Palo Alto pursuing business tax for transportation, possibly housing

On January 27, the Palo Alto City Council took steps to advance a business tax with the intention of funding transportation and possibly affordable housing needs.  The Council was interested in a tax that would raise about $10 million per year, which is a similar order of magnitude to Mountain View’s headcount tax which is expected to raise $6M or more per year.  businesses.

This local business tax initiative is advancing even as the broader region is having a debate about whether to raise funds for transportation and/or affordable housing, and whether to pursue a sales tax, as supported by business interests, or less regressive mechanisms such as a business per-employee tax or income tax on high earners.

The $10 million per year amount that Palo Alto City Council is exploring would be substantial funding compared to the scale of the city’s local transportation programs, such as the Transportation Management Association and shuttle programs with a budget in the ballpark of $1 million per year each, and costlier capital programs such as the Adobe Creek bicycle/pedestrian bridge with a price tag nearing $20 million. 

The amount would provide meaningful contributions to a “local match” component of some of the grade separation options that Palo Alto is considering, where a 10% local contribution required to be eligible for county funding would be in the low tens of millions for projects in the $200 million to $300 million price range. 

However, the $10 million per year would be much further away from providing a meaningful contribution to the more costly trench and tunnel options that are still on the table in Palo Alto. These options would have a price tag of $700Million to billions, and it may be harder for Palo Alto to seek regional and state funding for projects that are much more expensive than other corridor cities.

Results of a poll conducted in early January showed that “business tax is viable in concept, with the best chance of success if it is focused on numbers of employees or payroll; is tiered with lower rates based on company size or revenue; includes lower rates or exemptions for small businesses; and has rates comparable to those in nearby communities.” 

According to the poll, voters saw housing and transportation as the greatest needs.

Because the grade separations are the largest projects by far among the city’s goals and the project designs have important consequences for residents and street users, the city has been conducting an advisory group focusing on the grade separation options, which is expected to deliver its input to City Council this Spring in time for decisions about a potential tax.  Disclosure, your blogger was appointed to that group with special attention to Caltrain and transit issues.