Palo Alto Weekly

News - January 17, 2014

Chamber blasts Palo Alto's proposed hotel-tax increase

City Council plans to raise tax rate to pay for infrastructure fixes

by Gennady Sheyner

A proposal by Palo Alto officials to raise the city's tax rate may potentially be popular with voters, but it is already facing stiff opposition from the city's Chamber of Commerce.

Hal Mickelson, a member of the Chamber's board of directors, told the City Council this week that the organization will be urging voters to oppose the hotel-tax increase, should it appear on November's ballot. Mickelson said the Chamber's position is "primarily based on economics." If the city raises its tax rate from the current level of 12 percent to 14 or 15 percent, it would risk driving visitors, particularly corporate clients, to Menlo Park, Mountain View or other cities where the rate is lower.

Recent surveys commissioned by the city to gauge voters' support for funding infrastructure repairs indicated that raising the hotel tax, known as "transient-occupancy tax," is by far the most popular option, with more than 70 percent of survey respondents saying they would support such a tax. Though the number dipped slightly when other revenue options were brought up in the survey, support for increasing the hotel-tax rate consistently remained higher than 62 percent.

Given the poll results and the city's long infrastructure wish list, the council's Infrastructure Committee recommended on Jan. 10 that the city pursue the tax hike and directed staff to begin outreach on the potential measure, which the full council is expected to consider in late spring.

The city estimates that a 2 percent increase would net the city $4.6 million in annual revenues, which could be leveraged to get $64.4 million in infrastructure funding. A 3 percent increase would bring in about $5.7 million, which could be leveraged into $79.8 million to fund projects. The city's infrastructure backlog totals about $180 million and includes a new police building, two new fire stations and a slate of improvements to the infrastructure for bicyclists.

Mickelson argued that in recommending the tax increase, the committee was largely being driven by polls. It did not consider the issue of fairness and the unintended consequences of raising the tax rate. He predicted large employers will take their business elsewhere to save money.

Mickelson said the city, in proceeding with consideration of a tax, isn't asking the kinds of questions it should be considering: whether the tax would be fair, whether it's logical in relation to use and whether the people who would be paying the tax are currently paying their fair share. Rather, it is proceeding with the tax simply because it was told by a consultant the tax would pass.

Mickelson also criticized City Manager James Keene's recommendation on Jan. 10 that the council first consider various funding sources before proceeding with identifying the particular projects each should fund. At that committee meeting, Keene observed that the city has a "very long list of potential needs," with a price tag that is "more than any particular funding measure that we can advance right now."

Keene responded Monday that he had never suggested raising money without considering what the money would be used for. His Friday recommendation, he said, was meant to assist the council in managing its complex conversation over infrastructure improvements.

"I'd never make a recommendation that could at all be seen to look at any tax increase as something casual or something that should not be specifically dedicated to particular purpose," Keene said. "I think that's very clear out of the entire emphasis the council has put forward in the last three to four years on infrastructure."

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

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