HomeMy WebLinkAboutStaff Report 13963
City of Palo Alto (ID # 13963)
City Council Staff Report
Meeting Date: 1/24/2022 Report Type: Action Items
City of Palo Alto Page 1
Title: Discuss Polling Results, Analysis, and Community and Stakeholder
Engagement Plan; Recommend Further Refined Parameters for Possible
Ballot Measures for November 2022 Election (Business License Tax and Utility
Tax Proposal); and Direct Staff on Related Items such as Community and
Stakeholder Engagement Plan
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
The Finance Committee recommends that the City Council:
A. Direct Staff to pursue preparation of a square footage business license tax with the
following characteristics:
a. Continue to review the rates, adding option 3 (flat fee of $50 for first 5,000
square footage occupied and apply a monthly tax rate per square foot beyond
the 5,000 threshold) as a starting point;
b. Exemptions for businesses subject to the Transient Occupancy Tax and grocery
stores;
c. Annual escalator uses CPI as a basis;
B. Accept the result of the Initial Poll and draft Community and Stakeholder Engagement
Plan;
C. Direct Staff to develop a proposal for voter ratification of the existing gas General Fund
Equity Transfer and eliminate the UUT option, with exploration of whether to cap
growth of the transfer to be explored via polling; and
D. Consider a third poll in the ballot measure workplan
EXECUTIVE SUMMARY
In November 2021, the City Council directed staff to perform analysis to further refine a
potential square footage business license tax and a potential utility tax and to launch initial
polling. This report is an update on the evaluation of potential tax proposals for the November
2022 election. The following items are discussed in this staff report and action by Council is
detailed in the Recommendation section of this report:
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1. Business License Tax: refined analysis was presented to the Finance Committee on
January 18, 2022 (Agenda Item #1, p. 3, CMR 13875). The Finance Committee reviewed
the analysis and recommended further exploration of a square footage business license
tax rate, using staff’s proposed Option 3 as a starting point (summarized later in this
report).
2. Utility Tax: staff is requesting Council action on the Finance Committee
recommendations from its December 7, 2021 meeting (Agenda Item #2, p. 55, CMR
13728), where the Committee discussed refinement of the utility tax proposal and
recommended that Council eliminate the UUT option from consideration. This
recommendation was reaffirmed in the Finance Committee’s January 18, 2022 motion.
3. Review and acceptance of the results from the Palo Alto Community Issues survey
presented to the Finance Committee on January 18, 2022 (Agenda Item #1, p. 31, CMR
13875), which includes polling related to potential business license and utility tax
proposals, and
4. Review, acceptance and direction to staff to implement the 2022 Community and
Stakeholder Engagement Plan, presented to the Finance Committee on January 18, 2022
(Agenda Item #1, p. 13, CMR 13875).
For reference, Attachment A of this staff report includes a summary of work done to date on
the potential revenue generating ballot measure(s).
BACKGROUND
The Finance Committee serves as the public body to review periodic progress reports and allow
for structured public discussion for feedback and recommendations of the potential revenue
generating ballot measure. Following the two meetings with the Finance Committee in
September and October 2021, discussion on November 8, 2021 with the City Council (CMR
13687) considered the Finance Committee’s recommendation to further explore a business
license tax and a utility tax. In addition to direction regarding tax structure and modeling, the
City Council also delegated the review of polls to the Finance Committee, provided that the
overall ballot measure workplan stays on its timeline. The following is Council’s direction to
staff and the Finance Committee on November 8th:
A. Direct staff to model a business license tax at monthly rates of $0.05 to $0.20 per square
foot, with a preference for no sunset and an annual escalator, and with thresholds for
square footage size and possible exemptions for:
i. Small retail, measured by square footage;
ii. Grocery stores;
iii. No exemptions;
B. Direct staff to model two methods to replace the General Fund Equity Transfer (GFET) at
risk in the Green case:
i. Seek voter approval in modifying the 2009 GFET formula to transfer a percentage
of gas utility gross revenues;
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ii. Distribute the change across gas and electric as an increase in the percentage of
Utility Users Tax (UUT); and
C. Direct staff to execute initial round of polling (Attachment A), delegate review of the
polls to the Finance Committee, pending availability to stay on the workplan timeline,
and incorporate the Council’s feedback of the poll, including the modeling assumptions
identified in Parts A and Parts B of the motion; and
D. Remove the parcel tax as an option from the polling questions.
MOTION PASSED 6-1 (Tanaka no)
DISCUSSION & ANALYSIS
Staff presented updated analysis and other information for a potential utility on-bill tax at the
Finance Committee’s December 7, 2021 meeting (Agenda Item #2, begins on p. 55, CMR
13728). For continuity of work by the 2021 Finance Committee, the 2021 Committee met on
January 18, 2022 to review the third round of analysis of a potential business license tax ballot
measure (Agenda Item #1, p. 3, CMR 13875), along with a report of Initial Polling Results
(Agenda Item #1, p. 31, CMR 13875) and staff’s draft Community Engagement and Outreach
Plan.
Square Footage Business License Tax
In the January 18th report to the Finance Committee, staff modeled a baseline scenario for a
square footage business license tax and three options for the Finance Committee consideration:
Baseline Scenario: No Exemptions
• Excludes properties likely to be
exempt per CA law (banks, healthcare,
religious, education property types)
• Est. revenues: $15M to $59M
Option 1: Exemption for Retail (less
than or equal to 5,000 sf) and all
grocery stores
• Est. revenues: $14M to $57M
Option 2: Tiered Rates
• Flat fee for businesses less than or
equal to 5,000 sf ($50/year)
• For all others, assume monthly rate
per square foot
• Est. revenues: $14M to $56M
Option 3: Tiered Rates After Square
Footage Threshold
• Flat fee for first 5,000 sf
($50/year) and apply monthly
rate/sf beyond threshold
• Est. revenues $12M to $47M
The Finance Committee tentatively recommends that the Council direct staff to continue
review of rates, using Option 3 as a starting point. This option would assess an annual flat fee of
$50 for the first 5,000 square feet occupied by a business (regardless of business type) and
apply a monthly rate for square footage occupied beyond 5,000 square feet. The Committee
recommends exemptions for businesses subject to the City’s Transiency Occupancy Tax and
grocery stores. The Committee identified preference for this model to address potential tax
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rate ‘cliffs’ between establishments that are 4,999 square feet versus 5,001 square feet
smoothing the financial impact. In addition, the committee discussed at length the threshold
for a flat rate, the nexus between a potential tax for voter consideration as well as the nexus
with the existing Business Registry Certificate program. There was general acknowledgement
by staff and the committee that there is a desire to smooth the process between these two
potential structures to avoid duplication and confusion should a tax measure be approved by
the voters.
Utility On-Bill Tax
Information for the Utility On-Bill Tax can be found in the staff report released on January 13,
2021 for this item (CMR 13770, p. 384). Staff provided additional analysis of a utility on-bill tax
to the Finance Committee on December 7, 2021 in response to the direction by Council at its
November 8, 2021 meeting. This information was presented to inform Finance Committee
recommendations to Council regarding the form of the utility on-bill tax proposals and is
detailed in CMR 13728. Based on initial poll results presented to the Finance Committee, the
Committee recommends that the City Council direct staff to develop a proposal that ratifies the
existing gas General Fund Equity Transfer by establishing a transfer based on a percentage of
utility revenues and remove the proposal to increase the utility users tax from potential ballot
measure consideration. Through the engagement and polling process, staff will gather feedback
about whether to cap the transfer at CPI to align it with current practice rather than having it
increase with utility rates, which are expected to increase at a rate greater than inflation over
the next few years.
Palo Alto Community Engagement, Outreach & Initial Polling Results
Public opinion research, ballot measure strategic planning, and community and stakeholder
engagement are integral components of the Ballot Measure Workplan, which is designed with a
goal of establishing an iterative approach with multiple touchpoints throughout the
development and refinements of a potential ballot measure. The Finance Committee and
Council provided feedback on a summary outline of the Palo Alto Community Issues survey at
their October 19, 2021 and November 8, 2021 meetings, respectively.
The summary of initial polling results can be found in the January 18, 2022 Finance Committee
staff report under Agenda Item #1, p. 31, CMR 13875. This staff report also summarizes the
2022 City of Palo Alto Community and Stakeholder Engagement Plan that will be launched in
February 2022.
Consideration for an Additional Poll (Three Polls in Total)
The Finance Committee discussed the possibility of incorporating an additional poll (for a total
of three rather than two polls) into the ballot measure workplan to inform undecided
characteristics of a square footage business license tax and the development of ballot language.
The City’s consultant recommends that if the City chooses to add a poll, the remaining two polls
be briefer than the initial poll and also likely smaller sample sizes. The next round of polling
would test characteristics of a potential business license tax (rate, exemptions etc.) and
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clarifying questions from the initial round of polling such as the impact of two potential
measures on one ballot. The third and final poll would continue to test the formal ballot
language.
Accommodating this additional poll would impact the timing, frequency, and volume of
community and stakeholder outreach and the governance structure for Committee and Council
review and direction. The outreach component of the workplan would be extended with final
results not available until FY 2022 Q4 versus FY 2022 Q3. Outreach would need to be modified
to conduct fewer sessions within the current plan schedule to accommodate the additional step
from a workload capacity perspective with some follow-up outreach between the two
remaining polls as well. Previous City Council direction was to delegate review of polls to the
Finance Committee as time allows on the workplan. Polling, when time permits, would be
reviewed directly with the City Council, omitting the Finance Committee review step, and at
times potentially delegating to the City’s consultant FM3 the full process of drafting, review and
execution of the poll. It is likely that at least one of the two remaining polls outline would be
delegated to the City’s polling consultant for full development, review, and execution. There
will also be a cost for the addition of the poll, and additional outreach and print/mailer media.
Staff expects these hard costs to not exceed $50,000, however need time to refine these
figures.
Staff recommends if the Council wishes for a workplan with three polls, that the Council both
provide that direction as part of this item, identify as part of this item, priorities for questions to
be tested as part of the next round of polling, and direct staff to work with the consultant to
draft and execute the next round.
Conclusion & Next Steps
Further narrowing the focus of the potential revenue generating ballot measure is critical so
that staff can continue advancing the Ballot Measure Workplan that was approved by Council in
August. This staff report provides the Finance Committee’s recommendations to the City
Council regarding polling results, a stakeholder engagement plan, and refined analysis for the
potential business license tax and utility on-bill tax. Additional exemptions and/or threshold
considerations can be further refined as the ballot measure workplan proceeds and be tested
through the second round of opinion research and outreach and engagement efforts.
TIMELINE
The below table recaps the Ballot Measure Workplan, as approved by the City Council in
August, with minor adjustments, based on the process and discussion so far. The workplan does
not assume an additional poll, as discussed by the Finance Committee.
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Ballot Measure Workplan Timeline
November 2021
COMPLETED
Council:
- Confirm potential revenue-generating proposals, including refined
modeling and analysis
- Direction to complete initial polling and initial stakeholder outreach
December 2021
COMPLETED
Finance Committee:
- Consideration of additional refinements and updates for potential
revenue generating tax measure(s)
January 2022
TONIGHT
Recommended Special Finance Committee:
- Consideration of additional refinements and updates for potential
revenue generating tax measure(s), business license tax
City Council:
Review the results of the first round of polling and the Finance
Committee’s recommendation from staff analysis related to the utility
tax and seek direction to refine the utility tax proposal and to proceed
with stakeholder outreach.
February 2022 Community and Stakeholder Engagement Plan Launched
- Community discussions and Focus Groups through March
April 2022 Finance and Council:
- Results of Community and Stakeholder Engagement reported to
Council
- Formalized discussion of funding resource allocation
- Outline of second round of polling to be reviewed
- Preliminary review of draft ballot language (April/May)
May 2022 Second Round of Polling launched (early May)
June 2022
Council:
- Results of second round polling reported
- Final Approval of November 2022 Ballot Measures, including ballot
measure language
August 2022
Language submitted to Santa Clara County Registrar of Voters
November 2022
Election
FISCAL/RESOURCE IMPACT
Implementation of this workplan to develop a revenue generating local ballot measure will
require significant resources that include internal staff, consultant expertise, as well as
stakeholder engagement. Resource needs will scale proportionately based on the ballot
measure option and the complexity of the measure that the Finance Committee and City
Council direct staff to pursue. It is important that the scope of the potential ballot measure(s)
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be clearly defined and effectively narrowed for staff to successfully progress through the
workplan.
This initiative has required an equivalent of approximately two full time dedicated staff
positions, however, as work continues to progress it is expected to take a significant increase in
staffing resources including additional focused executive support from the Executive Leadership
Team. This will have an impact on other projects. In addition, support is required from outside
consultants and engagement with internal stakeholders in key departments. The City Council
appropriated funding for this activity as part of the FY 2022 Preliminary 1st Quarter. Additional
contracts and/or proposed budget amendments will be brought forward for approval as
appropriate.
The Santa Clara County Registrar of Voters estimates that placing two measures on the
November 2022 election ballot will cost approximately $160,000, or $80,000 each.
Appropriation for these funds will be brought forward in the FY 2023 Proposed Budget.
The Finance Committee discussed the possibility of an additional round of polling in the ballot
measure workplan. An additional round of polling requires an amendment to the professional
services agreement with Fairbank, Maslin, Maullin, Metz & Associates (FM3) and would require
approval by the City Council, based on contract authority set forth in the Palo Alto Municipal
Code. In addition to this, additional outreach for print and mailing would be needed as well.
STAKEHOLDER ENGAGEMENT
The Ballot Measure Workplan integrates stakeholder engagement through constituent polling
and stakeholder outreach. Staff, throughout the process and from previous conversations, has
solicited input and feedback with the Finance Committee, the City Council, residents, and the
business community. Staff received direction to proceed with initial polling at the November 8,
2021 Council meeting and reviewed results with the Finance Committee on January 18 2021
(CMR 13875). Based on the Ballot Measure Workplan, staff seeks the City Council’s direction to
move forward with the Community and Stakeholder Outreach Plan to begin in February 2022.
The City has engaged with FM3 to perform polling, Lew Edwards Group for stakeholder
engagement planning, and the Public Dialogue Consortium (PDC) for stakeholder engagement.
ENVIRONMENTAL REVIEW
This activity is not a project under California Environmental Quality Act (CEQA) as defined in
CEQA Guidelines, section 15378, because it has no potential for resulting in either a direct or
reasonably foreseeable indirect physical change in the environment.
.
Attachments:
• Attachment A: Summary of Prior Work on Potential Revenue Generating Ballot
Measures
ATTACHMENT A
Attachment A - 1
Summary of Prior Work on
Potential Revenue Generating Ballot Measures
The City of Palo Alto has been discussing its options for potential revenue-generating ballot
measures through 2019 and 2020. This work was suspended at City Council direction in March
2020 in order to marshal available resources to manage through the COVID-19 pandemic. A
brief timeline of the CMRs and discussions with the Finance Committee and the City Council
since April of 2019, when staff was formally directed to begin working on this project by the
City Council, is included below for additional context. The date, the forum of the meeting
(Finance Committee or City Council), the summary title, and the CMR number are included for
ease of reference.
Timeline
4/22/2019 City Council, “2019 Fiscal Sustainability Workplan”, CMR 10267
4/22/2019 City Council, “Approve Workplan for a Potential Revenue Generated Ballot
Measure”, CMR 10261
6/18/2019 Finance Committee, “Review, Comment, and Accept Preliminary Revenue Estimates
for Consideration of a Ballot Measure”, CMR 10392
8/20/2019 Finance Committee, “Evaluation and Discussion of Potential Revenue Generating
Ballot Measures”, CMR 10445
9/16/2019 City Council, “Evaluation and Discussion of Potential Revenue Generating Ballot
Measures and Budget Amendment”, CMR 10615
10/1/2019 Finance Committee, “Revised Workplan for Consideration of a Ballot Measure”, CMR
10712
10/15/2019 Finance Committee, “Stakeholder Outreach, Initial Polling, and Discussion of a
Potential Ballot Measure”, CMR 10743
11/4/2019 City Council, “Potential Ballot Measure Polling/Outreach, Contract, Solicitation
Exemption and Budget Amendment”, CMR 10792
12/2/2019 City Council, “Structure and Scenarios of Initial Round of Polling for a Potential Local
Tax Measure”, CMR 10891
12/17/2019 Finance Committee, “Consideration, Evaluation, and Discussion of a Revenue
Generating Local Tax Ballot Measure, Review of Refined Modeling, Analysis, Tax Structure and
Recommendation to the City Council”, CMR 10655
ATTACHMENT A
Attachment A - 2
1/27/2020 City Council, “Update, Consideration, and Potential Direction on Possible Local Tax
Measure for 2020 Election”, CMR 11019
3/23/20 City Council, “Consideration of Analysis, Public Outreach, and Refined Polling and
Further Direction on a Potential Local Business Tax Ballot Measure for 2020 Election”, CMR
11161
3/23/20 City Council, “Consideration of Analysis, Public Outreach, and Refined Polling and
Further Direction on a Potential Local Business Tax Ballot Measure for 2020 Election”, At-Places
Memorandum
6/15/2021, Finance Committee Staff Report, “Recommend the City Council Approve the
Workplan for Pursuit of a Revenue-Generating Local Ballot Measure for the November 2022
General Election; Review and Potential Guidance to Staff on Affordable Housing Funding as
Referred by the Council”, CMR 12299
8/16/2021 City Council, “Approve the Workplan for Development of a Revenue-Generating
Local Ballot Measure for the November 2022 General Election; Review and Potential Guidance
to Staff on Affordable Housing Funds as Referred by the City Council”, CMR 12381
9/21/2021 Finance Committee, “Discuss Updates and a Recommended Further Refinement of
Potential Revenue Generating Local Ballot Measures,” CMR 13514
10/19/2021 Finance Committee, “Discuss Updates and Recommend Further Refinement of
Potential Revenue Generating Local Ballot Measures, and Review Draft Initial Polling Outline”,
CMR 13648
11/8/2021 City Council, “Discuss Updates and Recommend Further Refinement of Potential
Revenue Generating Local Ballot Measures, and Review Draft Initial Polling Outline”, CMR
13687
12/7/2021 Finance Committee, “Discuss Updates and Recommend Further Refinement of
Potential Revenue Generating Local Ballot Measures”, CMR 13728
1/18/2022 Finance Committee, “Discuss Poll Results Regarding Potential 2022 Revenue
Generating Ballot Measures and Recommend Further Refinement of Business License Tax and
Utility Tax Proposals”, CMR 13875
1/24/2022 City Council, “Discuss Polling Results, Analysis, and Community Stakeholder
Engagement Plan; Recommend Further Refined Parameters for a Possible Local Tax Ballot
Measure for November 2022 Election (Business License Tax and Utility Tax Proposals); and
Direct Staff on Related Items such as Community and Stakeholder Engagement Plan,” CMR
13770