Despite vowing to reform its beleaguered business-registry program and hiring a consultant to lead the effort last year, Palo Alto has little to show for its efforts, according to a new review by the Office of the City Auditor.
The review, which is a follow-up to a damning audit that the city auditor released a year ago, makes clear that even with a new administrator, some of the most significant problems that have plagued the business registry since its inception in 2015 continue to fester.
The registration remains woefully unreliable and incomplete, with only a small fraction of local businesses apparently complying with the law and getting the required business certificate.
When the registry launched, city staff was put in charge of collecting data about Palo Alto's businesses. Dissatisfied with those results, the City Council gave the go-ahead to hire MuniServices LLC in 2018 to manage the program and make the data more reliable.
According to a July memo from the city auditor, however, the data that MuniServices collected from March to August 2018 "was not sufficiently reliable (i.e., complete and accurate)." Auditors used other existing data sources -- including the Office of the Secretary of State, Infogroup, Guidestar and the state Department of Tax and Free Administration — to get an estimate of the number of businesses in Palo Alto and determined that the number of businesses identified by MuniServices falls well short of the numbers in other databases — by about 85%.
The auditor's office concluded that there are about 20,594 businesses operating in the city. The data provided by MuniServices included just 3,056 businesses. Some of the disparity can be attributed to how different data sets define "business," according to the auditor's review. The city's registry applies only to those businesses with "a fixed place of business" in Palo Alto; other data sets don't have that requirement.
Businesses without fixed locations may account for some of the 17,538 businesses not included in the MuniServices registry. Others may be businesses that had begun the process of forming but have not actually conducted business in Palo Alto, the review states.
Aside from the discrepancy in totals, the registry data that has been collected isn't always accurate, according to a Weekly review. In fact, it can be grossly incorrect. Tin Pot Creamery, a Town & Country Village establishment that looks and acts like an ice cream shop, is described in the registry as a "cyber security/fraud detection business." The Palo Alto Daily Post, meanwhile, is described as an "ice cream shop" and classified as an eating establishment. The General Atlantic Services Company, a private equity firm with a location on Hamilton Avenue, is called a "fast casual café serving fresh made to order juice sandwiches and coffee."
The audit also noted that the number of business certificates issued to local businesses declined from 1,929 in 2017 to 1,639 in 2018, the year MuniServices took over. At the same time, the 2018 registry showed that Palo Alto's business locations comprised about 77 million square feet, compared to about 30 million square feet in the 2017 business registry.
"The difference was due to at least in part to unusually large, erroneous values entered for some businesses," the new auditor's report states.
As part of its initial August 2018 audit, which did not include an analysis of MuniServices' work, the Office of the City Auditor looked at the city's contract with the company, which called for the firm to institute numerous measures to improve data quality, including removing duplicate business addresses, assigning unique user accounts for local businesses and comparing registry data with listings in the downtown Business Improvement District to identify businesses that show up in one dataset but not the other.
The August 2018 audit found that while these steps should improve accuracy, the comparison with Business Improvement District data may be of "limited value" because that program exempts businesses not within its boundaries. And while the company was charged with collecting the data and administering the program, it did not include services to improve data reliability, according to the new report.
To correct that oversight in direction, in December 2018, the city signed a contract with Avenu Insights & Analytics (the parent company MuniServices) to administer the business-license program, which includes the requirement to "research and ensure the city's database of business is accurate and reliable." This includes cross-referencing and merging business records from various local databases, utility bills and use-and-occupancy applications.
Not all of the problems with the business registry are technical. Some are existential. During a meeting of the Policy and Services Committee last September, then-City Manager James Keene attributed the many problems with the registry to confusion over why the program exists and what it is meant to accomplish.
When the city created the registry in 2014 — spurred by a colleagues memo from former council members Larry Klein, Pat Burt, Karen Holman and Marc Berman — the chief stated goal was to get a better understanding on how commercial development impacts the community. The memo noted that traffic and parking impacts are at the "forefront of community concerns" and city staff argued that the business data can help the city "measure employment trends and business activity throughout the City in a cohesive and coordinated manner," according to a report from Keene's office.
But last September, Keene told the committee meeting that no one really uses the registry and everyone seems to be dissatisfied with it. And despite earlier arguments that a registry would be a useful tool for addressing traffic and parking problems, Keene told the committee that he has "never worked in a situation where the public is screaming for access to business registry data at all."
That said, no one is proposing to eliminate the registry. Councilman Tom DuBois, who supported the additional analysis by the city auditor, said at the September meeting that the quality of the registry data may be a reason for why people aren't using the data.
"It hasn't been good, so I'm not surprised no one is using it," DuBois said.
The need for accurate business data could become more acute in the coming months, as Palo Alto moves ahead with placing a business tax on the November 2020 ballot. While the council has yet to determine whether the tax should be based on employee counts, square footage or payroll (the various approaches taken by Mountain View, East Palo Alto and San Francisco, respectively), any approach would depend on an accurate accounting of local businesses (and employees) to achieve accurate revenue projections.
The council is scheduled to review an accept the audit of the business registry on Aug. 5, its first meeting after the summer break.