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Tax on large businesses proposed for Palo Alto
Councilman Bern Beecham seeks more revenue to help with $3 million infrastructure shortfall

by Jay Thorwaldson

Palo Alto's largest businesses have benefited hugely from the 1978 Proposition 13 tax-limitation initiative and should contribute a bit more to help the city rebuild its infrastructure, according to Palo Alto City Councilman Bern Beecham.

He plans to propose a business revenue tax at the March 20 meeting of the council's Finance Committee, which is struggling to find ways to cut the city operating budget by close to $3 million. The funds could be used to replenish the city's infrastructure fund to rebuild or repair city facilities, streets and sidewalks.

Raising $3 million would translate to $50 per employee per year, Beecham estimated in a "very rough" calculation.

Small businesses -- those with fewer than 25, 50 or even perhaps 100 employees -- would be unaffected by the proposed new tax, if approved by two-thirds of city voters. Nonprofit organizations would also be excluded, regardless of size, he said.

Implementing such a tax would eliminate the need for the council and city staff to cut $3 million in city services, either in the form of numerous small cuts or one or two large total-program cuts -- any of which is likely to be highly controversial.

Beecham has floated his plan past some members of the Chamber of Commerce's Government Action Council.

Beecham has been considered the most "business friendly" member of the council. As mayor in 2005, he spearheaded an effort to increase or maintain city revenues in the face of sharp declines in sales-tax income in recent years, as well as a loss of transit-occupancy tax revenues with the closure of Rickey's Hyatt Hotel. He also strongly supports increasing sales tax by significantly expanding the Stanford Shopping Center.

Part of the city's revenue-base problem is because larger firms, primarily in the Stanford Research (formerly Industrial) Park, have had their property-tax increases suppressed by the 2 percent annual limit under state Proposition 13, the 1978 Jarvis-Gann initiative that rebelled against high taxes and government spending.

Beecham spent last summer doing a personal analysis of city revenues and expenditures and how they have changed over the years. The relatively low property-tax revenue received by the city is reflected by Hewlett-Packard's $175,000-per-year share that reaches the city. That would equate to the property-tax share from only 200 typical Palo Alto houses, he estimated. Palo Alto gets roughly $42,000 in property taxes from Roche and about $75,000 from the large law firm of Wilson Sonsini Goodrich & Rosati, he said. The city only gets a share of the total property taxes paid.

Under Proposition 13, property taxes only jump to market-value assessed valuations when a property sells.

But residential properties turn over more rapidly than do large parcels owned by corporations or large firms, Beecham noted.

Therefore, he pointed out, the overall property tax load has been slowly shifting from corporations to homeowners.

He quickly added, however, that approximately 60 percent of city revenues still come from business-owned properties, sales taxes and transit-occupancy taxes, while most city spending (he estimated about 80 percent) goes to services or infrastructure that primarily benefit residents. At the same time, four out of five commuter trips into Palo Alto each day are heading for one of the larger employers in the Research Park, and traffic has been a major community issue for decades, he noted.

Beecham said his new tax would be designed simply to make up some of the difference between what the large corporate landowners have saved due to Proposition 13 limits and what the city needs to catch up on its infrastructure maintenance and replacement costs, many of which benefit employees of the firms that would be affected.

As for the impact of the estimated $50 per employee fee, he said that might seem big at first glance, but in the context of each employee costing a company between $100,000 and $150,000 per year for salary, benefits, work space and even a parking space, it would be a minor ripple in the expense column.

Palo Alto, with roughly 85,000 jobs, is the third largest employment-base city in the South Bay, after San Jose with about 350,000 jobs and Santa Clara with about 100,000 jobs. It has a huge influx of commuters, with a longstanding jobs-to-households ratio of about 2.4 to 1 -- one of the highest anywhere.

Beecham said he has not yet had a chance to discuss it with Gary Fazzino, a former mayor and longtime member of the council, who is Hewlett Packard's government affairs director.

"But I'm sure I will shortly," he said. Fazzino is in Berlin, Germany, this week.

Editor Jay Thorwaldson can be e-mailed at jthorwaldson@paweekly.com.