City Council - Regular Meeting

right, good afternoon, everyone. Thank you for joining us today. And we're here at the Brisbane Library Lovely Community room and we're joined by our economic vitality director mitch full and our finance director carolina you in. The City Council at their April 15 meeting approved staffs recommendation to move forward with the ballot initiative. And specifically to pursue model to option three we'll get into that more later, which includes a small flat rate tax plus a single rate based on either gross receipts or cost of operations. So we'll start with Mitch going through why this matters and an effort to modernize our current tax structure.

Okay. I'd like to welcome everybody to the focus group proposing changes to our business license taxi methodology. My name is Mitch Bull, and I'm the Economic Vitality Director for the City of Brisbane. And basically the council has asked staff to look at our business license methodology that we have in place and see what we can do to modernize it. Why we're doing this is we haven't updated the business license methodology in 43 years. Ronald Reagan was president then and lots has changed in Brisbane in the last 43 years. Currently, we have 17 different categories for businesses to declare sales or gross receipts for business license tax. It's diverse, but it's a little complicated based on numbers. What we're trying to do is level the playing field with all our businesses. We want to capture businesses that show no sales tax or gross receipts. And they could be freight forwarders. They could be administrative offices where you have lots of employees, but you don't have any business that you're selling. They could be R&D offices. They could be life science offices. One of the things is we don't know what's going to happen in the future with Baylands or any other business. Businesses can come into the city and leave the city, and we don't have a lot of control over which businesses they are. So over the years, our citizens have said, OK, businesses that don't declare taxes or don't have any gross revenues, what do we get from them? And we don't get very much. So we're trying to future-proof. what this could be in the future, where all businesses have to pay something to the city to maintain our roads, our sewers, our water bill, everything. And we also have to address, if you do it by headcount, which some cities do, what happens with AI, robotics, machine learning that reduces staff. So that we want to try to future-proof this. So out of our 994 business licenses today, 752 are less than $300,000 a year in income. That's 76%. So 24 of our businesses do over $300,000. So looking at what other cities have done and partnering with HDL, who is our business license vendor per se, the staff submitted proposals to the city council to review and make a recommendation. Now I'm going to turn it over to Carolina Ewan, our finance director. Carolina?

It's okay.

So what we wanted to make sure that the public was aware that there were different scenarios that we looked at as part of the study and understand why we came to choose the model that we did. So the first model that we looked at took our existing structure and basically just increased the rates. Easy to implement, obviously, because you don't have to make a whole lot of changes other than the rates. And you would immediately have increased revenue. However, it wouldn't future-proof what we really need to do. And also, looking at our existing structure, it's pretty complicated. And we really wanted to simplify the way we managed the program. And then also we wanted to, as Mitch indicated, that didn't protect some of the smaller businesses and encourage or rather smaller businesses from coming into Brisbane and exploring and conducting business. The second model is taking our businesses, applying a small flat tax based off of a level threshold of about $25,000. Then anything over that would pay a rate off of every $1,000 of gross revenue or cost of operations. We felt this was easy to understand. It simplified all of the various types of categories and then also made it a little more equitable to everyone. They're paying pretty much the same rates. The third one was similar, except it took only five categories. And then you had to apply these different rates to each category. And so what the council felt was that was, again, a little too complicated for what we were trying to accomplish and harder to track, harder to manage, harder to assist the customers. With one flat scenario and model, then that way even the businesses could easily identify and project for themselves what they would have to calculate for future years. So what is new? On the next slide we have, as Mitch indicated, the cost of operations is huge in order to protect the city and also in order to put everyone on an even playing field. And then what's important is what stays. What stays? So we have large businesses. Well, we have smaller businesses as well, but primarily the larger businesses also pay sales tax into the city. And so what we want to do is make sure that the businesses are not double taxed. So there's a program where you calculate your business license and any sales tax that you contribute to the city actually lowers the business tax that you owe fee. And so that does not go away. That stays into place because we are not going to double tax it. There are several business license tax programs that we have, liquid storage, hotel business license that went into place a few years ago, and then recycling business license tax. Those are specialized and we're not going to change those. They're under separate municipal code programs.

And they've already been approved by the

Those have been approved by the voters and because they are very specialized, we're gonna leave those alone. And then there's another area for all of the businesses that have gross revenue over 10 million, there is a separate tax that they have to apply, which is a capital improvement tax, but then there's also a cap on it. And so the figures that we're gonna show today are shown without any cap, But we're looking into what that cap is most likely going to be in place and how much it's going to be in order to determine if that $54,000 really will still apply to the future program. So let's get into how our portfolio looks like today. So the study that we did that was conducted by HDL was able to identify the various sizes of our businesses and how much charges of tax and what they're contributing today. And as Mitch mentioned earlier, as far as percentages, most of the businesses are under $300,000 in earnings. And so because of that, we're only when we looked at the trend of what our business license fees were going to be, it's pretty flat. And for a growing city, that could be problematic. And it is important that the businesses are using facilities here. They're using our roads, the different programs that they may be using that We consider them partners in the community, but then this is a way for them to participate. The proposed on the right side showing the receipt rate, so it's $25,000. or a thousand below, they play 50 plus over 25,000. It's a dollar per thousand dollars of gross revenue. With that calculation, without a cap, you automatically see how that adjusts the total dollars that we're going to, that we project are going to be collected for the businesses in those categories of size. So the smaller businesses actually, the dollar goes down But then the large businesses over 300,000, you see where that contribution goes up. And without a cap, the projection could be almost $1.8 million of additional revenue that we could use towards the city. On the next page, you'll actually go through the different types of sample businesses and the categories and basically what they're paying now compared to what they could be paying. This is not by size, but this is kind of the, a different view is by type of business and the categories. Again, we're not going to look at categories differently as far as how we charge them, but it's important to see how this new structure would impact the different types of businesses because when we're looking at what kind of businesses we have in the city the look at the different categories we want to see how it's going to impact if the industries change on the next again it's just a different type of business The samples.

If we have a future supermarket.

On the Baylands, we don't know what the future's going to be. There's going to be retail. There's going to be commercial. There's going to be industrial. So we're trying to address any one of those types of businesses and future-proof it where we don't have to go back. The voters are going to be a different measure down the road.

Right. Going back to the first slide about the level of business that we're being taxed. The size? Yes, right here. One question I would have is, well, for instance, Amazon, they just set up shop nearby. And the thing is, they are a multi-billion upon billion dollar corporation. This is nothing in terms of comparable to what they could pay as to what we're charging them, you know?

Right. And just keep in mind, it's whatever amount of business that is here in Brisbane. So it's confined to that.

And they're reporting sales tax. So we're being paid a substantial amount of sales tax by MSR.

Yeah. And so that would reduce the business license portion that they have to pay.

So that's the offset that we've spoken about.

Good question. Moving forward to the business scenarios when we're comparing ourselves to other cities. This was important for us to review. Business licenses programs, there could be a business that may want to shop around. Where am I going to land? And sometimes business license rates can really impact that. They do. Yeah. They do. You know, you're looking at rent, you're looking at cost, a lot of different costs, but what I'm going to get charged is just to conduct business.

It could be a factor. And businesses like clarity. And that's where this new proposal really gives them a clear picture because it's one methodology. Very simple. It's basically a dollar per thousand on your gross sales or cost of operation. Now, San Francisco, for instance, charges a payroll tax. based on their cost of payroll and headcount. Now, we've gained businesses here because they have left San Francisco. We've gained business here because businesses have left San Francisco because they didn't want to pay the payroll tax. So it saves them a lot of money to come to Brisbane. But we don't want to be the dumping ground for people that have a large operation and just don't want to pay business tax. So because payroll can be adversely affected by AI, robotics, machine learning, we don't want to base it on headcount. And companies notoriously under-report their headcount or payroll anyway. By reporting their cost of operation, we get that total package.

And so by looking at other cities, we did want to see if we were going to be way off target, whether it's by category. And again, some other cities do charge different rates for different categories, where we're now moving towards one to try to simplify it. And then the other thing that you want to consider is that another agency might be getting a business license component indirectly. So I could say that here.

Well, an example of that, some cities charge a smaller base rate, but then they charge different taxes based on construction costs or other costs. components in the construction of a company's headquarters.

Right. And so they, it could be maybe found in another category or a totally separate tax out there. Um, but where we're looking strictly at business license programs. Um, but even with that, uh, it, it's very easy to see what our neighboring cities And just maybe what we want to show why we picked these three. Obviously, South City and San Bruno for logistics. They're close by. And then also have similar industry categories than Brisbane.

Have we seen, like, success from these, like, models implemented?

So they have different tax structures.

And have we seen the success from them implementing those tax structures? Is there evidence that that is shown to improve?

We're seeing increased construction in places like San Bruno, South City, and Emeryville in that businesses are relocating there. They are reusing their vacant land. And some of their older buildings, they've done, like Emeryville has done a very good business with biotech, R&D, et cetera, and retail. And we don't have a retail component, so to speak, but we may in the future as the Baylands gets built and other things get redeveloped.

Yeah. So that's why we Emeryville was was an agency that we picked because they did have some similar industries, developments and industries. Then they have a marina. So that's also something to consider on on similarities to Brisbane and some of the how the taxes are used.

These are their 2025

Correct, this is 2025, what they collected based off of their rates.

Compared to our option three, which would be what the rates would be in the new, if approved.

And so what they did was they took our existing sample businesses and how it would apply using their rates. On the next, just again, similar, but different industries. So again, we wanted to make sure we're in the ballpark that we're not totally way off, right? Because it could be a competitive market there for what we have to consider. And so finally, what we really wanted, what was requested of us and we also wanted to see taking a sample just an individual business and depending on the size of the business and the industry we have a lot of consultants and we're looking at small businesses local how would that factor in and if you look the the current tax that they're paying and then how we would calculate the going forward so everybody gets that flat rate and then based off of so for 20,000 they're underneath that threshold. So there is no second portion to that rate. So they're all gonna be capped at 50. So there is no difference. So as you go, obviously the calculation changes, but if you look at the difference to what is being paid now, it's pretty minimal. So it's really the larger, once they start going up over a million, two, three, four, five million is where we're gonna really see that impact. But we just wanted to show for the community to really understand how it's going to impact a self-employment, smaller business type of local business, I guess we can say.

I think one other question I have is what Is it going to be necessarily where it's a free-for-all where businesses, big and small, like, have the opportunity to come in? Or do we want to prioritize a larger business or a smaller business in a sense where, like, or is it just where everyone, whoever likes their tax structure, can come in big or small?

Businesses generally want clarity. They'd like to know what the pay is going to be, what their taxes are going to be before they move in. That's where my office gets a lot of those questions. This makes it a very flat $50 fee plus $1 per thousand over $25,000. It can't get simpler than that. So are we prioritizing large businesses over small? No. We're really prioritizing our small and micro and at-home businesses that are doing under $25,000. They have a $50 fee for the year, flat rate. They will not pay more than that unless they go over $25,000. And so for even a consultant, a large consultant is doing half a million dollars. Their fees only go from 225 to 525. I think that's a very reasonable number considering we haven't changed these in 43 years. So I think this benefits the city. It benefits the businesses. In fact, they'll know where they stand even before they open the doors. They'll know if they do this X number of dollars in business, this is what the business license fee will be. Obviously, if they're doing sales tax or reporting quarterly receipts, et cetera, like that, that offsets the business license fees.

But it does open the door for micro businesses and vacancies will determine who's going to be coming in as well. So the next slide is just another sample of businesses, which are general contractors and landlords, depending on what that annual either gross revenue or cost of operations would be. So again, if it's typical home-based businesses, there's not going to be a whole lot of impact. using this new structure.

We would like our small businesses to grow enough where they're reporting sales tax for quarterly revenue.

So what we would like to...what's next? We are in the middle of drafting the language for the tax initiative, for the ballot initiative rather. And so what we're going to do, we're hoping to get some feedback on that. So to make sure that people understand the ballot and what they're voting for. But today, we really wanted to make sure that folks understood what is truly changing, what's not changing, and how it's going to benefit the city and how it's going to benefit businesses as well.

And how it really relates to our small, micro, and moderate-sized businesses. We will be reaching out to the large businesses as well to explain how it really

Well, I guess if anyone is watching this on demand and they wanted to maybe see an example of the draft ballot language, could they reach out and

We'd love to have more folks involved in reviewing that, just to make sure that it's clear language, so that when it is come November, that it's clear enough so that everyone understands what our book is.

It's a quick turnaround. July to get to the county elections.

And we're working with HDL and our legal team now to craft this language.

How would people reach out? How would you want them to reach out or to email communications or?

Yeah, using the contact us on our website. Contact us. Put a business license tax in this subject. Okay, that's fine. Or you can contact the finance team for me or Mitch is on the website as well.

Mm hmm.

So we're happy to though it'll be probably through a part of June. Wrap it up. And then because we have to have it to the council. The final vote happens later in July, and we're only down to one meeting in July. We have to have two readings. Yeah, that's up too. So it'll be the second meeting of June. It has to be presented to them.

Okay, so go to the city's website, BrisbaneCA.gov. Find the staff member that you'd like to contact. Send them an email to learn more. and do so soon. We're not able to have a hosted page on our site, so we're just relying on those that are interested to learn more to reach out and be proactive about that. Great. Do you have a question, Noah?

And if it wasn't already said before, if anyone would like to access these slides, is there a way to?

Hmm. Question, I mean, are we able to maybe share these if people wanted to view them? I mean, we have the video on our YouTube, but maybe we can house the slide deck on our website and link to that via the YouTube video description.

Sure. Do we put it on the business license page?

Mm-hmm.

Okay.

Yeah. I know it has to live somewhere, so we'll put it there on the business license page and then link to it in this YouTube video. All right. that you're watching. So thank you for tuning in.

Thank you. Great questions.