A $2.50-per-square-foot annual parcel tax on large office developments could raise at least $1.67 million in annual revenue for East Palo Alto, according to city estimates, if voters approve the tax on Nov. 6. To pass, the measure must be approved by two-thirds of the city’s voters.
The City Council approved adding Measure HH, the “Commercial Office Space Parcel Tax for Affordable Housing and Job Opportunities,” to the ballot on July 31. The measure is in response to residents’ concerns that new office developments will lead to higher housing costs and more traffic congestion but they won’t add jobs suitable for current residents. Many lower- and middle-income residents are already dealing with housing instability and homelessness because of the red-hot real estate market, a dearth of affordable housing and the pressures created by area giants Facebook and Google.
If passed, the tax revenue could help kick-start innovative programs to address displacement and homelessness. The revenue would be spent on new, low-income housing and programs to train residents for higher-paying jobs in science, technology, engineering, mathematics and the building trades and would strengthen the city’s First Source Hiring program.
The ordinance would earmark a minimum of 35 percent of the revenue for new, affordable housing stock. A maximum of 15 percent of the tax proceeds would be used for the city’s costs for overhead and administration of the ordinance, according to the measure. The remaining funds could be used for housing, job training or — at the City Council’s discretion — ordinance overhead or administration. The city would also be accountable for how the money is spent, with staff required to write an annual report to the City Council.
The tax would be levied on owners or lessees of commercial office developments and internet retailing businesses larger than 25,000 square feet. Smaller developments and those not used for commercial office space such as retail shops, agriculture and food services would not be subject to the tax.
The city could reap three times as much revenue as the $1.6 million estimate. It currently has approximately 1.8 million square feet of commercial office space undergoing the entitlement process.
Advocates for seniors, homeless persons and the city’s immigrants support the measure. They say companies receive huge federal tax breaks and must pay their fair share to fix the infrastructure and displacement problems their massive expansions are creating. Residents of East Palo Alto should not shoulder the burden alone, they say.
The tax amounts to 21 cents per square foot per month, they wrote in a pro-tax argument filed with the San Mateo County Clerk-Recorder. It was signed by Mayor Ruben Abrica; Fr. Lawrence Goode, pastor of St. Francis of Assisi Church; Rev. Paul Bains, founder of Project WeHOPE; Millicent Grant, president of the East Palo Alto Senior Center; and Isaiah Vi, board member of employment training center JobTrain.
They dismissed developers’ arguments that the tax would stifle development that the city badly needs to provide a tax base to fund community services and benefits.
In their argument against the measure, opponents claim the measure is a “stop commercial development tax.” Jeffrey Poetsch, president of the Ravenswood Shores Business District, wrote that instead of the parcel tax, additional property taxes from new commercial developments would generate more than $10 million a year if developers build in the city.
J. William Uhrig of New York-based Bay Road Holdings argued in a July letter to the city that the tax and the city’s current patchwork of proposed fees could give developers incentive to do nothing with their land. If the fees are too high, the development will not be built.
Columbia Property Trust officials, another developer, said in a July letter to the city that the tax would have a “huge hit” on small- and medium-sized businesses and startups.
“Property owners would pass the tax on to tenants — all businesses in buildings over the size threshold would be at risk,” the developer said.
The proposed tax is also inflexible and unfair to the companies that would pay it, proponents claim.
“A benefit of the proposed parcel tax applied to in-place square footage is certainty of income to the city, but it also is not flexible for landlords and their tenants during either periods of vacancy at the property, or during times when market conditions are less favorable than they are today.”
But proponents disagreed.
“The measure does not affect your home. The measure does not affect locally owned small businesses or retail stores. Measure HH will not stop development in the city. East Palo Alto’s commercial office rents will still be very competitive relative to neighboring cities,” they wrote.
They noted the City Council can amend the tax without future voter approval, so long as the amount of tax doesn’t increase or change what the tax revenues will be spent on. The council has the discretion to lower the tax in a substantial economic downturn.
Developers said that no other local jurisdiction is charging or contemplating a per-square-foot tax.
But a 2015 Public Policy Institute of California report evaluating parcel taxes found that, if well designed, a square-footage tax is better than a flat-rate parcel tax because it links the tax proportionally to the public services it funds.
A parcel tax, in general, can fund services residents expect and need. Unlike income and sales taxes, which can be highly variable, land is immobile and in limited supply. Therefore, the income generated from a parcel tax is more stable.
The tax on square footage has one major shortcoming: It can make ownership of large tracts of vacant land uneconomical, particularly if the land has a steep slope and can only be minimally developed or is in a low-value agricultural area. But a lower tax rate on vacant parcels could make up for that discrepancy, the report noted.
Every property has a “tax capacity” — a tax rate that would threaten to reduce the property’s value to zero. A low tax rate is unlikely to exceed the capacity of any parcel. But as the tax rate rises, more properties become vulnerable, the report noted. However, suburban properties are likely to be able to pay higher square-footage taxes and still be profitable, given the high revenue to be generated for developers by property values and leases.
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I am glad proponents now understand the connection between development/office occupancy and high housing costs and displacement of residents. The problem is that I don’t see a provision to help actual existing residents to avoid becoming displaced, especially if they own a home. Prop 13 does provide protection, but many people’s income does not rise even the 2% a year their property taxes rise when local housing costs rise, and often they cannot sell and move somewhere cheaper, they are just forced out and away from their communities and jobs.
Creating UNITS (especially RENTAL units) is not the same thing as protecting the affordability of existing residents and preventing them from being displaced. And a system that ensures the lower-income can only ever live in program housing instead of themselves benefiting from their own investments will further entrench class differences and make it harder for working class people to escape poverty.
The feel-good rhetoric may capture the ideologues over affordable housing, but these proposals need to be carefully structured to ensure that the money is being spent, not to advantage large developers, or even to be housing lotteries for some lucky few, but they should be specific avenues to protect middle-income and lower-income people from the displacement and negative consequences of office park overdevelopment. This is a step in the right direction, but I think it still suffers from some of the big blind spots about housing and development and the immutability of class and poverty that other proposals seem to suffer from. Proposals that treat units and people like they are interchangeable inevitably do nothing to prevent displacement.
That said, I think it should probably still be passed and then improvements made rather than being rejected.
We appreciate the flexibility that Measure HH offers, since the tax rate can be lowered if needed. In recent years the city voters passed Measures J, O and P, and we see HH as having a similar pragmatic use for residents. It is a reasonable and thoughtfully-written measure that is business-friendly and will help residents in distinct ways: housing and job training.
Measure HH is a balanced way to support the residents of our community with a reasonable cost to big businesses which benefit from what we offer. Please support the measure.
I am not in favor of Measure HH. It is yet another disincentive for developers to invest in EPA. The authors of this measure did not bother to do an economic impact study before passing it. The unintended consequences will be tremendous: 1) Existing buildings will ask for their property taxes to be lowered, resulting in very little net gain in tax income 2) Developers will continue to not invest in EPA, leaving us with little commercial tax base. Every building not built due to this tax will result in the loss of $1 Million in property taxes. 3) EPA continues to signal to developers that it is anti-development, and developers will take their investments elsewhere.
As an EPA resident (since 2009) and homeowner, I hope that our councils in the next year will cease to keep shooting EPA in the foot with bad decisions. Developers will continue to choose to not invest in EPA despite its amazing location, and we will continue to have empty lots, no downtown, no small businesses and all the other negative effects of not having professional jobs in the city. No developer will want to work with EPA’s less than competent planning department, which has struggled with getting the development codes and water rights approved. EPA needs developers far more than they need us – and we should be doing things as a city to attract investment, not repel it.
The comments made by “Needs Improvement” only focus on the housing aspect of Measure HH. However, Measure HH ALSO provides much needed community benefits in the areas of job training and apprenticeships in the STEM and construction sectors, as well as strengthening the City of East Palo Alto’s First Source Hiring policy. Half (50%) of the tax collected would go towards these endeavors! The City’s residents, Staff & Council are not ignorant of the many considerations and additional provisions needed to prevent displacement, including that of the City’s middle and lower-middle income residents and seniors. Additional program details will be addressed and implemented once this passes.
As for the newbie resident who opposes this measure, whom I will not call out by name; it’s not surprising that he is in opposition. He is usually, very contentiously, on the opposite side of what the majority of this community’s LIFELONG residents support. He also gloats over the increasing home prices in the City as if it’s a good thing. Again, he is not just new to East Palo Alto, but also to the Bay Area, and seems to have not taken time to understand the historical realities that impact current matters, or just doesn’t care. But I digress…
Measure HH is WELL THOUGHT OUT to include provisions for training/apprenticeship programs and access to local jobs. Passage of Measure HH would help create more affordable housing, create a pathway for residents to gain the necessary skills and education to access professional livable wage paying jobs, AND strengthen the community’s first source access to jobs within the City.
We appreciate how East Palo Alto balances both business and residential interests. Many complaints from residents in surrounding cities are from issues arising due to city leaders who focus too much on business interests, to the detriment of residents. One of the benefits of this proposed tax is its flexibility, so it can be adjusted downwards if necessary, which would still capture important dollars to benefit residents, and in a manner that demonstrates how we also respect business interests. East Palo Alto has been thoughtful in crafting city measures, such as J, O and P, and now HH, knowing that we have many residents who struggle financially. Many stakeholders get involved in these campaigns because they believe in the goal. Striving to balance the needs of the more vulnerable in our community along with careful growth is a priority that we share, and is one more reason we support HH.
What amount of affordable housing stock does 35% of $1.67 million translate into? Is that 1 additional unit per year? 10 per year? What amount of the current city budget goes toward this purpose? How does this tie into the $10 million of Facebook’s Catalyst Housing Fund that is directed toward affordable housing in EPA?
How was the figure of $2.50/sq.ft. arrived at?
1. No proposed ballot measure is perfect. 2. Taking a lesson from the Amazon Deal, which was made a year ago, development coming into a community should not take the tone of “my way or the highway.” This means that the developers don’t simply get to call the shots, while the community members/city council members are excluded from the discussion to begin with, or are forced to passively comply. That’s not a democratic process.
3. I have not heard any reasonable alternatives to Measure HH from the opposition. 4. And as for the statement (paraphrase) that “the developers are more important than the current residents of the city” is a slippery slope and highly problematic. 5. This measure is not anti-development. I would argue that based on EPA’s prime location, this measure advocates for this tax and also offers some parameters for prospective investors, given that development is a reality.
“EPA needs developers far more than they need us – and we should be doing things as a city to attract investment, not repel it.”, Mr. Dinan. I am Mr. Dinan’s neighbor and I support Measure HH #EPA4MeasureHH. That statement shows his misunderstanding, that completely ignores the historical fact why gentrification happens. Low income folks have not and are not displaced/removed/cleansed from their homes because developers do not value their land. That, just doesn’t add up.
“What amount of affordable housing stock does 35% of $1.67 million translate into? Is that 1 additional unit per year? 10 per year?”, Bemused. I can’t verify if you really are my neighbor because of your creative moniker. However, over the past 25 years, local housing advocates, indigenous and happily relocated folk like me, have worked with the city to develop various measures to build a portfolio of affordable housing income streams. I suggest that you spend some time, do your homework and learn. Learning is a great way to remove bemusement with knowledge.
Stewart Hylands, I have lived in EPA since 2005. I don’t use my real name because there are some EPA residents who simply don’t like the fact that I am ‘new’ to the neighborhood, regardless of my support for trying to keep EPA affordable for long term residents. They have been verbally abusive with me and indirectly alluded to physical violence. One person coaches in a school my children attend. I assume his comments are a bunch of macho bluster, but I’m not comfortable using my real name and taking the risk of exposing my children to similar harassment.
As for educating myself, you might notice I asked questions. Sadly, instead of pointing me to actual resources, you exhorted me to do my homework. You claim to be very familiar with EPA’s affordable housing strategy. Could you point me to a comprehensive online resource that would help me understand it and how the funds from HH would likely be directed and what the impact on affordable housing would be?
Thank you.
My point is that $10 Million in Property Taxes on new construction is far more than the $1.6 Million Prop HH supporters hope to collect. HH is a bad policy – developers have not invested in EPA for a variety of reasons, and can continue to do so if they do not see the support from the local community. HH supporters are living in a fantasy world far removed from the realities of the business world if they think that increasing development costs by millions will not have any impact on the decision to invest in EPA. Besides, if EPA does this tax, what is to stop them from imposing more taxes and fees down the road? EPA City Council & Government has not shown itself to be a responsible partner for developers.
Measure HH is a small tax on the corporate owners of the only two office complexes greater than 25,000 square feet – Columbia Property Trust (1900 University Ave, University Circle Office Complex) and The Sobrato Organization (2I00 University Avenue, University Plaza). Both have lease riders that will pass the tax immediately onto their tenants – rich tech and tech related companies that occupy the buildings. This will only amount to spare change for these companies.
It will have no effect on developers capitalizing on the once lowest valued real estate in Silicon Valley. In fact, according to the planning department, developers are already waiting in the wings to bring more projects forward in the next few months. Remember too, Sand Hill Properties invested 430 million dollars just 22 months ago buying 1800+ residential units surrounding University Circle and the Four Seasons Hotel. Measure HH will help the city build some more affordable housing and spread the wealth around a little. Vote YesOnHH.
Vote YesOn10 to bring any newly constructed rental units under the Rent Stabilization Program and to discourage the demolition of existing apartment complexes and displacement.
BUILDERS ARE BEATING DOWN THE DOORS TO GET INTO EAST PALO ALTO.
Being that I’ve lived in East Palo Alto and I’ve Owned and Operated a Business there.(displaced)
I feel that I can Speak on exactly what has gone on in EPA.
East Palo Alto is a GOLDMINE. Lets get that Straight right off.
E.Palo Alto. is the last Frontier on the Peninsula.
The fact (of) this “Made Up” Fantasy that Developers Won’t/Can’t Build in EPA. is a Falsehood. Builders get PAID only if they Build something. By ADVOCATING EPA being DIFFICULT this is a PLOY….
They will Build to keep their Income coming in. They are trying to MAXIMIZE their PROFITS for them and Their INVESTORS. They have SOLD The IDEA that E. Palo Alto and The Council/Residents are EASY Pickings.
Look what SOBRATO did with that HUGE Brick Dinosaur at 2100 University Ave. PROMISES were made and NOT kept. aka: Falsehood and they knew it prior!
Ask Yourselves, WHY DO THEY COME ANYWAY?
Because There is hardly any place else to Go on the Peninsula that is PRIME!
They will Tell you things that aren’t True, just to get their FOOT inside the door.
The $2.50 charged ANNUALLY is not even a drop in Their Bucket. It evaporates before it hits the ground!
(I just wished that I had of been to the meetings with this was proposed), They would be paying HALF of what they receive PER SQUARE FOOT Annually.
Other Surrounding Cities are doing the same. Don’t give out the impression that EPA is being difficult. This is a regular Business Practice.
Remember Folks, This is ONLY charged ONCE a year! not every month. Whereas they will be receiving 5 times that every month. On each and every Unit Leased or Rented. They will be seeking out “Technology” Firms. NOT SMALL BUSINESSES that were displaced. NO “MOM & POP” Business need not apply!
(I have been told this countless times)…
East Palo Alto will have very little Residency left. It will look and become a Lamented/Concrete Facade ran by Corporations. These People have No regard for the Competency of the People. It shows in Their Actions. Aka: No Respect. They will eventually move in and re-frame East Palo Alto…They are Here to STEAL. Get everything for (not) as CHEAP as Possibly to pull the wool over (what they perceive) as stupid/idiotic.
Why else are they buying and Owning upwards of 100 Acres? If they can’t do anything with it. Sell it!
If they have the intentions of leaving Acres of Land vacant. Charge them a “Blight Tax” on the Dirt until Developed or Sell it!
People Are beating down East Palo Alto Doors to get in. The Current Investors, just happen to get there First. Blocking the Doorway from Others to get in!
Every Citizen in East Palo Alto (that lives here), should receive a CHECK in the Mail (liking) to a Lumber/Oil Royalty from Heir Land…These Developers are making Money at the expense of Residence. Hand over Fist, at The people that live here Expense. The Quality of Life is diminishing.