In Palo Alto, California, a 67,000-person town in the San Francisco Bay Area, affluence runs deep.
The median household income in Palo Alto is $137,000, more than double the United States median. And yet, many residents consider themselves middle class as they stretch their incomes to afford high-priced homes and necessities like childcare, according to The Palo Alto Weekly, the community’s newspaper.
Their sense of inadequacy may be attributable to living in the shadows of America’s super rich. Facebook’s Mark Zuckerberg, Apple’s Tim Cook, and Google’s Larry Page all call Palo Alto home. These billionaires, and many more millionaires, are the real stewards of the town’s booming economy.
According to a recent story by the Los Angeles Times, California’s economic success is increasingly contingent upon the wealth of residents of tony enclaves like Palo Alto.
“We are very dependent on millionaires,” Mike Genest, former budget director for Gov. Arnold Schwarzenegger, told the LA Times. “If the millionaires get a cold, we all die of the flu.” Because 70% of California’s revenue is derived from personal income tax — a nearly sixfold increase since the early 1950s — a hit to Facebook’s or Google’s or Tesla’s stock could be a hit to many.
In 2016, 9,000 tax returns from Palo Alto residents in the 94301 zip code — which includes the Stanford University campus — resulted in $934 million in tax revenue for California, more than any other zip code in the state, according to the LA Times. And Palo Alto’s 94303 zip code generated an additional $636 million in tax revenue for the state.
Those tax dollars fund government programs in less affluent areas of California, and eventually “determine whether promises to build more houses, overhaul healthcare or invest in schools can actually be kept,” writes the LA Times’ Melanie Mason.
Palo Alto’s main drag is dotted with obvious signs of a booming economy. “Teslas, so ubiquitous they’ve been nicknamed the ‘Palo Alto Prius,’ roll by in regular intervals. Cooler-shaped robots on wheels and their human handlers maneuver around pedestrians to deliver food and other goods,” writes Mason. But it still feels like a small town and that’s why big-time CEOs love it, a city manager told the LA Times.
It’s not just a business boom — real estate is surging too. The typical home is valued at more than $3.2 million as of September 2018, according to Zillow. A 1-acre dirt lot was listed for $15 million earlier this year; an 897-square-foot bungalow is for sale for $2.59 million; and a billionaire tech company founder listed his expansive Palo Alto mansion for $100 million in June.
But the innovation and investment can’t last forever, some analysts say. This current economic boom is approaching a decade, writes Mason, and some experts think that’s pushing the limit. And when the prosperity of the 1% declines, the state’s will too.
“Analysts at S&P Global noted in August that the state’s reliance on high-income earners and capital gains from Palo Alto and its ilk has increased its ‘susceptibility to fiscal volatility,'” Mason writes, adding that some budget experts suggest there’s a way to reduce reliance on the wealthy — but that’s ultimately a job for California’s incoming governor.
But the super rich don’t seem to mind. Since 2010, Palo Alto residents “have voted overwhelmingly to impose higher taxes on themselves” on two separate measures, according to the LA Times.
“In many ways people take [the current prosperity] for granted,” the city manager told the LA Times. “There’s a kind of faith that we can transform ourselves as needed.”