San Francisco’s chief economist estimates that remote work takes away $200 million from property tax revenues
San Francisco could lose around $200 million in property tax revenue by 2028 because offices are emptied as people work from home, in the worst-case scenario outlined in a report by the city’s chief economist Ted Egan.
The center of the technology industry lists job postings in the records. They could rise to about 31% by the fourth quarter of next year in the most pessimistic case, Egan warned in the presentation for a board committee hearing on Wednesday.
Commercial property values would fall, and that would mean less property tax revenue for the city. In the short term, risk is mitigated by long-term leases and the fact that under a California law known as Proposition 13, valuations for property tax purposes are often well below market prices. This cushions communities in times of crisis.
“However, if office demand is permanently reduced by remote work, eventually the city will see significant reductions in property tax revenue from offices,” Egan said in the report.
Tech companies, the engine of the city’s economic growth and jobs, implemented flexible work policies in the wake of the pandemic but are now laying off thousands of people. Salesforce, the city’s largest private employer, lets its employees choose where they work, while San Francisco-based Twitter, under new owner Elon Musk, has laid off half its workforce. He has ordered the remaining workers to return to the office.
The office sector accounts for 18% of the city’s property tax revenue. According to the report, San Francisco would need to set aside $150 million in required reserves by 2026 and up to $200 million by 2028 if conditions don’t improve.
This fiscal year, the city expects to collect a total of $2.38 billion in property taxes.
Data from security firm Kastle Systems shows that San Francisco consistently ranks at the bottom of a list of 10 U.S. metropolitan areas in terms of the proportion of workers going back to their offices, averaging just about 40%.
Even the city’s optimistic forecast of empty offices projects a revenue loss of about $100 million by 2028. Their baseline scenario is a loss of $128 million.
Egan warned that there is an “unusual level of uncertainty” in the forecast but it is “cautious to assume lower than normal office demand over the next five years”.
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