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Farewell, San Francisco

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Farewell, San Francisco

10 Blocks podcast May 20, 2020
California
Cities
Economy, finance, and budgets

Michael Gibson joins Brian Anderson to discuss San Francisco’s ongoing struggle with public order and his decision to leave the Bay Area for Los Angeles—the subject of Gibson’s story, “America’s Havana,” in the Spring 2020 issue.

“Even before the current Covid-19 pandemic,” writes Gibson, “San Francisco was a deeply troubled city.” The city ranks first in the nation in a host of property crimes, and its high housing costs make it prohibitively expensive for low- and middle-income families. Even tech companies are now considering relocating their operations; any significant exodus of such businesses would be a serious blow to the city’s economy.

Audio Transcript

Brian Anderson: Welcome back to 10 Blocks. I'm your host Brian Anderson, and joining us on today's show is Michael Gibson. Michael is the co-founder of the 1517 Fund, a venture capital firm, formerly based in San Francisco and now in Los Angeles and we'll get to that in a minute. He's written on technology and innovation for The Atlantic, National Review, Reason, and recently a couple of excellent pieces for City Journal. You can follow him on Twitter @William_Blake. His latest essay, which we released online last week and appears in our Spring 2020 issue is called "America's Havana" and it's about San Francisco's ongoing struggle with public order and other serious urban problems, even before the Covid-19 pandemic struck. Michael, thanks very much for joining us.

Michael Gibson: Happy to be here.

Brian Anderson: Now let me read the very vivid opening paragraph to your story, quote: "On January 8th London Breed, San Francisco's mayor was sworn in for her first full term. House Speaker Nancy Pelosi congratulated her in a tweet saying, 'I look forward to working with you to continue San Francisco's proud tradition of standing as a guiding light for progress across America.' I don't know what definition of progress Pelosi is using, but any candid observer would rate the city that catastrophe. Mayor Breed was inaugurated on the same day that I moved from San Francisco to Los Angeles after 10 years working at the cutting edge of science and technology." You then begin your brief tour of the reasons you and others like you are leaving the city starting with public order and hygiene. So could you give a description of how the city was kind of crumbling over the last several years in these areas?

Michael Gibson: For sure. It's hard to remember when I first started noticing these things, but they started off slowly and they picked up, I think for sure some of the issues like homelessness have always been a problem on the West Coast and in cities like LA, even San Francisco, Portland, Seattle, but sometime throughout the 2010s, the teens, it really picked up and, and it started to become very stark. The city scene from a view let's say you're standing on the other side of the Golden Gate bridge and you look at the city, it is just resplendent.

Brian Anderson: It is one of the most beautiful cities in America. It's true.

Michael Gibson: And you're just excited to see what's going on inside. And then you get closer and, and then that's where it hit me one time where I came back down from the Sonoma region. You come down the 101, you shoot through the Robin Williams tunnel and you get that view of the city and it just looks like the future of the world. In this veritable gold rush, in the last tech boom, so much wealth has been created. Silicon Valley became, San Francisco itself became synonymous with Silicon Valley. And so there was a sense in which this was the city of the 2000s, that it was going to be the next Florence or Athens. That it would be a cultural center. But then you pull in to the city with your car and, and yeah, I noticed there's just drug users out in the open. This is not in bad neighborhoods like the Tenderloin district, but even in the, in the main areas of the city where in the financial district. There's human feces all over the place. That increased over the last decade. So anecdotally that stuff started picking up. Then the stories broke in the local newspapers and then whatever counter measures were taken, they failed. And so it just reached a point by the end of the decade where, I know lots of friends were uncomfortable walking around at night. It was not unheard of to have people harass you, yelling at you and coherently and in those kinds of issues. So that was the lower layer. And then, and then you started to wonder about the deeper stuff, like, what are the underlying issues? Lots of conflicts erupted over the last decade. The Google buses started because a lot of their employees wanted to live in the city and then commute down to Mountain View. Likewise with Apple and Facebook. And so they started these commuter buses in these commuter buses would take these employees from the city down the peninsula.

You had protests against these buses. Really strong backlash against the tech community, and the tech community got blamed for this, that somehow they were crowding out the public transportation that they were driving up the rents. And that's when I really started to examine the underlying problems in the city. The tech companies were being scapegoated, but it turned out that you know, there are a lot of regulations and zoning rules that prevent people from building anything new in the whole city. And so you had the same stock of housing, the same, pretty much the same stock of office space and more people trying to get into the city of the future. And that led to a lot of social problems.

Brian Anderson: So everything began to come together in a bad way. In other words, driving you to leave.

Michael Gibson: Yeah, that's right. So it was this weird combination of you had the expensive because of the limited housing.

Brian Anderson: Yeah I want to get back to that in a minute, maybe we could talk a little more detail.

Michael Gibson: But then you also had the appalling, which was this mismanagement of the homelessness situation.

Brian Anderson: And crime is starting to go up there. I'm not sure, post pandemic what it looks like, but the city's got a very significant burglary and theft problem. A lot of shoplifting going on cars getting broken into.

Michael Gibson: Something on average like 60 cars are broken into per day, That's pre-Covid, who knows what it is now. But you know, there are famous stories. Alex Rodriguez, the former Yankee now sportscaster. He was late to a game at the Giants stadium and found a parking space on the street. He stupidly or foolishly left, I don't know, maybe it was like necklace or some kind of jewelry in the car worth hundreds of thousands of dollars. It was broken into and stolen. But yeah, just the sheer number of these sorts of petty crimes, theft, vandalism led to San Francisco becoming the leader in the nation in 2018. 2019, it's still high. We have a mayor, or San Francisco had a mayor, there's a police force, but they did not seem to be willing to enforce lower-level crimes.

Brian Anderson: Yeah. That's quite striking. You'd like to think that the city's political class and voters would recognize this breakdown in order, rise in crime. Yet the brand new district attorney there, Chesa Boudin, campaigned on not prosecuting quality of life infractions. I'm curious, how did he win and what's your sense of him against this backdrop?

Michael Gibson: San Francisco has a history of being progressive and perhaps that's what Pelosi meant when she said it's a beacon of progress. The last Republican mayor was elected in his first term, I believe in 1956. I think he'd won a second term. But you know, ever after that, it's been run by Democrats. So pretty much one-party city for a long time. There are more moderate wings in that party. And there are very far left wing members of that party. And I think Chesa Boudin won due to some of the mechanics of voting in the city for these types of positions where, I forget the exact name of the mechanism, but if votes are split, it'll go to, let's say there are three candidates and two of them are similar to each other, so that they split the vote, that'll open it up to someone who's more radical like Chesa Boudin.

Brian Anderson: And that's kind of what happened here, right?

Michael Gibson: Yeah, so that's how we won. In essence, two opponents who were probably more moderate than he was split the vote. But nevertheless, it's still scary to me at any rate that someone with his resume and his public positions would get elected at all. You know, not enforcing low level quality of life crimes is one thing. He has very ambitious goals on establishing some kind of retributive justice or, sorry, restorative justice program. There was a humorous moment in one of the debates while he was running where and addressing this car, the broken window problem with automobiles and theft. He thought he thought the city should set up a business where if they caught the the thief, then the thief would have to work for some period of time in the window repair program that the city would run.

And it was just seemed like total craziness to me. But I guess it appealed to enough voters that he was able to win. I believe he served as a translator and adviser, I don't know in what exact capacity, but he had a direct relationship with Hugo Chavez, the late dictator. This to me is the kind of relationship that should just raise all sorts of red flags in the media and in the public. And the fact that it didn't, I think speaks to how far radical San Francisco has become. You know, the title of the piece is America's Havana. I chose that because one it's striking to me that Havana is crumbling on the edges but still looks the same as it does since the 1950s even people riding around in cars from the 1950s.

Brian Anderson: All that lovely architecture preserved as if in amber.

Michael Gibson: And in San Francisco, it's not, you don't see things crumbling necessarily to that extent in neighborhoods, But it is striking to me that it looks the same as it does as it did in the 1960s, you can watch a movie like the Steve McQueen classic, "Bullet", with the famous car chase scene as he's riding up and down the hills of San Francisco. And sure enough, if you look at those same locations today, they look the same. So three, four story Victorian townhouses, Bay window apartments, that sort of thing, it's all the same. And that's due to those land-use regulations.

Brian Anderson: Yeah. I wanted to get back to that because you, you listed that as one of the other reasons you've decided to move to Los Angeles. The cost of housing in particular is a huge problem in San Francisco. It's problem in many successful cities these days. But I think nowhere in America is it more of a problem than in San San Fran. I think the medium price for one bedroom you mentioned is the most expensive in the nation. It's about $3,700 a month. That's a median price. A single family home on average will run, you know, well over a million dollars. What's behind the, these astronomical prices? I guess it's really a supply problem as you suggest. And it has something to do with the way the city approaches land-use.

Michael Gibson: Right. It has the strictest land use rules in the nation. Probably the strongest NIMBY lobbyists you can imagine. That goes back for some time. You can look at any election from the 1970s through the eighties and nineties, and people are complaining about new construction, whether it's commercial or, or private residences. So even the main rule is that height requirement. Nothing can outside of something like 78, 79% of the city, you can't build higher than four stories. And then there are all sorts of other problems. The permit process is the highest stakes game of chutes and ladders known to man. There are multiple stages to this process. Multiple committees that you need to obtain approval from. And at any step along the way, after all the money spent and the effort made, you can slip down the slide and end up back in square one. And there are some crazy examples over the years. Some guy, it took him like, I think he started in 1978 to build four units and area of town called Bernal Heights. Spent $2 million and only in the last year was able to gain approval. Those stories are not uncommon. It's a real supply crunch. You limit the number of houses, you keep them the same, but you add more money and you add more people. Well, that's simple economics. The prices are gonna go up.

Brian Anderson: Now we talk a lot on this podcast and, and certainly write about in City Journal, the New York City subway system, which has a lot of problems even before the pandemic. The New York transit system had seen, you know, a real deterioration in performance, delays which have led to overcrowding, homelessness becoming a problem on the subways themselves. Enormous financial woes, again, even before the pandemic. But I don't think in our previous podcasts discussing San Francisco issues that we've really talked much about the Bay Area Rapid Transit System or BART system. Could you talk a little bit about that and how it's performing?

Michael Gibson: Yeah, so one of the interesting things about the Bay Area is that it is so fragmented in terms of its political organization. So when it came time to build a public transportation system, I think it was greatly limited by that fragmentation. So it was originally planned, the BART system was, was going to be a lot like the New York subway system in the way that it helps unify the many boroughs. In the original plans, I think for the BART, there were lines that were supposed to go up North to Marin, across the East Bay into Oakland. And then down South. What happened is that they couldn't get all these different municipalities on board. And so now the BART is pretty much limited to the East side of San Francisco, then it travels under the Bay, into the East Bay, Oakland area. It heads down south on the peninsula, but stops just past SFO.

So it doesn't have a lot of range. It was built in the 1970s. I think some of the engineering choices may have been fine at the time, but now the wear and tear on them started starting to show itself in the last few years. For me, this has been. Around town, it's known as the BART howl or screech. The wheels they made aren't flanged wheels. And so the noise is deafening, especially in certain paths.

Brian Anderson: Metal on metal, it's so true.

Michael Gibson: Yeah. And this has a quality of life consequence where, for instance, the high price of living in San Francisco. I know some people have thought about moving to the East Bay, but it makes the commute even worse because you can't have conversations, you can't listen to podcasts. You have to stop your music as you travel underground. And listen to this howl that seems to be in some sort of deranged contrapuntal noise, because it's like there's a high level shriek and a low-level rattle at the same time. It's quite jarring. I looked into that and, there's some other news stories or blog posts about the construction of those wheels and why they failed to make the right choices. It's pretty interesting. But for me, it became symbolic for this lack of state capacity or governance capacity where the infrastructure, the city itself is not living up to its purpose.

Brian Anderson: Yeah, I'd like to close with a couple of questions. One, you had already decided to relocate before the Covid-19 pandemic, but what's your sense of the attitude among other firms located in San Francisco or more broadly in the Bay Area? Are you hearing other companies thinking along the same lines. And then after answering that question, I'd love to hear about what it's been like moving to Los Angeles, basically simultaneous with a big lockdown in that city as a result of the pandemic. What it been like in LA? So those two questions: are other firms leaving San Francisco or thinking about it, and then what's going on in LA?

Michael Gibson: Well, the quality of life issues and the cost of living had started to affect my work. So we run an early-stage venture capital fund. We make investments in companies at the earliest stage. So often where we are the first money in, it's a few people and some proof of concepts. The Bay Area, Silicon Valley and San Francisco to some degree have always been known for being the hub of innovation and specifically garage startups, right? You think Hewlett-Packard, Apple, Google, they all literally started in garages. Well, if the garage costs a million bucks, you're not gonna be able to have a startup. And it occurred to me that the Grateful Dead also had a house in Haight Ashbury houses. You know, the ones around it on Zillow sell for like 3 million plus now. So you can't have a garage band either. If the garage costs a million bucks. So for my work over the last decade, we just noticed fewer and fewer of the companies that we were investing in were located in the Bay. They were starting elsewhere. So the need for me to live in San Francisco decreased.

There was almost like a little perfect storm for you guys publishing this piece because on the same day that you did on the internet, Twitter announced that it was permanently allowing its employees to work remotely. And Jack Dorsey had mentioned something along these lines, too, hinted at it in a quarterly call with investors last quarter. But yes, the story broke on the same day. And so I think there's a lot of conversations happening now about the degree to which companies will remain remote or you know, maybe it's not 50%. Maybe it's 25, but it's certainly not going to be zero. So I think we're going to start to see an exodus out of San Francisco. More companies either working remotely or maybe decentralizing their operations to some degree just because of the quality of life issues that we've talked about and the high cost. So I think Twitter's a real bellwether. They're going to be others for sure. Just go on Twitter now and you can see a lot of prominent VCs and founders talking about it.

Brian Anderson: The piece is getting an enormous amount of attention online and reading the responses and the letters is fascinating because it does clearly suggest that a lot of San Francisco residents and other firms are beginning to see or have been seeing the same kind of things you are and getting fed up about them.

Michael Gibson: It's going to hurt San Francisco should this happen to any great degree. If you look at the 2010 budget, I think it was about $6.4 billion. The 2020 budget for the was almost twice that, $12 billion. A lot of those revenues are coming from taxes collected on tech companies and their employees who live in, shop, and spend money in the city. And so should that drain, I think that the city, which has already stretched financially, is going to feel a pinch. So I chose to move down here before Covid. I sense this as an accelerant on, on that trend of decentralizing the office, to some degree, maybe to a big degree. LA, I moved down here not because there's a hotter tech scene and I was looking for companies here. I moved here for a few reasons. One is that it is a main transportation hub. A lot of our investments occur across North America. So being located not far from LAX, I thought I could travel quite easily. I wanted the nicer weather and the beaches. But maybe what was the most appealing thing to me was the way San Francisco, those dynamics we discussed have also made it very much a monoculture. In part my industry, the tech industry, but really, when people talk about that it's the big tech companies, Google, Facebook, Apple. The prices have driven out all the artists and all the different types of people. There's only one kind of culture in the city. And so Los Angeles to me represented something where you still had all these different types of people in the city, whether it's entertainment, aerospace, just a larger number and that appealed to me. Post-Covid, it's hard to tell what's going to happen. I mean, the mayor here is quite stringent, and the city administrators. They're threatening to lock down the city at least through the summer, maybe until there's a vaccine that's not quite clear. So you know, maybe the quality of life here won't be as good, but I'm not sure what to do about that in short term.

Brian Anderson: Well, thanks very much Michael. Don't forget to check out Michael Gibson's latest essay for City Journal. It's called "America's Havana." It's getting a lot of attention. You can find that and an earlier piece by him on our website and we'll link to it in the description. He's on Twitter @William_Blake, and you can follow City Journal on Twitter as well at @CityJournal, and on Instagram at @cityjournal_mi and if you like what you've heard on today's show, please give us a rating on iTunes. Thanks for listening and thanks again Michael Gibson for joining us. Thanks for having me.

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