Business tax favored to fund “transportation and/or housing investments”

September 8, 2019 – Palo Alto Matters

The city aims to decide in the next couple of months on the core attributes of a local tax measure for the 2020 ballot. To that end, staff and the Finance Committee have been analyzing and evaluating alternatives and narrowing the parameters for a tax proposal.  On September 16, City Council will weigh in on the Finance Committee’s efforts and confirm identified next steps and areas for further staff analysis.

Over three meetings since June, the Finance Committee narrowed its focus to direct further analysis toward a general business tax based on either number of employees or square footage and a parcel tax based on square footage, with an overall goal of generating between one and six percent of General Fund revenues.

Both flat and tiered pricing structures remain on the table and agreement has not been reached on whether to pursue a general tax (with non-binding advisory language on intended use of funds) or a special tax (designating specific uses). A general tax can be approved by a simple majority of voters while a special tax requires a two-thirds majority of voters to pass. The business community strongly encouraged the city to pursue the special tax route.

Analysis and costing for possible exemptions or phase-in strategies remains to be done, but the Finance Committee is interested in exemptions for public utilities, hospitality, retail, restaurants, and small medical facilities/clinics. Full discussion of desired exemptions will have to wait until an ongoing review of potential financial conflicts of interest is completed.

Transportation (grade separations and expanded city shuttles are most often cited), infrastructure improvements, and affordable housing are all on the city’s wish list for use of business tax revenues, but targeted allocations will be determined at a later date and informed by polling. Potential uses of new tax revenues will also consider the nexus between the use of the funds and those paying the tax. The Finance Committee agreed that unfunded infrastructure projects like the Cubberley redevelopment, the Palo Alto History Museum, and expansion of the animal shelter should wait for a parcel tax or general obligation bond at a future date.

Council discussion of this topic will begin at 8:00 pm on September 16. More information can be found in the staff report.

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