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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

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The Fiscal Implications of the Comp Plan

Uploaded: Oct 27, 2017
A fiscal impact study was conducted on Comp Plan alternatives that include a range of growth both higher and lower than the council’s preferred growth scenario.

The principal conclusions quoting directly from the study presented to council are:

The net revenue generated for the General Fund under the Comprehensive Plan Update scenarios result from robust revenue generating potential and modest cost implications attributable to growth. On the revenue side, property tax-related City income is anticipated to be strong, given the high value of real estate in Palo Alto. In addition, this analysis projects significant sales tax revenue will be generated by new residents and workers. On the cost side, the City is well positioned to expand to meet marginal increases in demand for City services without dramatic increases in operational cost.

Though the Comprehensive Plan Update scenarios are likely to generate net revenue for the General Fund, it is notable that even the most aggressive growth forecast will have a relatively modest net effect on the General Fund.

Other findings from the study include:

--Most sales tax revenues come from visitors and businesses, not residents. In 2015 the study reports 48% of sales tax revenue came from visitor spending, 41% from local employees and business spending and 11% from local households.

--Most hotel revenues (transient occupancy taxes) come from businesses (44%) visitors to Stanford and other reasons (48%) and 9% from household visitors.

--Over 2/3 of utility users’ revenues come from non-residential customers.

Although it was not covered in the fiscal study, it is true that the recent growth in infrastructure funding has come from the increase in the transient occupancy tax paid mainly by businesses and visitors.

At the council meeting last Monday, some members of the audience voiced support for limiting commercial employment growth and focusing new housing primarily on housing for low income residents—those eligible for below market rate (BMR) housing.

I support more BMR housing and would be willing to support a local bond measure for more funding. And I hope those in support will rally for the Palo Alto Housing project now before council and without adding restrictions that boost costs, lose tax exempt funding and basically kill the project.

But the fiscal impacts for the city (and school district) of limiting commercial growth and focusing primarily on BMR housing will reverse the findings of the fiscal impact study and create additional fiscal stress on the city at the same time we are trying to fund services for residents and deal with rising retirement benefits.

We see above how businesses and their visitors and employees contribute to hotel and sales tax revenue. What moves the needle on property taxes? I share two data points from the Santa Clara County Assessor Report for fiscal 2016-17. Both refer to county wide data.

--only 9% of the increase in property tax revenue came from the 2% inflation increase each existing property owner (like me) pays. 20% came from new construction, 7% from business personal property and the largest share by far from change of ownership (49%). Technical adjustments accounted for the rest of the increase.

--only 5% of county assessed valuation comes from the generation (1979-88) when Nancy and I bought our first house. 80% of residential valuation and 78% of non-residential valuation comes from construction and transfers in the last 20 years.

So here are my suggestions for the Comp Plan.

1) Understand the results of the fiscal impact study.

2) Build as much BMR housing as we can find funds, sites and projects that pencil out. But also build market rate housing. The council has heard many reasons to support policies for housing that meet or exceed the Comp Plan targets. Here are two not often mentioned. One, market rate housing is needed to make the Comp Plan fiscally secure and as a bonus provide customers for retail and two, if we build housing that older residents can move into if they wish and remain in their community, it opens up housing for new families AND creates tax revenue through the property transfer tax and higher new valuation,

3) Continue with well-planned commercial development within the guidelines of the Comp Plan. The fiscal study confirms common sense that commercial development is a major contributor to service and infrastructure funding.

The school district has property taxes as their primary revenue source. The data show that new development and high valued development is a primary contributor to school revenue growth through property taxes and impact fees. My 2% additional property tax contribution each year does not come close to covering normal cost increases.
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Posted by parking fees? , a resident of Downtown North,
on Oct 27, 2017 at 2:33 pm

Thanks for this analysis.

Has anyone looked at analyses of potential revenue to be generated by paid parking? is it significant?

Posted by make sense, a resident of Duveneck/St. Francis,
on Oct 27, 2017 at 5:00 pm

Thanks for a clear fiscal analysis and help me see how little I (a PA homeowner of 17 years) contribute to local economy and City coffer. It makes sense that our good heart in wanting only BMR and the hard-line against commercial space will in fact hit the retails, hurt City services, and mess up our school funding. I always suspect that the 2% annual increase on my property tax is not the biggest contributor, but it stuns me to find that long term owners like myself puts only 9% into the general fund.

Thanks to the good read when we are about to adopt the Comp Plan.

Posted by stephen levy, a resident of University South,
on Oct 27, 2017 at 5:32 pm

stephen levy is a registered user.

The staff has recommended options for paid parking but so far the council has not moved forward as there have been objections.

There would be upfront costs but the consultant forecast that paid parking would return net revenue that could be used to help fund non car options.

I will try and find the staff report tomorrow and post it.

Paid parking was not discussed in the EIR or fiscal analysis.

Posted by Grateful, a resident of University South,
on Oct 29, 2017 at 6:08 pm

Thank you Steve Levy for putting some real numbers behind the implications for the Comp Plan. I wholeheartedly support your suggestions to keep our city financially secure and to ensure that we maintain a high quality of life here. We can only thrive if we have a good tax base and robust commercial and retail environment.

Posted by Neilson Buchanan, a resident of another community,
on Oct 30, 2017 at 2:03 pm

Steve, where can I find the sources of data you are citing? Thanks. N.

Posted by stephen levy, a resident of University South,
on Oct 30, 2017 at 2:13 pm

stephen levy is a registered user.


I googled palo alto city fiscal impact study and finally found it in a council agenda packet from I think early mid 2016.
Or you can ask staff for the report.

Thanks for mentioning the need for more Channing House type facilities though I expect ti work financially they will need above the current height limit.

Posted by stephen levy, a resident of University South,
on Oct 30, 2017 at 2:18 pm

stephen levy is a registered user.

And Neilson the assessed value data cane from the 2016-17 annual report on the Santa Clara County Assessor's webiste

Posted by Chris, a resident of University South,
on Nov 2, 2017 at 7:44 pm

With HPE moving out of 3000 Hanover at Page Mill, that is a great opportunity to replace a huge jobs site with housing for many hundreds, if not thousands, of residents. It would be a great site to go above the 50 foot height limit.

The CC NEEDS TO MAKE SURE THE Comp Plan does not get in the way of this opportunity.

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