After negotiations with the business community, the Palo Alto City Council on Monday pressed a plan to put a business tax on the November ballot.
In doing so, however, the House agreed to amend the tax measure to exempt businesses with an area of less than 10,000 square feet; This change exempts all small retailers from the tax. Council members moved to set the rate at $0.11 per square foot, a change from an earlier proposal that would have kept it at 0.06 cents or 0.12 cents, depending on the size of the business.
The door is ajar for last-second changes based on a deal the council struck with a coalition of business groups opposing the tax. Councilman Tom DuBois still has a chance to amend the proposal before Councilman Tom DuBois approves the final resolution on Aug. 8, before the council’s final meeting ends on Aug. 12.
Barring any surprise developments, the council’s action means Palo Alto voters will weigh in on nearly $15 million a year in tax measures, with revenue used to fund public safety, transportation and affordable housing. The council voted 5-2 with council members Alison Cormack and Greg Tanaka dissenting in favor of the revised proposal based on the ad hoc committee’s recommendation.
The committee’s three members — Mayor Pat Burt and Councilmen Tom DuBois and Eric Filst — all argued Monday that the proposed tax would have a modest impact on large businesses, accounting for 1% of rental costs. The latest revision, which has been increased from 5,000 sq ft to 10,000 sq ft, aims to protect all small and medium retailers from the new tax.
DuBois said under the maximum exemption, more than 50% of Palo Alto’s businesses — and all small businesses — would be excluded. Migration agreed.
“At 5,000 square feet, we exempt most restaurants and most small businesses in town, but there’s also a fair amount of community service retail businesses in the 5,000 to 10,000 square foot range,” he said. , Hassett Hardware, Palo Alto Bicycles and Mike’s Bikes as examples. “We thought 10,000 square feet was a more appropriate target on that.”
However, there was no sign that the amendment would bring the House to an agreement with a coalition of business leaders who oppose the new tax, a group that includes the Silicon Valley Leadership Group, the Palo Alto Chamber of Commerce and NAIOP. Silicon Valley, a group representing business developers. Dan Kostenbauder, vice president of tax policy at the Silicon Valley Leadership Group, submitted a letter to the council ahead of Monday’s hearing saying Palo Alto’s taxes are “disproportionately higher than business taxes in neighboring communities.”
In the letter, he noted that while Sunnyvale pays the tax rate of any business with less than $14,000, San Jose has less than $167,000. Palo Alto’s proposed tax, however, would have no cap, which would create a “very high tax burden.”
Maxar Technologies, which is opposing the tax, is a satellite and other space technology maker and parent company of Space Systems Loral, which has a manufacturing facility on Fabian Way.
“It’s especially difficult for manufacturing, industrial, research and development institutions, which often require large amounts of square footage that are disproportionate to their revenue streams,” said Karen Cox-Tax, vice president of government relations and public policy at Maxar Technology. or economic impact.”
“For example, our company builds large satellites, robots and spacecraft systems that require a large amount of square meters. The same is true for many Palo Alto research institutions. The company’s operation is based on a business tax based on square meters. These are important sectors of the city’s economy and to go elsewhere. It can encourage them,” Cox wrote.
Most of the speakers at Monday’s meeting fully supported the tax effort, with many noting that Palo Alto is unusual in not having a business tax. Realtor Alex Komsa, who is running for a city council seat, called the council tax proposal “very progressive and very generous to business.” He pointed out that local businesses have been experiencing rent increases of 5 percent or more over the past decade, far outweighing the effects of the new tax.
Mayor Pat Burt agreed, suggesting that a 1% cost increase would make a company’s decision to stay in Palo Alto “just not add up from a practical standpoint.”
He also emphasized the importance of raising funds in the three tax-related areas, especially for affordable housing. The city currently has nowhere near the resources needed to meet the state’s mandate to build below-market-rate housing, which typically relies on government subsidies.
Burt described the latest version of the business tax as a “compromise”.
“I think we have a balanced measure and we have a reasonable measure that will meet some very important community needs going forward,” Burt said.
Other residents pointed out that there is a need to raise revenue for grade separations, and that railroad crossings should be redesigned to prevent them from connecting with roads. Palo Alto is currently planning for grade-separation at the Churchill Avenue, East Meadow Drive and Charleston Road intersections — projects that could cost hundreds of millions of dollars. While some funding is expected to come from Measure B, the Santa Clara County tax measure approved by voters in 2016, and other sources, local funds will also be critical, said co-author Nadia Naik. Chair of the community advisory panel that formed the group that explored options for desegregation.
“Local funding for grade separation is needed to measure B dollars and track federal funding, and this tax will help us achieve our long-term goal of creating a safer environment in the city and help us clearly separate trains from cars, pedestrians and bicycles,” said Naik, speaking as an individual and not representing the group.
Keith Reckdahl notes that a generation ago, city taxes were split equally between residents and businesses. Today, residents pay the highest taxes. The new business tax doesn’t even come close to restoring equality, he said.
Reckdahl, who serves on the Planning and Transportation Commission but is speaking as an individual, said, “If businesses are driven out of Palo Alto, it’s because of rent increases for landlords, not because of this small tax.”
Tanaka and Cormack opposed the tax for different reasons. Cormack was open to the idea of a business tax but argued for a lower tax rate, around $0.05 per square foot. The measure, she suggested, would be more likely to pass with less speed and perhaps less opposition.
Tanaka strongly opposed attempts at a business tax, saying it would hurt the local economy. On Monday, he argued that the city has a large budget and doesn’t need another tax.
“We have to take it out as much as we can,” Tanaka said.
