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As the clock ticked toward the deadline, the Palo Alto City Council again delayed its decision to create a business tax in hopes of reaching a last-second deal with a coalition of opponents.
The council has until Aug. 12 to submit a resolution to Santa Clara County that would put the business tax on the November ballot. To meet that deadline, House members voted to schedule a special session for Wednesday night to take final action on the business tax measure. They will take action against a separate measure that reaffirms the city’s historic practice of moving the gas utility from the gas utility to the general fund, a policy that was terminated in a lawsuit filed by resident Miriam Green.
Council members have been debating the business tax for more than four years and had three chances to put the item on the ballot before Monday’s meeting. In every meeting, the members of the council expressed concern about the opposition of the business community, and followed it by amending the business tax proposal in an effort to reach a consensus.
That pattern continued Monday night, when the House added another provision to the proposed tax, a $1 million cap on how much any business would pay. However, despite repeated attempts to negotiate with the business alliance, there was no sign of any deal being reached on Monday. Leaders of the business coalition, which includes the Silicon Valley Leadership Group and the Palo Alto Chamber of Commerce, were not committed to changing their stance. Meanwhile, several councilors indicated that their patience had reached its limit.
“We’ve been able to bend over backwards to get very little acceptance,” said Councilman Tom DuBois, who serves on an ad hoc committee trying to negotiate with the business community.
He pointed out the challenges they face in negotiating with the opposition, saying that they do not seem to be internally aligned. He argued that some partners in the trade group did not support any level of taxation.
DuBois supported a vote to put a business tax on the November ballot, as the council supported it during its Aug. 1 hearing. The tax is $0.11 per square foot and exempts all businesses with 10,000 square feet. Space feet or less.
Vice Mayor Lydia Koo and Councilwoman Greer Stone both agreed and suggested they reach a decision sooner rather than later. Mayor Pat Burt and Councilman Eric Filst, who both served on the ad hoc committee, opted to give businesses one last chance to come to the table, despite acknowledging long odds to reach an agreement. At Burt’s motion, the council voted 5-2, with council members Alison Cormack and Greg Tanaka opposed, to call a special session for Wednesday night to give the council one last chance to reach an agreement and avoid a costly campaign on the tax.
Burt pointed to recent election results that suggest a close vote on business taxes is likely. Business leaders have indicated that if the city does not reduce the proposed tax rate to $0.60 per square foot, their coalition will campaign to defeat both the business tax and the gas transfer.
Brett said the council’s real choice is not what we want, but what we can achieve.
“I’ve been one of the strongest proponents of this business tax and I’m willing to consider a compromise because we don’t have anything and if we fail, we’re at risk of not being able to go to the voters for years,” he said. “It’s not the bird in the hand with the two in the forest. The bird in the hand is with the snake in the forest.”
But Burt’s exchanges with rival coalition leaders have left some of his colleagues pessimistic about a deal. Dan Kostenbauder, vice president of tax policy at the Silicon Valley Leadership Group, and Charlie Weidanz, president of the Palo Alto Chamber of Commerce, both opposed the proposed measure and urged the chamber not to move forward. Kostenbauder has repeatedly rejected allegations made by Burt and his colleagues that the business community did not negotiate in good faith.
“It’s unfortunate that after the council had a serious discussion with members of the business community, support for the business tax level that the council had been considering in the last round of voting is declining,” Kostenbauder said.
When Burt repeatedly asked him and Wydanz whether they were willing to continue negotiating, neither would commit to making any meaningful changes to the trade group’s proposal, which generates about $7.1 million in annual revenue.
“We’d be willing to have those discussions, but we’re not holding out any hope that the numbers will change from where they are,” Kostenbauder said.
Wydanz declined to comment further and suggested that his organization’s position would appear to have been resolved by Monday afternoon. They argued that Palo Alto’s business tax rate was far higher than other communities levied.
“We want to see Palo Alto remain competitive with neighboring jurisdictions and a desirable place to do business, and we hope the council will take the petitions from businesses seriously and focus on the challenges businesses face to survive these difficult times,” he said. .
Some residents and councilors have been fired from what they described as a non-negotiable position. Deputy Mayor Lydia Kuo called their position “deeply frustrating” and urged her colleagues, representatives of major corporations, to make decisions that affect local quality of life.
“What I’ve heard is that the Silicon Valley leadership team, as well as the Chamber of Commerce, have decided and announced that they are the watchdogs for the quality of life of the residents of Palo Alto,” he said.
Stone was surprised by the exchange between Burt and the business leaders and the latter’s refusal to negotiate. The House’s original proposal for a business tax would have raised about $45 million a year. The current one will raise about $16.5 million and will have more exemptions and less than originally thought. Stone argued that the council had bargained enough and should proceed with the tax.
“I can’t think of anyone I’ve talked to who is more against business taxes than the business community,” he said. “I understand that nobody wants to pay taxes, but taxes pay for these critical services.”
Although the House majority agreed to hold off on making a final decision until Wednesday, DuBois, Koo and Stone voted against further reforms to the business tax at that time. The council will consider putting the gas transmission measure on the November ballot on Wednesday.
Cormack, who supports the consumption measure, has consistently advocated a lower rate on business taxes. She was more optimistic about reaching an agreement with business leaders and said that delaying the House vote would create “an opportunity to reach a comprehensive agreement.”
“No one wants this to turn into an ugly war,” Cormac said.
Others see the business community’s position as overlapping. Businesses benefit greatly from being located in Palo Alto, Julie Lythcott-Haims is running for a council seat. Therefore, they should contribute to the city to make the necessary investment in services and infrastructure. Under the council’s plan, money collected from the business tax would be used in three areas: affordable housing, rail crossing improvements and public safety.
“These are VCs and tech companies and big retail businesses and they can afford it,” Lythcott-Haims said. “We need a proper business tax, not a bake sale, to raise the money our city so desperately needs and our citizens deserve.”
Rail reform advocate Nadia Naik said many in the community were angry that big companies were not paying their fair share for city services. Resident Winter Dellenbach urged the council not to give any relief to the business community.
“This is not negotiation. This is retention,” Dellenbach said.
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