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HomeMy WebLinkAboutStaff Report 13984 City of Palo Alto (ID # 13984) City Council Staff Report Meeting Date: 6/20/2022 Report Type: Action Items City of Palo Alto Page 1 Title: Adoption of Resolutions: (1) Placing a Measure Affirming the Gas Utility Transfer on the November 2022 Ballot; (2) Placing a Business Tax on the November 2022 Ballot; and (3) Adopting a Spending Plan for Business Tax Proceeds From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the City Council: 1. Adopt the attached Resolution to submit a measure to the voters at the general municipal election on November 8, 2022, to affirm the natural gas utility transfer (Attachment A); 2. Adopt the attached Resolution to submit a measure to the voters at the general municipal election on November 8, 2022, to adopt a business tax (Attachment B); and 3. Adopt the attached Resolution to inform the public of Council’s spending plan for business tax proceeds (Attachment C) BACKGROUND & DISCUSSION The City of Palo Alto places a high value on fiscal sustainability and has worked diligently to address this in a variety of areas. The Fiscal Sustainability Workplan of 2019 (CMR 10267) outlines a number of City initiatives, including proactive funding contributions for the city’s long-term liabilities for both pension and Other Post-Employment Benefits (OPEB) and strategies to structurally balance the General Fund’s revenue and expenditures on an ongoing basis. The two revenue measures before Council are important elements in continuing progress towards long term sustainable budgets that meet the public’s needs. Measure Affirming the Gas Utility Transfer. Palo Alto is fortunate to own and operate its own utilities. In 1950, Palo Alto voters approved a Charter provision authorizing the use of some utility rate revenues for City services. This was a common practice. California cities that started publicly-owned utilities in the post-war era typically set rates at reasonable levels and used some of the proceeds to fund city services. Over the ensuing decades, Palo Alto’s gas and electric utilities have transferred funds each year into the City’s general fund, providing a stable City of Palo Alto Page 2 revenue source that supports City services, including police protection, fire and emergency medical services, 911 response, parks, and roads. In 2010, California voters adopted Proposition 26, which added new rules on how cities may set rates and charges for services, and how the funds collected may be spent. The new law did not directly address utility transfers, and most California cities with public utilities continued to make their annual transfers. Since 2010, however, a series of court decisions raised questions about the transfers, and in 2016, a class action lawsuit, Green v. City of Palo Alto, was filed that claimed Palo Alto’s gas and electric transfers are unlawful under Proposition 26. In 2021, the Santa Clara Superior court held that the electric transfer is lawful and may continue. The court also held, however, that a portion of the gas transfer is a tax that requires voter approval to continue. Both sides have appealed. City leaders believe it is prudent to seek voter affirmation of the gas transfer so that the services funded by the transfer and valued by the community can continue. Voter affirmation of the transfer will continue Palo Alto’s longstanding gas rate-setting practice and will not be the cause of a rate increase. In the meantime, the City has been reserving funds so that money is available to refund to ratepayers at the appropriate time. Last year, the City cut services to account for the revenue reduction, including firefighters, police officers, and librarians. Next year, the City will use one- time funds to partially restore these services but if the transfer is not ratified by the voters, ongoing service reductions will likely be required. Measure Adopting a Business Tax. Palo Alto is one of only a few California cities that does not require local businesses to contribute to city services through a business tax. Prior to the COVID-19 pandemic, the Council discussed adding a business tax to enhance long term fiscal sustainability and to help meet significant emerging public needs, particularly with respect to rail grade separations and affordable housing. The Council considered various business tax models. On March 23, 2020, in response to the COVID-19 public health emergency and sharp economic contraction, the City Council directed staff to discontinue work on the development of a local business tax measure for November 2020. In August 2021 (CMR 12381), Council directed City staff to resume this work and designated the Finance Committee as the working body to review and make recommendations on a potential a potential business tax for the November 2022 election. Taken together, over four years the Committee and City Council have met a total of 23 times to discuss a potential business tax, including refinement of the tax structure, a spending plan for revenues, constituent polling, and community and stakeholder engagement. A summary of the City’s work on revenue generating ballot measures can be found in CMR 13983, Attachment G. Staff returned to the City Council on June 13, 2022 (CMR 13983 and CMR 14501) with draft language for a business tax and a measure to affirm the gas general fund transfer for the City of Palo Alto Page 3 November 2022 election, and a resolution to establishing Council’s intentions for the use of business tax proceeds. Attached to this report are: • Resolution of the Council of the City of Palo Alto Calling a Special Election for November 8, 2022 for Submittal to the Qualified Electors of the City a Measure Affirming the City’s Gas Utility General Fund Transfer (which includes the ballot question and ordinance amending the Palo Alto Municipal Code to affirm the gas general fund transfer) • Resolution of the Council of the City of Palo Alto Calling a Special Election for November 8, 2022 for Submittal to the Qualified Electors of the City a Measure Amending Title 2 of the Municipal Code to Add Chapter 2.37 to Establish a Tax on Businesses Operating in the City of Palo Alto (which includes the ballot question and ordinance amending the Palo Alto Municipal Code to establish a business tax) • Resolution of the Council of the City of Palo Alto Regarding Uses of Proceeds of a Business Tax to be Submitted to the Voters for Approval in November 2022 TIMELINE The Santa Clara County Registrar of Voters (ROV) requires measure resolutions be submitted no later than August 12, 2022. RESOURCE IMPACT Ballot Measure Placement Resource Impact The ROV estimates that placing two measures on the November 2022 election ballot will cost approximately $172,000, or $86,000 each. Total costs for the November 2022 election, including Councilmember elections, is estimated at $333,000. Appropriation for these funds is included in the FY 2023 Proposed Budget at the prior estimate of $320,000. Ballot Measure Revenue Generation Resource Impact The revenue generated by a potential ballot measure will be directly impacted by the structure and rates approved by the City Council. The revenue estimates are summarized below: ▪ Affirmation of the Gas Utility Transfer: $7 million gross revenues annually This would affirm the current practice of inclusion of this expense in the development of gas utility rates and would not increase gas rates beyond existing forecasted changes. Current gas utility rates for residential customers remain below comparators such as PG&E. Additional information on gas rate comparisons can be found in the FY 2023 Gas Utility Financial Plan. City of Palo Alto Page 4 ▪ Business Tax: approximately $19 million gross revenues annually The total estimated net revenue assumes the tax characteristics as directed in Council’s June 13, 2022 meeting and contained in the attached Resolution and Ordinance. Administrative costs to collect and implement the tax are estimated to range between $500,000 and $1 million. STAKEHOLDER ENGAGEMENT Feedback was solicited from the community and stakeholders in the form of an online and mail- in communitywide survey (433 respondents), six focus group sessions, a community listening session, city newsletter and blog posts, utility bill inserts, and three voter polls. A landing page on the City’s website titled, Fiscal Sustainability: A Community Conversation, was also developed. ENVIRONMENTAL REVIEW This activity is not a project under the 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: Resolution Placing Gas Utility Transfer on November 2022 Ballot • Attachment B: Resolution Placing a Business Tax on November 2022 Ballot • Attachment C: Business Tax Spending Resolution Not Yet Approved Resolution No. ______ Resolution of the Council of the City of Palo Alto Calling a Special Election for November 8, 2022 for Submittal to the Qualified Electors of the City a Measure Affirming the City’s Gas Utility General Fund Transfer R E C I T A L S A. Pursuant to the City of Palo Alto Charter, Article VII, Section 2 (Public Utilities Revenue) the City of Palo Alto annually transfers funds from the natural gas utility to the general fund to fund general city services. B. In 2021, in the case of Green v. City of Palo Alto, Santa Clara County Superior Court No. 16CV300760, the Superior Court determined that the portion of transferred funds that are generated from retail natural gas rates are a tax and therefore unlawful under Article XIII C, section 1, subdivision (e)(2) of the California Constitution unless approved by voters. C. The City depends on the gas utility transfer to fund basic City services such as roads, parks, libraries, climate change reduction, and police, fire, emergency medical, and 9-1-1 response. D. A proposed ordinance attached hereto and incorporated herein by reference as Attachment “A” (the “Ordinance”) would amend the Palo Alto Municipal Code to affirm Palo Alto’s existing and decades-old practice of annually transferring up to 18% of the gross revenues of the gas utility (generated by retail natural gas rates) to the general fund to support general city services. E. By its Resolution No. 10045 the City Council called a general municipal election for November 8, 2022 (“Election”). F. Pursuant to Government Code Section 53724 and Elections Code Section 9222, the City Council desires to submit the Ordinance to the voters of the City. The City Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Findings. The City Council finds and determines that each of the findings set forth above are true and correct. SECTION 2. General Tax Election. The City Council proposes to impose the general tax set forth in the Ordinance and to present this proposal to the voters on November 8, 2022. SECTION 3. Measure. Pursuant to Elections Code Section 9222, the City Council hereby submits the Ordinance to the voters at the Election and orders the following question to be submitted to the voters at the Election: NOT YET APPROVED 2 Shall the measure affirming the City of Palo Alto’s existing and decades-old practice of annually transferring no more than 18% of the gross revenues from the City’s natural gas utility (generated by the City’s retail natural gas rates) to its general fund to support general city services such as roads; parks; libraries; climate change reduction; police, fire, emergency medical, and 9-1-1 response; providing approximately $7 million annually in existing revenues until ended by voters, be adopted? YES NO This question requires the approval of a majority of those casting votes. SECTION 4. Adoption of Measure. The measure to be submitted to the voters is attached to this Resolution as Attachment A and incorporated herein by this reference. SECTION 5. Notice of Election. Notice of the time and place of holding the Election is hereby given, and the City Clerk is authorized, instructed and directed to give further or additional notice of the Election, in time, form and manner as required by law. SECTION 6. Impartial Analysis. Pursuant to Elections Code Section 9280, the City Council hereby directs the City Clerk to transmit a copy of the measure to the City Attorney. The City Attorney shall prepare an impartial analysis of the measure, not to exceed 500 words in length, showing the effect of the measure on the existing law and the operation of the measure, and transmit such impartial analysis to the City Clerk on or before August 23, 2022. SECTION 7. Ballot Arguments. Pursuant to Elections Code Section 9286 et. seq., August 16, 2022 at 5:00 p.m. shall be the deadline for submission of arguments in favor of, and arguments against, any local measures on the ballot. If more than one argument for and/or against is received, the priorities established by Elections Code Section 9287 shall control. SECTION 8. Rebuttal Arguments. The provisions of Elections Code Section 9285 shall control the submission of any rebuttal arguments. The deadline for filing rebuttal arguments shall be August 23, 2022 at 5:00 p.m. SECTION 9. Consolidation Request. The Council of the City of Palo Alto requests the governing body of any other political subdivision, or any officers otherwise authorized by law, to partially or completely consolidate such elections and the City Council consents to such consolidation. The Council requests the Board of Supervisors of Santa Clara County to include on the ballots and sample ballots, all qualified measures submitted by the City Council to be ratified by the qualified electors of the City of Palo Alto. The Council acknowledges that the Election will be held and conducted according to procedures in the Elections Code, including Section 10418. SECTION 10. Request for County Services. Pursuant to Section 10002 of the Elections Code, the Council of the City of Palo Alto hereby requests the Board of Supervisors of Santa Clara NOT YET APPROVED 3 County to permit the Registrar of Voters to render services to the City of Palo Alto relating to the conduct of Palo Alto’s General Municipal and Special Elections which are called to be held on Tuesday, November 8, 2022. The services shall be of the type normally performed by the Registrar of Voters in assisting the clerks of municipalities in the conduct of elections including, but not limited to, checking registrations, mailing ballots, hiring election officers and arranging for polling places, receiving absentee voter ballot applications, mailing and receiving absent voter ballots and opening and counting same, providing and distributing election supplies, and furnishing voting machines. SECTION 11. Transmittal of Resolution. The City Clerk is hereby directed to submit forthwith a certified copy of this resolution to the Santa Clara County Board of Supervisors and to the Registrar of Voters. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSENTIONS: ATTEST: APPROVED: _____________________________ ______________________________ City Clerk Mayor ______________________________ APPROVED AS TO FORM: City Manager _____________________________ ______________________________ City Attorney Director of Administrative Services NOT YET APPROVED 4 Attachment A Ordinance No. _____ Ordinance of the Council of the City of Palo Alto Amending Chapter 2.28 (Fiscal Procedures) of Title 2 of the Palo Alto Municipal Code to Authorize the City Council to Annually Transfer from the Gas Utility to the General Fund an Amount Equal to 18% of the Gross Revenues of the Gas Utility, Generated by the City’s Retail Natural Gas Rates The People of the City of Palo Alto do ordain as follows: SECTION 1. Chapter 2.28 of the Palo Alto Municipal Code is hereby amended by adding Section 2.28.185 as follows: Chapter 2.28 FISCAL PROCEDURES 2.28.185 Gas Utility Transfer Each fiscal year the City Council may transfer from the gas utility to the general fund an amount equal to 18% of the gross revenues of the gas utility received during the fiscal year two fiscal years before the fiscal year of the transfer. At its discretion, the City Council may decide to transfer a lesser amount. The projected cost of the transfer shall be included in the City’s retail gas rates as part of the cost of providing gas service. SECTION 2. General Tax. Proceeds of the tax imposed by this Ordinance shall be deposited in the general fund of the City and shall be available for any legal purpose. SECTION 3. Amendment or Repeal. The City Council may repeal Section 2.28.185 of the Palo Alto Municipal Code or amend that Section without a vote of the people except that any amendment to Section 2.28.185 that increases the amount or rate of tax due from any person beyond the amounts and rates authorized by this Ordinance may not take effect unless approved by a vote of the people. SECTION 4. Severability. If any section, subsection, sentence, clause, phrase, or portion of this Ordinance is for any reason held to be invalid or unenforceable by a court of competent jurisdiction, the remaining portions of this Ordinance shall nonetheless remain in full force and effect. The people hereby declare that they would have adopted each section, subsection, sentence, clause, phrase, or portion of this Ordinance, irrespective of the fact that any one or more sections, subsections, sentences, clauses, phrases, or portions of this Ordinance be declared invalid or unenforceable. SECTION 5. Effective Date. This ordinance shall be effective only if approved by a majority of the voters and shall go into effect immediately after the vote is declared by the City Council. NOT YET APPROVED 5 Attachment A SECTION 6. Execution. The Mayor is hereby authorized to attest to the adoption of this Ordinance by the voters of the City by signing where indicated below. I hereby certify that the foregoing Ordinance was PASSED, APPROVED and ADOPTED by the People of the City of Palo Alto voting on the 8th day of November, 2022. ATTEST: __________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ City Attorney City Manager ___________________________ Director of Administrative Services NOT YET APPROVED 1 Resolution No. ______ Resolution of the Council of the City of Palo Alto Calling a Special Election for November 8, 2022 for Submittal to the Qualified Electors of the City a Measure Amending Title 2 of the Municipal Code to Add Chapter 2.37 to Establish a Tax on Businesses Operating in the City of Palo Alto R E C I T A L S A. The City of Palo Alto is one of only a few California cities that does not require local businesses to contribute to city services through a business tax. As Palo Alto looks to the future, City leaders have determined that the time has come to seek voter approval to tax businesses operating in the City, so that all do their part to meet the City’s evolving challenges, including the need for long term stable funding for public safety services and the need for significant investments in affordable housing and grade separated train crossings that maintain mobility for vehicles, bicyclists and pedestrians. B. A proposed ordinance attached hereto and incorporated herein by reference as Attachment “A” (the “Ordinance”) would amend the Palo Alto Municipal Code to add Chapter 2.37 to Title 2, to establish a general tax on businesses operating in the City of Palo Alto at an annual rate of ten cents/square foot occupied by the business, with annual adjustments for inflation and exemptions for grocery stores and businesses under 5,000 square feet. C. By its Resolution No. 10045 the City Council called a general municipal election for November 8, 2022 (“Election”). D. Pursuant to Government Code Section 53724 and Election Code Section 9222, the City Council desires to submit the Ordinance to the voters of the City. The City Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Findings. The City Council finds and determines that each of the findings set forth above are true and correct. SECTION 2. General Tax Election. The City Council proposes to impose the general tax set forth in the Ordinance and to present this proposal to the voters on November 8, 2022. SECTION 3. Measure. Pursuant to Elections Code Section 9222, the City Council hereby submits the Ordinance to the voters at the Election and orders the following question to be submitted to the voters at the Election: NOT YET APPROVED 2 Shall the measure to raise funds for improving public safety, affordable housing, rail crossing safety, homeless services, and general city services, by levying a tax on businesses in the City of Palo Alto at an annual rate of 10 cents/square foot occupied by the business, with annual adjustments for inflation and exemptions for grocery stores and all businesses under 5,000 square feet, raising approximately $19 million annually until ended by voters, be adopted? YES NO This question requires the approval of a majority of those casting votes. SECTION 4. Adoption of Measure. The measure to be submitted to the voters is attached to this Resolution as Attachment A and incorporated herein by this reference. SECTION 5. Notice of Election. Notice of the time and place of holding the election is hereby given, and the City Clerk is authorized, instructed and directed to give further or additional notice of the election, in time, form and manner as required by law. SECTION 6. Impartial Analysis. Pursuant to California Elections Code Section 9280, the City Council hereby directs the City Clerk to transmit a copy of the measure to the City Attorney. The City Attorney shall prepare an impartial analysis of the measure, not to exceed 500 words in length, showing the effect of the measure on the existing law and the operation of the measure, and transmit such impartial analysis to the City Clerk on or before August 23, 2022. SECTION 7. Ballot Arguments. Pursuant to Elections Code Section 9286 et. seq., August 16, 2022 at 5:00 p.m. shall be the deadline for submission of arguments in favor of, and arguments against, any local measures on the ballot. If more than one argument for and/or against is received, the priorities established by Elections Code Section 9287 shall control. SECTION 8. Rebuttal Arguments. The provisions of Elections Code Section 9285 shall control the submission of any rebuttal arguments. The deadline for filing rebuttal arguments shall be August 23, 2022 at 5:00 p.m. SECTION 9. Consolidation Request. The Council of the City of Palo Alto requests the governing body of any other political subdivision, or any officers otherwise authorized by law, to partially or completely consolidate such elections and the City Council consents to such consolidation. The Council requests the Board of Supervisors of Santa Clara County to include on the ballots and sample ballots, all qualified measures submitted by the City Council to be ratified by the qualified electors of the City of Palo Alto. The Council acknowledges that the election will be held and conducted according to procedures in the Elections Code, including Section 10418. SECTION 10. Request for County Services. Pursuant to Section 10002 of the California Elections Code, the Council of the City of Palo Alto hereby requests the Board of Supervisors of Santa Clara County to permit the Registrar of Voters to render services to the City of Palo Alto NOT YET APPROVED 3 relating to the conduct of Palo Alto’s General Municipal and Special Elections which are called to be held on Tuesday, November 8, 2022. The services shall be of the type normally performed by the Registrar of Voters in assisting the clerks of municipalities in the conduct of elections including, but not limited to, checking registrations, mailing ballots, hiring election officers and arranging for polling places, receiving absentee voter ballot applications, mailing and receiving absent voter ballots and opening and counting same, providing and distributing election supplies, and furnishing voting machines. SECTION 11. Transmittal of Resolution. The City Clerk is hereby directed to submit forthwith a certified copy of this resolution to the Santa Clara County Board of Supervisors and to the Registrar of Voters. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSENTIONS: ATTEST: APPROVED: _____________________________ ______________________________ City Clerk Mayor ______________________________ APPROVED AS TO FORM: City Manager _____________________________ ______________________________ City Attorney Director of Administrative Services NOT YET APPROVED 4 Attachment A Ordinance No. _____ Ordinance of the Council of the City of Palo Alto Amending Title 2 of the Municipal Code to Add Chapter 2.37 to Establish a Tax on Businesses Operating in the City of Palo Alto The People of the City of Palo Alto do ordain as follows: SECTION 1. Title 2 (Administrative Code) of the Palo Alto Municipal Code is hereby amended by adding Chapter 2.37 (Business Tax) as follows: Chapter 2.37 BUSINESS TAX 2.37.010 Title This chapter is the “City of Palo Alto Business Tax Ordinance.” 2.37.020 Definitions The definitions in this section apply to the words and phrases used in this chapter unless the context clearly indicates otherwise. (a) “Business” means any commercial enterprise, trade, calling, art, vocation, profession, occupation, or means of livelihood, whether or not carried on for gain or profit. (b) “Business operator” means a person who transacts, maintains, manages, operates, controls, engages in, conducts, carries on, or owns a business in the city. It does not include the employee of a business who is not an owner or proprietor of the business. (c) “Calendar year” means the year beginning January 1 and ending December 31. (d) “City” means the City of Palo Alto. (e) “CPI Index” means the Consumer Price Index—All Urban Consumers for All Items for the San Francisco-Oakland-Hayward Area or any successor to that index designated by the Federal Bureau of Labor Statistics or the City Council. (f) “Fiscal year” means the year beginning July 1 and ending June 30. (g) “Fixed place of business” means a place of business located in the city boundaries and occupied for the particular purpose of operating a business. For the business of renting or leasing real property, the real property being rented or leased is part of the fixed place of business. NOT YET APPROVED 5 (h) “Grocery store” means a business that exists for the primary purpose of selling a range of food items to consumers for consumption off site, such as canned foods; dry goods; fresh produce; fresh meats, fish, and poultry; and any area that is not separately owned within the store where food is prepared and served, including a bakery, deli, and meat and seafood departments, or as otherwise defined in 14 CCR section 18982(a)(3), provided that any store that combines grocery items with other retail products or services is a grocery store for the purpose of this chapter only if two-thirds or more of the occupied space is designated to the sale of grocery items as listed in this section. (i) “Hotel” has the meaning provided in section 2.33.010. (j) “Operate” means to conduct a business and includes all stages of conducting a business from initial planning to the wind-down of a business, whether or not a profit is being made. (k) “Person” means any individual, firm, partnership, joint venture, association, corporation, limited liability company, estate, trust, receiver, syndicate or other group or combination acting as a unit and includes the plural as well as the singular number. (l) “Quarter” means the three-month quarter of the fiscal year. The “first quarter” is the months of July, August, and September; the “second quarter” is the months of October, November, and December; the “third quarter” is the months of January, February, and March; and the “fourth quarter” is the months of April, May, and June. The term “same quarter of the previous fiscal year” means the quarter of the same number in the previous fiscal year. (m) “Square footage” means the rentable square footage used by a business as specified in a business’s lease or, if the business floor space is owned by the business, as calculated in the same manner as if the area was rented using commonly accepted standards of measurement for leasing purposes such as the Standard Methods of Measurement published by the Building Owners and Managers Association (BOMA). Any method of measurement used must meet the following minimum standards: (1) It shall be computed by measuring to the inside finish of permanent outer building walls and shall include space used by columns and projections necessary to the building. (2) It shall include both the area used by the business and a proportionate share of the building service areas such as lobbies, corridors and other common areas in a building unless assigned to another business for tax calculation purposes or unless agreed otherwise between the landlord and tenant. (3) It shall not include vertical penetrations through the building such as stairs, elevators, or heating, ventilation, air conditioning, utility, or telephone systems, except on the lowest floor of stairs and elevators. NOT YET APPROVED 6 (4) For the business of renting or leasing property, it shall include area used primarily for the business operator’s offices and operational facilities. (5) It shall not include residential uses, including multiple-family use as defined in section 18.04.030(102), two-family use as defined in section 18.04.030(141), single-family residential use as defined in section 18.04.030(86)(A)), mobile home park as defined in section18.04.030(97), residential care homes as defined in section 18.04.030(124), supportive housing as defined in section 18.04.030(135.5), transitional housing as defined in section 18.04.030(138), emergency shelter as defined in section 18.04.030(50), and any equivalent residential use defined by the City. (6) It shall include hotel as defined in section 18.04.030(73). (7) Square footage for businesses with multiple locations will be measured and tax assessed will be calculated based on the aggregate square footage for the business for all locations in the City. (n) “Tax Administrator” means the Director of Administrative Services, or successor position, or their designee. (o) “Transient Occupancy Tax” means the tax imposed under section 2.33.020. (p) “Transitory business” means a business that operates in the city for less than 90 days in the course of one calendar year (such as seasonal sale lots, special events, concerts/performances/circuses, filming, and party rentals). (q) “Vacant” means a severable portion of the physical location that a business is occupying, such as an entire floor, a building, or a portion of a floor with independent entrance and exit, that is free from any use, fixtures, furniture, and equipment, and is immediately available for use by a new tenant or owner. 2.37.030 Obligation to Pay Business Tax (a) It is unlawful for any business operator, either for themselves or for any other person, to operate in the city any business taxed under this chapter without paying all business tax required by this chapter. (b) If a business has more than one business operator, then the payment of the business tax by one business operator excuses any other business operators from the obligation to pay the business tax for that period for which the tax has been paid. (c) The requirement to pay business tax is in addition to and separate from the requirement to obtain a business registration certificate under section 4.60.030. NOT YET APPROVED 7 (d) The payment of business tax does not authorize the doing of any act which the person or business paying the business tax is not otherwise entitled to do and does not excuse the business from complying with other applicable Code requirements. 2.37.040 Imposition of Business Tax Any business operator operating a business at a fixed place of business in the city must pay a business tax at the following rates: (a) Beginning January 1, 2023, the tax shall be imposed at the rate of $0.05 per month per square foot of square footage occupied or used by the business at the beginning of the quarter, with no tax being imposed for the first 5,000 square feet. (b) Beginning January 1, 2024, the tax shall be imposed at the rate of $0.10 per month per square foot of square footage occupied or used by the business at the beginning of the quarter, with no tax being imposed for the first 5,000 square feet. This rate shall be adjusted annually by the CPI Index as provided in section 050. 2.37.050 Annual CPI Adjustment of Tax Rate (a) Beginning with the 2025-26 fiscal year, and each fiscal year thereafter, the tax rate shall be automatically increased by a percentage equal to the percentage increase in the CPI Index in the previous calendar year (“the CPI Increase”). (b) Notwithstanding subdivision (a) of this section, in any year in which the CPI Increase is more than 5%, the increase in the tax rate will be limited to 5%, and the amount of the CPI Increase that exceeds 5% (“the Excess CPI Increase”) shall be added to the following fiscal year’s CPI Increase under subdivision (a) of this section. (c) If the addition of a previous fiscal year’s Excess CPI Increase to a current fiscal year’s CPI Increase exceeds 5%, then the increase in the tax rate will again be limited to 5%, and the amount that the combination of the CPI Increase and the previous fiscal year’s Excess CPI Increase exceeds 5% will create a new “Excess CPI Increase” to be added to the following fiscal year’s CPI Increase under subdivision (a) of this section. 2.37.060 Disposition of Tax Revenue The tax imposed by this chapter is for the purpose of raising revenue for the general governmental purposes of the city. All of the proceeds from the tax imposed by this chapter shall be placed in the city’s general fund. 2.37.070 Exemptions from Tax (a) The following businesses are exempt from the tax imposed by this chapter: NOT YET APPROVED 8 (1) Any business exempt from the tax by the laws of the United States or the State of California; (2) Grocery stores; (3) Businesses that occupy or use 5,000 square feet or less in the city; and (4) Transitory businesses. (b) If a business operator operates a single integrated business that has two or more parts, one or more of which could be exempt from the tax imposed by this chapter if operated as a separate business, the city may, at its discretion, exempt from the tax any part of the business that would be exempt if operated as a separate business, provided the business’s square footage can be reasonably allocated between the parts. If the city determines that the square footage cannot be reasonably allocated between the different parts of the business, then the entire business shall be taxed, unless to do so would violate a law of the United States or the State of California. 2.37.080 Business Tax Offsets (a) A business operator that operates a hotel in the city may deduct from the business tax it owes for a quarter for the business of operating the hotel an amount equal to the total transient occupancy tax collected and remitted to the city in the same quarter of the previous fiscal year from transients staying at the hotel. (b) The business operator of a business that has discretion to determine the location of the place of sale, place of use or principal place of negotiation for sales or use tax purposes and which exercises that discretion and designates the city as the place of sale, place of use, or principal place of negotiation for sales or use tax purposes which results in the city receiving sales or use tax revenues that it would not otherwise have received, but for the business’s exercise of its discretion to designate the city as the place of sale, place of use or principal place of negotiation for sales or use tax purposes (“Discretionary Sales or Use Tax Sales”) may deduct from the business tax it owes for a quarter an amount equal to one half of the total sales tax or use tax received by the city from the Discretionary Sales or Use Tax Sales of that business in the same quarter of the previous fiscal year. This offset can offset up to, but no more than, 75% of the business’s quarterly business tax. The city and a business operator may enter into an agreement implementing this section. (c) A business operator of a business that has rights to property due to property ownership, a ground lease, or a lease that permits subleasing, and that is offering that property for sale or rent, may deduct from the business tax owed for the business an amount equal to the business tax associated with the square footage being offered for sale or rent, provided that the area to be sold or rented is completely vacant and available for NOT YET APPROVED 9 immediate occupancy. (d) A business claiming an offset under this section must claim the offset with its tax filing for the quarter for which the offset is claimed. (1) If the information necessary for a business to claim an offset is not available, the business may defer claiming an offset for up to one year or for another period of time set by written agreement with the City. (2) The Tax Administrator may require a business claiming an offset to submit additional information to support the claim of the offset. The request for additional information must be made in writing and the information must be provided within thirty (30) days. (3) If the Tax Administrator determines that an offset claimed by a business is incorrect, the Tax Administrator may make and Initial Determination of the amount, if any, of the offset and the amount of tax due under section 150(a). 2.37.090 Quarterly Tax Payments (a) The tax imposed by this chapter shall be paid quarterly. The tax for each quarter is due the first day of the following quarter and is delinquent thirty (30) days later. (b) For the first quarter in which a business begins operating in the city, the business’s tax shall be prorated for the number of days that the business was operating in the quarter. (c) For the last quarter in in which a business operates in the city before closing, the business’s tax shall be prorated for the number of days that the business was operating in the quarter. 2.37.100 Business Tax Filing for a New Business When a business begins operating in the city for the first time, the business operator must provide the Tax Administrator with the following information, verified by the business operator as true and correct under penalty of perjury of the laws of the State of California, before beginning the operation of the business in the city: (a) The name of the business and the address or addresses at which it will be operating in the city; (b) The date on which the business will begin operating; (c) The nature of the business’s activities; NOT YET APPROVED 10 (d) The square footage in which the business will be operating in the city; and (e) Any other information required by the Tax Administrator. 2.37.110 Quarterly Tax Returns With each quarterly tax payment, a business operator must submit a quarterly tax return which contains the following information, verified by the business operator as true and correct under penalty of perjury of the laws of the State of California: (a) The name of the business and the address or addresses at which it will be operating in the city; (b) The nature of the business’s activities; (c) The square footage in which the business will be operating in the city; (d) If the business operator claims an offset under section 080, sufficient information and documentation to establish the business’s right to the offset and the amount of the offset; (e) Any other information required by the Tax Administrator; and (f) The amount of tax due based on the square footage of the business. 2.37.120 Agreements for Installment Payments The Tax Administrator may enter into an agreement with a business operator to allow a business operator to pay the tax on a more or less frequent basis. 2.37.130 Businesses Operating in the Same Location (a) Each business operator operating a business in a location where one or more other businesses are also operating is obligated to pay business tax measured by the square footage occupied by that business. (b) The payment of business tax by a business operator absolves any other business operator from having to pay business tax measured by the same square footage. (c) Two or more business operators that are operating businesses in the same square footage may contractually agree which business will pay the business tax measured by that square footage. NOT YET APPROVED 11 2.37.140 Delinquent Taxes (Penalties and Interest) (a) When a tax becomes delinquent, a penalty of 10% of the amount of the delinquent tax will be added to the amount of tax due. If the tax remains unpaid sixty (60) days after becoming delinquent, an additional penalty of 25% of the amount of the delinquent tax (excluding accrued interest and the initial penalty) will be added to the amount of tax due. (b) On the first of each month that a tax is delinquent, interest in the amount of 1.5% of the delinquent amount, excluding penalties and interest, will be added to the amount of tax due. (c) A business operator may apply to the Tax Administrator for a reduction or waiver of any accrued penalties or interest, and the Tax Administrator may reduce or waive any accrued penalties or interest upon a finding of good cause. 2.37.150 Administrative Procedure to Assess or Correct Tax (a) If the Tax Administrator determines that a business operator has incorrectly reported any information to the city or has not paid all or any of the tax, penalties, or interest that are due, the Tax Administrator may, using any information available to the Tax Administrator, issue an Initial Determination stating what the Tax Administrator believes to be the correct information and, if new or additional tax, penalties, or interest are due, how much tax, penalties, or interest are due. An Initial Determination must be issued within five (5) years of the last day of the quarter to which the Initial Determination applies, except in the case of an audit conducted under section 210, in which case it must be issued within ninety (90) days of the completion of the audit and can apply to any of the quarters that were subject to the audit. The Initial Determination shall be served on the business operator either personally or by U.S. mail to the most recent address for the business operator in the Tax Administrator’s records. Service is effective upon deposit of the Initial Determination in the U.S. Mail. (b) A business operator affected by an Initial Determination may within fifteen (15) days of service of an Initial Determination contest the Initial Determination and request a hearing before the Tax Administrator by filing with the Tax Administrator a written request for a hearing. The further accrual of penalties and interest shall be tolled upon the filing of a request for a hearing. If a business operator does not contest an Initial Determination and request a hearing with the Tax Administrator within fifteen (15) days of service of the Initial Determination, the Initial Determination shall become final and cannot be appealed. (c) If a business operator timely contests an Initial Determination and requests a hearing, the Tax Administrator shall set a hearing within thirty (30) days of the filing of the request for a hearing. Notice of the hearing shall be served on the business operator either personally or by U.S. mail to the most recent address for the business operator in NOT YET APPROVED 12 the Tax Administrator’s records. (d) At the hearing the business operator may present evidence and argument regarding the Initial Determination to show why the Initial Determination is incorrect and to show what the determination of the Tax Administrator should be. Within sixty (60) day after the close of the hearing, the Tax Administrator shall serve a Final Determination, setting forth the Tax Administrator’s determination of the facts and issues that were the subject of the Initial Determination. The Final Determination shall be served on the business operator either personally or by U.S. mail to the most recent address for the business operator in the Tax Administrator’s records. Service is effective upon deposit of the Final Determination in the U.S. Mail. Unless an appeal of a Final Determination is filed under section 170, any penalties or interest tolled under subdivision (b) of this section will resume accruing ten (10) days after the service of the Final Determination. 2.37.160 General Administrative Remedy (a) Any person affected by a decision of the Tax Administrator (“the challenger”), except for decisions under section 150, may challenge that decision by filing a written objection to the decision with the Tax Administrator. The objection must be filed within fifteen (15) days of the issuance of the decision being challenged. If the Tax Administrator was required to provide notice of the decision, then the time to file an objection to the decision begins to run from the date of service of the notice of the decision. The Tax Administrator shall serve a written response to the objection within thirty (30) days of the filing of the objection, which period can be extended by the Tax Administrator for an additional thirty (30) days. The Tax Administrator’s response to the objection shall be served on the challenger either personally or by U.S. mail to the most recent address for the challenger in the Tax Administrator’s records. (b) The challenger may request a hearing on the Tax Administrator’s response to the objection by filing a request for a hearing with the Tax Administrator within fifteen (15) days of service of the response to the objection. If a timely request for a hearing on a response to the objection is filed with the Tax Administrator, the Tax Administrator shall set a hearing within thirty (30) days of the filing of the request for a hearing. Notice of the hearing shall be served on the challenger either personally or by U.S. mail to the most recent address for the challenger in the Tax Administrator’s records. (c) At the hearing the challenger may present evidence and argument regarding the decision being challenged to show why the decision is incorrect and to show what it should be. Within sixty (60) days after the close of the hearing, which the Tax Administrator may extend for an additional sixty (60) days, the Tax Administrator shall serve a Final Determination on the decision, setting forth the Tax Administrator’s determination of the decision that was challenged. The Final Determination shall be served on the challenger either personally or by U.S. mail to the most recent address for the challenger in the Tax Administrator’s records. Service is effective upon deposit of the Final Determination in the U.S. mail. NOT YET APPROVED 13 2.37.170 Appeals (a) A Final Determination of the Tax Administrator under section 150, subdivision (d), or section 160, subdivision (c), can be appealed to the City Manager by filing a written notice of appeal with the City Manager within fifteen (15) days of service of the notice of the Final Determination being appealed. (b) Only a business operator who files a timely request for a hearing on an Initial Determination under section 150 and participates in the hearing or a challenger who files an objection to a decision and files a request for a hearing on the response to the objection under section 160 and participates in the hearing can file an appeal under this section. (c) If a timely appeal is filed with the City Manager, the City Manager, or the City Manager’s designee, shall set a hearing within thirty (30) days of the filing of the appeal, which may be extended by the City Manager for an additional thirty (30) days. Notice of the hearing shall be served on the appellant either personally or by U.S. mail to the most recent address for the challenger in the Tax Administrator’s records. The tolling of the accrual of penalties or interest under section 150, subdivision (b), shall continue upon the timely filing of an appeal under this section. (d) At the hearing the appellant and the Tax Administrator may present evidence and argument regarding the decision being appealed to show why the decision is correct or incorrect and to show what it should be. Within sixty (60) days after the close of the hearing, which the City Manager or the City Manager’s designee may extend for an additional sixty (60) days, the City Manager or the City Manager’s designee shall serve a written decision, setting forth the resolution of the appeal. The decision shall be served on the appellant either personally or by U.S. mail to the most recent address for the appellant in the City Manager’s records. Service is effective upon deposit of the decision in the U.S. Mail. Any penalties and interest that were tolled under section 150, subdivision (b), shall resume accruing ten (10) days after the service of the decision. (e) A decision of the City Manager, or the City Manager’s designee, served under subdivision (d) of this section is subject to judicial review under sections 1094.5 and 1094.6 of the Code of Civil Procedure with a writ petition filed in the appropriate court within ninety (90) days of the service of the written decision. Any tax, penalties, or interest determined by the decision to be owed to the city by the appellant must be paid to the city as a precondition to filing a writ petition challenging the decision, but a claim for a refund under section 200 does not have to be filed before filing a writ petition. 2.37.190 Constitutional Apportionment (a) No tax imposed by this chapter shall be applied to a business operator so as to NOT YET APPROVED 14 constitute an undue burden on interstate commerce or intercity commerce or be violative of the equal protection or due process clauses of the United States or California constitutions. (b) A business operator who contends that the application of a tax imposed by this chapter on the business operator constitutes an undue burden on interstate commerce or intercity commerce or violates the equal protection or due process clauses of the United States or California constitutions may apply to the Tax Administrator for an apportionment of the tax imposed on the business operator that would remove the constitutional violation by filing a written request with the Tax Administrator that explains the factual and legal basis for the claimed constitutional violation and proposes a method of apportionment that would resolve the alleged constitutional violations. (c) The Tax Administrator, in consultation with City Attorney, shall review the application and within sixty (60) days of the filing of the application issue a decision on the application. The decision on the application shall be served on the business operator either personally or by U.S. mail to the most recent address for the challenger in the Tax Administrator’s records. The decision can be challenged under section 160. 2.37.200 Refunds (a) A business operator who believes that any tax, penalty, or interest has been illegally, erroneously, or mistakenly paid to, collected by, or otherwise received by the city may file a claim for a refund of the amount of tax, penalty, or interest claimed to have been improperly received by the city. (b) The claim must be filed with the Tax Administrator and signed under penalty of perjury by the business operator. The claim must state: (1) The legal and factual basis for the refund claim; (2) The amount of tax, penalty, or interest allegedly improperly received by the city; (3) The date or dates that the improper payments were made to the city; and (4) The address of the claimant. (c) The claim must be filed with the Tax Administrator within one (1) year of the date of the allegedly improper payment to the city. (d) The Tax Administrator shall provide a written decision on the claim within thirty (30) days of the filing of the claim by serving the decision on the claimant either personally or by U.S. mail to the address provided in the claim. Service is effective upon deposit of the response in the U.S. Mail. NOT YET APPROVED 15 (e) A claimant may challenge the Tax Administrator’s decision on a refund claim under section 160. (f) This section does not apply to: (1) A claim for a refund arising out of a decision of the Tax Administrator, City Manager, or City Manager’s designee under sections 150, 160, 170, or 190; or (2) A claim that could have been asserted by the claimant, but was not, under sections 150, 160, 170, or 190. 2.37.210 Audits (a) The Tax Administrator may conduct an audit of any business operator to ensure proper compliance with the requirements of this chapter. (b) To initiate an audit the Tax Administrator shall provide written notice to the business operator that is the subject of the audit of the initiation of the audit by serving the notice personally or by U.S. mail to the most recent address for the business operator in the Tax Administrator’s records. The notice shall state the period of time subject to the audit. (c) Notice of the initiation of an audit for a quarter for which either a business tax filing for a new business or quarterly tax return was submitted under section 100 or section 110 must be served within five (5) years of the last day of the quarter to which the filing or return applied. (d) Notice of the initiation of an audit for a quarter for which neither a business tax filing for a new business nor a quarterly tax return was submitted under section 100 or section 110, but for which the business was registered as a business under section 4.60.030, must be served within seven (7) years of the last day of the quarter for which the filing or return should have been filed. (e) Notice of the initiation of an audit for a quarter for which neither a business tax filing for a new business nor a quarterly tax return was submitted under section 100 or section 110, and for which the business was not registered as a business under section 4.60.030, must be served within ten (10) years of the last day of the quarter for which the filing or return should have been filed. (f) Upon completion of an audit, the Tax Administrator may make an Initial Determination under subdivision (a) of section 150 of any taxes, penalties, and interest determined to be owed and not paid for the audit period. The Initial Determination must be issued within ninety (90) days of the completion of the audit. If a business operator subject to audit is unable or unwilling to provide sufficient records to enable the Tax Administrator to verify compliance with this chapter, the Tax Administrator is authorized to make a NOT YET APPROVED 16 reasonable estimate of the amount of tax due and the reasonable estimate shall be entitled to a rebuttable presumption of correctness. 2.37.220 Maintenance and Review of Records (a) Business operators must maintain for six (6) years records of square footage and information necessary to calculate the tax. If the Tax Administrator serves notice of the initiation of an audit, the information pertinent for the quarters subject to the audit must be maintained until the conclusion of the audit. (b) The Tax Administrator may with reasonable notice inspect the premises and records of the business operator. (c) The Tax Administrator may request the City Council to issue an administrative subpoena for records of a business operator or other persons with relevant information. 2.37.230 Confidentiality of Records All documents submitted to the city by a business operator under this chapter and all documents of a business operator inspected by the Tax Administrator in the conduct of an audit are presumed to be confidential and will not be subject to public inspection to the fullest extent allowed by law and must be maintained so that the contents of the documents will not become known except to persons charged with the administration of this chapter. Confidential documents may be shared with consultants retained by the city to aid in the administration of this chapter, provided the consultants agree to maintain the confidentiality of the documents. However, nothing in this section precludes the city from aggregating information and releasing it in a manner that does not identify any particular business or connect any information with a particular business. 2.37.240 Action to Collect Delinquent Taxes (a) Any tax, penalty, and interest imposed on a business operator under this chapter is a debt owed by the business operator to the city, which may be recovered in an action filed by the city in a court of competent jurisdiction. (b) An action under this section shall be filed within three (3) years of an Initial Determination becoming final under subdivision (b) of section 150, the issuance of a Final Determination under subdivision (d) of section 150 that is not appealed, the issuance of a Final Determination under subdivision (c) of section 160 that is not appealed, or the issuance of a decision under subdivision (d) of section 170. (c) During the pendency of an action filed under this section, interest will continue to accrue under subdivision (b) of section 140 until the entry of judgment. NOT YET APPROVED 17 (d) Before filing an action, the city may serve the business operator either personally or by U.S. mail at the most recent address for the business operator in the Tax Administrator’s records with notice of the pending action and give the business operator fifteen (15) days to pay all of the delinquent taxes, penalties, and fees. If all of the of the delinquent taxes, penalties, and fees are not paid within the fifteen-day period, then an additional penalty of 25% of the amount of the delinquent tax (including accrued penalties and interest) shall be added to the total delinquency and may be recovered in the action. 2.37.250 Errors Not Binding on the City No error by the Tax Administrator or any other officer, employee, or agent of the city in the application of this chapter shall prevent, prejudice, or estop the collection by or for the city of the full amount of tax owed by any person under this chapter. 2.37.260 Dates If the last day for the performance of any act under this chapter is a Saturday, Sunday, or holiday recognized by the city, then the date for the performance of that act is extended to the next day that is not a Saturday, Sunday, or holiday recognized by the city. 2.37.270 Rules and Regulations (a) The Tax Administrator may adopt rules and regulations that are not inconsistent with the provisions of this chapter as may be necessary to aid in the application and enforcement of this chapter. (b) The Tax Administrator may adopt rules providing for the service or filing of any notices, filings, returns, or submittals required by this chapter. These rules may provide alternative means for serving or filing any notice, filing, return, or submittal, and may clarify the method of serving or filing any notice, filing, return, or submittal provided for in this chapter. 2.37.280 City Council Amendments (a) The City Council may amend this chapter in any way it deems necessary without the approval of the electorate, provided the amendment does not increase the amount of tax that any person would pay. (b) Any amendment to this chapter that would reduce the amount of tax any taxpayer would pay, either temporarily or permanently, must be approved by two-thirds (2/3) of the members of the City Council. (c) Notwithstanding subdivision (a) of this section, the City Council may with the approval of two-thirds (2/3) of its members and without approval of the electorate reduce, revise, or eliminate any of the business tax offsets in section 080. NOT YET APPROVED 18 2.37.290 Severability If any word, phrase, sentence, part, section, subsection, or other portion of this chapter, or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other portion, or the prescribed application thereof, shall be severable, and the remaining provisions of this chapter, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect. The People of the City of Palo Alto hereby declare that they would have passed this ordinance, and each section, subsection, sentence, clause and phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases had been declared invalid or unconstitutional. 2.37.300 Savings Clause No section, clause, part, or provision of this chapter shall be construed as requiring the payment of any tax that would be in violation of the Constitution or laws of the United States of America or of the Constitution or laws of the State of California. SECTION 2. Implementation Procedures 1. The new tax imposed by this ordinance will go into effect on January 1, 2023. 2. Notwithstanding sections 2.37.090, 2.37.100, and 2.37.110 of the codified part of this ordinance, the tax imposed by this ordinance will initially be due on the following schedule: (a) The initial tax payment for the tax that has accrued since January 1, 2023 will be due on January 1, 2024, or on a subsequent date established by the Tax Administrator, and will be delinquent 30 days later if not paid. (b) With its initial tax payment, each business shall provide the following information: (1) The name of the business and the address or addresses at which it will be operating in the city; (2) The nature of the business’s activities; (3) The square footage in which the business will be operating in the city; (4) If the business operator claims an offset under section 2.37.080, sufficient information and documentation to establish the business’s right to the offset and the amount of the offset; (5) Any other information required by the Tax Administrator; and (6) The amount of tax due based on the square footage of the business. NOT YET APPROVED 19 (c) A business that begins operating for the first time after January 1, 2023, must submit its initial tax payment and initial information by the date provided in this uncodified section or by the date provided in codified section 2.37.090, whichever is later. SECTION 3. General Tax. Proceeds of the tax imposed by this Ordinance shall be deposited in the general fund of the City and shall be available for any legal purpose. SECTION 4. Effective Date. This ordinance shall be effective only if approved by a majority of the voters and shall go into effect immediately after the vote is declared by the City Council. SECTION 5. Execution. The Mayor is hereby authorized to attest to the adoption of this Ordinance by the voters of the City by signing where indicated below. I hereby certify that the foregoing Ordinance was PASSED, APPROVED and ADOPTED by the People of the City of Palo Alto voting on the 8th day of November, 2022. ATTEST: __________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ City Attorney City Manager ___________________________ Director of Administrative Services NOT YET APPROVED Attachment C Resolution No. ____ Resolution of the Council of the City of Palo Alto Regarding Uses of Proceeds of a Business Tax to be Submitted to the Voters for Approval in November 2022 R E C I T A L S A. The City of Palo Alto is a safe, healthy, and vibrant community with a wide array of public services and facilities that support and enhance the lives and experiences of residents, businesses, workers and visitors to the City. These include a network of neighborhood parks and libraries; excellent public and private schools and universities; community centers, museums and theater facilities; high- quality local health care services; walkable, bikeable, safe neighborhoods; an extensive urban forest; two lively downtown areas with indoor and outdoor dining, live music and shopping opportunities; world-leading climate protection programs; and more. B. The City of Palo Alto is a well-run municipality, with a Triple-A bond rating and a reputation for pro-active fiscal management, strong ongoing investments in public infrastructure, and conservative financial planning. C. As Palo Alto looks toward the future, City leaders have determined that the time has come to seek voter approval to tax businesses that operate in the City, as the vast majority of California cities do. A business tax would ensure that organizations that benefit from doing business in Palo Alto do their part to meet the City’s evolving challenges, provide for new and expanding public needs, and maintain the high-quality environment that residents, workers, and visitors enjoy. D. If a business tax is approved by voters, its proceeds will be placed in the City’s general fund for use on general government services. Council Members elected by the voters will determine the uses of those proceeds that best serve the public interest. E. With this Resolution, the City Council informs voters of its intentions regarding the public services and programs that would be supported by business tax revenues. Accordingly the Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Council hereby adopts the above Recitals as findings of the Council. SECTION 2. It is the Council’s intention to use proceeds of a business tax—a general tax for general government uses—to fund new and enhanced services and programs that support safety and quality of life. The following uses would be supported by business tax revenues: One-Third for Transportation and Safe Train Crossings. In the coming years, Palo Alto will need to need to invest substantial local funds in the improvement and safety of train crossings. CalTrain is electrifying and trains are increasing in number. To maintain traffic flow, bicycle and pedestrian mobility, and safety, the City’s four at-grade road crossings must be modified and separated from the train right- of-way. It is estimated that an average investment of $250 million will be needed for the improvements needed at each crossing. City funds will be used as matching funds to secure additional county, state, and federal funds for these investments in transportation infrastructure. The Council plans to spend NOT YET APPROVED Attachment C one-third of business tax proceeds on safe and efficient crossings for vehicles, bicyclists, and pedestrians. One-Third for Housing Affordability and Services for the Unhoused. A balanced and healthy community welcomes families and individuals from all walks of life. In Palo Alto, 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. With few affordable local housing options, these workers must travel long distances between home and work, contributing to green-house gas emissions and traffic congestion. In addition, longtime residents—especially those who rent—are at risk of losing housing and being forced to relocate to other communities or become unhoused. Those who are already living in the City without housing need financial support to transition to stable, safe and clean housing. Substantial funding is needed to advance these goals. The Council plans to spend one-third of business tax proceeds on affordable housing and unhoused services. One-Third for Public Safety. 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. Stable long-term revenues from a business tax will put these highly-valued City services on sound footing into the future. The Council plans to spend one-third of business tax proceeds on public safety. SECTION 3. The Council finds that adoption of this Resolution is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: APPROVED: __________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: ____________________________ City Manager __________________________ City Attorney