News

Palo Alto pushes forward with hotel-tax increase

City Council agrees to pursue ballot measure to fund infrastructure fixes

When Palo Alto began its daunting journey four years ago to upgrade the city's age-worn infrastructure, the city's revenues were plunging, the estimated price tag hovered at around $500 million and the endeavor looked at once like a pipe dream and a budget nightmare.

Since then, the city's revenues shot up, the project list was winnowed down and the once impossible task of bringing local streets, buildings and parks into shape suddenly began to look realistic. On Monday night, Palo Alto took another lengthy stride toward the finish line when the City Council unanimously agreed to put on the November ballot a measure that would raise the city's hotel-tax rate by 2 percent. If approved, the revenue would be leveraged to fund various bike projects, at least one new garage and replacement of two fire stations that were built more than half a century ago.

Even without the tax measure, which the council supported after extensive debate, the city's infrastructure landscape is already far brighter than it was in 2011, when a specially appointed Infrastructure Blue Ribbon Commission did a full-scale analysis of the city's needs and came up with a set of funding recommendations. These included a bond to pay for a new police building, raising the city's capital expenditures and increasing the sales tax.

Since then, local sales- and hotel-tax revenues have rebounded in a big way, funding of street repairs has more than doubled and the city's once emaciated infrastructure reserve has swelled to about $8 million. The council had also determined that the most critical infrastructure project of all -- a new public-safety building -- can be pursued with existing funds, a factor that allows the city to use the bond-measure revenue for items that may be less urgent but more popular.

Larry Klein, chair of the council's Infrastructure Committee, was one of several council members to point to the differences between 2011 and today.

"The city's financial position is better, we've got a surplus and, in addition, we have Stanford money," Klein said, referring to the $14.9 million the city is set to receive for infrastructure as part of a development agreement that allowed a dramatic expansion of the Stanford University Medical Center.

Though council members all agreed to put the hotel-tax increase on the ballot, they had an extensive debate over whether to pursue a 2 or 3 percent increase to the city's existing rate of 12 percent. Ultimately, the smaller increase prevailed by a single vote, with Klein joining Vice Mayor Liz Kniss and council members Marc Berman, Pat Burt and Karen Holman in supporting it. Klein was the most ambivalent of the bunch, having changed his preferred increase from 2 to 3 percent at last month's Infrastructure Committee meeting before reverting to the more modest number on Monday night.

The funds, coupled with construction of several new hotels that are expected to come online this year, are expected to bring in $4.6 million in additional annual revenue, which would be leveraged to get $64.4 million for infrastructure projects. Though the exact projects to be funded are yet to be determined, the menu of options includes a bike bridge over U.S. Highway 101, various new bike boulevards, new garages in downtown and possibly on California Avenue and replacement of fire stations near Rinconada and Mitchell Parks.

Of the four council members who supported a 3 percent hotel-tax increase, Councilman Greg Scharff offered the most passionate argument. When combined with expected revenue from new hotels, the 3 percent hike could be leveraged to obtain about $75 million in funding. The city, Scharff said, has gone from a situation where making a dent in the infrastructure backlog seemed "virtually impossible" to one where the city can actually take care of almost all of its infrastructure needs. By approving it, the council would be sending the community a strong message that it plans to do just that. He also cited the rising construction costs, as evidenced by the steadily growing budget for the streetscape project on California Avenue, which is set to commence this month.

"We're within grasp of getting this done," Scharff said, referring to the closing of the infrastructure backlog. "If we go down to 2 percent, we put that at risk."

Five of his colleagues disagreed and said they weren't comfortable with making Palo Alto's hotel-tax rate one of the highest in the state. While San Francisco and Oakland have hotel-tax rates of 14 percent, most of Palo Alto's neighbors have lower rates. Mountain View has a rate of 10 percent, while Menlo Park, East Palo Alto and Redwood City all have 12 percent. Burt said going to 15 percent would make the city too much of an outlier. Holman said the move would help perpetuate an image of Palo Alto as a place that's a little too precious and make it seem like the city is bragging about how special it is.

"I don't think this reflects well on the image of Palo Alto," Holman said.

Vice Mayor Liz Kniss agreed and also urged against making the city's rate so far above those of its neighbors.

"There are times when we think we're just so special," Kniss said. "And I think that diminishes who we are and I think in many ways it makes us look almost as if we're somewhat callous in how we go about treating people who are visiting us either as tourists or for business."

Kniss initially supported Councilman Marc Berman's plan to explore raising the city's sales tax by 1/8 cents instead of going forward with the hotel-tax increase. That proposal quickly fizzled when all seven of their colleagues voted against it.

Berman said he agreed with the goal of fixing up the infrastructure and the council's list of priority projects, but advocated more research on the sales tax. The city's polling of the two items showed that the hotel-tax would be far more popular (support level for a measure to raise hotel taxes by 2 percent was as high as 77 percent) than the sales tax (where support ranged between 51 and 57 percent, depending on how the question was framed). The polling, however, was focused on a 1/4 cent increase and indicated that support could go rise to above 60 percent if the city pursued a 1/8-cent hike.

Berman argued that because the polls didn't really concentrate on the smaller increase, the city should study this option further. He said the city "going in the right direction" with its list of projects, but was less certain than his colleagues about whether the hotel tax is the way to go. Council members are all marching toward the same goal line, he said, though he wasn't sure "if we're calling the right play."

After his idea to explore the sales-tax increase was rejected, he proposed revising the recommendation from the Infrastructure Committee from a 3 percent hotel-tax increase to a 2 percent increase. After the council voted 5 to 4 to support the smaller bump, members unanimously approved moving forward with the ballot measure. The council also directed its Infrastructure Committee to revisit the list of projects and adjust it based on the revenues the city is expected to get from the increase in the hotel-tax rate.

Comments

 +   Like this comment
Posted by Midtown
a resident of Midtown
on Mar 4, 2014 at 7:55 am

After the $10M sidewalk project on California and the $20M soccer fields at the golf course there won't be much left in the reserve fund. More money is just an excuse to burn more money.


 +   Like this comment
Posted by John
a resident of Mountain View
on Mar 4, 2014 at 8:52 am

Usually the tax increments are in 1% or less increases out into infinity.
The money wasters are now just doubling it to 2% at a time.
The other newspaper is going to have Palo Alto salaries featured. 25% of the city employees earn well over $100,000 plus generous benefits. Tree trimmers get $75,000.
Taxes already collected should have been going for infrastructure.
Taxing out of towners is your answer?


 +   Like this comment
Posted by ellie
a resident of College Terrace
on Mar 4, 2014 at 11:06 am

Of course Liz Kniss wanted the lower 2% tax hotel rate - it benefits the corporations that she is devoted to and serves.

That Kniss justified her vehement support of the lower rate by stating (in her own words) that she worries that PA is often perceived by others as arrogant and full of hubris, and potential Palo Alto hotel patrons would stay elsewhere to avoid the implied snobbishness indicated by a 1% higher tax rate. I nearly choked. As if anyone would stay somewhere less conveniently located to save a very few dollars - 1%. Kniss was transparent in her position which has nothing to do with the appearance of civic hubris (of which she is a prime practitioner) but everything to do with her continual catering to corporate interests.


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Posted by Eric F
a resident of Downtown North
on Mar 4, 2014 at 11:08 am

If you needed to raise revenue, a hotel tax is probably one of the more reasonable ways to do it. Increasing hotel demand is driven by increasing business resulting from office overdevelopment downtown, which the city gets little financial benefit from but which residents already pay for in terms of traffic and parking woes, and other quality-of-life elements. A hotel tax at least collects revenue related to the root problem.

But the larger issue, as others have pointed out, is the city's weak fiscal discipline. Public payroll is an element, as is Palo Alto's unfunded public pension liability of anywhere from $100-500 million, depending on whose estimate you believe. Individual decisions like the special Maybell election, hiring an expensive PR person etc, don't help. Palo Altans reject taxes and bond issues not because we're luddites, but because nobody trusts the city with money.

What the city -should- do is explain clearly to Palo Altans what it is doing to control its finances in a responsible way, take some concrete action, and -then- go back to the electorate for bond issues and tax hikes with a sensible plan. Not simply continue to ask for more and then throw up its hands.



 +   Like this comment
Posted by Ann Bilodeau
a resident of Community Center
on Mar 4, 2014 at 12:24 pm

It is not clear from the article whether the proposed tax increase is two or three percentabe POINTS or two or three percent. An increase of percentage points would take it from 12% to 14% or 15%, while an increase of 2 or 3 percent would take it from 12% to 12.24% or 12.36%.


 +   Like this comment
Posted by Not a newspaper
a resident of Evergreen Park
on Mar 4, 2014 at 12:32 pm

This is the second article on this subject where the reporter writing the story does not understand the concept of percentage points vs percent. This also demonstrates a sorry lack of proofreading of the stories.


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Posted by Brian
a resident of Evergreen Park
on Mar 4, 2014 at 1:56 pm

Those of you who are complaining about the trivial semantic issue of percent increase vs percentage point increase are apparently being disingenuous - for whatever reason I will imagine, but not discuss. The story is quite clear on this issue, even if the reporter doesn't use your exact wording. The current rate is 12%, and the story discusses the options of 2% or 3% increases to 14% or 15%; all of this is in the story. Can it be any clearer?


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Posted by Ann Bilodeau
a resident of Community Center
on Mar 4, 2014 at 2:07 pm

Dear Brian, Thank you. I confess I did not see the mention of 14% until I re-read it after your post. It is pretty far down in the story, and I have seen this problem in other stories in the Weekly and in other newspapers.


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Posted by Don't look down your nose at the hand that feeds you
a resident of Another Palo Alto neighborhood
on Mar 4, 2014 at 2:46 pm

There is a well-known difference between what people say they will spend for something and what they will actually pay for something, and that difference is much larger when it comes to spending public funds. It's probably even larger if you talk to people on the side of town the City Council still regards and treats like dirt. (And we vote.)


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Posted by Leona Helmsley
a resident of another community
on Mar 4, 2014 at 4:15 pm

The problem I have with Eric F's linkage of the hotel tax with office development is that the services and projects financed by the hotel tax will be used as an excuse for more office overdevelopment to ensure that enough hotel guests arrive to pay the taxes to finance the services and projects. How you frame the linkage determines which is the cause and which is the effect.


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Posted by AIRBNBs should be taxed as well
a resident of Midtown
on Mar 4, 2014 at 6:45 pm

If there is going to be an increase on the taxes on the hotels, The City should start taxing all of the Airbnbs in the city. There are many of them. In case you do not know what they are- they are residential families who rent out one or more or all of their houses for a fee per night. They advertise on Airbnb and people stay at their houses for one or more nights and are charged about $100 per night or more. I think it is unfair for the hotels to be taxed and theses airbnbs who are generating a revenue by renting out rooms which is a business, to not pay any taxes. Also the airbnbs are taking away business from the hotels, so they should at least pay some kind of tax.


 +   Like this comment
Posted by SteveU
a resident of Barron Park
on Mar 5, 2014 at 9:29 am

SteveU is a registered user.

Why is this not a 'Tax without representation'? Many of the people who pay this can't even VOTE in a Palo Alto election.
'Hey! Tax these guys, they can not vote us out of office'

14%, no wonder local people are homeless.


 +   Like this comment
Posted by Anonymous
a resident of another community
on Mar 5, 2014 at 9:39 am

Note to writer/editors: this might come across as pedantic, but an increase in the TOT from 10% to 12% is not, as indicated in the article, a "2 percent increase." Mathematically, the change from 10% to 12% is a 20% increase. The percentage change formula is as follows:

(NEW – OLD) DIVIDED by (OLD) = PERCENTAGE CHANGE

(12% - 10%) / 10% = 20%

The way to correct the above article is to say that the change in TOT from 10% to 12% represents an increase in the TOT of "2 percentage points."

I have no dog in this race -- I simply want to make sure the numbers are properly characterized. Good luck.


 +   Like this comment
Posted by Anonymous
a resident of another community
on Mar 5, 2014 at 9:42 am

CORRECTION: this might come across as pedantic, but an increase in the TOT from 12% to 14% is not, as indicated in the article, a "2 percent increase." Mathematically, the change from 12% to 14% is a 16.7% increase. The percentage change formula is as follows:

(NEW – OLD) DIVIDED by (OLD) = PERCENTAGE CHANGE

(14% - 12%) / 12% = 16.7%

The way to correct the above article is to say that the change in TOT from 12% to 14% represents an increase in the TOT of "2 percentage points."

I have no dog in this race -- I simply want to make sure the numbers are properly characterized. Good luck.


 +   Like this comment
Posted by Shell Game
a resident of another community
on Mar 6, 2014 at 6:25 pm

First, the City Council decides to ask the voters to approve an increase to the hotel tax, then the same City Council tells the voters that they will spend most of that tax increase on employee salaries at the same time voters are being told that the hotel tax increase will be used for something else. If the City Council didn't increase employee salaries, we wouldn't need an increased hotel tax.

"The new agreement will add about $7.6 million in expenses to the city over the two-year period" Web Link


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