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By Diana Diamond

If at first the city does not succeed …

Uploaded: Feb 3, 2022

Once again (sigh), our city officials in Palo Alto are moving ahead to adopt a business tax – the revenue will probably go into the city’s general operating fund. The city council has tried several times before – and failed. They even had a ballot measure in 2009 to adopt a business tax based on gross receipts, but the public turned it down.

Undaunted, they are still carrying the tax flag forward, marching the measure toward the ballot this November for voter approval.

Why discuss this now? Because the council is still deciding what the tax proposal should contain, and I think this is a good chance for all of us to try to influence council’s thinking – including suggestions on this site, which I will forward to council.

The tax probably will have the following provisions, although at this time all is very fluid: The business tax would be based on square footage, with exemptions for small businesses, groceries and hotels. Bigger companies with larger square footage would pay a portion of the tax once a year, and then make additional monthly payments. One good thing – the limits the annual bill for businesses with less than 5,000 square feet of space would be $50.

The council’s reason for pursuing it? No surprise – more money for city coffers. They were spurred forward after a new poll they paid for indicated 62 percent of voters MAY favor it. Estimates range from about $2 million annually to $10 million additional revenue– depending on the way the tax is structured. It’s easy to understand their logic.

One of the council’s arguments for the tax is it needs it, well, because it doesn’t have one – and other cities do. But so what? Is this just another way to ensure Palo Alto “is keeping up with the Joneses”?

Keep in mind that businesses leasing office space in this city find it is much more expensive here than, say leasing in San Jose. Plus, utility rates in Palo Alto are seeing frequent increases in water, electricity and gas bills. Businesses know they will have high costs when they locate here.

We never know the tipping point as to when a business decides to stay or leave because of a new tax could be the last straw. We do know that higher taxes can result in business moving out.

If you haven’t guessed yet, I am against the business tax.

I want businesses to thrive here, because they produce sales taxes for the city among other taxes they have to pay. But they also provide fine stores, shops and restaurants we all enjoy. I want more retail in town, to make sure downtown and Cal Ave are fun places to go – day and night. I want a thriving community, not one whose two downtowns become boarded up.

Over the years, opponents of the tax have said “this is not a good time.” Well, for better or worse, I will repeat that refrain. This is not a good time to enact a business tax. Just look at the number of stores that have closed or moved out during this pandemic. For those who remain, most say their sales are down considerably, and some add they are just hanging on, since their revenues have declined due to coronavirus, and employees are difficult to find. If businesses leave, our previously thriving downtown will no longer thrive.

Another problem I have with the proposed tax is that council members don’t yet to know what to do with the money they collect. They have offered a number of suggestions. They have pretty well agreed it should go into the city’s general account, because then a majority vote (50 percent plus one) is all that is needed for the measure to pass. If the money is designated for specifics, e.g., new bike paths and affordable housing, then a two-thirds vote is needed. Putting a specific purpose for the tax is a risk the council does not want to take.

The council is talking about “replenishing the general fund,” so taxes could go to parks, libraries, or other community services.

Others oppose it, especially if the money collected goes into the general fund. History has shown that when the general fund gets the money, that money can be used for anything – including city employee pay raises. Previous lists of suggested areas of investments for these taxes get diverted to pay for other things in the city, Hence, they argue for a two-thirds vote.

They make an interesting point. If a business tax passes and the money goes to the general fund, chances are that no one will keep track of how that money is used, except for the city manager.

Many residents may favor the business tax because they may feel taxes are okay – for somebody else, like businesses. That way they can support such a tax, since they I do not have to pay.

I know it’s early to come out against a business tax since the election is in November, but I do want residents to think this proposal through - - its benefits to the community as well as its effect on the business community. And keep in mind that traditionally, when business costs increase, they pass on their new expenses to customers who are charged more. That means you and me.