Tax hikes are normally a thorny subject during an election season, but Palo Alto's plan to increase the city's hotel-tax rate appears to be proceeding to the ballot with little community opposition.
The plan to raise the transient-occupancy rate from 12 to 14 percent continues to net criticism from the city's two major business groups, the Chamber of Commerce and the Downtown Business and Professional Association. Yet neither these two groups have been raising money or vigorously campaigning to prevent the increase. At the same time, numerous past mayors and prominent community leaders have contributed money in support of the tax increase, which would fund infrastructure projects such as a new police headquarters.
The City Council, for its part, fully supports that tax increase, having placed the measure on the ballot with no dissent. The only disagreement on the council during the March debate was whether to raise the current rate by 2 percent or 3 percent, with the majority ultimately agreeing to pursue a more modest increase. The city expects to leverage the additional revenues the hotel tax (estimated at $2.2 million per year) to obtain roughly $30 million through a borrowing mechanism known as "certificates of participation." When coupled with other funding sources, it would bring the city's total for infrastructure spending to $125 million.
In addition to the police building, which the city has long considered its top infrastructure priority, the city's list includes various bike projects, upgraded fire stations, a new downtown garage and street improvements.
In going forward with the hotel tax, council members argued that the city needs the money and that this proposal is the one that stands the best chance of passing in the November election. They note in their argument in favor of Measure B that local infrastructure is "aging and requires repairs and upgrades."
"Our oldest fire stations and the building that houses our 9-1-1 emergency communications network do not meet seismic safety standards," states the argument, which includes as its signatories Mayor Nancy Shepherd, Councilman Greg Schmid and former Mayor Sid Espinosa. "Some neighborhoods are experiencing overflow parking impacts. City streets and sidewalks are aging and need repair or replacement as well as safety improvements for rapidly increasing numbers of pedestrians and bicyclists of all ages, including children walking and biking to school."
Not everyone, however, is convinced that raising the hotel taxes is the best way to go. Opponents say that a 2 percent tax increase is "by no means insignificant from the perspective of companies trying to control costs." The argument against the hotel tax increase is signed by Jon Kiya, president of the local Chamber of Commerce; Barbara Gross, general manager of the Garden Court Hotel and local architect Tony Carrasco.
"If you ran a business, and you spotted an expense going up by 2 percent, you'd find a way to avoid the increase," critics of Measure B say in their rebuttal. "If companies that now send people to Palo Alto start to send them elsewhere, we will lose the TOT revenue we would have earned if they came here, and the taxes earned on other activities associated with their visits."
Opponents also argue that there are other, better ways to fund infrastructure needs. Having Palo Alto's hotel-tax rate be higher than those of neighboring communities will lead large employers to "re-direct visitors to less expensive destinations," they maintain. Supporters of the rate increase reject this logic. No one, they say, will avoid Palo Alto because $3 is added to a $150 hotel bill, or $4 is added to a $200 bill.
"Visitors or businesses aren't going to choose less desirable locations for this modest savings - quickly more than offset by increased travel costs," the rebuttal from Measure B supporters states.
For critics of Measure B, one issue is fairness. Council members have acknowledged that the hotel tax has the highest chance of passing (largely because residents aren't the ones paying it). Opponents of Measure B charge that this is a poor reason for singling out one sector of the community.
"No one is arguing that hotels and hotel guests are disproportionately heavy users of city services," their rebuttal states. "Proceeds from the increase would not cannot be earmarked for expenses relating to visitors. This measure would unfairly impose an unfair burden on a single group of Palo Alto businesses that already contribute substantially to the city's revenues."
Despite the opposition from the businesses community, the city's debate over a higher hotel tax has been a quiet one, well overshadowed by the council election and the ballot measure that would reduce the number of council seats from nine to seven. This is in stark contrast to the city's last effort to raise revenues through a new tax -- a failed push in 2009 to institute a "business license tax." Voters emphatically rejected that proposal, which was likewise panned by the business community.
To date, neither side in the Measure B debate has been pouring money into its campaign. As of Sept. 30, only 13 residents have contributed to a campaign in favor of the tax, and none have contributed to opposing it, according to campaign finance data. Supporters include Councilman Larry Klein and Utilities Advisory Commission member John Melton, each of whom contributed $500, and Shepherd, who contributed $250.