AP Photo

Last year, when Mayor Ed Lee heard that Twitter was planning to move its headquarters out of San Francisco and down to the peninsula, he quickly consulted with his digital experts—his two daughters, Brianna, 27, and Tania, 30. Was the company important enough to make a top priority? “Of course it’s important, Daddy!” they told him. “We tweet all the time. You have to keep them in town.”

Lee quickly made an appointment with Twitter CEO Dick Costolo to see how San Francisco could hold on to the social media giant. Costolo told the mayor that Twitter was planning to double the size of its local workforce over the next year, from about 450 employees to 1,000. But the city’s policies penalized job growth by taxing a company’s payroll, the Twitter chief said. If San...