Palo Alto eyes hotel-tax hike in November

City Council approves raising transient-occupancy tax to pay for infrastructure

Despite significant reservations from the local hotel industry, the City Council voted Monday to move ahead with a ballot measure that would give Palo Alto the highest hotel-tax rate in California.

By a 6-3 vote, with council members Karen Holman, Lydia Kou and Greg Tanaka dissenting, the council on Monday night directed staff to draft a measure to raise the transient-occupancy tax rate from 14 percent to 16 percent. If approved by the voters in November, the measure would move Palo Alto past Anaheim, which has a 15 percent rate, and allow it to claim a leadership position that not everyone is coveting.

Much like with the 2014 tax hike, which raised the rate from 12 percent to 14 percent, revenues will earmarked for infrastructure. Specifically, it will help the council fulfill its infrastructure plan, a list of projects that includes a new public-safety building, two rebuilt fire stations, new garages downtown and near California Avenue, a bike bridge over U.S. Highway 101 and the completion of the Charleston-Arastradero corridor.

The council's decision to proceed with the tax-hike measure was driven in large part by the hot construction market, which has driven up construction costs. The infrastructure plan has a funding gap of about $76 million, according to Public Works staff. And with a newly commissioned survey showing that hotel-tax increase has a strong chance of passing, the council majority agreed to go with the change despite opposition from local hoteliers.

The increase of 2 percentage points is expected to bring in about $3.4 million in annual revenues, according to staff's projections. Yet it would also give the city a leadership position that some council members and business groups aren't comfortable with. According to city staff, the median rate in the state is 10 percent. At the high end stand San Francisco, Oakland, Santa Monica and Beverly Hills, each of which has a rate of 14 percent.

In recent weeks, city staff has reached out to local hotel owners to describe the proposal. According to Chief Financial Officer Lalo Perez, they were not a happy.

"They are very concerned about the economics. ... They feel the city should look at it from a corporate basis, not just individual basis," Perez said.

Some said they are starting to see a downturn in the occupancy rate, Perez said, including between Monday and Thursday, which tends to be the peak.

Stephan Dahl, whose family owns The Cardinal Hotel, argued in a letter to the council that the switch from 14 percent to 16 percent would damage the ability of local hotels to compete with those in other cities that have lower transient-occupancy tax burdens.

"If increasingly well informed and price sensitive hotel guests find other areas more affordable, they likely (will) take their retail, dining and entertainment spending to those areas as well," Dahl wrote.

The city's push for higher hotel taxes is also proving to be a tough sell with the broader business community. Leaders of the Chamber of Commerce and the Palo Alto Downtown Business and Professional Association have also indicated their opposition to the council's latest attempt to raise revenues. A letter from the downtown organization argued that the burden of funding a public facility such as a police building should not fall entirely on one industry sector.

"The hotel industry, like retail and restaurants are facing disruptive and challenging market trends," the letter signed by the entire board of the Palo Alto Downtown Business and Professional Association states. "Adding another tax amongst other increases in taxes and fees that may be in the pipeline as well as other operating challenges that downtown businesses face will hurt this particular industry and its ripple effect will hurt others."

But while many in the business community oppose the tax, most residents appear to be on board. A fresh poll from the city's consultant, FM3 Research, showed about 66 percent indicated support for raising the hotel tax -- well above the 50 percent threshold needed for passing a general tax. The high likelihood of passage was enough to sway the council majority, including Councilman Greg Scharff, who made the motion Monday. While some of his colleagues maintained that the city should scale back its infrastructure program rather than increases taxes, Scharff suggested that the city stay on course to complete its 2014 plan.

"Looking at this and going forward, I think it's really hard to go ahead and say, 'We're not going to do these projects,'" Scharff said.

Holman was far less certain. She said she has a hard time with the idea of Palo Alto having the highest hotel-tax rate in the state. The city, she said, should live within its means, even if it means deferring the downtown garage that is being planned for a lot on Hamilton Avenue and Waverley Street.

"We have a big appetite for projects, and for wonderful projects, but I think we also have to be practical," Holman said.

Tanaka, who has consistently opposed moving ahead with a tax increase, once again made the case for sharpening pencils and cutting costs. He also sympathized with the hotel owners and suggested that the city's capacity to raise hotel taxes is not unlimited. Palo Alto, he observed, doesn't have a huge draw like Disneyland. Nor is it in a deserted area with no other hotels within 50 miles. Mountain View and Menlo Park hotels are a bike ride away, he said.

"To me this is rushed, this is not well thought out," Tanaka said. "It might actually hurt us. We can actually get less money."

Kou agreed and argued that it's unfair to focus on hotels as a strategy to pay for infrastructure.

"I really think just targeting one type of business -- hotels -- is just something that's not sustainable," Kou said.

But while one proposed tax measure advanced to the ballot, another one will be deferred. In its first full debate on the topic, the council voted Monday not to proceed with a soda tax measure in November -- an idea that has been generating momentum in City Hall this year.

Most council members indicated that they generally support a tax of 2 cents per ounce on distributors of sugar-flavored beverages. Four council members, Cory Wolbach, Greg Tanaka, Mayor Liz Kniss and Karen Holman, had been preparing to co-sign a memo urging such a tax, Wolbach said.

On Monday, however, most council members agreed that they probably need more time to craft a proper measure. They voted 8-1 to refer the potential soda tax to its Policy and Services Committee, which will refine the proposal and pave the way for placing it on the 2020 ballot.

For supporters of the soda tax, the results from the FM3 survey proved bittersweet. The survey showed between 49 percent and 52 percent of the respondents indicated support for such a tax, with 33 percent saying they would "definitely" vote in its favor. In other words, if the vote were held today, it would be a toss-up.

Councilman Tom DuBois lobbied for moving ahead with the soda tax and to model it after Berkeley's existing ordinance. His proposal fell by a 4-5 vote, with Scharff, Kou and Holman joining him.


Follow the Palo Alto Weekly/Palo Alto Online on Twitter @PaloAltoWeekly and Facebook for breaking news, local events, photos, videos and more.

What is community worth to you?
Support local journalism.


52 people like this
Posted by Arthur Keller
a resident of Adobe-Meadow
on Jun 5, 2018 at 3:12 am

Arthur Keller is a registered user.

Why not a Business License Tax or a headcount tax like other cities are considering?

Why not a nexus fee on new construction for community facilities that contributes towards the infrastructure budget?

Why aren't the parking garages for Downtown and California Avenue paid for by parking assessment districts like the earlier garages?

Why aren't the parking in lieu fees charged to businesses set to the rate it would cost to build a space in a parking garage, about $105,000, rather than about $60,000 currently charged? Why aren't the parking in lieu fees used for the parking garages?

See also Web Link

12 people like this
Posted by Arthur Keller
a resident of Adobe-Meadow
on Jun 5, 2018 at 3:21 am

Arthur Keller is a registered user.

See Web Link at pp. 12-21 for the verbatim minutes of the discussion to raise the transient occupancy tax from 12% to 14%.

8 people like this
Posted by Arthur Keller
a resident of Adobe-Meadow
on Jun 5, 2018 at 3:32 am

Arthur Keller is a registered user.

(The tax was raised from 12% to 14% in a vote in 2014.)

20 people like this
Posted by Johnny
a resident of Adobe-Meadow
on Jun 5, 2018 at 6:12 am

Highest, record-setting tax rates, huh.
I don't know. I feel bad for the hoteliers. This has to hurt them. It's hard enough in the hotel business. This will only increase the rates and the burden is passed to the consumer.

When you have a 1-party state there is zero accountability and they can raise taxes on anyone in order to cover up for their own irresponsibility.

How are the bridge toll hikes coming along? While we're at it, lets increase the government bureaucrats salaries and give them greater pensions. I mean, they can always find new creative taxes to pay for it. It never ends.

51 people like this
Posted by anon
a resident of Evergreen Park
on Jun 5, 2018 at 7:37 am

The city council majority won't tax the businesses and developers who line their pockets during election years!

Arthur Keller is correct!!!

The city council majority won't tax the entities that cause traffic/parking problems in this city!

The city council majority won't tax their buddies but they nickel and dime the public and make it more expensive for regular filks to live here every year!

Do not vote for Wolbach in November! he is part of the Council majority that wants residents to pay for billionaire business and property owners to get a free ride in Palo Alto!

Dont vote for Scharff, Kniss Wolbach or Fine for any future office, they represent big business and big property owners not you!

45 people like this
Posted by Resident
a resident of University South
on Jun 5, 2018 at 7:46 am

In 2014 Wolbach ran on a platform of addressing local transportation problems as his first priority. Last year he opposed a business license tax dedicated to local transportation. Fool me once...

8 people like this
Posted by Ban Mylar
a resident of Ventura
on Jun 5, 2018 at 9:16 am

Ban Mylar is a registered user.

In an earlier Finance Committee meeting, Scharff said he'd already talked with a few hotel owners who were fine with raising the transit-occupancy tax!

I wonder which hoteliers he spoke with compared to those interviewed for the City's survey?

25 people like this
Posted by Resident
a resident of University South
on Jun 5, 2018 at 9:42 am

I had not heard of Scharff’s claim that he had spoken with hotel owners who would be fine with paying the highest rate in the state. He makes frequent claims that stretch credibility, to put it generously. Rarely does the council majority challenge his veracity.
However, it is Wolbach and his record compared to his prior campaign promises that will be on the ballot this fall. We need to wait to see which higher office Scharff pursues in the future, but he has made it clear it will be something.

4 people like this
Posted by Tim
a resident of Professorville
on Jun 5, 2018 at 9:48 am

Why raise the hotel to pay for the infrastructure of the city. Tax the people who use the infrastructure- the citizens of Palo Alto. Raise their property taxes.

7 people like this
Posted by Alexandra Acker-Lyons
a resident of Greenmeadow
on Jun 5, 2018 at 10:10 am

We need to support any and all efforts to fund infrastructure to ease traffic, parking, and other issues. I am much more in favor of taxing non-residents who visit. Also, Wolbach supports a 2020 ballot measure to revisit the business tax. It's not something we can rush into.

21 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Jun 5, 2018 at 11:03 am

Online Name is a registered user.

"Why raise the hotel to pay for the infrastructure of the city. Tax the people who use the infrastructure- the citizens of Palo Alto. Raise their property taxes."

Given the huge and growing jobs:housing imbalance that means we should be taxing commuters, big office developers and landlords.

Until there's a business tax, vote no new taxes.

8 people like this
Posted by Novelera
a resident of Midtown
on Jun 5, 2018 at 11:13 am

Novelera is a registered user.

@Tim. You do realize that property taxes are paid to the County of Santa Clara. There is no such thing as taxing Palo Altans for their use of infrastructure within the city.

26 people like this
Posted by Resident
a resident of University South
on Jun 5, 2018 at 11:15 am

In late 2016 Wolbach committed to creating a stakeholder group, including the business community, to flush out a business tax to fund local transportation. In early 2017, after the new council majority took over, he reversed his position and opposed even setting up the group to evaluate it. Now he is saying he is open to it for 2020? In the meantime, Mountain View, Cupertino and Eat Palo Alto are moving ahead with their business taxes to fund local transportation.
We can expect him to change his positions on various issues now that he is running for re election.

36 people like this
Posted by Developers rule
a resident of Downtown North
on Jun 5, 2018 at 11:46 am

As usual Scharff grabbed the first speaking spot and made a long, long long speech and a motion. As usual that forced the discussion to be limited to his take on the issue. Tax a group that hasn't joined with developers.
Mayor Kniss supports him, and she allows him to take over so she can keep smiling. Standard operating procedure.
Wolbach puts on a concerned look then votes with the development gang. Again.

What a corrupting atmosphere. Developers rule.

28 people like this
Posted by Finn
a resident of Charleston Meadows
on Jun 5, 2018 at 11:57 am

In the year 2031...

"Mommy, why are there so many empty hotels in Palo Alto?"

"Well dear, during the second tech bubble, the City needed to fund $400m in exploding pensions for retired employees, so they kept granting hotels zoning code variances, and approved so very many of them instead of building housing projects for residents.

Soon, there was no culture in the City and nothing to do except hang out in a lame hotel bar, or stay overnight for a graduation or business trip. Not long after, everyone moved away because Palo Alto had become a soulless and boring place to live, with nice trees."

17 people like this
Posted by Another Voice
a resident of Old Palo Alto
on Jun 5, 2018 at 1:27 pm

When and until the city can stop its' reckless spending habits, Palo Alto citizens should vote no on any effort to raise taxes of any kind.

Johnny has it right. While he references state spending habits, the exact same situation applies to local city government, especially when it comes to pension liabilities and exorbitant city employee salaries.

5 people like this
Posted by Bret Andersen
a resident of Palo Verde
on Jun 5, 2018 at 1:50 pm

We likely would not need to raise taxes if we managed city spending better. The garage projects are a huge portion of the budget gap. They were conceived of years ago. They now look like enormous wastes of money and run exactly counter to our Comp and Sustainability plans and transportation development strategy.

We have many alternatives to address parking demand than spending $78M+ to build prohibitively expensive parking structures ($75k+ per space and rising). The city can provide much more beneficial mobility to visitors and employees of businesses in these areas at about one tenth the cost of building subsidized public garages. Think:

- expanding Transporation Management Association efforts that are reducing car trips downtown by the hundreds today by increasing transit use, carpooling/shuttles, biking and walking.
- parking permitting and pricing so users of existing parking pay more of the cost
- parking guidance and wayfinding systems making better use of existing parking
- subsidized ride hailing to bring people to business without needing parking
- not to mention developments that will also reduce parking demand in the next few years: - the bike and ped plans that make more effective use of our streets, Caltrain Electrification (+20% capacity) and self driving cars/shuttles.

Carbon Free Palo Alto sent this letter making this case to Council yesterday. Send a message to council voicing your support if you want to stop spending on unnecessary public parking facilities and avoid new taxes.
Web Link

16 people like this
Posted by Resident
a resident of Old Palo Alto
on Jun 5, 2018 at 2:10 pm

I disagree 100 percent with Bret Andersen's post.
None of these ideas are proven to work... in fact, quite the opposite.

17 people like this
Posted by Nguyen
a resident of Charleston Meadows
on Jun 5, 2018 at 2:36 pm

I agree 100% with Resident's post about disagreeing 100 percent with Bret Andersen's post.

3 people like this
Posted by Joe
a resident of Barron Park
on Jun 5, 2018 at 3:53 pm

There's been lots of talk about raising revenue for infrastructure, but how will the financing work if a tax passes?

During the 2014 debate, Pat Burt and the Council told us that the 2014 tax would fund COPs (Certificates of Participation) where future hotel tax revenue would be financed by debt that gets secured by the City's general fund.

What's the story this time around? Is the City planning to issue more debt that will be secured by the City's general fund? How much of this debt is going for interest payments?

5 people like this
Posted by Ryan
a resident of Another Palo Alto neighborhood
on Jun 5, 2018 at 5:36 pm

It doesn’t matter how many times the council raises taxes. If we don’t get these employee pensions under control, we’re looking at half of a billion dollar pension costs in the next 5 years.

24 people like this
Posted by Socs
a resident of Gunn High School
on Jun 5, 2018 at 5:58 pm

Bret Anderson of Carbon Free Palo Alto, STOP! All the baloney about TMAs, TDMs, unbundling parking, car-lite/free, ride your bicycle and walk. Stop the BALONEY!

Face it, the automobile is superior! As the following article states Web Link

"Why do you "environmentalists" and planners’ attempts to force residents into walking, cycling and mass transit, supposedly improving their quality of life, attract so few away from driving?

The reason is simple — cars are vastly superior to alternatives for the vast majority of individuals and circumstances.

Automobiles have far greater and more flexible passenger- and cargo-carrying capacities than transit.

Automobiles allow direct, point-to-point service, unlike transit.

Automobiles allow self-scheduling rather than requiring advance planning.

Automobiles save time, especially time spent waiting, which surveys find transit riders find far more onerous.

Automobiles have far better multi-stop trip capability.

Automobiles offer a safer, more comfortable, more controllable environment, from the seats to the temperature to the music to the company.

Automobiles expand workers’ access to jobs and educational opportunities, increase productivity and incomes, improve purchasing choices, lower consumer prices and widen social options. Trying to inconvenience people out of their cars also undermines those major benefits.

Automobiles allow decreased commuting times if not hamstrung, providing workers access to far more potential jobs and training possibilities. That improves worker-employer matches, with expanded productivity raising workers’ incomes as well as benefiting employers. One study found that 10 percent faster travel raised worker productivity by 3 percent, and increasing from 3 mph walking speed to 30 mph driving is a 900 percent increase. In a similar vein, a Harvard analysis found that for those lacking high-school diplomas, owning a car increased monthly earnings by $1,100.

Automobiles are also the only practical way to assemble enough widely dispersed potential customers to sustain large stores with affordable, diverse offerings. “Automobility” also sharply expands access to social opportunities.

In all, attempting to force people out of cars and onto transit recycles earlier failures and harms the vast majority of citizens.

As Randal O’Toole noted: “Anyone who prefers not to drive can find neighborhoods … where they can walk to stores that offer a limited selection of high-priced goods, enjoy limited recreation and social opportunities, and take slow public transit vehicles to some but not all regional employment centers, the same as many Americans did in 1920. But the automobile provides people with far more benefits and opportunities than they could ever have without it.”

Instead, STOP spending all the infrastructure and tax monies on designing, changing and constructing unsafe and stupid streets.

Like this comment
Posted by Pat Burt
a resident of Community Center
on Jun 5, 2018 at 8:43 pm

Pat Burt is a registered user.

The funds from the 2014 TOT increase have been set aside by the city Finance Dept in an infrastructure fund. When the city proceeds with police building and other projects, the city will issue Certificates of Participation (COP) bonds against the the annual forward revenue from that tax.
I believe the city has the same plan if they go forward with another TOT increase.

2 people like this
Posted by Peter
a resident of Barron Park
on Jun 6, 2018 at 9:51 am

Let's all remember that this was approved to be put on the November ballot and it can be finally approved or voted down by residents. It is now up to the voters to make our voice be heard and let the city council know, with our vote, if we agree with their policies or not.

2 people like this
Posted by @Socs
a resident of Another Palo Alto neighborhood
on Jun 6, 2018 at 10:42 am

Automobiles are superior in low-density regions. With enough people, roadways get clogged, and you have to go to great lengths to increase capacity (which usually means putting more people into fewer vehicles through carpooling and bus services). Past that there's not much else you can do.

Mass transit is designed to transport large numbers of people through dedicated transit corridors that can have capacity continually expanded (more train cars, more trains, faster trains allowing even more trains).

Done right, you don't need to own a car to get around, and owning one becomes a hindrance more than anything. In London, Tokyo, Hong Kong, Paris, and NYC, rail service is ubiquitous and existing roadways already crammed, so it's far more convenient to take the subway places than to deal with a car.

But don't let me get in the way of your car fetishism. Have fun on 101S tonight!

8 people like this
Posted by JeanP
a resident of Community Center
on Jun 6, 2018 at 11:03 am

No Airbnb tax, no new hotel tax. They are both hotels, guests staying at either use the same city services and infrastructure. why is one taxed and not the other?

Another coin operated city council maneuver. Very predictable, very sad.

5 people like this
Posted by @@Socs
a resident of Leland Manor/Garland Drive
on Jun 6, 2018 at 12:19 pm

The nightmare on 101S is a result of the JPA and their horribly managed panicky flood alarmist project. The costs far, far outweigh the benefits.
Obviously they know the devastating impact their neverending construction project (which keeps being delayed due to lack of funding, endangered bird seasons, and changing plans due to disagreements and bureaucratic wastefulness) on traffic but service to cars is a low priority for them.
It's exacerbated by the lousy 2 carpool lane system just south of Embarcadero and here is a perfect example of how these initiatives fail. We have 3 jam-packed lanes at a standstill, and 2 empty HOV lanes flying dangerously next to them. Accidents often happen at carpool lanes because of the major difference in speed.
If there's too many people and too many cars, and there's traffic, then so be it, but when you try to "encourage" I mean coerce people out of their cars, you build carpool lanes that no one carpools in, buses that no one rides, and shiny new mass transit infrastructure that no uses, and so in punishing motorists, traffic congestion worsens exponentially.
And their solution is always "oh we need more money, raise the bridge tolls and we'll wave a magic and then traffic will be relieved!"
No, what they ought to do is stop with the tax madness and LEAVE WELL ENOUGH ALONE.
It is government's job to serve the people, not to socially engineer society and try to change their behavior into something radically different.
This is the result of your amazing and "innovative" Socialist ideas.

Indeed... it is all BALONEY.

Like this comment
Posted by To JeanP: A correction
a resident of Duveneck/St. Francis
on Jun 8, 2018 at 12:56 pm

To JeanP: A correction is a registered user.

A TOT would apply to AirBNB as well as hotels.

2 people like this
Posted by To @@Socs
a resident of Duveneck/St. Francis
on Jun 8, 2018 at 1:03 pm

To @@Socs is a registered user.

I ride buses or the train for some of my trips. I often ride a bike. I'm not "No one".

Hyperbole is not helpful toward a useful civic conversation. Let's stick to the facts, please. We have differences of opinion about the ways to solve these shared problems, but dismissive, blaming vitriol is unlikely to help move us toward consensus around solutions.

Common courtesy would be appreciated. Thank you.

6 people like this
Posted by @JeanP
a resident of Adobe-Meadow
on Jun 10, 2018 at 1:12 pm


Airbnbs are already taxed in Palo Alto! They pay the exact same transient occupancy tax as hotels do. Any increase in hotel taxes will also affect Airbnbs. Some of us, senior citizens who need to rent that spare bedroom to help make ends meet, will be hurt by the increase as well.

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

Stay informed

Get daily headlines sent straight to your inbox.

A new home in Redwood City for Mademoiselle Colette's croissants
By Elena Kadvany | 1 comment | 8,239 views

Electric vs Gas Heat: Which wins?
By Sherry Listgarten | 18 comments | 3,833 views

Lights Out! Foods to Snuggle With in the Dark
By Laura Stec | 0 comments | 1,683 views

What to do with all those cardboard boxes
By Cheryl Bac | 2 comments | 1,466 views

Some answers, please, PG&E
By Diana Diamond | 6 comments | 859 views


Race Results Are In

Thank you for joining us at the 35th annual Moonlight Run & Walk! All proceeds benefit the Palo Alto Weekly Holiday fund, supporting local nonprofits serving children and families.

Click for Race Results