Regular City Council and Housing Authority* - Regular Meeting

GOOD AFTERNOON, EVERYBODY, AND GOOD AFTERNOON, EVERYBODY, AND GOOD AFTERNOON, EVERYBODY, AND WELCOME TO THE CITY COUNCIL WELCOME TO THE CITY COUNCIL WELCOME TO THE CITY COUNCIL STUDY SESSION MEETING OF STUDY SESSION MEETING OF STUDY SESSION MEETING OF TUESDAY, JUNE 9, 2026. TUESDAY, JUNE 9, 2026. TUESDAY, JUNE 9, 2026. I CALL THE MEETING TO ORDER. I CALL THE MEETING TO ORDER. I CALL THE MEETING TO ORDER. NOW LET'S SAY THE PLEDGE OF NOW LET'S SAY THE PLEDGE OF NOW LET'S SAY THE PLEDGE OF ALLEGIANCE TOGETHER. ALLEGIANCE TOGETHER. ALLEGIANCE TOGETHER. STAND READY, BEGIN. I PLEDGE ALLEGIANCE TO THE FLAG OF THE UNITED STATES OF AMERICA AND TO THE REPUBLIC FOR WHICH IT STANDS, ONE NATION, UNDER GOD, INDIVISIBLE, WITH LIBERTY AND JUSTICE FOR ALL. ALL RIGHT. THANK YOU, EVERYBODY. SO WE HAVE ONE STUDY SESSION ITEM TONIGHT. MADAM CLERK, COULD YOU PLEASE READ THE TITLE?

THANK YOU, MR. MAYOR. AND THE RECORD WILL REFLECT THAT ALL COUNCIL IS PRESENT.

ALL RIGHT.

and this is provide direction to staff to explore two ballot measures pertaining to business license reform and transient occupancy tax. And presenting tonight will be Ms. Acosta-Reyes, finance manager.

Sounds good. Okay, so the ground rules are we're gonna have staff do the presentation. During the presentation, we may interrupt you and ask questions. Don't be alarmed. It's OK. Whatever question we ask during the presentation is one we don't have to ask at the end. Council, I'll give you the floor. Whenever you need to ask questions, you can have it until you're done. You can yield it if you want to another council member. Just make sure let's not interrupt one another. We never do. So I just want to say that, though. And then once we're done with all of our questions, WE'LL OPEN IT UP TO THE PUBLIC AND GET THE PUBLIC COMMENT AND THEN WE'LL GO THROUGH A ROUND OF AT LEAST ONE ROUND. WE CAN HAVE MORE IF WE NEED TO OF COMMENTS BY THE COUNCIL. YOU DON'T HAVE TO BUT YOU CAN USE FIRST NAMES IF YOU WANT. ANYWAY, WITH THAT, WE'RE READY TO GO. YOU HAVE THE FLOOR.

THANKS, MAYOR. I'LL JUST KICK THINGS OFF HERE. Thank you. City Manager Cecilia Gallardo-Dailey. So we just have a team here tonight to present the proposed two revenue measures that the council asked us to look into in concert with FIPAC. So I just wanted to introduce the members of the team that are here tonight. We have Dr. Richard Bernard from FM3 Research that conducted the initial community survey. We have Jeff Stewart from WILDAN. Jeff is a retired city manager who is the city manager of several LA County cities who's been advising us on this. We have from the city manager's office Hadassah Jacur, assistant to the city manager. We have Alma Reyes.

Assistant city manager we have finance manager and Acosta and we have mark who the budget manager and with that I'll hand it over to Ana to kick things off Thank You city manager good evening mayor mayor pro temp council members city manager and city manager the finance department is here to present provide information on two potential ballot measures for council direction this includes a business license rate reform as well as the transit occupancy tax First, the business license rate reform. Costa Mesa has approximately over 111,000 residents and nearly 8,000 businesses. The city adopted its business license structure in 1985 and hasn't been updated over the past four decades. The city utilizes gross receipts. Modernizing the business license rate would maintain service levels, align Costa Mesa with regional norms, ensure long-term fiscal sustainability, and diversify general fund revenue to be less reliant on sales and property tax, which are the two main sources of revenue for the city. The second potential measure is a transit occupancy tax adjustment. The current TOT rate is 8%, which has been since 2010. The rate for Costa Mesa is lower than most neighboring cities. For awareness, the city has engaged with local hotel, motel owners, and general managers to provide information on the potential measure. As we discuss the potential measures, it is important to show a general fund revenue support and why maintaining a stable and diversified revenue base is essential to preserving the quality of services our community deserves. This slide highlights these essential services by the general fund. Here is a summary of the city's process to evaluate the potential measures. At the direction of City Council, FIPAC began discussions of the potential ballot measures in October. Later in December, on December 2nd, 2025, City Council directed staff to explore these two ballot measures. Approximately from January through April, FIPAC discussion continued of these ballot measures. In March, FIPAC recommended an increase of TOT and or the BAA with the maximum of three percentage points. In April, FIPAC recommended to move forward with the business license structure utilizing gross receipts, and later on April 16th, they established the following in the business license structure. This was to a minimum and maximum flat rate, CPI adjustments, competitiveness with neighboring cities, defined gross receipts, and a simple and easy to administer structure. Next I will walk you through the business license reform as far as background the business rate was adopted in 1985 and Hasn't been updated in 41 years the city utilizes the gross receipts This is a table that shows the breakdown of the rates the current max the business may pay is $200 and The city of Costa Mesa utilizes gross receipts for its business license structure. This shows how the city's municipal code defines gross receipts. For businesses that do not generate gross receipts, such as manufacturing office space, the municipal code identifies the methodology of the total of all expenses incurred at the business location that includes payroll, utilities, depreciation, and or rent. Okay. This table provides current registered businesses within the City of Costa Mesa. As you can see, it includes a number of businesses along with the current rate that these businesses do pay. In our research looking at other cities, two models that are for the business license tax structure, it can be either based on gross receipts like Costa Mesa. The other model is based on employee. This table here shows how the city of Costa Mesa compares to neighbors in cities that collect business license based on gross receipts here. This is the other model where tax is a bit more complex where it's based on per employee. In our research, we've learned as the number of employees grows, the number of employees rate drops. Here is a reiteration of what FIPAC recommended in regards to the business license rate. They recommended the following to the overall structure.

Excuse me, Anna. So yeah, Mike, go ahead.

Yeah, just can somebody explain to me what are the pros and cons or what's the differentiating factors why people would go with employees versus gross receipts?

It came down to, well, we looked at the neighboring cities within our neighboring cities, and it was just two different models based on gross receipts. And the other one was just based on per employee.

It was just came down to preference between yeah, I guess that's what I was going with it Is there when you look at these two different models is one that typically generates more or less revenue or I? Mean what why are there two models, and why would you choose one over another other than just preference I?

Mr. Mayor, I can address at least part of that, I think.

And by the way, you can just talk. Pop in, yeah. Talk. Anybody can speak, anybody who has anything to add, including our city attorney who wants to. Thank you, Mr. Mayor. Go ahead.

I was just going to say, and I invite our experts to weigh in here as well, but the gross receipts is far and away the most common, at least in my experience. Easily rather easily measurable I suspect and and not as well. I mean of course it fluctuates every year, right?

But at least you know, there's documentation of it and and I would invite Jeff and dr. Bernard to weigh in as well You've said what I would have said it's just ease of registering it and ease of maintaining it and Sort of looking for Making sure that it's accurate

Your mic, Mike. Your mic, Mike.

There you go. There we go. Thanks.

Chamber of Commerce, business community, hey, if you had to pay a business license tax, how would you prefer that it be assessed against you? Would they have the same general opinion? It just seems odd that there's two models out there and there's nothing that really moves the needle in favor or against either one.

I don't know if I can answer your latter question, but in terms of your former question, I think the gross receipts allows there to be variability at times where there's economic despair. The gross receipts will be less because businesses are making less, and therefore there would be less money coming to the city. So it's impacted by how the economy is going at any one time. And just an observation for, I'm not an economist sociologist, but most of my clients who are, that is municipal clients, have been moving away from the numbers of employees to gross receipts. I think it allows them, often those business license taxes have been developed 40 years ago when the structure of businesses were different. And so they're trying to modernize to capture, you know, you can have one employee making millions of dollars and the city's not going to benefit at all from it because you're doing, you know, some high-tech thing in your basement. So I think there are a variety of reasons why that's being done.

And then I think from a tracking and reporting standpoint, You know, when you ask businesses to report the number of employees, there's a potential to under-report, whereas gross receipts is more accurate because it's actually reportable to the government.

So I was going to ask that question. So forget about employees for a second, just with gross receipts. So when... I know we don't do this now, or maybe we do, but nobody follows up because it's only $200. So is it like... WHEN YOU WOULD GO IN AND YOU WOULD JUST CHECK THE BOX, I'M IN THIS RANGE, AND THEN YOU WOULD MAKE A PAYMENT, AND THEN WOULD THERE BE ANY AUDIT RIGHTS THAT THE CITY WOULD HAVE? BECAUSE THE CITY MANAGER, SORRY, CECILIA JUST MENTIONED, REPORTED AT GOVERNMENT, BUT IT'S NOT LIKE WE WOULD EVER GET THEIR TAX RETURNS, I WOULDN'T THINK, UNLESS THERE'S SOME AUDIT RIGHT EMBEDDED IN THE ORDINANCE. SO WHAT'S THE STORY THERE? IS IT THE HONOR SYSTEM CHECK A BOX OR DO WE HAVE SOME ABILITY TO FOLLOW UP AND VERIFY THAT THE REPRESENTATIONS ARE ACCURATE?

Mr. Mayor, we do have an audit provision in our existing business license tax ordinance. We're not proposing to make any changes to that.

And do you think that is sufficient that it would be effective if we actually needed to audit the businesses?

I believe it has been done in the past and it has proved successful. I think HDL does that sometimes for us.

Okay. All right. Thank you. Thank you for answering that question. You can go ahead.

I had a question on the previous slide. I just want to make sure I understand the numbers and I understand the recommendation is gross receipts not per employee. But the way I understand this table is that in Newport Beach, a business with 100 employees would be paying $100,000 fee, and a business with 500 employees would be paying $500,000 fee. Am I understanding that correctly?

No, it's saying for Newport, if they have 500 employees, they would be paying $1,143. It says per employee. The per employee is the per rate. So if they have 500 employees, they would pay the $1,143. Okay.

So their total fee for 500 employees is $1,000, not $500,000. Right.

Oh, sorry. The header of that column should be number of employees. Yeah. Right, right. Yeah. Okay.

Okay. Okay. Thank you. I'm glad I asked. Yep.

Got it.

So when we were looking at, was there any thought when we were looking at gross profits as a measure versus versus versus uh gross receipts versus profits is there any concern this would have a disproportionate impact against those that are operating on relatively thin margins like your grocery store versus somebody that's in a higher profit margin i guess my concern isn't more are they going to leave tomorrow but with the long-term message that would send so if i'm Doing my my fees based on gross profits versus is there any thought versus profits is there any thinking?

There being a differentiation between people operating on really thin margins versus wide margins We didn't consider we kept it with gross receipts specifically as what our current municipal code defines and then keeping in alignment with neighboring cities as well who use gross receipts as well and So we can look into that further.

OK. Thank you.

Okay. To continue, this is FIPAC recommendations, which was provided in April. They recommended the following to the business license structure. Establish a minimum and a maximum flat rate, apply a CPI, ensure the structure is competitive with neighboring cities, define grocery seats for consistent application, and then maintain a simple and easy to administer structure. With this information, based on FIPAC's recommendation, staff developed a business license rate. The rate we're using tonight is 60 cents per $1,000 in gross receipts. We have a minimum $25 flat rate for businesses that are from zero to $49,999 with a maximum of $15,000 for businesses above 25 million. We are ensuring that this rate is below that of neighboring cities based on gross receipts. Staff looked at ensuring the small businesses were minimally impacted, and just over 41% of businesses would only pay the minimum rate of $25. Okay. So this is what the proposed rate look like. As you can see here, there are going to be a number of businesses that currently pay zero dollars. For businesses that from total gross receipts from zero to 1,000, that's a total of 1,365 businesses that currently pay zero, where the minimum rate would apply at $25. Next, we have a total of... 1,293 businesses that have total gross receipts from 1,000 to 25,000 that currently pay $25, and they would continue to pay the $25. For businesses that have total gross receipts above 25,000, but below $50,000, which is a total of 629 business, currently pay $35 to $45. With the new rate, as you could see, they would pay $10 to $20 less with the new minimum rate of $25. Next, in looking at businesses from $50,000, in total gross receipts, $50,000 to $100,000, which is 891 businesses, they currently pay $45 to $60. As you could see, some that are paying $45 will now pay $30, and those that pay $60 will continue to pay $60. Next, businesses with gross receipts above $100,000 but below $250,000, that's a total of 1,095 businesses, and they currently pay $60 to $100. The new rate, some would pay the same, and then you would see an increase from 100 to 150 for some businesses. And just to kind of, let me back up for a second. For businesses that are above the 50,000, this is where the new rate would apply at the 60 cents per $1,000 in gross receipts. For businesses that are above the $500,000, this is where you're going to see the larger impact. So for businesses that have gross receipts from $500,000 to $1 million, which is 694 businesses, they currently pay $200. With the new rate, they would pay $300 to $600. For businesses that are over $1 million, up to $5 million, this is that total 1,023 businesses. Again, they just pay $200. their rate would increase from six to $3,000. And businesses from five million to 25 million, which is 348 businesses, they currently pay $200 with the new rate, they would go from 3,000 to 15,000. Any businesses that have total gross receipts above 25 million, which is only 141 businesses, this is where the maximum rate apply of 15,000. And again, this is less than 2% of businesses that would pay this maximum rate of 15,000. Okay, now how does this sorry? So here is a slide that again. We're showing you how we compared to the neighboring cities and you can see City of Costa Mesa's current rate and then the column in yellow Shows what the new minimum rate and how we would compare to other cities here? Next time, oh.

Fire off another question here? Yes. Go ahead. I'm just curious, you look at, that was kind of, STRIKING TO ME THAT WE HAVEN'T HAD ANY ADJUSTMENTS SINCE THE 80s, IS THAT WHAT I HEARD? SO YOU LOOK AT OUR CURRENT RATE OF LET'S JUST START WITH COLUMN 1, 25,000 GROCERY SEATS, $25 IS OUR CURRENT. SANTA ANA IS PRESENTLY 82, ORANGE 35, ANAHEIM 40. HOW LONG HAVE WE BEEN BELOW THESE RATES, IF YOU WILL? And then you start getting into the larger numbers, the 3 million and 5 million. I mean, we're orders of magnitude below Santa Ana, obviously, but Orange. I'm just curious, you know, we've been not taking any action since the 80s, and we see these other cities that, I can't say significantly higher, but higher in some instances. When did they start making this move?

We currently didn't look into that information. We just looked at the current rates of today when we were comparing how we compared to the neighboring cities. But we can get back to you on that.

Okay.

Yeah, I can also tell you, Mr. Bewley, that this disparity, especially between Costa Mesa and Santa Ana, has existed as long as I've been here, and that was 2004. So it's well over 20 years.

Done my okay. I was just wondering if the city has done any kind of study as to whether or not our low business license Rates have functioned as an economic advance development advantage for us or not historically Well no specific studies councilmember I

Now I will go ahead and walk you through the second potential ballot measure, our transit occupancy tax. The city's transit occupancy tax went into effect at the rate of 6% in 1978. Later in 2010, it was increased to 8% by the voters in November of 2010. Okay. In our research, here is a table that provides information of how we compare to the other cities within Orange County. And as you can see here, the highest is Anaheim at 15%, and the lowest is 8%, which that's where the city of Costa Mesa falls in. Here's a table of information that kind of, that provides information on the TOT revenue collected of the surrounding cities, specifically for transit occupancy tax.

Okay, sorry, can you go back to that and say a little bit more about the fact that you included home shares on here, short-term rental policy?

It was to depict who allows it. And so as you could see, the different cities allow it. We have home shares, right?

But for the cities that allow it, do they charge a TOT on Airbnb or on short-term rentals? Is that the intent of what you're showing here?

Yeah, the city of Newport Beach, for example, does collect short-term rental TOT. Huntington Beach, we included. They separate it out from hotels versus STRs. Same thing with Anaheim.

And do we know what percentage of their revenue derives from their short-term rentals versus their hotels?

No, not currently.

Okay.

But we can look into that. Is that something we can find out? Okay, thank you.

Just a quick follow-up on that. You said Anaheim and Newport do collect?

Yes, and that's reflected in the numbers that are presented before you.

Okay, so Anaheim, Huntington, Newport all collect. You're going to follow up on the amounts? Yes. Great, thank you.

And just for everyone who's not looking at the slides closely, so the Costa Mason, although we note that we allow home shares, which is a short-term rental where there is a primary occupant and they are renting out a bedroom or an ADU, for example, we do not collect TOT on those home shares and we do not allow whole home rentals via short-term rentals. Go ahead, you can continue.

Sorry, one more follow-up question on that. So would we be able to, well, do your best to estimate what we would generate from short-term rentals? I know they're not registered, so there probably has to be some back of the envelope, but it would be great to see estimates of that.

Because we don't require that they register, we don't know who they are, so we would have to create a mechanism to have them register so that we could track. But at this time, it's unknown.

Sure. Yeah. So I'm just asking to see, you know, best effort given available data. It'd be interesting to see what that could look like based on publicly available information.

Yeah. Look, there's 10 to 100 of them listed per night, depending on what season we're talking about. They rent from $100 a night to $600 a night. So what's 8% of that? What's that range, right? I mean, I can do some math right now. But it's not nothing.

Thank you. I'm not asking you to do it right now. Thank you.

Okay. In addition to the TOT, the city has 10 hotels that participate in the business improvement area, BIA, through Travel Costa Mesa. This voluntary assessment is an additional 3% above the city's required TOT. The additional 3% funds go to the Travel Costa Mesa, and of that 99% goes to Travel Costa Mesa, and the 1% comes to the city. Other cities in Orange County have similar assessments, but may differ in how they implement the assessment. So here is a table that shows that. As you could see, you have Anaheim with a TOT rate of 15%, and they have an assessment of 2% for a total rate of 17%. Here in Costa Mesa, we have our 8% TOT rate with 3% assessment for a total rate of 11%. As you could see, Irvine is one of the neighboring cities that is below what we have, what the city of Costa Mesa currently has. Here is what FIPAC recommended.

Let me jump back in. What's Travel Costa Mesa's take on this? Are they overly concerned that increase of TOT may discourage the voluntary membership into Travel Costa Mesa? And they may look to the city to pick up some slack on the city promotion?

So, Mike, they're here so they can tell you.

When we get to the public?

Yeah, when we get to the public, if they wish to speak. But also, we have, I'm on the board too, so Cecilia, we just voted to commission a report by a consultant who's going to provide for our next meeting where we have to consider this on the 21st of July, an economic impact analysis report. AND SO I TOLD THEM NOT ONLY WILL WE CAREFULLY CONSIDER THAT, BUT I'LL GIVE THEM SOME EXTRA TIME AT THE JULY 20th SO THEY CAN, AFTER THEY GET THEIR INDEPENDENT ECONOMIC ANALYSIS, THEY CAN, YOU KNOW, LAY IT OUT FOR US AND TELL US THEIR FINAL POSITION. BUT RIGHT NOW THEY'RE IN THE YOU KNOW, ACTIVELY DISCUSSING THIS, DISCUSSING THIS WITH CERTAIN COUNCIL MEMBERS AND DOING OUTSIDE ANALYSIS. SO I DON'T THINK THEY'VE TAKEN A POSITION, BUT THEY'RE GATHERING THE DATA.

SO, JOHN, IS THIS WHAT YOU JUST TALKED ABOUT, THE STUDY COMING UP, IS THIS GOING TO EXPLORE THE POTENTIAL ELASTICITY AND DEMAND THAT A TAX MIGHT HAVE ON OCCUPANCY RATES FOR TOT?

THAT'S GOING TO BE INCLUDED IN

IF WE INCREASE THEIR TAXES, IS DEMAND GOING TO SUFFER IN TERMS OF ACTUAL ROOM OCCUPANCE?

IT'S A PRETTY EXTENSIVE SCOPE OF WORK THAT HAS BEEN COMMISSIONED BY THE BOARD OF TRAVEL COAST TO MESA. SO, YOU KNOW, ANYWAY, THEY GET AN OPPORTUNITY TONIGHT TO TALK SO THEY CAN TELL ANYTHING MORE, BUT THAT'S REALLY WHERE TRAVEL COAST TO MESA STANDS.

Okay. In March, we got a recommendation from FIPAC where they recommended an increase of TOT for a maximum of three percentage points. FIPAC emphasized considering market competitiveness in conjunction with the existing 3% BIA rate. Here's a table that shows the proposed TOT adjustments from 1% to 3%. As you can see, a 1% increase to the TOT would generate $1 million in revenue. A 2% would generate $2 million, and 3% would generate $3 million.

Thanks. Hey, can you just stop for a while? I think this question is for the city attorney. It's just something that occurred to me. I just want to make sure, see if it's allowed. So when we did our cannabis tax measure, we had for the, well, the cannabis measure, for the tax piece, we allowed a range from four to seven and the council could decide that range. We could, by a council vote, I think just even a majority vote, but it might be a super majority. It doesn't make any difference. The council could set it at four, set it at seven, or set it anywhere in between. Could we potentially do something like that for this measure where we say, IT'S BETWEEN, FOR EXAMPLE, 9 AND 11 AND THE COUNCIL CAN MAKE THOSE ADJUSTMENTS DEPENDING ON WHAT THE ACTUALS WE SEE AND WHAT THE ECONOMY PLAYS OUT OR WHATEVER ELSE THEY CARE ABOUT.

You could do that because as long as you do not exceed the maximum allowed rate, you do need to be careful if you make a permanent reduction in the rate as a council action because then once you've done that, then it would have to go back to the voters to go back up. But you could do that. I would want to know if the business community would find that... LESS CONVENIENT OR CREATE MORE UNCERTAINTY FOR THEM?

YEAH, RIGHT. THAT WOULD BE A CONCERN. YEAH.

OKAY. WITH THE 3% INCREASE OF TOT Okay, in this table, at a maximum additional rate of an increase of 3%, Costa Mesa would be at 11%, and this is where we would fall, as you could see on the table. Again, Anaheim is the highest of 15%, and the lowest would be 8%. At the 3% increase of TOT with the 3% assessment plus puts the city of Costa Mesa at 14%, as you can see in the table here. Again, just to remind that the 3% BIA rate is applied only to the 10 participating hotels in the city.

Okay. Okay, let me stop you for a second. Yes. One thing that... AS OCCURRED TO ME IS, YOU KNOW, I'VE SAID THIS IN OTHER CONTEXT, NOBODY PAYS A RATE, RIGHT? NOBODY GOES IN AND THEY SAY HOW MUCH IS THAT, THOSE EGGS, AND THEY SAY A DOZEN EGGS IS 1%. THEY SAY 1% IS THE AMOUNT OF MONEY. I WOULD BE REALLY CURIOUS, I DON'T SEE IT IN ANY FURTHER SLIDES. IF I MISSED IT, THEN I'M SORRY. Be curious as like, how much money are these cities generating? Rather than just what's the rate, but how much money are they generating? Now, I know that there are other variables involved. For TOT, for example. You have the number of rooms. You have the rate, you know, the nightly rate that you apply the nightly room rate that you apply to the TOT rate to. And also there's the level of occupancy. All of these things are somewhat out of our control. But I'm just curious, like, oh, you have it? Oh, shoot. How did I miss that?

Slide 18. Oh, okay. Yeah.

So Newport, I get it, and where are we?

Oh, okay.

You answered my question. I guess I gotta pay more attention. That must have been when I was texting Tony Dodaro that we went over that one. It's Tony's fault. All right, anyway, sorry, go ahead. You're the best.

18, thank you, is exclusive of the assessment or the BIA. It's rate only. Anaheim 15, and then on 23, Anaheim's at 27, or excuse me, 17%.

Yeah, that's correct. The current slide only shows the TOT rate.

Right, but 18 gives you a sense of the magnitude of who's driving a lot of revenue, obviously Disney with all of their obvious, okay.

If I may, there's also an additional element with respect to Anaheim. They are capturing the differential. If I went on Travelocity and got a hotel room for cheaper than the market rate, they will capture in their TOT the differential. Let's say it's 200 and the market rate is 300 they will cap if I bought the room at 200 I would be charged the TOT rate at 300 and it it brings in I don't know the exact amount but a significant significant amount of money that Add that include it's included in the two to two hundred and forty three million dollars So they're not apples to apples

Just so I understand it as a guy who hops on hotels.com or whatever. So you're saying if you get in there and the rack rates 400, but you get it for 200, in Anaheim, even if you get it for 200, they're hapless guy as if he bought it at 400.

That's right. So that elevates that number. That's why it's, I mean, it would already be large, but it includes that as well.

So on 18, sticking with 18, do we know, I mean, maybe it's all three, but do we know whether, I mean, obviously Anaheim's got a zillion rooms, but do you know whether this is attributable to rooms, daily rates, occupancy, or all three? You know, other than the rate.

We would have to look into that further, but these numbers are coming from the city's annual comprehensive financial report, so whatever they report as their transit occupancy tax in those reports.

Right, right. I mean, we're never gonna, you know, God, it's interesting, Anaheim, unbelievable. Okay, all right, go ahead.

Okay. Okay. The city retained the services of FM3 research for a community survey. At this time, I will hand it over to Dr. Richard Bernard from FM3 Research.

Good evening. We conducted this survey between May 4th and the 11th. We interviewed a random sample of 426 City of Costa Mesa registered voters who are likely to vote in a November 2026 election based on their past voter history or if they've recently registered to vote. For questions asked of everyone, the margin of error is plus or minus 4.9. We contacted your voters by telephone, email, and text, and a random half of the sample took the survey on the telephone, a random half online. We offered the survey in English and Spanish, both on the phone and online, and 6% of the respondents opted to take the survey in Spanish. If you are very quick on math and notice something doesn't equal 100%, I blame that entirely on rounding. Before I get to my charge, which was to examine two ballot initiatives that we're talking about, possible ballot initiatives that we're talking about tonight, I wanted to sort of set the context. We asked sort of a general, conceptual question if they think the City of Costa Mesa has a need for additional funds to provide the level of city services that residents need and want. And we offered them the option of great need, some need, a little need, or no real need, or people volunteered they don't know. you could see just slightly more than one in every two perceive there's at least some need for additional funds with a relatively modest number of 17% who say there is a great need. Why is that relevant? Well, when you're asking residents or voters specifically to consider a possible revenue measure, they're going to want to know that there's a need for additional funds, that there's some degree of sense of urgency. And since the measures that I've been charged to test are general purpose measures, which are 50 plus 1, it comes very close to the 52% with respect to perceived need by your voters. The first measure and the one that we disproportionately... Can I cut you off for a quick second?

Yeah, any time.

And I appreciated we had a little small group discussions prior to this, and there was something I picked up there, and I think I just heard it here that I just wanted clarification on. I think you said a general purpose. And the proposed ballot initiative that we're here talking about, if I understood what I heard during that conversation, It's that we attempt to generate this revenue and that's the purpose of the ballot initiatives and any funds generated just pour into the general fund and they're not earmarked or whatever for any specific use. They're just general fund revenue. Is that what you mean by general purpose? I'll start there.

That is correct. By law, that would be how general purpose 50 plus one would be required. If you wanted a dedicated measure where it was earmarked specifically for certain services, infrastructure, or whatever you as a collective wanted to do with it, it would be considered a dedicated measure and would require a two-thirds, so basically two-thirds plus one measure.

Okay. And maybe this is a legal question or not. Is there any way to do, I'll just say, let's say it was a ballot measure that said 55% is going to be allocated towards wages, salaries, public service type stuff. X percent will be guaranteed for CIP related things. X percent, whatever. Is that the type of thing we need 60 plus one?

I'll start with Kim on that.

The more specific you get it, the more likely it would be treated as a special tax because you lose the flexibility of being able to move that money into a different service that is paid for through the general fund.

Now, Kim will correct me if I'm wrong, but I do know councils that have presented a memorandum of intent with the funds, but that would be very specific to that council on that year and could not be carried on to the next council unless they chose to continue to do that.

That's correct. If it's actually in the measure, that's what the voters would be voting on. Those percentages would be fixed. And I would say, again, depending on how you worded it, it would more likely be treated as a special tax measure.

BELTS AND SUSPENDERS NEON SIGNS SO GENERAL WITHOUT ANY OF THESE EARMARKED ALLOCATIONS 50 PLUS ONE YOU GO TO THE OTHER WHAT IS IT DEDICATED ABOUT TWO THIRDS YES CORRECT SO OKAY I HAVE A QUESTION AS WELL BEFORE WE MOVE ON OF COURSE LAUREN IF YOU LOOK AT SLIDE 27 HERE UNDER THE SURVEY METHODOLOGY IT SAYS HERE YOU HAD A

TOTAL OF 426 INTERVIEWS AND YOUR CONTACT METHODS WERE TELEPHONE, E-MAIL, AND TEXT. IS THERE A WAY WE CAN GET THE NUMBERS OF HOW THESE WERE CONDUCTED INDIVIDUALLY? THE REASON I'M ASKING THAT IS BECAUSE ON SLIDE 29 HERE, THE QUESTION IS STATED HERE NEXT IN YOUR PERSONAL OPINION, DO YOU THINK THE CITY OF COASTA MESA HAS A GREAT NEED for additional funding, were these interviewees informed that it's been 41 years since we've addressed this?

Not at this point in the survey, no. This was pre even getting to the ballot question, which you'll see in a moment.

Okay. Thank you. Sure, my pleasure.

Are we gonna, you know, just looking at page, what is it, 31? THE HYPOTHETICAL BALLOT TITLE, YOU KNOW? I HAVEN'T GOT THERE. YOU HAVEN'T GOT THERE? I'M SORRY. I THOUGHT YOU GOT THERE.

I WANT TO BE SUPER RESPECTFUL TO THE COUNCIL AND RESPOND AS THEY NEED ME TO RESPOND BEFORE I MOVE ON.

OKAY. WELL, THAT'S FINE. THANK YOU FOR BEING SO RESPECTFUL, BUT I'M GOING TO ASK THE QUESTION ANYWAY. ALL RIGHT. GO AHEAD. WHAT'S THE PROCESS FOR US AS A COUNCIL TO REVISE THIS HYPOTHETICAL BALLOT

Mr. Mayor, that process is part of what we're doing tonight. We get feedback from you if we're going to bring this back forward. And then at the time that you consider it, at your July meeting, any final word changes would be up to the council. We do make some specific recommendations, including some specific language that's required by law to be in the measure, and we also are limited to 75 words excluding the title.

Right. I MEAN, THE REASON I ASK, THAT'S GOOD. AND THEN WE COULD ALSO PROBABLY PROVIDE YOU FEEDBACK AFTER TONIGHT BETWEEN NOW AND WHEN WE RULE ON THIS. BUT I MEAN, IT SEEMED LIKE BASED ON WHAT I HEARD ANNA SAY, IT MIGHT BE INTERESTING TO SAY LIKE INSTEAD OF SMALL BUSINESSES, BUT 41% OF BUSINESSES WILL PAY $25. AND SOME REFERENCE TO CAPTED

$15,000 for businesses that have more than 25 million something right now we put that type of data in here it depends because if you say that the 40% and then the numbers change well yeah we could somebody could read that as being well 40% of businesses have to only pay 20 so what we try to do is include the required elements in ballot language and Dr. Bernard can explain all that to you. And then when we need additional explanation, we can either include it in the proposed ordinance itself, or it can be included in the impartial analysis, or it could be included potentially in arguments in the ballot. understand also purely informational material is something that we can share with the public at all times so if this structure were what you decided to put on the ballot we would be comfortably able to say every day up until November that under our current business environment, you know, 40% would pay only 25. Okay.

Thank you. That answers my question. Thank you. Right.

I mean, again, not a lawyer, but there's tenor and tone. So we have to make sure, and Kim will make sure, that we're not trying to sell the measure, but just inform residents so they can be educated enough to make whatever they consider to be the right decision.

Right. But I mean, you know, there's, we also want to be clear. And so when you say a small business, that's, we could be a little bit more precise.

The intent would be in the actual ordinance. Um, the, the table would be part of that. And we would also, um, include, um, for example, specific definition of what a small business is under this.

The ordinance would be in the ballot? Yes, sir. Okay, thank you.

I mean, I think just throwing it out there, but another way rather than sort of carving out the small businesses is to target our license tax increase on only the highest earning gross receipts, right? So we could also say something like affecting only businesses that make more than $5 million in gross receipts, right? AND JUST NOT EVEN TALK ABOUT SMALL BUSINESSES IN THE ORDINANCE IF WE'RE NOT PLANNING TO TOUCH THEM.

WE WOULD HAVE TO LEAVE THE EXISTING STRUCTURE IN PLACE FOR ANYTHING LESS THAN 5 MILLION TO SAY THAT TRUTHFULLY IN THE MEASURE.

AND THAT'S WHAT I'M SAYING. THAT IS AN OPTION FOR THE COUNCIL TO CONSIDER IF THAT'S THE CONCERN IS THAT WE'RE NOT BEING CLEAR ENOUGH ABOUT SMALL BUSINESSES IS TO JUST NOT TALK ABOUT SMALL BUSINESSES IN THE CONFUSING LANGUAGE.

I WOULD CERTAINLY, I MEAN, I'LL ALWAYS SAY THAT COUNCIL MEMBERS ARE SMARTER THAN ME.

But in my experience... You really don't have to say that.

All right. Well, in my experience, however, discussing the issue of fairness and equity among small businesses relative to large businesses is very informational for people in making decisions. I think that's partly what you're getting at. But making that juxtaposition might be very helpful for them.

Yeah, that's right. And we have not let you get past your third slide, but just... So, I mean, I think... folks saw this, this was just me in my head trying to do a sensitivity analysis on what staff was recommending and like, if we tweaked it slightly, what that would result in. And part of the reason I wanted to create my own spreadsheet is because I was thinking about that very thing, about saying, we're leaving this untouched for small businesses. And we're, I don't know, a million, three million, wherever you want to call it. We're only increasing it above that amount. And then I was trying to work backwards into what the financial impact of that would be at different rates. Anyway, happy to share that with anybody in the council who's curious, but I think that's something that we should definitely consider is sort of the language of not touching small businesses as opposed to making people attempt to do math in their head.

Certainly, ultimately it will be the council to decide what the formula is. It would be my recommendation the less numbers the better because some folks are not math oriented. We want to be mindful of that and right now I'm counting references to five numbers. If you look at this ballot question, that's a lot for some people. So, you know, we've been discussing since the results of the survey, which ultimately I will present to you.

Eventually, yes.

Yeah, yeah. That's okay. I'm here all night. But we've been discussing on how can we simplify the ballot question because then it makes people more comfortable to assess what we're being asked. So it's inconsistent with what you've been saying.

Yeah, thank you.

All right. So you beat me to the punch, but this was the ballot question that we drafted working with staff, working with the, with VIPAC's recommendations and with your legal counsel. We drafted a ballot question. Just a couple of words about, I know I will never get a Shakespearean Pro Award for the 75-word ballot title and the the ballot summary and title. But that being said, we're restricted on certain things. We have to have the word shall. We have to have the phrase be adopted. We have to tell them what kind of tax it is. We have to tell them what the rate is. We have to tell them how much it would generate approximately annually. It's a good faith effort. It might not be quite exactly right, but it's meant to be good faith. We have to talk about duration, which is until ended by voters. And that limits us in terms of what we can talk about. And as we discussed previously, at best we can do is present some illustrative examples of how the money could be used. And so you'll see sort of pithy little phrases like keeping public business areas safe and clean. The intent was to try to find a nexus between the business license tax and both helping businesses and the community simultaneously. and preventing crime, thefts, and burglaries, addressing homelessness. Those were the limited space there was to just show, again, illustrative examples. We've already talked about it would be in the general, go into the general fund. It would be at your discretion. There has to be, you typically have audits on all your funds. budget efforts, spending disclosure. Well, one could just go on your website 24 hours, seven days a week, 52 weeks a year to see how you're spending your money. And you know this, but voters don't know that all funds are required to stay local because it's a local measure. So we want to inform voters as to what the requirements are. So we read this to them if they were on the phone or they read it if they were online, and we said if there were an election today, would you vote yes in favor or no to oppose? So 53% said definitely, probably, or they're undecided, but they would be inclined to lean yes. And then 33% said they would either lean no, probably no, or would definitely vote no. And 14% said on that ballot title and summary that you just looked at that they were undecided and needed to know more. The threshold is 50 plus 1, and knowing the margin of error is plus or minus 4.9, let's say simple math of 5. If I add 5 to that 53, on the high end it's 58, on the low end it's 48. not quite definitive for an initial measure. My experience with business license tax taxes is that most people aren't well versed in business license tax and why should we expect them to be if they don't have a business? And many of us are just learning about businesses, business license tax tonight for the first time. And so there's a lot of uncertainty. So part of my charge was to simulate some potential simulated education. As you know, the city cannot advocate, but it can educate. But before I present some of that, I thought it might be interesting for you to see who supports this, who opposes this, and who's undecided at this point in the survey. I took everyone who said definitely, probably, or lean yes, and I made them blue. That blue bar is total yes. I took everyone who said definitely, probably, or lean no, and I made them orange. That orange bar is total no, and the gray are those folks who are pure, undecided. They just need to know more. In front of you is the city council districts, the six that you're all familiar with, and the percentages below each of the district numbers are the percentages that they will make up of a likely November 2026 general election. And before you assess the numbers which are in front of you, please note that as I slice and dice the data, the margin of error becomes much larger. So know that while maybe districts five and six look like they're two points differential, statistically in my mind there's no difference between those, just for an illustrative example. Since I know you have this, I'm gonna move on. You will remember that one of the first slides I showed, we asked, do they think the city needs additional funds to provide the level of city services that residents need and want? And the point of this slide is as a proof point to say the more they understand the need, the more they are likely to support the measure. As you could see, if they perceive there's a greater some need, there's 68% who are likely to vote yes, almost a three or about a three to one ratio of yes to no. If they perceive that the city has a little or no real need, it's 53% who would vote no, 31% who would vote yes. And this is not unusual and this is not meant, I will, This is not meant to flatter anyone, but in well-run cities where people don't perceive that things are falling down or there's a fiscal crisis, there is a definitive need to explain to them, if you perceive there's a need for additional funds, why there is. That will help inform them whether they think it's appropriate to vote yes or no on the measure. Now moving into the simulated part, you'll recall in the ballot question we had some pithy little examples, I don't want to minimize them, but small examples of how the money could be used if it goes into the general fund and the city council, you folks decide if you'll use that money that way. We provided them with a pretty lengthy list and you'll see four slides. of items that the money could be used for, and we said, regardless of whether you support the measure or not, how important would it be to include these funds or this provision in the measure? The dark blue is extremely important. The mid-color blue is very important. I've aggregated and ranked the extremely and very important on the right-hand side. The dull blue is somewhat important. The orange is not too important, and that small little sliver of gray are the folks who said they didn't know. So these are the top scoring items in terms of both intensity, that extremely important, which is the dark blue, and then the aggregated extremely or very important. What you'll see on the first slide, and again, the highest ranked items, are they are almost exclusively public safety items, which I believe, you'll correct me if I'm wrong, your city and most cities spend a disproportionate number of your general fund on public safety. So this seems to be consistent with your priorities. There is, one could argue, keeping public areas safe and clean not only is a public safety issue, it could be public works, and for some people that is a code word for homelessness. But here's the rub. You can't only talk in the ballot question about public safety issues or we fall into the trap of it being a dedicated measure, which is what we discussed earlier. But the good news is there are other items that also score. You can see this on the next slide. Roads, we framed it in two different ways, keeping roads in good condition and repairing streets and potholes. Eighty-four percent say that's extremely or very important. And then you'll see the intensity bump up with addressing homeless with one in every two saying that is extremely important. So those are some illustrative examples of maintaining city parks. Are some others and I know that the audience the council and then after I believe the study session online The the public will be able to have their opportunity to review this data as they'd like at their own time You'll see attracting and retaining small businesses 75% so there are a number of items beyond public safety that are highly valued in your city So that's part of the public outreach, sort of explaining how the general fund works, how money could be used. And then we introduced some educational statements. And just for illustrative purposes, we mentioned the fact that big box stores like Home Depot, Target, and big luxury retailers pay only $200 a year in business license tax in Costa Mesa. And we saw that in the earlier part of the presentation. And that is far less than some of the stores pay in your neighboring cities, and we saw that in including Santa Ana in another slide earlier in the presentation that this is only paid by businesses and it's intended to help contribute to the services that they receive as being part of your community. So after telling them, sort of educating them about the business license tax and how this money could be used, we re-asked that ballot question that you saw earlier. And so the initial vote on the left-hand side was with ballot just title and summary was 53-33. After telling them a little bit more in education, overall support goes up 18 points and More importantly I would argue is the definitely yes goes into a healthy 41% That's an increase of 22% So this tells me that with education of which you don't have a lot of time to do just so you know because you know you have to ultimately Deliberate if you choose to deliberate as to whether you place it on the ballot that folks need to understand exactly how what this business license tax is. My second charge was to test the TOT. Now, the survey was going fairly long and we had the opportunity to only ask one transient occupancy tax question. This was the question, again, it's a general purpose measure, so again, illustrative examples. We've already discussed that at least, I believe, The charge of the council was to look at a 3 percent increase from 8 to 11. I realize that was initially, ultimately you'll decide whether or not you'll move forward and how you want to do it. And as we saw earlier in the presentation, it would provide approximately, generate approximately $3,000 annually. We asked this question. And there, 51% said yes, 37% said no, and 12% said undecided. I want to be sort of cautionary in how you interpret these results because they're relatively modest. This comes after extensive amount of discussion on a business license tax, both positive and negative. And it's kind of plopped at the end. And we said there's a chance that both measures will be on the ballot. The intent when I was hired, and I know it's totally flexible and you may never see me again, but if you chose, the intent was to go back and do a more thorough analysis on the TOT to give us a little bit more clarity than just one question at the end of a survey. But I thought it would be important to present that. Again, so I've never seen a council member that didn't want to know what their constituents thought about it. For that ballot question, you could see the districts and how they respond. Just a reminder, total yes is blue, orange is total no, and the gray are the pure undecideds, and the percent below each of the council district numbers are the percentages that they will make up of a likely November 2026 electorate. And again, to prove the point, the more they perceive there's a need for additional funds, the more likely they are to support the TOT. So thank you for your patience. I'll conclude. Majority feel that the city has at least some need for additional funds, though I've tried to make the case that that great need is kind of modest at 17%. Much has to be done in trying to tell your story. A business license tax reform measure is viable for further planning, assuming substantial communication with voters and stakeholder outreach. That's my recommendation, but then obviously it goes back to you folks to deliberate and to decide what would be right for your city. Initial support exceeds the majority vote threshold, but it's soft. Simulating education lifts the measure to a very healthy 71%, way beyond the margin of error of a 50 plus 1 measure. Public safety, mentioned in a variety of ways, is a top priority for funding for a business license reform measure, followed by addressing homelessness, repairing streets, potholes, and maintaining parks. A TOT measure could also be viable but needs further exploration. There's soft initial support, but the survey did not include detailed questions about the elements or themes related to the measure. And right now and continuing, I'm happy to answer any questions. Thank you.

Any additional questions for the council? I mean, sorry, for the staff, before we open it up to public?

Just a general one. Actually, it's for council, staff. Yeah. Months ago, I think when we first started talking about this, I had general discussions with some people associated with South Coast Plaza. I was just curious, has anybody got a sense from the South Coast Plaza or any of the retailers over there, kind of where they're at on the business license tax?

I think the city manager may have had some conversations, but I don't believe- And I'll have some more with them before we go forward and take anything to a vote.

I was just curious in advance, has anybody- DISCUSS THIS WITH ONE OF OUR LARGEST REVENUE GENERATORS IN THE CITY?

THE ANSWER IS YES. WE HAD A MEETING WITH JUSTIN MCCUSKER YESTERDAY. I DON'T FEEL COMFORTABLE MAKING HIS FEEDBACK PUBLIC, BUT WE DID HAVE A MEETING WITH HIM. AND I'M SURE HE WOULD BE HAPPY TO TALK TO ALL OF YOU ABOUT IT.

Okay, thank you, Dr. Bernard. Tonight we are here seeking council direction on these two potential ballot measures. For the business license reform, we walked you through the FIPAC recommendations. Along with this information, identified a rate of 60 cents per 1,000 based on total gross receipts. This includes a minimum of $25 for businesses with total gross receipts below the $50,000 and a max rate of $15,000 for businesses with total gross receipts above the $25 million. We request that council provide direction on pursuing of the business license reform as structured or a different structured what has been proposed. And similarly, on the transit occupancy tax, does Council wish to proceed with the TOT adjustment with the defined percentage? As stated previously, the revenue equates to $1 million per percentage. Okay.

One more slide. Anything else? Yes.

Here are the next steps should the Council pursue two potential revenue measures for the placement on the November 3rd, 2026 ballot. That is all.

If I could, I would just quickly, if you do move forward on July 21st, depending on how many measures you put forward, we would be bringing you a number of resolutions to put those measures on the measure or those measures on the ballot. to consolidate them what they already called election, to identify whether or not you will have rebuttal arguments, also to direct the preparation of an impartial analysis. And am I missing anything, Brenda? I think that's it, right? So we, there will be a lot of documents for us to prepare, to bring forward to you, part of the reason that we're here asking for direction tonight.

I appreciate it. Okay, we'll all have comments, I'm sure, but let's open it up to the public, hear the public, and then we'll do another round of questions and comments. Pardon me? We could do three minutes.

Good evening, Mr. Mayor and Council. I'm speaking for myself, but as a member of FIPAC, Guess I wanted on page 20 it talks about five pack recommendations five pack recommended the City Council proven initiative for November November 3rd to increase the TOT by a maximum of three percentage points I Wish Stan I would like to double check that the recommendation from five pack was to read Increase a maximum of three points TOT and or TOT slash BIA The thinking was potentially there could be an increase for TOT and possibly the BIA rate. So the recommendation was not 3%, max 3%, just on TOT. Also, the 60 cents per thousand that staff used, that was staff's recommendation. FIPAC did not recommend a rate per se. We recommended going with a rate per thousand, but not as specific. Rate per thousand not the sixty cents now speaking for myself again I prefer I guess I would recommend fifty cents per thousand with a ten thousand dollar max not a fifteen thousand dollar max Also, I would recommend my feeling is a two percent max on tot That leaves us more competitive with adjoining cities, especially Irvine and The five cities that are primarily competitive with Costa Mesa, Irvine, Newport Beach, Huntington Beach, and Anaheim. But the cities that don't have beach in their name, it's primarily Irvine. Irvine's at eight points. If Costa Mesa increases 10, I think that looks a lot better than 11% on the TOT. Also, I want to thank, I did a lot of the analysis on the TOT and presented to the FIPAC, and I want to thank Paulette Lombardi-Fries. I had a couple of discussions with her and a couple of meetings with her in the course of reviewing TOT, and very competent, very responsible. out there working day in and day out for Costa Mesa. She's not on the payroll, but she is a valuable asset supporting Travel Costa Mesa, which in turn supports the city and want to appreciate all of her help as president of Travel Costa Mesa. Thank you.

Did you hear that, board members? Yeah? Yeah? Okay. I concur. Anybody else want to speak from the chambers? No? Anybody? Anybody? You want to come up? Defend yourself.

Good evening, City Council. It's great to see all of you again. We especially appreciate on behalf of Travel Costa Mesa and the general managers that sit on our board the opportunity to bring to you a TOT analysis from a third party called Tourism Economics. So we will work to provide that before the July 21st date to get some more information in front of you related to analyzing the impacts if TOT was going to increase. Having said that, a few of you have heard me speak related to increase of TOT and considerations to really think about as we head in that direction. Overall taxes as we know compound across room blocks and multiple stays for group business, conferences, and tournaments. So we're not just looking at one night. We're looking at what an average length of stay is in the city of Costa Mesa, whether it's group or whether it's weekday or weekend business. And as we all know, guests consider the total cost of that room. So they're looking at what that room rate is. They're looking at what the TOT is, the BIA, and in most cases in Orange County, what the TBIT is. So they're looking at that as a collective total when they're looking at how much it would cost to bring a group here to Costa Mesa or as an individual or a family to vacation. Destinations, as you know, are chosen for affordability and travelers seek alternatives, shifting tax revenue to nearby cities. So we want to be considerate and consider all of those factors as we potentially move forward. I do represent quite a few of limited service hotels with the 10 that I promote specifically. And with those limited service hotels right now is a time in which It is a delicate situation. Our luxury tier of guests have no problem spending money, but those that are in our middle class, they really are going to look at this. So we want to ensure that we keep them into the, and stay here in Costa Mesa. I know I'm close to my time, so I know there's a couple of other general managers that would like to approach and just share a couple of thoughts. So I thank you in advance, and I'll see you in a couple of weeks with another report.

Thanks, Paulette. You guys want to come up?

Mr. Mayor? Yeah. Just kind of given the nature of this part of the conversation, can I ask that we give these folks four minutes or so? I don't want to cut them off.

They need it.

I just don't want you to be under a time crunch. I want to hear what you have to say.

But they're going to come. I'm going to give them more time when they have their data. I mean, they're going to get like 10 minutes. But it doesn't really matter to me. Go ahead.

I can keep it brief. Yeah. So good evening, Mayor and Council. Thank you for the opportunity just to share some information. My name is Steve Yanerell. I'm the general manager at the West and South Coast Plaza. I'm also the chair for Travel Costa Mesa. So I've been in the city for about two years now. You know, I think the big thing really that needs to be taken into account is our market, our segment, our business, we compete locally. We're not competing nationally for that customer. So I am competing against Irvine for that group customer that's coming in. And they are looking at that all in pricing. And every dollar, every percent really makes a difference. If you're looking at a group for someone that's coming in for 100 room nights, 200 room nights, 500 room nights that I can accommodate at my hotel, that adds up for that person that's making that decision. Are they going to stay with me? Are they going to go down the street and stay at Irvine? That impact then is going to hit the restaurants, the shops, the retailers. I have less occupancy than there's going to be less people in the city spending that money. And I think that report that I know that report that we're going to commission with the information that's going to be gathered, it will show what that impact can be. And exponentially, as you go over time, that's going to have an impact. So we may see a short-term Increase or advantage but long-term how's that going to impact overall? My business and then the city and the taxes that are raised by that So I think it's important just to to get that message out there on what we're looking at. It's It is locally. It's it's not nationally that customer does look at that all in pricing I am part of Marriott you go to Marriott and you take a look at that price that price that you look at for that night it includes all those taxes if I'm now $10 or $20 higher and than my competition in another city where potentially is that customer going to go and that does add up. Also in the process of planning a major renovation transformation so we're investing reinvesting in the property that will start renovation in November and go all the way through April. So we're putting money into that hotel so that we can drive a higher average rate. Hopefully grab more occupancy, which then will help impact overall TOT because I'm bringing more business into the city. So there's opportunity to do that as well as opposed to just raising that tax. Thank you.

Kevin, you want to talk or no? You don't have to. Yeah, fair enough. All right, anybody on Zoom?

No, Mr. Mayor.

Okay, closed public comment. All right, do you want to just go down the line?

Starting with District 6?

Well, we get to go 6.

Yeah, I just have a couple of comments, a couple of questions.

I just lost my train of thought there. Yeah, I just think... Actually, let me collect my thoughts.

We'll come back to you. Lauren, you wanna go?

Yeah. One of the things that I would like to see moving forward with this informationally would be we kind of heard from a couple of businesses larger businesses and the impact it's going to have it would be nice to see if there was some polling or some data that that would reflect exactly how this is going to affect these businesses i know we have the numbers right but to hear from these folks i think would be um very important moving forward that because we're going to be impacting all of the businesses, whether it's with a receipt, if they come in to visit, our hotels, restaurants, everything, I think it's important to know their feeling on this and where they're willing to settle as well. I mean, considering 41 years we haven't addressed this, they've kind of been... you know, how do I they might be blindsided. Let's just say so. That would be it. Thanks.

I'll reclaim my time.

Yes, you got it.

Just kind of a general thought running through my head.

I've yet to have seen a tax or an ordinance that gets passed that later disappears. Once it's on there, it's on there. But is it conceivable to do an ordinance that would be cognizant of the concerns we're hearing that, you know, if we pick the wrong number on the TOT in particular, it winds up having a negative impact on on all the revenue. I mean, we may get the short-term gain, but the rest of the revenue that comes in. So where I'm going with an ordinance that would have a sunset provision that automatically, not by vote of the public to come back to withdraw it, but it automatically sunsets after... TWO YEARS OR SOMETHING LIKE THAT, AT WHICH POINT WE LOOK AT THE NUMBERS, WE SEE IF IRVINE IS NOW KICKING OUR BUTT OR NOT ON THE COMPLETE REVENUE IMPACT ON THE CITY.

Yes, we can put a sunset date in there. As Dr. Bernard pointed out, when the tax ends is something that we have to include in the ballot measure. We generally don't recommend sunset dates for a couple of reasons. One is it makes your budgeting very difficult going forward. Two is that I've yet to see one that sunsetted that didn't get put back on the ballot to renew it or extend it. Measure M2 is a good probably example of that. In this case, especially if you're talking about the TOT, it's easy enough for the council at any given point in time to say, you know what, we're seeing an impact we didn't expect to see. The voters have authorized it to be 3%, but we're going to bring it down too. You don't have to put anything in the measure to do that. You can voluntarily reduce that as long as you don't do it on a permanent basis. With the business license tax, that is such a major source of revenue that if you were to put a sunset on that, I would suspect that finance would tell you that we would quickly run out of reserves.

And maybe for our sociologists here, psychologists, I apologize. It seems that there's just a gut reaction if you read a ballot measure that says it will sunset, that the public's just naturally skeptical. Is it really going to sunset? Sure.

Well, a couple of things. One is I do know of at least one measure that Jeff was involved in when he was a city manager that sunsetted and never came back. So I can point to at least one. I know there are many. But you're right. There's always a sense of when it sunsets, we should come back and get it. I do know of a city, the city of Visalia, that I believe put in its ordinance that it was required to That the council review after X number of years whether they would keep the tax on if it was still needed or would With sunset like they would just purely sunset it On their own and so I know that's another alternative And so if you saw after a few I'm not proposing it But if we played that scenario out if you saw after a few years that was really hurting the hotel the hotels in the city and In that case, I guess the City Council, as a majority, could make that decision. So there could be an option of that. But in terms of the budgeting issue, I do see it as, you know, if you... The uncertainty could be an issue. Yeah, definitely. If you hire a police officer and then you say, oh, well, we've got to cut one, you still have pension liabilities and other things that continue. So I can see the benefits either way.

Mr. Mayor, I do want to just add on to that. Yes, there are cities that have sort of an annual public hearing to revisit certain things. uh... fees assessments taxes uh... and uh... you you theoretically you could have something like that remember though that we've only got seventy five words

Just a couple comments, and I'll move on. I mean, I appreciate Travel Costa Mesa kind of highlighting that issue and the compounding impact of price shoppers out there, groups. And I even know on a small, the family of five or seven, and it's a rare family nowadays that has seven, but five or whatnot, you'll shop, you know, if you're going to a general area of the country and you hop on and it's so easy to, to shop for that, uh, uh, lodging for your, your week at the, at the relatives or whatever. And if you're saving 20 bucks a night or something like that, and you go five miles away. So I know that's a real legitimate concern. And, the compounding factor I hadn't factored in until your guys' comment tonight. And just a comment I was gonna say, we're just getting through our budget season. And I gave lots of kudos as we were doing that to staff and city manager. And I was pleased to see the polling and your survey out there that it seems, I don't want us all to go throw a parade or whatnot, that the general impression in the city is that as a city, we're being fiscally responsible and we're spending our funds wisely. and I know we've been having to tighten our belt around here, and kudos to staff for doing that. I think part of the reason we've been in this belt-tightening mode is because we've had to do a lot with tight resources. And just a general thought of mine, the easiest thing to do is always let's just go tax more and let's just find more revenue rather than do the belt-tightening. I like that we've been doing the belt tightening. And that's just a general comment I'm making. And at a certain time, it may be appropriate to loosen the belt and get some more revenue from some source. So those are my comments.

Andrea. Yeah. So I want to go back to this question about how we're talking about small businesses. I mean, look, given that this is, I think, a priority for many of us up here, and it was interesting to see the numbers. I actually hadn't seen the breakout about the numbers of businesses we have at each tier. I really like us to do everything in our power to not make any increases on folks below that million dollars. And I don't know. from a sociologist's perspective, whether that million dollars is as significant in your head as it is in mine, but there's something to be said for sort of not focusing on the businesses that make more than that. I know when I was first running for office, One of the things was, like, how is it possible that my coffee shop and Nordstrom's pay the same amount of business license tax? And so I think that creating some kind of a bifurcation, a division by which we say we're just not touching businesses at all that are below a certain gross receipt. But here's what we're doing above. Like I said, I put together a little spreadsheet because I was trying to get a sense of what the kind of relative impact would be. I think I agree with that 50 cents per thousand. That pegs the maximum, the 25 million gross receipts, kind of following the same logic that staff lays out. That puts it at 12,500 being the maximum business license. That's still less than Santa Ana. And so I think I'm comfortable with that number. I know that was one of the things staff was hoping to get recommendations on. And then, you know, if you subtract out everybody below the million, that only reduces the revenue number by about half a million. the reduction between the .6 and 5 is, I don't know, another, I can't do that math in my head. So maybe that's what staff could bring back is a little bit running the scenario at the 50 cents per thousand, capping it at 12,500 and not including small businesses less than a million. I'm throwing that out there because I think that's what I'm comfortable with at this point, but obviously I want to hear from the rest of council. Yeah, and I think that allows us to then frame a lot of our education around the ballot measure on you know, why my coffee shop is not the same as a large business. So that's business license. On TOT, look, I am, for some reason I had it in my head that Irvine was higher than us, and so that was a really important thing to learn from the hoteliers. Also, you know, I don't think you mentioned in your comments, but one of the things that I learned Meeting with Travel Costa Mesa is for our two largest hotels. They consider their direct competitors to be Irvine Hotels. So it's not just that, hey, we happen to have similar numbers and we might hypothetically lose people to Irvine. There's a very real competition right now with hotels that happen to be located in Irvine that have the same TOT that we have right now. So I'm feeling far less comfortable about the TOT increase, especially given that You know, we're talking like a million dollars relative to the business lights increase. It seems like we should be perhaps directing our energy to one or the other. The thing I will say, look, on Airbnbs, this is not something I've talked about probably for the last year, but at one point was something I spent a lot of time thinking about. I would, I think it's, your spreadsheet showed we're one of the few cities surrounding us that is not being proactive about the fact that we have businesses operating in our city that aren't collecting a business license fee. We're not collecting the business license fee from them. We're not regulating them in any way. And we're certainly not collecting TOT on them. I don't think this is a secret. I have an Airbnb. It is not in this county. And I paid the inspection fee to the fire department, paid my annual license to the county. And then taxes are automatically collected via Airbnb's platform. It is not a complicated process. And it is becoming the norm for lots and lots of people who do this. And so I think when we first tackled this, it was during COVID. We had other priorities. But I think we're long past the time regulating and treating like normal businesses in Costa Mesa and and look there might be some nights there's 12 of them operating other nights there's 50 of them operating you do the math at 8% we're maybe talking about half a million dollars before we start thinking about fees and licensing nevertheless I mean that is That is a code enforcement officer. That is a new playground. That is not nothing. And I think it's just best practice in our city for us to adopt that stance. And so, again, we can spend a lot of energy on increasing TOT. I'm actually sorry that you're having to spend travel Costa Mesa money on commissioning a study I would much rather you were spending it on the next exciting marketing campaign but but now that we've seen the numbers I I think I would much prefer to spend our energy on on regulating businesses that we already know are in our city and are currently not being regulated thank you okay

WELL, WE'LL JUST GO DOWN THE LIST. I CAN JUST GO. IT'S NO BIG DEAL. I WON'T TAKE VERY MUCH TIME. THANK YOU, STAFF. THANK YOU TO ALL OF OUR CONSULTANTS THAT WORKED ON THIS. REALLY GOOD. A LOT OF GOOD INFORMATION. I'M GOING TO BE LOOKING AT THE LANGUAGE AND MAYBE MAKING SOME SUGGESTIONS. I'LL DO THAT THROUGH THE CITY MANAGER AND THE CITY ATTORNEY. I think, to me, putting something on the ballot regarding the business license tax is more clear than the TOT tax. And I'm interested to hear and read what we get from Travel Costa Mesa. The thing about the business license tax is I think Andrea makes some really good points. A very good point that we can SORT OF INSULATE WHAT WE CONSIDER THE SMALL BUSINESSES AND WE CAN DEFINE THAT AS $500,000 OR LESS OR A MILLION OR LESS OR HOWEVER WE CHOOSE TO DEFINE IT. I THINK IT'S A GOOD IDEA TO INSULATE THEM FROM THE INCREASE. ON THE HIGH END, I MEAN, THIS IS PURELY A PROGRESSIVE TAX. I MEAN, WE HAVE BUSINESSES IN THE CITY THAT ARE MAKING A LOT OF MONEY AND DON'T SELL GOODS, SO THEY'RE NOT PROVIDING ANY TAX REVENUE TO THE CITY. FOR INSTANCE, AND I'M NOT PICKING ON THEM, WE HAVE THE LARGEST LAW FIRM IN THE WORLD THAT IS HEADQUARTERED IN COAST MESA. THEY PAY $200. I MEAN, ONE PARALEGAL, LIKE, THAT'S PROBABLY HALF OF ONE HOUR OF A PARALEGAL AT THAT FIRM. I mean, it's egregious. We haven't looked at it in 41 years. I think it's fiscally irresponsible to not tax these businesses that are making so much money in gross revenues and consuming services, at least to some extent. and then look to say, oh, we want to, the old world, tighten our belt. Everybody wants to tighten their belt. Well, spoken from somebody who has a rather tight belt, I will tell you, I will tell you that I don't want to end up in the position, and I will never vote, to end up in the position as our brothers and sisters in Fullerton and Orange, where their streets are falling apart, they're upside down on their budget. No. I'm not going to be in favor of that. I don't want to wait until we're in a crisis with our police department where we can't pay our collective bargaining agreement. We start losing police officers, firefighters that we've trained to other cities that can pay a greater wage to them. I don't want to be in a position where our roads are crappy and we've got potholes all over the place. We're not there yet, and I never want to get there. And so on the business license tax, it's clear I think we need to put something on the ballot, what we put on the ballot and how it's worded. We've had a lot of good feedback here. With respect to the TOT, AS I SAID, IT'S LESS CLEAR BECAUSE THERE'S SOME REALLY GOOD POINTS THAT WERE MADE BY PAULETTE AND STEVE IN THE SENSE THAT IF YOU SAY YOU'RE GOING TO CHOOSE A HIGHER RATE AND THEN THAT PERSON GOES AND STAYS IN ANOTHER CITY, THEN NOT ONLY ARE WE LOSING ALL THE TOT FROM THAT PERSON, BUT WE'RE ALSO LOSING THE ANCILLARY TAX ASSOCIATED WITH THEM BEING IN THE CITY THAT Paulette talked about at some length, and recently, that's a lot of money that tourism brings to us. However, I also listened very carefully to Steve's point, which is, and I believe this to be true, that we're looking at the THE TOTAL, WE'RE NOT LOOKING AT THE TOT RATE NECESSARILY. WE'RE LOOKING AT THE TOTAL COST, RIGHT? SO WHAT I'D LIKE TO SEE IF IT'S POSSIBLE FROM TRAVEL COAST TO MESA OR FROM THE STAFF IS TO LOOK AT THAT LIKE I DID A LITTLE GOOGLING, OKAY? AND I KNOW FROM OUR LAST MEETING THAT IT WAS $177 A NIGHT IS OUR AVERAGE RATE, OKAY? IN COAST MESA, AND AS PAULETTE POINTED OUT, THAT AVERAGE, THERE'S MANY BELOW AND SOME ABOVE, AND STEVE'S TRYING TO GET MUCH ABOVE WITH HIS REVISIONS OR REMODELING. BUT IN IRVINE, BY CONTRAST, THE AVERAGE RATE, ACCORDING TO WHAT I PULLED UP OFF THE INTERNET, WAS $192 TO $200 A NIGHT. OPTIONS GO FOR AS LOW AS $74 A NIGHT. HIGHER FOUR STAR HOTELS, $278 A NIGHT. SO IF I'M REALLY TRYING TO UNDERSTAND THE RISK OF SOMEBODY LEAVING COASTA MESA FOR AN IRVINE OPTION BASED ON PRICE, I NEED TO KNOW THE ALL IN, NOT JUST WHAT THE RATE OF THE TOT IS. I'M GOING TO LOOK AT IT EXTREMELY CAREFULLY. WHAT I ALSO NEED TO UNDERSTAND FROM THIS, WHAT I'M GOING TO BE LOOKING FOR, WHETHER THEY PROVIDE IT OR NOT, I DON'T KNOW, BUT I'M GOING TO BE LOOKING FOR THIS IS THE DIFFERENT OFFERINGS OF IRVINE AND COSTA MESA. SO FOR EXAMPLE, WHEN WE TALK ABOUT GROUP If we're being honest, we have less opportunity to book group than say Irvine does. So we're going to lose a lot of group business to Irvine because they have the Irvine Marriott, which is POTENTIALLY I THINK IRVINE MARIOTT, THE HIAT, THESE PLACES THAT HAVE THE ABILITY TO HAVE ENTIRE CONVENTIONS THERE. SO WE MAY BE LOSING GROUP BECAUSE OF THAT REASON AS WELL. THERE'S WAYS TO INCREASE OUR TOT TAX, SORRY, TOT, NOT OUR RATE, BUT OUR TAXES WE GET BY IMPROVING SOME OF THOSE OFFERINGS. THAT'S NOT GOING TO BE ON THE BALLOT. ANYHOW, BUT I JUST THINK THAT WHEN WE DO THIS, WE NEED TO REALLY LOOK HARD AS A COUNCIL AND REALLY LOOK HARD AS THE CONSTITUENTS AND TOT AS COMPARING APPLES TO APPLES. and oranges to oranges. And we're really going to be laser focused on Irvine, because we can't justify not putting on a ballot by looking at any other neighboring cities with an excess of 11%. And I just cannot get over that we could literally pay for our entire budget, including public works projects, and infrastructure based on just on Anaheim's TOT. It's just crazy. But anyway, I'm not the mayor of Anaheim. I'm done.

What do you have to say? Thank you, John. I like that we have very similar thought processes. And I want to reiterate the point that John kind of made it's important for us to be proactive when it comes to the budget. Last week we had a really lively discussion on the budget where I kind of mentioned the reality of it, which is we did make $200 in cuts that staff found in their own departments, and they had to find a way to meet the high criteria of not reducing services while saving us money during difficult times of uncertainty. I firmly believe if you don't put something on the ballot, we're only doing future councils to make even tougher decisions. And to John's point, Everyone needs firefighters and policemen. That's usually the last thing people focus on cutting. People will spend, cities will spend money to bring talent if we aren't supporting our own talent. People like nice roads. That's usually the first thing that goes when budget problems go bad. If we want to maintain our second best in the county, we should be finding ways to find revenue streams. And I want to have that framework to discuss both these ordinances, first with business license and then with TOT. When it comes to business license, I think that one makes the most sense, mainly because the last time we updated it, I wasn't even born yet. I'm 30 years old. The fact that we haven't changed it in 30 years is really alarming, and that's something we should be addressing just for CPI. On my drive here, I was looking for an analogy, and I found one. When I was four years old, Hot Cheetos cost $1. Now they cost $2.69. That's a large number of inflation. That should be applicable also to business license fees. I support Andrea's idea of doing $0.50 and capping it at $10,000. It seems nicer. And as folks here know, I always like being less than Santa in our neighboring cities. So that, to me, makes a lot of sense. And then just to mention the point that Mike made earlier, I do prefer gross receipts. Because if times do get tough in economies, businesses can pay less taxes. And when it's per employee, it really is going to be interesting as we see more technology come into development into spaces. There might be some businesses that make a lot of money, but don't have a lot of employees because of the technology they're employing. So that one, to me, is a no-brainer. We should put that one on the ballot. When it comes to TOT, I also have a lot more hesitancy. Having said last week I worked in Irvine, I also know their budget very well. They're in two-year budget cycles. Today, they're actually going to approve their mid-year budget cycle of a two-year budget. they're not going to get any tax increases until next year, at the very earliest. And having talked to folks in Irvine and talked to folks in Costa Mesa, They are, quite frankly, our biggest competitor when it comes to hotels. It seems to me we have this nice equilibrium where folks tend to come to us on the weekends and tend to go to them on the weekday. But any shift we have in TOT can change that. And it's not lost to me that a lot of our economy does come from visitors coming to go to the plaza, go to our cool place like the camp at the lab, And that's very important because, again, we are a sales tax city. We are very dependent on sales tax, and we've always known this. We're very blessed at Southwest Plaza. We do our best to diversify our economies and our budgets, but the reality is we've seen time and time again during recessions, we take a hit in sales tax. So to update business license makes sense. TOT, I'm not as certain on. Should we go down the route of TOT? I think we should do max 2%. We shouldn't be out of the market equilibrium. And I do want to see some type of digital funding going to Tallahassee Mesa or an equivalent group for promoting more of hotels. It should be a partnership in that regard. But yeah, like I said, I genuinely believe if we don't put this on the ballot, we're dooming future councils. And it's our job to be responsible. And one thing that I've had to do as a young person, when I know my rent's gonna go up every year, is I don't just sit and wait and then tighten the belt. I try to find a new job, I try to get a raise, I try to find additional income streams. That's the organic thing to do when you know your prices are gonna go up, your cost is gonna go up. You don't tighten the belt, that's the last ditch effort. you try to find additional resume streams that make sense for a city of your size. And in our case, updating a business license fee that has not been touched since I've been born seems like a good place to start.

Thanks, Arliss.

Yeah, okay, so I might try to extend the tightening the belt strategy first of all I want to share I've just been googling a little bit and I'm really surprised to see it's kind of interesting The city of Costa Mesa had almost this exact conversation 13 years ago in 2012 2013 Brenda's nodding this has not been part of our discussion today. I found a staff report where it's a ALMOST IDENTICAL. CITY OF COASTA MESA CONSIDERS RESTRUCTURE OF BUSINESS LICENSE TAX. THE RESTRUCTURE IS VERY SIMILAR TO MR. TOBOTA'S RECOMMENDATION, ACTUALLY. SO I DON'T KNOW IF YOU WERE ON THE COMMITTEE STILL IN 2013. IT'S POSSIBLE. BUT THIS IS REALLY INTERESTING. I SENT THE LINKS TO THE CITY MANAGER AND ASKED HER TO SEND THAT TO COUNCIL TO LOOK AT. And I was reading some articles on why the council at that time did not move forward with it, a lot of the same hesitations that we heard come up today. I would argue that we've been, as a city, tightening the belt for a long time. SO MUCH SO THAT AS WE TALKED ABOUT SEVERAL MONTHS AGO, WE ARE VERY UNDERFUNDED IN OUR FACILITIES. WE'VE BEEN TAKING CARE OF THE ROADS BUT NOT NECESSARILY THE FACILITIES, NOT NECESSARILY OUR PARKS. AND I THINK WE'VE BEEN BEHIND IN INVESTING IN A LOT OF OTHER AREAS IN THE CITY. Yeah, 20-plus years and no change, 30-plus years and no change. It's time for some updates. So I'm supportive of moving forward with the analysis and likely a ballot measure on the business license tax. I agree with Council Member Marr's recommendation on... you know, let's not touch our small businesses. I think especially the creative locally owned small businesses are so much of Costa Mesa's identity. And we want to see new businesses start and thrive and grow and then hopefully turn into large businesses that pay a larger fee going forward. So I like the idea of being able to say no impact on small businesses. That would mean, you know, not even increasing from $0 to $25 for the more than 1,000 businesses making $1,000 or less. I think we could, I'd be open to creating another tier. According to some notes I saw, we still have 120 businesses making $30 million or more. So I'd be open to offsetting the no change on small businesses with even another tier for $30 million. But before, you know, before I wager an opinion on 50 cents or 60 cents or 70 cents and $10,000 cap or $15,000 cap, I think it's really important to do sort of the other side of the analysis is how much budget do we really need to continue the services we already have, to meet the, or to respond, I guess, to the results of the facility assessment we completed this year. AND THE PARKS ASSESSMENT THIS YEAR. I THINK IT WOULD BE BENEFICIAL FOR THE PUBLIC, THE COUNCIL STAFF AND THE PUBLIC TO SEE, YOU KNOW, HERE'S WHAT IT'S GOING TO COST TO MAINSAIN OUR SERVICES KNOWING THAT COSTS HAVE GONE UP. Here's what we need to do to keep our parks maintained and upgrade. I think most of our parks were getting a C grade and haven't been updated for 10 or 20 years. And then say, I don't know what the number is, is how much more revenue do we need to maintain those essential services? And I think most in our public would call maintaining our parks essential. I don't know what that number we need to match is. I don't know if it's 5 million, 10 million, 15 million. And I'd like to base OUR STRUCTURE ON THESE FEES TO MEET THAT OR AT LEAST BE AWARE, YOU KNOW, IF WE'RE GOING TO EXCEED IT OR NOT. SO I'D LIKE MORE INFORMATION ON WHAT WE ACTUALLY NEED TO MAINTAIN CURRENT SERVICES FOR THE NEXT FIVE OR TEN YEARS BEFORE WE MAKE THAT DECISION. SO A QUESTION FOR THE CITY MANAGER. WE SHOULD BE ABLE TO DO SOME BACK OF THE ENVELOPE ANALYSIS ON THAT IN THE NEXT MONTH, RIGHT?

Well, what I can tell you is that based on the information that I've received from finance, our annual operating budget increases about $6 to $7 million a year just based on contractual obligations and our labor group agreements.

OK, so so that and then plus it'd be great to see that plus what's the incremental investment that we would need to meet the recommendations of the facilities assessment? right because we one thing I recall from that discussion is the longer we wait to make those improvements the more expensive it's going to get and then plus what is a recommendation to meet the needs of the park assessment and these are not I'm not saying suggestions that we need to commit to but just to to put some context around this discussion of why we believe it's time to create some new revenue yeah we can work with staff on that yeah I think that would be very very helpful um Yeah, several folks have mentioned this already. I didn't see in the staff report any specific feedback from the Chamber of Commerce or other businesses sort of outside the South Coast metro area. I'm interested in feedback maybe Suspect most businesses are gonna say no don't you know don't increase on us, but but I'm interested in feedback on the the proposed structure is it More complicated or easy enough to base the fee on a you know per $1,000 versus just kind of blocking it like if your site the size business the fee is always going to be a certain amount I don't want to do something that's going to create a lot of additional complexity and It'd be nice to know that this sort of scale or rate as opposed to a set structure by business size is not much more complicated. Yeah, OK. And then on TOT, I share the sentiments that I think Council Member Marr and others shared as well. I am concerned about, and I'm Thank you for doing the study that you described that you're going to do. Those would be the kinds of questions I'd have too, and I want to be very sensitive about getting excited about taking a step forward and potentially taking a step backward because of a negative impact and becoming less competitive with our most competitive market in Irvine. And I think the study is going to be really important because you're looking at how people make decisions, right? It may not be a direct dollar for dollar comparison. There's other amenities in the area as well. So that analysis will be very helpful. I THOUGHT I HAD SOMETHING ELSE TO SAY TO THAT, BUT I'M NOT SURE. OH, I THINK IF WHETHER IT'S PART OF THAT ANALYSIS OR JUST OTHER CONTINUING CONVERSATION, IF WE DO DECIDE TO MOVE FORWARD WITH THAT, I WOULD ALSO BE INTERESTED IN WHAT WE CAN DO THROUGH CITY INVESTMENTS TO BE MORE COMPETITIVE IN THAT MARKET AS WELL. WHEN I'M TRAVELING, I'M REALLY INTERESTED IN STAYING, I'M OFTEN CHOOSING MY HOTELS BASED ON WHAT I CAN WALK TO OR BIKE TO, RIGHT? WHAT'S GOING TO BE NEARBY ME OR ADJACENT TO ME AT MY HOTEL. AND SO SOME OF THE DISCUSSION IN THE LAST FEW MONTHS HAS BEEN YOU KNOW, IF THE CITY INVEST MORE IN ARTS AND FESTIVALS AND CULTURE AND, OF COURSE, WE'VE ALREADY GOT A GREAT LINEUP OF RESTAURANTS, YOU KNOW, ARE THOSE OPPORTUNITIES TO ACTUALLY ATTRACT MORE BUSINESS TO COASTA MESA? I'M INTERESTED, I DON'T WANT TO LOCK US IN TOO MUCH, BUT I'M INTERESTED IN EXPLORING SORT OF THAT NEXUS OF IF WE WERE TO RAISE TOT SPECIFICALLY TO SUPPORT THE TYPES OF PROGRAMMING OR AMENITIES THAT WILL ACTUALLY DRAW MORE PEOPLE TO COASTA MESA, Could that be a sort of further revenue generating increase by bringing more people. I hope that's part of the study. If not, I know that's something that you're analyzing all the time anyways. And then, you know, maybe tying right now for funding arts. I'm just assuming arts is going to be one of those things. Okay. So whatever that thing is, if there is something and we're funding that as a general fund and that can be moved to this, you know, that might be a stronger argument for the TOT. But I do want to be very, very careful about not – ending up on our heels in terms of any increases there. And I mentioned this before, but I do support, I'd like to see some analysis on the opportunity to get sort of secure the TOT that we should already be getting from operating Airbnbs in the city. City attorney we don't need Any kind of ballot measure for that if there's Airbnb is already operating short-term rentals already operating. We should be applying TOT anyways It's just a matter of us collecting it.

Yeah, we we They are subject to the TOT because they're by definition there. They're almost all less than 30 days However without any kind of registration or other requirement We don't know who to ask

Right, so it's just a matter of, we don't need any sort of legal permissions or ballot permissions. We just need to sort of invest in the mechanism to collect.

Right. Well, the first thing we would want to do is specifically put something in our ordinance. We already have something that says short-term, you know, home, whatever. But we would want to require some kind of registration or, you know, business license or, something that would allow us to know where they are so that we could implement a TOT.

Got it. Okay.

Yeah, so I'm interested, in addition to the rough estimates of potential revenue there from, again, businesses that are already operating in the city, if we could get a rough estimate of what would be the additional cost to administer that, that would be helpful, too, and IF THE JUICE IS WORTH THE SQUEEZE, MAY MAKE SENSE TO MOVE FORWARD ON THAT AS WELL. FINALLY, I THINK IT WOULD BE HELPFUL AGAIN FOR CONTEXT, WE COULD MAYBE PICK TWO OR THREE OR FOUR GOOD COMPARISON POINTS. I'M GOING BACK TO THE BUSINESS LICENSE TAX. A FEW COMPARISON POINTS TO SHOW HOW FEES OR COSTS HAVE GONE UP FROM 1985 TO NOW. where the business license fee has not, what would be good comparison points to just again put that in context as well I do think, you know, I know fees for park uses and special events. I think facility rentals that our residents pay have gone up since I've been on council, and so I'm sure they've gone up quite a bit since 1985. So to be able to compare, you know, fee increases our residents have been bearing to a lack of fee increase for 30-plus years on businesses, I think that'll be helpful context as well for our next discussion. Thank you.

Thank you. Jeff, before you go, I have really one question. I just have one question building on what Arla said. Are we allowed, like, because she's 100% right. You made the point that perceiving a need is very important in terms of the budget. Sorry, in terms of the ballot and the vote. Could we put something in there like... Because our fire stations are falling apart, comma, da-da-da-da-da-da, I mean, can we embed the need in the ballot question? I'm going to take this one.

Yeah, please. We cannot put in language that is intended to bias or advocate. So what we can do, though, is we can educate. And, you know, there's only so much education you can do in 75 words. So that's why the ordinance, that's why the resolution, resolutions that we will bring forward to put something on the ballot is going to articulate some of the monetary needs, et cetera.

What about given that we have a facilities condition assessment that determined we need to spend, $11 million a year, and given that we have a parks condition assessment that says we are in a deficit of X million, therefore, blah, blah, blah.

It's not going to work to put it in the ballot measure. It becomes too many words, and we can't get the other stuff.

Well, instead of all the other beginning words. But we will...

We'll explore all of those options. But remember, we can't try to be persuasive. We have to be factual. And we can use our ability to engage the community, educate the community. The park assessment, the facilities assessment, those are things that we should be and can be talking about.

You'll tell me if I'm wrong. If it's factual in terms of the assessment, could they use the whereas clauses in the resolution as a means of communication?

Yes, that was what I was referring to. Okay.

And we tested just, and you'll tell me if this is biased or not, maintaining city fire stations in good working condition. Um, so if that is a, that's a lot of words, so I don't know if I want to use all of those words, but that's another way of saying that without saying they're going to fall apart. Um, so if that would be appropriate and legal counsel will tell us that's one just illustrative example to respond to your illustrative example.

One last question, and then I want to hear from Jeff. But when you did your education of the people you polled, did you educate them with the fact that we have deteriorating facilities, including public safety facilities and parks that are at a sea level grade or lower?

We tested, we explained a variety of things in terms of conditions. I would tell you we did not specifically talk about the parks, but I have in a number of nearby communities tested that, explaining needs for restroom improvement, In some parks, there may be asbestos if it's old facilities, lead paint, deteriorating gas and electric lines. So I believe those, certainly when I'm doing school measures, we're allowed to incorporate that in a 75-word ballot title. So those are, I believe, legally permissible, but Kim will tell me if I'm wrong.

Well, but I'm getting it to what you tested. Because fire and police stations, I mean, you've got to fix them. We need them. Our police station over here was just remodeled. But some of the fire stations, we're going to have to just continue to do it. And the other thing that occurred to me, and I'm sorry, I'm going to take a little of your time, Jeff, is We are going to fix those fire stations. But the last two times we fixed the fire stations, we floated bonds. So we're fixing them on debt. That's also something that we can remember for our whereas. We're paying interest to do it. We're not going to let them STAY IN SOME PLACE THAT'S UNSAFE, BORDERLINE, BUT WE'RE JUST BORROWING MONEY TO DO IT.

SURE. MY EXPERIENCE IS THAT TYPICALLY VOTERS SUPPORT SERVICES OVER BUILDINGS. SO YOU SHOULD JUST BE MINDFUL OF THAT. TRUE.

I GET IT. I KNOW. THAT'S WHY THEY'RE SO DECREPIT. ALL RIGHT, JEFF, YOU HAVE THE FLOOR.

Forgot one other thing I don't recall if anyone has mentioned CPI increase that was one of the things that staff asked for input on I recall in a previous oh No, there was something where we weren't allowed to put CPI increase on can you just describe how that would happen? Here if we chose to do that and I'm just saying I would be inclined to do that knowing that It takes councils 30 years to get to this again right if you were to put a CPI increase on

it would depend on what you're increasing. So are you increasing the cap by that CPI? Are you increasing the 50 cents per thousand or whatever? Is that increasing by CPI? I think some people will be aware that as CPI goes up, the business revenues theoretically go up, and therefore you're, you know. But because you have a cap, yes, that, You could do it, a CPI increase. I would hear from Jeff and from Dr. Bernard as to what they think about those and how they're received by voters.

Yeah, I don't recall that in the

Results if you can just talk about that a little bit my experience is that they test polly at poorly and in public education You get a lot of blowback on that from residents wondering why it's a double tax in their mind Based on what the city attorney just said about revenues going up Okay, yeah, I would not be inclined to I would I would concur and also the the idea that in a way it's sort of you've added a blank check and

And that's troubling to voters in general. It usually costs five, six, seven points in some situations. So I try to stay away from it and the gross receipts allow you if all boats are rising so will the Revenues to the city That's helpful and then was there any I don't know if you pulled on this specifically.

What is your sense on? For those who were inclined to say to vote no on a business license tax was that like Tax period or what's the sensitivity to the to the numbers right that cap?

15,000 versus we've heard some others suggest we we didn't test a variety of different mechanisms And I mean we could I think it's so difficult for people who are really struggling to understand a business license tax in and of itself I think the people who are anti tax are anti tax and it doesn't matter what you throw at them They just say they've had it there. They're done. I

Okay. So I'm taking away from that not a ton of sensitivity to 10 or 15K cap.

It's hard for me to say because I do know because I have tested in other places, let's say a 3% TOT versus a 2% TOT. It's so marginal that people don't really see, well, I don't get the difference. But I don't want to minimize it for folks who are running hotels. For them, it's a big deal. But for voters, a percent here or there, they don't see a differential.

Okay, thank you.

All right. You sure? What we've all been waiting for. Can we claim my time? Andre, you got anything?

Sure. All right, just checking.

Just a reminder, he had a chance to go first.

Okay, yeah. Mike, you good? All right. No, so we've heard a lot about the information coming from Travel Costa Mesa. That answers a lot of my questions because a lot of information I need before I even consider some of these things. Sounds like you guys are all over it. I would like to... It'd be good to know how competitive our city is because of our low business license tax. I know it'd be hard to quantify, but that would be helpful for me to know if it goes up, what's going to go away. So I'm just in since we have more information coming, I'm going to keep just kind of general philosophical statements about what's going on. I do believe that government. should first demonstrate discipline in managing existing resources. We should prioritize essential services and all that before we even consider raising taxes again. I know I've heard a lot about belt tightening tonight, and I know we've been doing better on that, apart from some of my colleagues on the fact that I think that there's a lot of things that we could do a lot better. With our with our budget and before we start thinking about raising taxes My concern is not that these measures won't generate any additional revenue. I think that's clear my concern lies with We may be overlooking the broader economic consequences that could reduce overall city revenue over time and I believe that to be true and I will I will Finish with it. I know this isn't relative to specifically what we're talking about, but I think it does matter that we are the highest tax state in the union right now on gas taxes, property taxes, sales taxes. Um, so we're already in this, this applies to the individual and the business owner already taxed to death. So I think, um, I think we ought to keep that in mind when we think about raising taxes. That's all I have. Thank you. Thanks, Jeff.

Okay, does anybody else have anything else before we adjourn?

Mr. Mayor, we will need some direction. Specifically, are we to bring back to you both proposed ballot measures? Are we to do additional testing to give you a better sense when we do bring it back of what you know, what the voters might think about the TOT, at what levels. Should we retest at the lower rates?

I thought we weren't supposed to take votes.

We're not voting.

We're asking for direction. We can go and you can hear from all of us on those issues. For me, I want to bring it back for consideration for sure on the 21st of July, both measures. And I would like the... consultant to do some more polling on the TOT tax.

So unless there's somebody on the dais who doesn't want us to do that, I'll take that as direction. We can run with that.

Is that acceptable? Anybody disagree or want to add something?

Yeah, I would agree with that. And then I would like to see the various sensitivity analyses that we talked about here. So I think at least one person. myself included mentioned 50 cents per thousand, holding small businesses constant, TOT, it would be good if we could see the numbers at 1% and 2% in addition to the staff recommendation. I think that'll be the key right on the 21st We don't want to go back and say actually we would just like this one more this one additional number, right? We're not gonna have time so So the more kind of variations on the theme that staff can either be prepared with or have in the staff report I think that will make our decision-making easier because then we can point to option 1 B Instead of like asking you to go back

Council member more can I just get a clarifying question in when you say 1% or 2% more information are you referring to?

some community feedback I Will five pack recommended not going above 2% on the TOT if we're gonna look at 3% 2% We should probably look at 1% too. That's my thought On increasing the TOT. Okay. Thank you

Yeah, it's fine with me. Does anybody oppose that? That sounds good to me. Okay. Do you have something to add?

Yeah, I think I agree with going back for some additional polling. If we can, as part of the education piece, because I think we wanted to go a little deeper on how the education impacts the responses, if we can arm the team with some facts on our recent budget analysis, the facilities assessment and the parks assessment, the kind of need that we have there.

Yeah, totally agree with that. I would hone in on those two reports specifically because they do outline the need and the cost. Fact-based.

Just to clarify though, Arliss, so that's when we go back to test the TOT. You don't want them to go back and test the business license, right? That's fine. We got the data. I think that's sufficient. FOR THE BUSINESS LICENSE. BUT YOU'RE GOING TO GO OUT AND LOOK AT TOT, ASK MORE QUESTIONS.

I THINK THE CONSULTANT WAS PREPARED TO DO ANOTHER CUT AT THE BUSINESS LICENSE TO SPECIFICALLY HONE IN ON THAT MESSAGING AROUND EDUCATION. SO IF WE CAN GET THAT, I WOULD LIKE IT, RIGHT?

CAN I GET CLARIFICATIONS SO I CAN RESPOND TO WHAT YOU ALL WANT? SO IF YOU'RE SUGGESTING, COUNCIL MEMBER, A DIFFERENT FORMULA WHICH PROTECTS SMALL BUSINESSES

Not tax small businesses.

So yeah, that's right. Not taxed by protecting them from the business license tax. That would be something that would be a different formula than I tested this time. So I'll need some direction about that because I won't be able to test multiple business license tax. So I'll need a little direction there. And may I ask, and I'm not trying to drive the conversation, but I've been listening very attentively. There was some discussion of saying, could we do a range of between 1% and 3% for the TOT? And that was kind of dropped. There hasn't been a further discussion. It was earlier in the the in the discussion so if I can get a little direction I know if I asked well what about a 2% what about a 1% there will be no variation so I don't want to promise something and waste taxpayer dollars asking something that I know but it's but I did hear like can we do up to 3% and then it would be at the discretion of the council of how they want to do that if there is no interest in it I have no interest in testing it but I would like some direction on that if that would be okay

I'LL JUST SPEAK FOR MYSELF SINCE MY MIC IS ON. YEAH, IF THERE'S A WAY TO, I DON'T THINK YOU NEED TO TEST SEPARATELY FOR 1 AND 2 AND 3%, BUT IF THERE'S A WAY TO INDICATE THAT COUNCIL MAY HAVE DISCRETION UP TO 3%, I THINK THAT WOULD BE PREFERRED BECAUSE THAT KIND OF GIVES US THE MOST WIGGLE ROOM. AND THEN I'LL LET THE REST OF COUNCIL SEE IF THEY AGREE WITH ME, BUT I WOULD LIKE THE IDEA OF HOLDING CONSTANT SMALL BUSINESSES AND THEN JUST TESTING THE TOP END OF THE RANGE.

I think we have enough. I can work with Dr. Bernard and Jeff on putting together what I think will get us the information that you're looking for.

And then more education on the facilities and the parks. Got it. Everybody cool with this? All this direction? All right. Great. Let's go. Adjourned.