Palo Alto business tax set for November vote

City voters to rule on new employee-count tax

Palo Alto's longstanding plan to institute a business-license tax is now one vote away from becoming a reality -- a citywide vote.

The City Council on Monday night voted 7-2 -- with Sid Espinosa and Yiaway Yeh dissenting -- to place a business-license-tax ordinance on the Nov. 3 ballot.

The tax would be based on employee count and would take effect in the second half of 2010. Palo Alto at present is the only city in the area not to have a business-license tax.

Most council members agreed that the new tax -- while unpopular with local businesses -- is a needed remedy for Palo Alto's revenue woes. It is expected to bring about $3 million in annual revenues to the city and would charge professionals and business services a greater rate than it would retailers, manufacturers and hotels.

Under the plan, professionals and business services would pay $95 per employee, with a cap of $30,000. The rate for retail, personal services and hotels would be $34 per employee, with a $20,000 ceiling. Landlords with more than three rental units would pay $25 per unit, up to $30,000.

Councilman Larry Klein said the new tax is a necessary acknowledgment of the deteriorating economy. He also said that if voters approve the new tax and help reduce the city's looming budget gap by $3 million, the city would have to respond by reducing its expenditures by roughly as much.

"This is a contract with our citizens, and also with our employees," Klein said. "Without this being passed it's much harder to sell to our largest constituents and our employees that we're doing all we can."

Though dozens of business owners have previously railed against the plan, only a handful showed up to Monday night's meeting and only one spoke out against the proposal: John Hackmann argued that the new tax would "create a negative and hostile attitude toward the business community."

Councilman Sid Espinosa said he opposed creating the tax at such a difficult economic time. Councilman Yiaway Yeh concurred, though he said he would be in favor of creating a comprehensive registry of city businesses.

Councilman Pat Burt proposed working on a registry and deferring the tax ordinance until 2011, but his proposal was rejected by the majority of the council.

"Someone deemed this tax minimal, but anything that would encourage businesses to not grow or not start in our city at this time is misguided," Espinosa said before the vote was taken.

He also predicted that voters will reject the proposal on Nov. 3.

If the tax is approved by voters, businesses would receive a grace period in the first half of 2010. The city would only collect 50 percent of the established tax rate in the second part of 2010. After that, the city would collect the full rate.

Councilman Greg Schmid said the new tax is a critical tool for expanding the city's revenue base. Almost all cities in California already have such taxes in place.

"It is important that we add a business tax and diversify our tax base as much as possible," Schmid said. "We're facing a time where we need to all participate in helping make the future of our city sound on a fiscal basis."


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Posted by resident
a resident of Adobe-Meadow
on Jul 21, 2009 at 10:49 am

I won't be voting for this tax, but if it passes, I'm rather certain the cost will be passed onto us customers.

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Posted by Lynn Ware
a resident of Midtown
on Jul 21, 2009 at 11:32 am

Small business owners in Palo Alto are already struggling to stay afloat in this economy, particularly as we are paying sky high Palo Alto rents. All of my colleagues report anywhere from a 15-85% drop in company revenues over the past year. It is a very poor time to add new fixed expenses as an additional burden. Most of us are already in debt to avoid further employee layoffs. The city should cut it's budget and sacrosanct employee benefits programs to deal with the revenue shortfall, before raising taxes on businesses, which bring customers to the city who pay sales tax on purchases made while they are here. I will be voting "no" on this ordinance on November 3.

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Posted by concerned
a resident of Old Palo Alto
on Jul 21, 2009 at 11:38 am

This tax can not get past the voting residency of Palo Alto. That is where the buck will stop.
And while you are at it folks, remember too, to vote WELL this Fall and oust the myopic council members.

It's a sham to propose such a tax on business without adequate due diligence. They hire and pay a consultant $65,000 to come up with a revenue based model, and tells the city that they will have a tax base of 20,000 businesses, only to discover later that it's somewhere between 7000- 9,000, at best, and shrinking.

They'd set their sights on taxing the heck out of the PAMF & Stanford Hospital, only to learn that they can't tax non-profits.

Tax home based businesses in Silicon Valley - what a joke. isn't everyone a consultant around here, billing from their home computer? how will they ever identify these folks?

It goes on and on. Shooting from the hip, spending like water and attempting to patch their mistakes, making proposals without having done the homework, and never, ever working for you and me. These are our elected officials!

This will be defeated, and then what will Larry Klein do for money?

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Posted by Two threads going?
a resident of Midtown
on Jul 21, 2009 at 11:59 am

I just posted this on the other "business tax in pa" thread..but since I don't know which one is going to survive, will post on this one also.

"I just heard Poizner, Insurance commissioner of CA who just threw in his hat for the governorship of CA, on Armstrong and Getty radio. Wow. This guy impressed me. He says that we are driving out 3,000 taxpayers/WEEK from California from our burdensome taxes and regulation. He claims that we have doubled our CA govt in only 10 years ( my gosh!!). He is an engineer/MBA who actually understands numbers, finance and business, having not only been educated in such things, but also having begun businesses in CA and having lived first hand the problems we face.

I think we need to pay attention to him. And look south of us to Mountain View, who manages to attract a good tax base, and look in the mirror in our own city and see what has happened.

We have done to taxpayers in PA what CA has done to taxpayers in general. If it is true ( and I actually have read this elsewhere) that we will have lost 200,000 TAXPAYERS by the end of this year alone to friendlier States, can you imagine what this will do to the Californian State economy?

And, even more scarily, we are now doing the same political philosophy nationally. What was that saying? Think globally, act locally? Or was it more "all politics are local"?"

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Posted by tired of city employees entitlement attitude?
a resident of Barron Park
on Jul 21, 2009 at 12:01 pm

I agree with "Concerned" from Old Palo Alto...Klein tells all in his quote: "This is a contract with our citizens, and also with our employees," Klein said. "Without this being passed it's much harder to sell to our largest constituents and our employees that we're doing all we can."

All the city ever seems to do is avoid 1) admitting that they have about 100% more employees than they need, 2) reducing exorbitant pay exorbitant and benefits compared to surrounding towns/cities, and 3) doing anything about rectifying this situation.

The problem is the city's expenses are more than their revenue. As "Concerned" points out, taxing failing businesses will only quicken their demise (and completely eliminate that source of revenue). It's time to take serious and impactful action in reducing expenses.

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Posted by Palo Alto Marino
a resident of Downtown North
on Jul 21, 2009 at 1:26 pm

I love the comments section of these articles, they're just so fun. Why let any facts at all get in the way of your rantings?

There hasn't been due diligence? Please, they've spent a lot of money on consultants and city staff time to come up with proposal after proposal and they've done it for at least 15 YEARS. Then, a proposal happens, 17 business owners show up at Council and, they Council instructs the staff to come up with something else. Every suggestion that's ever been made by any city surveyed said "make the tax gross receipts based" (in good times people pay more, in bad times, less), but, no, people said "you're punishing our success" so,there you go, they listened, now you get this.

For the record, I haven't decided how I'm going to vote yet, I'm not in favor of new taxes and it's especially hard to swallow at this time but, it's mainly because I liked the fact Palo Alto didn't have one, it made us different. Now, I'm not sure we can afford to be different like that anymore.

Funny though, I don't remember all of this "look at how overpaid they are in government" from 1995-2001. At that time the valley was roaring, times were good, and stock options were the strike it rich talk of the day.

Is there waste in goverment? Yes. Can it be fixed? It can, but it won't be easy and all the public want is easy, fast, minimal involvement and work. No one wants to be a part of it except to complain.

But, this is the turtle and the hare again, and the times, well, they're a changin', unfortunately though in this new parable, the street crowd wants to throw trash at the turtle before it wins the race.

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Posted by James Hoosac
a resident of Green Acres
on Jul 21, 2009 at 5:07 pm

The proposed tax is way much higher than the business tax rates of San Jose, Cupertino, Sunnyvale, and other surrounding cities. If approved, Palo Alto will be making a statement: we are the Manhattan of Silicon Valley, unless you are Wilson Sonsini or Facebook or the likes, don't come.

Well, it may work as a revenue stream. But average families will not see much benefit, since the cost and/or inconvenience caused by the higher taxes on groceries, daycares, plumbers, etc., will be passed on to them.

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Posted by voter
a resident of Community Center
on Jul 22, 2009 at 10:48 am

Enough already - PA does enough to scare away businesses and make operating difficult for those that do give it a go. As a result, residents get limited and expensive goods and services here in PA, and must run to MV for other options.

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Posted by Marvin
a resident of Charleston Gardens
on Jul 22, 2009 at 10:59 am

According to today's Daily Post the tax is capped at 30K/year--so for a company like HP--that is a drop in the bucket--the burden will fall on small businesses.
I plan to vote against this tax--this is more of the same City Council nonsense from the usual suspects.

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Posted by Crescent Park Dad
a resident of Crescent Park
on Jul 22, 2009 at 11:13 am

I will be voting against this idea. My reasons are simple:
- the economy is down - no need to make it worse for the business owners
- PA business rents are already high and going up - the tax would be another burden
- it is already difficult to maintain a business in PA - the Weekly published a profile on small business owners who were closing their shops due to tough times - how will an additional tax help them?

"Down times hit downtown" Web Link

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Posted by mgunn
a resident of Old Palo Alto
on Aug 6, 2009 at 2:03 am

(1) Palo Alto has higher per capita tax revenue than virtually any municipality in the State.

(2) PA City Council blocks expansion of Stanford Shopping Center, which would have raised additional tax revenue.
(3) PA City Council approves over a million more for over-budget SAP software system.
(4) Arts Commission commissions a $250,000 granite block sculpture for Mitchell Park
.... and the list goes on.

(5) A recent Mercury News Article says retail vacancies top 10% in downtown Palo Alto.

This budget crisis is entirely of the city council's own making, and the council needs to learn how to live on a budget. Every council member that voted to even include this damaging tax measure on the ballot should be thrown out of office.

Sorry, but further commenting on this topic has been closed.

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