Palo Alto Measure K seeks voter approval of a very modest business tax, placed on the ballot by the City Council, on all companies with offices or facilities in the city larger than 10,000 square feet. They will pay an annual fee of 7.5 cents per square foot, with the first 10,000 square feet exempt, or $750 for a 20,000 square foot business, with a cap of $500,000 for the largest companies.
The measure is a far cry from what was initially envisioned by proponents many years ago, when the plan was to bring in tens of millions of dollars each year to help fund the expense of eliminating the four railroad grade crossings in the city and increasing the funds available for affordable housing projects.
The idea was wisely put on hold in 2020 when the pandemic made it politically impossible given the pressures facing small and medium-sized businesses. Then earlier this year, as the council began considering the tax again, the business community, led by the largest companies, the Silicon Valley Leadership Group and the Chamber of Commerce, dug in their heels and threatened to wage an all-out campaign to defeat it unless the city reduced the tax rate, exempted more businesses and set a cap.
After unsuccessfully attempting to negotiate a compromise, on the eve of the deadline for putting the measure on the ballot, the council gave in to most of the demands in exchange for the business community agreeing not to oppose the measure.
As a result of this "compromise," if passed the tax is estimated to generate just under $10 million a year, with the proceeds going to the city's general fund but which the council has stated will be spent on eliminating railroad grade crossings, supporting affordable housing and boosting public safety. That's a far cry from what is needed, but we agree with the council's reasoning that getting a business tax established at a very modest level with the chance to later increase it is better than ending up with nothing.
The tax structure is far from perfect or fair and will likely need to be modified to address its shortcomings, including its failure to tax the many private equity and venture capital firms that operate out of less than 10,000 square feet and generate enormous returns for their investors, who already enjoy major federal tax advantages.
Although Measure K is far from ideal, Palo Alto is currently one of the few cities of its size in the area to have no local tax on any of its businesses, and as such, a tax is long overdue. It's time to get businesses to pay a share of the costs of providing services to both residents and employees alike. Vote "yes" on Measure K.