Palo Alto's elected leaders unexpectedly scaled down on Monday night their plans to raise the city's hotel-tax rate after several City Council members balked at making the local rate so much higher than in other jurisdictions.
The council majority still favored on Monday placing on the November ballot a 2 percent increase in the transient-occupancy rate, which would raise it from 14 to 16 percent and make it the highest in the state. But after tough negotiations by Mayor Liz Kniss, the council agreed to move to 15.5 percent instead.
Though Kniss was in the minority in opposing the move to 16 percent, she got some unexpected leverage over her colleagues thanks to the California Business Roundtable initiative, a measure that will also be on the November ballot and that would retroactively require any additional tax imposed this year pass by a two-thirds majority.
Because of the initiative, City Attorney Molly Stump advised the council that to avoid potential legal complications, the council should approve the placement of the measure on the ballot by a two-thirds majority (six out of nine members). With Greg Tanaka and Tom DuBois absent, that meant the council needed six out of its seven members present to support the placement of the measure on the ballot to comply with the business initiative.
With little margin for error, the council discussion turned into a hard-nosed negotiation, with Kniss looking to her similarly skeptical colleagues, Lydia Kou and Karen Holman, to kill the proposed 2 percent hike and scale down the measure.
Holman initially said she found herself in a difficult position -- "between a rock and a hard place" -- because of the circumstances of the Monday vote. Though she said she doesn't like the idea of raising the hotel taxes by 2 percent, she also didn't want to derail the council's infrastructure plan.
"Going to the highest TOT in the state is kind of egotistical," Holman said. "I don't think it's going to play well with the public. And I think trying to raise additional money by a tax is not clearly taking responsibility that we can do a better job in how we spend money."
At the same time, Holman said she is willing to support the proposal because "the fair thing to do is not to hold this hostage."
Kniss had no such reservations. After counting the votes and seeing that the majority didn't have six votes, she proposed a smaller increase. Like Holman, she said she is "uncomfortable with the optics of it." Unlike Holman, she suggested that she will oppose the measure -- possibly dooming it -- if others don't agree to the lower rate.
The increase from 14 percent to 16 percent would have generated an additional $3.4 million in annual revenues, which would be devoted to infrastructure spending. A move to 15.5 percent would yield an expected $2.55 million.
The city last raised its hotel tax in 2014, when voters approved moving it from 12 percent to 14 percent. Going up to 16 percent would give Palo Alto the highest rate in the state, above the 15 percent rate that Anaheim charges. Most cities in the region have rates of 10 percent or 12 percent.
Councilman Adrian Fine also said he doesn't particularly like the idea of being the state leader when it comes to hotel taxes. But he noted that the city has done its polling, which showed that the hotel tax is the only one that would likely pass. He also indicated that the city will be among the state leaders when it comes to the hotel tax rate whether or not it goes with a 15.5 percent rate or a 16 percent rate. The difference between the two is "marginal," he said, in advocating for the higher rate.
Vice Mayor Eric Filseth and Councilman Greg Scharff also advocated for going to 16 percent, noting that the move will allow the city to make new investments in the community and pursue popular projects such as the expansion of Boulware Park, which would require a purchase of an AT&T property, and support for the new animal shelter.
"I want to invest in the community," Filseth said. "If other things work out right, this gives us the possibility to do something after this."
Scharff tried to win Kniss' support by proposing moving to 15.75 percent but she held firm and made an amendment to move to 15.5 percent. Concerned about seeing the measure collapse altogether, the council voted 4-2 to adopt Kniss' amendment, with Fine and Kou dissenting. The council then voted 6-1, with Kou as the sole dissenter, to place the amended measure on the ballot.
Despite initially indicating that she would support placing the measure on the ballot, Holman ultimately decided that she favored Kniss' proposal more than the one supported by the council majority. And despite the fact that they were in the minority on the issue, Kniss and Holman carried the day on the issue.
"I think you gentlemen have been outmaneuvered by the mayor," Holman observed shortly before the vote.
Kou had broader concerns about the proposed ballot measure, which has seen a recent surge of opposition from the hotel industry.
"We should have explored a wider means of generating revenue," Kou said. "I feel like the hotel folks are being targeted on this."