Commercial real estate prices in San Francisco have soared as The City has become the nation's hottest office market. This should come as no surprise to anyone who has shopped for office space or noticed all the high-rise construction now underway in downtown San Francisco. Of course, any increase in the price and number of commercial properties sold in San Francisco bodes a corresponding surge in the revenue our local government will earn from real estate transfer taxes. But city officials should maintain financial discipline when presented with something that might look at first like a tantalizing windfall.
At this point, virtually everyone must realize that San Francisco's economy is prone to cyclical swings, which is true of the larger California economy as well. That dynamic has been baked into The City's DNA ever since the Gold Rush established San Francisco's identity as a boomtown based on reinvention. The source of the latest boom is always changing, but technology, finance, real estate and the Internet all now play a role in the economic cycles that affect San Francisco and its Bay Area sphere of influence.
In 2013, with The City clearly established as a leader in cloud-based computing and the de facto capital of the sharing economy and social-media universe, it's hard to deny that San Francisco is approaching the peak of such a cycle.
That's not to say that any of those industries are destined for extinction, or to make any imprecise comparisons between the Internet companies of today and those of 15 years ago. But with rents skyrocketing, high-tech labor costs soaring, new restaurants opening at a dizzying pace and commercial office space once again selling for a premium, San Francisco's economy is clearly growing at a pace that is unsustainable over the long term.
Local government is one beneficiary of this boom. As a story in Wednesday's San Francisco Examiner indicated, The City now expects to earn about $110 million more in real estate transfer taxes this year than it did just two years ago, and even $20 million more than San Francisco's current budget predicted. Rather than spending this money quickly or foolishly on short-term programs or unsustainable pay hikes, The City would be wise to invest in basics: infrastructure, capital projects and other long-term spending.
In the recent past, governments in San Francisco and California have spent too freely in the good times, particularly on employee wages and benefits. Such spending often ends up harming the very government programs that it purports to help.
Once granted, wage and benefit hikes are seldom withdrawn, which inevitably forces government agencies to trim their service offerings once the boom slows down. In the wake of the Great Recession, we all saw way too much of that.
What typically hasn't received sufficient funding is basic municipal infrastructure: roads, transit, sewers and parks. City officials wouldn't continually have to ask San Franciscans to pay more for such staples if they funded them adequately when times are good. The present moment appears to be just such an opportunity.