Will proposed new Palo Alto business tax chase away startups and high-revenue companies?

Time was, Palo Alto was renowned as the place for hot startups, but no more. Greg Tanaka, Palo Alto Council Member and US Congressional Candidate for California District 18, criticizes a vague new business tax proposition as "a solution looking for a problem," noting that the council hasn't even identified the specific need for the new tax. Interviewed by Pierluigi Oliverio of the Silicon Valley Taxpayers' Association, in an Opportunity Now exclusive.

Pierluigi Oliverio: What's the business climate like for Palo Alto right now?

Greg Tanaka: A lot of companies in Silicon Valley have started moving out. Palantir, HP and Oracle have all left. It's a little bit scary because this is our tax base. These companies employ a lot of people. In addition, Joe Lonsdale and other prominent venture capitalists have started moving out.

PO: Why do you think they're leaving?

GT: We’re not making it easy for companies to stay in Palo Alto: The commercial utility rates are really high, and that helps subsidize the residential rates. Any way you look at it, from taxes to fees, businesses pay quite a bit.

PO: The picture runs contrary to the way Palo Alto used to be perceived--the home of so many tech startups.

GT: It used to be, whenever somebody started a company, they wanted to be in Palo Alto. But we haven't had a new unicorn startup in Palo Alto in ten years. In fact, we are losing businesses right now, not gaining them. Facebook may have started here and Google may have started here, but those companies have moved to other cities. Google moved to Mountain View. Facebook moved to Menlo Park. Apple is not here either. This is just not the right time or place to have a new business tax.

PO: What kind of businesses are in Palo Alto right now?

GT: Tesla's here. Although you probably saw Tesla's decision to lease a large space down in Fremont. Other than that, we have a lot of nonprofits. We have a lot of hospitals. We have Stanford Hospital. We have the VA.

PO: I think all those examples are exempt from paying property taxes.

GT: They're exempt from a lot of fees and taxes.
PO: So is your viewpoint that even the suggestion of the proposed tax would be yet another reason to leave?

GT: It is absolutely another reason to leave. I think a lot of people on the council say, “Well, this is Palo Alto. People always want to come to Palo Alto.” But look at Detroit. In the 1950s, 1960s, the best and brightest went to Detroit to work in the auto industry, and it was the high tech of its time. Look at Detroit now: they're literally giving away houses.

PO: Economic prosperity is never a given for a city.

GT: To think that economic prosperity will always come easily is dangerous. As a business owner, as a CEO, as an entrepreneur, I know how hard it is to run a business. And if you keep running into roadblocks after roadblock after roadblock from the city where you're based, it gets you thinking: is there a better place to do business, easier place to do business? I worry about this because I like living in Palo Alto. I like the weather. I like the culture. I would like for this place to be the place that the next great Google would start, the next great Facebook would start. But if we make it onerous and difficult, they won't start here. As an example: it's technically illegal to start a company out of your house in Palo Alto. You're supposed to rent an office. I tried to actually get that changed. I tried to make it so that the next great entrepreneur could start a company. But I lost that vote on the Council. It’s so ridiculous because you think about all the iconic companies that started out of someone's garage, out of someone’s house.

PO: There may be a perception that people are so wealthy in Palo Alto, some more taxes won't hurt.

GT: If you look at the demographic of Palo Alto, a lot of people from Palo Alto are not necessarily rich. They come here for their kids. They want to come here for the great schools. They're people that have to work. The husband and wife have to work and earn income because housing in Palo Alto, as you probably know, is really expensive.

PO: What, specifically, do the people who want the business tax want to spend it on? What's the need?

GT: The tax proponents have a vague list of ideas. That's one of the elements I made as part of the motion was: let's define what we’re going to use the money for. To raise the tax on people, for me, should bethe last resort. I think the first thing is to figure out ways we can cut costs. We should try to do everything else possible before burdening the taxpayers. After trying, if there's no other way, then, okay, we can look at the taxes. Sometimes we have to have taxes for certain essential services. However, just to say, “okay, let's raise money then we'll figure what to do with it--" it doesn't make sense. That's putting the cart before the horse.

PO: Is the proposed tax an employee tax? Based on square footage? What is the realm of the tax?

GT: We haven't fully decided yet. But right now, staff is looking at more of a per square footage basis. The reason why is because of COVID. Frankly, a lot of office workers aren't coming back, and that is very significant for us. Our city used to double in population during the day-- 70,000 people to 140,000 people--but no longer does. This is why our sales tax and our hotel tax has just been terrible.

PO: So the city was thinking, hey, even though these companies are paying rent with no one in the building, we might as well raise the taxes on them. Now are there any immediate budget problems for Palo Alto? Are you having to do layoffs or anything like that?

GT: We had layoffs last year. We had layoffs again this year. As a result, we got rid of some services: We got rid of our cross town shuttle. We dramatically reduce the amount of money given to our school district.

To me, balancing the budget by taking money away from our school district was crazy because it's like taking money out of your left pocket and putting it in your right pocket It’s the same payer at the end.

My point more is just that it's the same payer, the resident. We have many issues: our sales tax is off a lot, our hotel tax and utilities are off a lot, and there are also people who are delinquent on their utility bills. Another issue is that we have a lawsuit because the city has been transferring money from our utilities to the General Fund, which, according to the courts so far, is illegal. I think it's important that Palo Alto remains at the center of innovation. However, If people aren't seeing companies here, and they don't want to have a business here anymore, we will be on the periphery, not at the center. To me, the best policy is to have a vibrant economy, and that will bring in the tax revenue governments you need. You will not have sufficient revenue if you don't have a vibrant economy, if there aren't new businesses being created, if there aren't companies being successful, and if there isn't good employment for the people that live here. Life will only get harder and a bunch of new taxes will only make it worse. If you have a strong economy, a lot of good can come from that.

Follow Opportunity Now on Twitter @svopportunity.