Uber, Lyft and Airbnb have slashed thousands of jobs. Salesforce and Visa are letting employees work remotely for months; Twitter and Square are allowing them to do so for good.
For the companies’ hometown of San Francisco, the moves are early signs of a dire blow.
In a city with a long history of booms, busts and natural calamities, the coronavirus pandemic has suddenly upended nearly a decade of prosperity. While municipalities across the U.S. are grappling with economic fallout from the virus, San Francisco stands to take a deeper hit given its high concentration of office jobs that make remote working easier, a tech industry battered by layoffs and a pricey real estate market that has already driven out some residents.
The city’s leaders predict a $3.6 billion budget shortfall over the next four years, with the unemployment rate — as low as 2.2% a few months ago — to be around 15% through September. If business taxes, the second-biggest source of revenue, continue to decline and the property-tax base erodes, “all city services would suffer,” Controller Ben Rosenfield said in an interview.
It’s a marked turn from the years of growth that made San Francisco a symbol of massive wealth — while also fueling gaping inequality and a homelessness crisis that’s led to people sleeping on streets alongside swank office towers. The pain wreaked by the pandemic is only accelerating negative trends for the city, such as the departure of companies, conventions and residents to less-expensive areas, said Ken Rosen, chairman of the Berkeley Haas Fisher Center for Real Estate and Urban Economics.
“The boom is over, and the question is how deep will the bust be,” said Rosen, who warned the city may have diminished appeal to the tech industry. “We are going to need dramatic changes if we’re going to keep our golden goose here.”
Rosen expects San Francisco’s recovery to lag that of other U.S. cities, which combined may lose about $360 billion of revenue through 2022 because of the pandemic, according to a National League of Cities analysis. As a whole, more densely populated, expensive locales may find themselves hit harder than others. Why live in a metropolis heralded for its bars and restaurants if you can’t safely patronize them or take mass transit without fear?
“The appeal of living in such large cities is definitely going to deteriorate in the next year or two, if not up to five years,” said Laura Ratz, an economist at Moody’s Analytics. “If it takes two, three years to get a vaccine, these large cities like San Francisco are going to suffer for it.”
Major companies around the world are retooling office space for fewer workers, scouting suburban sites, and considering permanent telecommuting. In the Bay Area, there may be a particularly profound effect: About 40% of jobs depend on traditional office-using industries, double that of the U.S., according to Moody’s Analytics.
Most large firms in and around San Francisco are preparing at least partial remote-work policies, according to a May survey from the Bay Area Council, a business organization. About a third of newly remote workers surveyed by brokerage Redfin Corp. expect to remain so even when restrictions ease, and more than half would consider moving away from San Francisco if they never had to show up to jobs in person. Facebook Inc., based in Silicon Valley, has said that 50% of its workforce may be remote in 10 years.
In the meantime, San Francisco is dealing with the immediate hit to its revenue. The city and surrounding counties were the first in the mainland U.S. on March 16 to order residents to stay at home to slow the spread of the virus — a move that has been credited in helping the region fare better than others in managing the outbreak, while also lengthening the blow to the economy.
The city’s payroll tax is calculated on work performed within its borders, and telecommuting is leading to an overall 8% drop in business taxes this year from the previous one. They were originally estimated to rise 15%. The tourism and convention industry has cratered, and hotel taxes next year are expected to drop by almost 60% from 2019.
Mayor London Breed will release an interim budget on Monday reflecting the turnabout in the city’s fortunes. She has already told departments to cut costs by 10% for the next fiscal year and to decide which municipal jobs can become permanent work-from-home positions. The city will adopt its final budget by October.
Still, San Francisco has suffered economic collapses before only to emerge stronger, and corporate policies are in flux. Remote work can help companies ride out the pandemic, which may ultimately help the city’s economy. If larger firms give up some real estate, that presents an opportunity to smaller businesses and nonprofits currently struggling to get space, said state senator Scott Wiener, a former city supervisor.
Another possibility: companies may end up taking additional office space if they need to implement spatial distancing and other practices to reduce the virus risk, said Carmen Chu, the city’s assessor. She’s one of the chairs of a city economic recovery task force that is not only addressing the immediate crisis but sketching out ideas for how businesses can succeed in the future.
“We have a city full of problem solvers,” said Rodney Fong, co-chair of the task force and president and chief executive officer of the San Francisco Chamber of Commerce. “Creativity and innovation will bring San Francisco back to maybe an even more dynamic place than it was, over time.”
But ultimately, the city and the rest of the world are at the mercy of an unpredictable pathogen.
“There are so many unknowns about the virus itself and what the future of it holds,” said Rosenfield, the controller. “And we need to understand that first to really understand what the long-term implications of all of this are for our local economy.”
— With assistance by Joyce Cutler
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