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Palo Alto voters will have a chance to approve a business tax in November, even if the measure they’re considering is more modest than what the City Council considered days ago.
The City Council voted 6-1 on Wednesday night to approve a measure that would allow the city to end its status as one of very few municipalities without a business tax. But in a last-minute deal with leaders of a business coalition, city leaders agreed to drop the rate from $0.11 per square foot per month to $0.075 per month and set a $500,000 cap on the amount any business would pay. A reduction of $1 million from the previous proposal.
Both versions of the tax exclude all companies with less than 10,000 square feet of floor space.
The House agreed to scale back the tax proposal after two days of major tax critics, including Silicon Valley Leadership Group and Palo Alto Chamber of Commerce leaders. Another group, NAIOP Silicon Valley, previously participated in the anti-tax coalition, but announced earlier this week that it was withdrawing from the opposition because it lacked the power to oppose the business tax.
On Wednesday, the opposition suddenly broke up as representatives from both groups confirmed they would no longer fight the tax proposal. Their decision came after Tuesday’s mediation session with a council ad hoc committee chaired by former Mayor Larry Klein, Mayor Pat Burt and Councilmen Eric Flust and Tom DuBois and city staff made a series of changes to the tax proposal.
City Manager Ed Shikada said Tuesday’s mediation efforts were fruitful but ended without an agreement.
“That effort was very broad and really I think it was very enlightening for all parties to draw on our interests and areas of flexibility,” Shikada said. Unfortunately yesterday’s mediation was not successful and at the end of the day all parties left and we are ready to report that there has been no progress.
Staff continued their discussions on Wednesday and after making more changes, the business groups reaffirmed their commitment not to oppose the measure shortly before the council meeting.
In that deal, the council voted Wednesday to repeal the 0.11-cent tax it passed on Monday and set the minimum rate the city would be required to pay Santa Clara. County through Friday. If approved, the business tax would cost $9.6 million annually, with revenue supporting affordable housing, public safety and rail corridor improvements.
“Our chances of success with the voters are greatly improved because of the agreement with no objections from the business community,” he said. “I think this will do a great job. We didn’t get everything we wanted, but we got what we wanted this time.”
As part of that vote, the council placed on the ballot a measure confirming the city’s historic policy of shifting revenue from gas utilities to the general fund. The city recently stopped the transfer after resident Miriam Green filed a lawsuit claiming the transfer was an illegal tax and ordered the city to refund her money.
The business coalition had previously vowed to campaign against both tax measures, but after Wednesday’s agreement assured the city it would not oppose either.
Dan Kostenbauder, vice president of tax policy at the Silicon Valley Leadership Group, which represents large corporations, said his group carefully studied the city’s revised proposal and agreed to drop its opposition. On Monday, his team and the Chamber of Commerce were not committed to shifting the site, while they were pushing for a price of no more than $0.06 per square foot.
“It’s been a very long journey, but our union will not stand in the way of this opportunity for Palo Alto to finally have a business tax,” Kostenbauder said Wednesday.
Wednesday’s vote ends a painful journey that began five years ago. The House originally intended to put the measure on the 2020 ballot, but dropped the plan due to the pandemic before reviving it last year. But the last-second revisions succeeded in cooling some interest in what has become a heated debate, leaving some tax supporters feeling lukewarm about the final product.
DuBois and Councilwoman Lydia Koo both said they were disappointed with the city’s levy, which DuBois called “inadequate.”
“The question that council members have to ask themselves is, is there anything better than nothing? Maybe. But for the amount of effort that’s required, it’s a huge disappointment to pass this effort and at the end of the day it’s not going to cost a lot of money. A lot,” DuBois said.
Kuo disputed the nature of the negotiations, which involved the business groups, but did not give enough weight to what residents wanted.
“When it comes to engaging with residents, it’s mostly been communication and negotiation with the coalition,” Kuo said.
Councilman Greer Stone shared his dismay, but said after speaking with the city’s election consultants, the tax would have a better chance of passing without organized opposition. With surveys showing tight divisions on the measure, if businesses campaigned on it, the results would likely be a “jump ball,” he said.
He called Wednesday’s vote “one of the hardest votes I’ve ever taken.”
“I’m not happy with this, but we’re working with the best possible wisdom,” said Stone.
The only council member to oppose the measure was Greg Tanaka, a staunch opponent of all attempts to crack down on businesses. Councilwoman Alison Cormack enthusiastically supported the revised version, seeing Wednesday’s result as a major victory for voting against previous attempts to put a higher business tax on the ballot. She called Wednesday’s result a big win for the city.
“The lack of opposition is critical to our success,” Cormack said. “I believe we will set this community up for a very stable and positive future.”
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