News

With little opposition, Palo Alto asks voters to approve business tax

Business leaders stay on the sidelines as tax proponents raise money

VMware is among the largest companies at Stanford Research Park. Embarcadero Media file photo by Lloyd Lee.

When the Palo Alto City Council voted Monday to formally endorse Measure K, which would create a business tax, the most striking comments were the ones that weren't spoken.

Not a single person from the business community addressed the council to oppose the measure — a scenario that two months ago would have seemed unlikely, if not unthinkable. The only person who had anything to say against the measure was council member Greg Tanaka, who has historically opposed all business tax proposals.

The sound of silence was music to Palo Alto leaders and other supporters of the business tax, many of whom are well aware of the business community's power and influence. Mayor Pat Burt was on the council in 2009, when the city last tried to enact a business tax only to see it fizzle amid intense business opposition. This time, Burt led a council committee to negotiate with the measure's leading opponents, a group that consisted of the Silicon Valley Leadership Group and the Palo Alto Chamber of Commerce (NAIOP Silicon Valley, a group that represents commercial developers initially took part but then bowed out in July because of insufficient staffing).

Success was by no means assured. For months, the business coalition has been criticizing the tax proposal and arguing that it would devastate the local business climate and prompt some companies to leave the city. But Aug. 10, just before the state deadline for submitting ballot measures, the business coalition and the city announced a deal that dramatically scaled down the proposed tax measure and effectively muted formal opposition to the measure.

The Aug. 10 vote to place Measure K on the ballot felt at once momentous and anticlimactic. On the one hand, the move was a culmination of nearly a decade of planning and revisions. Palo Alto's drive toward the tax accelerated in 2016, when council members began to confront the enormous costs of needed rail improvements, and then grounded to a halt in 2020, when the pandemic prompted them to reshuffle their financial priorities. For many residents and city officials who have long argued that it's time for Palo Alto to shed its status as the only Silicon Valley city without a business tax, the fact that voters will now have a chance to adopt one is a big deal.

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"There's a lot of anger in the community about the fact that businesses aren't paying their fair share," Nadia Naik, an advocate for rail improvements, told the council during an Aug. 8 hearing on the business tax. "I'm not sure that the Silicon Valley Leadership Group or the Chamber, or some of the large companies in town understand how frustrating it is for residents."

Yet the actual tax measure left many tax supporters feeling underwhelmed. For one thing, it exempts all small businesses and applies only to those with more than 10,000 square feet. The rate would be $0.075 per square foot, well below the 12-cent rate that the council had considered as recently as early August. The largest corporations would see their taxes capped at $500,000.

The tax is projected to raise about $9.6 million annually, with proceeds going into three categories: affordable housing, rail improvement and public safety. While the measure is a welcome boost for a city that has seen its revenues yo-yo over the past two years, it's well short of the $15 million that the council was banking on just weeks before it voted to place the measure on the ballot.

Some residents who have supported the tax found it hard to hide their disappointment with the final product. Winter Dellenbach, a Barron Park resident and council watchdog, urged council members to raise the measure to 11 cents per square foot and said the measure is "less than what many of us had hoped." And council member Tom DuBois, a longtime proponent of adopting a business tax, said the reduced proposal felt "insufficient."

But Keith Reckdahl, a city planning commissioner who is leading the campaign in favor of Measure K, said the city's approach toward adopting business is pragmatic. The final product addresses some of the biggest concerns from the business community while raising money for critical city priorities.

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"This is a compromise. In a compromise no one is happy," Reckdahl said in an interview.

Reckdahl said his group believes the business tax would have a "reasonable impact" and that it would benefit not just the broader Palo Alto community but local businesses as well. Palo Alto companies rely on the city's transportation networks. Their workers need housing. And more than half of the city's police calls, Reckdahl said, are sent to businesses.

"They all have a vested interest in having these," he said.

He also noted that in addition to small businesses, the tax exempts grocery stores and hotels, which can offset their business tax payments with hotel tax proceeds.

The measure has already proven successful in one sense: Business leaders have honored their part of the bargain. Aside from Tanaka's dissenting vote, there is no formal opposition to Measure K and no campaigns raising money to fight the measure. Six of the seven current council members support it. While various civic leaders have signed on to arguments in favor of Measure K, the only people listed in the opposition argument are resident Alan Kaiser and John Dehn, chair of Santa Clara County's Libertarian Party (the two are also the only signatories to the argument against Measure L, which affirms the city's policy of transferring funds from the gas utility to the general fund). The tax, Dehn and Kaiser wrote in their argument against Measure K, "will contribute little of usefulness to the kind of Palo Alto our residents would like to have."

"Furthermore, the elements of this proposal that single out different kinds of businesses as taxable, while others are not, implies a considerable value judgment being made about which kinds of businesses we 'like' as a city,'" the argument states.

But unlike in 2009, business leaders remain on the sidelines. With no vocal opposition to Measure K, DuBois said Monday that he hopes most voters will find it to be a "no-brainer."

"It's a small modest tax that excludes all the small businesses in town and it helps pay for public safety, for affordable housing and rail safety as well," DuBois said.

Measure K is also supported by all seven candidates running for council. Lisa Forssell, a utilities commissioner, contributed $250 to support the measure and called the tax proposal "progressive" because it excludes small businesses. Brian Hamachek, who had initially opposed the tax, flipped after the council scaled down the proposal and exempted small businesses. Vicky Veenker said at a September forum that she believes businesses will "take pride in paying their fair share."

As of Sept. 24, proponents have raised $9,142 to get the measure across the finish line. Former Vice Mayor Greg Schmid and council members Alison Cormack, Tom DuBois and Eric Filseth have all donated money to the campaign, as has Ventura neighborhood activist Rebecca Sanders, Reckdahl and Naik, a community advocate for redesigning the rail corridor.

In their argument in favor of the tax, supporters argue that because employees benefit from city services, it's only fair to make businesses chip in for the cost of these services.

"All parts of community must contribute to funding their essential services. Palo Alto has fewer visitors and business travelers now because of COVID, and we are the last major city in our region without a Business Tax," supporters wrote in a rebuttal to Dehn and Kaiser. "We must adapt, and the time has come."

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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 >>

Follow Palo Alto Online and the Palo Alto Weekly on Twitter @paloaltoweekly, Facebook and on Instagram @paloaltoonline for breaking news, local events, photos, videos and more.

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With little opposition, Palo Alto asks voters to approve business tax

Business leaders stay on the sidelines as tax proponents raise money

by / Palo Alto Weekly

Uploaded: Wed, Oct 5, 2022, 9:48 am

When the Palo Alto City Council voted Monday to formally endorse Measure K, which would create a business tax, the most striking comments were the ones that weren't spoken.

Not a single person from the business community addressed the council to oppose the measure — a scenario that two months ago would have seemed unlikely, if not unthinkable. The only person who had anything to say against the measure was council member Greg Tanaka, who has historically opposed all business tax proposals.

The sound of silence was music to Palo Alto leaders and other supporters of the business tax, many of whom are well aware of the business community's power and influence. Mayor Pat Burt was on the council in 2009, when the city last tried to enact a business tax only to see it fizzle amid intense business opposition. This time, Burt led a council committee to negotiate with the measure's leading opponents, a group that consisted of the Silicon Valley Leadership Group and the Palo Alto Chamber of Commerce (NAIOP Silicon Valley, a group that represents commercial developers initially took part but then bowed out in July because of insufficient staffing).

Success was by no means assured. For months, the business coalition has been criticizing the tax proposal and arguing that it would devastate the local business climate and prompt some companies to leave the city. But Aug. 10, just before the state deadline for submitting ballot measures, the business coalition and the city announced a deal that dramatically scaled down the proposed tax measure and effectively muted formal opposition to the measure.

The Aug. 10 vote to place Measure K on the ballot felt at once momentous and anticlimactic. On the one hand, the move was a culmination of nearly a decade of planning and revisions. Palo Alto's drive toward the tax accelerated in 2016, when council members began to confront the enormous costs of needed rail improvements, and then grounded to a halt in 2020, when the pandemic prompted them to reshuffle their financial priorities. For many residents and city officials who have long argued that it's time for Palo Alto to shed its status as the only Silicon Valley city without a business tax, the fact that voters will now have a chance to adopt one is a big deal.

"There's a lot of anger in the community about the fact that businesses aren't paying their fair share," Nadia Naik, an advocate for rail improvements, told the council during an Aug. 8 hearing on the business tax. "I'm not sure that the Silicon Valley Leadership Group or the Chamber, or some of the large companies in town understand how frustrating it is for residents."

Yet the actual tax measure left many tax supporters feeling underwhelmed. For one thing, it exempts all small businesses and applies only to those with more than 10,000 square feet. The rate would be $0.075 per square foot, well below the 12-cent rate that the council had considered as recently as early August. The largest corporations would see their taxes capped at $500,000.

The tax is projected to raise about $9.6 million annually, with proceeds going into three categories: affordable housing, rail improvement and public safety. While the measure is a welcome boost for a city that has seen its revenues yo-yo over the past two years, it's well short of the $15 million that the council was banking on just weeks before it voted to place the measure on the ballot.

Some residents who have supported the tax found it hard to hide their disappointment with the final product. Winter Dellenbach, a Barron Park resident and council watchdog, urged council members to raise the measure to 11 cents per square foot and said the measure is "less than what many of us had hoped." And council member Tom DuBois, a longtime proponent of adopting a business tax, said the reduced proposal felt "insufficient."

But Keith Reckdahl, a city planning commissioner who is leading the campaign in favor of Measure K, said the city's approach toward adopting business is pragmatic. The final product addresses some of the biggest concerns from the business community while raising money for critical city priorities.

"This is a compromise. In a compromise no one is happy," Reckdahl said in an interview.

Reckdahl said his group believes the business tax would have a "reasonable impact" and that it would benefit not just the broader Palo Alto community but local businesses as well. Palo Alto companies rely on the city's transportation networks. Their workers need housing. And more than half of the city's police calls, Reckdahl said, are sent to businesses.

"They all have a vested interest in having these," he said.

He also noted that in addition to small businesses, the tax exempts grocery stores and hotels, which can offset their business tax payments with hotel tax proceeds.

The measure has already proven successful in one sense: Business leaders have honored their part of the bargain. Aside from Tanaka's dissenting vote, there is no formal opposition to Measure K and no campaigns raising money to fight the measure. Six of the seven current council members support it. While various civic leaders have signed on to arguments in favor of Measure K, the only people listed in the opposition argument are resident Alan Kaiser and John Dehn, chair of Santa Clara County's Libertarian Party (the two are also the only signatories to the argument against Measure L, which affirms the city's policy of transferring funds from the gas utility to the general fund). The tax, Dehn and Kaiser wrote in their argument against Measure K, "will contribute little of usefulness to the kind of Palo Alto our residents would like to have."

"Furthermore, the elements of this proposal that single out different kinds of businesses as taxable, while others are not, implies a considerable value judgment being made about which kinds of businesses we 'like' as a city,'" the argument states.

But unlike in 2009, business leaders remain on the sidelines. With no vocal opposition to Measure K, DuBois said Monday that he hopes most voters will find it to be a "no-brainer."

"It's a small modest tax that excludes all the small businesses in town and it helps pay for public safety, for affordable housing and rail safety as well," DuBois said.

Measure K is also supported by all seven candidates running for council. Lisa Forssell, a utilities commissioner, contributed $250 to support the measure and called the tax proposal "progressive" because it excludes small businesses. Brian Hamachek, who had initially opposed the tax, flipped after the council scaled down the proposal and exempted small businesses. Vicky Veenker said at a September forum that she believes businesses will "take pride in paying their fair share."

As of Sept. 24, proponents have raised $9,142 to get the measure across the finish line. Former Vice Mayor Greg Schmid and council members Alison Cormack, Tom DuBois and Eric Filseth have all donated money to the campaign, as has Ventura neighborhood activist Rebecca Sanders, Reckdahl and Naik, a community advocate for redesigning the rail corridor.

In their argument in favor of the tax, supporters argue that because employees benefit from city services, it's only fair to make businesses chip in for the cost of these services.

"All parts of community must contribute to funding their essential services. Palo Alto has fewer visitors and business travelers now because of COVID, and we are the last major city in our region without a Business Tax," supporters wrote in a rebuttal to Dehn and Kaiser. "We must adapt, and the time has come."

Comments

Citizen
Registered user
College Terrace
on Oct 5, 2022 at 10:17 am
Citizen , College Terrace
Registered user
on Oct 5, 2022 at 10:17 am

No new taxes which will be passed on and raise the cost of living.

Tighten your belt, City, and cut your fat.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 5, 2022 at 10:17 am
resident3, Another Palo Alto neighborhood
Registered user
on Oct 5, 2022 at 10:17 am

"many of whom are well aware of the business community's power and influence."

The Silicon Valley Leadership group has shown that their power is meaningless to do things that really matter, like helping solve real problems like transportation but they do shine at crippling City leadership with threats and lobbying.

It's all lose-lose with business. They do nothing for the City in fat times except make up ridiculous jobs and housing projections, and businesses will be even more useless now for this town.

Where is the business registry?


Local Resident
Registered user
Community Center
on Oct 5, 2022 at 10:25 am
Local Resident, Community Center
Registered user
on Oct 5, 2022 at 10:25 am

The funds for affordable housing and the rail crossing are needed to get matching funds from the state and federal gov, thus it will bring in much larger funding towards helping Palo Alto address these issues.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 5, 2022 at 10:40 am
resident3, Another Palo Alto neighborhood
Registered user
on Oct 5, 2022 at 10:40 am

@Local Resident,

"The funds for affordable housing and the rail crossing are needed to get matching funds from the state and federal gov, thus it will bring in much larger funding towards helping Palo Alto address these issues."

Matching $9 million does not make this "much larger" funding. That is not leadership. It's embarrassing and shameful that business lobbyists got this "deal" with threats.


peppered
Registered user
Community Center
on Oct 5, 2022 at 10:48 am
peppered, Community Center
Registered user
on Oct 5, 2022 at 10:48 am

This city's budget and organization are bloated and the retirement benefits are too generous.
Anyone believing that a business tax will not lead to higher prices is delusional.
The city needs to cut expenses, reduce headcount, oursource more and streamline operations.
The last thing they need is more taxes -- or taxes disguised as natural gas utility charges.


MyFeelz
Registered user
JLS Middle School
on Oct 5, 2022 at 10:58 am
MyFeelz, JLS Middle School
Registered user
on Oct 5, 2022 at 10:58 am

"All parts of community must contribute to funding their essential services. Palo Alto has fewer visitors and business travelers now because of COVID, and we are the last major city in our region without a Business Tax" .... we just hate being last. But we will be first to implement forced retrofitting for all homes in the city limits in the name of climate change!

As for all parts of the community contributing, it's not COVID causing fewer visitors or business travelers. The world has changed. COVID only made it more pronounced. Moral imperatives were on the move before it happened. We are definitely the last to recognize that fact.


Annette
Registered user
College Terrace
on Oct 5, 2022 at 11:19 am
Annette, College Terrace
Registered user
on Oct 5, 2022 at 11:19 am

Dubois is exactly right: this tax (if passed) is insufficient, small, and modest. Of course business leaders are honoring their part of the bargain and not opposing this tax - they won the negotiation! We got hosed; big business will hardly notice this tax. Palo Altans, on the other hand, will notice how insufficient it is.

Proponents argue that this tax is better than nothing. I'm not convinced about that b/c this locks us into a paltry tax while the costs of what the revenue is meant to pay for (housing, public safety, and transportation) far exceed what can be achieved with the revenue, especially if the revenue is split equally amongst the three designated areas of need. What we need is a business tax that is relevant to impact. What's the plan for making up the difference between what this tax will bring us and what is needed?


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 5, 2022 at 11:34 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 5, 2022 at 11:34 am

Why shouldn't the business community stay silent? They got everything they wanted from the City Council and the only opposition -- FROM US the resident taxpayers -- was dismissed and ignored by the Mayor and the City Council members to whom we wrote.

"Vicky Veenker said at a September forum that she believes businesses will "take pride in paying their fair share.""

When?? What pride? What "fair share"?? Did Ms Veenker miss that businesses have fought long and hard to avoid paying their fair share and have long shifted all the costs to residents?? Did she somehow miss that PA is the only city without a business tax?

Whenever someone criticized how a project is managed, the waste by the city and/or suggested better ways of doing things WE'VE been ignored and told that we must pass the $9,000,000 business tax or THAT project will be cut.

All this while they're advocating spending $143,000,000 on Fiber to compete with AT&T!, get us a new gym, spend $7,000,000 on getting us new water heaters, etc etc.

Sorry but I'm opposing this tax as well as the continued practice of ripping us off for $20,000,000 each and every year in Utility "overcharges" while stalling paying us our court-ordered refund. Will they pay US interest or negotiate with US the way the Mayor "negotiated" the business tax down from $45,000,000 to $9,000,000!








Palo Alto native
Registered user
Old Palo Alto
on Oct 5, 2022 at 12:19 pm
Palo Alto native, Old Palo Alto
Registered user
on Oct 5, 2022 at 12:19 pm

Have to agree with previous comment. Our utility division has been ripping us off approx 20 million a year which has been going to CC general fund. I want my overpayments paid to me with interest, and want the Utility Dept to run with no co-mingling of funds to the City!
The Business tax should have one priority: grade separation. Why are police officers and affordable housing part of this new business tax? Do we need to hire more police officers? If so, other non-essential budeget items need to get cut. Why is business tax funding affordable housing? We have lots of affordable housing all over Palo Alto, and it doesn’t make financial sense to build more in Palo Alto with our high land costs. Of course, the PA Airport could fill out ABAG required affordable housing allocation , instead of millionaires flying their dirty planes over our supposed protected Baylands habitat.


John Donegan
Registered user
another community
on Oct 5, 2022 at 12:31 pm
John Donegan, another community
Registered user
on Oct 5, 2022 at 12:31 pm

After maintaining an office in Palo Alto for many year, I am glad I left. I would not be happy being the convenient "cash cow" for every group of residents pushing some pet project. I placed relatively few demands on city services, yet paid a lot property taxes through the rent I paid.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 5, 2022 at 12:43 pm
resident3, Another Palo Alto neighborhood
Registered user
on Oct 5, 2022 at 12:43 pm

@John Donegan,

"After maintaining an office in Palo Alto for many year, I am glad I left. I would not be happy being the convenient "cash cow" for every group of residents pushing some pet project. I placed relatively few demands on city services, yet paid a lot property taxes through the rent I paid."

You would have been exempt if you were below 10,000 sq feet.

Hah, if only the City actually compared how people who live here use city services compared to businesses! All those services that the City threatens to take away.

What happened to the business registry?




Interested Reader
Registered user
Old Palo Alto
on Oct 5, 2022 at 2:08 pm
Interested Reader, Old Palo Alto
Registered user
on Oct 5, 2022 at 2:08 pm

To those complaining that $9.8 Million a year is not a lot, consider this... the money gets split 3 ways - Grade separations, affordable housing and police/fire services - so roughly $3.2 M per priority.

For grade separations, Palo Alto has $350 Million available from Measure B (raised in 2016) - but that money can only be accessed with a local match. Measure K would provide that local match and bring in over $100 Million - and all of that money combined would be used to apply for matching grants from the Feds (which require local and regional funding). Every penny matters because even the cheapest option for each grade separation would require a lot more money.

For affordable housing, the money gets pooled with other revenue sources (like development fees) to pay for upcoming projects - some examples of what this pays for are the recent LifeMoves/Project Home Key project transitional housing project where the city committed over $1 million per year toward operations, medical, and mental health services, the upcoming Charities Housing (3001-3017 El Camino Real) at the former Mike's Bikes site which would be 129 very low-income apartments for homeless families and individuals, and the Fry’s Site - 340 Portage Ave - where they're looking to devote 1 acre to be a city-owned site dedicated toward affordable housing.

For Police and Fire - we have steadily cut services for years when our risks and need have actually increased.

This tax should be supported - not bemoaned. These are real priorities that need funding and it makes sense to have the largest businesses in town help pay for these critical needs.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 5, 2022 at 2:23 pm
resident3, Another Palo Alto neighborhood
Registered user
on Oct 5, 2022 at 2:23 pm

@interested reader,

Your definition of “matching” funds is very deceptive, mixing up sources, dates, and the kitchen sink but the business contribution is still a paltry $9 million, an embarrassment and shameful that lobbyists threatened and forced what the money could be spent on.

No amount of “pride” rehabilitation will help here.


Local Resident
Registered user
Community Center
on Oct 5, 2022 at 4:01 pm
Local Resident, Community Center
Registered user
on Oct 5, 2022 at 4:01 pm

Although I know many folks (including myself) wish the business tax was more, its much better to pass this than nothing. Also, the matching multiplier from state for affordable housing and caltrain crossings is substantial. Conversely without this we will not have funds for either and have to cut fire and police services to where they were during the pandemic.


Neal
Registered user
Community Center
on Oct 5, 2022 at 4:53 pm
Neal, Community Center
Registered user
on Oct 5, 2022 at 4:53 pm

There is a jobs-housing imbalance. To correct this, there needs to be a much bigger tax to encourage businesses to relocate elsewhere. I'm voting "No" and hope the CC will come up with a more onerous tax plan.


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 5, 2022 at 5:04 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 5, 2022 at 5:04 pm

"Hah, if only the City actually compared how people who live here use city services compared to businesses! All those services that the City threatens to take away.

Scanning the police blotter shows maybe half the police calls are to Stanford Shopping Center -- making them a disproportionate user of police services.

What happened to the business registry?"

Nothing. Pity there are no competent techies anywhere near here who can build and maintain a database. Expect the same nothing to happen to the Renter's Registry.


mjh
Registered user
College Terrace
on Oct 5, 2022 at 7:19 pm
mjh, College Terrace
Registered user
on Oct 5, 2022 at 7:19 pm

It took ten years to get this propsed business tax on the ballot. If this tax ballot fails it may take another ten years get a second shot at a business tax. Plus a couple more years to get collection up and running as the business tax is phased in. Meanwhile, missing out on twelve years of the business tax and with no assurance it woukd pass in the future. And Palo Alto will continue to be the only city on the peninsula without a business tax. So I will hold my nose and vote yes.


Jerry
Registered user
Duveneck/St. Francis
on Oct 11, 2022 at 10:55 am
Jerry, Duveneck/St. Francis
Registered user
on Oct 11, 2022 at 10:55 am

"Palo Alto [is] the only Silicon Valley city without a business tax"

Everybody else is doing it, so it must be a good idea! Lemmings, anyone?


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