September 25, 2022
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Palo Alto hopes for last-ditch deal on business tax | News

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With the clock ticking toward the final deadline, the Palo Alto City Council deferred yet again its decision on creating a business tax in hopes of reaching a last-second compromise with a coalition of opponents.

The council has until Aug. 12 to submit to Santa Clara County a resolution that would place a business tax on the November ballot. To meet this deadline, council members voted to schedule a special meeting for Wednesday night where they will take final action on the business tax measure. They will also take action on a separate measure that would reaffirm the city’s historic practice of transferring funds from the gas utility to the general fund, a policy that was halted by a lawsuit from resident Miriam Green.

Council members have been discussing the business tax for more than four years and have had three opportunities prior to Monday’s meeting to place the item on the ballot, opting to punt each time. At each meeting, council members expressed concerns about opposition from the business community and followed suit by revising the business tax proposal in hopes of getting closer to a consensus.

That pattern continued on Monday night, with the council adding another provision to the proposed tax: a cap of $1 million on how much any business would pay. Yet despite repeated attempts to negotiate a truce with the business coalition, there was little sign on Monday that any compromise will be reached. Leaders of the business coalition, which consists of Silicon Valley Leadership Group and the Palo Alto Chamber of Commerce, were decidedly noncommittal about changing their positions. Meanwhile, several council members indicated that their patience has reached its limit.

“We have bended over backwards to be accommodating, with very little receptivity,” said Council member Tom DuBois said, who is serving on an ad hoc committee that has been trying to negotiate with the business community.

He pointed to the challenges of negotiating with opponents, who he said do not appear to be aligned internally. Some of the partners in the business group, he argued, likely would not support any level of tax.

DuBois supported moving ahead with a vote to place a business tax on the November ballot along the lines that the council supported at its previous discussion on Aug. 1. The tax would have a rate of $0.11 per square foot and exempt all businesses with 10,000 square feet of space or less.

Vice Mayor Lydia Kou and Council member Greer Stone both agreed and suggested getting to a decision sooner rather than later. Mayor Pat Burt and council member Eric Filseth, who both served on the ad hoc committee, opted to give businesses a last chance to come to the table even as they acknowledged the long odds of reaching a deal. At Burt’s urging, the council voted 5-2, with council members Alison Cormack and Greg Tanaka dissenting, to schedule a special meeting for Wednesday night so that the council has one last chance to get to a compromise and avoid an expensive campaign against the tax.

Burt pointed to recent polling results showing a potentially close vote on the business tax. He also said that business leaders had indicated that if the city doesn’t reduce the proposed tax rate to $0.6 per square foot, their coalition would campaign to defeat both the business tax and the gas-transfer measure.

The real choice for the council, Burt said, is “not what we want but we can achieve.”

“I have been one of the strongest advocates of this business tax and I’m willing to consider a compromise because we are in jeopardy of having nothing and not being able to go to the voters for years if we fail,” Burt said. “It’s not a bird in the hand versus two in the bush. It’s a bird in the hand versus a rattlesnake in the bush.”

But Burt’s exchange with leaders of the opposing coalition left some of his colleagues feeling discouraged about a compromise. Dan Kostenbauder, vice president for tax policy at the Silicon Valley Leadership Group and Charlie Weidanz, president of the Palo Alto Chamber of Commerce, both spoke out against the proposed measure and urged the council not to advance it. Kostenbauder repeatedly rebuffed accusations by Burt and his colleagues that the business community has not been negotiating in good faith.

“It is unfortunate that the council only engaged in serious conversations with members of the business community after the last round of polling showed deteriorating support for the level of business tax that the council had been considering,” Kostenbauder said.

When Burt repeatedly asked him and Weidanz whether they would be willing to continue negotiating, neither would commit to any meaningful changes to the business group’s proposal, which would net about $7.1 million in annual revenues.

“We would be willing to try to have those conversations but without setting any expectations that the numbers will change from where they are,” Kostenbauder said.

Weidanz was also reluctant to commit to further revisions and suggested that the position of his organization’s members appeared to be fixed as of Monday afternoon. He argued that Palo Alto’s proposed business tax rate far exceeds what other communities charge.

“We want to see Palo Alto remain competitive and a desired place for businesses to locate when compared to neighboring jurisdictions and we hope the council takes these pleas from businesses seriously and allows businesses to concentrate on the challenges of surviving this difficult period,” Weidanz said.

Some residents and council members were put off by what they characterized as an uncompromising position from the coalition. Vice Mayor Lydia Kou called their position “very frustrating” and urged her colleagues not to let representatives of major corporations dictate decisions that affect the local quality of life.

“What I heard is that the Silicon Valley Leadership Group as well as the Chamber of Commerce has decided and declared that they are overseers of Palo Alto residents’ quality of life,” Kou said.

Stone said he was surprised by the exchange between Burt and the business leaders and the reluctance of the latter to negotiate. The council’s initial proposal for a business tax would have raised about $45 million annually; the current one would raise about $16.5 million and have more exemptions and a lower rate than was originally contemplated. Stone argued that the council had compromised enough and should move ahead with the tax.

“I can’t think of anyone I talked to who has been really in opposition to the business tax beyond the business community,” Stone said. “I understand that. Nobody wants to pay taxes but taxes are going to pay for these critical services.”

Though the council majority agreed to punt the final decision to Wednesday, DuBois, Kou and Stone all voted against making further revisions to the business tax at that time. The council will also consider on Wednesday whether to place the gas-transfer measure on the November ballot.

Cormack, who supports the utility measure, has consistently advocated for a lower rate on the business tax. She was more optimistic about getting to an agreement with business leaders and said the delay in the council’s vote creates a “possibility for a comprehensive agreement.”

“Nobody wants this to turn into an ugly fight,” Cormack said.

Others, however, saw the position of the business community as an overreach. Businesses benefit greatly from being located in Palo Alto, said Julie Lythcott-Haims, who is running for a council seat. Thus, they should contribute to helping the city make the needed investments in services and infrastructure. Under the council’s plan, the money raised from the business tax would be dedicated to three areas: affordable housing, improvements to rail crossings and public safety.

“These are VCs and tech companies and big retail and they can afford it,” Lythcott-Haims said. “We need a proper business tax and not a bake sale to raise the funds that our city desperately needs and that our citizens deserve.”

Nadia Naik, a proponent of rail improvements, said many in the community feel angry about large companies not paying their fair share for city services. Resident Winter Dellenbach urged the council not to make any more concessions to the business community.

“This isn’t a negotiation. This is a hold up,” Dellenbach said.





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