City collects an extra $112 million

"The city of Palo Alto's citywide revenues exceeded expenses by $112 million last fiscal year, and $24 million in utility revenue was used to bolster the city general fund that pays for day-to-day operations. Those figures are in the city's Annual Comprehensive Financial Report, or ACFR, for fiscal year 2025, which ended June 30. The City Council Finance Committee reviewed the ACFR during a meeting last week - where some council members questioned the amount of administrative costs associated with the city's business tax."

"The city collected $5.7 million in business tax revenue last fiscal year, and spent $700,000 of that on administrative costs. In fiscal year 2024, the business tax raised $5.4 million, of which $600,000 went to administrative expenses. During the Finance Committee meeting, council member Keith Reckdahl questioned why administrative costs were that high. "That's a big chunk of the business tax," he said. Lauren Lai, the city's chief financial officer, said the city contracts with Fresno-based HdL Companies to administer the tax."

"The tax, which is based on the square footage of a business, went into effect in January 2023. The tax was 3.75 cents per square foot per month through 2024. Starting in January 2025, the tax increased to 7.5 cents per square foot per month. The tax is capped at $500,000 per business each year. The tax revenue is divided equally to cover three types of expenses: public safety; affordable housing and homeless"

Palo Alto reported citywide revenues exceeded expenses by $112 million for fiscal year 2025, with $24 million in utility revenue transferred to the general fund for operations. The ACFR for FY2025, which ended June 30, was reviewed by the City Council Finance Committee. The city collected $5.7 million in business tax revenue in FY2025 and spent $700,000 on administrative costs, up from $5.4 million collected and $600,000 in administrative costs in FY2024. The city contracts with HdL Companies to administer the business tax. Measure K established the square-footage tax, effective January 2023, with rates rising in 2025 and a $500,000 annual cap; revenue is divided equally for public safety, affordable housing, and homeless services.

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