Palo Alto forged ahead Monday in its long march toward placing a business tax on the 2020 ballot when the City Council majority signaled its support for charging local companies to pay for big-ticket transportation projects.
The council did not specify Monday whether the tax would be based on employee count, which is the most common practice by cities in the region, on payroll or on square footage. Nor did members reach a consensus on whether this will be a "special tax" that requires a two-thirds voter majority to pass or a "general tax" that only requires a simple majority. But after hours of sausage-making, members rallied around a long motion proposed by Councilman Tom DuBois that authorizes the city to start polling residents and reaching out to businesses about the proposed measure.
By a 6-1 vote that in some ways belied the divisions on the council, members generally endorsed the decision by the Finance Committee, which agreed that the business tax should focus on transportation and affordable housing and that the city should consider other mechanisms, including a possible bond, for funding other community needs, including redevelopment of Cubberley Community Center and the next phase of the Junior Museum and Zoo reconstruction.
The council largely agreed that transportation should be the main focus of the measure, and housing a distant second. A large percentage of the revenues is expected to be devoted to grade separations, the much-debated realignment of the railroad tracks so that they would no longer intersect with local streets. The city is now in the midst of winnowing down its menu of preferred alternatives for grade separation, some of which are expected to cost more than $1 billion.
Council members clashed, however, over how aggressive the city should be with the tax measure. DuBois, who chairs the council's Finance Committee, suggested that the measure should raise up to $50 million annually, with about $30 million devoted to grade separation and the rest devoted to other transportation projects and to affordable housing. Councilwoman Liz Kniss took the opposite view and argued for a much lighter touch.
And while DuBois favored a "general tax," with some revenues going to the general fund to support basic city services, Kniss aligned with the business leaders and said the city should do a "special tax," which spells out exactly how the money should be spent.
In making his proposal, DuBois noted that Palo Alto is one of few cities in the region that doesn't have a business tax. As such, it is "decades behind," he said.
He also argued that the tax revenues shouldn't have to "all go back to business." Some of the revenues, he said, should go to the general fund to pay for basic city services, which benefits everyone. He also noted that Palo Alto is one of few cities in the region that currently don't have a business tax.
"If we can address our congestion issues or affordable housing issues — those are long-term benefits to both residents and businesses," DuBois said. "It all depends on if you're taking a short-term or a long-term view of what a balanced community could look like."
Kniss said the DuBois' proposal is relying too much on businesses and questioned whether the proposed scheme constitutes "need or greed." The idea of raising $50 million from a tax is "taking us over a boundary that is making me very uncomfortable," Kniss said.
"Are we at the greed level? Do we need another $50 million a year in income for our budget?" Kniss said.
Her position largely aligned with those of area business leaders, several of whom attended the Monday meeting and encouraged the council to either drop the tax proposal or to involve local businesses in crafting the proposal. Several argued that whatever benefits the city gains from the tax should be used for projects that support businesses, including economic development. Others, including Judy Kleinberg, president of the Palo Alto Chamber of Commerce, argued that the measure, if approved, should be a "special tax," subject to two-thirds approval. Only a special tax, she said, would provide the city with the needed transparency and accountability.
Barbara Gross, a member of the Palo Alto Downtown Business Association board of directors, noted that grade separations are an improvement that will benefit everyone and, as such, should rely on revenues from all sectors of the city.
"We feel from the business perspective that everyone should be willing to pay for those improvements," Gross said. "For a city to raise capital and to address the needs, everybody needs to contribute their fair share."
Georgie Gleim, owner of Gleim the Jeweler and member of the Downtown Business Association board, concurred.
"Projects like this should not be all on the backs of businesses," Gleim said.
Most council members, however, agreed that the business tax is just one of many revenue sources that would be needed to fund grade separations. Former Mayor Pat Burt noted that a major source is Measure B, the 2016 county measure that raised sales taxes for transportation improvement. It's only fair that businesses also chip in, he said.
Burt said Silicon Valley has historically been a very "low tax" area for businesses and that the tax Palo Alto is considering would amount to a premium of about 1%.
"The notion that businesses would pick up and leave over a 1% premium is completely out of kilter," Burt said.
Others weren't as sure. Deputy City Manager Michelle Poche Flaherty said the city is trying to find a "sweet spot" between getting the revenues it needs without imposing too much burden on the business community. Some businesses, particularly in Stanford Research Park, contribute significant property and sales tax revenues. Losing these key tenants, she said, could prove very costly.
Tiffany Griego, managing director of Stanford Research Park, concurred and noted that the park brought in about $36 million in revenues for the city and the school district. She urged the council to tread carefully on putting together a tax proposal.
"Businesses large and small do weigh the costs of doing business in Palo Alto, and how business friendly a city is, before making decisions about making their point of sale," Griego said. "They take all of this into account."
The council agreed that the new tax shouldn't be too onerous and that it should bring in enough revenue to comprise between 1% and 10% of the general fund (the city's general fund currently stands at $232 million).
Councilman Greg Tanaka, the lone dissenter in the 6-1 vote, said the city is "putting the cart before the horse" by creating a tax without first figuring out exactly how much money it needs for the projects it wants to pursue.
"There aren't enough specific reasons for the tax," Tanaka said.
But Councilwoman Alison Cormack, who sits on the Finance Committee, generally supported the idea of moving ahead with a tax. The city has been dealing with issues of transportation and housing for the past century and the current budget does not meet these needs, she said.
"I think it's pretty clear that we need to make some major investments in our transportation infrastructure and services," Cormack said.