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.