On Nov. 6, Palo Alto voters will decide whether to increase the Transient Occupancy Tax, also known as the hotel tax, from 14 to 15.5 percent, in a ballot initiative known as Measure E.
If passed, Measure E will be the third hotel tax increase in 11 years. It would also result in Palo Alto having one of the highest hotel taxes in California, next to other cities like Anaheim and Healdsburg. (*Editor’s note: This sentence refers to a general hotel tax that includes Transient Occupancy Tax, fees and assessments that many cities in California add to hotel bills.)
Palo Alto hotel taxes contribute approximately $24.5 million annually, or 12 percent of the city budget, according to budget reports.
The city hopes that taxes generated from Measure E will fund various infrastructure projects including the building of a new police station and bike bridge across Highway 101, as well as ensuring fire stations are earthquake safe.
The ballot initiative has been nicknamed by members of the Palo Alto Hotel Council — a new group of hotel owners and managers that formed in response to the measure — as a “low-hanging fruit” tax, citing that voters would be more likely to vote in favor of the measure because it calls for hotel guests to pay higher taxes and requires virtually nothing from local residents.
Those opposed to the measure worry that increasing taxes a third time to pay for long-standing infrastructure projects is fiscally irresponsible when it’s still unclear why some projects that were slated to be funded by previous tax increases in 2007 and 2014 haven’t been completed. They also say the tax would deter guests from staying in Palo Alto hotels, hurting the city’s businesses.
Previous budget reports show that the hotel tax revenue has generated a significant amount of money leading policymakers like Councilman Greg Tanaka to question what happened with this funding and why it has taken 11 years to complete city infrastructure projects.
“We have some structural fiscal issues within the city that we are not addressing,” Tanaka, who opposes the measure, said. “I don’t think we are spending the city’s money the way we would spend our own individual money.”
Other councilmembers, like Palo Alto City Mayor Liz Kniss, a measure supporter, say the city’s infrastructure projects haven’t been completed due to increased construction costs.
“We know that the cost of building, the cost of building materials and the cost of hiring people to come and do the projects within your city has grown dramatically,” Kniss said in an interview.
Other council members such as Lydia Kou worry about fiscal accountability, as the hotel tax revenue goes to the city’s general fund — a budget category that can be used for a range of services.
“While it is earmarked for infrastructure funds, it goes into the general fund, which could be paying for salaries,” Kou said. “As a council member, I have not seen any accounting to show where the funds … from the previous measures on the TOT went”.
Opponents to Measure E, like John Hutar, general manager of Dinah’s Garden Hotel and member of the Palo Alto Hotel Council, wonder why the tax is so high in Palo Alto specifically.
“Palo Alto is a beautiful community, it’s absolutely wonderful,” said Hutar in an interview. “But there is nothing we offer as an amenity that would warrant that our transient occupancy tax as being the highest in the state.”
“Coming to Palo Alto is kind of like Disneyland for the technical world,” Kniss said. “So we don’t offer Orlando with Mickey Mouse and so forth, but we offer this kind of tech experience that happens in Palo Alto in particular … this is the birthplace of the valley starting with Hewlett and Packard in the garage in the 30s.”
Hotels in Palo Alto accommodate not only technology executives on a high budget but people traveling to the area for medical care at Stanford or the Veterans’ Hospital who are on a budget.
“We have the corporate guest, but we have the person who’s here for health reasons because of our gigantic and wonderful medical centers,” said former general manager of the Garden Court Hotel, Barbara Gross. “Those guests are longer-stay guests and are very price sensitive. We’re seeing that group of guests deteriorate as well.”
Other members of the Hotel Council like Ella Herman, director of Finance and Operation of the Garden Court Hotel, worry that an increase in hotel taxes will harm the local economy.
“It means that restaurants will close because there are not enough visitors. The stores will close because there is not enough business,” Herman said in an interview.
Nancy Coupal, owner of Coupa Café, said Palo Alto is already losing business to nearby communities.
“You have Redwood City, which is coming up and up. They have a very nice, vibrant downtown with multiple movie theaters, nice clean sidewalks,” said Coupal. “Unfortunately, though, in Palo Alto, we’ve suffered a lot with the construction on University Avenue this year — just for it to be as ugly as it was before. I feel we are not looking very good.”
Palo Alto City Council member Greg Scharff disagrees.
“I just say that’s simply not true,” Scharff said in an interview. “I mean it’s obviously not true. We walk around downtown University and there’s no closing of the doors. The economy is booming. They have people lining up pretty much to take the space downtown.”
Hotel owners and managers expressed they weren’t given adequate notice for the scheduled June city council vote on whether to put the measure on the ballot. The city commissioned a poll last spring that found more than 60 percent of voters would likely support a higher hotel tax. Other tax proposals included a parcel tax with 40 percent support and a sales tax with 27 percent in support. The Council voted 6-3 in favor of the hotel tax.
Stephanie Wansek, General Manager of the Cardinal Hotel and member of the Palo Alto Hotel Council, said too that the ballot language is misleading.
“By saying the increase is 1.5 percent in the ballot language implies that the increase is very little.” Wansek said in an interview. “But what it is, is the difference from 14 to 15.5 percent so saying 1.5 percent…is completely misleading.”
Councilman Adrian Fine called the ballot language “pretty straightforward.”
“The opposing parties… are going to try to cast this in as negative a light as possible because that’s their job,” Fine said.
“I think their arguments against it [Measure E] are more fear-mongering, frankly,” said Scharff. “It seems ludicrous to me that this is actually going to affect businesses downtown… for them to say the $4 makes any difference, I think that’s fear-mongering.”
Scharff was referring to what would be the average increase on a typical hotel bill.