http://en.wikipedia.org/wiki/Tax_expenditure#The_politics_of...
In a scenario where a crazy new tax was passed that was never enforced, then noticed a few years later and abolished because enforcing it would blow up an entire local industry, it is a stretch to categorizing it as "spending". That'd be like writing a note you're owed $1B, tucking it in a drawer, and then when it's ripped up a few years later saying you just "spent" a billion dollars. The city never had the tax revenue to begin with.
Boeing, for example, was headquartered in Seattle for decades -- very established, entrenched locally, big production plants nearby. Chicago came along and offered serious tax breaks if they would relo HQ. This isn't down the road -- it's Seattle to Chicago, involving something like 1000 employees and their families. Boeing took the deal and gained millions in tax concessions.
At the time, Twitter did an evaluation of payroll & stock option taxes and determined that it would be worth a lot of money to everyone (it's not just the company, it's the people) if they have a shop outside SF geographic boundaries. Pick up and move down the street? Yeah, easy choice.
But I'm talking about the options tax provision specifically. If this were enforced, successful startups would be faced with a MASSIVE, GIGANTIC tax bill. It's theoretical; no city has actually taxed stock options before (that I know of). So whatever your impression of local city tax is, throw it out. This would literally tax the rise in value of a company, so, tens or hundreds of millions of dollars.. in local city tax.
Yes, every single startup would move out of San Francisco if the city actually taxed stock options.
Why would a company pay tens of millions to the government when they can either report that same money as profit or invest it back into their company? A company like Twitter would not lose talent by having their headquarters in one of the suburbs in the peninsula (palo alto, redwood city, mountain view). Google, Facebook, Oracle would all be precedence for that case being that they're all located in the peninsula and not San Francisco.
The reporting on this is rather poor. It characterizes this as an additional "cost" or "loss" to the city, e.g. "Twitter tax break to cost far more than estimates".[1]
But what's missing from the reports is that this component, the stock option tax, is relatively new (2004) and has never been enforced. It's not that the city is losing something they had. They never had it. It was a bad idea that was slipped in during a down cycle when nobody understood or cared about the implications.
I think Zynga calculated that they would end up paying more in local taxes than they pay for their building itself.
[1] http://www.sfgate.com/technology/dotcommentary/article/Twitt...