Chamber blasts Palo Alto's proposed hotel-tax increase

City Council plans to raise tax rate to pay for infrastructure fixes

A proposal by Palo Alto officials to raise the city's tax rate may be popular with potential voters, but it is already facing stiff opposition from the city's Chamber of Commerce.

Hal Mickelson, a member of the Chamber's board of directors, told the City Council this week that the organization will be urging voters to oppose the hotel-tax increase, should it appear on the ballot. Mickelson said the Chamber's position is "primarily based on economics." If the city raises its tax rate from the current level of 12 percent to 14 or 15 percent, it would risk driving visitors, particularly corporate clients, to Menlo Park, Mountain View or other areas where the rate is lower.

Recent surveys commissioned by the city indicated that raising the hotel tax, known as "transient-occupancy tax" is by far the most popular option, with more than 70 percent of survey respondents saying they would support such a tax to fund infrastructure repairs. Though the number dipped slightly when other revenue options were brought up in the survey, it consistently remained above 62 percent.

Given the poll results and the city's long infrastructure wish list, the City Council's Infrastructure Committee recommended on Friday that the city proceed with the hotel-tax hike and directed staff to begin outreach on the potential measure, which the full City Council is expected to consider in late spring.

The city estimates that a 2 percent increase would net the city $4.6 million in annual revenues, which could be leveraged to get $64.4 million in infrastructure funding. A 3 percent increase would bring in bout $5.7 million, which could be leveraged into $79.8 million to fund projects. The city's infrastructure backlog totals about $180 million and includes a new police building, two new fire stations and a slate of improvements to the bike infrastructure.

Mickelson argued that in recommending the tax increase, the committee was largely being driven by polls. It did not consider the issue of fairness and the unintended consequences of raising the tax rate. He predicted that large employers who will move their business elsewhere to save money.

"We're all distressed to hear about candidates whose positions are driven by what their campaign pollsters and spin doctors tell them will be politically popular and take a position only when they've heard from those people."

"I'd say with the utmost respect that this is kind of what's going on here."

Mickelson also criticized City Manager James Keene's suggestion during Friday's meeting of the Infrastructure Committee that the council first consider its various funding sources before proceeding with identifying the particular projects each should fund. At that meeting, Keene observed that the city has a "very long list of potential needs," with a price tag that is "more than any particular funding measure that we can advance right now."

Mickelson said the city, in proceeding with consideration of a tax, isn't asking the kinds of questions it should be considering: whether the tax would be fair, whether it's logical in relation to use and whether the people who would be paying the tax are currently paying their fair share. Rather, it is proceeding with the tax simply because it was told by a consultant the tax would pass.

Keene responded Monday that he had never suggested raising money without considering what the money would be used for. His Friday recommendation, he said, was meant to assist the council in managing its complex conversation over infrastructure improvements.

"I'd never make a recommendation that could at all be seen to look at any tax increase as something casual or something that should not be specifically dedicated to particular purpose," Keene said. "I think that's very clear our of the entire emphasis the council has put forward in the last three t ofour years on infrastructure."


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Posted by Eh
a resident of East Palo Alto
on Jan 15, 2014 at 10:28 am

They'll do what every other city in America does: Propose tax increase X in the name of Y…then actually spend money from X on A, B, C… Come on people...

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Posted by Dan
a resident of Southgate
on Jan 15, 2014 at 10:45 am

The article mentions a $180M infrastructure backlog that "includes a new police building, two new fire stations and a slate of improvements to the bike infrastructure". I thought our infrastructure backlog was more like $400M of plumbing and street repairs. I don't know if I would categorize "bike infrastructure" as "infrastructure backlog". I'd consider that more of a "nice to have".

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Posted by John Levinson
a resident of Downtown North
on Jan 15, 2014 at 11:26 am

Everybody knows that a Hotel Tax is akin to a "Hold-up". The visitor gets robbed and moves along and has no real recourse as he / she does not live or vote in the area. Its just a "Hold-up'!

But in Palo Alto's case there are indeed lots of alternatives north and south along the El Camino Real corridor. The results are that the local Palo Alto hotels don't get the business and neither do the local Palo Alto restaurants, businesses and shops.

Clearly, it is far better for the local economy if local governments stop chasing business away by over taxing just because they can. But then, they CAN'T and the local business people and voters should make this crystal clear.

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Posted by Bicycle infrastructure backlog
a resident of Another Palo Alto neighborhood
on Jan 15, 2014 at 11:33 am

To Dan,

We don't live in a world any more where everyone can travel by car all of the time. We need bike lanes and other engineering improvements that provide a well-designed safe place on the street for those of us who bike--just as drivers have enjoyed the millions spent on their comfort and safety for decades. Thousands of us bike to work and school, for errands and for recreation EVERY day in this city.

Drivers have gotten way more than their fair share of the transportation dollars for too long. The result has been an infrastructure BACKLOG of projects for other street users.

While you may consider this a "nice to have", more space for cars is a much more expensive "nice to have" item. For me, bike infrastructure is a "must have" safety need that is long overdue.

Thanks for considering my point of view.

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Posted by Midtown
a resident of Midtown
on Jan 15, 2014 at 11:35 am

That bike infrastructure won't be nice to have once we reach GRIDLOCK, it will be essential!

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Posted by America-Not-Built-By-Bikes
a resident of Another Palo Alto neighborhood
on Jan 15, 2014 at 11:58 am

> Drivers have gotten way more than their fair share of the
> transportation dollars for too long.

What an absurd thing to say. The country was built by walking, by horses, by steam and electric railroads and by automobiles. There is little evidence that the country, and its economy, has seen any meaningful contributions to bicycles.

Bicycles don't pay fees, or taxes, in any way proportional to the demand of those who claim that they are an equal mode of transportation that demand that any transportation infrastructure should be paid for by other people.

Astounding how myopic people like this one are.

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Posted by PayOurOwnWay
a resident of Palo Verde
on Jan 15, 2014 at 12:09 pm

One reason that people in general (not just in PA) favor such things as a hotel tax is that they want to make someone else pay (for repairs and improvements) and not themselves.
If we need to build a new police/public safety building, then we should pass a bond (i.e. take out a mortgage), build the building, and pay off the mortgage.
If we want local streets and sidewalks fixed, then we need a local assessment or an increase in property taxes.
Things wear our or become obsolete. We as citizens of the city wore them out. We should be the ones to pay to repair/replace them. TANSTAAFL!

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Posted by Marty
a resident of Midtown
on Jan 15, 2014 at 12:51 pm

Dear "PayOurOwnWay"

TANSTAAFL ?! What does that mean?

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Posted by stephen levy
a resident of University South
on Jan 15, 2014 at 12:54 pm

stephen levy is a registered user.

I believe it stands for

There ain;t no such thing as a free lunch.

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Posted by Stephen
a resident of Duveneck/St. Francis
on Jan 15, 2014 at 6:17 pm

If the local merchants were really concerned about cost driving clients away, very ordinary motel rooms would not cost ca. $200/night and up. This seems to me to be the usual knee-jerk reaction from the Chamber.

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Posted by Joe
a resident of Barron Park
on Jan 16, 2014 at 12:29 pm

The article isn't clear, but the point is that a hotel tax is a medium to large business tax. Since Palo Alto companies are responsible for most of the hotel occupancy in the city, and a majority pick up the cost for their guests, the tax gets paid by companies in Palo Alto. Naturally, this polls well with citizens, because they get the benefits of a new bike infrastructure, without the cost.

Sounds like the Chamber is frustrated because they believe this will drive business to other neighboring cities, not only for the hotel rooms, but for also for restaurants and shopping as well. So, the business impact could be significant.

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Posted by Curmudgeon
a resident of Downtown North
on Jan 16, 2014 at 4:29 pm

Curmudgeon is a registered user.

"Sounds like the Chamber is frustrated because they believe this will drive business to other neighboring cities"

C'mon now. Who besides our illustrious (choke) Chamber of Commerce believes that somebody willing to pay $200+ per night is going to be deterred by a few $$ tax?

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Posted by Deep Throat
a resident of another community
on Jan 17, 2014 at 12:02 pm

Somebody paying $200.00 a night for a hotel room, would pay $224.00 with a 12% tax or $230.00 with a 15% tax. If one of a hotel's biggest customers threatens to take its business elsewhere because of the $6.00 a night tax increase, the hotel could lower its rate to $194.78 a night, which with the 15% tax would come to the same $224.00 the customer would have paid for a $200.00 room with a 12% tax. So, the hotel oould lose $5.22 a night on a $200.00 a night room if it had to absorb the entire customer cost increase for raising the tax from 12% to 15%.

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Posted by musical
a resident of Palo Verde
on Jan 17, 2014 at 2:13 pm

Or they could cut the maids' wages and benefits.

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Posted by Tracy
a resident of another community
on Jan 17, 2014 at 5:32 pm

If City Council, the City Manager, and Finance Director were actually managing the cost of the General Fund there wouldn't be a need to increase the hotel tax. They obviously aren't doing a very good job managing cost which is primarily composed of employee pay and benefits. My guess is that the employee unions have proposed this new tax using the path of least resistance theory. In other words, now that most fees have already been increased (again) the unions are using their favored council members (funded and campaigned for by the unions) to push a tax that taxpayers will NOT oppose because out of towners will pay the tax. A better strategy is to focus on cost control.

Increasing the Hotel Tax again is bad policy for several reasons, not the least of which is it punishes one business group unfairly. For taxpayers thinking they receive more revenue for their city at no cost to themselves, which in turn provides more services - it doesn't. It only provides revenue which will be used to pay higher compensation which increases the pension payout, thereby creating even more Palo Alto unfunded pension liability.

I find it interesting that the city is offering increased employee wages (7 percent on average while the union is demanding 11 percent) while taxpayers remain on the hook for hundreds of millions in unfunded Pension and Retiree medical benefit liabilities/debt for work already rendered. At the same time the debt continues to grow, and employees demand outrageous wage increases when we still owe 100' of millions for PAST SERVICE, the best the city can come up with is a tax of least resistance, which is still just another tax increase.

The people at City Hall are paid very good money to manage the city and its finances. The City Council has taken an oath to represent the citizens. Is handing out employee raises with one hand while putting the other hand out asking taxpayers for even more money an acceptable way to manage the city, its finances, or serve the public? I don't htink so.

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Posted by Anonymous
a resident of Midtown
on Feb 14, 2014 at 11:57 am

Short-sightedness by city officials and the general public always seems to reign. Yes, hotels are charging very high rates (yes, even mediocre hotels/motels) because business is extremely good. As anyone who is familiar with Palo Alto knows, this is not always going to be the case. When another 2009 hits and rates plummet, so long City infrastructure projects. Or maybe the City will charge even higher to make up the difference.

Curmudgeon and Deep Throat, you guys should run for City Council. A main requirement seems to be short-sightedness and inability to manage funds - oh, and an absence of logic. I see Deep Throat is employing some form of theoretical rational actor model to a real-life scenario with irrational actors.

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

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