News

Palo Alto revives its interest in a business tax

City Council approves work plan to place a measure on 2020 ballot that would pay for transportation projects

After four years of false starts and sharp disagreements, Palo Alto kicked off on Monday a new effort to place a business tax on the November 2020 ballot.

By a 6-1 vote, with Councilman Greg Tanaka dissenting, the City Council approved a path forward for a revenue measure that would support various transportation improvements, including the redesign of four rail crossings. In the coming months, the city will be hiring consultants, crunching numbers, refining proposals and surveying the public. Under the adopted timeline, the city would decide by October which revenue-generating proposal to pursue and, after more outreach, polling and analysis, draft measure language by June 2020.

In drafting the work plan, Administrative Services Department staff proposed an "iterative" approach, with regular check-ins by the council and its Finance Committee. According to a new report from Administrative Services, the plan anticipates a "steady pace" and "continued review and refining of proposals," with regular polling and outreach along the way.

Councilwoman Alison Cormack lauded this approach.

"I think it's the beginning of the conversation," Cormack said. "This is the opposite of the 'big bang' approach ... We need to have some options, we all need to think about it, we need to define it as we go."

For Palo Alto, exploration of a business tax is far from new. In 2009, the council proposed a business license tax, which aimed to address a budget shortfall brought on by the economic downturn. The measure, which was designed to raise the general fund revenues rather than fund any specific projects, was rejected by the voters.

Former Councilwoman Karen Holman, who had opposed the 2009 measure, said the measure failed in part because its language was poorly crafted and its purpose was "not clearly laid out." She urged the council not to repeat those mistakes this time around.

Since 2016, the council has renewed its push for a business tax, though the effort fizzled when the Finance Committee opted to move ahead with a hotel-tax increase instead and to devote proceeds to infrastructure. As part of that effort, the council commissioned numerous surveys to gauge residents' interests in pursuing a revenue measure to pay for various infrastructure projects.

Though the council ultimately supported creating a stakeholder committee to work on a business-tax measure, it scuttled that plan in May 2017 after then-City Manager James Keene warned that staff doesn't have the capacity to work on the measure.

Despite that setback, several council members have continued to view a business tax as the most suitable path to pay for "grade separations" and other transportation improvements. Councilman Tom DuBois, who this year chairs the council's Finance Committee, has been one of the most strident supporters of instituting the tax. Palo Alto, he noted Monday, is one of just a few cities in the region that doesn't have such a tax.

"I think it's important we don't get stuck in analysis by paralysis," DuBois said. "It's going to be vital that we go pretty quickly."

Mayor Eric Filseth also supported staff's proposed work plan, which he said creates "an orderly process."

"I think this will be complicated and take some careful thinking and a lot of work," Filseth said.

One of the council's key tasks will be getting buy-in from area businesses, which is something that the city had failed to do in 2009. Judy Kleinberg, CEO of the Palo Alto Chamber of Commerce, said businesses could potentially get behind a tax, provided the city involves them in putting the measure together and has a clear idea on what the revenues would be used for.

"We will support something that is fair, accountable and transparent and where the business community participates in the fashioning of the particular tax," said Kleinberg, a former Palo Alto mayor.

But former Vice Mayor Greg Schmid, who is now a member of the slow-growth-leaning group Palo Altans for Sensible Zoning, urged the council to give residents a significant role in shaping the measure. Schmid, a retired economist, cited U.S. Census figures showing that jobs in Silicon Valley have been growing six-and-a-half times faster than residences between 2010 and 2017. During the same period, the share of property taxes paid by businesses had declined by 10 percent, he said.

"Fair share — businesses paying their fair share — is a substantial issue," Schmid said.

Palo Alto is hardly the only city to pursue greater contributions from its businesses to tackle transportation and housing problems. Just last November, San Francisco voters approved a "homeless" tax on large businesses; East Palo Alto voters approved a parcel tax on office developments to pay for housing and job-training programs; and Mountain View voters approved a per-employee tax on large companies.

Other cities may soon follow. Former Mayor Pat Burt told the council that he has been talking to leaders and activists in other communities who are interested in putting similar measures on their ballots, in similar timeframes. Burt said the group has been concentrating on two uses for the new business tax: transportation and affordable housing.

Burt said he supported devoting much of the transportation funding to grade separation, though he noted that the funds can also be used to expand the city's shuttle system, increase the local stock of affordable housing and expand the Palo Alto Transportation Management Association, a nonprofit that aims to give commuters an alternative to solo driving.

"We look forward to working with you on trying to support this, and we hope what you come up with is roughly aligned with what we have in mind and it will be able to become a support mechanism for a ballot measure, rather than having to put a separate measure on the ballot ourselves," Burt said.

Former Palo Alto Mayor Pat Burt joins Weekly journalists to discuss this issue on an episode of "Behind the Headlines," now available on our YouTube channel and podcast page.

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Comments

28 people like this
Posted by Skeptical
a resident of Crescent Park
on Apr 23, 2019 at 7:09 am

Despite the showers of praise we hear for the Palo Alto Transportation Management Association (TMA), is there any tangible evidence it is working?

The TMA touts how many transit passes they've given out, but for all we know, people getting the passes aren't using them or were buying passes already anyway.

Before another cent of our tax money goes to the TMA, I'd like to see it prove it is reducing parking and traffic and not just pumping out PR. For example, it could pledge to reduce parking permits allowing commuters to park in residential areas near Downtown and California Avenue areas. That's something we can actually verify. Having the city sell 100 fewer permits each year in each of those areas would be a good start.


20 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Apr 23, 2019 at 7:37 am

In my experience, people will accept a free gift and then seldom use it. I would like to see just how those who are getting free passes use them and how often.

I would like to see the electronic signage at garages as promised.

I would like to see parking app available for phones showing available parking and a payment method.

I would like to see parking lots at off ramps with dedicated shuttles to downtown and other business areas.

I would like to see some type of on demand shuttle similar to Cupertino's proposal.

I would like to see better thought through school shuttles to all secondary schools.

I would like to see any money collected by this scheme to be used for practical methods that benefit all of us and primarily Palo Alto residents. I believe traffic, parking and transportation is one of the biggest problems we have in town.


29 people like this
Posted by Yes!
a resident of Another Palo Alto neighborhood
on Apr 23, 2019 at 8:48 am

This is excellent news. Of course a substantial percentage should be earmarked for affordable housing and grade seps. The type of tax can be figured out and small business will of course not be unduly burdened. For that matter - nor will big businesses. It’s way overdue that they pay their fair share rather than rely on us resident tax payers and our city to subsidize services to them (infrastructure, make way for their workers traffic and parking, housing needs etc).

I was appalled at Judy Kleinberg’s gall when she said that residents should have now have a sales tax levied against us as if we haven’t already been paying regressive county taxes for transportation and housing that serve Valley corporations needs. And she demands that any business tax must benefit the needs of business or the Chamber won’t support it. The Council is elected by Palo Alto residents, not by a special interest lobby like the Chamber. Let the Council members remember that, including Liz Kniss, Kleinberg’s BFF.

I look forward to a good, transparent process and sound tax that will result in substantial revenue for our city from business that will finally be held accountable for its fair share instead of us subsidizing it out of our pockets.


16 people like this
Posted by George
a resident of Old Palo Alto
on Apr 23, 2019 at 10:22 am

It’s hard to recall when a new scheme to expand city revenue was not in the news. All of these tax campaigns now seem routine, carefully timed, carefully spun, and perfectly scheduled on the calendar when the fewest are focused on elections. With this gain for the school budget and that gain for the general fund, the next round starts. More taxation, bigger budgets, more staff, more consultants, more social engineering, more PR, more taxation. The city really needs to focus on reducing cost, improving efficiency, focusing on managing unfunded liabilities, showing tangible results and working with the revenue it already receives.
Unfortunately, as the longer term resident community gives way to an increasingly transient population, it’s hard to know what constituency it serves if not primarily it’s own expanding self interests.

After maxing out the residents and running up the bond debt, raising tax on business and taxing the rich seem to be the next best options for insatiable government. At some point, people have to start saying ‘no’.

Those quoted are politicians and former politicians.


42 people like this
Posted by Pat Burt
a resident of Community Center
on Apr 23, 2019 at 10:24 am

Pat Burt is a registered user.

The willingness of the staff and council to pursue this important effort is welcome and overdue.
However, the record needs to be corrected on a claim made by Judy Kleinberg on behalf of the Chamber of Commerce last night. Judy said that this was the first time that the business community had ever been invited to be stakeholders in the discussion of the business tax. That is not true.
As noted last night, in 2016 the council created a subcommittee, which I chaired, that explored such a tax. The council ended up not putting the tax on the November 2016 ballot for two reasons.
The first was that polling showed that our local measure would reduce support for the county Measure B transportation tax which was providing essential down payment funding of over $300M toward our railroad grade separations.
The second reason was that the business community, staff and some of the council said that our process was too rushed. Instead, they argued we should form a stakeholder group to better define the uses, form and scale of such a tax. The council voted unanimously to defer consideration of the tax until early 2017 when we would launch the stakeholder group with the aim of placing the tax on the November 2018 ballot.
In May of 2017 the staff recommended to defer action on the tax. Adrian Fine characterized it as "a solution looking for a problem", despite our big and well understood traffic, grade separation and affordable housing needs. Judy Kleinberg then reversed her position from the previous fall and advocated that the council not move forward with the very stakeholder group that she had requested when she sought to delay the tax in 2016. The new council majority agreed to put off any consideration of the tax which resulted in no action by the city on it until last night.


10 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Apr 23, 2019 at 10:29 am

Buses on ECR will never attract the volume of rush hour traffic that people want, even if free. Buses in traffic will always be slower than the surrounding traffic. Too slow. If VTA wants to remove parking along ECR and add light rail that has priority over cars at traffic lights, I would be OK with that.


11 people like this
Posted by Let’s rehabilitate his image
a resident of Embarcadero Oaks/Leland
on Apr 23, 2019 at 10:46 am

Pat Burt- besides trying to rehabilitate your image from your 8 years on the council without any meaningful accomplishments, perhaps now we will have a council that will actually address this manner in timely manner. The key word being timely— seems like nothing gets accomplished in Palo Alto in less than a decade- alma plaza, bike bridge over 101 etc. that explains why you and other former council members did nothing to address the affordable housing issues.


11 people like this
Posted by Three from the SIC
a resident of Downtown North
on Apr 23, 2019 at 10:54 am

There was discussion and praise for the City Manager to form a committee of stakeholders. The list showed THREE reps of the Stanford Industrial Complex (SIC). THREE. No engineers or traffic experts, just business.

The SIC with the Chamber of Commerce will dominate, so it is a waste of time for other stakeholders.

Are there additional Stanford reps on the existing committee that is included?


27 people like this
Posted by Three from the SIC
a resident of Downtown North
on Apr 23, 2019 at 11:11 am

Judy Kleinberg is skilled at reversing positions. She spun around through the revolving door from being Mayor of this city, to be an advocate for developers to the Council on which she served.

Liz Kniss acknowledged her long time ally in her remarks at the Council. Bringing attention to her supporters from the dais is Kniss' style.


21 people like this
Posted by Gale Johnson
a resident of Adobe-Meadow
on Apr 23, 2019 at 11:18 am

Gale Johnson is a registered user.

Thank you Pat Burt,

I'm so glad you haven't gone away. Stay the course and speak up when the memories of others fail and the record needs to be set straight.


30 people like this
Posted by Palo Alto Snake Oil
a resident of another community
on Apr 23, 2019 at 11:38 am

We left this area about 20 years ago & had to return for a family memorial service.

Things were getting bad back then & now they appear even worse.

Are local residents still buying into the double-speak & snake oil spewed by the various city councils?

If such is the case, you deserve what you ended up with.

Amazing how 'paved-over' this locale has become. *ugh*


20 people like this
Posted by Mountain View Resident
a resident of Mountain View
on Apr 23, 2019 at 11:39 am

Mountain View Resident is a registered user.

For heaven's sake City Council, please think rationally about exempting micro and small businesses from whatever you come up with. I have no conceptual problem with a business tax (e.g., see what Mountain View is doing), but do not drive more tiny or mom-and-pop businesses out of Palo Alto. These businesses do not contribute to the parking problems in any significant way and are already struggling to survive. BTW, I had brunch at the Mayfield Bakery recently, and while my meal was excellent, I will likely not return due to the 5.50% "Living wage service charge" that was applied to my bill without notice. I found it on my emailed receipt. I had also left a 25 % tip because the service was so good. The prices at the Bakery are expensive, but reasonable for the portions and quality of the food given that it is located in Town & Country. Frankly, I would have reduced my tip 5% had I known I was going to be charged this absurd tax. Talk about a regressive tax! I oppose any increase in sales taxes because they are fundamentally regressive. Apply Proposition 13 to businesses. That will fix many of this issues.


11 people like this
Posted by Me 2
a resident of Old Palo Alto
on Apr 23, 2019 at 12:51 pm

Again. Businesses don't "pay" taxes. Taxes are a cost of doing business. It's a cost that's passed down until the end consumer is the one left holding the bag.


16 people like this
Posted by Pat Burt
a resident of Community Center
on Apr 23, 2019 at 2:39 pm

Pat Burt is a registered user.

@Me2
Last fall East Palo Alto joined San Francisco as a city with a tax on office space. Over time, those taxes are incurred by the developers who can only charge per square foot what the market will allow. East Palo Alto charges $2.50 per square foot per year.
In recent years Palo Alto developers have received hundreds of millions of dollars in windfall profits due to drastically higher rents against nearly fixed costs.


23 people like this
Posted by Novelera
a resident of Midtown
on Apr 23, 2019 at 2:46 pm

Novelera is a registered user.

I can't believe people are still resisting this. I work for a construction company that has to pull a business license in every city in which we work or the final on the project won't be issued. I have in a folder at work copies of annual business licenses for: Atherton, Menlo Park, Portola Valley, San Jose, Hillsborough, Town of Los Altos Hills, City of Los Altos, San Francisco, and Woodside. If we don't have a current project somewhere I do let them lapse. But when we are awarded a contract the first thing I do is apply for a business license if we've never worked there or if it's been a couple of years and I've let it lapse.

I can't understand why residents would resist this. It's not a tax residents. I do understand the resistance of the Chamber of Commerce. They earn their keep by supposedly doing great things to support businesses and saving them money. But Palo Alto businesses are skating on something that, as far as I can see, every business in other communities must do.

Also, the taxes are usually different depending on, say, the dollar volume of the work you do in that community or the number of employees. We are a sub-contractor, a category that usually pays less. The largest amount I pay for the cities I listed is $150. For our company this is just a cost of doing business.

If you multiply our $100 or $75 or even $35 annual fees by the number of companies paying, these communities have a good revenue stream. I have wondered for years and years why only Palo Alto doesn't assess this fee.


3 people like this
Posted by Me 2
a resident of Old Palo Alto
on Apr 23, 2019 at 3:04 pm

"Last fall East Palo Alto joined San Francisco as a city with a tax on office space. Over time, those taxes are incurred by the developers who can only charge per square foot what the market will allow. East Palo Alto charges $2.50 per square foot per year.

In recent years Palo Alto developers have received hundreds of millions of dollars in windfall profits due to drastically higher rents against nearly fixed costs. "

Developers have higher cost of development -> Higher lease rates for companies

Companies can either cut their costs (reduce salaries or have fewer events, for instance) or pass their costs to their customers.

This cycle continues until the end consumer pays for it.

Now, if you were just open about trying to hinder or stifle local economic growth instead of cloaking your advocacy with "windfall profits" language, that would be more honest and truthful.

Instead we get political spin and positioning. Just be truthful and say you're trying to pour cold water on the local economy and be done with it.

Ironically restricting development is "increasing the windfall profits" for property owners who already developed their properties. That's hilarious.


8 people like this
Posted by SRB
a resident of Mountain View
on Apr 23, 2019 at 3:22 pm

@Mountain View Resident
I've seen other places add a "living wage charge" in Mountain View (Cascal for instance); despite the appearance, this is not a city tax or mandate (and afaik you should be able to ignore it)


7 people like this
Posted by Annette
a resident of College Terrace
on Apr 23, 2019 at 4:45 pm

Annette is a registered user.

November 2020 is effectively 18 months in the future. Ballot measures likely need to be determined a couple of months prior to that. This means that there are about 16 months to make a final decision about grade separation, gather all the critical cost information, and prepare an honest and informative ballot measure so that voters have the benefit of knowing exactly how the tax revenue will be spent. What percentage will be set aside for grade separation? Other transportation programs? Affordable housing?

Sometimes good things happen when time is of the essence. Let's hope this is one of those times.


5 people like this
Posted by Novelera
a resident of Midtown
on Apr 23, 2019 at 5:45 pm

Novelera is a registered user.

Adding to my earlier comment about all the other cities that have a business license requirement, why do residents even need to vote on this? THEY are not taxed. It seems to me it would just be the City Council deciding to do it and the City Staff implementing it.


5 people like this
Posted by very concerned resident
a resident of Professorville
on Apr 24, 2019 at 7:04 am

No more taxes. The problem is continuous opening of doors to new taxes for everyone.
Perhaps we ought to seek state help since so much of our hard earned money goes to the state, with minimal return to constituents. Let's all face the obvious:
Web Link

No new taxes without repealing other taxes.


3 people like this
Posted by Bill Bucy
a resident of Barron Park
on Apr 24, 2019 at 8:49 am

Bill Bucy is a registered user.

Annette has the right idea about this proposal.

A decision on grade separation must be made before the amount of the tax can be set. And voters must know how the money will be spent before they can make a decision. Given past machinations I wonder if the city council can move quickly enough to come up with a well-thought-out proposal.


14 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Apr 24, 2019 at 9:23 am

Posted by Me 2, a resident of Old Palo Alto

>> Again. Businesses don't "pay" taxes. Taxes are a cost of doing business. It's a cost that's passed down until the end consumer is the one left holding the bag.

You are right, and, that is why we need to tax large employers. The customers of Peninsula companies like Facebook, Google, Palantir, SRP tenants, etc, need to pay for those big employers hosting their employees in Palo Alto and causing the City to incur large expenses associated with the transportation of those employees. If it costs enough, companies employing large number of workers who live in Dublin, Danville, Mountain Home, Tracy, Modesto and etc and who work here, will accommodate those employees closer to home, with satellite offices in Dublin, Danville, Tracy, etc. A win-win-win for Peninsula traffic, employers, and employees who don't have to commute so far.

Why should every single employee of every company in the world work right here? That is completely illogical.

I would like to see small family businesses be exempted.


16 people like this
Posted by About time
a resident of Another Palo Alto neighborhood
on Apr 24, 2019 at 9:45 am

Retail and resident serving businesses should be exempt. Businesses that benefit from a Palo Alto address but currently contribute nothing should pay a progressively higher tax based on number of employees. Subsidiaries and related companies should be counted as one - no loopholes. The glut of companies have foisted so many ills on our town, the tax should not be restricted toone kind of mitigation.


16 people like this
Posted by About Time
a resident of Another Palo Alto neighborhood
on Apr 24, 2019 at 10:06 am

Businesses that have been imposing other ills such as thise trying to turn downtown areas into their own private corporate campus should face addition fines and fees, so that we don’t have to keep waiting for someone in City Hall to do whatis right by residents and get them to move.


8 people like this
Posted by Curmudgeon
a resident of Downtown North
on Apr 24, 2019 at 12:30 pm

"Adding to my earlier comment about all the other cities that have a business license requirement, why do residents even need to vote on this? tTHEY are not taxed. It seems to me it would just be the City Council deciding to do it and the City Staff implementing it."

In a sane and transparent world, yes. But our city council members are loath to antagonize their business campaign donor base, so it abdicates the duty to the electorate. That approach also allows a shrill anti campaign to sabotage the effort, thus nothing gets done and nobody gets blamed. Slick, no?


10 people like this
Posted by chris
a resident of University South
on Apr 24, 2019 at 4:45 pm

This article is misleadingly vague. What are we really talking about?

As a start, let's make it $1000 per FTE employee per year. If a company can't handle that, maybe they don't belong in Palo Alto. People complain about too many workers jamming up the city. This would get rid of the low-hanging fruit. If not enough go away, make it $2,000/year.


2 people like this
Posted by Resident
a resident of Monroe Park
on Apr 25, 2019 at 4:53 pm

There's a fundamental problem with all of this.
PA City Council gets their money on command. They can whimsically introduce a new tax for this or that, and then they get paid. Do they have to prove to us and show us exactly what they do with that tax money? No, they don't.
Meanwhile, businesses that aren't behemoths like Google or Palantir or whathaveyou, don't have the same luxury that government has -- to take money from people, on command. Business is run by humans, government is run by humans. Both need money to survive. However, businesses are in a sink-or-swim environment, while government has the luxury of getting paid, whether they are successful or not.
So the PA Council has the luxury of playing SimCity with Palo Alto, and if their cute little bicycle-fetish experiments don't work out, oh well! They still get paid.
This is why I am dismayed by anyone who introduces a "new tax measure" to fix anything, and I am disappointed by the people who naively vote for it.


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