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Would you favor a business head tax?

Uploaded: Jul 5, 2018
“How do you feel about a head tax?” a friend asked me the other day. She was referring to a relatively new tax idea that some communities are embracing: The city imposes an annual tax on businesses for each of their employees, typically ranging from $100 to $400 per employee. The city collects a couple of million and spends it on whatever it wants.

The idea has been mentioned by Palo Alto city council members, and in Mountain View that council put the proposed tax on the November ballot for approval. Google, whose corporate headquarters are located in Mountain View, would pay an estimated $3.3 million a year –in addition to the $13.7 million in annual rent the city gets from the company, and $30 million for a 52-year lease on one property.

In May, Seattle City Council unanimously passed a head tax that would have raised $48 million annually to ease the city’s homelessness and affordable housing crises. It would have levied a $275-per employee tax on companies with at least $20 million in gross annual revenue, most notably Amazon. But less then a month later, the council repealed the tax, bowing to business and resident outcries that the tax was “an assault on local economy,” and made the city less competitive.

I needed to know more about the head tax before I could answer my friend’s question.

On the pro side, and depending upon the amount charged per employee, the tax could be a financial windfall to city coffers locally, like Palo Alto. A couple of extra million each year, if handled correctly, could help both the traffic problems and the affordable housing needs in our communities -- or repair roads or add more bike baths. And this time it would be businesses, not residents that would have to fork out the money. Some have argued that it is the businesses that are causing many of Palo Alto’s problems – increased traffic, lack of downtown parking spaces, bumper-to-bumper car-parked residential streets, more high rises, etc. – so shouldn’t businesses, not residents, pay to help solve these problems? So far residents have borne the tax burden.

But on the con side (i.e., why the head tax is bad), a corporate head tax is a “tax on jobs” that “limits the prospect of jobs in your community,” according to Carl Guardino, CEO of Silicon Valley Leadership Group. It’s businesses that help make our cities economically healthy. They hire lots of people, and those employees shop and eat in our town daily, and pay sales taxes for what they purchase.

Depending on the economy, businesses might quickly decide to locate in or move to a city without a head tax, to save a couple of million a year. And it’s each year they would have to pay, not just a one-time charge.

So I’ve decided – I am against the head tax. I don’t think it’s fair to charge businesses because they have a lot of employees – those businesses help keep a lot of Palo Alto and Mountain View residents employed. The taxes could drive businesses elsewhere.

So how do you feel about a head tax?

Comments

 +   31 people like this
Posted by Curmudgeon, a resident of Downtown North,
on Jul 5, 2018 at 12:44 pm

"a corporate head tax is a “tax on jobs" that “limits the prospect of jobs in your community," according to Carl Guardino, CEO of Silicon Valley Leadership Group."

Yep. We are sooo starved for jobs here in Palo Alto.


"...businesses might quickly decide to locate in or move to a city without a head tax, to save a couple of million a year."

Yay! Go business head tax! No more subsidizing Palantir, etc. with citizens' taxes. No more socialism for billionaires.


 +   30 people like this
Posted by Online Name, a resident of Embarcadero Oaks/Leland,
on Jul 5, 2018 at 12:49 pm

Online Name is a registered user.

I absolutely favor a business head tax. We're already subsidizing businesses by paying for residential parking permits due to the huge influx of commuters, by paying for the MTA so we can pay commuters coming into / out of Palo Alto to carpool, take Lyft/Uber and for the public transit costs, by wasting our time sitting in traffic or circling trying to find parking, by building them parking garages, etc. etc.


 +   7 people like this
Posted by Dan, a resident of Midtown,
on Jul 5, 2018 at 1:23 pm

Show me that more tax revenue would be invested wisely and efficiently and not just flushed down the government golden toilet and then we could talk about additional new taxes. If the tax is small, it probably isn't going to make any difference one way or the other ... if it isn't small and is non-uniform between cities/states then it will distort the market and exacerbate the kind of blackmail schemes we already see when companies negotiate with various levels of government on where to locate their "headquarters".


 +   3 people like this
Posted by Resident, a resident of Another Palo Alto neighborhood,
on Jul 5, 2018 at 1:32 pm

I'm not sure about a head tax, per se. Lots of problems here, would it be on all businesses, or only on those over a certain number of employees? Would it be on say businesses that employ more than 50 employees - if so how about a business stay under the 50 employees for most of the year and then take on businesses for summer to cover staff vacations or the holidays for seasonal staff? What month would those employees be counted? What about a business that employs mainly students for weekend or evening shifts?

I think a business tax may be a good idea, but why not on the square footage of their premises? Why not on whether they have employee parking? Why not on whether they cater to local residents as opposed to big corporations as clients/customers? Should a business on say Fabian pay the same as a business operating on University Avenue or Cal Ave?

In other words, I don't think a business tax is one size fits all. I think taxing on head counts would be a tax on jobs and in particular the jobs we want in town.


 +   23 people like this
Posted by Local Resident, a resident of Barron Park,
on Jul 5, 2018 at 3:52 pm

Yes, a business head tax is a good thing. I don't believe that the extra cost per employee (say, $400 on a $100,000 salary) a business would incur would outweigh the advantages they get by being in Palo Alto. After all, Palo Alto is already a very expensive place both for the business and their employees and that hasn't stopped them locating here.


 +   21 people like this
Posted by Longtime Resident, a resident of Another Palo Alto neighborhood,
on Jul 5, 2018 at 7:08 pm

I am in favor of the tax, for all cities around here. Populations often double during daytime hours, due to businesses that cause great negative impacts to services & resources, not to mention traffic, for the rest of us.

Large employers got a big tax savings already. I do not begrudge them. That's a good thing.

But while a $200-400 business tax may be a lot of money for a small mom and pop business, it is small potatoes for the large employers. I think the larger the company, the larger the fee. Why not $1,000 per employee, for the large companies, like Google?

Residents ought not to shed crocodile tears for the big fish in our ponds. They got perks from our cities already, and we all suffer, from it.

Make them pay. If they leave, life will be more normal for those of us that live here, 24/7.

My only hope is the money will be used for reasonable purposes, and that would not include unfunded pensions, more and more city hiring, or umpteen consultants on projects that could be done by staff, in my opinion.


 +   8 people like this
Posted by Hinrich, a resident of Old Palo Alto,
on Jul 5, 2018 at 8:46 pm

Hinrich is a registered user.

This question almost marks how far we've gone for a community where interests are intertwined to self interests in favor of any solution that taxes somebody, anybody else. That's bad all by itself.

Second bad is the school board and the city council seem to roll out one tax or debt ‘opportunity' after another to enrich staff or more staff or more consultants or to drive another save society or save the planet initiative. Why? The city should be focused on delivering the best possible essential services at the greatest efficiency and lowest possible cost and not fantasizing about more and more of other people's money.

The third bad about this idea is that's it's been in too many people's short term self-interests ($$) to avoid solid planning for growth, preferably in partnership with local commerce, to put caps on expansion. Palo Alto needs a business growth moratorium. The businesses need to grow their operations elsewhere. HP, for example, when it was great, built many satellite campuses around the peninsula, around the state and the nation and globally. As did others.

Lot's of press these days about a local industry that seems to care more about profit than privacy or people - let alone communities. Imposing limits is now necessary.

It may seem like easy money but it's not.


 +   13 people like this
Posted by Allen Akin, a resident of Professorville,
on Jul 5, 2018 at 9:02 pm

Allen Akin is a registered user.

I might support a head tax, but it depends a lot on the details. If the revenues are earmarked for solving the problems caused by overdevelopment, I'd be more inclined to support it than if the revenues are just dumped into the general fund.

There are other approaches. I think the fundamental problem is that our current policy privatizes profits and socializes costs, leading to more commercial development than our public systems can absorb. Requiring that commercial development be "housing neutral" and "transportation neutral" might realign the economic incentives more effectively than a head tax. I think that's doable, but it needs work.


 +   16 people like this
Posted by sompin's gotta give, a resident of Fairmeadow,
on Jul 6, 2018 at 8:25 am

Who's going to pay for the roads, transit and other infrastructure these fast growing businesses demand?

Head Tax sounds like part of the answer.


 +   9 people like this
Posted by NeilsonBuchanan, a resident of Downtown North,
on Jul 6, 2018 at 12:04 pm

NeilsonBuchanan is a registered user.

Evaluating "head tax" is worthy of debate. First, find better terminology. Head tax reminds me of the French Revolution.

Second, re-evaluate again overall city finances. Palo Alto is a small town pretending to be city. Council's appetite is far bigger than its wallet.

Current city council is addressing structural budget issues to sustain pension cost, etc. This is long-deferred step forward but just a beginning.

Another $4 million budget cut is underway. When staff returns with recommendations, we all face a tipping point of expectations greater than reality.

Can $4 million budget cuts sustain city operating and capital needs? No! I have spent ample time attending the Council Finance Committee. I have first-hand experience with under-staffed city planning and transportation staff.

I have concluded that new revenue sources are needed. Small, simplistic fixes such hotel taxation of visitors is handy but hardly a solution. A sustaining solutions requires a long-term strategy of painful, equitable tapping of citizens and businesses resources in addition to deferred expectations.



 +   20 people like this
Posted by rita vrhel, a resident of Crescent Park,
on Jul 6, 2018 at 8:17 pm

I vote for a head tax on all business above 20 employees. the tax is a business expenses and can be deducted as a cost of doing business.

That said, PA would need to know how many employees are employed in each building. That would be fascinating as most office space is based, i believe/please correct me if i am wrong, on allowing 250 sq ft per employee. According to a highly placed apple employee "open seating" is the new rage; his "office" at a long "desk" is 48 inches by 30 inches. Packed like sardines!

This per employee office space discrepancy may explain the severe parking shortage in areas around office buildings. Office buildings are many times under-parked at 250 sq ft per employee and seriously under parked at 30 x 48 inches per employee.

Yes profit is privatized while the residents pay $55-$65,000 per public parking space. The California Ave Garage with the "cascading staircase" to enhance the "parking experience is costing $47.9 million dollars without any cost overruns.

So yes, i favor an employee head tax. But used wisely only to solve the infrastructure and other problems caused by too many employees. Not poured to the General Fund and wasted. Thank you.




 +   9 people like this
Posted by Sure why not, a resident of Evergreen Park,
on Jul 6, 2018 at 10:23 pm

"under-staffed city planning and transportation staff."

This is exacerbated by staff spending so much time helping developers get around the zoning instead of what they are paid to do, enforcing it; most projects have staff justifying exceptions from parking requirements, reducing setbacks,increasing density, justifying neighborhood intrusion, even holding a makebelieve "Open House" to promote zoning changes that would help developers make more money. That took a _huge_ amount of staff time.

Tax businesses? The City Manager will explain why it's "impossible."


 +   19 people like this
Posted by Yup, a resident of Downtown North,
on Jul 7, 2018 at 10:47 am

Head tax for roads, transportation?

Yes.


 +  Like this comment
Posted by Johnny, a resident of Midtown,
on Jul 7, 2018 at 1:30 pm

No, more taxation isn't the solution to our problems.
How can so many people believe this?
Its kind of bewildering.


 +   6 people like this
Posted by Wayne Martin, a resident of Professorville,
on Jul 7, 2018 at 2:32 pm

While the topic of this thread is whether or not a business head tax would be a good thing, the broader topic of how much money does the City need over the next thirty years to fulfill all of its obligations and where will that money come from would be a better topic to pursue as it will always be with us.

Several posters have noted that they don't trust the City to spend the money they have wisely. This has been a common complaint for decades, even though the City has become more “transparent" in the last few years than it has been in the past. Unfortunately, wading through all of the documentation provided is an overwhelming task. It's doubtful that one in a thousand has taken the time to dig into this morass of paper.

A couple of quick points to guide such a discussion, should it ever come about.

The City's current budget is over $700M"with the General Fund budget at just over $200M. About 60% of the GF is for labor and benefits. The current budget book claims that the average police officer costs about $277,000/year to employ, and about $275,000 for a firefighter. City professionals/management cost about $231,000 and Utility professionals/management cost about $249,000 per year. This cost-to-employee are direct costs (salary+benefits+indirect benefits) and do not include the facilities/equipment costs required to provide these employees with a place to work.

The City has projected its revenues/salaries out ten years: Today's $207M GF will grow to $286M by 2028, in this view of the future. Looking out thirty years, using the City's model of a continuous growth of 3% in both revenues and expenditures, the City's revenues will be over $500M and its expenditures will keep pace, coming in at around $500M. The City documents that its cost-of-labor is about 60% of the General Fund at the moment. The uncertainty of the CalPERS/pension black hole will doubtless drive up the pension contributions and the cost-of-labor to perhaps 70%-75% for some number of years until the new pension limits (PEPRA) begin to reduce the size of government retirees a considerable amount.

We also don't really have a very good view of our future infrastructure costs. The current “infrastructure plan" is not very complete, although there was a “blue ribbon commission" that produced a somewhat better view of the problem than the City seems to have in place now. It's very likely that the future infrastructure costs (including the Utilities) will be between $1B and $2B before any financing costs are considered.

So, I'm suggesting that we ask our elected officials to come down from the Dias and explain to us where our money is going, and why we should give them more than they have now. This is an election year"so we will have a chance to go face-to-face with those running for Council.


 +   1 person likes this
Posted by Arnold Ziffel, a resident of Green Acres,
on Jul 7, 2018 at 3:28 pm

Absolutely! Let's start by taxing this newspaper heavily.


 +   12 people like this
Posted by Yes, a resident of Another Palo Alto neighborhood,
on Jul 8, 2018 at 1:38 pm

Diana,
For Palo Alto in particular, such a tax makes a lot of sense. Businesses want to be here despite it being so expensive, because of proximity to Stanford, Sand Hill Road, etc. We never had a problem before when we did not have three times as many people here during the day than who live here. We not only want the businesses who are here to pay their fair share, but we want businesses who would only stay for a free ride to move elsewhere. We want businesses that are growing far too large to realize they need to move where they can grow rather than ruining Palo Alto so they can grow without regard to the space and consequences (like a cancer). Facebook moved amid lots of similar sky-is-falling concerns about lost jobs and both Facebook and Palo Alto are better for it. They needed a bigger space.

The reason you should change your mind and be for it again is that, unlike other communities, Palo Alto has Stanford. Stanford will still be here, and they are not only a huge job generator, they are a huge local entrepreneurship generator. If a business tax moves out the not-so-committed and selfish/cheapskates that don't want to pay their fair share to be here (in this already expensive place), then it will make room again for the entrepreneurs. In fact, Stanford wants to expand. A head tax on businesses would give those who are not that committed to Palo Alto a reason to go, and make space for Stanford's expansion.

The head tax should probably be three times as much per employee for any business improperly occupying spaces in retail or residential areas. This would be a far better incentive to follow the rules and keep businesses from making Palo Alto into a congested office park as of late.

I suggest the money first go into a fund to allow the City to buy the major retail areas. The only way most ordinary people can hang on here is to buy something, no matter how squalid, no matter the sacrifice. Otherwise, you can never compete and you're always up to your eyeballs in costs. It's been that way for at least the last 40 years. Because once you buy, you aren't subjected to the vagaries of the widely swinging market here. This would bring stability to retail in this area. More importantly, it would allow the City to be like Stanford is with its faculty.

Stanford maintains beautiful neighborhoods that allow a quality of life more like in the Midwest. This is important for attracting faculty and staff. Stanford owns the land and leases it cheap, and people buy the houses at below market rate and have all the benefits of home ownership. Everyone wins. Stanford's owning the land allows them to derive an ever greater benefit without paying more.

In this way, if Palo Alto owned the retail areas in Palo Alto, the City could support a vibrant retail sector in town that would not be threatened every time there is a boom (more than threatened this time, decimated). The cost of land is always painful here whether it's a boom time or recession, but once the City owns the property, then it becomes like Stanford. The greatest benefit is that the City could require as a condition of leasing buildings on its land, that businesses pay their workers and subcontractors competitive wages. Thus, traditionally low-wage workers could be a competitive part of the local economy, equal with tech. Retail businesses would be able to afford to do this because of much lower and stable rents, and not having to worry about tech companies taking over retail spaces, not having to worry about being suddenly displaced after serving our community for years. Residents would have retail businesses local to them again and would not have to drive all over kingdom come for things like baby stores.

The greatest thing about it is that once the land is purchased, Palo Alto can continue to derive such a benefit into the future, and it only gets better. The benefit will become greater as the years pass, without it costing Palo Alto anything more.

The downtowns and other retail areas would then become like our schools and community centers in a way -- we could never afford them at today's market rates, we can only afford them because we own the land.

Midtown Shopping center changed hands for just $15M and change (compared to the Arastradero Road "improvements", a real steal). If we had a head tax and a provision that the City had first right of refusal to buy at retail property at market rates, then the City would own Midtown Shopping Center and could start on the path I outlined above. In the future, as the City is able to derive more and more benefit from this by ensuring its traditionally low-wage workers make a living wage, they will be able to become active participants in the local economy and buy their own teeny tiny homes like the rest of us and thus at least get that stability of owning, such as it is, and of living in the community.

There are also issues of health and safety having to do with three times the population coming here during the day, every day, in addition to all the other impacts like traffic. Our City has costs associated with this that are far greater than typical office worker costs because of the overcrowding. The development applications don't even pay for themselves, residents are footing the bill for the costs. Palo Alto should also use the money to establish a health and safety fund as an equal priority, because it's shown how everything else crowds it out.

Lastly, Palo Alto should designate affordable housing funds for the disabled who require universal design in order to live equal lives. The disabled are mention in inclusionary housing rules but completely ignored. The companies that want to make Palo Alto their own private company towns push for density, but this density has gotten us a lot of new housing stock that people with mobility problems (who make up at least 10% of the population) cannot even visit, much less live in. Because housing for people with disabilities such as these requires space and universal design usually means short buildings, no one will create the housing people need. Quite frankly, the companies who want the public to pay for their short-term workforce needs make it impossible. Having a fund would mean it could be possible to essentially subsidize housing that meets this sector of disability which is simply not going to be served under the Build-Baby-Build environment. Safety, too, gets put in last place unless there is a more solid budget item, and there are many serious needs going unplanned for around the large daytime population here.

I say YES YES YES to an office business head tax (retail excluded) that is progressive to put pressure on businesses that are too big and those occupying parts of Palo Alto where they are deriving a lot of benefit at great loss and expense to the public.


 +   6 people like this
Posted by Pat Burt, a resident of Community Center,
on Jul 9, 2018 at 4:12 pm

Pat Burt is a registered user.

Diana,
Thanks for broadening discussion of this issue. However, the framing of the issue in your lead paragraph got most of the facts wrong.
First, a head tax, or other forms of business license taxes (BLT), are not relatively new, they've been around for decades. The amounts vary more than your range and not all employees are typically included or not at the same rate. The funds can go to the general fund, but most of the local cities that are looking to add or increase their BLT's are looking to commit those revenues for specific purposes, local transportation or also affordable housing.
Big tech companies are currently paying very large salary and office rent premiums to locate here (equivalent to tens of thousands of dollars per employee per year) and those premiums have hardly kept jobs away. For example, East Palo Alto is considering a BLT equivalent to $.25/square foot of office space per month which would generate large revenue for local transportation. By comparison, office rents in Palo alto have soared in recent years to over $10/square foot for Cl A office. Those many hundreds of millions in windfall profits have gone to the property developers. $.25 would be equivalent to about half of just one years increase.
San Francisco has had such taxes for decades at rates far above what local cities are considering. Why is it that many of the most profitable businesses in the world pay exceptionally low local taxes while our transportation and housing needs are in such need?


 +   2 people like this
Posted by Taxman, a resident of Another Palo Alto neighborhood,
on Jul 9, 2018 at 5:32 pm

Yes I would.


 +   9 people like this
Posted by Former council members complaining, a resident of Evergreen Park,
on Jul 9, 2018 at 7:22 pm

“. Why is it that many of the most profitable businesses in the world pay exceptionally low local taxes while our transportation and housing needs are in such need?"

Because past and current council members have done nothing to address these issues. And let's be honest, many of the residents do not trust the council to handle these funds properly. There has been too much waste via consultants, endless discussions, lack of action and grandiose pipe dreams ( I.e the bike bridge over 101 by the pat Burt homolog on the council) that drain money from our treasury.
And naturally former council members who's legacy is one of a lack of accomplishment want someone else to pick up the tab (Stanford, profitable businesses etc) to help pay for their lack of accomplishments


 +   1 person likes this
Posted by Curmudgeon, a resident of Downtown North,
on Jul 9, 2018 at 8:16 pm

"Why is it that many of the most profitable businesses in the world pay exceptionally low local taxes while our transportation and housing needs are in such need?"

Why not ask the real Pat Burt? He spent 9 years on the city council, two of them as mayor. He ought to know if anybody does.


 +   11 people like this
Posted by JA3+, a resident of Crescent Park,
on Jul 10, 2018 at 10:33 am

<Why is it that many of the most profitable businesses in the world pay exceptionally low local taxes while our transportation and housing needs are in such need?>

Over time, corporate taxes here in the United States have been markedly higher than many other countries with significant economic activity in the world. Individual income taxes here in the US have been markedly lower.

Perhaps a better question(s) might be one of the following: why should not the US Federal Government 'forward back' to the State of California and local municipalities therein all or nearly all of the income taxes raised from California residents? Is there a fairer system of Federal tax dollar reallocation available to us? Why, under the current system, does California subsidize so much elsewhere in the US?


 +   10 people like this
Posted by Curmudgeon, a resident of Downtown North,
on Jul 10, 2018 at 5:18 pm

"Why, under the current system, does California subsidize so much elsewhere in the US?"

For the next 2-6 years, it will be because the majority of Trump's Base lives there. They are incapable of supporting themselves.


 +   2 people like this
Posted by musical, a resident of Palo Verde,
on Jul 10, 2018 at 11:44 pm

^ Same reason high-bracket California taxpayers subsidize low-bracket Californians.



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