The Palo Alto City Council agreed Tuesday to plod ahead toward a November tax measure, despite significant reservations from several members about the proposal on the table.
The council voted 7-1, with Lydia Kou absent and Greg Tanaka dissenting, to approve additional polling for a tax measure that would help close a projected $76 million backlog in the city's 2014 Infrastructure Plan, a list of projects that includes a new public-safety building, two rebuilt fire stations, two new garages, a bike bridge over U.S. Highway 101 and various bike-improvement projects.
Consistent with the recommendation from its Finance Committee, the council agreed that the poll should focus specifically on the transient-occupancy tax (also known as a "hotel tax") and the real-estate transfer tax (which is paid during real estate transactions). The council is considering raising the hotel tax from 14 percent to 16 percent, making it the highest in California, according to staff (Anaheim is next with 15 percent). The real-estate tax would be raised by $1.10 for every $1,000 in property value.
The council also agreed to explore in the new poll the residents' willingness to support a tax on sugar-sweetened beverages.
The council's general consensus about moving ahead with the poll belied members' widespread frustrations with the process. Council members Tom DuBois and Karen Holman each made the case that the menu of options presented by the Finance Committee is too meager. DuBois said the city should have been exploring a business tax, an idea that Palo Alto last considered in 2009 (voters rejected the proposed tax, which would have been imposed on gross receipts).
"It's the elephant in the room and we didn't ask any question on that, which seems crazy," DuBois said.
Councilwoman Lydia Kou, who was in China and who participated by phone, proposed scrapping the real-estate transfer tax from consideration and looking only at the hotel tax in the new poll. She also proposed creating a special council task force to consider the infrastructure challenges and taking a fresh look at the list of projects and seeing which should be scrapped or reprioritized.
"I think we need to be more transparent and really involve the community as well as ensure we explore all options, and not just take a handful," Kou said.
Tanaka, the council's most stringent fiscal conservative, vehemently opposed the measure and repeatedly accused staff of being wasteful with residents' money. Calling the infrastructure measure "totally inappropriate," Tanaka argued that the city needs to first prove to its residents that it has done everything it can to save money. He pointed to the council's tradition of donating used firetrucks to Oaxaca, Mexico, Palo Alto's sister city, and its proposal to transfer a portion of the city's water allocation to East Palo Alto (an action the council is expected to approve next week) as evidence of fiscal waste.
A proposed tax, he argued, is essentially an insult to residents.
"We're telling them, you have plenty of money, we'll soak you any time we want," Tanaka said. "We're not treating constituents with respect because we don't have our house in order; because we haven't prioritized our projects, we haven't tried to value engineer, we give away property and equipment."
While he voted against the motion, the rest of the council agreed to march ahead. The council directed the firm FM3 Research to move ahead with the next round of polls. The firm's initial polls found that the majority of residents would likely support a hotel tax and by a slimmer margin a real estate transfer tax. It had also found that voters would likely reject parcel taxes or sales-tax hikes. The poll provided the basis for Finance Committee's recommendation.
Councilman Greg Scharff, who chairs the Finance Committee, argued during committee meetings that the measure is a needed tool to complete the council's infrastructure program at a time of steep escalations in construction costs. Public Works staff have estimated that every month of delay to the public-safety building project adds about $350,000 to the cost.
Scharff called the proposed increases to the hotel- and real-estate transfer tax rates "realistic approaches to how we fund our infrastructure."
"The biggest threat is delay," Scharff said. "The costs of these things mount as we delay."