City Council moves forward with more exemptions
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Uploaded: Tue, Aug 2, 2022, 12:19 am After seeing its negotiations with the business community fizzle, the Palo Alto City Council on Monday pushed ahead with its plan to place a business tax on the November ballot. The council agreed to revise the tax measure to exempt all businesses with less than 10,000 square feet of space, a change that effectively excludes all small retailers from the tax. Council members also moved to set the rate at 11 cents per square foot, a shift from an earlier proposal that would have set the rate at either 6 cents or 12 cents, depending on the size of the business. The council left the door slightly ajar for last-second changes based on a potential deal with a coalition of business groups opposed to the tax. Councilman Tom DuBois suggested it’s still possible for the council to tweak the proposal before making the final decision on Aug. 8, the council’s last meeting before Santa Clara County’s Aug. 12 deadline to place the measure on the ballot. The development means the council’s action means Palo Alto voters will get to weigh in on a tax measure that would raise about $15 million a year, with the proceeds used to fund public safety, transportation and affordable housing. The council voted 5-2, with councilors Alison Cormack and Greg Tanaka dissenting, to support the revised proposal, which was based on recommendations from its ad hoc committee. The committee’s three members — Mayor Pat Burt and Councilmen Tom DuBois and Eric Filseth — all argued Monday that the proposed tax would have a modest impact on large businesses, amounting to about 1% of rent costs. The latest revision, which raised the threshold for exempt businesses from 5,000 square feet to 10,000 square feet, aims to shield virtually all small and medium-sized retailers from the proposed tax. DuBois noted that with the h eyes exemption will more than 50% of Palo Alto businesses — and all small bu sinesses — are excluded. Filseth agreed. “At 5,000 square feet, we exempt most of the restaurants in town and most of the smaller businesses, but there are also a fair number of community service retail businesses in the 5,000 to 10,000 square foot range.” Filseth said, citing Hassett Hardware, Palo Alto Bicycles and Mike’s Bikes as examples. “We thought 10,000 square feet was a more appropriate measure for it.” which includes the Silicon Valley Leadership Group, the Palo Alto Chamber of Commerce and NAIOP Silicon Valley, a group representing commercial developers. Dan Kostenbauder, vice president of tax policy at the Silicon Valley Leadership Group, submitted a letter to the council ahead of Monday’s discussion arguing that Palo Alto’s tax would be “disproportionately higher than the business taxes in neighboring communities.” He noted in the letter that Sunnyvale caps the tax any business would pay at less than $14,000, while San Jose has a cap of less than $167,000. However, Palo Alto’s proposed tax would not have a cap of any kind, creating a “significantly higher tax burden.” One company opposing the tax is Maxar Technologies, a maker of satellites and other space technology and parent company of SSL (formerly Space Systems Loral), which has a manufacturing facility on Fabian Way. Karen Cox, vice president of government relations and public policy at Maxar Technologies, argued that the tax would be “particularly burdensome for manufacturing, industrial and research and development facilities, which often require significant amounts of square footage disproportionate to their revenue stream or economic impact. the property tax on the square footage of the company’s operations will penalize these important sectors of the city’s economy and may encourage them to relocate,” Cox wrote. The vast majority of speakers at Monday’s meeting fully supported the tax effort, with many pointing out that Palo Alto is an anomaly in not having a business tax Alex Comsa, a real estate agent running for a city council seat, called the council’s tax proposal “very progressive and very generous to business.” He noted that local businesses have faced annual rent increases of 5 % or more over the past few decades, a factor that far exceeds the impact of the proposed tax. Mayor Pat Burt agreed, suggesting that the idea that a 1% rent increase would drive the decision on whether a Company’s staying in Palo Alto “just doesn’t add up from a practical standpoint.” He also stressed the importance of raising money for the three areas targeted by the tax, in especially cheap housing. The city currently does es does not have anywhere near the resources that would be needed to meet state mandates to build below-market-rate housing, which typically relies on government subsidies. Burt characterized the latest version of the business tax as a “compromise.” think we have a balanced measure, and we have a reasonable measure going forward that meets some really important community needs,” Burt said. Other residents pointed to the need to raise revenue for grade separation, redesigning railroad crossings so tracks wouldn’t cross . with roads. Palo Alto is currently planning grade separations at the Churchill Avenue, East Meadow Drive and Charleston Road overpasses — projects that will cost hundreds of millions of dollars. While some of the funding for grade separation is expected to come from Santa Clara County’s Measure B from 2016, as well as a other sources, local funds will also be critical, said Nadia Naik, who served as co-chair of the Expanded Community Advisory Panel, a group that analyzed options for grade separation. “Local funding for grade separation is needed to match Target B dollars and pursue federal funding, and this tax will help us achieve our long-term goal of trying to create a safe environment in the city and, of course, separate the trains from the cars, pedestrians and bicycles,” said Naik, who spoke as an individual and did not represent the group. Keith Reckdahl observed that a generation ago, city taxes were equally distributed between residents and businesses. Today, residents pay the vast majority of taxes. The proposed business tax would not even come close to restoring parity, he said. “If businesses are being chased out of Palo Alto, it’s because of landlord rent increases, not because of this little tax,” said Reckdahl, who serves on the Planning and Transportation Commission but spoke as an individual.Tanaka and Cormack remained opposed to the tax, however, for different reasons. Cormack was open to the idea of a business tax, but argued for a lower tax rate, something in the neighborhood of 5 cents per square foot. The measure, she suggested, would have a better chance of passing with a smaller rate and potentially less opposition. Tanaka categorically opposed any attempt at a business tax, arguing that it would hurt the local economy. On Monday, he argued that the city already has a huge budget and doesn’t need another tax.”We have to spend within our means,” Tanaka said.
After seeing its negotiations with the business community fizzle, the Palo Alto City Council on Monday pushed ahead with its plan to place a business tax on the November ballot.
In doing so, however, the council agreed to revise the tax measure to exempt all businesses with less than 10,000 square feet of space, a change that effectively excludes all small retailers from the tax. Council members also moved to set the rate at 11 cents per square foot, a shift from an earlier proposal that would have set the rate at either 6 cents or 12 cents, depending on the size of the business.
The council left the door slightly ajar for last-second changes based on a potential deal with a coalition of business groups opposed to the tax. Councilman Tom DuBois suggested it’s still possible for the council to tweak the proposal before making the final decision on Aug. 8, the council’s last meeting before Santa Clara County’s Aug. 12 deadline to place the measure on the ballot.
Barring any surprise developments, the council’s action means Palo Alto voters will get to weigh in on a tax measure that would raise about $15 million a year, with the proceeds used to fund public safety, transportation and affordable housing. The council voted 5-2, with councilors Alison Cormack and Greg Tanaka dissenting, to support the revised proposal, which was based on recommendations from its ad hoc committee.
The committee’s three members — Mayor Pat Burt and Councilmen Tom DuBois and Eric Filseth — all argued Monday that the proposed tax would have a modest impact on large businesses, amounting to about 1% of rent costs. The latest revision, which raised the threshold for exempt businesses from 5,000 square meters to 10,000 square meters, aims to shield virtually all small and medium-sized retailers from the proposed tax.
DuBois noted that with the higher exemption, more than 50% of Palo Alto businesses — and all small businesses — are excluded. Filseth agreed.
“At 5,000 square feet, we exempt most of the restaurants in town and most of the smaller businesses, but there’s also a fair number of community-serving retail businesses in the 5,000 to 10,000-square-foot range,” Filseth said, citing Hassett Hardware, Palo Alto Bicycles and Mike’s Bikes as examples . “We thought 10,000 square feet was a more appropriate measure for it.”
There was no indication, however, that the review would bring the council closer to a compromise with the coalition of business leaders opposed to the proposed tax, a group that includes the Silicon Valley Leadership Group, the Palo Alto Chamber of Commerce and NAIOP Silicon Valley, a group representing commercial developers. Dan Kostenbauder, vice president of tax policy at the Silicon Valley Leadership Group, submitted a letter to the council ahead of Monday’s discussion arguing that Palo Alto’s tax would be “disproportionately higher than the business taxes in neighboring communities.”
He noted in the letter that Sunnyvale caps the tax any business would pay at less than $14,000, while San Jose has a cap of less than $167,000. However, Palo Alto’s proposed tax would not have a cap of any kind, creating a “significantly higher tax burden.”
One company opposing the tax is Maxar Technologies, a maker of satellites and other space technology and parent company of SSL (formerly Space Systems Loral), which has a manufacturing facility on Fabian Way.
Karen Cox, vice president of government relations and public policy at Maxar Technologies, argued that the tax would be “particularly burdensome for manufacturing, industrial and research and development facilities that often require significant amounts of square footage that are disproportionate to their revenue stream or economic impact.”
“For example, our company builds large satellites, robots and spacecraft systems that require a significant amount of square footage. The same is true for many of Palo Alto’s research facilities. Basing the business tax on the square footage of the company’s operations will penalize these important sectors of the city’s economy and may encourage them to move elsewhere,” Cox wrote.
The vast majority of speakers at Monday’s meeting fully supported the tax effort, with many pointing out that Palo Alto is an anomaly in not having a business tax. Alex Comsa, a real estate agent running for a city council seat, called the council’s tax proposal “very progressive and very generous to business.” He noted that local businesses have faced annual rent increases of 5% or more over the past few decades, a factor that far outweighs the impact of the proposed tax.
Mayor Pat Burt agreed, suggesting that the idea that a 1% rent increase would drive the decision about whether a business stays in Palo Alto “just doesn’t add up from a practical standpoint.”
He also stressed the importance of raising money for the three areas targeted by the tax, especially affordable housing. The city currently does not have anywhere near the resources that would be needed to meet state mandates to build below-market-rate housing, which typically relies on government subsidies.
Burt characterized the latest version of the business tax as a “compromise.”
“I think we have a balanced measure and we have a reasonable measure going forward that meets some really important community needs,” Burt said.
Other residents pointed to the need to raise revenue for grade separation, redesigning railroad crossings so tracks don’t cross roads. Palo Alto is currently planning grade separations at the Churchill Avenue, East Meadow Drive and Charleston Road overpasses — projects that will cost hundreds of millions of dollars. While some of the funding for grading is expected to come from Santa Clara County’s 2016 Measure B, as well as other sources, local funds will also be critical, said Nadia Naik, who served as co-chair of the expanded community advisory panel. , a group that analyzed options for grade separation.
“Local funding for grade separation is needed to match Target B dollars and pursue federal funding, and this tax will help us achieve our long-term goals of trying to create a safe environment in the city and, of course, separating the trains from the cars, pedestrians and bikes,” said Naik, speaking as an individual and not representing the group.
Keith Reckdahl noted that a generation ago, city taxes were split equally between residents and businesses. Today, residents pay the vast majority of taxes. The proposed business tax would not even come close to restoring parity, he said.
“If businesses are being chased out of Palo Alto, it’s because of landlord rent increases, not because of this little tax,” said Reckdahl, who serves on the Planning and Transportation Commission but spoke as an individual.
Tanaka and Cormack remained opposed to the tax, though for different reasons. Cormack was open to the idea of a business tax, but argued for a lower tax rate, something in the neighborhood of 5 cents per square foot. The measure, she suggested, would have a better chance of passing with a smaller rate and potentially less opposition.
Tanaka categorically opposed any attempt at a business tax, arguing that it would hurt the local economy. On Monday, he argued that the city already has a large budget and doesn’t need another tax.
“We have to spend within our means,” Tanaka said.
