by Casey Tolan, East Bay Times / July 17, 2018

(TNS) —  SEATTLE, Wash. — As Silicon Valley considers taxing its tech companies to help fight the downsides of its tech boom — from clogged roadways to skyrocketing housing costs — local leaders are looking north for a lesson on how not to go about it.

Seattle passed a “head tax” in May, charging local tech giant Amazon and other big companies to pay up for affordable housing — only to repeal it less than a month later after a backlash from the business community and a surprising shift in public opinion.

Now several Silicon Valley cities are wading into the same debate. Mountain View voters will decide in November on their own per-employee tax, charging Google and other companies to fund transportation projects. Cupertino and Sunnyvale also have considered charging similar taxes on their own tech titans, although they aren’t expected to take action in the near future.

In Seattle, the issue spiraled from a single tax proposal to an acrimonious dispute over the tech industry’s place in the city and the effectiveness of local government. The city’s experience provides a cautionary tale that leaders in the Bay Area are trying to avoid.

“This was the first time the tech industry really flexed its political muscle” in Seattle, said Ethan Goodman, a local tech entrepreneur who grew up in the Bay Area and supported charging the companies to offset impacts they created. “There was a widespread sense within the business community of feeling like they were being made out to be a villain.”

In some ways, Seattle and the Bay Area are on the same track, going through similar throes of tech-induced change. Even as the two West Coast metros have reaped the benefits of a wave of tech investment with big boosts in jobs, they’ve also experienced dramatic rises in housing costs, bumper-to-bumper traffic and homelessness.

The impacts can be seen on every block in Seattle. Construction cranes frame the skyline, especially in the South Lake Union neighborhood where Amazon owns huge swathes of property. Homeless tents line Interstate 5, while corner stores and dive bars are replaced with gastropubs and yoga studios catering to a younger, hip clientele. Seattle’s median house price grew 58 percent in the last three years, according to real estate firm Zillow, even more than the 55 percent jump in Mountain View over the same period.

Faced with worrying levels of inequality, the City Council approved the head tax unanimously in May, levying $275 per employee on Seattle companies with annual revenue of at least $20 million, including Amazon and Starbucks. The tax would generate $47 million a year to build affordable housing and fund new services for homeless people.

A backlash built almost immediately, with business leaders and anti-tax activists fanning the flames of opposition. Opponents quickly gathered enough signatures to force a referendum on the tax and raised hundreds of thousands of dollars from Amazon and other businesses to fight it, dwarfing supporters’ financial resources.

Opponents argued that the city had not effectively used previous funds set aside to address homelessness, and that the problem needed a “regional solution” instead of one city acting alone. Several internal polls showed that while a majority of residents backed the tax before it was introduced, more than half opposed the proposal a few weeks later.

City officials and other proponents hadn’t prepared for such strong political opposition, and the council repealed it in June to avoid a bruising and expensive referendum campaign.

“We were blindsided,” said Lorena González, a council member who helped write the policy.

Proponents of Mountain View’s tax say they’re working to avoid Seattle’s mistakes and trying to engage the tech and business communities up front. The proposed tax is half the size of Seattle’s: $143 per employee at Google and less for smaller businesses. The Mountain View City Council passed a nonbinding resolution saying that most of the revenue — 80 percent — would go to transportation projects, including road work, bike and pedestrian improvements and an automated tram connecting downtown with Google’s neighborhood, and smaller amounts would go to build affordable housing. But the funding wouldn’t be guaranteed for those purposes.

Mountain View put the tax directly on the ballot, unlike the Seattle council, which provoked anger by approving the tax without voter approval. And transportation is probably an easier sell than homelessness, said Mountain View Mayor Lenny Siegel, who’s championed the tax.

“We are planning to spend the money on projects that directly benefit employers,” Siegel said. “It’s not like we’re hostile to them … they need us and we need them.”

Google, which has more than 23,000 employees in Mountain View, has not yet taken a public position on the city’s proposal.

But in Seattle, Amazon shaped the tax debate. Before the May vote, the company temporarily halted construction planning on one office tower and considered leasing out another, provoking worries that it could move on from Seattle as it decided on a location for a new second headquarters.

Meanwhile, proponents of the Seattle tax who tried to focus on the affordable housing benefits were sometimes drowned out by allies who wanted to frame the debate as a crusade against Amazon. Activists led protests in front of the e-commerce giant’s glassy headquarters and called CEO Jeff Bezos a “mob boss.”

Council member Kshama Sawant, one of the most prominent socialist elected officials in the U.S., argued that taking on Amazon directly was crucial to building a movement. Being conciliatory to the business community “is not what brings about social change,” she said.

Other proponents, however, said the harsh anti-tech message damaged their cause.

“It wasn’t helpful,” said Alison Eisinger, the executive director of the Seattle/King County Coalition on Homelessness. “This shouldn’t be about one company. It should be about helping the community.”

Thousands of Seattleites work for Amazon or have family or friends who do. And like Mountain View, Seattle is a company town, with its economy highly dependent on a single tech giant. Even many residents who bemoan how the company has changed Seattle admit that the only thing worse than having Amazon is not having Amazon.

The tax would have charged Amazon about $12.5 million annually — not much for a company that made $178 billion in revenue last year, proponents say. The $275 per employee would amount to less than a fourth of a percent of the $132,000 average tech worker salary in the city.

Still, the company “did not want this to catch fire and spread to other parts of the country,” González said.

It’s not clear yet whether there’ll be a well-funded campaign against Mountain View’s tax. But several prominent business groups, including the Silicon Valley Leadership Group and the Bay Area Council, have spoken out in opposition to it.

“Cities have very legitimate concerns about traffic, but doing this on the backs of their employers is a mis-aimed missile,” said Jim Wunderman, the council’s president.

Opponents could turn to Seattle’s anti-tax campaign for a playbook. Already, detractors of the Mountain View tax are framing it in the exact same language, calling it a “tax on jobs.”

Seattle advocates said they’d encourage Bay Area cities pushing similar taxes to outline specific projects the revenue will fund, deflating arguments that the money would be squandered. They also recommended pro-tax activists and officials prepare for a hard-fought political battle.

Despite the defeat in Seattle, observers expect head taxes will be an attractive option for tech-dominated cities around the country to consider.

“If businesses and business leaders don’t step up and try to tackle some of the problems of their neighbors,” said University of Washington professor Jeffrey Shulman, “you’re going to keep seeing cities trying to make them do it.”

©2018 the Contra Costa Times (Walnut Creek, Calif.) Distributed by Tribune Content Agency, LLC.