Palo Alto modifies business tax as decision deadline looms | August 5, 2022 | Palo Alto Weekly | Palo Alto Online |

Palo Alto Weekly

News - August 5, 2022

Palo Alto modifies business tax as decision deadline looms

City Council moves forward with more exemptions

by Gennady Sheyner

After seeing its negotiations with the business community fizzle, the Palo Alto City Council pushed forward on Monday with its plan to place a business tax on the November ballot.

In doing so, however, the council agreed to revise the tax measure to exempt all businesses with less than 10,000 square feet of space, a change that effectively excludes all small retailers from the tax. A prior version of the proposed tax would have included businesses occupying at least 5,000 square feet.

Council members also moved to set the rate at 11 cents per square foot, a shift from an earlier proposal that would have set the rate at either 6 cents or 12 cents, depending on the size of the business, and The council left the door slightly ajar for last-second changes based on a potential agreement with a coalition of business groups that are opposing the tax. Council member Tom DuBois suggested that it's still possible for the council to tweak the proposal before the final resolution is adopted on Aug. 8, the council's last meeting before Santa Clara County's Aug. 12 deadline to place the measure on the ballot.

Barring any surprising developments, the council's action means that Palo Alto voters will get to weigh in on a tax measure that would raise roughly $15 million per year, with the proceeds used to fund public safety, transportation and affordable housing. The council voted 5-2, with council members Alison Cormack and Greg Tanaka dissenting, to support the revised proposal, which was based on recommendations from its ad hoc committee.

The committee's three members — Mayor Pat Burt and council members DuBois and Eric Filseth — all argued Monday that the proposed tax would have a modest impact on large businesses, amounting to about 1% of rent costs.

There was no indication, however, that the revision to exempt more than 50% of Palo Alto businesses from the tax would bring the council any closer to a compromise with the coalition of business leaders that is opposing the tax. That group that includes the Silicon Valley Leadership Group, the Palo Alto Chamber of Commerce and NAIOP Silicon Valley, association that represents commercial developers. Dan Kostenbauder, vice president for tax policy at the Silicon Valley Leadership Group, submitted a letter to the council prior to the Monday discussion arguing that Palo Alto's tax would be "disproportionately higher than the business taxes in neighboring communities."

He noted in the letter that Sunnyvale caps the tax that any business would pay at less than $14,000, while San Jose has a cap of less than $167,000. Palo Alto's proposed tax, however, would not have a cap of any sort, which creates a "significantly higher tax burden."

One company that is opposing the tax is Maxar Technologies, a manufacturer of satellites and other space technology and parent company of SSL (formerly Space Systems Loral), which has a manufacturing facility on Fabian Way.

Karen Cox, vice president for government relations and public policy at Maxar Technologies, asserted that the tax would be "particularly onerous for manufacturing, industrial and research and development facilities that often require substantial amounts of square footage that are disproportionate to their revenue stream or economic impact."

"For example, our company builds large satellites, robotics and spacecraft systems that require a significant amount of square footage," Cox wrote. "Basing the business tax on the square footage of the company's operation will penalize these important sectors of the city's economy and may encourage them to move elsewhere."

The vast majority of the speakers at Monday's meeting fully supported the tax effort, with many pointing out that Palo Alto is an anomaly in not having a business tax. Alex Comsa, a Realtor who is running for a City Council seat, noted that local businesses have been facing annual rent hikes of 5% or more over the past few decades, a factor that far exceeds the impact of the proposed tax.

Mayor Pat Burt agreed and suggested that the notion that a 1% rent increase would drive the decision on whether a company stays in Palo Alto "just doesn't add up from a practical standpoint."

He also stressed the importance of raising money for the three areas targeted by the tax, particularly affordable housing. The city currently does not have anywhere close to the resources that would be required to meet the state's mandates for constructing below-market-rate housing, which typically relies on government subsidies.

Other residents pointed to the need to raise revenue for grade separation, the redesign of rail crossings so that tracks would not intersect with roads. Palo Alto is currently planning for grade separations at the Churchill Avenue, East Meadow Drive and Charleston Road crossings — projects that will cost hundreds of millions of dollars. While some of the funding for grade separation is expected to come from Santa Clara County's Measure B of 2016, as well as other sources, local funds will also be crucial, said Nadia Naik, who served as co-chair of the Expanded Community Advisory Panel, a group that analyzed options for grade separation.

Keith Reckdahl observed that a generation ago, city taxes were evenly split between residents and businesses. Today, residents pay the vast majority of the taxes. The proposed business tax wouldn't even come close to restoring the parity, he said.

"If businesses are chased out of Palo Alto, it's because of landlords' rent increases, not because of this tiny tax," said Reckdahl, who serves on the Planning and Transportation Commission but spoke as an individual.

Tanaka and Cormack remained opposed to the tax, though for different reasons. Cormack was open to the idea of a business tax but argued for a lower tax rate, something in the neighborhood of 5 cents per square foot. The measure, she suggested, would have a higher chance of passing with a smaller rate.

Tanaka categorically opposed any attempts at business tax, arguing that it would hurt the local economy. On Monday, he argued that the city already has a huge budget and doesn't need another tax.

"We have to spend within our means," Tanaka said.

Email Staff Writer Gennady Sheyner at [email protected]

Comments

Posted by Citizen
a resident of College Terrace
on Aug 2, 2022 at 5:29 am

Citizen is a registered user.

No new taxes that will then be passed on to consumers and/or reduce employee pay. Inflation is almost 10% and the city of Palo Alto wants to impose higher taxes.

Live within your means, City.


Posted by Bystander
a resident of Another Palo Alto neighborhood
on Aug 2, 2022 at 7:31 am

Bystander is a registered user.

This sounds more like it.

Saying this, I hope to hear more cost saving measures by the city that doesn't reduce services for residents. I would prefer them to reduce costs at the top, not the bottom, rung of the ladder. Can we do away with some of the pen pushers, fancy titles and endless studies done to no avail!

Thank you.


Posted by Local Resident
a resident of Community Center
on Aug 2, 2022 at 9:34 am

Local Resident is a registered user.

It's about time! Almost every other city in the Bay Area has a business tax. Palo Alto has 100,000 employees and 68,000 residents. Those employees and businesses consume a lot of city services. They need to pay their fair share.

Also, if you truly believe in affordable housing then I hope you support this. Everyone needs to pay for affordable housing including businesses that are the source through their rapid expansion in Palo Alto and elsewhere.


Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Aug 2, 2022 at 9:47 am

Online Name is a registered user.

Shane on Ms Cormack for preferring the Utility Transfer tas which impacts all of us who live here instead of a business tax opposed by her corporate backers like the SVLG, Chamber of Commerce and big tech who can't "afford" a measly business tax but willingly spend hundreds of millions of dollars lobbying against paying gig workers a living wage and/or benefits because residents are supposed to pick up the tab for housing for their workers and the homeless they create.

Be wary of anyone emdorsed by Ms. Cormack and the business bloc refusing to pay their fair share.

No on the Utility Transfer Tax. Yes on the Business Tax.


Posted by Palo Alto Resident
a resident of Downtown North
on Aug 2, 2022 at 10:10 am

Palo Alto Resident is a registered user.

Cormack's behavior has been increasing disappointing (shameful?) as her time winds down. She is all-in on the corporate agenda, lined up side-by-side with Tanaka. Her view seems to be to tax residents and cut services, rather than ask businesses to pay 1% of rent starting 2 years from now!

That wing of the local Dem party (the Kniss branch) is pernicious. Most Palo Altans are supportive of both local and national businesses, but larger businesses need to do their share.


Posted by What Will They Do Next
a resident of Old Palo Alto
on Aug 2, 2022 at 10:42 am

What Will They Do Next is a registered user.

So we're in the middle of the Biden recession, Bidenflation, Biden surge in fuel costs aka the Putin price hike at the pump, Biden supply chain disaster and more. So what does the city want to do? More taxes on businesses that they will then pass on to the consumer. Yeah, that makes sense.
In the meantime, you can start writing checks to Palo Altans for the refunds you owe residents for illegally taxing us on utility gas costs. You've already got the 12.5 million set aside. Pay it out in one chunk now before you move it somewhere and blow it on some useless feel good boondoggle.


Posted by Consider Your Options.
a resident of Another Palo Alto neighborhood
on Aug 2, 2022 at 11:38 am

Consider Your Options. is a registered user.

Palo Alto has roughly 68,000 residents, but our daytime population (including the people who commute in to work) is more than double that. Only a handful cities in the nation see a shift of that scale each work day. Our city staff has to support infrastructure to meet the utilities, transportation, emergency services and other needs of these businesses and their tens of thousands of employees. While I agree that the city could manage its resources better (There is always room for improvement.), it is important to accurately portray the size of the population the city serves.

This tax is moving toward something I can support.


Posted by peppered
a resident of Community Center
on Aug 2, 2022 at 12:28 pm

peppered is a registered user.

Just what we need in over-taxed California to motivate more companies to ditch us and move to Texas. That way our beloved city services won't be strained, our restaurants won't have to deal with so many customers, we'll have all the parking we want, and most importantly, our elected officials will be able to spend freely on their pet projects.

Enough already. Just say NO, NO, NO.


Posted by Interested Reader
a resident of Old Palo Alto
on Aug 2, 2022 at 12:33 pm

Interested Reader is a registered user.

To those claiming that this is the wrong time for a modest tax on businesses, keep in mind this tax takes two years to go into full effect - and recessions typically last 6-12 months (see Web Link

This tax would be between 1-2% of the rent on those large businesses - who already pay a premium to base themselves in Palo Alto - and stick around despite rents going up roughly 5% per year. And this would not impact the retail vacancies everyone cares about - this is a tax on the big folks in places like the Stanford Research Park.

And, this tax benefits those companies - they need Fire and Police protection, they need better public transportation and a reduction in local congestion, and they need more housing in Palo Alto so the people they want to employ can live closer to work.

This is a win/win.


Posted by mjh
a resident of College Terrace
on Aug 2, 2022 at 1:14 pm

mjh is a registered user.

For any company that leases space in Palo Alto this tax will ultimately be paid by the commercial property owner who may have to lower what they charge in order to remain competitive with other cities Almost all of whom already have a business tax!


Posted by Annette
a resident of College Terrace
on Aug 2, 2022 at 3:28 pm

Annette is a registered user.

We should have had a business tax years ago. And I think this one should be specific rather than general. The current Council will memorialize its intentions for how the revenue is to be spent. That's good and to paraphrase Burt: "Good luck getting re-elected if you don't stick with that plan". Assuming it passes, I've no doubt this Council and the next one will recall and honor the promises made about revenue from this tax. But what about 15 years from now if expenses exceed income and pension obligations are still not under control? Or we have a City Manager with an agenda that doesn't mesh with promises made 15 years previously? Will the 2037 Council abide by a 2022 Memo of Intentions or dip into the General Fund for purposes other than those promised today? A specific tax requires that the revenue be spent as promised. That makes sense to me.


Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Aug 2, 2022 at 5:43 pm

Online Name is a registered user.

@peppered, first off restaurants, hotels and most retail establishments are exempt from the tax. And its not as if the businesses cared much about sustaining the restaurants so they'd also go shopping when they were out to lunch since they lunched in company cafeterias that generated no sales tax revenue.

Restaurants BEGGED Palantir, Google etc to let local restaurants cater their cafeterias but were repeatedly told no, it was cheaper for them to work with the big food service companies.

Talk to local restaurant owners to validate what happened to their lunch business long before Covid.

The companies could easily have supported local restaurants and retailers AND paid for their employees to park in the city garages instead of in the neighborhoods, forcing residents to pay for parking permits. But no. Like the business tax, it's just never ever the right time for them to give back to the community.


Posted by Native to the BAY
a resident of Old Palo Alto
on Aug 2, 2022 at 8:38 pm

Native to the BAY is a registered user.

@yawn. Every BA city except PA has realized the climate/humanitarian crisis at hand. PA is the West Coast version of Tulsa OK, 1928. Though PA did not actually burn down it’s buildings with residents then housed or their dwellings and biz, they enacted “redlining” rules that has consequently decimated 100 years of potential inclusion. (BTW NYC did this in 1970’s by burning out low income housing for its land value). So landlords currently deny low income, long time residents by shear rental/property “market rate” price. Substandard dwellings priced w inclusion of a 1990’s ceiling fan (or not)shared laundry, shampooed carpets, semi-new white non-energy star appliances, new linoleum (haha) ... No pets policy. Hard wood floors w no additional on site storage or parking, so little of it fetches a whopping $1000 more per square inch per 2B/1B unit a month. And must have 700 credit score $10000 in the bank, 3 times income to rent ratio, no eviction, no unpaid parking tickets, no kids, for a mere 800 sqft 2B/1B mid 1970’s near tear-down. $35-60 application fee. All while a pandemic has squandered our life savings moral fortitude, jobs etc. Absurd! Re address the City Charter! If BLM or Asian Hate or anti Semitic crime matters! It ain’t so hard. Yet. Let’s see. Hmm. An attorney, a realtor, tech wackies running for City council. Near 50 % of Palo Altanans are renting. Whether a $3000 or $10,000 a month property. And a single, lone council member who rents sits on the Dias!? Are we not outraged enough? Trump the epitome of bad lawyering and real estate ing his presidency, ripping out our rental HW floors for cheaply manufactured carpets. Is this not the town of the Grateful Dead, Jefferson Airplane, Joan Bias??? Protest songs, my square foot, cramped dwelling. Sounds like that era is just homegrown raspberry 1960’s jam? Oh yeah. Walk around your start ups, bare foot, Levi jeans and t-shirts with Truck’n on your AirPods, yet forget about your off spring and our future!


Posted by MargaretJ
a resident of Greenmeadow
on Aug 3, 2022 at 3:01 pm

MargaretJ is a registered user.

The role of the California municipality institution in providing the kinds of results people want has never been more in question. We face a time of often destructive hyper-partisanship and competing streams of influence...from valley water district to ABAG housing quotas, the California state authority has for the moment adopted a position at the extreme heavy government left in the hyper-partisan divide, leaving municipalities to respond as we will as increasingly the center authority in san francisco and sacramento have gone out on an extremist limb in directing our existence

We have to ask ourselves if we are to go along and be a compliant player in the state's political fashions of high taxes and big government, or to find our own way as a unique and forward thinking and self governed village.

Others point out the terrible timing of this new tax. Just after the twin hurricanes of covid lockdowns and disruptions, facing record inflation and recession.

what we need to ask is this: what is the city thinking in putting a whole new, and not insignificant burden on businesses at this particular time?

taxes can be for two reasons
1 because a government entity is in need of money
2 in the case of a specific group targeted by a tax, a government process has determined a certain group of people need to be punished

We oppose this initiative .. we oppose the expense and distraction of subjecting the voters to a vote for a special FAT tax targeting businesses that in these times will most certainly not pass. In days of awareness about the commute and our carbon footprint, we should wish not to chase businesses from working in Palo Alto. We see no reason that it is in our interests at this time to punish businesses in our town struggling just to survive. Please let wisdom be the order of the day, and do not force us to go to the ballot to reject this tax.


Posted by Eric Filseth
a resident of Downtown North
on Aug 4, 2022 at 12:33 am

Eric Filseth is a registered user.

I wouldn’t use the exact language @margaretj did, but her notion of

(1) somebody needs the money

is basically correct. In the pandemic, City revenues fell about 20%, triggering the service cuts we all remember: Police, Fire, Libraries, Youth services, Art Center, others. Revenues, especially from visitors, have only partially recovered. The City used Federal Stimulus funds to restore services, but these are temporary; after that, the City either needs new revenues or else must cut services again. That’s the issue.

Her second point isn’t quite right. Nobody likes to pay tax, but it’s about appropriateness, not “punishment.” If (1) is correct and revenues are needed, where is the appropriate place to find them?

Over time, business employment in Palo Alto has grown much faster than population; yet business’ share of taxes to fund services has not. Business has added more of the people, but residents are paying more of the taxes. Two key causes are shifts in property taxes, and to non-sales-tax businesses like Tech and Enterprise Services.

In addition, the rapid influx of high-wage tech employees to Palo Alto and elsewhere has contributed heavily to the region’s inequality and housing woes - impacts which have fallen on communities. Residents alone cannot pick up these costs; corporations, especially Tech, must help.

Most other cities have business taxes; Palo Alto uniquely does not. This measure is modest: about half of East Palo Alto’s tax, small businesses pay nothing, and for large businesses would be a one-time fraction of most annual commercial rent increases.

Everyone benefits from stable basic services and housing; it’s never a good time to interrupt these. If voters choose this measure, the city’s top funding priorities are: permanently restoring Public Safety and other services; funding Affordable Housing and homeless services; and safe rail crossings, essential as Caltrain electrifies. If voters choose cuts instead, these things will be missed.


Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Aug 4, 2022 at 11:09 am

Online Name is a registered user.

Eric, all true. Palo Alto is paying the steep price for its over-reliance on and short-sighted support for commuters, hotel taxes and offices instead of residents and resident-serving businesses, even going so far as to support and allow "fake retail" sites like Institute for The Future that displaced real retail.

At the same time the City Manager's office is allowed to expand its staffing levels with too many very highly paid managers, assistant managers, etc. while the real resident-serving functions like police, fire and libraries keep getting cut.

While I support the business tax and condemn the business community for their constant song that "it's not the right time" because it's never the right time, let's hear some calls from Council for accountability.

Also, look at the surrounding communities of Redwood City, Los Altos, Menlo Park and others where their local businesses have organized events each week (and some twice a week) to bring people downtown -- all WITHOUT the city funding.

What's wrong with Palo Alto and its business community and wealthy residents? Why, for example, is the Chan-Zuckerbeg Foundation sponsoring the great Friday night concerts that attract thousands each week in Redwood City rather than in Palo Alto since they're Palo Alto residents? The owner of the Nature Galley, now happily on State Street in Los Alto but formerly of Town & Country and a Palo Alto resident, organized the very successful First Friday event where 12 bands play for free on 2 of the downtown main streets again at no cost to Los Altos taxpayers.


Posted by Bystander
a resident of Another Palo Alto neighborhood
on Aug 4, 2022 at 11:48 am

Bystander is a registered user.

I have attended Parades in Redwood City, Fireworks in Mountain View, and a Chili CookOff in Palo Alto. This year the Chili Cookoff had no Chili. The May Fete used to be a big event with carnival atmosphere. Now it is an apology of a parade.

Palo Alto has very little community spirit compared to our neighbors. It shows that residents' needs are very low down the list of priorities. I spend more time out of town for recreation than I do in town. It is time to look at what makes this town thrive as a community rather than a dormitory where people just sleep, eat and work.


Posted by Native to the BAY
a resident of Old Palo Alto
on Aug 4, 2022 at 5:19 pm

Native to the BAY is a registered user.

@margaret read my post “raise the tax!”

@EricFilseth Stimulus used to restore our services”? Please do line item ? You mean kept flushing our toilets, and improving the electric grid? Or what? I thought it was used for cost of living increases for highly paid city staff, like CM Shikada ! So much for together again!


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