News

Palo Alto looks to business tax to fund shuttles, rail improvements

Finance Committee continues to refine proposed November 2020 measure

As Palo Alto prepares to join the recent wave of cities that have adopted a business tax, transportation is emerging as the highest priority for how the revenues would be used, with public shuttles and safer rail crossings at the top of the City Council's priority list.

The city is moving toward placing a revenue measure on the November 2020 ballot, following in the footsteps of East Palo Alto and Mountain View, the last two area cities to adopt new taxes. But even though the City Council generally supports the creation of a new revenue source, members have not yet decided what the new tax would look like.

The council's Finance Committee on Tuesday night began to narrow its menu of options for the new measure, recommending that the city officially cut from consideration a tax based on gross revenues. This type of tax, which is in place in San Francisco and San Mateo, is also what Palo Alto had considered in 2009, its last effort to institute a business tax (that measure fizzled in the election).

Rather, the committee agreed that the city should base its new business tax on either square footage, like Cupertino, or on employee count, the most common method in the region and one used in Mountain View, San Jose, Santa Clara and Sunnyvale, according to a report from the city's consultant, Matrix Consulting Group.

Councilwoman Alison Cormack, a member of the Finance Committee, made the case for employee count, noting that this method has the most direct link to transportation, the area that the committee agreed should be the top priority for the tax revenues. As the council's leading proponent of expanding the city shuttle system, Cormack argued that programs that improve mobility "would be good fits for a version of the business tax, especially one more connected to people as opposed to buildings."

"We have a major transportation problem and everyone else has a business tax and we don't have one," Cormack said during the lengthy discussion.

In addition to transportation, the council considered affordable housing and further infrastructure improvements as possible targets for business-tax funds. But while a percentage of the business-tax proceeds may still go to affordable housing, the committee agreed that the city should consider other funding sources for infrastructure projects such as the expansion of the animal shelter, the redevelopment of Cubberley Community Center and the renovation of the historic Roth Building, the future site of the Palo Alto History Museum.

The committee agreed that these infrastructure improvements would be more appropriately funded by a general obligation bond, the type of mechanism that was used to pay for the recent reconstruction of local libraries.

At the same time, the committee couldn't reach a consensus on whether the new tax should be a "general tax" that only requires a majority support and that gives the city complete discretion in how the funding would be used or a "special tax" that requires a two-thirds majority and that specifies how the money would be used.

Committee Chairman Tom DuBois favored the former approach, with a "general tax" accompanied by an "advisory measure" that tells the public how revenue would be allocated without legally binding the council to this commitment. Vice Mayor Adrian Fine leaned toward a "special tax," which is harder to pass but offers voters and businesses more assurance about how the money would be spent.

Fine also suggested that if the city moves ahead with a business tax, it should consider offering some additional assistance to local businesses, some of which are already struggling to get by. This could mean a streamlined permitting process for work such as signage improvements, Fine said.

"If you walk up and down California Avenue and University Avenue, you'll see there's a lot of empty storefronts," Fine said. "A business tax will pinch businesses and there may be some role we can play in economic development."

Assistant City Manager Michelle Poche Flaherty also cautioned about placing too big a burden on local businesses. She pointed to a recent report from Joint Venture Silicon Valley showing that startups are increasingly moving to San Francisco rather than to cities in Santa Clara and San Mateo counties. She also noted that if companies end up leaving Palo Alto, that would put a greater burden on residents to supply the needed revenues.

"Commercial properties fill less than 10% of Palo Alto parcels but generate 30% of property tax revenues," Flaherty said. "If we lose a tenant at Stanford Research Park, it may only be one company, but in terms of the contribution we get in the tax base, it's one contributor but it may leave a rather big footprint."

In a nod to the challenges faced by local retailers, the committee recommended exempting from the new tax companies involved in public utility, retail, the restaurant and hospitality industries.

Several business leaders urged the committee on Tuesday to make sure the new measure isn't overly burdensome or opaque. Dan Kostenbauder, vice president for tax policy at the Silicon Valley Leadership Group, a public-policy group that advocates on behalf of area employers, cautioned against adding new taxes at a time when the economy may be heading for a slowdown.

"We've had such a good period of economic growth and a lot of tax revenue. Certainly, the prospect of an economic downturn would lead to lower taxes," Kostenbauder said. "Putting higher taxes on businesses at a time when the economy is weakening is not necessarily a good idea."

He also said the Leadership Group feels strongly that additional business taxes should be special taxes.

"The purpose of the tax should be identified and put into the ballot measure so we know exactly where the funds are going and it's specifically designated," he said.

Judy Kleinberg, president of the Palo Alto Chamber of Commerce, similarly argued that a tax during an economic slowdown would hurt local businesses, particularly small businesses that are already feeling the pressures of e-commerce. A special tax, rather than a general one, is the only way that businesses can be assured there is a nexus between their contributions and what the money is used for.

"Please remember that accountability and transparency is extremely important," Kleinberg said.

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Comments

35 people like this
Posted by resident
a resident of Downtown North
on Aug 21, 2019 at 10:15 am

The big tech companies in town don't pay sales taxes to the county like retail businesses do, but they still create a tremendous burden on the city's transportation infrastructure. Makes senses to find other ways to get them to pay their fair share.


23 people like this
Posted by Pro corporates show up
a resident of Old Palo Alto
on Aug 21, 2019 at 12:12 pm

Advocates for a special tax, which requires a 2/3 majority vote, are trying to kill the measure.

Evidence? Adrian Fine, Judy Kleinberg (Chamber of Commerce) and Silicon Valley 'Leadership' want a special tax, instead of general tax for which a majority vote is needed.
The anti-resident, pro-corporate, group in action.


21 people like this
Posted by Anonymous
a resident of Duveneck/St. Francis
on Aug 21, 2019 at 12:37 pm

You caught my eye with: Silicon Valley Leadership
Presumably meaning Silicon Valley Leadership Group.
If so, anything THEY want is to the extreme detriment of Palo Alto north S. Clara County residents/taxpayers. They represent San Jose, in particular BIG business interests. We little people are to pay for “everything” - highway lanes we already paid for, etc. Watch out.


11 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Aug 21, 2019 at 12:50 pm

"Employee count" is the most logical, but, what is the head count really? If someone works from home, does that count? How about if they come in for 8-10 hours per week for meetings? What do neighboring cities do about this?

Taxing area is a bad idea-- it gives an incentive to employers to squeeze even more people in per square foot. I can't believe some of the tiny workspaces I have seen the last few years. And, area is already taxed via property taxes, which should pay for police/fire.


12 people like this
Posted by Annette
a resident of College Terrace
on Aug 21, 2019 at 1:22 pm

Annette is a registered user.

If the tax isn't specific and it passes there's no requirement that the City spend the revenue as promised during the campaign. Talk's cheap; we could well find ourselves a few years down the road being told that ANOTHER tax is needed to fund what this tax was supposed to fund. I hope that's not acceptable to anyone.

Will we know before the ballot measure has to be submitted what portion, if any, of the $700M Measure B funds Palo Alto will get? If not, will we know before the election? Is the timing of this going to be political?

Our leaders think we should get half of the $700M b/c we have 4 grade crossings to separate. Is that even realistic? Or is it more likely the funds will be allocated on a "shovel ready" basis? If that happens, Sunnyvale and Mountain View stand to receive more than Palo Alto b/c they are further down the track vis-a-vis planning. We of course are still talking. I see this as a leadership issue. Our former City Manager should have made this a priority. He did not and it appears the chickens may now come home to roost.


7 people like this
Posted by BusinessOwner
a resident of Downtown North
on Aug 21, 2019 at 1:33 pm

I'm a business owner on University. This city forgets that it is because of the businesses here, that their properties have such high values.

Last year the city had a 33m surplus. The city just agreed to spend $900k for THREE pieces of art in the Police building.

Yet you want to tax businesses? Is it not hard enough to run a business here? Retail has and continues to suffer because Stanford Shopping Mall is 5 minutes from downtown and has a significantly better shopping experience.


2 people like this
Posted by musical
a resident of Palo Verde
on Aug 21, 2019 at 1:46 pm

>> "Commercial properties fill less than 10% of Palo Alto parcels but generate 30% of property tax revenues." Wait, what?


10 people like this
Posted by @BusinessOwner
a resident of Palo Verde
on Aug 21, 2019 at 2:13 pm

@BusinessOwner is a registered user.

IMO the property values are much too high. I vote to tax non-residential businesses and more generally discourage office space. Stanford Shopping Center has no useful toy store, hardware store, music store, sporting goods store, etc. At least last time I went there (a year ago?) How much high-end fashion can a person buy?


14 people like this
Posted by Novelera
a resident of Midtown
on Aug 21, 2019 at 2:37 pm

Novelera is a registered user.

@Business Owner: If you operated your business in Mountain View, Sunnyvale, San Jose, Menlo Park, San Carlos, Belmont, Burlingame, Portola Valley, Los Altos, Hillsborough or Atherton, you would already be paying a business license and/or business tax.

You've been getting a free ride of the backs of Palo Alto residents.


3 people like this
Posted by What If
a resident of Midtown
on Aug 21, 2019 at 5:47 pm

What If is a registered user.

The city used a business license tax to help pay down the pension liabilty?


14 people like this
Posted by Resident
a resident of Crescent Park
on Aug 21, 2019 at 7:42 pm

Transportation improvements better not be designed completely around making life a living hell for anyone who partakes in the sin of driving their car alone.
Watch them blow the money or more bollards, road furniture and unused bike lanes.


6 people like this
Posted by Resident
a resident of Midtown
on Aug 22, 2019 at 9:45 am

"transportation improvements" nowadays means "punishing single occupant vehicles". This article perfectly summarizes the situation:

Web Link


13 people like this
Posted by Nayeli
a resident of Midtown
on Aug 22, 2019 at 10:15 am

Nayeli is a registered user.

Is this why the city was trying to create a "business registry?" They were simply trying to see where else they could grab money in order to fill their coffers?

It seems like the tied-and-tested tax and spend scheme never sleeps. Seek a new tax to fund [fill-in-the-blank] after using focus groups and robocall surveys to see where residents would support it.

This time, the lot fell to "transportation priorities."

By the way, I'm always puzzled by the push by local fork-tongued politicians to get Palo Alto to adopt policies and tax initiatives similar to other cities. I am not sure that Palo Alto needs to be like other cities. One of the great things about Palo Alto is that it is NOT like other cities.


Like this comment
Posted by Anon
a resident of Another Palo Alto neighborhood
on Aug 22, 2019 at 11:19 am

Posted by What If, a resident of Midtown

>> The city used a business license tax to help pay down the pension liabilty?

I like this proposal. I'm all in favor of Caltrain improvements, but, I would prefer if the general fund were used for that. Let's earmark a business tax specifically to pay down the unfunded benefits liabilities, and, find a way to make sure that all the forward-funded benefit money can't get redirected or spent or borrowed against somehow.


7 people like this
Posted by Max
a resident of Another Palo Alto neighborhood
on Aug 22, 2019 at 7:15 pm


In Party newspeak "transportation improvements" means social engineering people out of the only efficient transportation technology we have and forcing us onto inefficient state run transportation.


6 people like this
Posted by Ben
a resident of Community Center
on Aug 22, 2019 at 8:12 pm

When the Silicon Valley Leadership Group gets involved, rest assured that the solution will always be along the lines of a sales tax and under no circumstances any sort of tax or fee paid by any business, especially some of the weathiest businesses in the world. Claiming that a business tax will be bad for Palo Alto is nonsense. A business tax will at a minimum bring Palo Alto in line with just about all other local cities, and extract compensation from the root cause of the congestion on the peninsula. To mitigate the real possibility of a negative impact on local small businesses, perhaps impose a reduced business tax, or simply not tax street level retail.


Like this comment
Posted by Anonymous
a resident of Duveneck/St. Francis
on Aug 22, 2019 at 8:38 pm

@BusinessOwner
Stanford Shopping Center has lots of high end fashion, faddish stores because it caters to upscale visitors to Stanford, including international.


Like this comment
Posted by Resident 1-Adobe Meadows
a resident of Adobe-Meadow
on Aug 23, 2019 at 10:43 am

Resident 1-Adobe Meadows is a registered user.

Remember when BART was suppose to circle the bay? We voted on a tax to pay for that and you do not see a BART connecting San Mateo County down to San Jose. If we had put in the BART along Foothill Expressway we would then have a solid connection for the west side of the peninsula in RWC, PA, west side of SU / VA Hospital, Los Altos, Cupertino (Apple), and then connection to San Jose. Sorry that did not happen and sorrier that large influential groups who could have made it happen shifted their priorities. So they are now all cheerleading to do what? We are still paying the BART tax so that the east bay and San Jose are connected. We are not an ATM card for funds that go every where except what we voted on them to go.


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