Palo Alto’s elected leaders unexpectedly scaled down on Monday night their plans to raise the city’s hotel-tax rate after several City Council members balked at making the local rate so much higher than in other jurisdictions.
The council majority still favored on Monday placing on the November ballot a 2 percent increase in the transient-occupancy rate, which would raise it from 14 to 16 percent and make it the highest in the state. But after tough negotiations by Mayor Liz Kniss, the council agreed to move to 15.5 percent instead.
Though Kniss was in the minority in opposing the move to 16 percent, she got some unexpected leverage over her colleagues thanks to the California Business Roundtable initiative, a measure that will also be on the November ballot and that would retroactively require any additional tax imposed this year pass by a two-thirds majority.
Because of the initiative, City Attorney Molly Stump advised the council that to avoid potential legal complications, the council should approve the placement of the measure on the ballot by a two-thirds majority (six out of nine members). With Greg Tanaka and Tom DuBois absent, that meant the council needed six out of its seven members present to support the placement of the measure on the ballot to comply with the business initiative.
With little margin for error, the council discussion turned into a hard-nosed negotiation, with Kniss looking to her similarly skeptical colleagues, Lydia Kou and Karen Holman, to kill the proposed 2 percent hike and scale down the measure.
Holman initially said she found herself in a difficult position — “between a rock and a hard place” — because of the circumstances of the Monday vote. Though she said she doesn’t like the idea of raising the hotel taxes by 2 percent, she also didn’t want to derail the council’s infrastructure plan.
“Going to the highest TOT in the state is kind of egotistical,” Holman said. “I don’t think it’s going to play well with the public. And I think trying to raise additional money by a tax is not clearly taking responsibility that we can do a better job in how we spend money.”
At the same time, Holman said she is willing to support the proposal because “the fair thing to do is not to hold this hostage.”
Kniss had no such reservations. After counting the votes and seeing that the majority didn’t have six votes, she proposed a smaller increase. Like Holman, she said she is “uncomfortable with the optics of it.” Unlike Holman, she suggested that she will oppose the measure — possibly dooming it — if others don’t agree to the lower rate.
The increase from 14 percent to 16 percent would have generated an additional $3.4 million in annual revenues, which would be devoted to infrastructure spending. A move to 15.5 percent would yield an expected $2.55 million.
The city last raised its hotel tax in 2014, when voters approved moving it from 12 percent to 14 percent. Going up to 16 percent would give Palo Alto the highest rate in the state, above the 15 percent rate that Anaheim charges. Most cities in the region have rates of 10 percent or 12 percent.
Councilman Adrian Fine also said he doesn’t particularly like the idea of being the state leader when it comes to hotel taxes. But he noted that the city has done its polling, which showed that the hotel tax is the only one that would likely pass. He also indicated that the city will be among the state leaders when it comes to the hotel tax rate whether or not it goes with a 15.5 percent rate or a 16 percent rate. The difference between the two is “marginal,” he said, in advocating for the higher rate.
Vice Mayor Eric Filseth and Councilman Greg Scharff also advocated for going to 16 percent, noting that the move will allow the city to make new investments in the community and pursue popular projects such as the expansion of Boulware Park, which would require a purchase of an AT&T property, and support for the new animal shelter.
“I want to invest in the community,” Filseth said. “If other things work out right, this gives us the possibility to do something after this.”
Scharff tried to win Kniss’ support by proposing moving to 15.75 percent but she held firm and made an amendment to move to 15.5 percent. Concerned about seeing the measure collapse altogether, the council voted 4-2 to adopt Kniss’ amendment, with Fine and Kou dissenting. The council then voted 6-1, with Kou as the sole dissenter, to place the amended measure on the ballot.
Despite initially indicating that she would support placing the measure on the ballot, Holman ultimately decided that she favored Kniss’ proposal more than the one supported by the council majority. And despite the fact that they were in the minority on the issue, Kniss and Holman carried the day on the issue.
“I think you gentlemen have been outmaneuvered by the mayor,” Holman observed shortly before the vote.
Kou had broader concerns about the proposed ballot measure, which has seen a recent surge of opposition from the hotel industry.
“We should have explored a wider means of generating revenue,” Kou said. “I feel like the hotel folks are being targeted on this.”
The city could not get any agreement to raise taxes on residents, so now they try to raise taxes on visitors, and on the way hurt the local hotel business, ending up with less taxes collected.
It’s time a rich city like Palo Alto will use a more financially responsible behavior, and get more done with less money spent. If you want to know how, check with most other cities in our state.
The biggest problems we have with the city’s finances are to do more with the way they spend what they have rather than the raising of them.
Taxes are something we have to live with, but it is much easier to pay for something when we can see how they are being spent wisely. At present, I have seen so much City wastage that I find it hard to agree to anything new in the way our City decides to tax us or those who work or visit here.
What the state needs to do is close the loophole for business in Prop 13. Right now taxes only go up when a business sells, which happens less often than homes. Plus, businesses don’t completely sell. The seller maintains 10% so that the new buyer can maintain the old tax rate. That has to change. This hotel tax isn’t going to change the number of people staying in local hotels by one person.
Last night’s meeting was pretty decent, cordial even, until this discussion. It was ironic to hear Fine admonish his colleagues about playing games. What seems to be lost in the discussion is the concern many people have about HOW money is being spent, with the various traffic calming experiments at the top of the “are you kidding me” list. I also think the budget discussion might have played out differently if the TOT discussion had preceded it.
Impressive presentation last night by Kiely Nose of the city’s budget office. She appears to know the numbers and what’s behind the numbers.
Councilmember Fine said the city has done its polling. The City has done a poll, but it failed to ask whether voters would support a business license tax or a head count tax. The Council majority followed the maxim, “Don’t ask the question if you don’t want to know the answer.”
Arthur Keller’s right about failing to ask if we’d support a business tax or if we would have supported taxing marijuana sales before rejecting the will of the voters who voted for it.
The city may have done its polling so it should know its satisfaction ratings are slipping 20% each year. Only 30% gave the city a satisfactory rating on ease of getting around town yet the city’s going to keep making us miserable with its traffic “calming” which have cost/will cost about $40,000,000.
Say no to wasteful spending by defeating the hotel tax and supporting the ballot initiative to curb office growth.
This is a general response: To ask people living in Palo Alto to vote to raise taxes on motels and hotels…… can no one see how ridiculous this is? They don’t stay at them! I’ve heard complaints from people saying they’ve had to use other towns’ motels after the last raising taxes was passed. Everyone coming to Palo Alto that needs a motel/ hotel is not wealthy or on a business account! Many come for medical reasons. Many are family members in need of a motel while their loved one is in hospital. Having to use a motel in a town farther away is unfair. Palo Alto, you’ve enough money. Where is the compassion?
What about a rental car tax?
@senor blogger
Great idea! Also, taxes on each pet owned by residents. No more budget worries!
20 years here and starting to wonder if it’s time to go. Really loved this city at first. But, it’s changed so much in the last 7 years.
Zero chance I’m voting for this. I did support the raise in 2014. Stop spending money on Bike boulevards and roundabouts, stop budgeting money for a renovation of the Council Chambers, stop the Residential Parking program which is just making our city more and more impossible to navigate for lower-salaried workers.
Oh, and if given the opportunity, absolutely voting yes for the 2/3rd required vote for future tax raises. Make the Council do their work in actually getting this stuff passed by speaking with, and convincing, the residents.
Get real, gang. Somebody in this alleged tech-savvy town needs to do some math. Like, 2% added onto a $1,000 room at the Clement is $20.00. Who’s gonna be priced out of town by that?
Dropping from 16% to 15.5% on the same room is a $5.00 knockdown. Kniss comes through for her friends again.
@20 Years in Palo Alto — yes, it’s time to go. Cash out your house now, the taxes will go up for the next occupant, and we’ll have more money to keep the city solvent.
20 years in Palo Alto,
You lost all credibility when you doubted the success of RPP.
Your criticism of the hotel tax does does seem to have any rational basis. Would you care to provide one?
Interesting decision. So the council managed to reduce the income for the Infrastructure Plan and still have the highest hotel tax in the state. Sounds like the worst of both worlds.
With no Airbnb occupancy tax, I will not support a rise in the hotel tax. Fair is fair.
The city has squandered $8.7 million on changes to Ross, Moreno and Louis that are extremely unpopular with Midtown residents, create added risks for bicyclists and create serious bottlenecks on Ross and Louis Roads. This is part of a $20 million plan to congest traffic in Palo Alto and push more people to abandon their cars. THIS is how Palo Alto uses your taxes! I urge everyone to oppose ANY new tax. The city has no sense of fiscal responsibility.
Let’s not forget about the Middlefield mess. The total figure for past and present roadwork is $40,000,000, not $20,000,000, but either way it’s an outrage, esp. when the city hires outside consultants to decide if it’s “appropriate and feasible” to fix their mistakes and then can’t finish the study because they don’t even have the safety data for Ross or any of their other boondoggles. As someone noted on NextDoor, they’re using data from 2006 — way before we were inundated with so many new commuters.
I’m still waiting for an answer from city officials and the city council on why they’re planting bollards all over town, esp where they’re narrowing lanes, that impede traffic flow and make it perilous for us to get into our driveways.
I agree with you that we need to oppose ANY new taxes until the city reins in its wasteful and dangerous spending.
Raising sales tax .25% would fairly impact everyone.
Would people really drive out of Palo Alto to buy something to save .25% No
The guests of the hotels would still buy food from restaurants and shops. It seems like a very harsh move to TARGET hotels again.
Residents seem fine to vote on raising it but, complain about the high prices when families come to town. Hotels support many non- profits, Stanford patients families with no money by donating rooms.
Why is everything in this town so venemous and divided?
You just have to obsrve the fancy expensive bollards obstructing low-traffic right turns along Middlefield to get an idea of the spendy mentality of the traffic fixers.
Useless? Yes.
Make driving more difficult? Yes.
Safer? No.
Make more millions for the supplier, friend if the Manager? Yes!