The tax proposal fizzled after months of debate, with critics calling it too messy and complicated to enforce and too onerous on already struggling businesses.
Skip Justman, who led the campaign against the tax, said he was surprised by how many small-business owners and entrepreneurs told him they were worried about intrusion from the city. He attributed the defeat of Measure A largely to the many voters who have part-time jobs but are also "working quietly at home."
Justman, whose group called itself Small Business Against Taxes, said he was pleasantly surprised by the votes. By the end of the week, with about 80 percent of the ballots counted, 7,640 voters opposed Measure A, while 5,736 voters supported it.
"We had to fight an uphill battle," said Justman, who chairs the Palo Alto Chamber of Commerce Government Action Committee. "We had to go against the City Council, City Hall and the downtown establishment, and we were able to succeed."
But city officials warned that voter's rejection of Measure A would make the city's murky budget situation even bleaker. The city is facing a "structural" budget gap of at least $10 million, meaning long-term cuts need to be made. The City Council was hoping to use the roughly $3 million in projected revenues from the new tax to narrow the gap.
City Manager James Keene said the voters' rejection of Measure A will make future decisions about program cuts more difficult.
"There's no light at the end of the tunnel," Keene said Tuesday night. "We'll have to revisit our possibilities and consider other ways of raising revenue."
He said the city will have to consider bringing back the business-license tax in a different form, as well as other strategies for boosting revenues.
Larry Klein, who was re-elected to the council on Tuesday, called Measure A's projected defeat "unfortunate but not surprising." All three local newspapers came out against the measure, as did nine of the 14 council candidates.
Opponents of the measure consistently argued the ongoing recession is a horrible time for a new tax. Greg Scharff, who opposed Measure A and won election to the City Council, said he would prefer to see Palo Alto "invigorate its business climate" and generate more revenue by promoting more growth.
"I don't think we can tax our way out of this," Scharff said.
But Mayor Peter Drekmeier said he expects some of the voters who rejected Measure A to have second thoughts when programs and services start getting cut.
The council has already compiled a short list of program that could be threatend: the city's shuttle service, the Fire Department's disaster-preparedness program and the Police Department's four-officer traffic-enforcement team, school-resource officer and crime analyst positions.
"This means there will have to be more cuts made," Drekmeier said Tuesday night, after Measure A's defeat was all but assured. "I think it's really going to sink in when people's favorite programs are gone."