News

City banks on business tax for housing, transportation projects

As council narrows down revenue options from contentious measure, public safety and downtown improvements also make the list

VMware is one of dozens large companies located at Stanford Research Park. Photo by Lloyd Lee.

If Palo Alto voters approve a new business tax in November, affordable housing and transportation improvements will likely absorb a large share of the revenues that the city collects, the City Council agreed on Monday.

The council is still refining the tax measure, which members have been discussing for years and which continues to face broad opposition from leaders of the business community. The effort further advanced on Monday, when the council reached broad consensus on some of the parameters of the new tax, including uses for the funding.

Over two public hearings and a long procession of votes, the council coalesced around a tax measure that roughly mirrors the one that was recommended last month by its Finance Committee. The tax would exempt all small businesses, defined as those with 5,000 square feet of space or less, as well as supermarkets, hotels and seasonal businesses that are in operation for less than 90 days.

The council also agreed that the tax rate would likely be either 10 cents per square foot or 12 cents per square foot, with the exact amount to be determined after the next round of polling. The rate would be phased in over two years, with the first half taking effect immediately upon the adoption of the tax and the second half kicking in a year later.

In most cases, the votes were 6-1, with council member Greg Tanaka as the lone dissenter. A key exception was on the question of how the funds should be used. On that question, the council voted 4-3, with council members Alison Cormack, Eric Filseth and Tanaka dissenting, to direct its polling firm, FM3, to specify in its next survey the four areas that the tax revenues would be devoted to: grade separation and rail safety; affordable housing and homelessness; public safety; and improvements to University and California avenues.

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With the exception of Tanaka, a fervent opponent of the business tax, the council broadly agreed that housing and transportation should feature prominently in Palo Alto's funding plan. But both Cormack and Filseth voted against the motion because they felt it was premature to create a funding plan without further refining the city's priorities. Even Cormack, however, suggested that the city needs invest more in transportation projects such as reviving the city's shuttle program.

Mayor Pat Burt and council member Tom DuBois had no such reservations. DuBois proposed the four focus areas and both he and Burt noted that some of these issues had already been shown to be high community concerns in prior polls. Burt also made the case that dedicating local funds for grade separation — the redesign of rail crossings so that tracks and roads would no longer intersect — would allow the city to leverage the federal and state funding that would be needed to complete the complex and expensive projects.

"A lot of the criticism we've been hearing is that we haven't been clearer to date on the uses," Burt said. "With the exception of that last one (improvements on University and California avenues), these have been what we've been identifying as our highest priorities."

DuBois suggested that improving the two major thoroughfares is a particularly suitable use for the tax revenues because of the project's strong connections to the business community. All four focus areas, however, have been previously identified as important, he said.

"They have nexus with the business community and residents and we have large and unfunded activities in these areas," DuBois said,

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The council discussion came a week after several members of the business community presented their concerns to the council about the proposed measure, which they argued would hurt local businesses and potentially drive some out of town. Dan Kostenbauder, vice president for tax policy at Silicon Valley Leadership Group, said that a business tax would "increase the cost of occupancy for a tenant and ultimately reduce rents that businesses would be willing to pay."

"This would reduce property values and cause future property revenue to be lower than it otherwise would be," said Kostenbauder, who also read a list of Palo Alto residents who he said agreed with his business group's position.

Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, told the council that his organization is regularly "hearing from our business members how difficult it is to make ends meet here in Palo Alto" and said the community "simply can't afford a new business tax at this time." Tiffany Griego, managing director of Stanford Research Park, lamented the fact that the city has not conducted an analysis of economic impacts from a tax, which is something that other jurisdictions had traditionally done before adopting new taxes.

"From our experience, we know that demand in the research park is elastic. Businesses large and small weigh the cost of doing business and how business-friendly a city is before making decisions about whether to locate or to bring their point of sale to Palo Alto," Griego said.

Burt and Filseth both argued, however, that investing in housing and transportation is critical to sustain both the city and, more broadly, Silicon Valley. Filseth observed that Silicon Valley has seen an exodus of workers over the past decade, with many of those leaving listing the high cost housing and diminishing quality of life as the two main reasons. And Burt lamented the fact that two powerful industries — tech giants and commercial developers — had come out against the proposed tax before it was even formulated.

"The Silicon Valley Leadership Group that represents amongst the largest and most successful companies in the world has supported sales-tax increases, bridge-toll increases, gas tax increases — everything that is regressive and disproportionately taxes low- and modest-income people," Burt said. "We really shouldn't expect that they're going to support this measure, as moderate as it's likely to be when it finally hits the ballot.

"I still would hope that members of our community who had blindly allowed themselves to be used by these big business entities would reconsider."

Tanaka took the opposite position and argued that innovation has been leaving Palo Alto for years, a trend that has been further accelerated by COVID-19 and the rise of remote working. He cited companies like Tesla and Palantir, which in recent years had relocated their headquarters out of Palo Alto. He suggested that by introducing a business tax the city may be destroying its financial base.

"My big worry is as these companies move, what's going to happen to the taxes that they do pay and the jobs they will provide?" Tanaka said.

In a separate 6-1 vote, with Tanaka dissenting, the council also signaled support for a second measure that would reaffirm the city's historic practice of transferring funds from the gas utility. The city suspended the transfers in the last budget because of a legal challenge from resident Miriam Green and a court finding that the transfers constitute an illegal tax. By getting the voters' endorsement, the city hopes to overcome this legal setback and restore the roughly $7 million gap in the general fund that the court decision created.

"This is a crucial part of funding our services and it's been a double whammy during the pandemic to not be able to have access to these funds," Cormack said. "I think the community, based on polling results, understands this and is ready to … restore this revenue stream to our general fund."

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Gennady Sheyner
 
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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City banks on business tax for housing, transportation projects

As council narrows down revenue options from contentious measure, public safety and downtown improvements also make the list

by / Palo Alto Weekly

Uploaded: Tue, Apr 26, 2022, 12:03 am

If Palo Alto voters approve a new business tax in November, affordable housing and transportation improvements will likely absorb a large share of the revenues that the city collects, the City Council agreed on Monday.

The council is still refining the tax measure, which members have been discussing for years and which continues to face broad opposition from leaders of the business community. The effort further advanced on Monday, when the council reached broad consensus on some of the parameters of the new tax, including uses for the funding.

Over two public hearings and a long procession of votes, the council coalesced around a tax measure that roughly mirrors the one that was recommended last month by its Finance Committee. The tax would exempt all small businesses, defined as those with 5,000 square feet of space or less, as well as supermarkets, hotels and seasonal businesses that are in operation for less than 90 days.

The council also agreed that the tax rate would likely be either 10 cents per square foot or 12 cents per square foot, with the exact amount to be determined after the next round of polling. The rate would be phased in over two years, with the first half taking effect immediately upon the adoption of the tax and the second half kicking in a year later.

In most cases, the votes were 6-1, with council member Greg Tanaka as the lone dissenter. A key exception was on the question of how the funds should be used. On that question, the council voted 4-3, with council members Alison Cormack, Eric Filseth and Tanaka dissenting, to direct its polling firm, FM3, to specify in its next survey the four areas that the tax revenues would be devoted to: grade separation and rail safety; affordable housing and homelessness; public safety; and improvements to University and California avenues.

With the exception of Tanaka, a fervent opponent of the business tax, the council broadly agreed that housing and transportation should feature prominently in Palo Alto's funding plan. But both Cormack and Filseth voted against the motion because they felt it was premature to create a funding plan without further refining the city's priorities. Even Cormack, however, suggested that the city needs invest more in transportation projects such as reviving the city's shuttle program.

Mayor Pat Burt and council member Tom DuBois had no such reservations. DuBois proposed the four focus areas and both he and Burt noted that some of these issues had already been shown to be high community concerns in prior polls. Burt also made the case that dedicating local funds for grade separation — the redesign of rail crossings so that tracks and roads would no longer intersect — would allow the city to leverage the federal and state funding that would be needed to complete the complex and expensive projects.

"A lot of the criticism we've been hearing is that we haven't been clearer to date on the uses," Burt said. "With the exception of that last one (improvements on University and California avenues), these have been what we've been identifying as our highest priorities."

DuBois suggested that improving the two major thoroughfares is a particularly suitable use for the tax revenues because of the project's strong connections to the business community. All four focus areas, however, have been previously identified as important, he said.

"They have nexus with the business community and residents and we have large and unfunded activities in these areas," DuBois said,

The council discussion came a week after several members of the business community presented their concerns to the council about the proposed measure, which they argued would hurt local businesses and potentially drive some out of town. Dan Kostenbauder, vice president for tax policy at Silicon Valley Leadership Group, said that a business tax would "increase the cost of occupancy for a tenant and ultimately reduce rents that businesses would be willing to pay."

"This would reduce property values and cause future property revenue to be lower than it otherwise would be," said Kostenbauder, who also read a list of Palo Alto residents who he said agreed with his business group's position.

Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, told the council that his organization is regularly "hearing from our business members how difficult it is to make ends meet here in Palo Alto" and said the community "simply can't afford a new business tax at this time." Tiffany Griego, managing director of Stanford Research Park, lamented the fact that the city has not conducted an analysis of economic impacts from a tax, which is something that other jurisdictions had traditionally done before adopting new taxes.

"From our experience, we know that demand in the research park is elastic. Businesses large and small weigh the cost of doing business and how business-friendly a city is before making decisions about whether to locate or to bring their point of sale to Palo Alto," Griego said.

Burt and Filseth both argued, however, that investing in housing and transportation is critical to sustain both the city and, more broadly, Silicon Valley. Filseth observed that Silicon Valley has seen an exodus of workers over the past decade, with many of those leaving listing the high cost housing and diminishing quality of life as the two main reasons. And Burt lamented the fact that two powerful industries — tech giants and commercial developers — had come out against the proposed tax before it was even formulated.

"The Silicon Valley Leadership Group that represents amongst the largest and most successful companies in the world has supported sales-tax increases, bridge-toll increases, gas tax increases — everything that is regressive and disproportionately taxes low- and modest-income people," Burt said. "We really shouldn't expect that they're going to support this measure, as moderate as it's likely to be when it finally hits the ballot.

"I still would hope that members of our community who had blindly allowed themselves to be used by these big business entities would reconsider."

Tanaka took the opposite position and argued that innovation has been leaving Palo Alto for years, a trend that has been further accelerated by COVID-19 and the rise of remote working. He cited companies like Tesla and Palantir, which in recent years had relocated their headquarters out of Palo Alto. He suggested that by introducing a business tax the city may be destroying its financial base.

"My big worry is as these companies move, what's going to happen to the taxes that they do pay and the jobs they will provide?" Tanaka said.

In a separate 6-1 vote, with Tanaka dissenting, the council also signaled support for a second measure that would reaffirm the city's historic practice of transferring funds from the gas utility. The city suspended the transfers in the last budget because of a legal challenge from resident Miriam Green and a court finding that the transfers constitute an illegal tax. By getting the voters' endorsement, the city hopes to overcome this legal setback and restore the roughly $7 million gap in the general fund that the court decision created.

"This is a crucial part of funding our services and it's been a double whammy during the pandemic to not be able to have access to these funds," Cormack said. "I think the community, based on polling results, understands this and is ready to … restore this revenue stream to our general fund."

Comments

tmp
Registered user
Downtown North
on Apr 26, 2022 at 10:50 am
tmp, Downtown North
Registered user
on Apr 26, 2022 at 10:50 am

It is imperative that the City of Palo Alto should have a business tax. It is time for these huge money making corporations to contribute to the area that has provided them with so much. They should stop whining and get on board with helping to improve transportation, infrastructure, provide for the police and fire that protect them and add to the community that they base their businesses in. They are the ones with all of the money and they should pay their fair share.

Palo Alto is the last city in the bay are that doesn't have a business tax and we need to get it done now. We are faced with difficult issues that need work and funds to fix and it is time for everyone to contribute.


Local Resident
Registered user
Duveneck/St. Francis
on Apr 26, 2022 at 11:09 am
Local Resident, Duveneck/St. Francis
Registered user
on Apr 26, 2022 at 11:09 am

The property tax exemption has allowed businesses to get away with paying a smaller and smaller portion of the cities taxes over many decades. This tax is one almost every other city on the peninsula already has.

Housing costs are so high and commuting so bad that employees are leaving the bay area in droves and yet businesses fight vigorously against contributing to the solution? The businesses (or more correctly land owners renting to businesses) are too short-term focused. Like a virus that kills the host. However, if businesses leave Palo Alto then we can build more multi-family apartments so its not all bad.


Online Name
Registered user
Embarcadero Oaks/Leland
on Apr 26, 2022 at 11:18 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Apr 26, 2022 at 11:18 am

Shocked that business lobbyists prefer to pay nothing after so successfully shifting the costs from them to us, the residents. How nice struggling hotels like the one that replaced The President Hotel and evicted 85 long-time low-income PA residents are rewarded with exemptions WHILE we get to fund NEW affordable downtown housing.

I get nervous when I see the phrase "transportation improvements" which means spending millions on traffic diets, traffic calming and more gridlock when we're being forced to absorb hundreds of thousands of new people. Sustainability matters. Ignore the drought; new people never use water.

I see nothing about using the money to restore lost city services like the full hours for the libraries. Instead, we're getting this city-supported proposal this to legalize the practice of "over-charging" us on top of the latest utility rate increases.

"In a separate 6-1 vote, with Tanaka dissenting, the council also signaled support for a second measure that would reaffirm the city's historic practice of transferring funds from the gas utility. The city suspended the transfers in the last budget because of a legal challenge from resident Miriam Green and a court finding that the transfers constitute an illegal tax. By getting the voters' endorsement, the city hopes to overcome this legal setback and restore the roughly $7 million gap in the general fund that the court decision created."




Bystander
Registered user
Another Palo Alto neighborhood
on Apr 26, 2022 at 12:27 pm
Bystander, Another Palo Alto neighborhood
Registered user
on Apr 26, 2022 at 12:27 pm

Transportation improvements? What an efficient couple of words to describe almost anything. There are things we do not need, but there are many things we do need.

We do need the return and improvement of the Shuttle.

There are many intersections that need to be upgraded considerably for pedestrian/bike/vehicle safety. e.g. Loma Verde/Middlefield and Embarcadero at T& C.

We need to have electronic signs at our garages (promised for a long time), we need parking to be easy to navigate and we need to be able to pay for parking on our phones.

We need park and ride lots at highway offramps with shuttles to business destinations.

We need shuttles to serve our schools but ones that others can use also.

How's that for starters?


Novelera
Registered user
Midtown
on Apr 26, 2022 at 3:25 pm
Novelera, Midtown
Registered user
on Apr 26, 2022 at 3:25 pm

Big surprise. Businesses don't want to be taxed. For smaller businesses, the amount will be minimal.

Not at all surprised to find Tanaka, running for Congress, opposing a tax benefiting the town that he hopes won't matter to him any more. And doubtless hoping to get some business contributions for his campaign.


Annette
Registered user
College Terrace
on Apr 26, 2022 at 4:09 pm
Annette, College Terrace
Registered user
on Apr 26, 2022 at 4:09 pm

These two issues are vexing. Palo Alto should have a business tax; should have had one for years now. But what's being proposed is a general tax. Even if this CC has a resolution to use the funds for specific purposes, that can be undone by a future CC. A specific tax is harder to pass, but at least it assures that, if passed, the revenue is spent on the intended purpose of the tax. Second problem: the last word from the Court on the utility transfer was that the practice was illegal. Now the City is asking residents to make legal what was deemed, in Court, to be illegal. Semantics matter. Call it a new utility tax and see if residents approve it for what it is.


Online Name
Registered user
Embarcadero Oaks/Leland
on Apr 26, 2022 at 6:39 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Apr 26, 2022 at 6:39 pm

"Now the City is asking residents to make legal what was deemed, in Court, to be illegal. Semantics matter. Call it a new utility tax and see if residents approve it for what it is."

Annette, hah! Totally unlikely since our cost-conscious "leaders" are spending OUR tax dollars on outside consultants to shape the language for the 2 ballot propositions so we'll be most likely to approve the taxes. As per Monday's CC meeting, they're starting their 3d round of polling.

Calling it a Utility Tax is as likely as having CPAU Mission statements containing language like "cost-effective" and "efficient" and "current outage reporting" ...


Jeremy Erman
Registered user
Midtown
on Apr 26, 2022 at 11:57 pm
Jeremy Erman, Midtown
Registered user
on Apr 26, 2022 at 11:57 pm

Restoring services cut during the pandemic, and providing an ongoing reliable means of supporting them, should be the #1 purpose of this tax. The pandemic showed that the City relied too heavily on the TOT (aka the "hotel tax"), and that other sources of funding are needed.

Once the City's current programs are restored and stabilized, then the Council can start looking at other things to spend money on.


JH
Registered user
Midtown
on Apr 29, 2022 at 4:12 pm
JH, Midtown
Registered user
on Apr 29, 2022 at 4:12 pm

Rather than a business tax, the City should consider increasing the real estate transfer tax. Residents are the ones who will benefit from the funding, so residents are the ones who should pay.


Online Name
Registered user
Embarcadero Oaks/Leland
on Apr 30, 2022 at 12:33 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Apr 30, 2022 at 12:33 pm

@JH, businesses own property, too, and "live" longer so they rarely end up paying the property transfer tax. As for residents benefiting, track how the tax burdens have shifted from businesses to residents after the last few pro-business city managers and the pro-development city councils under Mayors Kniss and Fine.

Watch the city's Bait & Switch re putting up both the "Business" tax and the Utility Tranfer tax to legitimize the continued practice of overcharging us $20,000,000 each and every year AND to get out of paying US the legal settlement the judge ordered. For this they've hired both a political consultant AND a new SENIOR utility staffer to fine-tune the ballot language to make the Utility Transfer tax the most palatable AND letting businesses off the hook even though PA is the ONLY city without a business tax.

So please remind me again how the residents benefit when there's NOTHING about restoring services to residents for full library services, animal services and/or to demand decent performance from city employees like cops, the "Planning" Dept re its many fiascos including Casti, the Town & Country "retail/medical" conversion, the parking permit fiascos, the failure to track power outages, the solar permitting fiasco WHILE they spend a fortune preaching be-green conversion....


Annette
Registered user
College Terrace
on May 2, 2022 at 6:59 am
Annette, College Terrace
Registered user
on May 2, 2022 at 6:59 am

Quite possible: both ballot measures pass and the General Fund swells, but the city still needs money for services, grade separation remains a discussion item, affordable housing remains an oxymoron, the City Manager's staff increases, the unfunded pension obligation decreases a little, and some not critical capital projects are approved. These measures do not obligate the City to use the funds for the purposes spoken of in the campaign to get them both passed.


JH
Registered user
Midtown
on May 2, 2022 at 10:42 am
JH, Midtown
Registered user
on May 2, 2022 at 10:42 am

The average salary and benefit package for City employees is more than $243,000. That's ludicrously high --- more than double the Area Median Income. Employee salaries and benefits are responsible for more than 40% of the City's operating expenses. If the City Council were fiscally responsible, the Councilmembers wouldd slash the salary package and the number of employees and spend the budget surplus on the CIP --- no tax increases needed.


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