As Palo Alto prepares to impose a business tax in the November ballot, city leaders brace for a wave of opposition from local businesses, developers and regional organizations like the Silicon Valley Group Leadership.
The anti-tax campaign has already begun with flyers and social media ads, some of which quote local business leaders and say now is not the right time for a new tax. But while that message has been something of a mantra for opponents of the tax over the past five years, it has taken on increasing resonance in a time of rising inflation and a faltering economy.
A new survey from city polling firm FM3 Research captures the public’s growing sense of pessimism and uncertainty. Conducted between May 22-26, the survey shows that for the first time in years, a plurality of respondents – 39% – said they believe things in Palo Alto are going in the wrong direction, while 36% think that they are going in the right direction. That’s a far cry from 2016, when 61% said they thought the city was moving in the right direction, while 25% took the opposite position.
The combination of economic uncertainty and fierce opposition from the business community could make the company a tough sell in November. While the survey suggests the business tax has a good chance of passing, the existing level of support remains low and residents remain very open to persuasion. Of the 59% of voters who expressed support for a business tax based on a rate of 10 cents per square foot, 21% said they were “absolutely yes” while 37% said they were “probably yes”. . Meanwhile, 38% of respondents said they would oppose the tax, with 24% classed as “definitely not” and 14% as “probably not”.
Dave Metz, president of FM3 Research, warned the board on Monday that after negative messaging from opponents, support for the trade measure could fall to par.
“It’s an indication that there’s just a lot of hesitation among voters to commit to voting yes, as much as that’s their general instinct,” Metz told the council. “It is an indication that the nature of the campaigns that might be carried out for or against the measure in the community are likely to have some impact.”
The business tax and a separate measure that would uphold the city’s practice of moving funds from the gas utility to the general fund realm come from a position “viable from an initial voter support standpoint,” Metz said. . This, however, can easily change.
“A lot will really depend on the nature of the pro and con campaigns that community groups might wage if the measures are proposed, given the extent to which voters seem willing to change their minds,” Metz said.
The uncertainty did not deter the city council, however. On Monday, the board voted 5-1, with Greg Tanaka dissenting and Greer Stone absent, to proceed with the plan after refining it. The tax measure, which the council expects to officially finalize next week, will be based on square footage and will exempt all grocery stores, hotels and businesses under 5,000 square feet from the tax.
The tax would bring in about $20 million in annual revenue. Although the council has wide discretion over how to spend the proceeds, members said Monday they would like to spend $10 million on public safety, $5 million on affordable housing and $5 million on transportation. , primarily to advance grade separation at level crossings.
Council members had been plotting the tax for more than five years and preparing to place the measure on the 2020 ballot before the COVID-19 pandemic prompted them to reconsider. Even before the pandemic hit the local economy in 2020, business leaders strongly opposed the measure, arguing it would deter some businesses from coming to Palo Alto and entice others to leave.
Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, reiterated that argument Monday when he told the council that many local businesses could not afford the new tax.
“This business license tax proposal is bad for Palo Alto and could kill the downtown core that we hope will thrive,” Weidanz said.
Dan Kostenbauder, vice president of tax policy for the Silicon Valley Leadership Group, has also consistently opposed all previous efforts by Palo Alto to enact a business tax. In recent months, his organization has joined the Chamber of Commerce and the Silicon Valley chapter of NAIOP, a commercial real estate development association, to run ads against the new tax. The new group, known as the Palo Alto Community and Business Alliance, launched a website to target the new tax. His catchphrase is “Now is not the time”.
Kostenbauder suggested on Monday that the business community would be more likely to support the business tax if the council made it a “special tax” dedicated to a particular project or funding area, as opposed to a “general tax”, which gives the board has broad discretion to spend the funding.
“A special tax with legally binding commitments to fund specific goals would have been much more likely to garner broader support,” Kostenbauder said.
Council members, however, have shown little appetite for pursuing a special tax, which would need the support of two-thirds of voters to pass. Instead, they preferred a general tax, which could be enacted by a simple majority. In doing so, however, they made it clear that public safety, affordable housing and transportation will be the three priority areas. Council Member Eric Filseth focused on affordable housing and argued that a business tax is essential to making progress in this area.
“The only sustainable funding is a tax,” Filseth said. “A big business tax makes sense, especially in an area where so many big businesses have thrived, including during the pandemic. Without the tax, we will never build housing.”
Holding a business groups anti-tax flyer, Filseth lamented their aggressive stance against the measure and questioned their decision to spend money on an ad campaign against the city’s tax measure.
“Some people in the area are so keen on not spending money on affordable housing that they spend money not spending money on affordable housing,” he said.
Similar to previous business tax discussions, all council members except Greg Tanaka voted to move the measure forward. But more than in the past, the council recognized the increasingly difficult political climate.
“The current political situation and the state of the economy along with apprehensions about inflation and recession make this not a very good time to generate tax revenue,” Mayor Pat Burt said. “We have to be aware of that.”
He suggested board members hold talks with business leaders next week, before the trade measure comes back to the board for final approval before being voted on. Among the factors the board is still trying to determine is whether to set the rate at $0.10 or $0.12 per square foot.
Tanaka, who has opposed all previous attempts to enact a business tax, reiterated his opposition on Monday and highlighted the economic challenges the city and the nation currently face.
“What we should be doing in a time of need, when things are really tough is we should be making it easier to do business, we should be encouraging business start-ups, we should be trying to get the economy moving again,” he said. Tanaka. “If the economy was hot and we didn’t have these massive storm clouds right above us, that might make sense, but right now it’s just the opposite. – it has never been worse.”
Several residents, meanwhile, spoke out in favor of staying the course and observed that Palo Alto is the only city in the area that does not have a business tax. Bob Moss, a longtime council watchdog, said it’s high time for the city to tax its businesses.
“The impact of business – the need for municipal services and the imbalance between jobs and housing – is significant and we should address it,” Moss said.
Proponents of the two proposed revenue measures can also cite the economic downturn to bolster their arguments. With revenue declining during the pandemic, the city has cut spending on police and fire departments as well as libraries and community services. In the past, the city has transferred about $7 million from the gas utility to the general fund to support these services. A recent lawsuit brought by resident Miriam Green put an end to the practice, with the court finding the transfer amounted to an “unlawful tax”. By reaffirming the practice at the polls by voters, the city hopes to restore transfers and therefore services.
Christine Paras, Deputy Director of the Department of Administrative Services, noted that while staff recommended restoring these services to the budget, maintaining them would require additional revenue.
“These services will most likely be cut if this transfer is not confirmed,” Paras said.
Hamilton Hitchings, a local resident who supports the business tax, observed that the city also lacks funding for grade separations and for affordable housing – areas that could be addressed if the measure is passed.
“Despite what the optimists say, there isn’t enough funding for railroad crossings in the city without it,” Hitchings said. “Similarly, to help maintain the socio-economic diversity of our city by providing housing opportunities for workers and low-income residents, the city must do its fair share and this tax is one of the main pillars of funding necessary.”