City Council adopts spending plan for business tax


Seeking to offer Palo Alto voters some reassurance about how funds from the city’s proposed business tax would be spent, the City Council this week passed a resolution pledging to devote the funds to three categories: transportation, housing and public safety.

The resolution, which the council passed by a 6-1 vote, with Greg Tanaka dissenting, aims to address one of the leading criticisms that had emerged from the business community in the lead up to the council’s decision earlier this month to place the tax measure on the November ballot. Because it is a general tax, with proceeds going into the general fund, the city has broad discretion over how the money would be spent.

The Silicon Valley Leadership Group and the Palo Alto Chamber of Commerce had urged the council to instead pursue a special tax that explicitly dedicates funds toward a particular project. Such a measure, however, would require a two-thirds majority to pass, a hurdle that recent polls indicate would likely be too high.

To split the difference, the council agreed to keep the tax proposal a general tax but to pass an accompanying resolution that would govern how the funding would be allocated. That is the same approach that the council took in 2012, when it raised the hotel tax and directed the proceeds from the measure to be used exclusively for projects on its list of infrastructure priorities, including new fire stations, the recently completed bike bridge over U.S. Highway 101 and the new public safety building, which is currently under construction.

Even though the resolution is not legally binding and the council can technically still shift its spending priorities, several council members pointed in recent meetings to the city’s experience with the hotel tax as an assurance that this would not happen. Mayor Pat Burt noted that the city had stuck to the spending plan outlined in its hotel-tax resolution despite fluctuations in council composition and the city’s economic conditions.

“Frankly, when this sort of clear commitment is made to voters, if future councils don’t live up to that commitment, good luck going to the voters with other requests,” Burt said at the Aug. 1 meeting. “And frankly, if you’re an elected official and don’t live up to it, good luck trying to get reelected.”

The business tax, which is based on square footage and which exempts all business with less than 10,000 square feet of space, is expected to generate about $9.6 million annually. According to the resolution, one-third of these proceeds would be spent on transportation and for “safe train crossings.” The resolution states that because of Caltrain’s electrification effort, which will add more trains to the corridor, the city will need to modify its four at-grade crossings and separate them from the train right-of-way, a project known as grade separation.

The city has been discussing grade separation for more than a decade and is now narrowing down design options for the Charleston Road and Meadow Drive crossings. Last year, the council agreed to pursue what’s known as a “partial underpass” design on the Churchill Avenue crossing. Work on the northernmost crossing, at Palo Alto Avenue, has been deferred so that the area could be analyzed as part of a broader downtown plan.

“It is estimated that an average investment of $250 million will be needed for the improvements needed at each crossing,” the council resolution reads. “City funds will be used as matching funds to secure additional county, state, and federal funds for these investments in transportation infrastructure.”

Another third of the proceeds would be devoted to affordable housing. The resolution states that “significant investments are needed to bring housing costs into reach for many moderate earners who work in the city, such as teachers, public safety employees and workers in the trades and service industries.” The city has contributed two loans of $20.5 million toward Wilton Court, a 59-apartment development that targets low-income residents and individuals with disabilities and that is now being constructed by Alta Housing at 3705 El Camino Real. With several affordable housing developments now going through the entitlement process, the council is expecting to play a role in funding these projects and helping them leverage state and federal funding.

The final third would go to public safety, an area that has seen cuts early in the pandemic as local revenues plummeted. Over the past year, the council has been restoring services and adding positions to the Police and Fire departments. In doing so, however, it has been relying largely on one-time sources, such as the city’s budget stabilization reserves. According to the Administrative Services Department, the city’s current spending plan only funds these positions for two years, after which time the city would need other funding sources. The resolution commits the council to using business tax proceeds to stabilize these services.

“Rising costs and constrained revenues have limited the City’s ability to provide public safety services — including police, fire, 911, and emergency services — at the level desired by the community,” the resolution states. “Stable long-term revenues from a business tax will put these highly-valued city services on sound footing into the future.”

As part of its compromise with critics of the tax proposal, the council also agreed to issue annual reports detailing receipts from the business tax and the city’s spending of the tax proceeds.

The council approved the resolution on its “consent calendar,” which is reserved for noncontroversial items and which are approved without discussion. Tanaka, who has consistently opposed the tax, was the sole vote against the resolution. He said he disagrees with the city’s plan for allocating the funds.

“More should go toward the people who are actually paying the tax,” Tanaka said. “There should be a stronger nexus.”





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