News

Palo Alto looks to upgrade utility tax

City to ask voters to 'modernize' tax to account for changes in technology

Nearly three decades after Palo Alto established a tax on utilities and phone usage, city officials are preparing to "modernize" this tax to account for the rise of the cell phone and the demise of the landline.

The "utility users tax" has been on the books since 1987, when the City Council created it to raise revenues for its lease of the Cubberley Community Center from the Palo Alto Unified School District and to fund repairs to streets and sidewalks. The tax, which is tacked on to local electricity, gas and water bills and to phone bills, comprises about 7 percent of the city's General Fund revenue, which totaled about $11 million in 2013.

But while the tax continues to serve the purpose for which it was intended, council members agreed on Monday night that several sections of it are outdated, particularly the one dealing with phone usage. Over the past year, City Attorney Molly Stump has been drafting an ordinance to address these changes and remove various exemptions that she said are no longer relevant today. The council plans to send the revision of the utility users tax to the voters in November, at which time residents will also be asked to raise the city's hotel-tax rate by 2 percent to fund infrastructure improvements.

The most significant revision has to do with telephone usage. While the current ordinance pertains to landlines, the new one would apply to a wide range of technology, including the traditional phone, cell phones, broadband, fiber optics, Wi-Fi and "voice over internet protocol" services. It would also remove a provision that limits the tax to calls within California, a clause that Stump characterized in a report as "a relic from the days when interstate and international calls were treated substantially differently from intrastate calls and were much more expensive."

Her report states that most customers already pay these taxes on most telephone-related services and won't notice any major changes in their bills. For this reason, she wrote in the report, "the typical telephone user likely will not experience an increase in taxes if these amendments are adopted."

"The tax was intended to apply broadly to telephone services," Stump told the council Monday. "In fact, it has done that, but changes in modern telephone technology are outpacing our ordinance. We need to revise it to make sure we're capturing all the modern ways we are using the telephone services."

Unlike with the hotel tax, the changes in the utilities-user-tax are not intended to raise funds for particular projects. Rather, they're meant to keep revenues from dropping. The council agreed that given the speed with which technology has been changing, the revisions are long overdue.

"When the UUT was initially created, no one was thinking about cellular phones," Councilman Marc Berman said Monday. "The vast majority of folks use those now for telecommunications purposes so it makes sense for us to modernize our UUT, which hasn't been modernized for 27 years."

Stump's report noted that about 40 percent of the California agencies that have a utility-users tax (about 150 in total) have recently modernized their ordinances by voter approval. The most common rate, and the one used in Palo Alto, is 5 percent. Some cities that proceeded with modernization ordinances coupled them with small rate reductions (ranging from .2 to 1 percent). Of the 75 modernization measures that have gone to the voters, only five have failed, according to Stump's report.

Palo Alto's existing tax ordinance also includes discounts for some of the nine commercial customers whose utility usage is particularly high: Communications & Power Industries (CPI), Hewlett-Packard, Varian, Stanford Hospitals and Clinics, Space Systems/Loral, Stanford Hines, VMWare, Stanford University and 529 Bryant St. One revision that the council is considering is eliminating this "large-volume discount," which would result in a revenue gain of $550,000.

The council didn't make any final decisions on Monday but directed staff by an 8-0 vote, with Greg Scharff absent, to return in May with the proposed revisions. The goal is to give the large customers whose discount may be coming to an end time to respond to the changes. Councilman Larry Klein, who was involved in putting the tax together in 1987, said the discount was created as part of the city's negotiations to establish the tax. He stressed the need to provide notice to the the nine users.

"I'd hope they say yes. If they don't, maybe we can pass it over their objections, but at least they'd have the opportunity to have their say," Klein said.

While tacitly endorsing most of the changes proposed by Stump, the council also agreed to at least consider the possibility of changing the tax rate for the broader customer base. Though Vice Mayor Liz Kniss adamantly defended the 5 percent rate ("kind of a round number"), she and the rest of the council ultimately supported an amendment from Councilman Pat Burt to keep the question open.

"We haven't done any polling on this," Burt said. "We really don't know where the community stands on this. It would behoove us to give the community an opportunity to weigh in more if they so choose."

Comments

Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 25, 2014 at 4:10 pm

This tax was introduced before my time. Don't really understand much of this article, but I can say one thing. It will probably be a way of them getting more tax from me.


Posted by short-sighted, a resident of Crescent Park
on Mar 25, 2014 at 4:45 pm

Let me see, the UUT was introduced to "raise revenues for its lease of the Cubberley Community Center from the Palo Alto Unified School District".

Now the city is trying to get out of this but still retain the tax. Not only that, they want to increase the UUT even though they want to remove the reason it was introduced. Web Link

The city wants voters to agree to this. Good luck on that one!


Posted by Crescent Park Dad, a resident of Crescent Park
on Mar 25, 2014 at 5:45 pm

Alternative solution...don't change the tax and stop paying rent to PAUSD and force their hand to finally rebuild and establish a new third HS. Then use the tax for only fixing infrastructure.


Posted by SteveU, a resident of Barron Park
on Mar 25, 2014 at 7:31 pm

SteveU is a registered user.

Every Utility rate increase has automatically increased the REVENUE generated by UUT.

Just say NO to the whole UUT game.

Some of us are on fixed incomes with NO cost of living perks that city workers get.
It is time for City hall to put their hand DOWN.
TAX TAX TAX

NO NO NO WAY


Posted by musical, a resident of Palo Verde
on Mar 25, 2014 at 8:23 pm

What's the point of a monopoly if you can't gouge your customers?


Posted by common sense, a resident of Midtown
on Mar 25, 2014 at 9:05 pm

Let the good times roll! City just approved an ongoing $12 million in employee expenses in salary & benefit increases, another $7 million in beautifying California Ave, another $2 million in bike transportation studies, and $500,000 for consultants for the comp plan update, etc. etc. and this is just in the last month.

Whatever happen to the police building that was of "utmost urgency", of "highest priority"? Where are those infrastructure commissioners who should be railing at the council for spending money on everything BUT the police building.


Posted by Kate, a resident of Duveneck/St. Francis
on Mar 25, 2014 at 9:44 pm

Did I just read that this tax was also to 'fix the streets'??? Did it exempt High Street southbound to Homer???? Did it exclude Hamilton, Forest, and myriad streets north of the Oregon Expressway? I agree with 'fixed income' comments. Hard for the seniors to keep up with the home repairs let alone with all the myriad ways the City of Palo Alto wants to stick in the tax and fee knife and turn it. The salary raises for these city 'executives' are beyond reason. Donna Rider is the one who should have gotten a big raise!! Without her, City Hall would be unable to function. Keene and Stump should pay the city for the privilege of working there. Both must go.


Posted by Anonymous, a resident of Another Palo Alto neighborhood
on Mar 25, 2014 at 10:07 pm

Just Say No! The rationale for the Utility Tax is gone and this rewrite is just going to suck more into the black hole that is the Palo Alto city government.


Posted by Ahem, a resident of Another Palo Alto neighborhood
on Mar 25, 2014 at 10:53 pm

City council needs more revenue so they can pay high priced consultants, to tell the city council they need to give their developer friends, exemptions to the zoning regulations.

All current members of the city council must go. Clean Sweep!


Posted by Mr.Recycle, a resident of Duveneck/St. Francis
on Mar 26, 2014 at 12:34 am

Tax "upgrade"? What pathetic doublespeak... We need a city goverenance upgrade.


Posted by No Tax Increase, a resident of Barron Park
on Mar 26, 2014 at 8:51 am

Let's call it what it is. This is a proposed tax increase. The answer is NO. Not when you give James Keene and Molly Stump raises. Not when you plead poor and then give the SEIU city workers a multimillion dollar raise. Not when pension liabilities keep accruing because the city is too shortsighted to use even the most basic fiscal discipline.

NO NO NO. This tax should not even be here in the first place. It goes straight to the general fund.


Posted by PO box holder, a resident of Old Palo Alto
on Mar 26, 2014 at 11:07 am

If I have a PO box for my cell phone outside of Palo Alto and in a no utility tax jurisdiction can I avoid the tax? Maybe out of state?


Posted by Silly, a resident of Embarcadero Oaks/Leland
on Mar 26, 2014 at 11:40 am

Enough already. I didn't know Palo Alto was my cell phone provider to which I ALREADY pay usage taxes. I also pay taxes to my landline provider, my cable provider -- where do the CITY fit into these? Are they going to get us rebates on all the other taxes we ALREADY pay?

Cut the PA Utility Tax. We're stuck with an unresponsive monopoly that his ridiculously high rates. We already pay a tax for storm drains that don't drain.

Are they going to tax us for breathing next?


Posted by Annette, a resident of College Terrace
on Mar 26, 2014 at 11:55 am

This is one of those times that I hope the reporter misunderstood a few things. If Larry Klein really said "I'd hope they say yes. If they don't, maybe we can pass it over their objections, but at least they'd have the opportunity to have their say," he may as well have said to the nine users "come have your say, but we are going to ignore you". This is a perfect example of why there's growing disrespect for CC. Also, this explanation for a UUT increase smacks of justification; the language can be updated w/o a tax increase.


Posted by John, a resident of Barron Park
on Mar 26, 2014 at 12:06 pm

Why does the heading to the story use the word "Upgrade"? That's a judgment. Let the voters decide whether or not it is an upgrade.


Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Mar 26, 2014 at 12:18 pm

Lovely. Their hands, our wallets. Their lifetime benefits, our savings.
We need to:
a) End the Palo Alto utilities monopoly
b) Change city hall to become a minimally staffed administrative body.
They should do no "real work" just decide which private company should
get the contracts for real work -- much more efficient than paying
unbounded future benefits for finite current work.
c) Kick out the City Council en masse and replace them with people who work
for US!


Posted by Deep Throat, a resident of another community
on Mar 26, 2014 at 12:21 pm

"Where are those infrastructure commissioners who should be railing at the council for spending money on everything BUT the police building." -- Common Sense.

Infrastructure Blue Ribbon Commission member March Berman in now on the City Council and member Mark Michael is now chair of the Planning and Tansportation Commission. Many other Infrastructure Commission members were already city board and commission members at the time they were appointed to the Infrastructure Commission.


Posted by Cur Mudgeon, a resident of Greenmeadow
on Mar 26, 2014 at 12:50 pm

"Palo Alto looks to upgrade utility tax"
should be Palo Alto looks to broaden utility tax or Palo Alto looks to increase utility tax. PA Weekly, tell it like it is.

Read my lips, no new taxes.


Posted by really, a resident of Crescent Park
on Mar 26, 2014 at 1:30 pm

Emphatically agree with David Pepperdine.

"Modernization" (seriously???!!!) is just another way for city council to pay for the pretty exorbitant (compared to private sector) entitlements of city employees and retirees that they approved to pay for with tax payer money but not tax payer consent.

I keep wondering why no one investigates our city's mismanagement and misappropriations of funds. They can't even pave the streets, which are worse than developing countries.


Posted by not right. . ., a resident of Another Palo Alto neighborhood
on Mar 26, 2014 at 3:16 pm

Let's see - Initially the City created a complicated lease agreement mainly to help the School District during hard times. The arrangement produced 3 million for the School District yearly - now the School District gets over 7 million.
The Utility Tax was formed largely to enable the City to pay that amount to the School District.

Now the City wants to pay less, as they certainly should, but the School District says they want that money - well of course they want it.
And the City wants to keep the level of the Utility Tax. Unfair.


Posted by Dan, a resident of Southgate
on Mar 26, 2014 at 3:21 pm

This article implies that the UUT isn't currently levied on cell phones:

"the new one would apply to a wide range of technology, including the traditional phone, cell phones, broadband, fiber optics, Wi-Fi and "voice over internet protocol" services."

It is. Check you cell phone bill for "Palo Alto UUT". It's listed separately for each phone number. I pay $3.93 PA UUT tax on my Verizon Wireless bill, because the billing address is in Palo Alto.


Posted by musical, a resident of Palo Verde
on Mar 26, 2014 at 5:12 pm

@Dan, odd that I don't see this PA UUT on my AT&T bill. 10 other items mostly Federal, State, 911, Teleconnect, Lifeline, CHCF, and pennies here and there for admin fees. Maybe I should just shut up about it.


Posted by John, a resident of Duveneck/St. Francis
on Mar 26, 2014 at 6:23 pm

When the utilities tax was first approved by the voters, we were assured that we would be able to vote to extend the tax after the original time was over. When it came time to put the utility tax renewal before the voters to see if we wanted it to continue, the City Council, at the time, extended it without putting it to a vote. They said that they knew if it were presented to the voters for renewal it would not pass.

As we all know, the money had gone into the general fund and been used for other purposes. All we have to do is look at our streets and sidewalks.

No! No! No!. If Larry Klein has his way (the person responsible for spearheading a utility tax, a storm drain tax and one more,sewer?,tax. He is a tax attorney so believes we should just keep paying more taxes so he can spend more without putting it where it us needed


Posted by Silly, a resident of Embarcadero Oaks/Leland
on Mar 26, 2014 at 7:53 pm

Will Ms. Stump write to our phone, cable, internet, cell phone etc. providers and tell them THEY can stop taxing us???

By the way, my personal storm drain on which I pay a tax is backed up at the foot of my driveway. Will I have to pay a tax on any mosquitos that breed there?


Posted by JerryL, a resident of Adobe-Meadows
on Mar 26, 2014 at 9:41 pm

Palo Alto provides its own utilities so, I guess it made some kind of sense in olden days for them to impose a utility user's tax. Folks possibly didn't object too much because we were getting a good deal on utility prices compared with PG&E. The telephone utility, while not owned by the city, probably used city power poles to run the wires. So maybe, in a stretch, there could be said to be a rationale for slapping that tax on the landline telephone services.

Now, some of these old justifications are gone. We are approaching price parity with other community utility pricing. Wireless services DON'T use
city owned resources. This tax "upgrade" looks more and more like just another attempt to squeeze the goose that laid the golden egg.


Posted by outside observer, a resident of another community
on Mar 27, 2014 at 12:01 am

"Are they going to tax us for breathing next? "

Absolutely, unless the feds beat them to it.

It's carbon tax. After all, you do exhale CO2


Posted by common sense, a resident of Midtown
on Mar 27, 2014 at 5:34 am

The utilities are a pot of gold for the city staff & city council:

1) Users Utility Tax, about $11 million/year
2) Annually the staff recommends and council approves a "return on investment" transfer to the general fund, about $15 million/year. City Council and staff feels that as "owners" of the utility, they deserve a dividend - which amounts to a tax on us residents.
3) The city charges utility "market rate rents" for use of facilities, around $10 million. This includes land that the city leases from Stanford for $1/year, and then turns around and leases to the utilities for hundreds of thousands per year. This added cost gets put into everyone's electricity, gas & water raters - another tax on us residents
4) The city council has transferred some general fund expenses to the utility department - costs to run the street lights, costs to do street sweeping. This frees up money in the general fund and is another way to tax the residents without putting it to a vote. In other cities does PG&E run the street lights or do the street sweeping? Another $4-5 million/year

All these financial manipulations amount to a $650 tax on each resident (man, woman & child) per year. For a household of 4 that's $2600/year.


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