News

Palo Alto's plan to raise hotel-tax rate nets little opposition

Despite criticism from business community, few are joining the debate over higher rate

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.

Comments

Like this comment
Posted by Rose
a resident of Mayfield
on Oct 9, 2014 at 10:54 am

Why would we want to tax our hotels but not all businesses, or not all large businesses? Can someone explain?


2 people like this
Posted by Mr.Recycle
a resident of Duveneck/St. Francis
on Oct 9, 2014 at 10:59 am

@Rose - because unlike business owners, hotel guests generally don't live or work in the neighborhood, so you can tax the crap out of them and there isn't anything they can about it. It is a cheap cynical way to raise money.


1 person likes this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Oct 9, 2014 at 11:16 am

There are two ways of looking at this.

If most hotel guests are on business accounts, it matters not what the tax is the guests won't care. If the local businesses are the ones footing the bill, they will send those they have to pay an overnight's stay to where they can get the best deal locally but still in the local area.

But when it is say parents of Stanford students coming to visit or potential students touring, they are the ones who just might look to see where they can get a better deal.

I reckon that local hotels that have a lot of business guests won't feel this. But those smaller hotels that depend on repeat business from Stanford parents, or locals who need to find a hotel to put up out of town guests, will look to where they get better deals. These are probably the non chain hotels and some of the reasonably priced motels.

The thing that is forgotten in this is that hotel guests usually buy meals and go shopping local to their hotel. We may find sales tax dollars leaving Palo Alto too as a result of this.


1 person likes this
Posted by LongTime Resident
a resident of Leland Manor/Garland Drive
on Oct 9, 2014 at 11:25 am

One would think opposition from the Chamber of Commerce and the Downtown Business Association was chopped liver. Their opposition is huge and alone, it ought to be enough to stop this tax. Hello? The average local citizen is not going to come out of the comfort of their homes to voice an opinion on this tax.

What about small hotels, like Hotel California on Ash Street in the California Avenue district? Where is the opposition from business people in that district that oppose almost everything new in Palo Alto? How come we never hear anything official from that district anymore? Who is the spokesperson?

Just because there is only one hotel there (at least right now), is that business left to be on its own, with no support from his/her business neighbors and the business association?

If council wants money, they should get it from the Utility Department that has amassed a fortune, for years, instead of crying Poor Mouth, and harming small hotels and shaking down hotel visitors for every last penny. We are opposed to this tax.


Like this comment
Posted by senor blogger
a resident of Palo Verde
on Oct 9, 2014 at 11:34 am

So...
Why is it ok for the hotel industry to raise room rates for football game days but not ok for the public to tax the room rate?


1 person likes this
Posted by mj
a resident of Evergreen Park
on Oct 9, 2014 at 11:51 am

I agree with Resident above. (I have no connection to the hospitality industry and other businesses that will be affected.)

Recommending a hotel tax as a cash cow to avoid fiscal responsibility.

Why don't we have a new police station? Because for as long as I can remember the council and city managers continually siphon off money for what should be secondary priorities. Postponing the $4 million boondoggle for a new glass conference room in the city hall lobby and other refurbishments would be a good start toward funding a new police station. All unnecessary spending should be postponed until we have a police station that can withstand an earthquake and coordinate emergency services. Why does the council approve millions on California Avenue (at last count heading for the $7 million mark), green bike paths, bridges over 101, prioritising staff for developers like Arrillaga and Jay Paul, consultants for everything, an expanded city hall staff, etc etc. Some are worthy goals but should not take precedent over public safety which should be the number one priority. (I have absolutely no connection to either the police or firefighters.)



1 person likes this
Posted by mj
a resident of Evergreen Park
on Oct 9, 2014 at 11:55 am

The utility fees are another cash cow for the city because some clever person in city hall decided they could continually raise our bills and siphon off millions to the general fund every year.


1 person likes this
Posted by LongTime Resident
a resident of Leland Manor/Garland Drive
on Oct 9, 2014 at 12:22 pm

MJ- the millions of dollars being spent on California Avenue are primarily coming from county grants, not from the city coffers. The city got someone else to pay most of it. County taxpayers are footing the bill, not only we PA Taxpayers. It comes from all those "Transportation Bonds" that county residents voted YES to in past elections.

Problem is nothing is free. There will be a price later, for the luxury of all this grant money lavished on PA City Hall. A few small businesses closed early this year. Now, the city wants to penalize small hotels too, seeing an opportunity.

Even the new water main work may have been added in the whole Streetscape project. It was not reported where that money came from. But the city saved money on the project overall, and the district was neglected for years. I don't fault the city for finally doing something there, or for taking advantage of the county funds. If PA didn't welcome it, another city would have.

If the water main work was done through those county grants too, and PA Utilities saved its money on it, no doubt they'll spend the savings lavishly, hiring more employees, giving them fat paychecks and outrageously high retirement pensions.

This is why we object to council Nickle & Dime-ing everyone with a pulse that is in Palo Alto. This tax will hurt small hotels. We aren't in the hotel business either.
We're just tired of the attitude of tax and spend, while ignoring infrastructure.


2 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Oct 9, 2014 at 12:42 pm

Seems the same ole tax-and-spend bunch are the only people donating money that will be used for increase salaries and pensions of the city employees—

Committee for Better Infrastructure – Yes on Measure B:
Web Link

Ray Bacchetti $ 250
David Bower $ 250
Phyllis Cassel $ 250
Penelope Ellson $ 100
Mark Harris $ 250
Larry Klein $ 500
Leland Levy $ 250
Steve Levy $ 250
Elke MacGregor $ 100
John Melton $ 500
James Schmidt $ 250
Nancy Shepherd $ 250
Craig Thom $ 250
Yes on A - Save Palo Alto Services $ 988
-----

Let’s hope that the Palo Alto voters have finally awaked to realize how little support there is for increasing this tax.


2 people like this
Posted by musical
a resident of Palo Verde
on Oct 9, 2014 at 12:49 pm

Wait a minute.
A 2% increase would be going from 12% to 12.24%.
Going from 12 to 14 looks like a 16.7% tax increase to me.

The dollar amount of the current tax already rises with inflation.
Measure B is inflation on top of inflation. Is that what we really need?


1 person likes this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Oct 9, 2014 at 12:53 pm

> The utility fees are another cash cow for the city because some clever person
> in city hall decided they could continually raise our bills and siphon off
> millions to the general fund every year.

This is sort of true, but not to the extent suggested. The UUT generates about $11.5M this year. About $7M is promised to the PAUSD for leasing Cubberley, and the rest goes into the general fund, to be used for salaries, benefits, and "city services". Please keep in mind that routinely 85% of all public sector expenditures go for paying salaries and benefits (which have become incredibly expensive as this number now is as much as 57% of salary for some folks).

The Utility is charged rent by the city of its use of public facilities--which generates a lot of money for the city, and there is also a "transfer" of $15M-$17M to the General Fund. So, the Utility is definitely a cash cow for the city employees, who now routinely cost about $115K per head to hire.

So, the rental money, and the transfer money, is far greater than the UUT money. Every time the price of the raw utility commodities go up, then the local prices go up, and these "profits" go up. Since this is a municipal utility, we voters have it in our power to do something about utility costs, and practices. But the topic never comes up in Council elections, and the Council itself almost never talks about the Utility in any meaningful way. The UAC (Utility Advisory Commission) could talk about these issues, but they seem to be little more than a cheering squad for the Utility employees with whom they interface.

At some point, the Utilities will become too expensive, but few people in town seem to care, or seem willing to talk about these matters.


Like this comment
Posted by Joe
a resident of Another Palo Alto neighborhood
on Oct 9, 2014 at 12:55 pm

> A 2% increase would be going from 12% to 12.24%.

We are voting on a 2 percentage point increase, not a 2% increase.


1 person likes this
Posted by Mr.Recycle
a resident of Duveneck/St. Francis
on Oct 9, 2014 at 2:11 pm

@senor blogger - it is ok to raise room rates on game day because you know the room rate when you book the room. Taxes are often hidden, and you only get the nasty surprise when you check out and swear never to return.


2 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Oct 9, 2014 at 2:12 pm

Online Name is a registered user.

MJ makes an excellent point about the utility fees. Based on my latest bill, the fees along come to $76 a month annualized to $912 a year! That's not counting the utilities themselves.

Look at your latest bill and compute the percentage of fees they generate that aren't from services. According to mine there's a $2.35 Public Benefits fee and a $33.88 Distribution fee for electricity, a $2.17 Annual Refuse Cleanup Day fee, under gas I've got a PA Local Distribution fee of $13.22, a monthly service charge of $9.88, and various administration fees. For water, I've got a meter service charge of $14.67.

That's $76 a MONTH annualized to $912.84. Of course that's not counting the utilities themselves of the monthly $12.30 storm drain that never drains since the street in front of my driveway's flooded whenever it drizzles.

Now Look at your cell phone bill and see that PA's getting about $2.50 each month, by far the highest amount vs the state and federal fees.


3 people like this
Posted by measure B humor (or not)
a resident of Greater Miranda
on Oct 9, 2014 at 2:31 pm



I can just hear the conversation.

"Hey, last time I stayed here you charged 12% fees. Now it's 14%. What's up?"

"Well we needed a new public safety building and we couldn't get a two-thirds vote from the residents of Palo Alto. So thanks. We like our new building."


Like this comment
Posted by musical
a resident of Palo Verde
on Oct 9, 2014 at 3:18 pm

So, staying on topic, when do we hit these same hotels with a city minimum wage increase?
At least $15/hr seems to be the consensus of council and candidates -- Web Link

That'll run up room rates and we'll be able to buy a new public safety building in no time.


Like this comment
Posted by Sea REDDY
a resident of College Terrace
on Oct 9, 2014 at 3:39 pm

Minimum recommended wage for Palo Alto workers;
I retracted my statement on minimum wage.( it is American value when every body is taking advantage of labor pool.

Minimum wage for Palo Alto; per my calculation needs to be $20~.

Knowledge workers $27-30

On increasing Hotel tax:
We found a sucker to pay additional taxes.

It increases the cost of doing business.

So they will increase the hotel room rate.

Sorry; I do not agree.

No wonder every thing costs so high; including $9 for laundry.

No, I do not go for it.

Respectfully


3 people like this
Posted by Joe
a resident of Barron Park
on Oct 9, 2014 at 5:55 pm

There is an important issue to discuss about Measure B, but most folks will probably miss it because they focus on the hotel tax itself and not the risks associated with infrastructure debt financing that's driving this tax increase.

Without Measure B, the city will still have over $88 million to spend on infrastructure projects using new revenue from the taxes generated by 5 new hotels in Palo Alto, Stanford money, reserves and other funds. This existing pool of money is sufficient to fund a new public safety building and many other projects on the city's infrastructure wish list.

The city doesn't need a ballot measure to issue COPs (certificates of participation) or debt backed the city's general fund for the taxes that will hopefully be generated by the 5 new hotels in Palo Alto over the next 30 years. The debt associated with these COPs will be over $33.6 million dollars.

Measure B's hotel tax increase allows the city to issue a second set of COPs for an additional $30.8 million in debt. This debt will also be guaranteed by the city's general fund. This will bring the total debt financed by COPs and secured by the city's general fund to $64.4 million dollars if Measure B passes.

$64.4 million is a lot of debt secured against the most volatile part of the city's budget. If the hotel revenue does not materialize, the city will be forced to make debt payments using money from the city's general fund. Cities in California have gotten in trouble because they couldn't meet their COP payments and had cut services such a fire and police.

While times are good in Palo Alto now, the list infrastructure projects is long. Measure B does not impose any obligation that the projects on the wish list will actually get funded. Furthermore, this project list does not include several other items including the airport, post office or golf course. There's no mention of replacements for the municipal services buildings near the baylands. All of these projects will likely need additional debt financing to be completed.

Most people see the importance of investing in Palo Alto's infrastructure. But, voting NO on Measure B still means that the new public safety building will get built. There would be money left over to fix Palo Alto fire stations and other important safety upgrades.However, other boutique project should be funded by taxpayer approved bonds, measured on their own merits.

Voting NO on Measure B is the right thing to do and will help ensure that the city acts responsibly in addressing our long infrastructure backlog.


3 people like this
Posted by normally liberal about these things
a resident of Another Palo Alto neighborhood
on Oct 9, 2014 at 6:20 pm

" But those smaller hotels that depend on repeat business from Stanford parents, or locals who need to find a hotel to put up out of town guests, will look to where they get better deals. These are probably the non chain hotels and some of the reasonably priced motels."

I'm looking at that monstrous out-of-scale thing at El Camino and Arastradero that looks like it swallowed up Hobee's and thinking it's purpose by our Council is to put the smaller hotels out of business so they can put more giant things there instead...

I can't believe I'm doing this, but I'm going to vote No on tax. I just don't trust anything coming out of this Council.


2 people like this
Posted by common sense
a resident of Midtown
on Oct 9, 2014 at 6:23 pm

Long Time Resident @ Leland Manor - Of the $7 million budgeted for the California Ave lane reduction project, only $1.2 million is coming from grant money. When originally proposed, staff had the city paying only $500,000 more. However city council and staff kept expanding the project so the budget ballooned to $7 million.


Like this comment
Posted by Yes on Measure B
a resident of South of Midtown
on Oct 9, 2014 at 6:38 pm

On a $150 room, the increase will amount to about $3. I don't think anyone is going to move to a hotel in another town to save three bucks. Further, last time Palo Alto raised its HOT, nearby towns followed and raised theirs. Subsequently room occupancy rates have been great and Palo Alto has experienced a hotel building boom. We can learn from this history. Methinks the hoteliers doth protest too much.


Like this comment
Posted by Yes on Measure B
a resident of South of Midtown
on Oct 9, 2014 at 6:38 pm

On a $150 room, the increase will amount to about $3. I don't think anyone is going to move to a hotel in another town to save three bucks. Further, last time Palo Alto raised its HOT, nearby towns followed and raised theirs. Subsequently room occupancy rates have been great and Palo Alto has experienced a hotel building boom. We can learn from this history. Methinks the hoteliers doth protest too much.


2 people like this
Posted by Jo Ann
a resident of Embarcadero Oaks/Leland
on Oct 9, 2014 at 6:40 pm

Hey, what's another $6.5 million among friends for Cal Ave?

The cost of Cal Ave to the city has boomed and is already said to be 3 months late. How much has the city lost and will continue to lose in sales tax revenue from the poor merchants who opposed this project? Was it more or less than the $500K grant they got from the county??

How much sales tax revenue has the city lost over the years and continues to lose at Town & Country while frustrated drivers avoid the gridlock to go to the Trader Joe's in Mountain View and Menlo Park?

I figure they've lost $3700 in Trader Joe's sales tax revenues from me alone.

Vote NO until the city stops trying to do end-runs around the voters and starts fixing the problems.


Like this comment
Posted by musical
a resident of Palo Verde
on Oct 9, 2014 at 6:54 pm

Let's just institute a 2 percent city sales tax. Nobody will drive to another town to save 2 cents.


Like this comment
Posted by Jo Ann
a resident of Embarcadero Oaks/Leland
on Oct 9, 2014 at 7:14 pm

I don't drive elsewhere to save sales tax revenue.

I drive to elsewhere because I can go 5 times the distance and avoid gridlock in the same amount of time I'd get stuck idling on Embarcadero.

I get stuck with higher gas costs and the city loses sales tax revenue.

I know I'm not alone in doing this.

A lose/lose proposition for everyone.


Like this comment
Posted by musical
a resident of Palo Verde
on Oct 9, 2014 at 8:13 pm

On my travel expense reports, Lodging is a separate line item from Lodging Taxes.

Does anybody else here ever travel at company expense?


2 people like this
Posted by Mr.Recycle
a resident of Duveneck/St. Francis
on Oct 9, 2014 at 8:44 pm

@Yes on Measure B - first of all, good luck finding a $150 room. Second, only looking at the increase instead of the full new rate is deceptive. The weekday rate for a room at the Sheraton, only a 3 1/2 star hotel, and far from the most expensive, is $439 a night. Stay for 3 nights, and you pay $184.38 in taxes. Will it cause hotel occupancy to rise? Probably not, but it is an unfair and ungrateful way to treat visitors. And it just allows the city to waste more money and avoid dealing with structural financial issues like pensions.


2 people like this
Posted by Annette
a resident of College Terrace
on Oct 9, 2014 at 10:43 pm

I am going to vote against the increase - and will read the ballot language carefully to make certain that my vote is what I intend. In principle, I think this is wrong. We are, supposedly, swimming in dough. We have funds enough to build not just a bridge but a special, costly bridge over 101. We are also supposedly sufficiently sound to do major, pricey renovations at City Hall. So why single out the hotel industry as a source for additional funding at this time? At some point the City needs to look at the cumulative impact of its policies. On its own, a 2% increase in TOT sounds like no big deal. Add it to the traffic issues and it gets a little bigger. Then factor in the parking problems. And then the overall impact of congestion. Bit by bit Palo Alto's elan and attractiveness is eroded. I think there are many good reasons to vote against this increase and I applaud Jon Kiya, Tony Carrasco, and Barbara Gross for taking a position against it.


Like this comment
Posted by SuperD
a resident of Community Center
on Oct 10, 2014 at 1:53 pm

It's true that most Palo Alto residents don't usually have long hotel stays in Palo Alto hotels, so the tax seems irrelevant. But like MJ and some of the others have stated, wouldn't it be nice if fiscal responsibility was an objective of our governments - city, state, & federal?? Taxing our way out of problems is not the solution...


Like this comment
Posted by Deep Throat
a resident of another community
on Oct 10, 2014 at 2:46 pm

The most recent Tentative Agendas for the City Council and its committees has the following action item for Monday, November 3, 2014, the night before the election on the Transient Occupancy Tax increase: "From Finance Committee: Proposed Changes in Development Impact Fees: Implementation of New Public Safety Facility and General Government Facilities Fees" (
Web Link).

Many voters will have cast their absentee ballots by that time, while those who wait to vote on election day are not going to be waiting to read a newspaper article about the Council's action the night before to determine how they are going to vote on the hotel tax ballot measure.


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

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