News

Palo Alto ponders supporting state propositions on tax reform, affirmative action

City manager recommends backing Caltrain tax, opposing rent control

The Palo Alto City Council will consider taking positions on various state and county measures at its Sept. 14 meeting. Embarcadero Media file photo by Veronica Weber.

Palo Alto voters will get to weigh in on a dizzying array of issues this fall, with measures and propositions on voting eligibility, rent control, affirmative action and Caltrain funding all appearing on the November ballot.

While these proposals are somewhat overshadowed by the presidential election — as well as contests for seats on the school board, the City Council and the state Legislature — the voters' decisions will determine how California's commercial property gets taxed (Proposition 15), whether residents who are on parole should be allowed to vote (Proposition 17) and whether Caltrain should at long last have a dedicated source of funding (Measure RR).

On Monday, the City Council will have a chance to formulate its own opinions on these various propositions. On issues that don't directly affect municipal business, like the proposed requirement that a doctor always be present during dialysis sessions at clinics (Proposition 23) or changes to the bail system (Proposition 25), council members are unlikely to weigh in. On others, including the Caltrain sales tax and Proposition 15, council members are expected to offer their support.

That, at least, is the recommendation from City Manager Ed Shikada. In a new report, Shikada proposes that the city officially back Proposition 15, which would require commercial and industrial properties that are valued at more than $3 million to be taxed based on market value rather than purchase price. Under this new split-roll system, residential properties would continue to be assessed based on purchase price, consistent with Proposition 13.

The measure has won support from the California Democratic Party and a broad range of local and state leaders, including Democratic vice presidential candidate Sen. Kamala Harris and the mayors of San Francisco, Los Angeles and Oakland. It is opposed by business groups such as the California Chamber of Commerce and the Howard Jarvis Taxpayer Association, which frequently opposes tax increases.

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In making his case for supporting the measure, Shikada noted that one of the principles in the measure is to increase funding for programs, projects and services (the measure would dedicate a share of revenues to local governments, public schools and community colleges). But even though the measure is expected to bring more funding to City Hall, neither the city nor the county can estimate at this time how much Palo Alto might receive, the report states.

Shikada is also proposing that the council support Proposition 19, which would expand a rule that allows for property tax savings for residents who are over 55 years old, disabled or victims of natural disasters when they move. If the proposition passes, the tax break would increase the number of times that these residents can transfer their tax assessment from one to three. It would also tighten rules for inherited properties by only allowing residents to keep the low property tax if they use the home as their primary residence.

While the economic impact of the measure on city finances is uncertain, Shikada believes taxes would probably increase because of the new rules on inherited properties. Local governments collectively could gain tens of millions of dollars annually in property tax revenue, the report states, which could grow over time to a few hundred million dollars per year. The measure also allocates funding to the state for fire-suppression efforts. Accordingly, Shikada recommends that the City Council support the measure.

The city manager also recommends supporting Proposition 16, which would overturn Proposition 209 and allow governments to use affirmative action involving race-based or sex-based preferences in hiring decisions, public education and public contracting. He notes that the measure would allow local governments to establish, "if they so choose, a wide range of diversity-related programs, so long as they are consistent with federal and state law."

"By providing Palo Alto more choices in establishing diversity programs, supporting Prop. 16 aligns with this City's legislative prioritization of local control," Shikada's report states.

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The argument for local control could theoretically also apply to Proposition 21, which would allow cities and counties to establish rent control laws on housing that is more than 15 years old, with an exception for landlords who own no more than two homes. Here, however, Shikada is recommending opposition.

In explaining his stance against Proposition 21, Shikada points to a projection by the state Legislative Analyst's Office that the measure could lead to a decline in the value of rental properties, which would in turn decrease property tax payments. Overall, Shikada's report states, the measure would "likely reduce state and local revenue over time, with the largest effect on property taxes." He also pointed to the council's prior opposition to Proposition 10, which sought to repeal the Costa-Hawkins Rental Housing Act. California voters rejected the measure in 2018.

One issue that is not expected to generate much dissent is Measure RR, which would create a one-eighth cent tax for 30 years to fund Caltrain operations. The measure responds both to Caltrain's historically fragile funding structure (the transit agency depends on annual contributions from San Mateo, San Francisco and Santa Clara counties) and to the acute financial crisis that it is suffering due to the COVID-19 pandemic. According to the agency, its ridership has dropped by 95% since the shelter-in-place orders were issued in March.

"Without new sources of funding, or a significant increase in ridership Caltrain would need to reduce or suspend service altogether," the agency announced in August, just after its board of directors voted to place the measure on the ballot.

The measure barely made the deadline for appearing on the ballot, with some local and county officials arguing in late July and early August that any funding measure should be accompanied by governance reforms. Supervisors from Santa Clara County and San Francisco have long bristled at the fact that the San Mateo County Transit District (SamTrans) holds the governing authority in the agency. Ultimately, the three counties agreed to support placing the measure on the ballot after Caltrain agreed to adopt various reforms, including hiring an independent counsel and auditor for the commuter rail service.

Palo Alto's elected leaders initially clashed over the measure in late July, with Mayor Adrian Fine unilaterally declaring the city's support for placing the measure on the ballot and Vice Mayor Tom DuBois arguing that the council should see what type of governance reforms would be proposed before taking a position. On Aug. 3, however, the council unanimously endorsed a letter supporting the placement of the measure on the November ballot.

"Caltrain is a vital link in the region's transit network, which provides critical alternatives to single-occupancy vehicle travel," the letter stated. "Thousands of essential workers and transit-dependent riders continue to use the service."

At the same time, Shikada is not taking a position on a proposal by the Palo Alto Unified School District to renew its parcel tax for — which provides more than $15 million annually to the school district — for six years. The proposal renews the existing rate of $836 per parcel.

In explaining his decision not to recommend a stance, Shikada noted that there is no council-approved guideline in place regarding schools.

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Palo Alto ponders supporting state propositions on tax reform, affirmative action

City manager recommends backing Caltrain tax, opposing rent control

by / Palo Alto Weekly

Uploaded: Wed, Sep 9, 2020, 4:58 pm

Palo Alto voters will get to weigh in on a dizzying array of issues this fall, with measures and propositions on voting eligibility, rent control, affirmative action and Caltrain funding all appearing on the November ballot.

While these proposals are somewhat overshadowed by the presidential election — as well as contests for seats on the school board, the City Council and the state Legislature — the voters' decisions will determine how California's commercial property gets taxed (Proposition 15), whether residents who are on parole should be allowed to vote (Proposition 17) and whether Caltrain should at long last have a dedicated source of funding (Measure RR).

On Monday, the City Council will have a chance to formulate its own opinions on these various propositions. On issues that don't directly affect municipal business, like the proposed requirement that a doctor always be present during dialysis sessions at clinics (Proposition 23) or changes to the bail system (Proposition 25), council members are unlikely to weigh in. On others, including the Caltrain sales tax and Proposition 15, council members are expected to offer their support.

That, at least, is the recommendation from City Manager Ed Shikada. In a new report, Shikada proposes that the city officially back Proposition 15, which would require commercial and industrial properties that are valued at more than $3 million to be taxed based on market value rather than purchase price. Under this new split-roll system, residential properties would continue to be assessed based on purchase price, consistent with Proposition 13.

The measure has won support from the California Democratic Party and a broad range of local and state leaders, including Democratic vice presidential candidate Sen. Kamala Harris and the mayors of San Francisco, Los Angeles and Oakland. It is opposed by business groups such as the California Chamber of Commerce and the Howard Jarvis Taxpayer Association, which frequently opposes tax increases.

In making his case for supporting the measure, Shikada noted that one of the principles in the measure is to increase funding for programs, projects and services (the measure would dedicate a share of revenues to local governments, public schools and community colleges). But even though the measure is expected to bring more funding to City Hall, neither the city nor the county can estimate at this time how much Palo Alto might receive, the report states.

Shikada is also proposing that the council support Proposition 19, which would expand a rule that allows for property tax savings for residents who are over 55 years old, disabled or victims of natural disasters when they move. If the proposition passes, the tax break would increase the number of times that these residents can transfer their tax assessment from one to three. It would also tighten rules for inherited properties by only allowing residents to keep the low property tax if they use the home as their primary residence.

While the economic impact of the measure on city finances is uncertain, Shikada believes taxes would probably increase because of the new rules on inherited properties. Local governments collectively could gain tens of millions of dollars annually in property tax revenue, the report states, which could grow over time to a few hundred million dollars per year. The measure also allocates funding to the state for fire-suppression efforts. Accordingly, Shikada recommends that the City Council support the measure.

The city manager also recommends supporting Proposition 16, which would overturn Proposition 209 and allow governments to use affirmative action involving race-based or sex-based preferences in hiring decisions, public education and public contracting. He notes that the measure would allow local governments to establish, "if they so choose, a wide range of diversity-related programs, so long as they are consistent with federal and state law."

"By providing Palo Alto more choices in establishing diversity programs, supporting Prop. 16 aligns with this City's legislative prioritization of local control," Shikada's report states.

The argument for local control could theoretically also apply to Proposition 21, which would allow cities and counties to establish rent control laws on housing that is more than 15 years old, with an exception for landlords who own no more than two homes. Here, however, Shikada is recommending opposition.

In explaining his stance against Proposition 21, Shikada points to a projection by the state Legislative Analyst's Office that the measure could lead to a decline in the value of rental properties, which would in turn decrease property tax payments. Overall, Shikada's report states, the measure would "likely reduce state and local revenue over time, with the largest effect on property taxes." He also pointed to the council's prior opposition to Proposition 10, which sought to repeal the Costa-Hawkins Rental Housing Act. California voters rejected the measure in 2018.

One issue that is not expected to generate much dissent is Measure RR, which would create a one-eighth cent tax for 30 years to fund Caltrain operations. The measure responds both to Caltrain's historically fragile funding structure (the transit agency depends on annual contributions from San Mateo, San Francisco and Santa Clara counties) and to the acute financial crisis that it is suffering due to the COVID-19 pandemic. According to the agency, its ridership has dropped by 95% since the shelter-in-place orders were issued in March.

"Without new sources of funding, or a significant increase in ridership Caltrain would need to reduce or suspend service altogether," the agency announced in August, just after its board of directors voted to place the measure on the ballot.

The measure barely made the deadline for appearing on the ballot, with some local and county officials arguing in late July and early August that any funding measure should be accompanied by governance reforms. Supervisors from Santa Clara County and San Francisco have long bristled at the fact that the San Mateo County Transit District (SamTrans) holds the governing authority in the agency. Ultimately, the three counties agreed to support placing the measure on the ballot after Caltrain agreed to adopt various reforms, including hiring an independent counsel and auditor for the commuter rail service.

Palo Alto's elected leaders initially clashed over the measure in late July, with Mayor Adrian Fine unilaterally declaring the city's support for placing the measure on the ballot and Vice Mayor Tom DuBois arguing that the council should see what type of governance reforms would be proposed before taking a position. On Aug. 3, however, the council unanimously endorsed a letter supporting the placement of the measure on the November ballot.

"Caltrain is a vital link in the region's transit network, which provides critical alternatives to single-occupancy vehicle travel," the letter stated. "Thousands of essential workers and transit-dependent riders continue to use the service."

At the same time, Shikada is not taking a position on a proposal by the Palo Alto Unified School District to renew its parcel tax for — which provides more than $15 million annually to the school district — for six years. The proposal renews the existing rate of $836 per parcel.

In explaining his decision not to recommend a stance, Shikada noted that there is no council-approved guideline in place regarding schools.

Comments

TuppenceT
Registered user
Adobe-Meadow
on Sep 9, 2020 at 9:24 pm
TuppenceT, Adobe-Meadow
Registered user
on Sep 9, 2020 at 9:24 pm
16 people like this

"Shikada proposes that the city officially back Proposition 15, which would require commercial and industrial properties that are valued at more than $3 million to be taxed based on market value rather than purchase price. "
Seriously?
I wonder how this proposition, if passes, will impact all the smaller business and commercial centers in Palo Alto. Will we lose our supermarkets?


eric smith
Registered user
Downtown North
on Sep 10, 2020 at 10:32 am
eric smith, Downtown North
Registered user
on Sep 10, 2020 at 10:32 am
11 people like this

Proposition 16 is the existing current law that calls for the state *not* to engage in discrimination on the basis of race.
The fact that people are enthusiastic about repealing such a law is a sad commentary on the state of people's sensibilities.
Today, people claim it will be for good intentions, but tomorrow, it gets used in ways they didn't expect.


Jennifer Bestor
Registered user
Menlo Park
on Sep 10, 2020 at 10:39 am
Jennifer Bestor, Menlo Park
Registered user
on Sep 10, 2020 at 10:39 am
5 people like this

When did the supermarket properties last change hands? If you know what any market’s base year is, you can roughly predict its new property tax. The USC study cited in the proposition’s findings was based on county-by-county disparity ratios.

For Santa Clara County properties with a pre-1989 tax basis (the ‘close the loophole’ properties), the USC study predicts a property tax increase of between 230% - 440%. For those with a 1990-2008 basis, it is 60% - 150%. For those that changed hands since 2010, it is 90%. (Note, however, that the latter reflects the fact that all new construction and all appreciation in commercial-industrial property will move under control of the proposition and will no longer be reassessed independently. Over the past 10 years, commercial-industrial property assessment value grew about 50% in Palo Alto as a result of new construction and changes in ownership, so an average tax increase of 40% might be a better estimate for properties not being improved for resale.)

Across the board in Palo Alto, we can apply USC's disparity factors to just released city-specific information from the Santa Clara County Assessor’s Office. This predicts $170 million of new revenue in Palo Alto. Of this, $1 million will go to Palo Alto Unified and around $100 million to the education statewide fund, none of which will be distributed in Santa Clara county. The best-case scenario for the City’s share is $22 million. The high outflow — and drag on PAUSD from loss of any growth in its commercial-industrial property tax — is also likely to have local economic impacts. Only 31% of Palo Alto commercial-industrial properties fall into the “close the loophole” category, while the rest might reasonably be expected to pass their new taxes through to consumers and tenants.

Some smaller business and commercial properties may be protected by the commercial property owner exemptions in the proposition, although most Palo Alto properties are valued over the $3M cutoff.


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