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Editorial: Yes on Measure K, establishing modest business tax

Hewlett Packard Enterprises at 3000 Hanover Street in Stanford Research Park in Palo Alto would be among the businesses impacted by a city business tax if approved by voters this fall. Photo by Magali Gauthier.

Palo Alto Measure K seeks voter approval of a very modest business tax, placed on the ballot by the City Council, on all companies with offices or facilities in the city larger than 10,000 square feet. They will pay an annual fee of 7.5 cents per square foot, with the first 10,000 square feet exempt, or $750 for a 20,000 square foot business, with a cap of $500,000 for the largest companies.

The measure is a far cry from what was initially envisioned by proponents many years ago, when the plan was to bring in tens of millions of dollars each year to help fund the expense of eliminating the four railroad grade crossings in the city and increasing the funds available for affordable housing projects.

The idea was wisely put on hold in 2020 when the pandemic made it politically impossible given the pressures facing small and medium-sized businesses. Then earlier this year, as the council began considering the tax again, the business community, led by the largest companies, the Silicon Valley Leadership Group and the Chamber of Commerce, dug in their heels and threatened to wage an all-out campaign to defeat it unless the city reduced the tax rate, exempted more businesses and set a cap.

After unsuccessfully attempting to negotiate a compromise, on the eve of the deadline for putting the measure on the ballot, the council gave in to most of the demands in exchange for the business community agreeing not to oppose the measure.

As a result of this "compromise," if passed the tax is estimated to generate just under $10 million a year, with the proceeds going to the city's general fund but which the council has stated will be spent on eliminating railroad grade crossings, supporting affordable housing and boosting public safety. That's a far cry from what is needed, but we agree with the council's reasoning that getting a business tax established at a very modest level with the chance to later increase it is better than ending up with nothing.

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The tax structure is far from perfect or fair and will likely need to be modified to address its shortcomings, including its failure to tax the many private equity and venture capital firms that operate out of less than 10,000 square feet and generate enormous returns for their investors, who already enjoy major federal tax advantages.

Although Measure K is far from ideal, Palo Alto is currently one of the few cities of its size in the area to have no local tax on any of its businesses, and as such, a tax is long overdue. It's time to get businesses to pay a share of the costs of providing services to both residents and employees alike. Vote "yes" on Measure K.

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Correction: The original version of this article inaccurately stated how large a business would have to be to pay a $750 tax. It is 20,000 square feet, not 10,000 square feet, since the first 10,000 square feet are exempt from the tax calculation. Palo Alto Online regrets the error.

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Editorial: Yes on Measure K, establishing modest business tax

by Palo Alto Weekly editorial board / Palo Alto Weekly

Uploaded: Fri, Oct 14, 2022, 6:54 am
Updated: Mon, Oct 17, 2022, 9:09 am

Palo Alto Measure K seeks voter approval of a very modest business tax, placed on the ballot by the City Council, on all companies with offices or facilities in the city larger than 10,000 square feet. They will pay an annual fee of 7.5 cents per square foot, with the first 10,000 square feet exempt, or $750 for a 20,000 square foot business, with a cap of $500,000 for the largest companies.

The measure is a far cry from what was initially envisioned by proponents many years ago, when the plan was to bring in tens of millions of dollars each year to help fund the expense of eliminating the four railroad grade crossings in the city and increasing the funds available for affordable housing projects.

The idea was wisely put on hold in 2020 when the pandemic made it politically impossible given the pressures facing small and medium-sized businesses. Then earlier this year, as the council began considering the tax again, the business community, led by the largest companies, the Silicon Valley Leadership Group and the Chamber of Commerce, dug in their heels and threatened to wage an all-out campaign to defeat it unless the city reduced the tax rate, exempted more businesses and set a cap.

After unsuccessfully attempting to negotiate a compromise, on the eve of the deadline for putting the measure on the ballot, the council gave in to most of the demands in exchange for the business community agreeing not to oppose the measure.

As a result of this "compromise," if passed the tax is estimated to generate just under $10 million a year, with the proceeds going to the city's general fund but which the council has stated will be spent on eliminating railroad grade crossings, supporting affordable housing and boosting public safety. That's a far cry from what is needed, but we agree with the council's reasoning that getting a business tax established at a very modest level with the chance to later increase it is better than ending up with nothing.

The tax structure is far from perfect or fair and will likely need to be modified to address its shortcomings, including its failure to tax the many private equity and venture capital firms that operate out of less than 10,000 square feet and generate enormous returns for their investors, who already enjoy major federal tax advantages.

Although Measure K is far from ideal, Palo Alto is currently one of the few cities of its size in the area to have no local tax on any of its businesses, and as such, a tax is long overdue. It's time to get businesses to pay a share of the costs of providing services to both residents and employees alike. Vote "yes" on Measure K.

Correction: The original version of this article inaccurately stated how large a business would have to be to pay a $750 tax. It is 20,000 square feet, not 10,000 square feet, since the first 10,000 square feet are exempt from the tax calculation. Palo Alto Online regrets the error.

Comments

Annette
Registered user
College Terrace
on Oct 14, 2022 at 1:13 pm
Annette, College Terrace
Registered user
on Oct 14, 2022 at 1:13 pm

I am glad to read that the Weekly acknowledges the shortcomings of this tax proposal b/c there are several. What is bothersome about this editorial is the apparent buy-in that the revenue from this tax, should it pass, will be spent as the current CC promises. Three of the seven making that promise will be off CC in January. Do all the candidates support that promise? Does Ed Shikada?
Kiely Nose? There is nothing to assure that the revenue will be spent as promised.

As the editorial notes, the projected revenue is indeed a far cry from what is needed for grade separation, affordable housing, and boosting public safety. Let's try again in two years. And this time let's not negotiate with the business coalition that prefers to be subsidized by Palo Alto residents despite its impact on city infrastructure and services.

Finally, I'd like to know specifics about the "chance to later increase it". Perhaps one of the proponents can add detail about that. Given the pace of decision making in this town, I think residents should expect that if this tax passes it will be the business tax in place for decades.


Eric Filseth
Registered user
Downtown North
on Oct 15, 2022 at 6:14 pm
Eric Filseth, Downtown North
Registered user
on Oct 15, 2022 at 6:14 pm

The idea that we’ll just try again in two years is naïve. To construct a tax framework like this, which does what you want with minimal unintended consequences, which can be monitored with reasonable accuracy, and which --- especially important --- will stand up against court challenges from deep-pocketed special interests with well-compensated legal teams, takes an enormous amount of effort. A family attorney can’t just draw up a few papers for something like this. It’s a Himalayan mountain climb.

Furthermore there's zero reason to believe that even if such a thing happened again in two years, the professional opponents wouldn’t be back too, and we wouldn’t face the same choices we faced this year.

It’s 2022 now. The last time somebody tried a business tax in Palo Alto was in 2008, 14 years ago. That’s probably the realistic timescale.

It’s considerably easier to incrementally change an existing tax code, than it is to lay down a completely new framework as Measure K would do. The reason to vote against Measure K is that you don’t want a tax on large businesses. The idea that there will be another chance in 2024 is unrealistic.


Rebecca Eisenberg
Registered user
Old Palo Alto
on Oct 15, 2022 at 11:45 pm
Rebecca Eisenberg, Old Palo Alto
Registered user
on Oct 15, 2022 at 11:45 pm

It is a red herring to insist that a *good* tax -- that is, a progressive (not regressive) tax that targets the largest and most profitable employers, businesses and landlords -- would fail. Literally every large company, large landlord, and large employer tax proposed in the past 6 years in neighbor cities passed by a wide majority - higher than 70%.

These successful taxes include East Palo Alto's large landlord tax and large business tax, as well as Mountain View's large business tax -- in addition to numerous large business & overpaid executive taxes passed in SF.

By targeting the largest companies and leaving the small and medium sized businesses out of the equation, large business taxes require the biggest & most profitable consumers of city services to pay their fair share. Large business taxes also enable small and medium sized businesses more opportunities to grow.

Perhaps most importantly, the largest and most profitable companies do not object to large business taxes. Even though Amazon knew it would pay the majority of EPA's taxes, and Google pay the majority of MV's taxes, neither company pushed back on the tax. Neither even filed an objection in the Voter Guide. Maybe this is because large companies recognized that the city improvements paid for by the proceeds of the large biz tax would be good for their abilities to attract workers. It's a win-win.

We have huge employers and highly profitable companies in Palo Alto too, including Tesla, Palantir, as well as Google (Nest), Amazon (AWS) and Facebook (Oculus). It is irrational to think that these same companies would object if Palo Alto proposed the same tax they agreed to in EPA and MV.

Instead, CC proposed a regressive tax that caps how much the biggest & most profitable companies will pay, and which exempts billionaire landlords altogether. It taxes company liabilities (rent paid) rather than revenues (rent received), which may be unconstitutional.

There is little to like and much to dislike about Measure K.


Local Resident
Registered user
Community Center
on Oct 16, 2022 at 8:31 am
Local Resident, Community Center
Registered user
on Oct 16, 2022 at 8:31 am

@Eisenberg you said “ Perhaps most importantly, the largest and most profitable companies do not object to large business taxes.”

In Palo Alto’s case the largest company (by one measure) strongly objected to the business tax.

Its also much easier to administer than a revenue tax. Over half the calls to police & fire are made by businesses. Lastly, saying you wish the tax was higher (as do I) is still a reason to vote for it.


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 17, 2022 at 10:41 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 17, 2022 at 10:41 am

The editorial misses the fact that the tax does less than nothing to offset the costs of all the NEW proposed spending -- $144,000,000 on the risky Fiber project that may result in "catastrophic losses." a new city gym etc. Has it ever occurred to the City to CUT spending and operate more efficiently?

It also ignores that the business community refused to pay anywhere close to its fair share for all the services it uses and the disruptions they've caused resident taxpayers when their employees out-numbered residents 4:1, sticking residents with the costs and inconvenience of permit parking, etc. Those jobs numbers have resulted in PA's unrealistic housing targets even though some of the jobs no longer exist.

Finally the inability of PA to maintain a business registry has made the tax dependent on sq footage, NOT employee counts like all the other cities. And now we're supposed to believe the city can maintain a renters registry and/or manage a competitive fiber network is an insult to voters intelligence.

Send this back to the voters where we -- the resident taxpayers -- are consulted instead of just the business community,


Robert
Registered user
Midtown
on Oct 17, 2022 at 11:32 am
Robert , Midtown
Registered user
on Oct 17, 2022 at 11:32 am

Sooo disappointed in the Weekly who approves of the continuous tax and spend more by the city.

The laughable comment that PA utilities is a flat out lie!

Compare small business utility cost with MP and PA and u will get your answer.

Lastly the audacity to say the increased funds are not binding to spend on Police, schools, public safety blah, blah, blah destroys the entire argument.

Also using the same (Safety) argument to pass both initiatives was extremely WEAK!

I smell a pension bail out you suggest the city will hopefully do the right thing and residents better pay attention???

Just like how the city ripped off residents for years and fought tooth and nail not to return it? And the Post defends this practice?

It's obvious the city will do whatever it can to maintain the status quo of tax and spend just one question has quality of life improved in PA?

By all metrics its getting worse but facts don't matter to the Post because in their world we should always trust the city to do right by the people lol!

The Post was once a beacon for the term "Fair and Balanced" now its just another arm of the tax and spend crowd with no accountability.


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 17, 2022 at 11:49 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 17, 2022 at 11:49 am

"Just like how the city ripped off residents for years and fought tooth and nail not to return it? And the Post defends this practice?"

Sorry but Dave Price at The Post doesn't defend this practice; he's been leading the charge to hold the city accountable on this and other issues, especially its practice of stonewalling the media. He even famously estimated the city's "non-communications" pr budget at close to $3,000,000 a few years ago and routinely mentions the Post's FOIA (Freedom of Information Act) filings to obtain info the city refuses to divulge.

Did you mean to say The Post?

Otherwise I agree with your comments.


cmarg
Registered user
Downtown North
on Oct 17, 2022 at 12:52 pm
cmarg, Downtown North
Registered user
on Oct 17, 2022 at 12:52 pm

What I think would be a possible good scenario is for the Business Tax to be put into the General Fund (If Measure M passes) and then the Utilities profits (Measure L if vote is NO) be used to address climate change things like helping the community with electrification.
I am feeling a Yes on Measure M and No on Measure L would help with our critical need around climate change.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 17, 2022 at 2:08 pm
resident3, Another Palo Alto neighborhood
Registered user
on Oct 17, 2022 at 2:08 pm

@online name,

"Did you mean to say The Post?"

It's possible that Robert was expressing disappointment in the Post, because the Post today said yes to what IMHO are two twisted measures.. with the suggestion that the proceeds of both will go to police and firefighters. There's a quip in their miniscule article about voters "hopefully" paying attention so that the business tax spends as agreed upon by the side agreement that is apparently non-binding.

I am a NO on both measures, because I pay attention. As a resident and voter however, paying attention doesn't matter and while the Post headlines that the measures will benefit the city - that's it. The measures will benefit a bloated city that is badly managed. The fact that both local journals said nothing about any controversy is disappointing.

The Post did follow their yes' with a "Lythcott Haims shouldn't be elected to council" because apparently she sent a tirade over the weekend accusing residents of all sorts of sins. Yet the Weekly endorsed her as two of three candidates with no relevant record.

How can the connection here be missed? That this town elects people who hate residents based on press recommendations and then only ask for more money, providing no accountability, only "hope" that we are paying attention.


Rebecca Eisenberg
Registered user
Old Palo Alto
on Oct 17, 2022 at 7:52 pm
Rebecca Eisenberg, Old Palo Alto
Registered user
on Oct 17, 2022 at 7:52 pm

@Local Resident: the tax that was surveyed to businesses was not the large-company focussed business tax, but rather the small-and-medium-sized business tax that City Council went with. Of course local business community members would object to that.

Had the City Council focussed on a large-business-focussed tax, the objection would not have existed. It did not exist in East Palo Alto or Mountain View. It did not exist in San Francisco or any other city where a similar large-business-focussed tax was on the ballot. Those taxes win. Virtually -- and possibly literally -- 100% of the time.

And, square footage taxes are not easier to administrate; they are harder. Companies already know their revenues because they pay state and federal tax based on revenues. The work is done. Also, payroll taxes are easy to administrate because they are easy to compute by companies. In the case of publicly traded companies -- the work is literally in publicly filed documents every quarter and annually.

Our city has been under its own legal obligation to create a business registry for years, and it is in violation of its own rules. Now it cites its failure to abide by its own rules as an excuse to push through a tax that is irrational and possibly unconstitutional? There is no excuse for failing to follow established precedent on successful taxes, and especially not that excuse. Our community deserves better.


Rob
Registered user
Midtown
on Oct 18, 2022 at 9:02 am
Rob, Midtown
Registered user
on Oct 18, 2022 at 9:02 am

Correction I meant the Post!

No reference to the utility scam or how the city reacted to the legal judgment?

All this while the city attorney was engaged in chicanery while developing ballot language with the special interests?

The cities response was that the grand jury didn't understand election laws???

I understand a corrupt city who continues to lie to get its way.

Over charging customers to pay your sweet retirement benefits is a scam pure and simple but according to the Post this is acceptable because of the greater good??

This is why I sold my business and why many others are leaving what is the vacancy % for PA?

The most unfriendly city regarding small business they only care about their tech overlords.




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