Public Investments for Palo Alto’s Future

The Palo Alto city council is reviewing infrastructure investment priorities in anticipation of asking voters to approve new funding measures in 2014. The largest projects include a new public safety building, renovations to two fire stations, and new parking garages in downtown and the California Avenue area. Other projects under consideration are park bike path, a new Animal Services center and various projects to catch up on deferred maintenance.

One characteristic of these investments is that they last a long time. They will serve current residents and businesses and those in the future. And in terms of any public funding they will be paid for over time by new bonds, taxes and fees.

These investments cross generations. There were schools, libraries, parks and other public facilities here when Nancy and I moved to Palo Alto. They were started and substantially paid for by an earlier generation who made investments that improved their quality of life but also that of the next generation. In the past decade majorities of voters nearing 70% approved bonds and the associated taxes for school and library improvements though most would not directly use these services.

Growth in population and jobs is one driver of the need for new facilities as, for example, in the need for more parking facilities. But growth is actually not the main reason for most of Palo Alto’s upcoming infrastructure needs and is only part of cause of parking shortages. Facilities age and wear down, there are new technologies (think of adapting schools and libraries to the opportunities of the Internet age), residents want new facilities at schools and libraries (labs, theatres, sports facilities, community spaces) and there are new requirements such as for earthquake safety and access for disabled residents. And for parking the growth in CalTrain ridership by residents is one of many causes of parking shortages not caused by new office developments.

While there is often broad agreement on the need for infrastructure investments, there is usually less agreement on how to pay for them. Palo Alto is now dealing deciding among multiple options for funding new investments and, often, the feasibility of how to pay determines which investments are brought forward for voter approval.
To keep it simple at first, the two main ways to finance these long-term investments are bonds or major one-time capital contributions. Most city/school bonds run for thirty years and need a revenue stream to fund the annual principal and interest payments. There are two major types of bonds that the city is considering currently—general obligation (G.O.) bond and certificates of participation (COPs). The city is also considering as assessment district for parking structures whereby property owners in the immediate area would vote to assess themselves to pay for the new structures.

G.O. bonds like the ones used for recent school and library investments are funded by a direct property tax assessment paid annually by the city’s resident and business property owners. COPs are funded from city revenues. Palo Alto is considering a variety of sources to fund new COPs—including a transient occupancy (hotel) tax increase and revenue from leasing the old public safety building, The citizen’s infrastructure commission suggested considering a small sales tax increase to fund COPs but currently the city is not evaluating this option.

One-time funding options include receiving partial payment for the public safety and California Avenue parking facilities in exchange for allowing a private developer to expand office facilities in that area, using part of the infrastructure funding provided by Stanford as part of the Medical Center expansion, and using a direct allocation from the city’s infrastructure reserve. The last two options would preclude other future uses of these funds.
There are four other differences between G.O. bonds and COPs that are worth mentioning. The first is that G.O. bonds require a vote of residents tied directly to the proposed investments. COPs, if funded by new taxes, do require a vote but it does not usually tie the funding directly to these investments—the money could be used for other purposes. The second is that G.O. bonds require a 2/3 vote for passage while hotel or sales taxes tied to general uses require only a majority (50%) approval and are thought to be easier to pass. The third difference is that the interest rate on G.O. bonds is less than on COPs.

The last and perhaps most important difference is in who pays. For G.O. bonds resident and business property owners pay. These costs are passed on to residential and business renters. Nonresidents do not contribute directly. For COPs it depends on how they are financed. One appeal of the hotel tax is that it supposedly gets “others” to pay for our infrastructure investment although the connection between paying and benefits is loose. A sales tax increase would be paid by residents and visitors alike. If COPs are financed from other city revenues or reserves, the cost would be borne by people whose projects did not get funded or by the taxpayers involved in making up for the lost revenues by new taxes.

How do you feel about these investments in Palo Alto? Do you share my conviction that we have a responsibility to pass on to future generations the gift of good schools, libraries, parks and other public facilities that was here when we arrived? And is there some part or all of these investments that you are willing to fund?