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How Much Tech Can One City Take?

Shaken by the latest digital gold rush, San Francisco struggles for its soul.

 Photo Illustration by Peter Belanger

Last year, when Mayor Ed Lee heard that Twitter was planning to move its headquarters out of San Francisco and down to the peninsula, he quickly consulted with his digital experts—his two daughters, Brianna, 27, and Tania, 30. Was the company important enough to make a top priority? “Of course it’s important, Daddy!” they told him. “We tweet all the time. You have to keep them in town.”

Lee quickly made an appointment with Twitter CEO Dick Costolo to see how San Francisco could hold on to the social media giant. Costolo told the mayor that Twitter was planning to double the size of its local workforce over the next year, from about 450 employees to 1,000. But the city’s policies penalized job growth by taxing a company’s payroll, the Twitter chief said. If San Francisco wanted to attract fast-growing digital companies like his, city hall would have to reform its business-tax structure.

For Lee, the Costolo meeting would prove to be a wake-up call. Little in the mayor’s biography (he’s the son of a Chinese restaurant cook, and a former tenants’ rights agitator) suggested that he would become a close friend of the city’s dominant business interests. But ever since his Twitter awakening, Lee has been moving quickly to align his administration with the booming technology industry, shrugging off complaints from the city’s powerful progressives that he’s gotten too cozy with tech moguls, such as investor Ron Conway. The mayor’s proposal to shift business taxes from a payroll-based plan to one based on gross receipts will be on the November ballot, with wide backing from the Board of Supervisors, labor unions, and, of course, Conway. Progressive gadfly Aaron Peskin tapped a deep well of distrust on the left last month when he told the San Francisco Chronicle, “The Koch brothers are trying to buy the president of the United States, and Ron Conway has bought himself a mayor.”

Lee, unperturbed by the flak on his left, now devotes one afternoon each week to a gathering he calls "Tech Tuesday"—visiting one of the many technology companies that are flocking to the city and discussing with the executives and engineers their wishlists for San Francisco. He has sat down with the geek elite at more than 20 companies so far, including Yelp, Yammer, Autodesk, and Zendesk. The firms’ representatives tell Lee what they like about the city—the bike lanes, the arts, the cultural diversity, the different languages you hear on the streets. And then they tell him what they don’t like—the homelessness, the poor public schools, the crime.

In spite of the obvious urban warts, the word is out: San Francisco is the world’s leading tech paradise. At a rate eclipsing the dot-com boom of the 1990s, tech companies are setting up shop in the city by the hundreds, drawn by its beauty and livability, as well as the deep pool of engineering talent here and, yes, city hall’s increasingly tech-oriented policies.

Young entrepreneurs from as far away as Denmark, Singapore, and France can be seen with real estate agents in tow, roaming through converted South of Market lofts still vacant from when the previous bubble burst more than a decade ago. The city is currently home to more than 1,700 tech firms, which employ 44,000 workers, up a whopping 30 percent from just two years ago. And San Francisco has been the nation’s top magnet for venture capital funding for three years in a row. Consequently, the distinction between Silicon Valley and San Francisco has all but disappeared. It is us, and we are it.

The city is clearly benefiting from this new mind meld. San Francisco’s 7.6 percent unemployment rate handily beats the state’s 10.9 percent rate, and it’s one of the few counties in California that has experienced significant property-tax growth during the economic crisis, driven largely by the hot real estate market in the tech-heavy SoMa area. The new tech boom has helped add $6 billion to the city’s tax rolls over the past year—an increase of more than 4 percent over the previous fiscal year. There’s a sense of pride and excitement in the air, a feeling that—once again—we’re the ones creating the technologies that are driving the digital era. San Francisco is quite literally changing the world.

But despite all this, there is trouble in paradise. The unique urban features that have made San Francisco so appealing to a new generation of digital workers—its artistic ferment, its social diversity, its trailblazing progressive consciousness—are deteriorating, driven out of the city by the tech boom itself, and the rising real estate prices that go with it. Rents are soaring: Units in one Mission district condominium complex recently sold for a record $900 per square foot. And single-family homes in Noe Valley, Bernal Heights, and other attractive city neighborhoods are selling for as much as 40 percent above the asking price. Again and again, you hear of teachers, nurses, firefighters, police officers, artists, hotel and restaurant workers, and others with no stake in the new digital gold rush being squeezed out of the city.

And it’s not just about housing. Many San Franciscans don’t feel as if they’re benefiting from the boom in any way. While 23-year-olds are becoming instant millionaires and the rest of the digital technocracy seek out gourmet restaurants and artisanal bars, a good portion of the city watches from the sidelines, feeling left out and irrelevant. Dot-com decadence is once again creeping into the city of St. Francis, and the tensions between those who own a piece of its future and those who don’t are growing by the day.

In light of this, the time has come for a serious reckoning—for Mayor Lee, for the tech cognoscenti, and for the rest of the populace. In short, do we wish to be a city of enlightenment, or a city of apps? Many of those who have lived in San Francisco the longest and care for it the most are worried that their charmed oasis is becoming a dangerously one-dimensional company town—a techie’s Los Angeles, a VC’s D.C. If San Francisco is swallowed whole by the digital elite, many city lovers fear, the once-lush urban landscape will become as flat as a computer screen.