Disrupting the Disruptors: Looking For the Win-Win

In a previous column, I wrote about how the tech insurgency changed the nature of San Francisco, driving out the once huge community of artists that made the city so universally appealing. The tech industry’s monumental rise in the entire civilized world has changed everything: how we do business, and how we shop, sell, socialize, engage, mange finances, and find love. Online shopping has displaced much of  the American merchant class, once a major part of the middle class, and diminished the economies of Main Street by offering things at significantly cheaper prices. The tech industry has indeed disrupted life as we knew it, following Zuckerberg’s famous motto—now replaced with a more thoughtful version—“move fast and break things.”

 

The value of tech is undeniable and worthy of the high salaries the work commands. The problem is that it created a fresh new avenue to wealth while challenging many of the old paths to middle class security, like being a Main Street shop owner. In inadvertently—or not— reconfiguring the economy, the tech industry did, in fact, break things. We’re facing a level of income disparity unequaled since 1928, and a system in dire need of repair.

 

The silver lining of this disruption is that it requires us to come up with some new paradigms for how things are done. The old models no longer serve, like the housing paradigm in San Francisco, premised on the inflated price of city land, the reliance on profit-bound developers to provide new housing, and the scandalously high costs of doing business in the city. Developers need to provide significant profits to investors, or they get no funding, so building low-cost housing is difficult.

 

The city has already added 157.5% of the luxury housing needed to accommodate the highest-end tech industry earners, with very little built to date for the teachers, firemen, EMT workers, and other vital parts of a functioning city, who just don’t make the kind of money it takes to pay market rate rents. It is even worse for service industry workers and others at the lowest income levels of the labor force. To make room for the disruptors, the city and its developer allies focused on displacement, starting with the theoretically least valuable threads in the social fabric: the artists.

 

The city and the housing pundits in San Francisco look at the current sad state of things as an insoluble problem. There is a great deal of hand wringing and gloomy prognostication, neither of which will do anything to help. If we are going to disrupt the disruption, we need to take some fresh looks at how things can get done. In this column, I offer an option to the housing crisis that has displaced the artists. While I’m specifically concerned with restoring San Francisco’s creative community, what I propose extends across the board, to everyone displaced by the culture of disruption in cities across America.

Forging A New Paradigm

 

Cutting the profit motive out of problem solving is nothing new. It’s the essence of philanthropy and the nonprofit sector. Philanthropy achieves two goals. First, it makes available money to solve social ills. Secondly, it gives people an alternative for their tax money—they can see more than 50% of their total tax dollars go into the military-industrial complex, or they can donate to a cause they believe in and reduce their liabilities.

 

One of the ways the high-income San Francisco residents reduce their amount of income that’s taxed is to make investments that show a loss. A common way to do that is buying buildings and leaving them empty so they have no income from them. The “lost income” for an empty building reduces the amount of taxes owed, but it also adds to the city’s housing shortage. The city has no idea how many rental units have been taken off the market for this purpose, but they say it’s somewhere between 10,000 and 30,000 units.

 

When one of my last artist friends in the city got his long-anticipated eviction notice, for an apartment he’s lived and worked in for 12 years, I started thinking about those empty spaces that served as tax losses. What if those same spaces were donated to a nonprofit for artists’ housing? I asked attorneys and real estate people if building owners could get the same tax benefits if they donated the use of those buildings to a nonprofit. They told me that it would serve the same goal. Without hesitation, I filed for nonprofit status.

Bohemia Redux

 

Bohemia Redux—a return to the bohemian city that millions of people fell in love with, full of artists, writers, and musicians—was the name I gave the fledgling nonprofit. The business plan I developed offered an undeniable win-win to people in search of a major tax loss and the artists I could house in buildings left empty. A tax loss is viable for ten years. After that, those empty building are sold for a profit. I proposed that the nonprofit could sign a 10-year lease, with the agreement that we would buy the building, when it was no longer useful as a loss, for a pre-arranged price.

 

It offered partners multiple benefits, tangible and intangible. It was, first of all, a practical tax advantage, but a lot of other things as well. It’s a project for the social good, and the kind of thing that would appeal to investors with benevolent intentions who wanted to make the world a better place. Social benefit projects give their supporters an immense amount of excellent publicity, goodwill, and emotional satisfaction. And given the world-wide understanding of the value of art, Bohemia Redux is the kind of project that could provide a legacy to the people who make it happen.

 

In particular, I wanted buildings that were zoned for residential and commercial tenants because I wanted to provide the resident artists not only with places to live, but also places to market their work. I envisioned art galleries, music venues, theaters, and “museum stores.” I also wanted cafes in commercial spaces where the community at large met with the community of artists. I saw the possibility for many other businesses under the nonprofit umbrella, like a musicians’ booking agency, a writers’ writing or editing service, and a magazine. Rent is the single most daunting part of trying to own a business in San Francisco, but if we were our own landlords, the nonprofit’s businesses had a much greater possibility for success.

Starting a nonprofit is not easy, as the IRS demands a lot of information before they grant you that valuable 501(c)3 status. The initial filing was simple enough, but the final paperwork advised by my pro-bono accountant—the IRS form 1023— is a draconian process. Pages and pages of questions, many of them requiring essay answers, took two weeks to fill out.

 

I thought that the final papers had been filed, and I waited months for an answer, only to learn that the paperwork had been lost, somehow. My pro bono accountant also got lost, somehow, and I spent the next many months looking for a new accountant. One unexpected consequence of the tech insurgency in the city surfaced: with so many people in San Francisco earning phenomenal amounts of money, there wasn’t a single accountant in town willing to take on a new client. With no accountant in sight, I’ve looked for another and more immediate option, a fiscal sponsor. In a week or so, I should know if the one I want is on board.

 

In the meanwhile, I have offered up this model for use everywhere. I was very happy to hear, from friends in Dubuque, Iowa, that when they faced huge capital gains taxes after selling a business, they decided to create their own nonprofit for artists’ housing with the money instead. Nonprofit housing is an idea whose time has come, taking the profit margin out of ownership and providing affordable housing for the many, not just the artists of San Francisco. But I would like to start with them.

 

The Take-Away

 

Building new models to replace our exhausted ones is a trial and error process that takes patience and ingenuity. Like the long, slow build of a nonprofit, without assets and services in place to start with, there’s a constant need for rethinking and finding those work-arounds. It has to begin with the search for the win-win, pairing problems to be solved with people who could benefit from providing a solution. Those options are out there and they’re being tried in an endless variety of ways. Some of them will work, and some won’t. Learning from the ways that didn’t work constantly brings you closer to something that does.

 

Many old ways of operating have been disrupted, yes. And now we have to disrupt the disruptors, if we want to restore the good that has been lost or generate kinds of good we’ve never known before. We can think of disruption as a hardship, or as a perfect chance to launch a better plan. Hardship depresses, but opportunity delights. This is our chance to do things right.

 

 

 

 

 

 

 

 

 

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