Publication Date: Wednesday, March 30, 2005
Guest Opinion: It's time for urgent action to safeguard Palo Alto's services and sales-tax base
Guest Opinion: It's time for urgent action to safeguard Palo Alto's services and sales-tax base
(March 30, 2005) by Karen White
It's no secret that Palo Alto is among cities nationwide that face mounting fiscal uncertainty. We've watched our sales-tax base dwindle in recent years with the dot-com implosion and the broader erosion of our retail sector.
For the first time in many decades -- possibly ever -- Palo Alto residents and business leaders are coalescing around a common goal: supporting our retail base as an important direct service to residents and a vital source of revenue for our many city services.
But most residents may not realize that just 10 major retailers -- mostly auto dealerships plus Fry's Electronics -- account for about half the city's sales-tax revenues.
Those of us who are members of the city's new Retail Attraction Committee have come to recognize an urgent reality: We must keep our auto dealers healthy, and encourage other dealerships to set up business here.
We should also look at ways to encourage corporations in the Stanford Research Park to set up sales offices within Palo Alto, in order to capture sales tax from business-to-business transactions. Finally, our transit-occupancy tax can be increased modestly, with offsetting benefits for our hotels.
Our local crisis is part of a larger picture. America's retail sector is undergoing tremendous upheaval and realignment around new business models that capitalize on large-scale operations. Palo Alto's auto dealers are being swept up in this movement. Auto manufacturers now require that strict standards be met in order simply to continue operations. Thresholds include size of property required for a dealership, including showroom size and acreage.
But car dealers also need freeway access and freeway visibility. So even if a local dealer on El Camino Real or other off-freeway site is personally satisfied, there is mounting pressure to find a better location.
An added urgency is that other cities are already starting to woo Palo Alto dealerships away -- not for the cars or status but for the sales taxes.
Fortunately, Palo Alto is blessed: Highway 101 cuts along the edge of the city. This offers the potential for an "auto row" to extend from existing dealers along Embarcadero Road near Bayshore south along East Bayshore Frontage Road, with minimal or no impact either on residential areas or our natural baylands.
Vacant office space along West Bayshore Frontage Road could provide additional freeway exposure. With proactive land-use planning through the zoning ordinance update now underway, Palo Alto could create an auto row along both sides of 101.
We cannot afford to stand by idly and watch our dealerships migrate to Mountain View or to the new auto row Menlo Park has established. For each exodus brings significant cuts in our valued services and facilities.
An immediate challenge is that Toyota of Palo Alto is being courted by Mountain View, where the business could have room to spread out. Finding a way for this dealership to expand within Palo Alto boundaries will keep revenues at home.
What's at stake?
Auto dealerships must be our first priority. A single high-performing auto dealer could bring the city more than $1 million per year in net sales-tax revenue. Vacant office spaces along Highway 101 frontage roads are a changing use now. We must not miss today's golden opportunity to create incentives for new auto dealerships on freeway frontage that is prized for this use.
Land-use economics stack the cards against car dealerships, though: in today's market, housing brings more profit to a developer, so housing is the natural choice for any parcel now being redeveloped.
Our city should be assertive -- using incentives to encourage the creation of an auto row where one makes most sense, along West Bayshore. Using economic analyses, we can transfer development rights to property owners willing to build auto dealers in lieu of housing. Owners could exercise their transferred development rights near University Avenue or California Avenue transit centers, where increased housing density makes the most sense. An easement behind West Bayshore parcels would buffer existing homes from retail impacts.
In addition, land along East Bayshore -- where the Municipal Services Center now sits -- is prime for auto sales. Freeway visibility so prized by car dealers is now being wasted. We should explore a partnership with our school district for a common corporation yard, where city and school vehicles can be stored and maintained. Today is not too soon to begin working toward a freeway-centered auto row.
Second, we should immediately explore incentives to encourage corporations in Stanford Research Park and elsewhere in Palo Alto to open sales offices in town, reversing a trend begun when H-P moved its offices out several years ago.
Research and development is critical to our employment and economic base, but sales offices bring needed revenue to city coffers.
Community leaders have discussed ways to provide incentives to bring or keep sales offices here. It's time to bring this issue to the forefront of civic attention.
Finally, Palo Alto's transient-occupancy tax -- essentially a sales tax on hotel rooms -- can be increased. An increase of 2 percent, for example, would bring our city more than $1 million per year in new revenues. The argument that a visitor to the Peninsula would choose Menlo Park over Palo Alto because of a negligible swing in TOT simply doesn't hold water.
To offset the tax, we could dedicate a portion of new revenues to a convention and visitors bureau, with joint advertising to promote Palo Alto as a destination -- which the Chamber of Commerce once said it would support.
In summary, here's a proposed action plan including ideas that neighborhood and business leaders are discussing:
1) We should move urgently to explore ways to create an auto row along Highway 101, while enhancing and leveraging the visibility and viability of our current dealerships. We must not lose this opportunity to increase retail services to Palo Alto residents and safeguard critically needed sales-tax revenue.
2) We should meet with executives of Stanford Research Park companies and other Palo Alto corporations to learn what is needed to bring sales offices home.
3) We should increase our transient-occupancy tax and provide offsetting benefits to our hotels, such as funding a visitors' bureau.
More and more Palo Altans are beginning to understand the critical need to talk about economic development, and to move beyond the us-versus-them patterns of recent decades between residents and the business community.
It's time to embark on an action plan that will address the interests that our residents and businesses share.
Karen White is the head of the Duveneck/St. Francis Neighborhood Association, and is active in both city and school issues, ranging from baylands protection to programs to enhance family communications and address adolescent stress. She can be e-mailed at karenwhite4@sbcglobal.net.
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