Cupertino, Mountain View and East Palo Alto have begun to ponder new taxes based on employer headcounts — levies that could jolt Apple and Google — and if voters endorse the plans, a fresh wave of such measures may roll toward other corporate coffers.
Alarmed by traffic and other issues brought on by massive expansion projects, the three Silicon Valley cities are pushing forward with separate plans to impose new taxes that could be used to make transit and other improvements.
“If we are successful in putting something together and (getting it) approved, I believe other job-rich communities will try to put their own measures on the ballot,” Mountain View Mayor Lenny Siegel said. “I’ve been talking to councilmembers in a number of other cities. They are interested.”
Palo Alto, Santa Clara, Sunnyvale and Menlo Park are among the cities that the Mountain View mayor believes would like to follow suit with their own employee tax plans.
“These are all job-rich cities, where employment has been growing rapidly, and housing and transportation have not,” Siegel said.
Cupertino Vice Mayor Rod Sinks said he has been holding quiet conversations with leaders of other cities in Silicon Valley that tend to have much higher jobs-to-housing ratios.
“Other cities will follow suit,” he said. “I would expect that other cities in the West Valley and North Santa Clara County will consider similar measures.”
If those measures become reality in the cities being touted, some of the Bay Area’s highest profile companies could be affected.
Apple is based in Cupertino; Google and its owner, Alphabet, are in Mountain View; Intel calls Santa Clara home; Facebook is headquartered in Menlo Park; and Twitter is in San Francisco. The proposed Mountain View tax could cost Google $5.4 million a year. It’s not yet clear how much Cupertino’s proposal would cost Apple or other large employers.
A lot of factors point to this being a prime time for efforts such as these. San Francisco ranked fifth worst for traffic congestion in the world — and third worst in the U.S. — last year, according to INRIX Global Congestion Ranking. Record housing prices in 2018 boosted the median price of a single family home in the Bay Area to a record $893,000 in April, according to a CoreLogic report.
Federal tax cuts also have improved the balance sheets on an array of U.S. companies, large and small. Silicon Valley’s largest tech companies have contributed to the gridlock on freeways and soaring housing costs as they’ve grown rapidly in recent years, with brisk hiring and expansion in unexpected areas and mega-leases that gobble up huge swaths of office space.
Case in point: Facebook signed a lease in March to occupy three Sunnyvale buildings — away from its Menlo Park headquarters, which the social media giant is busy expanding. The Sunnyvale lease totaled just over 1 million square feet — the biggest rental deal in the Bay Area so far this year. Facebook also leased an office tower recently in San Francisco.
As a result, tech companies have become an easy target for those seeking to raise taxes based on how big those corporations are in a particular community. More than a few tech companies rake in multi-billion-dollar profits each quarter.
Still, large tech companies may not be the ones that really feel the pinch of higher per-employee taxes.
“When you have a tax on jobs of large employers, it’s often mom-and-pop operations and smaller businesses that feel the biggest impact,” said Carl Guardino, president of the Silicon Valley Leadership Group. “These taxes might discourage startups from starting in those cities or from growing there. It could push big companies out of those cities.”
The leadership group is a public policy trade association representing more than 375 of Silicon Valley’s employers.
San Jose, Northern California’s largest city, has a business licensing fee, but it’s at a much lower rate than what is being contemplated in other Silicon Valley communities. San Jose Mayor Sam Liccardo says he doesn’t like the idea of employee headcount taxes.
“We shouldn’t tax people or jobs,” he said. “What we should do is tax unbalanced development such as we see in jobs-heavy cities that are adding many more employees than housing. That should be a Bay Area-wide tax on development that is unbalanced. Sooner or later a recession will come along and those jobs that cities are taxing will start to look scarce.”
A city memo about East Palo Alto’s tax plan also highlights the potential economic dilemma that governments and businesses could face if cities implement new taxes.
“It is reasonable to expect that a local gross receipts tax increase may negatively impact local business economic efficiency,” Brenda Olwin, East Palo Alto’s finance director, wrote in the May 1 memo. “Conversely, government services that effectively improve health and job outcomes for East Palo Alto residents will provide economic benefits and mitigate long-term social costs. The net balance of these outcomes is unknown.”
Elsewhere, Seattle recently imposed a tax on big companies to address the city’s homeless issue. Seattle-based Amazon has joined a corporate coalition that is seeking to overturn the Seattle City Council’s decision with a ballot measure.
In the East Bay, officials of two tech-rich cities said they have not heard any such proposals mooted there. In Emeryville, which is home to Pixar, City Manager Carolyn Lehr said she knows of no plan to institute a new business tax based on employees in that city. Fremont Finance Director David Persselin said no such plan is being considered by the city that’s home to Tesla’s enormous electric-vehicle factory.
In San Francisco, a collective of advocacy groups working under the banner “Our City Our Home” is collecting signatures to place a measure on the November ballot that would tax the gross receipts of employers at a rate of 0.5 percent for companies with $50 million or more in revenue.
“Large corporations like Twitter and Salesforce, Airbnb and Facebook were given huge tax breaks by the Donald Trump administration, and we want those companies to contribute their fair share to address homelessness, traffic and the housing crisis in San Francisco,” said Nick Kimura, an official with Our City Our Home.
Mountain View Mayor Siegel, however, said the federal tax cuts aren’t the primary reason for pushing forward with new city taxes.
“Our biggest companies have plenty of money even before the tax cuts,” he said. “And this measure isn’t meant to be punitive. It will also benefit the companies that are being taxed.” Siegel points out that companies would benefit from improved transportation and transit systems in Mountain View if the tax measures went into effect.
The rapid changes in Bay Area cities have spurred government officials to take action, Cupertino’s vice mayor said.
“The prime factor for us,” Sinks said, “is our communities are gentrifying to the point where people who would like to live in our community are moving elsewhere.”
