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.