Business taxes heading to ballot this fall expected to support rail, active transport

This November, voters in several Bay Area cities will be deciding on a few different business taxes with goals to fund rail, bicycling and walking priorities.

In Palo Alto, on August 10, the Palo Alto City Council decided to place on the November ballot a per-square-foot tax on commercial properties of $.90 per-year. The tax would apply to properties larger than 10,000 square feet and exempt retail and restaurants.

Palo Alto’s tax would raise $9.6 million per year. Simultaneously, Palo Alto City Council also decided to put an extension of their utility users tax on the ballot, which would enable the city to continue to count $4 million toward the city’s budget.

The goal of the city council is to spend the money on Caltrain grade separations, affordable housing, and public safety. The grade separation and affordable housing funds will be able to be used as “local match” for federal, state and other funds. The local matching funds are essential to qualify for major new sources of funds that will be available over the next five years.

Both taxes are “general taxes” which with a threshold of 50% to pass. This means that the city council will be able to decide in its annual budgeting process how to spend the money. However, the city council is passing a resolution declaring its intentions to use the funds in this way and will report on a regular basis how the money will be spent.

After intense negotiations, the city and business groups reached a compromise where the business groups decided not to oppose the tax. The agreement comes after months and weeks when the city and businesses were further apart and business groups including the local Chamber of Commerce and Silicon Valley Leadership Group were intending to oppose the measure. Polling was close and showed that the measure would be significantly less likely to pass with concerted opposition.

San Mateo property transfer tax

Earlier this year, San Mateo City Council decided to place on the ballot an increase in property transfer tax on properties worth $10 million, which will mostly apply to commercial properties.  The increase from 0.5% to 1.5% is expected to raise approximately $4.8 million annually. 

As in Palo Alto, the San Mateo tax is a general tax so the City Council will be able to decide how to spend the money as part of its budgeting process. The City Council decision identified bike and pedestrian safety improvements among the purposes of the measure “To fund essential local general services in the City of San Mateo, such as street repairs, parks, recreation, fire protection, emergency response, and crime prevention; and improving intersections, sidewalks and bike lanes for safety and reduced traffic congestion.”

The City of Santa Clara is also placing a per-employee tax on the ballot estimated to raise $10 million per year in a city with about 130,000 employees. Santa Clara City Council stated that the goal of the tax was to address the city’s budget deficit; transportation goals were not called out as purposes of the measure.

Across the bay in Oakland, that City is placing a change in its gross receipts tax on the ballot expected to raise $40 million per year. The tax is being changed to be more progressive than previously; the highest tax rates would only apply to businesses with $100 million or more in annual gross receipts and administrative headquarters of companies with over $1 billion in total annual revenues There are 170,000 jobs in companies affected by the tax. The City Council’s goals for that measure include affordable housing and safe streets.

For comparison, Mountain View’s business tax which passed in 2018 raises about $6million per year, with most revenue on larger employers. Palo Alto’s employee base is around 100,000, compared to around 50,000 in Mountain View. Also for comparison, East Palo Alto’s commercial property tax passed in 2018 is $2.50 per square foot. This tax applies to larger developments over 25,000 square feet in size.

Given economic uncertainties, other cities including Belmont and Foster City decided not to go ahead with business taxes for the 2022 ballot.