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Palo Alto forged ahead Monday in its long march toward placing a business tax on the 2020 ballot when the City Council majority signaled its support for charging local companies to pay for big-ticket transportation projects.
The council did not specify Monday whether the tax would be based on employee count, which is the most common practice by cities in the region, on payroll or on square footage. Nor did members reach a consensus on whether this will be a “special tax” that requires a two-thirds voter majority to pass or a “general tax” that only requires a simple majority. But after hours of sausage-making, members rallied around a long motion proposed by Councilman Tom DuBois that authorizes the city to start polling residents and reaching out to businesses about the proposed measure.
By a 6-1 vote that in some ways belied the divisions on the council, members generally endorsed the decision by the Finance Committee, which agreed that the business tax should focus on transportation and affordable housing and that the city should consider other mechanisms, including a possible bond, for funding other community needs, including redevelopment of Cubberley Community Center and the next phase of the Junior Museum and Zoo reconstruction.
The council largely agreed that transportation should be the main focus of the measure, and housing a distant second. A large percentage of the revenues is expected to be devoted to grade separations, the much-debated realignment of the railroad tracks so that they would no longer intersect with local streets. The city is now in the midst of winnowing down its menu of preferred alternatives for grade separation, some of which are expected to cost more than $1 billion.
Council members clashed, however, over how aggressive the city should be with the tax measure. DuBois, who chairs the council’s Finance Committee, suggested that the measure should raise up to $50 million annually, with about $30 million devoted to grade separation and the rest devoted to other transportation projects and to affordable housing. Councilwoman Liz Kniss took the opposite view and argued for a much lighter touch.
And while DuBois favored a “general tax,” with some revenues going to the general fund to support basic city services, Kniss aligned with the business leaders and said the city should do a “special tax,” which spells out exactly how the money should be spent.
In making his proposal, DuBois noted that Palo Alto is one of few cities in the region that doesn’t have a business tax. As such, it is “decades behind,” he said.
He also argued that the tax revenues shouldn’t have to “all go back to business.” Some of the revenues, he said, should go to the general fund to pay for basic city services, which benefits everyone. He also noted that Palo Alto is one of few cities in the region that currently don’t have a business tax.
“If we can address our congestion issues or affordable housing issues — those are long-term benefits to both residents and businesses,” DuBois said. “It all depends on if you’re taking a short-term or a long-term view of what a balanced community could look like.”
Kniss said the DuBois’ proposal is relying too much on businesses and questioned whether the proposed scheme constitutes “need or greed.” The idea of raising $50 million from a tax is “taking us over a boundary that is making me very uncomfortable,” Kniss said.
“Are we at the greed level? Do we need another $50 million a year in income for our budget?” Kniss said.
Her position largely aligned with those of area business leaders, several of whom attended the Monday meeting and encouraged the council to either drop the tax proposal or to involve local businesses in crafting the proposal. Several argued that whatever benefits the city gains from the tax should be used for projects that support businesses, including economic development. Others, including Judy Kleinberg, president of the Palo Alto Chamber of Commerce, argued that the measure, if approved, should be a “special tax,” subject to two-thirds approval. Only a special tax, she said, would provide the city with the needed transparency and accountability.
Barbara Gross, a member of the Palo Alto Downtown Business Association board of directors, noted that grade separations are an improvement that will benefit everyone and, as such, should rely on revenues from all sectors of the city.
“We feel from the business perspective that everyone should be willing to pay for those improvements,” Gross said. “For a city to raise capital and to address the needs, everybody needs to contribute their fair share.”
Georgie Gleim, owner of Gleim the Jeweler and member of the Downtown Business Association board, concurred.
“Projects like this should not be all on the backs of businesses,” Gleim said.
Most council members, however, agreed that the business tax is just one of many revenue sources that would be needed to fund grade separations. Former Mayor Pat Burt noted that a major source is Measure B, the 2016 county measure that raised sales taxes for transportation improvement. It’s only fair that businesses also chip in, he said.
Burt said Silicon Valley has historically been a very “low tax” area for businesses and that the tax Palo Alto is considering would amount to a premium of about 1%.
“The notion that businesses would pick up and leave over a 1% premium is completely out of kilter,” Burt said.
Others weren’t as sure. Deputy City Manager Michelle Poche Flaherty said the city is trying to find a “sweet spot” between getting the revenues it needs without imposing too much burden on the business community. Some businesses, particularly in Stanford Research Park, contribute significant property and sales tax revenues. Losing these key tenants, she said, could prove very costly.
Tiffany Griego, managing director of Stanford Research Park, concurred and noted that the park brought in about $36 million in revenues for the city and the school district. She urged the council to tread carefully on putting together a tax proposal.
“Businesses large and small do weigh the costs of doing business in Palo Alto, and how business friendly a city is, before making decisions about making their point of sale,” Griego said. “They take all of this into account.”
The council agreed that the new tax shouldn’t be too onerous and that it should bring in enough revenue to comprise between 1% and 10% of the general fund (the city’s general fund currently stands at $232 million).
Councilman Greg Tanaka, the lone dissenter in the 6-1 vote, said the city is “putting the cart before the horse” by creating a tax without first figuring out exactly how much money it needs for the projects it wants to pursue.
“There aren’t enough specific reasons for the tax,” Tanaka said.
But Councilwoman Alison Cormack, who sits on the Finance Committee, generally supported the idea of moving ahead with a tax. The city has been dealing with issues of transportation and housing for the past century and the current budget does not meet these needs, she said.
“I think it’s pretty clear that we need to make some major investments in our transportation infrastructure and services,” Cormack said.
Our taxes are never enough for elected officials.
There’s little accountability, no guarantee of results or efficiency.
Money is the opiod of politicians.
It’s about time. The idea that taxes are always too high is counter to living in a society. If you like civilization, pay taxes. Otherwise, you may be happier in a more rural community.
So Judy Kleinberg thinks it should require 2/3 of voters to pass. That sure sounds like the Chamber wants a high enough bar to perhaps prevent it happening at all. And, even better, after it fails, there won’t be another effort to get such a tax.
Every single city on the peninsula has such a tax. Frankly I’m appalled that businesses profiting from living in such an affluent community are fighting tooth and nail against paying their fair share.
Those of us who’ve lived in this town for many years (37 for me) have watched as many, many businesses appear to want to benefit from the “cachet” of a Palo Alto address. I certainly doubt that a reasonable business tax is going to dis-incentivize these carpetbaggers.
I tend to agree with Novelera. Just moving to PA in 1961, after receiving a job offer from Philco’s Western Development Labs, made me feel special, and when I later took a job with Kaiser Electronics in 1964 in their facility in Stanford Industrial Park, it made me feel even more special. The name of the city along with the Stanford connection made me feel more special and proud and I think it might have impressed some of my friends, neighbors, and relatives. I wasn’t smarter than I was before (I never attended Stanford), but it might have given that impression. Giving credit to businesses having brains (at least the ones running the businesses)…I think they think along those same lines. A slow move on the business tax is best. It should reveal what impact and tolerance level it would have on companies that want a Palo Alto address, how much it’s worth. If they have smart people on their financial side, a 1-2% difference isn’t going to be a show stopper and a cause to move.
I have watched most of the council sessions online and I like what I see. They seem to be more respectful and civil towards one another than the previous 9 member council. We’ve got a good team together.
We just finished raising the hotel business tax to 15.5 percent. Are we raising it again?
A business tax could be a good thing, if it’s dedicated to capital projects for the public good. A business tax would be a bad thing if it’s being done because “every other city has one”.
The key question is the city government trustworthy enough to spend the money on actual capital projects, or will this be another funding mechanism for salary increases, goofy pet projects of city management and city council.
We just passed raising the hotel tax – show us where that money went. We voted for sales tax increases for improving transportation – but many of our streets are still needing repaving. Remember the parcel tax that suppose to reduce class sizes and provide other services? it went to multiyear salary increase for the school district employees and management.
I’m not against a business tax if its done properly. I would be wary against mom and pop businesses employing minimum wage earners a huge whack. They are already finding business hard, they should not be taxed out of business.
I always worry about middle size businesses. If you tax them by employees over say 50 or 100 people, they will keep to 49, and any extras will be called contractors, or part time, or temporary, or seasonal or whatever. Some businesses may have more employees for seasonal work. Some may depend on 16 year old high school student workers since they are operating evenings or weekends.
Then of course there is what is going to be done with the money. If it is for transportation issues, then we must make sure they are not planning to spend the money on bikes, e.g. Ross Road or Arastradero, but are using it to buy and run additional shuttles to and from high way ramps, or providing satellite parking lots with shuttles.
We have been promised garage signage to show available spots. Not happened. There has been talk about smart parking meters, or parking apps on phones, or parking payment apps on phones, or technology that shows where the shuttles are and how long they will take to get to the various bus stops.
In other words, let us see where the money is going to be spent and then make sure it is spent on that. Improve life for all of us that live in town, not for the ones who want to live here. We should be investing in quality of life improvements for residents.
So.. when the council wants to chicken out on a vote they put it on the ballot.
As Tom Dubois explained on Monday, Palo Alto has three big needs that current revenues are far short from being able to address adequately; traffic congestion, affordable housing and grade separations. Addressing these needs is essential to the well being of everyone, residents and the business community alike.
Each of these problems is being compounded by the huge growth in our region’s high tech industries, but Silicon Valley remains an exceptionally low local business tax region with Palo Alto being one of the few communities with no business tax. In contrast, the average business tax rate in local communities is less than 5% what San Francisco charges businesses, yet tech companies continue to expand there at rapid rates. Clearly, even SF’s rates represent only a small fraction of the large cost premiums that tech companies are willing to pay to be located here.
Palo Alto is overdue for its larger businesses to pay their share to meet the critical needs they have created.
“I’m not against a business tax if its done properly. I would be wary against mom and pop businesses employing minimum wage earners a huge whack. They are already finding business hard, they should not be taxed out of business.”
A business tax would be a hardship for many Palo Alto businesses. They are already hard hit by exorbitant commercial rents, and many longtime businesses, such as Kimura Gallery, Congdon & Crome and Prolific Oven have closed as a result. There are many, many others. That results in increased inconvenience and decreased quality of life for residents, especially downtown. That is unlikely to change as long as there is a shortage of commercial space.
Small business employees were not exempted from the RPP parking tax. Do you really think they will be given a break on the business tax? The city government identifying a potential new revenue stream is like a shark smelling blood in the water.
@ Kenny
Most communities either exempt or heavily discount smaller businesses and retailers in particular. The city council has already identified small retail and hospitality (hotels) as categories for lower rates or complete exemptions.
The problem of losing small, values local retailers is an important issue, but the causes and solutions are different from what you describe. For over three years city council has has a ban on conversion of retail to other uses. This has also helped to reduce the rate of rent increases on the retail sector.
The problems those businesses are facing are multiple, online competition, along with traffic and housing choking off the availability of retail workers while imposing severe hardships on their remaining workers. Those are the issues that the proposed tax would be targeting.
As far as the RPP, the downtown RPP offers highly discounted permits for low income/retail workers. In addition, the downtown TMA provides subsidies for transit passes and ride share apps for low income workers. This is one of the key programs that council member DuBois proposed would be expanded from its current pilot to citywide from the tax on larger businesses.
>So Judy Kleinberg thinks it should require 2/3 of voters to pass. That sure sounds like the Chamber wants a high enough bar to perhaps prevent it happening at all.
Whatever Judy Kleinberg, President of the Chamber of Commerce (and her buddy LizKniss) want can’t be good for residents. She sneakily wants the measure to fail by making it much harder to pass.
I do not trust her views.
I agree with business on not wanting to increase taxes. If the city needs to raise money for moving Caltrain tracks, then lets find the money without a tax that never sunsets and gets diverted to policitian’s pet projects to ensure their re-election. I would support a multi-year fee increase for all residents and businesses to raise the money which sunsets after a set time.
Besides, businesses do not pay taxes. Its their customers that end up paying.
Councilman Dubois and Former Mayor Pat Burt are right – we need a substantial business tax to pay for grade separations and affordable housing – things we desperately need. It is a no brainer and will benefit all, not harm businesses and won’t break their backs as Pat Burt points out. Smaller businesses and retailers will pay a discounted amount – we are a progressive community and will have a progressive business tax.
The usual scare tactics from Stanford Research Park and Chamber CEO Judy Kleinberg were predictable and tiresome. But that didn’t stop Liz Kniss from leaving the dais in the middle of the council debate to go into the audience for a long discussion with Kleinberg in advance of her vote. Liz however couldn’t deliver for her.
Palo Alto needs to catch up with the other towns around us which have succeeded in fashioning sound business taxes. The sooner the better for everyone.
I don’t trust their so-called “transportation improvements” which would probably be more unused bike lanes, converting crucial arteries into exclusive “bike boulevards” that no one uses, reducing lanes and forcing through ridiculous ideas like HOV3 or HOV4 lanes.
Improving transportation doesn’t mean punishing car drivers and make driving completely unviable so that then people will somehow voluntarily stop driving. It doesn’t work that way. It’s been proven not to work that way.
Why punish businesses when we ought to punish the real culprit: spendthrift government officials who never have to face any consequences.
Read My Lips, No New Taxes!!
Resident above is right about many of the silly transportation “improvements” that no one wants and that wreck out cars. Go read the reactions on NextDoor to the latest fiasco in the Charleston/Piazza shopping center — another bulbout that’s already impeding traffic from exiting the shopping center, backing up traffic and spewing more exhaust fumes.
Yes, we certainly need a business tax instead of shifting all the tax nurdens onto residents. But we also need to cut the budget for “traffic calming” and other nonsense that wastes our time and our patience and ruins our cars.
Maybe we could raise some awareness of the wasted money by having a contest for the dumbest traffic “improvement”
>But that didn’t stop Liz Kniss from leaving the dais in the middle of the council debate to go into the audience for a long discussion with Kleinberg in advance of her vote>
Wow. What else do you need to know about Kniss?
On Monday Council member DuBois identified the the community needs and uses for the business tax; traffic congestion relief, grade separation construction and an expansion of affordable housing.
He identified two needs in traffic relief, expansion of the city shuttle bus system and a citywide roll out of the TMA. The TMA has been piloted successfully downtown to reduce commuter car trips through subsidizing transit passes and ride share apps for low income retail workers. The Chamber of Commerce and the business community initially committed that the TMA would be expanded and funded by their voluntary contributions. That hasn’t happened and is not likely to happen. Instead, the program has been modestly expanded mostly through the city’s general fund. Not only has the TMA reduced the traffic and GHG’s from commuters, it is a key reason the council last year opted to put on hold spending around $30 million in city funds for a new parking garage. It is also helping retailers in their desperate need to retain employees, but it will take a substantial and sustainable funding source, like the business tax, to make it successful citywide.
Affordable housing in Palo Alto requires subsidies to be built. Non-profits who build that housing are able to leverage city contributions to get the balance of their funds from state, federal and private resources. Our latest 60 unit affordable project was approved recently on Wilton Court with neighborhood support. Unfortunately, that project depleted the city’s affordable housing fund so that it will be around three years before we can help fund a next project. Tom DuBois’ proposal would approximately triple our rate of building affordable projects. That’s a big deal that would have a huge impact on meeting the expanding needs of valued low and moderate income workers.
Lastly, grade separations will be anywhere between very expensive and enormously expensive. The city is due to get a big down payment on this project from the VTA measure B that voters passed in 2016, but there will need to be a large local share of the costs to leverage to get regional and state funds.
That’s the outline of what was proposed and the basis for a good community discussion.
Pat Burt is right – businesses can and should pay more for the amenities they want and need. The huge increase in the number of jobs is one of the main reasons these “improvements” are needed. Essentially, our existing infrastructure have been diluted by a large influx of new users. Before Prop. 13, businesses paid 2/3 of property taxes in California. They now pay 1/3 – instead residents foot the bills. Most of these new jobs pay very well – $100K – $200K are typical median salaries. Will these companies really leave to save $500/year payroll tax? Is Palo Alto worth so little? And, the profits of these companies are quite high as well. They can afford it, and have an obligation to contribute to the community in which they have chosen to locate. We do not *need* more jobs.