News

Palo Alto may seek another hotel-tax increase

City Council committee recommends raising rate from 14 to 16 percent

As construction costs continue to rise, Palo Alto officials are looking to place another hotel-tax increase on the November ballot to help fund their infrastructure priorities.

That was the recommendation from the City Council's Finance Committee, which voted a 3-1 on Tuesday night to recommend raising the hotel-tax rate from 14 percent to 16 percent. If the council moves ahead with the recommendation and voters approve the measure, Palo Alto would leapfrog past Anaheim and have the highest hotel-tax rate in the state, according to staff figures.

The committee's decision to explore another tax was spurred by a new survey that suggested that a majority of voters would support raising the hotel-tax rate (also known as the transient-occupancy rate) to pay for infrastructure projects, particularly those relating to public safety and street condition. According to the survey, which was conducted by FM3 Research and which polled 1,191 residents, about 61 percent of the respondents backed a higher hotel-tax rate.

The council commissioned the poll as part of its effort to address the $56 million gap in its infrastructure plan -- a list of projects that includes a new public-safety building, two rebuilt fire stations, garage in downtown and on California Avenue, a bike bridge over U.S. Highway 101 and various bike boulevards and park improvements.

With its vote, the committee directed staff to put together a ballot statement for the proposed measure and to move ahead with further polling so that the measure can be further refined. The City Council will consider the recommendation on April 30.

In advocating for the higher hotel tax, members of the Finance Committee argued that the additional funding is needed for the city to fulfill the promises it made to voters in 2014, the last time it asked them to approve a hotel-tax hike to pay for infrastructure.

"I think it's really important that we finish what we said we'd do for the voters," Scharff said.

Not everyone was swayed by this argument. Tanaka said he was concerned about the city's financial management and that he would not support a tax measure this year.

"My feeling is that I think we should sharpen our pencils, try to optimize our projects and try to prioritize," Tanaka said. "And maybe next year, think about it."

Tanaka also pointed at the hot construction climate as a good reason to slow down on the city's infrastructure plan and to wait until costs drop.

"What if we wait until there's a deep recession and people are begging for work, versus doing it now when we can't get bids?" Tanaka asked.

Tanaka also wasn't keen on having Palo Alto's hotel-tax rate be so much higher than in neighboring cities. Mountain View's rate is currently 10 percent, while Menlo Park's is 12 percent. Currently, Anaheim is at the high end of the scale with 15 percent.

Scharff argued that the hotel-tax rate has a negligible impact on hotel occupancy and noted that other cities, including Anaheim, have other fees that get tacked on to the bill. Tanaka was less certain.

"I wouldn't be so flippant about being 60 percent higher than neighboring cities," Tanaka said, referring to Mountain View's rate. "At some point, it does matter."

Councilwoman Lydia Kou also suggested that the city take a fresh look at its ongoing projects, in light of the changes in the construction climate. The council and staff suould reassess whether any of these projects should be scaled back or altered. As an example, she proposed revisiting the city's decision about the location for the future public-safety building.

"Most projects I think we should re-evaluate and see if there's an alternative so that we don't have to spend as much money on it," Kou said.

In arguing against the higher tax, Tanaka cited the survey's finding that a growing number of residents are increasingly displeased with the direction the city is going. In 2013, 75 percent of the respondents gave the city high ratings for maintaining the city's infrastructure and 62 percent lauded the city's management of budget and finances. This year, the percentages dropped to 64 percent and 47 percent, respectively.

David Metz, partner at FM3, said the drop in public opinion isn't unique to Palo Alto. Virtually every community that his firm has polled had the same dynamic, he said.

"As has been the case with most cities in the Bay Area over the course of the last year, we've seen the overall public mood become a little more pessimistic," Metz said. "An increased number of voters think things are on the wrong track, rather than going in the right direction."

At the same time, the survey showed that a majority of voters would generally support investing more in infrastructure and would be willing to spend up to $100 annually to make it happen.

While the hotel-tax increase is the most popular proposal among the options polled, it's not the only one that could prevail in November, according to the survey. According to the FM3 survey, 53 percent of the responders indicated they would be willing to support an increase to the real-estate transfer tax rate, which the city collects when properties are sold.

Given this result, the committee agreed to leave the door ajar on the real-estate transfer tax. Though it did not recommend moving ahead with a measure that would raise it, it directed staff to do additional polling and gather more information about such a measure.

Proceeds from this tax could potentially fund projects that were added to the council's wish list after the 2014 measure. These include new parks and recreation facilities, an updated animal shelter and the city's portion of the renovation to the Junior Museum and Zoo (a project that is being built largely with private funds).

At the same time, the committee agreed not to proceed any further with measures that would raise the sales tax or create a parcel tax -- proposals that the survey indicated would likely fail. The parcel tax idea only received support from 40 percent of the respondents, while only 27 percent said indicated they would support a higher sales tax.

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Comments

30 people like this
Posted by Makes no sense
a resident of Fairmeadow
on Apr 17, 2018 at 10:28 pm

No way I am going to support more taxes with the way Council lavishes itself with a $2M upgrade of Council Chambers


13 people like this
Posted by Random
a resident of Downtown North
on Apr 18, 2018 at 9:25 am

Increasing the hotel tax is always popular because out of towners pay for the benefits enjoyed by those living here. As Mr. Tanaka notes, at some point, it does matter that we have the highest hotel tax rate in the area. Mountain View is seeing an explosion in hotel construction and growth.

Palo Alto increasingly makes it more and more difficult for businesses to succeed here. It is unclear how it is necessary to do a poll to make the determination that residents would always much prefer non-residents pay for things. This is so obvious.

In a boom economy perhaps the different in hotel tax rate won't matter. Wait until a down economy - then Council will wonder where all the hotel revenue went. And we can point left and right to Menlo Park / Redwood City and Mountain View.

Short-sightedness.


26 people like this
Posted by resident
a resident of Crescent Park
on Apr 18, 2018 at 10:32 am

The city council is too afraid of the tech companies to make them pay for the infrastructure that they use with a common sense tax on employee headcount or square footage. Instead, they indirectly tax the tech companies with a hotel tax that primarily impacts business travelers.


14 people like this
Posted by Resident
a resident of Midtown
on Apr 18, 2018 at 10:55 am

The topic is really upsetting to begin with.

This city has more money than most cities in the world, and still cannot make its budget work. This is clearly a matter of incompetence. If city officials cannot do their jobs with the existing budget, they need to be replaced by someone who can.

The survey results are also interpreted in a misleading way. People are already paying a lot of taxes in Palo Alto, and clearly don't want to pay more. Instead, they vote for having someone else pay the bill for them, probably without carefully considering all the consequences. Putting the burden on hotels or other businesses will only hurt these industries and make them leave the city, leaving us with a smaller budget.

A big shout out for Mr Tanaka, who seems to be the only person looking at this issue with the correct view.


16 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Apr 18, 2018 at 11:11 am

Online Name is a registered user.

Expect even more RV's lining El Camino and elsewhere since many Stanford patients and their families and Stanford construction workers have been priced out of most of the hotels and motels.

How about if PA starts controlling its spending instead of trying to raise taxes and utility rates?


11 people like this
Posted by Novelera
a resident of Midtown
on Apr 18, 2018 at 11:40 am

Novelera is a registered user.

As usual, Tanaka's comments make no sense. While I am ambivalent about a hotel tax increase, I do resent any additional funds being available to the current city council. They could have offset part of the shortfall by leaving Ross Road alone!


16 people like this
Posted by Bill
a resident of Barron Park
on Apr 18, 2018 at 1:50 pm

I agree with the comments from Mr Tanaka and Ms Kou quoted in the article. Although unpleasant, the City needs to go through the list of projects and re-think what's realistic and possible given the escalating costs. Obviously, the new public safety building is becoming a budget buster. That project has gone from $47 million to $91 million, with another $40 million for the adjacent parking to garage.

There aren't many details in Gennady's story, but I'm guessing that the City would plan another round of Certificates of Participation (COP). Future revenue from the hotel tax would be used to "gladly pay you Tuesday for a Public Safety Building today" and get secured against the City's general fund. That seems like a lot of new debt given the rising pension obligations and City's COPs from the first round of infrastructure financing.

Honestly, I don't think Mr Scharff has his head screwed on right. "I think it's really important that we finish what we said we'd do for the voters" is a joke, right? This voter would be happy if citizens don't get burdened with several hundred million dollars of debt for the next 30 years. But, it's all about Greg Scharff, isn't it? Doesn't he own property next to California Avenue?


8 people like this
Posted by Gale Johnson
a resident of Adobe-Meadow
on Apr 18, 2018 at 2:43 pm

Gale Johnson is a registered user.

@Resident
Amen...you can see my comments on the PA golf course article elsewhere on PAO. Tanaka is truly looking out for our best financial interests...on all issues. Good for him. He treats it personally, as if it was coming out of his own pocket...like a family budget decision. No other CC member seems to treat it that way. It's free money to spend, not free to taxpayers, however. Keep up that good oversight, Greg.


9 people like this
Posted by Cynthia
a resident of Community Center
on Apr 18, 2018 at 11:54 pm

For goodness sake, TAX THE BUSINESSES DOWNTOWN! Palo Alto is the only city in the Bay Area who isn’t doing this!

Surrounding cities are funding (lots of!) new benefits for their residents through business taxes.

Why are own downtown’s businesses exempt?


12 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Apr 19, 2018 at 2:10 am

Online Name is a registered user.

Yes! Start taxing the businesses and stop the CC from its out-of-control spending. It's becoming almost Kafkaesque as the detailed article about our new $1,300,000 rail consultant highlight,

Web Link

Mr. Tanaka was the only voice of fiscal sanity questioning the rush by Cory and Fine (the chair and a member of our Rail Committee) to hire the consultant and to try to understand the difference between the new consultant and the 2 others billing $1,100,000 and $400.000.

I guess Cory was more focused on the soda tax than on the rail project on which we now allegedly need to spend a million dollars to play major catch up.


7 people like this
Posted by Randy
a resident of Community Center
on Apr 19, 2018 at 8:58 pm

With no matching tax on Airbnb rentals in this city, I will not support a hotel tax. Airbnb is a hotel service, an unregulated hotel service which can negatively impact neighbors with little recourse. Airbnb offers a transient occupancy service, which is exactly what a brick and mortar hotels offer, and that is why a hotel tax is called, a 'transient occupancy tax'.


3 people like this
Posted by Concerned
a resident of Old Palo Alto
on Apr 20, 2018 at 9:03 am

Increasing the hotel tax will force many companies who place their people in Palo Alto for office convenience to require their employees or visitors to travel a bit further and stay in neighboring cities. They are frustrated enough already with the rates that are being charged in the immediate area, an additional 2% to the company who pays for frequent inbound travel will add up and make them reevaluate their hotel choices. Palo Also will ultimately lose more money than they hope to gain with this additional 2% as hotels in the neighboring communities will step up their marketing efforts and use this to their advantage.


4 people like this
Posted by With Apologies ...
a resident of Crescent Park
on Apr 20, 2018 at 7:15 pm

... to Russell Long

Don't tax you,
Don't tax me,
Tax that fellow at the DoubleTree.


Sorry, but further commenting on this topic has been closed.

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