Employee-count tax emerges as committee's top pick for 2020 ballot | News | Palo Alto Online |


Employee-count tax emerges as committee's top pick for 2020 ballot

Critics say measure would hurt business environment

As Palo Alto continues its march toward a November 2020 ballot measure for transportation improvements, city leaders are confronting two questions: What will the revenues fund? And what kind of tax should they ask the voters to approve?

While the first question remains murky, the City Council's Finance Committee moved a step closer toward answering the second when all three members indicated that they are leaning toward a business tax based on employee count. If the council pursues this option, it will join the likes of Santa Clara, San Jose, Redwood City and Mountain View, all of which tax their businesses based on the number of workers.

East Palo Alto, by contrast, approved in 2018 a parcel tax based on the square footage of office buildings. The tax imposes an annual tax of $2.50 per square foot on commercial properties with more than 25,000 square feet of office space.

In Palo Alto, a tax based on headcount was one of three options under the Finance Committee's consideration, along with a parcel tax and an employee tax based on square footage. On Tuesday, all three committee members agreed that of those three, an employee count tax is their preferred option.

Councilwoman Alison Cormack offered two reasons for why an employee-count tax is her top choice: It's easier to administer than the other taxes and "simpler is better." It also creates a logical connection between the funding source and the improvements being funded. Given that employees are particularly dependent on public transit to travel to work, it makes sense to use an employee tax to fund transportation improvements along the rail corridor and elsewhere in the city.

"I continue to believe we have strongest nexus between a business headcount and the fact that people come here to work and the vast majority of riders on Caltrain at stations are coming to work," Cormack said.

Vice Mayor Adrian Fine agreed and noted the other alternatives, particularly a business tax based on square footage, would be much harder to administer. The three committee members agreed that a parcel tax and square-footage tax is their second and third choices, respectively.

The discussion was informed by a recent report from Matrix Consulting Group, which evaluated different business tax proposals and estimated that Palo Alto would raise about $2.8 million annually from an employee-count tax if it were to adopt Mountain View's tax rates.

Whichever tax the council chooses, it is almost certain to encounter resistance from the business community. Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, said his organization has met with more than 65 local business leaders in the last few months to discuss the city's tax proposals. Weidanz said the businesses expressed "a very strong concern that this is going to have quite a negative impact and negative consequences on their ability to thrive and survive during the economic challenges that might be coming ahead."

Each tax proposal that the city is considering has distinct problems, he said. The headcount tax, he said, would disproportionately target small businesses with just one location in the city. Larger businesses with multiple locations, including one in Palo Alto, would be less affected, he said. A tax based on square footage, by contrast, disproportionately impacts those businesses that need extra space to do their businesses, even if these businesses provide a point of sale. Software firms, meanwhile, require relatively little space and would get off light.

He also indicated that businesses particularly oppose a "general tax," which would require a simple majority of voter support and does not specify how the money would be spent. This in contrast to a "special tax," which needs a two-thirds majority to pass and which clearly defines how the revenues will be allocated.

"Though we don't support any of the taxes at the time, we strongly object to it being a general tax, where there's no accountability and no oversight for projects that have not been identified yet," Weidanz said.

Other speakers, however, supported adopting a new tax, particularly if revenues would be used for transportation and housing. While the council hasn't yet specified exactly how the money would be spent, the biggest chunk is expected to go to grade separation, the city's effort to redesign the rail corridor so that the tracks would no longer intersect with streets at the Churchill Avenue, Charleston Road and Meadow Drive crossings.

Pat Burt, a former mayor who is now working with a citizens group that advocates for a new revenue source for transportation and housing, argued that the business community will not support any tax. This despite the fact that Silicon Valley is a "historically low tax region," when compared to San Francisco. That said, he urged the committee not to rush to adopt a tax but to make sure it has all the information it needs to make an informed decision.

"If this tax doesn't pass, it will likely be five to 10 years before the city can go back to voters and reconsider a tax so you need to make sure you've done it right — not only have the right info but the time is right. ... Great if it's ready and aligned with grade separation alternatives by 2020," Burt said. "That may not be the case. The wish to get it there may not be a reality and frankly competing tax measures can be a consideration."

Chairman Tom DuBois agreed that the city will need more data, including polls, to inform the details of the new tax. But he also pushed back against the idea the new tax would necessarily hurt the business environment and cited the business tax measure that East Palo Alto passed in 2018.

"There was a pretty big outcry from businesses in East Palo Alto, but since then we've seen a lot of large projects go in. ... We know other cities are using these methods so we are not inventing the wheel here." DuBois said.

Even if the council opts to go with an employee count tax, several details remain hazy. The committee did not decide whether the tax would be a general or a special tax, a decision that will be informed by polling. The City Council expects to see the results of the initial poll on a potential tax measure in late January, at which time it will consider the committee's recommendation.

The council will also consider whether the tax should include an escalator provision (which the Finance Committee generally supported) and a sunset provision (which the committee opposed). Perhaps the most critical decision — and one most crucial to voter support — will pertain to how the funding is spent. While transportation is the main focus, Fine stressed the importance of being more specific in defining what that means.

"When we talk about transportation projects, some mention the south Palo Alto shuttle, others are interested in a bike bridge or bike lane projects, or folks have other mobility options that they want to pursue," Fine said. "I don't think we have a menu of what that looks like in the city and what we can potentially fund from a tax like this."


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10 people like this
Posted by RT
a resident of Barron Park
on Dec 18, 2019 at 1:13 pm

Political garbage......our city council will never support a specific tax - they just want more money to spend on whatever THEY want. If there was a grade separation ONLY tax - it would probably pass. But our greedy council will add all kinds of vague projects to it so they can spend it how they please.........just wait and see.....

8 people like this
Posted by DTNResident
a resident of Downtown North
on Dec 18, 2019 at 3:27 pm

At some point, small businesses will just have to give up. There is already a "business improvement district" tax on downtown businesses of about $100 per employee, and then a pay to park tax on city streets of $720 per employee per year that were built, and are maintained, using gas taxes.

Now add in the $5 per hour boost from the minimum wage for each of 2000 hours per year, The net is that businesses downtown are already paying nearly $11,000 per employee every year more to operate in Palo Alto due to various programs. A small business with 9 employees is thus paying nearly $100,000 per year in various ways. I fail to see why we need to pile another tax on top of these expenses that small businesses are burdened with.

16 people like this
Posted by Nayeli
a resident of Midtown
on Dec 18, 2019 at 5:48 pm

Nayeli is a registered user.

What "brilliant" mind came up with this greedy tax-and-spend money grab?

There is no limit to the "good ideas" for politicians if they could only have more and more of our money.

Vote no on this nonsense. In fact, vote out the politicians who support it.

10 people like this
Posted by Nayeli
a resident of Midtown
on Dec 18, 2019 at 5:51 pm

Nayeli is a registered user.

Seriously: This city needs to stop trying to be like Berkeley, San Francisco, Santa Clara or any other cities. Instead, those cities should try to be more like Palo Alto. There is a reason why this is a desirable place to live. Don't change it.

19 people like this
Posted by No New Taxes
a resident of Ohlone School
on Dec 18, 2019 at 6:51 pm

Lets cut the B.S.

The reason for the tax is to pay for the unfunded pensions the City has offered its employees over the past 30 years.

Why else in a city that is rolling in an explosion of property tax revenue could you possibly need more tax money?

Well, its needed to provide the level of services commensurable with the property taxes the residents are receiving.

Honestly telling the residents that we need to pay the tab on the huge pensions to our retired city employees does not sound as sexy as punishing employers.

13 people like this
Posted by Sid
a resident of Downtown North
on Dec 19, 2019 at 1:30 am

The city had a $76 million surplus for its latest fiscal year, and yet they want an additional tax? I’m voting NO and I’ll vote against every incumbent who supports this tax.

8 people like this
Posted by Neighbor
a resident of Old Palo Alto
on Dec 19, 2019 at 10:23 pm

Have you seen the fiasco with the business registry? The city couldn't get it right, so they outsourced it to a company that made it so confusing that nobody sent it in. The form was ridiculous, business owners had no idea how to answer the questions because they were so oddly specific, or even trust what the information was going to be used for. The city has no idea what it is trying to tax. I bet that the reason they are settling for a head count tax is because that is the only thing that they can actually figure out how to do since it is the most simple.

15 people like this
Posted by resident
a resident of Monroe Park
on Dec 21, 2019 at 8:12 am

I agree that there should be MORE than enough money given all the property tax revenue. But if not, it is a NO BRAINER regarding how to raise more money. OF COURSE businesses that created the housing shortage, traffic congestion, parking problems should pay for ALL the infrastructure improvements.

The argument that it will limit growth (i.e., office development) is a GOOD thing. We need tech companies to move elsewhere and replace the office space with housing.

IF Council members Kniss, Cormack, Fine and Tanaka didn't owe developers so many favors (given all the money that campaign funding developers give em), everyone would be on the same page. Unfortunately this crowd (along with Judy Kleinberg who is buddies with Liz Kniss) will protect tech company growth and businesses to the detriment of residents all day long.

Worth noting that these same 4 people just appointed a real estate attorney Barton Hechtman (who represents....you guessed it...DEVELOPERS to the planning commission). He even said in his interview with Council that traffic is something we will get used to, and we need more housing development (but not mentioning less office development). Just what we need: a third real estate attorney on the planning commission to further grow office space.

Like this comment
Posted by Chuck Bernstein
a resident of Midtown
on Dec 23, 2019 at 5:33 pm

Make no mistake about it: if this tax passes, it will be a tax on our PARENTS!

We are a Montessori child care center and school adjacent to Greer Park (HeadsUp! Child Development Center, Emerson School). Some 30-40 people work at this site. While our tuition is high, so are our labor costs (with the median education for workers being a bachelor's degree). The result is margins that are very thin, so any increase in taxes must be passed on to parents.

How is it fair to have our business pay more than the average law, engineering, and investment banking firms where individual professionals are paid three and four times what ours are paid?

6 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Dec 23, 2019 at 6:09 pm

Online Name is a registered user.

The tax should have a provision for resident-serving institution like school mentioned above. Ideally such a provision would be so blatantly gamed as the organizations claiming to be "retail storefronts" like SRI downtown. I'm always tempted to go in an order a pound of multi-client studies or some such.

Like this comment
Posted by
a resident of College Terrace
on Dec 30, 2019 at 2:34 pm

is a registered user.

Almost all the cities on the peninsula have a business tax. Why should Palo Alto be different? Given the cost of trying to solve the traffic and parking problems that the big employers have brought with them, shouldn't the bigger employers pay for that? For starters, the cost of the neighborhood parking permit programs, city shuttles, etc. Commercial properties now account for only 25% of the property tax collected in Palo Alto, and owing to loopholes in the law commercial properties can change ownership in a way that does not trigger a property tax reassessment unlike private homes leading to this number decreasing year over year. San Francisco has a sliding scale so that their employee tax for the the larger commercial organizations is over $1,500 per year per head in employee tax. However, smaller businesses, retail, non-profits, etc. pay much less if any. No reason Palo Alto can't structure an employee tax that takes into account the number of employees, whether the business is neighborhood serving, non-profit etc.

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