Mountain View's controversial head tax, meant to alleviate Google's impact on traffic and social services, now in effect

MOUNTAIN VIEW, Calif. (KGO) -- Mountain View's controversial employee head tax went into effect on New Year's Day. The tax, which charges businesses based on the number of employees they have working in the city, was designed to alleviate Google's big impact on the city's traffic and social services.

RELATED: Mountain View voters pass Measure P head tax

Google's footprint in Mountain View is big. Construction projects like its new campus on Charleston Road is another sign of the company's growth. But that growth comes with cost for the city.

"We are holding accountable the companies that are growing, for paying the money to solve our problems," says Lenny Siegel, former mayor of Mountain View.

Siegel says those problems included sky-rocketing housing costs and huge traffic problems.

The "head tax" that Siegel initiated a few years ago, as one possible solution, was overwhelming passed by voters in 2018.

Beginning Jan. 1, companies from mom-and-pop shops to Google, will be charged a tax, based on the number of employees they have working in the city and the revenue will fund infrastructure projects.

"Right now, Mountain View's budget is balanced," Siegal said. "The difficulty is investing in infrastructure. And that's where we are targeting this."

Siegel says the city met with companies of all sizes while crafting the legislation. The end result is that it is a progressive tax and small companies may only have to pay a few hundred dollars.

The tax is expected to generate more than $6 million annually -- about half coming just from Google.

"You can't build a transit line based on donations," said Sigel. "You need regular money, so over a period of years, it's actually going to generate a lot of money that we can invest in our infrastructure."

But regional leaders have raised concerns. They are critical of the fact that it is not a business tax, but a general tax, which means the city could spend the money on other projects.

They point out that a head tax backfired in Seattle when Amazon got the tax repealed.

The leaders are also concerned of the message it sends for companies looking to expand or move to the Bay Area.

Some say Google may not have put up a big fight against the tax, but a downturn in the economy could force it to change its business strategy, and end up expanding its offices in other Bay Area cities instead.

"And of course there is talk about (Google's) expansion in downtown San Jose. So, I think (Google) will weight all the factors when they consider those moves," says Bill Papenfuss, a local who opposes the tax.

How this tax plays out will also be an issue for Bay Area cities like Cupertino, Menlo Park, Sunnyvale and Palo Alto, which are also considering a similar tax.