A proposed parcel tax on commercial development that could generate millions of dollars for affordable housing and job training will come before voters this November, the East Palo Alto City Council unanimously decided on Tuesday.
If passed by two-thirds of voters, the "Commercial Office Space Parcel Tax for Affordable Housing and Job Opportunities" would impose a $2.50 per-square-foot tax on commercial office space of more than 25,000 square feet. It could generate $1.6 million annually from existing commercial office stock, according to a staff report. The city could also earn three times as much revenue, however, from the 1.6 million square feet of office space that already has received entitlements if all of that space is built, staff noted. The council also would have the option to reduce the tax or to instate a moratorium in an economic downturn.
The measure is a "special purpose" tax restricted to generating revenue for affordable and supportive housing programs for residents, with an emphasis on building additional units and programs to improve training of residents in technology, engineering, mathematics and retail positions. It would strengthen the city's first-source hiring program and allow up to 15 percent for city administrative costs, according to the staff report.
With Facebook on its border in east Menlo Park and an estimated 1,300 jobs at the newly opened Amazon facility within town, demands for housing for tech workers and commercial development are on the rise. The average home price has jumped to $900,000, according to real estate websites, and some homes now top $1.4 million. The city's working-class and immigrant residents have told the council that property values have left many of them out of the housing picture and more have been displaced by high rents. Add to that picture the recent Hetch Hetchy water-share transfers the city has negotiated from Palo Alto and Mountain View, which allowed the city to lift its new water hookup moratorium last month.
The potential economic impact of the tax hasn't been evaluated, so staff does not know if the $2.50-per-square-foot tax rate would deter development. The report noted that tech and professional services firms in the city are currently paying rental rates comparable to averages in Menlo Park and San Mateo: approximately $4.71 to $7.30 per square foot of space, so East Palo Alto isn't starting out as a bargain.
Staff asked the council to consider the impact of a "stack" of costs related to future office development from fees that are already in place, including the $10-per-square-foot affordable housing commercial linkage fee and still unknown development impact fees; a potential infrastructure assessment district; and city facilities taxes.
Vice Mayor Lisa Gauthier voiced concern about putting the tax on the ballot. She said already developed cities are able to impose the taxes without the potential consequences East Palo Alto might face.
"Mountain View taxed after they have a Google and a LinkedIn that's already there. We're saying that we want to go ahead of the game and create this tax for companies that may or may not come to the city. ... At the end of the day, it's going to be on my shoulders if I make a decision that kills this city. ... So I'm very nervous right now to do what's right for our community," she said.
Councilman Carlos Romero refuted the notion that the city has 40 percent affordable housing stock and the tax isn't needed. The city has a rent-control portfolio, but when someone leaves, that housing converts to market rate. The tax would also not affect medium-sized businesses, he said. He was not concerned about developers failing to build in East Palo Alto if voters pass the tax.
"If we have miscalculated, we can lower the tax -- to zero if we want to. This is one of the hottest commercial markets we have seen and we need to capture some of that. Because if we wait, in a couple of years -- and indeed there may be a downturn in the market -- it will be far more difficult for us to pass this tax," he said.
"It's pretty clear to me that the ultimate arbiters are going to be the voters, and they have every right to determine for themselves whether or not this is what the community needs."