San Francisco has declared itself the AI capital of the world, but so far it has not dangled specific incentives at the fledgling — but rapidly growing — industry to boost its growth and attract more investment.
Now San Jose could be challenging San Francisco’s dominance in artificial intelligence. In a bid to lure the next generation of startups, Mayor Matt Mahan has issued a memo to city agencies urging them not only to make it easier for AI companies to set up shop, but also to more rapidly incorporate AI into the everyday workings of city government.
“I think there’s going to be plenty of growth in AI for everybody,” said Mahan. “I really see us as living in a regional economy. I think San Francisco’s success can be San Jose’s success,” he added, pointing to the South Bay city’s longstanding expertise in tech hardware and chipmaking, which underpin AI.
Authored with San Jose Councilmember David Cohen, the memo asks the city to roll out the welcome mat for AI companies with discounted utility rates and speedier permit processing, along with potential tax and fee rebates, among other ideas. Mahan said city officials are discussing whether rebates for office power costs or even the large amounts of energy needed to process complex AI calculations made the most sense in attracting companies to the city.
The plans direct the city to “work with industry and investors to set a strategy for San Jose to provide the support AI-focused companies will need over the coming three to five years to succeed.”
Those designs will go before a city committee this week. San Jose has also released AI guidelines recently for the city to follow, and the memo calls for the city manager to “explore the potential for locating an AI incubator, accelerator, applied laboratory, and/or co-working space in San Jose.”
The memo mentions the city has signed a letter of intent with a tech accelerator called Plug and Play and is working with the group to launch an AI incubator in the city.
Mahan said the memo constituted a set of ideas, including looking into how AI tech could potentially cut traffic fatalities and how San Jose might use the technology to identify and fill potholes.
San Francisco has taken a different approach to encouraging AI growth — at least so far. For one, it has yet to delve into AI-powered tools already being used by other cities in the region, such as chatbots for city services.
While some teachers have started to implement AI tools in their classrooms in San Francisco, there has been no instruction from on high about whether and how to do so. The Chronicle also could not identify any AI policies at the city department level earlier this year.
Mayor London Breed has been vocal about welcoming the industry to San Francisco as it struggles to fill office vacancies and kick the downtown economy into gear. But at the policy level, her administration has lumped AI companies in with any other types of businesses it hopes will choose to locate in the city.
“We are doing this kind of work not just for AI, but for businesses across the board,” said Breed’s communications chief, Jeff Cretan, in an email. “We have already put in place the kinds of measures San Jose is citing specifically for AI, for all job-creating industries.”
Cretan added the mayor has continued to meet with AI companies at their headquarters to better understand their needs.
“City staff from our Office of Economic and Workforce Development have been in constant contact with AI companies to understand their needs,” Cretan said.
The pace at which the AI industry is taking root in the city means Breed’s office may not necessarily need to do much more.
AI startups are flocking to San Francisco in part because that’s where the meetups, hackathons and AI tech talent are situated, despite the city’s bruised reputation in areas such as crime and street conditions. While San Francisco may have higher business taxes than other Bay Area cities, it’s not clear how much that pushes companies elsewhere, although hugely valuable companies like Stripe and Block, formerly Square, have left the city in recent years.
Microsoft, which has already invested billions in industry golden child and ChatGPT maker OpenAI to supercharge its computing power and other needs, also recently opened an innovation hub in the heart of downtown, at 555 California St.
Anthropic, maker of the Claude chatbot, also recently announced it would lease the entire former Slack headquarters in downtown San Francisco, shortly before announcing that Amazon planned to pour billions of dollars into the company.
San Jose and the Peninsula have long been more dominant in the technology sector, playing home to such software and hardware giants as Intel, Cisco, Google and Meta. The South Bay also hosts research and development in chip design, AI and robotics at institutions such as Stanford and SRI International. San Francisco has seen a tech surge in the past decade thanks to Twitter (now X), Uber, Airbnb and now AI.
Is Mahan looking to upend that arrangement by enticing the next generation of tech talent southward?
San Jose has “an immense pool of diverse talent,” Mahan said. “We want to ensure Silicon Valley stays on the edge of technological innovation.”
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