News

New survey boosts Palo Alto's push for a business tax

Finance Committee agrees to exempt hotels, grocery stores from proposed tax

Palo Alto's proposed business tax would be based on square footage, with exemptions for small businesses and hotels. Photo by Lloyd Lee.

At first blush, the results of Palo Alto's latest survey don't look particularly flattering for city leaders, with a growing number of residents expressing pessimism about the future and dissatisfaction with the local government.

Yet the survey offered exactly the kind of information that the City Council had hoped to get. Conducted by the polling firm FM3, it suggests that most voters will likely support a new business tax, particularly if the proceeds are used to restore city services, invest in infrastructure like roads and community centers and address homelessness.

Buoyed by these results, the council's Finance Committee on Tuesday took another step toward placing a business license tax based on square footage on the November ballot. By a 3-0 vote, committee members further refined the tax proposal by supporting exemptions for grocery stores and hotels and favoring a tiered approach that limits the annual bill for businesses with less than 5,000 square feet of space to $50.

Palo Alto has been marching toward a business tax since 2016, though the tax measure has morphed in both form and function over the years. Prior proposals such as a payroll tax or a parcel tax have been scuttled after much debate. And whereas the tax was initially seen as a vehicle to raise money for big-ticket items such as grade separation at rail crossings and affordable housing, it is now seen at least in part as a way to replenish the general fund, which pays for basic services such as parks, planning and public safety.

That appears to be just fine with many potential voters, the FM3 survey suggests. The firm polled 801 likely voters in late November and its results suggest that the city has a far better chance at passing a business tax this year than in 2009, when voters rejected a tax measure based on gross receipts. About 62% of the respondents in the new survey said they would likely support a business tax. And when asked to opine on an "acceptable reason" for a new tax, 82% rated investment in community-owned assets such as roads, libraries, parks and public safety facilities as either "very acceptable" or "somewhat acceptable." Maintaining and restoring city services also scored highly as acceptable rationales, with 81% and 79% of respondents, respectively, deeming them to be reasonable areas for the new tax to address.

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Support for using a tax for rail improvements (72%), affordable housing (69%) and advancing the city's climate action plan (68%) fell somewhat lower on the acceptability scale.

The relatively high show of support for a business tax is particularly striking given the growing gloom, which is also reflected in the survey. When asked whether they feel Palo Alto is heading in the "right direction," only 40% of the voters said it is, while 34% said it's on the wrong track (the rest said they didn't know). The percentage of those who feel the city is going in the right direction fell slightly from 2018, when 43% of respondents expressed that view and dropped significantly from 2016, when 61% chose the optimistic alternative.

Residents have also become more critical of the local government. While 54% of survey respondents said they believe the city government is doing an "excellent" or "good" job, that's down from 60% in 2018 and 74% in 2016, according to FM3.

David Metz, president of FM3, said this trend in public sentiment is not in any way unique to Palo Alto.

"We see the same dynamics taking place in cities throughout the Bay Area over the last several years, for obvious reasons," Metz said.

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Residents throughout the Bay Area express common concerns about high costs of living and homelessness, Metz said. Those have more recently been compounded by new concerns pertaining to the pandemic and crime.

The recent FM3 survey is intended to be the first in a sequence, with the next one focusing on a more refined tax proposal. Finance Committee members suggested Tuesday that they might want to also commission a third survey, which would help them draft the actual language for the ballot. The council will consider this recommendation on Monday.

The committee also took a step Tuesday toward finalizing the actual tax proposal. Its three members — Chair Alison Cormack, Mayor Pat Burt and council member Eric Filseth — backed a "tiered" structure that would require small businesses to pay an annual $50 fee, the same payment that they currently make as part of the city's business registry system (the new payment would basically replace the current one). Larger businesses would pay a flat fee of $50 for the first 5,000 square feet and then a monthly rate for every square foot beyond the 5,000-foot threshold.

Staff from the Administrative Services Department estimated that such a tax could generate between $12 million and $47 million, depending on the amount that the city plans to charge and the exemptions that it opts to include in the tax measure. While the Finance Committee agreed that the tax should not apply to hotels and grocery stores, members also agreed that they should limit the number of other exemptions so as to avoid making the ballot measure overly complicated.

"Every time you try to massage it to make it more fair, it makes it more complex and you run the risk of support being diminished as a result," Burt said.

The committee also supported the city's outreach plan, which calls for focus groups, stakeholder meetings and public hearings for the broader community. It notably steered clear, however, of determining on Tuesday how the money should be spent, leaving that critical question for the full council to hash out on Monday.

While the council majority has consistently supported adopting a business tax (Greg Tanaka is the only council member who opposes the idea), the proposal is unlikely to win much support in the business community. Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, said his organization believes this is a particularly bad time to burden the business community, which continues to struggle with the economic impacts of the pandemic. Businesses are already helping to keep Palo Alto fiscally sustainable, he argued, by contributing sales tax, property tax and utility tax revenues.

"Economic recovery is still uncertain and the business license tax is just another burden that our small and medium businesses just can't afford at this time," Weidanz said.

Dan Kostenbauder, vice president for tax policy at the Silicon Valley Leadership Group, also asked the city not to move ahead with the tax until it more fully considers its impact on the local economy. This includes exploration of the possibility that some businesses would either depart from Palo Alto or reduce their local footprint.

"The council should consider assessing the broader economic impacts of imposing a business tax before placing one on the November ballot," Kostenbauder told the committee.

The impact on small retailers is also an area of concern. Nancy Coupal, owner of Coupa Café, suggested that even if these businesses are exempt from the tax, they could feel the pain indirectly. The final impact, Coupal said, would be on consumers and there will be a "pass-down impact from the larger businesses to the smaller businesses."

Coupal, whose chain of cafes includes two downtown locations, said the area continues to suffer from the pandemic.

"We're far from normal. We are not recovered. I think very few businesses are seeing numbers that they saw in 2019," Coupal told the committee. "I can tell you, I'm still 40% down and I consider myself lucky. And I don't think this year is going to be a lot better, the way it's begun."

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Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

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New survey boosts Palo Alto's push for a business tax

Finance Committee agrees to exempt hotels, grocery stores from proposed tax

by / Palo Alto Weekly

Uploaded: Wed, Jan 19, 2022, 9:52 am

At first blush, the results of Palo Alto's latest survey don't look particularly flattering for city leaders, with a growing number of residents expressing pessimism about the future and dissatisfaction with the local government.

Yet the survey offered exactly the kind of information that the City Council had hoped to get. Conducted by the polling firm FM3, it suggests that most voters will likely support a new business tax, particularly if the proceeds are used to restore city services, invest in infrastructure like roads and community centers and address homelessness.

Buoyed by these results, the council's Finance Committee on Tuesday took another step toward placing a business license tax based on square footage on the November ballot. By a 3-0 vote, committee members further refined the tax proposal by supporting exemptions for grocery stores and hotels and favoring a tiered approach that limits the annual bill for businesses with less than 5,000 square feet of space to $50.

Palo Alto has been marching toward a business tax since 2016, though the tax measure has morphed in both form and function over the years. Prior proposals such as a payroll tax or a parcel tax have been scuttled after much debate. And whereas the tax was initially seen as a vehicle to raise money for big-ticket items such as grade separation at rail crossings and affordable housing, it is now seen at least in part as a way to replenish the general fund, which pays for basic services such as parks, planning and public safety.

That appears to be just fine with many potential voters, the FM3 survey suggests. The firm polled 801 likely voters in late November and its results suggest that the city has a far better chance at passing a business tax this year than in 2009, when voters rejected a tax measure based on gross receipts. About 62% of the respondents in the new survey said they would likely support a business tax. And when asked to opine on an "acceptable reason" for a new tax, 82% rated investment in community-owned assets such as roads, libraries, parks and public safety facilities as either "very acceptable" or "somewhat acceptable." Maintaining and restoring city services also scored highly as acceptable rationales, with 81% and 79% of respondents, respectively, deeming them to be reasonable areas for the new tax to address.

Support for using a tax for rail improvements (72%), affordable housing (69%) and advancing the city's climate action plan (68%) fell somewhat lower on the acceptability scale.

The relatively high show of support for a business tax is particularly striking given the growing gloom, which is also reflected in the survey. When asked whether they feel Palo Alto is heading in the "right direction," only 40% of the voters said it is, while 34% said it's on the wrong track (the rest said they didn't know). The percentage of those who feel the city is going in the right direction fell slightly from 2018, when 43% of respondents expressed that view and dropped significantly from 2016, when 61% chose the optimistic alternative.

Residents have also become more critical of the local government. While 54% of survey respondents said they believe the city government is doing an "excellent" or "good" job, that's down from 60% in 2018 and 74% in 2016, according to FM3.

David Metz, president of FM3, said this trend in public sentiment is not in any way unique to Palo Alto.

"We see the same dynamics taking place in cities throughout the Bay Area over the last several years, for obvious reasons," Metz said.

Residents throughout the Bay Area express common concerns about high costs of living and homelessness, Metz said. Those have more recently been compounded by new concerns pertaining to the pandemic and crime.

The recent FM3 survey is intended to be the first in a sequence, with the next one focusing on a more refined tax proposal. Finance Committee members suggested Tuesday that they might want to also commission a third survey, which would help them draft the actual language for the ballot. The council will consider this recommendation on Monday.

The committee also took a step Tuesday toward finalizing the actual tax proposal. Its three members — Chair Alison Cormack, Mayor Pat Burt and council member Eric Filseth — backed a "tiered" structure that would require small businesses to pay an annual $50 fee, the same payment that they currently make as part of the city's business registry system (the new payment would basically replace the current one). Larger businesses would pay a flat fee of $50 for the first 5,000 square feet and then a monthly rate for every square foot beyond the 5,000-foot threshold.

Staff from the Administrative Services Department estimated that such a tax could generate between $12 million and $47 million, depending on the amount that the city plans to charge and the exemptions that it opts to include in the tax measure. While the Finance Committee agreed that the tax should not apply to hotels and grocery stores, members also agreed that they should limit the number of other exemptions so as to avoid making the ballot measure overly complicated.

"Every time you try to massage it to make it more fair, it makes it more complex and you run the risk of support being diminished as a result," Burt said.

The committee also supported the city's outreach plan, which calls for focus groups, stakeholder meetings and public hearings for the broader community. It notably steered clear, however, of determining on Tuesday how the money should be spent, leaving that critical question for the full council to hash out on Monday.

While the council majority has consistently supported adopting a business tax (Greg Tanaka is the only council member who opposes the idea), the proposal is unlikely to win much support in the business community. Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, said his organization believes this is a particularly bad time to burden the business community, which continues to struggle with the economic impacts of the pandemic. Businesses are already helping to keep Palo Alto fiscally sustainable, he argued, by contributing sales tax, property tax and utility tax revenues.

"Economic recovery is still uncertain and the business license tax is just another burden that our small and medium businesses just can't afford at this time," Weidanz said.

Dan Kostenbauder, vice president for tax policy at the Silicon Valley Leadership Group, also asked the city not to move ahead with the tax until it more fully considers its impact on the local economy. This includes exploration of the possibility that some businesses would either depart from Palo Alto or reduce their local footprint.

"The council should consider assessing the broader economic impacts of imposing a business tax before placing one on the November ballot," Kostenbauder told the committee.

The impact on small retailers is also an area of concern. Nancy Coupal, owner of Coupa Café, suggested that even if these businesses are exempt from the tax, they could feel the pain indirectly. The final impact, Coupal said, would be on consumers and there will be a "pass-down impact from the larger businesses to the smaller businesses."

Coupal, whose chain of cafes includes two downtown locations, said the area continues to suffer from the pandemic.

"We're far from normal. We are not recovered. I think very few businesses are seeing numbers that they saw in 2019," Coupal told the committee. "I can tell you, I'm still 40% down and I consider myself lucky. And I don't think this year is going to be a lot better, the way it's begun."

Comments

Judith Wasserman
Registered user
Leland Manor/Garland Drive
on Jan 19, 2022 at 10:36 am
Judith Wasserman, Leland Manor/Garland Drive
Registered user
on Jan 19, 2022 at 10:36 am

Please please please don't let the perfect be the enemy of the good. You could massage this forever. Just pass something and collect the money we should have been collecting for years.
And also, don't listen to the people, usually business owners, of course, who say that businesses will leave Palo Alto for other towns. We are the last city in California (or maybe next-to-last) without a business tax, so where would they go?


Barbara Gross
Registered user
Crescent Park
on Jan 19, 2022 at 2:49 pm
Barbara Gross, Crescent Park
Registered user
on Jan 19, 2022 at 2:49 pm

Every new or increased tax should be ascribed to a specific benefit and should NOT go into the general fund. History has shown that councils previous lists of suggested areas of investments for other taxes get diverted without constraints. Increased taxation - including a business tax - should be be passed with a two thirds voting majority.


Online Name
Registered user
Embarcadero Oaks/Leland
on Jan 19, 2022 at 3:05 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Jan 19, 2022 at 3:05 pm

Why exempt the hotels? It's part of what got us into this mess in the first place, depriving of us space for housing and relying on the commuters who overrun us.


N
Registered user
Ventura
on Jan 19, 2022 at 4:18 pm
N, Ventura
Registered user
on Jan 19, 2022 at 4:18 pm

+1 to the comments from Judith and Barbara. This should proceed ASAP to a vote, let's not let "perfect" be the enemy of the good. Specifically, let's not target a single "feel-good" use of the funds as a coupled part of the tax that will limit flexibility as needs (and climate, pandemic, or whatever) change.

First, Palo Alto's policies are *way* too appealing for office jobs, to the detriment of the residents in the city. This has caused infrastructural, traffic, and zoning issues, and ultimately increased the tensions and stakes for developers as adversaries of the community rather than a collaborative members of it.

Our city has by-far the worst imbalance of jobs to housing in Silicon Valley of 3.54 jobs per housing unit [1]. We also have extremely high office space rent, which has distorted the local (re-)development market. This high rent encourages property owners like Sobrato to hold on to dilapidated properties (e.g. Fry's) in hopes of one day convincing/suing/cajoling the council to reverse decades-old zoning to allow for more office space.

We are also the only city in the region without a business tax [2].

Citations:
1. Web Link
2. Web Link


Bystander
Registered user
Another Palo Alto neighborhood
on Jan 19, 2022 at 4:20 pm
Bystander, Another Palo Alto neighborhood
Registered user
on Jan 19, 2022 at 4:20 pm

With the recent news of PPE being left outside in the rain to get destroyed in San Mateo, it is underscoring that government of any type care little about expensive equipment paid for by taxpayers. We know that Palo Alto has wasted so much money in the past. All they appear to want is more money without any scruples about fiscal responsibility.

I am not against a business tax, but I do want to see a much better business plan on how to be fiscally prudent. I don't want to see this money squandered away with nothing to show for it.

Foothills Park/Preserve was an expensive lesson on how not to do things. We are now paying for entry and yet there is no way of knowing how that entry fee is being spent and what the benefits for any Palo Alto resident is in being charged a fee.

When CC work out their list of priorities, I think they should put top priority is being fiscally responsible with taxpayers money. We are not bottomless wallets, and we want to see City of PA providing us with the service we deserve for all the taxes we pay. Adding more money to their coffers will add salt to the wound if they just squander it.


tmp
Registered user
Downtown North
on Jan 19, 2022 at 7:01 pm
tmp, Downtown North
Registered user
on Jan 19, 2022 at 7:01 pm

The money should be earmarked to buy more public space for parks and open space. The massive glut of office space and businesses that will be paying this tax are also indirectly responsible for the state demanding that we add tens of thousands more homes over the next few decades. None of these homes can be charged to pay for park and open space per the state so the businesses that have made all of these jobs need to pay so that the city can buy overpriced land to put parks and community space on.


Suzanne Keehn
Registered user
Barron Park
on Jan 19, 2022 at 7:07 pm
Suzanne Keehn, Barron Park
Registered user
on Jan 19, 2022 at 7:07 pm

I totally agree with the comment above!


Annette
Registered user
College Terrace
on Jan 19, 2022 at 8:50 pm
Annette, College Terrace
Registered user
on Jan 19, 2022 at 8:50 pm

I agree with both Barbara Gross and Judith Wasserman. A business tax makes sense, but ONLY if the revenue is designated. I will vote for it if the use if designated and against it if it is not.


mjh
Registered user
College Terrace
on Jan 22, 2022 at 4:41 pm
mjh, College Terrace
Registered user
on Jan 22, 2022 at 4:41 pm

While I have no connection with any hotels, Palo Alto already has a hefty hotel “occupancy” tax, the highest of any other cities in the area I believe. Tough for family run hotels trying to compete. If hotels are included in a new business tax, perhaps the hotel occupancy tax could be reduced to be in line with our neighboring cities.


John Kim
Registered user
Fairmeadow
on Jan 25, 2022 at 12:04 am
John Kim, Fairmeadow
Registered user
on Jan 25, 2022 at 12:04 am

According to this news article: Web Link taxes should be done on square foot.


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