City Council - Regular Meeting

Thank you. Well, welcome. Welcome to the city council regular meeting for July 21st, 2026. We're going to do the pledge the flag and I am going to get an unknown. One of our athletes here and you found on down here and leave the pledge for us. You remember doing that?

Oh, that's great, too. Oh, great.

Great. I'm going to hand it off like a relay.

Okay.

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.

Thank you so much. Can you tell us your name, please?

Mateo.

Mateo? Max. Max. Okay, so Mateo and Max are going to be honored in just a couple of minutes for being CEF champions. this last season. And thanks a lot for meeting this challenge of reciting.

It's always a scary moment.

Can we have the recall? Can we have the roll call, please?

Council Member Sherrillian.

Here.

Council Member Hower. Present. Council Member Lesser. Here. Mayor Pro Tem Tarney. Here. Mayor Franklin.

I am here. So the ceremonial calendar today, we're going to be presenting to the seven... MARICOASTA TEAMS THAT WERE CIF WINNERS. THEY WERE FINALISTS IN CIF? THE CONFERENCE. YEAH, THE CONFERENCE WINNERS. SO WE PUT OUT A CALL TO ALL THE COACHES. I THINK WE HAVE A COUPLE HERE. AND WE'RE GOING TO GO AHEAD AND BRING THEM ON DOWN AND PRESENT THEM. WE'RE GOING TO GO IN ORDER, THOUGH, THAT WE HAVE HERE. SO I'M GOING TO CALL A NAME, AND IF THAT PERSON'S NOT HERE, THEN WE'RE JUST GOING TO GO AHEAD AND GO TO THE NEXT NAME. OKAY? And I'm going to be assisted by the lovely Mayor Pro Tem. So we have the first one. The first one here is for the MiraCosta High School Girls Beach Volleyball 2026 CIF Southern Section Division I Champions. And can I help anybody? Okay, so we have certificates that we'll make sure we get to them. To Nancy Mason. To Kehi York. And then Tomer Hardar. Oh, and there's one more. Savi Simo-Corey. So there we go. One more round of applause for them. And just to give you an idea, there are all the players that are going to be getting a certificate of recognition from us. Okay.

Oh, up there.

Okay. That's not my job. Okay, so following that, with the MiraCosta High School Girls Cross Country 2026 AF Southern Section Division I Champions. And Renee Williams-Smith is the head coach. And you're here. Come on down. Great. Well, congratulations.

Thank you very much.

And we have a pin for you. So this is the America 250 Manhattan Beach 250 commemorative pin. And do you want to just share a few words?

This was an amazing team. They were wonderful girls. They're all just amazing student athletes, and they put it all together at the end of the season when it counted the most. And this is only the third time that Girls' Cost Country has won CIF, so it's pretty special. And they're all out of town right now, so they deserve it.

And so they ran. Yes. So they ran cross-country out of town. Right. Right out of town. Okay. So we have another certificate for your fellow coaches, and that would be Rebecca Kelly.

She's actually the head coach.

The head coach, right? Again, the MiraCosta High School girls cross-country. Give it to her, or are we going to go ahead and get it to her? Okay.

Thank you. Great. And she's out of country. She really ran. Wow.

That's taking it seriously. Yeah. And then Annie Seawright, the assistant coach, again, for the MiraCosta High School Girls Cross Country. So thank you very much. There we go. And again, we'll get the rest of them over.

Yes. Okay.

Can I also say something about Renee, please?

I know this is last minute, but Renee, after just dedicating so much of her time and energy to the program, Renee is temporarily retiring this year. I say temporarily because I'm still hoping that she's going to come back, because she's such an asset to the community. So thank you, Renee. Thank you.

So she can go ahead and sit down. Oh, stay right there. Okay. Sorry. A lot of logistics here. Now, number three. Yep. Okay. Okay. Okay. And now we're going to recognize the MiraCosta High School girls lacrosse, 2026 CIF southern section division one champions. And I have Maddie Buss, who I don't think is here. Thank you. And Rob, this cursive is really something here. Is that Zoppo? Zoppo. Rob Zoppo? OK. And then Laurel Vanthoff.

Okay.

And that's it there. Yes. They had a very exciting season, yeah. Great.

Okay.

Next one is... Whoops, whoops, whoops, whoops. Help, help, help. Sorry. Open now. Okay, and the next one is the MiraCosta High School Baseball 2026 CIF Southern Division III Champions. And we have Andy Diver. Not here. He's going to have to run extra laps. Miracosta High School baseball, same, 2026 AF Southern Section Division III champions, assistant coach Derek Duarte. And then we have assistant coach Dylan Hatch as well. And then assistant coach Steve Fedor. Boy, our sons played baseball together a long time ago. That's great. And then assistant coach Joey Acosta. And one more. And we have another assistant coach, Brandon Marks. So congratulations to all of you. And we'll get those over to you. Okay, so that's going to be... Oh, did you? Yeah, that worked well.

Okay, I'll hold it and I'll have it too.

Okay, great. Teamwork makes the dream work here. Okay, and now we have a certificate of recognition for the MiraCosta High School Boys Indoor Volleyball 2026 CIF Southern Section Division I Champions. That's great. That is amazing. I'm just... So we have head coach, Greg Snyder. I'm looking for tall people. And we've got MiraCosta High School boys indoor volleyball again, 2026 CF Southern section division one champions. Assistant coach, Mike Cook. And we have assistant coach, is it Canyon? Seaman? Okay, Kenyon Seaman. Oh, heck, I could just look up. And then assistant coach Nick Sheftick. Wow. And then assistant coach Eric Fonomoana. Say that three times fast. And then... And then another assistant coach, Ben Court. All right, so congratulations to Ben. And all the coaches and all the players are going to get city pins. So certificate of recognition for the MiraCosta High School Boys Lacrosse, 2026 CIF Southern section division two champions, head coach Aaron Karsh. And we got assistant coach Taji Mobley. And assistant coach Nick De La Espriella. No. And assistant coach Kyle Kennedy. And finally, assistant coach Eric Yoon. Congratulations to the MiraCosta High School Boys of Cross.

Everyone's at practice, too.

Yeah.

It's the dead period.

It's the dead period.

Oh, it's it. The only time you can go away.

They're gone. You know that.

Oh, yeah.

And now we have a certificate of recognition for the MiraCosta High School Boys Track and Field, 2026 CAF Southern Section Division I Champions, Head Coach Mo Russell. Mo, congratulations. Thank you. Very proud of you. And then we have a pin for you, I think, too.

Yes, sir.

and then again that MiraCosta high school boys track and field assistant coach Kelvin Gamble and assistant coach Hunter Johnson So again, congratulations to the MiraCosta High School Boys Track and Field 2026 CAF Southern Section Division I Champions.

We have one of our coaches here outside of Coach Renee, Coach Murray Mead, come on up, Coach. Our pole ball coach.

Hello, I've been with Costa and the coaching staff for track and field for a couple decades now and the last two years three years

My fellow coaches, headed by Coach Mo, have been on fire. They've never worked harder, never pushed the kids harder. We've got such a great team. We went into the CIF Division I, which is the biggest division, the hardest division to get in of all of California. So it's the toughest division. We got in there with no long jumpers, no high jumpers, no triple jumpers, no shot putters, no discus throwers, and we beat Loyola and won it. So that's pretty awesome.

well done okay so a photo we're good just look at the podium

I mean, that's extraordinary, right? Seven CIF champions and... And no jumpers or runner or shot putters or discussers. Right? That's incredible. You guys care. Wow.

Thank you. Thanks again.

Thank you. Expect you back here next year.

All right, so moving on to item E, approval of the agenda and waiver of full reading of ordinances. Is there anybody that wants to pull anything?

Mayor, may I?

Yes.

City Manager. Thank you. Good evening, Honorable Mayor and Council Members. At this time, I would like to ask the Council to consider continuing item number five to a date uncertain, as we had some technical issues come up this morning that we would like to address before... the council taking a vote on it.

Okay.

Great. So we will approve the agenda and waiver full reading with the exception of item number five, which we will address later. So I have a motion to accept by Council Member Holworth and seconded by Council Member Sherrillian. Call for the vote, please.

Motion passes 5-0.

Great, thank you. So we have item F, city council and community organization announcements of upcoming events or existing events. Existing events.

Hello, Cassandra Sargent with the Manhattan Beach Library. I was coming to promote a music program we have going on Saturday, July 25th with Natalia Music. So she's Colombian-born singer and songwriter and performer, and her interactive presentation includes a lot of bilingual music. So we're targeting ages 0 through 6 and families. You don't have to sign up. Everybody's welcome to attend, so hopefully we'll see you there. Thank you.

That's great. Thank you. I thought she wanted CIF championship or something.

Hello, honorable mayor and members of council. My name is Randy Neeson. I'm your cultural arts supervisor. I'm going to make two announcements tonight for the community. The first one is the Manhattan Beach Arts Center is proudly presenting the annual community exhibition. And we'll be having the opening reception for that on this Friday, July 24th from 5 to 8 p.m. This is a beloved tradition in Manhattan Beach, and this annual exhibition celebrates the creativity and talent of our local community. The exhibition will feature more than 100 artworks by local artists who live, work, and play in Manhattan Beach. We hope that the community can come and help us recognize the incredible talent that makes Manhattan Beach so unique. The event is free and open to the public. And if you can't make it to the opening reception, we will have the exhibition running until October 5th. And next, this Sunday, we are proud to present the next concert in the park, which will be Kenny Metcalf as Elton in the Poliwag Amphitheater. Returning after an outstanding and crowd favorite performance in 2023, Kenny Metcalfe is widely regarded as one of the nation's premier Elton John tribute acts. The concert is free from 5 to 7 p.m. And we invite the community to bring blankets, lawn chairs, family, friends, and wine if you're of age to enjoy the music in the park. Thank you so much. Great. Thank you.

I'm a mayor, mayor pro tem, city council members, city officials, my friends at Public Works, Coach Bobby, WM, outreach educator for organics and recycling. Just a quick heads up, because we won't have another meeting before then. On August 1st, we will have our paper shred event, once again, held at Maricosta High School. From 9 o'clock to 11 o'clock, every resident commercial business is allowed to bring up to three banker boxes full of paper. Please, no binders. Try to limit the staplers. It's only paper. Please remind them to stay in their vehicles. It's a drive-through event only. That's all I got. Wishing you guys all God's blessings.

Great. Thank you, Bob.

Good evening, Mayor Franklin, members of the City Council, Archie Sherman with the Parks and Rec Department, and here to invite you and to attend one or two events or even participate in the upcoming International Surf Festival, July 31st through August 2nd. And as you know, part of that is the Charlie Sagley Six-Man Volleyball Tournament. The biggest event there. Of course. Taking place that Friday and Saturday. On Sunday, that will be followed up by the Junior Six-Man Tournament. Other highlights of the event in Manhattan Beach taking place on the north and south side of the pier will be the Pier-to-Pier Swim, the Pier-to-Pier Paddle, as well as the Surfing and Body Surfing Championships. And for a full itinerary of the Hermosa and Manhattan events, you can go to www.surffest.com. It should be on there. There it is. And then two weeks after that is the return of the legacy, the Manhattan Beach Open volleyball tournament, operated by the AVP. This brings the top players here, the top prize money. It also gives our city a chance to be showcased on national TV that Sunday for the men's and women's final. We will have Thursday prior to the main event, the qualifier, which will be over 150 teams battling it out, where we'll take eight teams from each division that will go into the main draw starting Friday. At 3.30 that afternoon on Thursday, we'll hold the annual Peer Plaque Ceremony to honor last year's Manette Beach Open winners. And I am proud to announce, she's sitting right behind me, but Kelly Strowman's been working with the AVP. We're trying to bring back the Sunset Beach Party that Thursday evening. So stay tuned for more info on that. And going back to Maricosta Volleyball, they were state champions and they declared them national champions. Wow.

Okay.

Mayor, I have one announcement. Yes. Thank you. Good evening, your city manager, Taline Marzacanian. I'm happy to announce that after a year long search, the city has finally brought on an official public works director. And so I wanted to introduce Ramsey Awad, and I would like to turn it over for Ramsey to say a few words.

Good evening, honorable mayor, council members. I'm excited to be joining great Manhattan Beach team. I look forward to serving a wonderful community and partnering with the various stakeholders. Thank you very much for having me here. Thank you. Welcome.

Good evening.

I'm Evelyn Schmidt, and I want to thank you for letting me make this announcement. I have an exhibit of 50 of my photos at the Palos Verdes Art Center on Crenshaw, at the Crenshaw and Ridgecrest. The photos, half of them are Manhattan Beach, particularly the Manhattan Beach Pier, and the other half is my trip to Ethiopia. I did a lot of portraits of the women in the Omo Valley They're very beautiful, very resourceful, very artistic about how they adorn themselves, and I'm sure you would enjoy that. So you're all invited to come and see the exhibit. It goes until August 22nd. So thank you.

And I want to share that I had the honor of being there at the opening this last Saturday, that Saturday night. And it is fantastic, and everybody loved it. So I just wanted to say thank you.

Oh, thank you.

Congratulations. Thank you so much. Okay, any more announcements, community announcements? Seeing none, we'll move on to public comments. Public comments are limited to three minutes per person. And if you speak on something in public comments, you cannot, if it's a future, if it's an agenda item later on in the agenda, you cannot speak to it there. So, any?

Good evening, honorable mayor, council members. For those of you who don't know me, I'm Stefan Compa. Three items real quick. As I was reviewing the agenda tonight, or yes, for tonight, it occurred to me, we talk a lot about our communications and how we need to get more communications, get more of our community involved and engaged. And at first, I want to say that I'm really impressed with the work that Alexandria has been doing, the communications I've been receiving. But I think we as, I'd like to see the city council have a working session and kind of look at what are we trying to achieve with our communications? How are we trying to get our engagement? And are we getting that? And if not, what could we do different so we can get that engagement? What I see is that You know, when I go Project Pulse meetings or these other sessions, there's about 50 to 75 residents that participate, and that's about it. And I think, you know, in a community where we have roughly 25,000 voters, it sure would be nice to get a little bit more participation in the community. So it would be nice to see if we could have a conversation and maybe a discussion at the city council level on this. The second item was on the purchase of the ambulance for $362,000 and change. Boy, that was a shocking price. You know, I got some more information on that, but one question I had is, what happens to the old ones we sell? When do we recognize that as an asset? Is that an offset to this cost? I'd just like to understand that. And the third item, I did get an excellent response from Taline, thank you. There was a KTLA report that there was a street takeover this past Saturday night at Rosecrans in Sepulveda, and that was incorrect, and I just wanted to make sure that got out in the public. And a friend of mine brought that to my attention. I'll make sure he's aware of it. And I understand that you're reaching out to KTLA, so they're going to correct that. So thank you.

All right.

Thank you.

Mayor, may I address that last comment?

Yes.

Thank you. We did confirm with KTLA that they made an error. It was actually Sepulveda and Wilmington, I believe, in Carson. And so they are going to be reporting out that they made that error.

Okay. Okay.

Evening Mayor, members of the City Council, Mike Jenkins, 48 year resident. Three things also. First, I want to thank the Council for sponsoring the third annual Juneteenth celebration last month. It was a meaningful, joyous and well attended event. Thanks to the hard work of Eric Brinkman and his fine team. So we look forward to next year's event. Second, several meetings ago, three of you directed the city manager to bring you an agenda item on the creation of a resident task force on housing. I'd like to know when that item will be placed on your agenda as an action item. And finally, As you well know, City Council is being criticized repeatedly in social media and elsewhere for being fiscally irresponsible. And I haven't seen an effective response from you. I know that you are not irresponsible people. And I believe that the criticisms being leveled against you are based on incomplete, cherry-picked information. But I think residents are being confused by all of this tedious chatter, and that the City has not done enough by far to explain the City's financial position to the residents. I know you've put a financial transparency page on your website, but honestly, it's hard to find. And when you get there, it's pretty dense. You need to move that financial transparency page to the home page so that when you arrive initially at the Manhattan Beach website, it's right there in a box that says, click on this if you want to read about the city's finances. And even that is not enough. Municipal budgets are not easily understood. I know it took many of you a long time after getting elected for the first time to understand municipal budgets. I strongly suggest you do more to respond to the persistent attacks so as to alleviate resident concerns. Consider holding a town hall meeting or having a series of coffees or disseminating a Q&A to all the residents. Bottom line, This issue is more about education than it is about transparency. Thank you.

Thank you. Anybody else in chambers? How about online?

No requests on Zoom.

Okay, and City Manager, could you possibly address the question about used fire equipment, or in that case, any equipment, and what happens to it?

Yes, I believe our Finance Director is prepared to address that in more detail, but as you've seen on some of our other agendas, some of that equipment does get surplused, and others get donated to educational establishments, but I invite

either our finance director or our deputy chief to the podium. Good evening. Libby Brenner, our finance director. So as Talene mentioned, sometimes we do surplus equipment or sell it to other agencies when we're no longer needing it. However, I wanted to bring up our deputy fire chief, Anthony Gomes, to share some feedback on what their current plans are for the ambulance.

Thank you. Hello, honorable mayor. I'll remember mayor and members of the council. Anthony Gomes, your deputy fire chief. So the ambulance that we plan on replacing will be running 24-7 when it gets into service. The current ambulance that we have, we plan on keeping that. That's a coveted piece of capital investment that our community and our council has given us. The replacement time on an ambulance is roughly 18 to 24 months. It's the same process that we had with our tiller truck. If you guys remember buying that, it was 48 months. So we plan on keeping that. We want to use it as a reserve piece of equipment, and that will allow us to put that in service when our frontline equipment is in for maintenance or if it goes on a call, we have to decontaminate it. It goes out of service for multiple hours. So we want to continue to maintain that asset and utilize it to its end of life. So that's our plan. Great. Thank you.

I have a quick question for Chiefs. Chiefs?

Chief Gomez. Chief Gomez.

Really quick, we know prices have gone up, and this particular item was emphasized during the budget process where one of the reasons that we're having to spend a little bit more money on expenditures is because something like this maybe was $150,000, now it's $350,000, and it takes two years to get. Question is, is the newer technology in these vehicles make it longer lifespan? Is that something that's addressed really quick?

Yeah, it doesn't necessarily make it a longer lifespan. However, the capabilities of the new piece of equipment is, from a technology standpoint, is far greater than the current piece of equipment that we have now. and so our current rescue ambulance we got in 2017 so it's pushing nine years old if you look at the 20 24 month build time we're now into the 11 11 month old we will have about a 60 day in service and training component on top of that so we have to stock it and outfit it the technology that's going to be in the new piece of equipment will far exceed our current apparatus but it's not necessarily going to prolong the life of that piece of equipment but The due diligence that we do to maintain some fiscal responsibility is the general consensus is a seven year for replacement. We go conservative and we go eight. we were able to drag it to nine based on specific metrics that we use. And so on top of that, a two-year, we're pushing this piece of equipment to 11. And so we're kind of at that point to where with the new one, we can hopefully do the same thing, but we're trying to get the most use out of it as we can. Thank you, Chief.

Great. Thank you.

Mr. Mayor, I have a last-minute request on Zoom.

Okay.

I have Diane Wallace.

Hi, Mayor Franklin, members of City Council. I just wanted to comment tonight and thank the city and the police department for everything they did for the World Cup here in Los Angeles. It was great. I am totally not a soccer fan, but I'm a fan of the fans. And I actually watched some of the games, but I thought what we did in Manhattan Beach was perfect. And I wanted to make sure that the police department and the city got credit for doing such a good job. Thanks.

Thank you, Ms. Wallace.

No further requests.

No further requests. Okay, so we'll close public comments. And regarding consent calendar item number five, the city manager requested a continuance.

Yes, so we will bring that item back on a future agenda.

Okay, great. So city attorney, we've got a vote?

To approve the consent calendar.

Okay, great. So do I have a motion? So we have a motion to accept from Council Member David Lesser and seconded by Mayor Pro Tem Nina Tarnay. Can we call for the vote, please, to continue item number five?

It's actually the entire concept calendar. With the exception of item five.

Oh, okay. Yes.

Motion passes 5-0.

Okay, thank you. So item I, we just discussed. So we have item J, public hearings. Agenda item number nine, consideration of resolutions regarding renewal of downtown business improvement district for fiscal year 2026 and 2027. And we have finance director, Brett Hauer.

All right. Good evening. Thank you again, Honorable Mayor and members of the City Council. Tonight, we are pleased to present for your consideration the renewal of the Downtown Business Improvement District for fiscal year 26-27. This annual renewal is a process required by state law. The process for renewal began on June 16th with the approval of a resolution of intention to renew and levy the assessment. The next step is to hold a public hearing to accept testimony for or against the proposed assessments, which we're doing tonight. Approval is based on whether there's a weighted majority protest by businesses paying 50% or more of the total assessment. This year, assessments for the district remain unchanged. The Downtown Business Improvement District is funded through an 80% surcharge on the annual business license tax, and up to a maximum of $600 per business. All legal requirements for tonight's public hearing have been met, including mailing copies of the resolution to all bid members, and a notice was published in the Beach Reporter. To renew the bid, several steps need to be taken by the City Council tonight, including holding a public hearing to receive testimony. Assuming insufficient protests are received, we need to adopt Resolution 26-79, authorizing the collection of assessments. Number two, we need to appoint the nominees for the fiscal year 26-27 Business Improvement District Advisory Board. Number three, we need to adopt Resolution 26-80, authorizing the city manager to enter into the agreement with the Downtown Manhattan Beach Business and Professional Association for the services outlined in the attached fiscal year 26-27 activity plan and budget, which starts on page 488 of your agenda packet. And finally, we need to authorize the disbursement of bid funds collected during the 25-26 fiscal year, which totals approximately $124,000. And those funds would be dispersed to the Downtown Business Professional Association for the activities outlined in the plan. So tonight, staff is here to answer any questions, as well as the current Advisory Board Chair, Michael Zislis, and Downtown Business and Professional Association Executive Director, Kelly Stroman. And we are here to answer any questions. And if none, we could open the public hearing at this time.

Okay. Council, any questions? No, seeing none. public comments.

Honorable Mayor, council members, Michael Zislis, I'm the leader of this downtown business association.

Whatever the district is, I apologize.

We've got a lot going on this week. I just want to say that I'm really quite happy with the team members that we have on this board. They're all kind of downtown businesses. We try to get people from retail, spa, restaurant, other things like that. And we have a good mix of people, and then we're happy to... I suggest that you give the money to the DVPA because I think it's one of the best-run organizations in our city. And I'm so proud to have Kelly Stroman back because things are happening. I'm so excited about this thing at the pier coming up. If we can pull that off in two and a half weeks, it's going to be great. But that's all I have for that. Thank you very much. Okay. Thank you.

Good evening, I'm Kelly Strowman, Executive Director of the Downtown Business Association. First of all, thank you so much to all of you for coming out today to the 20th anniversary of the Farmers Market. It was really a special day and 20 years of celebrating in the community, so thank you so much. It is the funds from the Farmers Market and the funds from the bid assessment, which hopefully you're awarding tonight, that fuel our ability to make downtown great to be a partner with all of you and everybody else in driving the economic vitality of downtown. So I just want to thank you for your stewardship. Thank you for your participation and for everybody else that's involved in downtown. Thank you.

Okay. Thank you, Kelly.

Anybody else wish to make a comment?

So we'll close public comments. Council, we're still good. Any comments? Okay. We've got a motion to accept. I'm

They are a really well-run organization.

You're here. So we have a, so with regards to adopting resolution, well, actually, Council Member Sherrillian, go ahead.

Thank you, Mayor. Adopt resolution 26-79 and 26-80. Okay. Can I say these all in order? Yes. Thank you. Appoint bid advisory board and authorize the disbursement of assessments collected through June 30, 2026. Okay.

It was seconded by Council Member Hoerth.

And it should be said that Council Member Shrillian is the liaison to the Downtown Business Association. I'm the backup, the alternate, and thus I think we wanted to make this motion.

Great. Thank you. So call for the vote.

Motion passes 5-0.

Okay, moving on to K, general business, item number 10, consideration of polling results on a potential business license ballot measure and direction to schedule the consideration of resolutions to present to the voters.

All right, good evening again. Libby Bretthauer, your finance director. And this item will probably be a little, take a little bit longer than the, the one I just did. So here we are tonight. I look forward to once again discussing our business license modernization plan with you tonight as well as with the business members in attendance. So on tonight's agenda, we're going to provide a brief background and recap the tax model three that was selected for community polling. And then we'll take a break from this presentation to jump over to the polling results that will be presented by True North Research. Then staff will return to the podium to discuss some of the questions and information requests that we've heard back from the business community. And then we'll also discuss what we're doing to address some of this community feedback, and we'll present a few alternative tax model options for consideration. And finally, we'll try to bring it all home and get some final direction to see if we want to proceed with placing a ballot measure on the November election. Okay, just as background again, we've gone over this slide on past presentations. The city has continued to receive feedback from the business community on certain issues about our current tax structure, which has been in place since 1971. So due to the tax structure in place, a major concern by several businesses that we've continued to hear is that smaller businesses pay a larger percentage of their gross receipts compared to larger businesses. And even medium to large businesses among that range, there are disparities while a $5 million business currently pays the same tax as, say, a $20 million business. The current tax structure is also very complex for new businesses to understand and for city staff to administer and explain all of the nuances. In past meetings we discussed at length there are nine different ways that businesses are currently taxed based on their classification. And we're going to discuss in a moment again how this played into the initiating goals of this tax project that we've been on. The city conducted a tax, hired HTL consultants to do a tax study. And we also found that through that tax study that the concept of a uniform gross receipts model would refine our complicated tax structure that we have currently so that every business would be taxed the same rate. So based on a lot of feedback and research we've heard through the years, as well as staff struggles to administer our complicated tax code, we refined our goals down to five goals that we are calling our business license tax modernization plan. And these five goals were to simplify our code, clarify our code, modernize the code, make it more fair and equitable in the structure, but also maintain the city's fiscal sustainability. Throughout this process, we have remained true to these five goals as we seek to balance the interests of the business community, but still try to achieve some of what we're aiming for, which is really to simplify and clarify and make it more fair and equitable so that all businesses pay the same in proportion on their tax rate. So we've already had several meetings regarding this process, and it really started back in October when we first met with a representative from the Chamber of Commerce, Jill Lampkin, as well as Kelly Stroman from the Downtown Business Professional Association, because we really wanted to hear the concerns and feedback that they've been hearing from the business community all these years. Then we presented some initial research to our finance subcommittee before coming up with the tax modernization plan that was presented to city council in March. At that time, we did some code language cleanup that was really just modernizing our outdated code language. correcting some things that didn't touch the tax structure at all. So we already implemented a first round of ordinance updates as you would recall from March. So in April we held a business license tax forum, a community meeting open to all of our business community. And we collected feedback through a survey there. In May we presented the results of the tax analysis and the city council discussed and selected a preferred tax model that then we utilized to conduct community polling. And tonight we're here to present the community polling results as well as hopefully make a final decision on a potential ballot measure that we could have on the November 3rd general election. So to recap what was presented back in April and May, we first identified four potential tax models that we presented both to the business community and then to the city council. At the time we also opened up an online survey to try to receive feedback on which tax model businesses preferred. We presented this slide to the city council and discussed model two that had no cap or maximum tax on the tax paid by businesses and also reduced the flat or base tax. So that one pulled pretty high with the respondents, as well as model four, which reduced the flat tax, again held the cap at $100,000, and then also offered a variable gross receipts tax rate based on the category of business. So those two models were selected in the survey that we conducted. However, during the city council meeting, we answered a lot of questions, there was a lot of discussion. And what was settled on was Model 3, or a modified version of Model 3, which reduced the flat tax, set the cap at $100,000, but then reduced the gross receipts rate. And based on the modified Model 3, as seen here, the projected business tax revenue increase to the city was estimated around $800,000. So the Model 3 that was selected was what we provided to our polling consultants, and we got to work to draft the questions and prepare the polling data. So again, the Model 3 that was selected for polling, the structure of the tax created a uniform gross receipts rate for all businesses. We did not move forward with the variable rate based on category. There's a small flat rate tax of $100. It increased the cap to $100,000. And from our current nine complicated different tax categories, we essentially have two categories in exempt or non-exempt, all paying the same rate. So the outcomes of this model would be that it would be easier for businesses to understand. Again, the same rate would apply to all non-exempt businesses, making it much more equitable. It would slightly increase revenues for city services based on the estimates. And then the low flat rate would support small and new businesses by lowering that initial tax. So based on the calculations, again, model three that was selected reduced the flat tax to $100, whereas currently it's about $313 for most business categories. And that would cover the first $100,000 in gross receipts. The modified Model 3 also reduced the gross receipt tax to $2.60 per 1,000 in gross receipts from the current rate of $2.80 per $1,000. Again, the cap or the maximum tax that businesses would pay was increased to $100,000 for all business types, which currently that maximum tax is set at $12,156. However, for commercial properties, their current cap is $251,000, again, because they're in a special category currently. So to illustrate how this calculation works, we did include the bottom example there of a business generating $500,000 in gross receipts. The $500,000 is reduced by 100,000 since that flat tax of $100 covers that first $100,000. And then from there, the remaining $400,000 is divided by 1,000, then multiplied by the proposed gross receipts rate of $2.60. So this results in gross receipts taxes of $1,040 plus the flat tax of $100, and that results in a total tax of $1,140. Model three reduces the business license tax payments for all businesses generating up to $4.5 million. And then from there, businesses would begin paying the same fair share in taxes. However, this model also applies a cap of $100,000. A business would reach this cap once they earn about $35.7 million in gross receipts. And any amount greater would pay the same cap of $100,000. Please note that this table does not reflect the current cap on commercial property or the research and development categories, which is about 251,000 if they report based on square footage. In some instances, the business license tax payment would go down for commercial properties and research and development firms. Later in this presentation, we'll explore some examples of how these tax models will impact commercial property and other business types. So at this point, now that we've refreshed everyone's memory on the tax model three, which was again selected for the basis of polling, I'd like to transition the presentation over to Tim McClarnie from True North Research for a presentation on the polling results. And also I forgot to mention that we have a few other people on Zoom with us tonight as well, including John DeChristina from Colantuno and Whatley, the special counsel's office that we've been working with through this process. And then we also have Charles Heath from Team Civics, who is our ballot measure consultant. So they are also here to answer any questions you might have tonight. So I see Tim is teed up and ready, so I will turn it over to him now.

Great, thank you. And good evening, Mayor and members of Council. Dr. Tim McClarnie, President of True North Research. We are a firm that for the past 25 years has specialized in working with cities and other types of public agencies in using surveys to help them develop a statistically reliable understanding of the communities and the customers that they serve. To date, my business partner and I have worked on over 1,500 research studies for public agencies, and about two-thirds of the work we're doing these days is what we call revenue measure feasibility studies, like the type of study we're talking about here tonight, where the goal is to understand if it's feasible to move forward with some type of revenue measure, and if so, how might you go about structuring that measure in a way that it's consistent with the type of measure that your community is interested in supporting. I've also had the privilege of being the city's research partner going back a couple of decades. I've worked on over a dozen survey research projects for the city related to different measures, including the TOT and the stormwater and others and sales tax and others in the past. And so pleasure to be here tonight. Tonight's presentation covers the highlights of the research that we recently conducted on the proposed business license tax measure. As I go through this presentation, I welcome questions along the way or at the end from council, whichever is your preference, Mayor. Okay, so before we jump into the actual results, helpful to take a moment to review the methodology of the study or how we went about conducting the study. Anytime you're doing a revenue measure feasibility study, the first question you want to ask yourself is what election is this measure going to be on? The reason for that is different elections have different turnouts, and as you expand or you shrink turnout, you will tend to get a different profile to the group of voters who will ultimately be casting ballots in that election and deciding the fate of a measure. So in this case, we were thinking about that upcoming November 2026 gubernatorial general election. And so what we did is we went through the city's voter file, identified every voter that is what we call a likely November voter based on their voting history and some other demographics. And then we use a process called stratified clustered random sampling to choose a sample of likely November voters. that is representative of that larger universe of likely November voters on all of the dimensions that we know tend to drive how voters behave when it comes to ballot measures. So the balance in our sample by age and gender and partisanship and household party type and where they live within the city, the balance in the sample matches the balance in the universe, and that's one of the keys to making sure this research is reliable. Once we pulled our sample, we use three different recruiting methods, email, text and telephone to recruit participation in the survey. Folks have the opportunity to take it either online or by telephone, whichever is their preference. And obviously there's been a lot happening in the world as well as in this country over the last few months. and creates a pretty dynamic environment. The good news is this survey was conducted very recently in sort of the latter half of June. And so to the extent that changes in economic conditions or gas prices or any of these other things are floating around in voters' heads and considerations for them, Those issues are baked into the results we'll talk about here tonight, right? And so we don't have a case where the data collection was done many months ago and a lot has transpired since then. And there's a question about how sort of relevant that data is now. This data is really recent. So we wound up completing a total of 459 surveys and with a random sample of that size, We have an overall margin of error due to sampling of plus or minus 4.5% at the 95% confidence level. So what that means is we can be 95% confident that the results I'll share with you tonight are within 4.5% of what we would have found had we spoken with all of your likely November voters. Okay, so on to the results. We'd like to, in our revenue measures, start out with a couple of warm-up questions, just sort of gets folks into the groove of taking the survey, thinking about the community in which they live before we get to the questions related to the measure. And so in this survey, we started out by asking them to rate the overall quality of life in Manhattan Beach. Would they say it's excellent, good, fair, poor, or very poor? As you can see from the slide, residents of Manhattan Beach really prized the quality of life in the community. We had 96% of the voters we spoke with rate the overall quality of life in the community as excellent or good. Less than 3% said fair and less than 2% said poor, very poor. In revenue measure research, when we see a pattern like this, it's actually pretty helpful. What we tend to find is that voters who feel passionately about the high quality of life in their community, those also tend to be the same kind of voters who are willing to support revenue measures that are really designed to sort of maintain and sustain the quality of life they've come to enjoy. So after that overall quality of life question, we went on to ask them if the city government could change one thing to make Manhattan Beach a better place to live now and in the future, what change would you like to see? This is an open-ended question, meaning we didn't provide them with this long list of options you see here on the slide and ask them to pick one. They got to just tell us in their own words whatever came to mind. As being the number 1 thing that they'd like to change about the city, we went back and reviewed those verbatim responses and group them into the categories that you see here. So, at the top of the list, you see limited growth and development that had about 18% of folks who say that's our number 1 issue addressing parking issues about 14%. And then you've got your. enforcing traffic and e-bike laws at about 13%. It's also worth noting that you've got about 12% who are not sure, can't think of anything. So, you know, when they ask them what change we'd like to see in the city, they're really sort of nothing comes to mind. And then you also have another about 4% who say that everything's fine as is, we don't need any changes. So after these warm-up questions, we get right down to business with what we call the initial ballot test. And the idea here is before we get any deeper into this discussion with the respondent, we start talking in more detail about how the funds could be spent as well as conveying arguments pro and con related to this proposal. We want to present to respondents a mock-up of what we think that roughly 75-word ballot statement could look like on the ballot and get their reaction. The initial ballot test is a really good gauge of kind of where your voters are at on the natural with respect to this proposal. So shown here on the slide is the exact language that we had proposed for the ballot statement and. Here are the results. So at that initial ballot test, we had 59% of respondents tell us they would support this proposal. You had 20% who were opposed. You've got about 19% who were unsure and about 1% who prefer not to answer the question. So in the state of California, for the proposed business license tax, as a general tax, it requires a simple majority or 50% plus one to pass. So at this initial ballot test, we're sitting about nine points north of that simple majority that's required for passage. One other thing I will point out is, you know, there's lots of different types of revenue measures out there that voters are used to seeing, sales taxes, bonds for schools, right, parcel taxes, these sorts of things. And when we're testing those types of measures, you tend to see a smaller not sure percentage. You know, it hovers around 10%. Here we're seeing 19% not sure. I think that is a reflection in part in that voters just aren't really used to seeing these business license tax measures. They don't come up very often. And so you've got some uncertainty from voters just based on that 75 words initially. As you'll see as we move through the survey, that gray slice gets smaller as they learn more about the proposal. So after the initial ballot test, we dive into what we call the projects and services section, where for each of the projects and services you see on the left side of the slide, we simply ask folks whether they would favor or oppose spending some of the money on that item. This is a good question for A, educating respondents about what this measure could accomplish in a way that you really can't convey all of these things in the 75-word ballot statement. It's also an opportunity to understand how, of all the ways you could spend the funds, how do voters feel about these ways and which of these are their priorities as you can see here everything we tested had better than 50 percent of respondents say that they would favor spending some of the proceeds on that item that said as you get towards the top here you tend to see the combination of things that normally rise to the top of the list when it comes to voters priorities and that is public works And public safety. So fixing street and potholes, keeping parks and playgrounds safe, clean and well maintained, quick responses to 911 emergencies, fire protection, paramedic, right? It's not surprising to see these items at the top of the list. They tend to be at the top of the priority list, whether in the context of a revenue measure or just in the context of the importance of various city services. So after the projects and service section, we get into the argument section of the survey. And the idea here is if you as a council were to move forward and place a measure on the November ballot, there's going to be an election cycle. There's going to be a lot of discussion and debate in the community about various proposals, including yours. You'll have some folks out there undoubtedly arguing on behalf of this proposal, talking to their friends and neighbors about why this is needed and why they should vote yes. You might also get some critics who step up, say it's a terrible idea, shouldn't be doing it. And here's why. For this survey to be a reliable gauge of the feasibility of this measure, we need to simulate that discussion and debate in the space of the interview so we have a good understanding of not only where voters are at on the natural with respect to this proposal, which was that initial ballot test I showed you a bit earlier, but how do they respond to positive arguments? How do they respond to negative arguments? So shown here are the various positive arguments we tested. You can see here that the number one argument up top is a basic equity argument, right? It says under the current rules, small businesses are taxed on a higher percentage of the revenue measure, I mean, on a higher percentage of the revenues, while larger businesses are paying less. This measure updates the business license tax so it applies equally to all businesses. So that's a concept that voters appreciate. And you can see that there's a number of positive arguments here that get traction. So now at this point in the survey, voters have heard more about this measure than they did at the initial ballot test. We had a chance to talk in some detail about the types of services that the funds from this measure could help improve. And then we also had an opportunity to share arguments on behalf of the proposal. So we circle to what we call the interim ballot test, right? We test, okay, we share that same 75-word ballot statement. We say, now that you've heard a bit more, where do you stand? And as you can see here, that once they learn a bit more about how the funds could be spent and they've heard positive arguments on behalf of this proposal, they've yet to hear the negatives, support jumps to 68%. So that's a nine-point increase from where we were at the initial ballot test. And support is now sitting about 18 points north. of that simple majority threshold that's required for passage. And as I mentioned earlier, you see that that gray slice has now shrunk down to what is more typical, right? So some of those folks that were unsure about the measure at the initial ballot test, at this point, they're ready to take a position. And then we get to the negatives. And the idea behind the negatives is we want to pressure test voter support for this proposal by peppering them with a series of opposition arguments. We're trying to give them reasons for voting no, because we want to know if you get into an election cycle and you wind up with vocal opposition, right, that's out there and being effective at getting their message out, how might that ultimately impact voter support for this proposal? So you can see here the negative arguments we test, and you can see that they all get traction to some degree. The real question, though, is what happens afterwards, and that is here. So at the final ballot test, we have 64% of respondents say that they would support this proposal. You've got 21% opposed, and you've got about 15% who are not sure, prefer not to answer. So at the final ballot test, we drop about four points in response to the negatives from where we were at the interim ballot test. We land about 14 points above that simple majority that's required for passage. All right. So what does all this mean? I've just got this slide in terms of conclusions. I'm going to circle back first to that kind of overarching question I mentioned at the outset as the main motivator for why you do this research, which is to understand, is it feasible? And what I mean by that is if you as a council were to choose to place this measure on the November ballot, does it have a reasonable chance of success? I think this is clearly a yes, but it's going to require You know, good communication and outreach moving forward. So why the yes part? Well, that's all the things you see in the bullets there under positive signs. We see that voters have a really high opinion of the quality of life in Manhattan Beach. They see it as exceptional. But at the same time, they do see room for some service improvements that could be funded by a measure like this. Right out of the gates with just the 75 word ballot statement, no additional information. We found 59% support for this proposal. That's nine points north of the simple majority that's required for passage. All the things that could be funded, but particularly the public works and public safety components were popular with voters. We've got positive arguments that resonate. And importantly, at each point in the survey where we circled back and we said, now that you've heard a bit more about this proposal, where do you stand? We present that same 75 word vowed statement. What you see is that support was well above the simple majority that's required for passage. And that is even after we tested a series of opposition arguments. So when we see the kind of pattern that you see in the bullets under positive signs, that's the kind of pattern that we want to see for a measure to have In this case, not just a reasonable shot at success, but a good shot at success. That said, there's also a few sort of challenges and external factors to keep in mind as you move forward. You know, we do see that there is some receptiveness to potential opposition arguments related to this proposal. So, you know, should you have active opposition and vocal critics? We saw that that took a bit of a bite out of voter support for the proposal. We were still landing well above the simple majority, but that's something to keep in mind. The other thing to keep in mind is that, you know, we're dealing with external conditions that are probably among the more challenging we've had in recent election cycles. We've got a war in Iran, spiking fuel prices that just went up again the other day when I went to fill up my vehicle. You've got concerns about cost of living, tariffs, inflation. Consumer sentiment hit an all-time low in May of this year. There's also concerns as you get closer to November that you know people will start to engage in more of a hyper partisan kind of not only campaigning but also behavior there could be other measures on the ballot right we don't know exactly what the turnout's going to look like in november so all of these things are challenges now in a lot of ways they were present right these are these are not new things they're they're in the current environment we polled in the current environment and so Where we sit today on all these factors is baked into your results. So we see that you've got a measure that is supported by the necessary percentage of voters, even with the challenging external conditions we find ourselves in currently. What we don't know, obviously, is what the next few months holds. And so I mentioned that mainly because not that these are insurmountable challenges for your measure but you always want to put a measure on the ballot that is robust enough that it can withstand some headwinds right so should some of these conditions deteriorate should we get more headwinds you know say economic headwinds let's say you know you still have a measure that is that you know voters um are a sufficient number of voters are going to approve i think you have that measure here within the current sort of model 3 framework But again, we just want to keep these things in mind. So with that, that's the end of my PowerPoint slides. I am happy to answer any questions at this point about the survey or hold those for later, whatever is appropriate.

Council members, questions?

I have a question about process, Mr. Mayor.

Council Member Holworth?

Yeah, just a question. So we're asking right now, it's questions of Tim or of Libby. Like, how should we...

I think we can ask both.

I do have some additional slides to add. Tim's time may also be slightly limited with us. Are you able to continue? I'm okay. I can keep going. I can keep going. Okay. I believe he has another presentation tonight at another city.

Eric, can we ask questions of Tim on the process of the survey first? Sure. Instead of asking all the questions, is that okay?

Yeah, I think it's probably best to ask Tim any questions you might have specific to the polling, and then if it's okay, I could jump in and complete the slides.

Great. Okay. Did you ask for a process?

Yeah, well, you could ask. I mean, I have questions. Oh, go ahead. All right. Questions about polling. Well, actually, it's not a question about polling. It's a question about the political campaign, which I think I would. So that would be later. I'll ask that later. I'm not going to ask it now. Thank you. Thank you, Tim. I don't have any further questions.

Okay.

Council Member Shirley.

Thank you, Mayor. Hi, Tim. It's always a pleasure listening to your presentation. I have a quick question on page five. Okay. I feel the strength of this survey is that 75% of the local businesses will see a lower taxes is that the question that was asked was it lower taxes for local businesses? the wording you see here is exactly the wording we tested in the poll. Gotcha, and this might be more of a process, a combo question with finance, but of the, when we say local businesses, are we talking local businesses that are brick and mortars in town, or does those include out of town contractors that come in to do work in the city?

I can answer that question. Based on the model that was used in the tax study, we are including all of the currently current licensed businesses in the city, which would include those out of town businesses as well. Those would be factored into that 75% calculation.

Got you. Maybe this is for Tim. That question is what the question is on the initial ballot test, which is local businesses. There wasn't another question that deviates from that, indicating these are in-town businesses that would be receiving the benefit versus the, I think there's 2,500 quantity of contractors that are built into the 75%, which is my concern.

Yeah, I think that the idea behind the local businesses was to help them understand that this is a Manhattan Beach business license tax, so it's going to be applying to Manhattan Beach businesses. It's a little bit of a nuance, and I get into this, too, because I'm a consultant, and I'm based in Encinitas, but I do business in other cities, and so I am subject to business license taxes in other cities for the work I'm performing in there. That's just a nuance that's hard to understand. Dive into in the 75 words and so the local was meant to see sort of the idea that this is for businesses in Manhattan Beach. And obviously if it applies to those doing business in Manhattan Beach that are maybe based somewhere else, it would still apply.

Gotcha, OK, I just was pointing it out. I think it points it out in the positive arguments on page 8 as well. The wording is 75 businesses in Manhattan Beach, so it's right about in the middle there. I just, again, lowering taxes is one thing, but it's lowering taxes for Manhattan Beach businesses, in-town businesses, and then you also have the contractors where they come in and their grocery seats are apportioned and those are being lumped in together. So that's just my comment. Thank you, Tim.

Thank you, Steve.

So, Council Member Lesnar.

Tim, a key issue for me in having supported this measure to this point was the equity argument, particularly for smaller businesses. Can you highlight one more time those questions that were asked and the responses received that this would be a reduction of tax for smaller businesses and how this would be more, to use a subjective term, fair?

Yeah. So, I mean, clearly that is one of the attractive features of this measure is the idea that it is trying to impart some equity within the way your business license tax is applied. Currently, larger businesses are paying a smaller percentage of their gross when you compare to smaller businesses. In your case, under Model 3, as we understood it, 75% of businesses that are operating in manhattan beach would enjoy a reduction in their uh ultimately in their business license tax and as you can see here in the 75 words we tested we go on to say make it clear that large businesses you know are going to be paying a higher percent they're going to be paying their fair share so it's right there in the 75 word ballot statement that voters are being asked to vote on at the initial ballot test the interim ballot test the final ballot test It's also among the positive arguments that we tested on behalf of the proposal. And as I mentioned, the number one positive argument of all the arguments around why you may want to vote yes on this, the number one was under current rules, small businesses are taxed on a higher percentage of their revenues, while larger businesses are paying less. This measure updates the business license tax, so it applies equally to all businesses. That concept of sort of, let's do the same thing across the board for businesses, they all should pay their fair share, that's an attractive feature of this measure.

Thank you. Helpful.

Okay, Tim, I have a question. You talk about in slide two How did you select the voters? But what did the demographics end up being in terms of general demographics, age, gender, education level, that kind of thing?

So in the voter surveys, we pay most attention to things that are on the voter file itself, right? So education isn't on the voter file, but there are a lot of things that are on the voter file that we can match on. So, you know, gender we match in the way that you would expect is pretty evenly balanced. Partisanship, right? Obviously, partisanship is related to how people tend to vote on different measures, particularly revenue measures. So the sample matches the profile of the like on November voter universe in the community. It's about 46% Democrat, 28% Republican. You've got about 26% who are either other or declined to state. Age profile, because it's a voter survey, is going to skew older, right? The older you get, the better and more disciplined you are about voting. And so about 29% are seniors, 30% are your 50 to 64 year group. And so almost six out of 10 voters are 50 years of age or older, right? And then it's a kind of an equal share of between 13 to 15% for your 18 to 29, 30 to 39, and 40 to 49 year olds. Most of the likely November voters that were registered, they're longtime voters in Manhattan Beach. They've been registered to vote since before 2012, about 70% of them. We have a whole breakdown based not just on partisanship, but household party type. That is actually the single best predictor of how people tend to vote on these types of measures. It's not just the partisanship of the individual that we're speaking with. It's if we know what the partisanship of the people they live with is, that's even more compelling what you tend to find is that household dynamic really shapes how voters behave so we have the right balance by household party type as well 72 are homeowners um and yeah so that gives you kind of a quick breakdown of the profile of the of the sample and again the sample that we have for our poll matches the sample of the likely november universe in manhattan beach

okay so um i'm still having a hard time as far as partisanship you know determining uh what they would think of for um business license tax um how is that nuanced i i really can't sure hold on one second let me scroll back up to my side so

When you look at revenue measures in particular, right, so whether we call this a business license tax, a parcel tax, a school bond, what have you, the single best predictor or differentiator in terms of how people vote on these things is partisanship and, in particular, household party type. So far more so than... what your age is or what your gender is or whether you have kids or not in the home, right? If I know somebody's partisanship, that's the single best predictor of how they're gonna vote. On this measure itself, You had a split. You've got about 67 percent of Democrats were in favor at the initial ballot test. You got about 49 percent of Republicans were in favor. And you got about 57 percent of your independents are declined to states that were in favor. That spread of 48 to 66 is actually smaller. And that has, I think, in part to do with the fact that. A, this is a business license tax. It's not something that the individual voter is going to be paying, but also because, again, built into this measure is this basic concept of equity. And so whether you're Republican, Democrat, Independent, there's a certain amount of attractiveness to that as well.

Okay. When you were pulling off those stats, that's not in our report, right? You were looking at something else?

Yeah, I'm looking at it. I've got all sorts of detailed data at my fingertips over here. No.

So I'm not going crazy here. Okay. Gotcha. Okay. That's all I have for now. Any other questions? Shall we proceed?

All right. Thank you, Tim.

Thank you. Thank you, Tim.

So we, as Patty's pulling back up the other PowerPoint, we kind of left that on a note talking about the fairness and equity again, which does tie into our next few slides, where we wanted to... bring to light some of the top questions we're getting on deviating businesses who do not currently pay gross receipts, on a gross receipts basis. Because again, we have nine different categories who pay, some pay different structures. And so we just want to be really transparent that this uniform gross receipts model, if we're heading in that direction, then these deviating businesses would change the structure of the way they're paying, which would impact them differently. So the first category is hotels. So currently hotels pay on a per room basis, so it's $29 per room. This really. got kind of sticky in the last few years as short-term rentals started operating in the city, and we obviously could not charge them on a per-room basis. So we began charging them. Short-term rentals do pay on a gross receipts basis currently, and as a matter of fairness, it did seem like hotels should also be paying on a gross receipts basis. Well, as all businesses would on a uniform gross receipts model. Secondly, administrative offices also currently pay flat tax and then a per employee tax. So if you recall, we've seen that structure used in other cities where businesses are charged on a per employee basis. But again, the New models would charge them on the same gross receipts basis, which would impact the tax they pay, but it would be specific to each business's detailed information. We also currently have a PO box category, which is a flat tax of $164 per year. However, the... the new ordinance would remove that category of PO box and those businesses would be paying using the gross receipts model and they would be categorized or whatever type of business they are. So if they are an accountant who was sending all of their mail to a PO box to pay this lower rate, they would instead now be charged using the same calculation that other accountants in town would, which would be the gross receipts basis. Another specific category we have is the rental of residential property. The language on this one is interesting and outdated. It does specify condominiums currently structured to not be charged at all per year. They are required to get a license, but we have not been charging them. Additionally, the tax structure calls out dwelling units with three or more units per lot, and they are charged at a tax rate of $29 per unit annually. So if someone is currently renting out a single family home, we do not require them to have a business license. However, through this process, we have done a bit more research on that. And I just wanted to share some information on this specific topic. Because neither the current structure nor the proposed structure is factoring the rental of residential property for single family homes or duplexes. However, we have discovered that it seems like most other cities do actually charge a business license tax on residential property, including single family homes. So of the seven cities included in our surveys within the tax study, all of them charge the tax on the rental of residential property. However, two cities exclude properties with fewer than three units, and those cities are Torrance and Culver City. The remaining cities all charge single family homes, including Hermosa Beach, El Segundo, Beverly Hills, Redondo Beach, and Santa Monica. So we just wanted to bring this information to light that this is a common practice in other cities. However, it's not something that has been done in Manhattan Beach. So this could be a City Council policy as to whether to include or exclude these other residential properties if we'd like to dig into that some more. So also throughout the tax study, we've found inequities in the contractor and subcontractor categories as the current structure does not factor the scale of work that's conducted or generated within the city of Manhattan Beach. So the current tax on contractors is $508 per year. And again, the proposed models would reset them to the gross receipts rate where we would then take into account the amount of work that they're conducting within the city. And similarly, subcontractors have a current flat rate structure of $254 per year, but the new uniform rate structures would also transition them over to pay the flat tax plus the gross receipts basis. And finally, we wanted to call out that a few business types are currently paying on a per vehicle basis, including gardeners pay $197 per vehicle. Mobile vendors currently pay $420 per vehicle. However, the new tax structure would also transition these business categories over to the uniform gross receipts model for, again, all of the business that they are conducting within the city of Manhattan Beach. The last deviating structure are commercial properties. So this one is one of the more complicated ones with two calculations and the business pays whichever is higher. So the first basis is on their square footage. And then there is a cap not to exceed $251,000 per year. Or the commercial property owners would pay a flat tax of $313 for the first $91,000 in gross receipts. And then that same gross receipts calculation of the $2.80 per $1,000, not to exceed the $12,000. Now, the interesting point on commercial properties here in Manhattan Beach is that the current tax structure also allows for a sales tax credit or deduction. And the consultants that we've been working with on this project have all indicated that they've never seen this before for commercial properties because the retailers operating and generating that sales tax are not getting any type of sales tax credit or deduction. This has been in place for many, many years. I'm sure there was a reason they implemented it the way they did at the time, but from our current research with our experts we've been working with, this is a highly unusual exemption or credit. So we are proposing to, again, move all commercial property owners just over to the uniform gross receipts basis to make it more fair and equitable. We're happy to answer any further questions on those as well.

Can we ask those now?

If you'd like to.

Please, okay. So let me see if I got this right. So with a commercial building, We're going to generate a business license tax for the building based on the gross receipts, the gross revenue of the rentals that are in that commercial building.

Could I clarify, please? So a commercial property owner is, I'll back up one step further. So our current tax code says that anyone conducting business within the city should pay the tax and obtain a business license. So commercial property owner is conducting a business that is within our code to assess the tax on the commercial property owner. and they would pay on their gross receipts, which would be the rents they're receiving from the tenants.

Okay. So if the tenant is a business, then we're also getting a business license fee?

Tax.

From the tenant based on their gross receipts?

Correct.

Okay. How is there any reconciliation with the fact that different industries, different businesses have different gross margins and net margins? I mean, you may have someone that has a 50% gross margin, and you've got someone who's got a 10% gross margin. So how is that equitable where I make less on each dollar but I'm going to be taxed at the same rate as someone who makes more on that dollar?

So if I understand your question correctly, so the common practice for... assessing a business license tax on a gross receipts method is to assess it on the gross receipts of the businesses it's generating. So we're not able to assess it on their net receipts, which would include in the calculations what they're spending and To apply it fairly, we're assessing on the gross receipts of all businesses. Assessing it any other way would really complicate things. For us, yes. That's what I was about to say. For us, because we don't have the resources to do what the IRS does looking at tax forms like that.

If you look at somebody who's on a tight margin based upon the kind of business they're in, they're a wholesaler of you know, a product, right? And the margins are thin, but the gross is high, you know, on that. You're going to take, I think the average has been, where did I come up with like two point something percent, right? Isn't that something like 2.6%? Yeah, 2.6 per thousand is the receipt basis. Right, on all the, like I'm looking at the contractor, subcontractor, the receipt basis tax is 2.6 per thousand. So that's 2.6%, right? $2.60. Of their gross income.

So you're referring to the... Well, any of them. $2.60 per thousand dollars.

Yeah, of gross revenue.

Yeah, right.

So if my margins are slim, you're gonna be taking a disproportionate amount of that.

Well, the way the tax models work, though, we're applying it on the gross receipts, and we're not taking into account any kind of net calculations of a business's expenses.

So I'm trying to get to the equity of this, you know, because that word pops up a lot, is... I'm not quite sure how equitable this really is, you know, because you've got different businesses with different margins, with different net margins. And you're going to be penalizing or you're going to be having others pay a disproportionate or a different percentage of their income, right? My income is gross minus my cost, right? That's your income.

The tax is assessed on the gross revenues, so we're not necessarily looking at the net cost.

Okay, but the business person is.

Understandable.

Okay, and I'm not saying that we should try to find a way to take into account, but to me, patently, it just seems unfair. So take a... um take the general contractor or the subcontractor okay yeah builder okay so you know the income of the builder is a labor plus the you know the cost of materials right and then a profit margin on top of that okay so those margins can be kind of small you know because it's a bigger dollar let's say, of building a home.

I understand where you're coming from with these questions. Maybe we could ask John DeChristina, our special counsel who's been working with us on this project, if he could possibly weigh in on the background and legal reasons on why business license taxes are commonly applied the way we're proposing to apply them here and why it's the general best practice that is used.

Hi. Okay. Sorry, I was trying to show video, but I guess I can't do that. So good evening, everybody. I'm John DeCristina with Colentino Highsmith and Whatley, a law firm that specializes in municipal finance issues. So we've been assisting your team with developing these ordinances. And so I will say, Mr. Mayor, that gross receipts just across the state, it is the most common way to do a business license tax. So I do just want to let you know that just From that perspective, it is the most common. Also, I think what you're getting at is trying to tax net receipts. Is that the crux of your point with that, Mr. Mayor?

Well, I'm trying to introduce fairness here.

No. And so what I'm trying to then say is that if you don't want to go with gross receipts, then the alternative would be something like net receipts, probably, right? Like in your examples of people with different margins, you're looking to go after, you know, we're taxing what they actually bring in, what they actually bring home, as opposed to what they get in gross receipts is that a fair articulation of of maybe what you're getting out yeah, I mean.

And like what you say what they take home. Before they get to take it home than the city is going to be getting their 2.6%.

And so the problem with that is there are legal restrictions on income. And so really administratively, this is why the most common way to go about it is gross receipts. Now, if you wanted to go on the edges of it, because I hear you, sir, and what I'm trying to articulate are legal parameters around your options as the political actor trying to be fair to your community. And so starting with the baseline would be gross receipts. But if you wanted to carve out exceptions, you're certainly, like, that would be a way to go about this, to try to get at people who... to try to address the equity issues that you're basing. And I apologize that I'm being super vague about that, but until we get into the details of a particular industry, then you're creeping back toward the kind of differentiated model that you currently have, which was probably built 50-something years ago to address the kind of things that you're describing. And instead of going after gross receipts, it looked at things like rooms for hotels, employee numbers, things like that. And so there's no like best answer here. There's only what you feel is best for your community. Gotcha. Thank you.

If I could jump in, we'll talk in a few minutes in the later slides too on if we're wanting to talk about ways to mitigate the impacts on businesses. And I think that's where we can look at the different options and the different gross receipts rates that could be applied and still achieve our goals.

Okay. Council Member Less.

Well, I think council and Libby's response just now addressed my desire to try and flush out what questions the mayor was asking, which really go to the heart of the difference between a gross receipts versus a net receipts taxation model. And I guess I wanted to better understand then, the alternative would then be to, as council just indicated, carve out specific industries. Is that correct? Maybe I counseled that. So just in other cities that have that model, does that mean, consistent with what we have presently, that very specific industries would be assigned a certain percentage which might differ from other industries?

Yes, sir. I'm sorry. Is that directed toward me? Then, yes, what you're looking at is variable gross receipts or other metrics to look at the... the proportion of their business activity that occurs in Manhattan Beach.

And what are acceptable criteria for identifying the different rates based on industry? How do cities that have laws or codes that have been upheld approach that process of evaluating different industries?

Right. They do something similar to what you have had on the books. And they look at, so they just look at metrics other than gross receipts. And so they do things like rooms and square footage, things like that. Okay.

And what's been indicated, Libby, is that we will be discussing potential carve-outs that we might consider, which might end up with not the exact result, but something consistent with it.

Well, some options. I would like to add that I think Continuing our current model with carve-outs, specific calculations for specific industries, that does create a challenge as industries and the economy changes over time. What we're experiencing now is the result of a code that was set 50 years ago and hasn't been touched. And we know how much business has changed in that time. And unless we're redoing tax studies every so many years, re-looking at how the local economy changes and, you know, constantly assessing this, then I would fear that we would, again, it would become less fair and less equitable again and be, again, difficult to administer. Great.

Thank you. Thank you, Mr. Mayor.

Council Member Shirley.

Thank you, Mayor. I think I know the question is, but for the people watching, slide 13, 14, 15, you can pick any one. They indicate $100 for flat tax, and it goes into any one of these, plus gross receipts tax. Okay. But it's $100 flat tax plus gross receipts tax starting at over $100,000 in all of these categories. It's not like... So it's disconcerting that it didn't say the $100,000, but you still get the first $100,000 with your flat rate and then the gross receipts.

Yes, thank you for clarifying that. You are correct.

Okay, just for clarification for people watching, not going like, what happened to the $100,000?

Yes, I think to condense information for the slides, we accidentally left that detail out.

No worries, and that's the only question I have. I'll have more, but later.

Okay, great. Council Member?

A quick question now. There's lots of different pieces of these questions. When we were talking about carve outs, I agree that what we're trying to do is create something that's kind of based on something so you don't have to have a lot of carve outs. you could call a carve out a variable rate. And if you look at Model 4, which was proposed back in May, that kind of takes your retail and restaurant, gives that a different rate. And then that also, correct? That does that. And then your contractors are also getting a higher rate than your brick and mortar retail and restaurant, correct?

Yes, when the tax study was presented in May, we did include that model four is what we called it, and you were correct that it had all other categories on a uniform gross receipts model with the exception of the retail and restaurant, and that category also included hotels.

Oh, okay.

I didn't realize that. That would have, we calculated a slightly lower rate for them and then indicated what the outcomes were for that.

And if I could, Mr. Mayor, and if I could ask, is Tim still watching from the ether? And I'm not, I'm just asking a question on model. So when you did your polling and you were talking about, you weren't saying to people, hey, how about model three? Correct? Correct. All right. So if we were to come together something new or if you were to have discussions and say, you know, Model 4 really is kind of taking care of some of these issues that some businesses may have and all of this, and Model 4, let's say, I mean, it – it would still meet the threshold or the measurements that you were doing about equity and lowering taxes for businesses, right? I guess what I'm asking is, do we have some flexibility here?

I would say yes, within certain bounds, right? I mean, we did not get into the specifics of each model and nor would your voters have placed on the ballot, right? They're going to look at the proposal you put in front of them and they're going to make a decision. I mean, as long as what you consider sort of has the same basic parameters, you've got some flexibility in the nuances.

Thank you. And I don't know if this last question is for Libby or our council in terms of what the mayor's talking about, about instead of gross receipts, but net, right? Net profit or, right? Does that veer into, and I don't know tax code, you know, but does that veer into... an income tax, or is that why this isn't, because I did research on this because I was wondering this too, because we got an email from a business, One of the issues is, especially in downtown Manhattan Beach, these rents, the rents are, excuse me, too damn high, right? So their rent's been increased and increased. So their profit margin is shrinking, and I have a lot of, you know, concern about that. So I did research into, you know, what do cities in California do? Because we have to, you know... be like for like and it really was across the board gross receipts but that is is there is there a legal thing in a tax code is it more about an income like i don't know not even about could we do a carve out but is that the issue that why we don't do it that way

It is 1 of the issues. Yeah, it does get you into a legal gray area. I wouldn't say that it is. Absolutely black letter law and income tax as as the revenue and taxation code, the Constitution would define it. However, it is administratively. It's a nightmare. And that's why you saw what you saw is that it is. I mean. overwhelmingly if cities like you or cities across the state want to go to an income based model for their business license tax is gross receipts. And if you don't wanna do this because of the issues that you've raised, you are certainly within your authority to choose a different metric. But you would go toward the kind of metrics that you've been using, rooms, square footage, employees, payroll, things like that.

Thank you. So, Mayor Pro Tem.

Thank you, Mr. Mayor. I just wanted to clarify a couple of things because I was a little confused when you were saying it was 2.6%. And I just wanted to clarify that's $2.6 per person. 1,000 of gross receipts, so that's 0.26%, not 2.6, so that's, right? You brought that up earlier, so I just wanted to clarify that that's the percentage breakdown for the gross receipt. If we do the uniform model and we use that after the flat, 100 flat, then after that, it's $2.60 per 1,000 of gross receipts. Okay, so... and I am concerned about equity, and I see the challenge that we're facing because we are trying to fix something that is really difficult because when I look at the current business license tax payment, I just want to point out, I just want to confirm that that right now our smaller businesses are bearing the significant um a significantly higher percentage of what they're paying right so for the businesses that are up to four that their gross receipts is up to four million they're paying 27 percent and then it's The cap is at $12,156 right now. So someone who's making $50 million, $100 million, is also paying $12,156, which is significantly a smaller amount. Is that correct?

Correct. And I have that in a few slides, and I would like to go through that in a little more detail. Okay.

I just wanted to make sure that that's how I'm reading it. That's correct? Yes. Thank you.

Okay, any other questions?

I have one, but I'll go after you if you'd like.

Well, no, go ahead. I was going to clear mine.

For Dr. McClarnie, I had one question if he's still on. I just wanted to better understand carving out specific industries and what that might do, particularly for its vulnerability to those that might be opposed to this new regime. In other words, do we make ourselves vulnerable to those that might say this is a terrible scheme because it favors certain industries over others? For example, to what extent can you offer anything from your prior work with other cities on something like this?

Yeah, I mean, I do think that one of the, again, the attractive features of this measure is it's the same rate applied to all businesses, right, with a couple little twists and nuances there. And I think that the more you get into carve-outs, potentially, and I'm without speaking which ones those are, unless there's some good solid reasons behind the carve-out for a you start to lose kind of the argument that this is an equity measure, right? Because it's hard to argue that you're being fair while you're busy making a bunch of carve outs, right? So, you know, just the optics of that. You know, I would just say also that having looked at these measures both ways, I mean, the reality is whether it's a gross receipts or a net receipts model, you could make the argument it's unfair for different reasons, right? So there's the argument that it's gross receipts, but different businesses have different margins. And therefore, you know, some businesses like mine, I have a big pass through for data collection while I'm getting taxed on money that I'm passing through to a vendor in essence, right? Whereas other businesses are going to be more profitable. And so But then when you could have two construction businesses that do the exact same thing and one makes better margins than the others, what's the fair way to apply, right? It's hard, no matter how you come at this, you can make arguments that are, this is fair or this is not fair. It's a challenging thing, right? That's why in general, simpler is better, right? As far as applying a given rate across the board.

So what percentage of the respondents were business owners did you ask that question 10?

Let me check Because since in the last time we talked about this as as a city was in 71 or something so okay, so we asked 13% of individuals we spoke with owned a business that's based in Manhattan Beach and then for those who didn' t we asked them if they work for a business that is based in manhattan beach and that' s another 3%. So 13% owned a business and then an additional 3% worked for a business in manhattan beach.

I suppose it' s not easy to pull out that 13% and kind of take another look at those folks and see what their responses are like.

I could yeah, I can I could do it, I don't know if I could do it at the moment, I'm not sort of searching here.

Yeah, I mean just because they're they're more aware of it. What a business license taxes.

than a resident here. I was ahead of myself, so if you look at support for this proposal at the final ballot test after they've heard yeses and nos, right? They've heard the arguments on both sides. Overall, we saw that we had 64% support among voters. If you look at that by whether they own or. Work for a business in Manhattan Beach. Of those who were a yes on that, 55% supported the proposal. And if you didn't, you were a little higher at 67%, right? So there's a little bit, if you own a business in Manhattan Beach, there's a bit of a downtick, but we still had majority support at 55%, the final ballot test, among those who owned or worked for a business.

all right great you must employ ai in your data there three screens and i'm looking at my report it actually is in it's in the one of the graphics in my report oh it is okay great okay uh that's why he's the expert council member

Thank you. Yeah, thanks for digging that information out, Tim, for us. It's good information. So I guess this is for the attorney. Is it Michael?

John. John. Same thing.

John, so I'm a proponent of all gross receipts. I think that's what the model is in California and what I'm used to over my years of experience. But do cities do different rates for industry? Or is that just, I know we're kind of regurgitating this, but I'm just, is there a model that may work by industry more so than this model proposed?

So nothing that will simplify the code, if that's your goal. But... Oh, thanks. I guess I'm trying to understand your question as distinct from talking about the way that your code has applied to date, which is to categorize businesses, tax them differently by those categories according to different metrics. So beyond that, I apologize. What are we getting at in addition to that part?

It would just be paying on gross receipts. I think that is the right way to go. IN GENERAL TO TAX AND JUST HAVE A DIFFERENT GROSS RECEIPTS RATE, NOT THESE OTHER DIFFERENT TAXING SCHEDULES, A DIFFERENT GROSS RECEIPTS RATE THAT APPLY TO DIFFERENT INDUSTRIES THAT KIND OF, AND FIND A BALANCE THAT IS MORE PER SE EQUITABLE. you don't have to change it every year you just you set it in stone it's these industries these are the different variable rates for each industry by gross receipts so you only have gross receipts but different rates so it's not very difficult more like model four that we discussed yeah exactly that's what i was that that yes i was going to say that basically sir i think you're describing model four

which is base rates, variable gross receipts, variable rate for gross receipts based on the category of business. Yes, that is absolutely an option.

Thank you. I didn't have Model 4 on hand, so I apologize. Thank you.

Thank you. And just one final question from me. I think I heard something where if you're renting your home you're going to be subject to the business license tax? Or is that just a condominium?

Let me get back to that. Here we go. So currently, for condominium associations, we require they obtain a license. However, we have not been charging them. For dwelling units with three or more units, they currently require a license if they have three or more units. But what I shared was that we've done some further research on this and found that most other cities do actually require a business license, even for single-family homes who are being rented as a business. However, that hasn't been the practice here in Manhattan Beach, so we just wanted to... share that information with the city council that that could be something we further explore at your direction.

Okay, great. Thank you. Any other questions? We'll move on.

Yeah, I had a question. Sort of the same, but I think we took care of it in phase one. I just want to confirm. Are we collecting a business license tax from realtors with proceeds, you know, just things they sell here in Manhattan Beach?

I actually have a slide on that coming up here, if you don't mind.

May we just have a quick break?

You're the beer, man. Sure.

We're going to have a quick break. There you go.

Oh, by the way, it's really, really cold in here. Yeah, that's not helping. We need to turn this up a little because...

If you don't mind, may I just ask Tim McClarney if he's still okay on time before we take a break?

Okay, and maybe return at 7... Well, she's going to ask if he's... 15?

Yeah, I unfortunately do have to leave for a meeting at 8, so we're about two minutes away.

It doesn't matter, so... Any final questions for him?

Thank you, Tim. Thank you, Tim. It doesn't matter.

It's just that it's okay. Thank you. Thank you so much. And we'll return at 8.15.

Pegasus, we're ready to go live. Okay, are we ready for me to continue? Thank you.

Yes, I'm sorry.

Okay, I guess for anyone just tuning in, we've gone through some background on what brought us here tonight. We recamped what the Model 3 business license tax was that we did community polling on. We heard the polling results that were favorable. And then we just got through... discussing some of the deviating businesses who are currently not paying on the gross receipts basis and just being clear that they would see some different impacts due to moving to a uniform gross receipts model. So the next several slides, we wanted to bring to light some other feedback we've been receiving from the business community to make everyone aware of these comments we've been receiving. Thank you for the correction on the percentages. Hold on, this clicker is not moving forward.

That's pretty. What?

Joshua.

That looked like a Stanley Kubrick film.

Thank you, Patty. Oh yes, okay. Okay, so. One common comment we've been receiving from various businesses was that the impact to commercial property and how that might be passed through to tenants. So again, to reiterate, our current municipal code clearly states that every business entity operating within Manhattan Beach needs to pay the tax and obtain a license. So if a property owner or landlord is operating under one business entity name and the tenant is operating under a different name, then we would not consider that as a double taxation because it's two different and separate business entities. conducting business and paying their own separate taxes. So this concept of double taxation with regard to commercial property we don't feel applies if there are two separate business entities. Now I also wanted to note that Landlords who are operating commercial properties and renting spaces to multiple tenants, our understanding through some further research that we've done is that landlords do often pass through their business taxes for restaurants and retail businesses and commercial leases for restaurants and retail. However, we have heard that it's less common in office spaces. So I believe that was maybe why we were hearing conflicting information for a while is because we were talking about different types of commercial leases. So it's also my understanding that landlords who are passing through these taxes would be spreading it out to all of their tenants. So as we will see in a few slides, It is, again, it's very different depending on the commercial property's gross receipts. It's different the tax that they would pay based on their gross receipts. So we'll see those impacts in a later slide. So we also wanted to bring up the concept of apportionment, which currently applies and businesses should only be reporting gross receipts generated in Manhattan Beach that are for the business that's being conducted within Manhattan Beach. So there are some nuances to that too, but we're always happy to work with each specific business to understand the details of how they're operating and making sure we're in agreement on how they are reporting their gross receipts. And now we're getting to the real estate agents and brokers question that Council Member Haworth raised earlier. So the current tax structure identifies both brokers and agents as being subject to the business license tax. So there is some other history on this, and I'll touch on that in a moment. So the draft ordinance that we're preparing could allow brokers to deduct third-party funds held in a trust or escrow account from the basis of their gross receipt calculations. And again, the law allows the tax to be applied to both brokers and agents currently. And if there's a concern about double taxation, the council could set a policy to allow brokers to deduct commissions that are paid out to the real estate agents. That way agents cannot interpret that their broker is paying tax on their commission as well. So as we've worked to clarify our complicated tax structure on this, again these nuances as to how we're handling real estate professionals has been discussed with our special counsel as well as tax experts at HDL. The other history on the item was that this issue was raised with a previous city council, council members on September 21st, 2010. So staff at that time had begun looking into the issue after conducting tax audits and also sought out a legal opinion as to why the city was only taxing brokers and not agents as allowable in the code. And specifically agents who are conducting business as independent contractors. So we're not talking about employees of a brokerage firm. So at the time, staff and the legal counsel concluded the same thing that our current group of experts has concluded, which is that the business license tax code does apply to real estate agents working as independent contractors and who file their state and federal tax returns as self-employed individuals. However, in 2010, the city council at the time, and again, this was on the heels of the Great Recession, I believe, so they were very sensitive to this industry group. The city council at the time directed staff to not pursue licensing independent real estate agents. So our latest research indicates, again, the same conclusion that they reached 16 years ago was that we could not find a legal basis to not pursue licensing real estate agents who are again operating as self-employed individuals. So our opinion is that each independent business should be taxed based on the gross receipts. per the applicable apportionment rules, again, what they're generating in Manhattan Beach, similar to the way that general contractors and subcontractors working in the city would be paying an apportionment basis in the new gross receipts model. So as an alternative, the continued non-enforcement of real estate agents could be perceived as preferential treatment, as it would provide an exemption to the uniform tax to that business type, while other business types are required to pay. But it could be a city council policy to continue administering the tax the way we have been.

Mr. Mayor, can I ask a question about that?

Yes.

Thank you. So, and I sometimes get brokers and real estate agents confused, you know. So if I'm an independent realtor, I don't, I'm not at one of the big, so I'm independent. So I have not been paying a business license tax. Is that correct?

I do believe we do have some agents who are currently licensed who are doing it on a voluntary basis. However, it's not a group that we've been actively pursuing and trying to bring into compliance.

So there are people who are voluntarily doing that, which is really amazing. But I guess what I'm asking is since 2010, you said, we have not been pursuing a business license tax for realtors.

Even prior to 2010. So in 2010 the issue was raised, staff and legal counsel researched it, brought forward the issue to city council and it was determined to continue the current practice. Thank you.

I'm not a realtor, by the way.

Council Member, I'm sorry, Mayor Pro Tem, Attorney.

Thank you. So currently, because I see it here that the draft ordinance would allow brokers to deduct third-party funds held in trust or escrow. So currently, we don't do that.

I would have to confirm that because sometimes it's...

I'll jump in.

Oh, okay.

Ruby, would you like me to jump in here?

Yes, please jump.

Okay, so ma'am, what you're getting on there is something where really the broker was never in control of those funds to begin with. Those are true escrow funds that the broker is handling as an agent themselves for the people transacting funds. What we're talking about here with the commissions, that's a contractual relationship between the broker and the independent agent. So that is not the same kind of straight pass through where the broker is really just a steward under the law as opposed to their relationship with the real estate agent where it's a pass through under the contract that they have chosen to make with the real estate agent. I hope I'm making that distinction clear.

Yes. My question then is then, do we allow the deduction? If we were to implement this updated ordinance, would we allow for the deduction of the commission from the broker to the realtor so that we, you know, some would argue that we'd be taxing them twice. But if we allow the broker to deduct it, then arguably we can overcome that argument. Is that correct?

I think that's what we're saying. It would be an option if we wanted to not have any perception of double taxation. That would be one way to get around that as an option. That would be a city council policy. Why I was starting to stumble on my answer that I was thinking through before John jumped in, you were asking what do we do currently? And honestly, currently it is an honor system that each business is reporting their gross receipts. And unless they ask us specific questions and we are able to dig into those details, then we're accepting the gross receipts they're reporting. So honestly, they may or may not be including those. But as we're going through this process, you know, we're hearing all these great questions, and so we'll be working on additional details that we can provide on our website and additional documentation to explain this apportionment concept so that way people have, you know, real rules and guidelines to follow so there are less questions and there's less gray area.

Okay, thank you.

Council Member Lester.

To that end, I want to ask a question about apportionment for purposes of allowing you to continue with your presentation after questions are answered. And apportionment, in my mind, I want to make sure I'm understanding what the current law is and how it might change, if at all, under the proposed new taxation. If you have a property management firm that operates properties in 10 other jurisdictions outside of Manhattan Beach, but its corporate office is here, confirm how the tax law would apply in referencing the fact that some cities do collect gross taxes for those, say, a property that might be in that city, and some don't. So how would this ordinance apply to that management company, which has its corporate office here, but its properties outside the city that generate the revenue?

Okay, that's a great example, because I'm thinking of a business who does exactly that. And John can correct me if I'm wrong, but the way I believe we've been currently applying is that if, as this business would report their gross receipts to us, if they Again, it's self-reporting, so if they contacted us and said, we're generating this in Manhattan Beach, however, we're generating this in Redondo Beach and this in Hermosa Beach from properties there. If they provide us documentation and support that they are paying taxes in other cities, then we would allow those to be deducted from what they're generating in Manhattan Beach. Now the nuance there is that I don't believe those cities are taxing them on a gross receipts basis. So that's where it starts to get really complicated. So with that said, John, do you have anything you want to add?

I mean, you did a, that's a good summary. I think the only thing I will piggyback on that is the basic concept here, right, is that you're taxing the volume of business that goes through Manhattan Beach. And so- A general way to do something like that would be to look at everything they bring in, right, across the board, and then use some metric to measure, okay, well, how do we attribute a ratio of that to Manhattan Beach? And one way to do that, for example, is payroll. So if you have a certain number of employees at your corporate office in Manhattan Beach, you're generating income all over the place, maybe you've got employees elsewhere too in those other places managing those properties you mentioned, you know, what is the entire payroll? What is the payroll attributable to Manhattan Beach? And then you use that percentage against the gross receipts to figure out a gross receipts that would be attributable. That's one example. Maybe it's not a great example given the business model you mentioned, but that's the basic thing that you do with everything with the goal toward figuring out what is the economic activity that is running through Manhattan Beach for that business.

Thank you.

Thank you, Mr. Mayor.

Okay, and then brings up a quick question from me. So going on that last answer, my office is in Manhattan Beach, but I'm selling commercial properties around Manhattan Beach, not in Manhattan Beach. Generating commissions as an agent.

Sorry, selling properties around Manhattan Beach as in other cities like Hermosa and Redondo?

Yes, other cities. Okay. either all over the state or all over the county or things like that. So how do I get assessed?

My understanding would be that you, for the properties you're selling in Manhattan Beach, you would report those gross receipts here. And then for the business that's being conducted in the other cities, then that agent or broker should be obtaining a business license in the other cities and paying their tax accordingly.

I just wanted to piggyback on that question. But if I have a business, just as the mayor indicated, where it's a physical office in Manhattan Beach, but most of my business is done elsewhere, commissions elsewhere, theoretically, I would just pay that $100, that flat fee, if I don't generate over $100,000, right, to have a license in Manhattan Beach. Right.

Correct, because there would be a flat tax on the first $100,000 in gross receipts. Okay, yeah, thank you. Okay. Okay. So getting back to the general concepts of double taxation and questions that we've received, another, which we kind of touched on this a few minutes ago, but pass-through revenue. So one example that was raised was, say, attorneys who are collecting a settlement for their clients and then passing that through to their client. We would not require them to include that in their gross receipts. Or a travel agent receiving payment for a tour someone's paying for through the travel agent, that would not be considered within the business' gross receipts because they're immediately passing through that revenue. Another item that came up, Southern California Edison contacted us early on knowing that our current code includes an exemption for public utilities with franchise agreements. And so we are recommending that we would continue that one exemption for public utilities where we also have franchise agreements and they're paying the city other franchise taxes already. So we wanted to mention that. And then just some other kind of general feedback that we've been hearing from the business community, which included how would these different tax models impact businesses in Manhattan Beach? And again, one of the key factors that was driving the inequity in our current structure is that long standing maximum tax with a cap which is currently $12,156. Currently, businesses earning over $4.5 million in gross receipts are hitting that cap of $12,000. Therefore, smaller businesses earning under $5 million are paying a higher proportional share. So we also recognize that there are quite a few businesses in the range of 5 million to 10 million who would pay more in the proposed models that we've brought forward. And so we certainly understand and empathize that impact would be felt in that range. And so that's really what drove us to consider some other options to the Model 3 and why we included the next few slides for you to consider tonight. So on this slide, this includes a breakdown of the quantity of licensed businesses in each grouping of gross receipts. So as you can see, there is a concentration, and I'm focusing mostly on the left side of the table for now. There is a concentration of businesses under $500,000 in gross receipts, totaling about 98%, and mostly due to the number of contractors and subcontractors doing business within the city. And then we have about 50 businesses in the range of $5 to $10 million, and about 19 businesses reporting between $10 and $20 million, and another 19 who have been reporting over $20 million. And I should note too that these numbers were all based on the fiscal year 25 tax year, which was looking at 2024 calendar year gross receipts. So those are the numbers that the tax model, the tax study was based on. The white columns there show the current tax structure, which as you can see, once you hit that $4.5 million number in gross receipts, then you hit that cap of $12,000, and that's what all of those businesses pay, the same amount. And as was noted earlier, that equates to a different percentage of their gross receipts because it's the same dollar amount being applied to the varying gross receipts numbers. So then in the Orange-beige color there was model three that we discussed on May 12th and that was used for the polling, which included that flat tax of $100 on the first $100,000 in gross receipts, and then a gross receipts rate of $2.60 per $1,000 over the $100,000. And then what was also discussed that night was still including a cap, but raising it up to $100,000. And so at that structure, we estimated about $800,000 in gross receipts. And then you can see towards the bottom of the table there, that equated to about 23% businesses paying more than they currently do, and about 75% paying less than they currently do. So then as I noted, we looked at some other options if we wanted to try to mitigate the impact on businesses kind of in that middle range who aren't the small businesses earning under 4.5 million, but they're also not the largest businesses who would be benefiting from the cap. So we have options A, B, and C here. And I'll share a few key points on each and then what the impacts would be. So on option A, the difference is we modified the tax rate to $2.50 per $1,000, over $100,000. Kept the $100,000 maximum tax. And the impact here would be still 75% of businesses would see a decrease. However, the city's revenue is estimated to be reduced to about $636,000. And businesses with gross receipts under $4.9 million would see a decrease in taxes. Option B in green, I'll start with the flat tax was increased to $150 for the first $100,000 in gross receipts. But we did reduce the gross receipts rate to $2.40 per $1,000. Maintain the $100,000 cap, but what you can see towards the, under the blue bar there, the cap scenarios, you see the city's estimated revenue then changes to $713,000. However, because the increase in the flat tax, the number of businesses seeing a decrease reduces to 66%, or about two-thirds, instead of the 75%. And then in the last option we are presenting, option C, we again increased the flat tax to $150 for the first 100,000 in gross receipts. We reduced the gross receipts rate even further to $2.25 per $1,000. And I should note, too, that we did calculate this to be applied equitably to all business categories in these models. So the lower gross receipts rate, $2.25 per 1,000, brings the estimated city revenue down to about $443,000. But we're still at about the same percentage of businesses seeing a decrease at 68%. So we wanted to present these as other potential options if we wanted to try to further mitigate the impact on businesses who aren't necessarily benefiting from the flat tax, but also not benefiting from the maximum tax of $100,000. And then also along the bottom, to address a question we received about the maximum tax of 100,000, we also did the calculations if we wanted to reduce that cap to $75,000. And you can see how that also changes the estimated city revenue and then the number of businesses who would be benefiting from that change in the cap. So the next few slides, we just wanted to break it down a little more by category or industry group, but it looks like we have questions.

Could I ask a question about this chart? Sure, yes. Sorry, it's hard. There's a lot of different charts and slides here. So I think, golly, I think it was option C you said, that if the flat tax went from the proposed 100 to 150,

Correct. Options B and C have a flat tax of $150 instead of $100.

Right. And then you said less businesses would see a decrease. But our current flat rate is $337. So how does that flat rate impact the people who will see, you know? So the...

The $300 base tax that you're referring to is for people currently paying on the basis of gross receipts. So the difference, if you recall, I shared information on the number of contractors and subcontractors in the city, and they're currently paying a flat tax. And so that's what really changes those calculations. I don't-

I don't understand yet.

Okay.

So currently, the flat tax of 337?

For businesses paying on the gross receipts basis. On gross receipts. Remember, the other categories include carve-outs for contractors and subcontractors. Actually, to address some of the questions we were receiving, I did add a few slides that we'll have posted online after this presentation. But then the next slide I have is not currently in your packet, but we did just pull out contractors only. So again, they're currently paying a flat tax of $508 per year. If you look at the table on the bottom, we have estimated the gross receipts ranges of the contractors in each range. So many of them are falling in the lower categories. But I would like to note again that for contractors and subcontractors, they're currently paying the flat tax. So this data is an estimation from the tax study that is looking at assumptions and basing the estimates on other data they have available. So these are estimates. Wow. So the difference then is, if you look in the white column, all contractors are currently paying a flat tax of $508 per year. If we reset them to being charged by the gross receipts model, They would each pay based on their gross receipts generated in Manhattan Beach. If someone's doing one very small job per year, they might pay a little less if they only pay the flat tax, if they're only earning up to $100,000. Others, if someone... generates a million dollars, that would be the middle row there. They would pay a business license tax payment of, just looking at option C in the blue, they would pay $2,175, so they would see an increase. If it was a large contractor, generating over $10 million, then they could pay upwards of $22,000 based on estimated gross receipts of $10 million. So again, the goal of a uniform gross receipts tax is that it would be proportionally applied depending on the gross receipts. And the next slide I have actually breaks it down to just subcontractors who, and they're currently paying a flat tax of $254 per year, but the same kind of method applies where, depending on their gross receipts, they would pay more or less on a proportional basis. Would you like me to keep going, or do you have any other further questions?

Sure. Yeah. Council Member Shirley.

Thank you, Mayor. Thank you for including these, Libby. I think they're valuable here. Can you go back to 23 for the contractors, please?

Oh, sorry. What happened? All the tables do start to look the same.

I was trying to analyze the new table.

I was like, is that the same style? I guess maybe the process of the contractor pulling a business license, they... Maybe you can walk us through it. They come in and you say, like, how much money you're going to make up to $100,000. It's $150 or $100 flat fee. And then it's up to them to tell you generally what they're going to make. It's not something... They're not giving you anything up front. They're pulling a business license from you and you're saying it's $100. Let's say that's what we go with. And then they're just paying $100 where... and then you're saying that's up to $100,000, and then you won't know their gross receipts until the following year. But if they don't have a job in the city the following year, they would just not renew their business license. I guess just where I'm concerned is we're doing nothing against contractors, and it seems to me that a bulk of it, we're saying there's 5,000 businesses I'm rounding. About 2,500 of them are... contractors, which is half of your population for this measure, and then a big chunk of that, I think $1,700 or $1,800, is going to pay a reduced payment as a contractor. So I guess it's more of a comment than a question. Looking at this chart, which I appreciate you including, for me, I take a look at it as the study for internal business, like brick and mortar businesses and the resources that are provided to them because they are paying a tax that goes into the general fund and all the things that they're paying for in the city They're not paying at a higher rate, but they are more than contractors might. I guess, again, it's just more of a comment because contractors don't renew their business licenses. They're on a completely different model than some of the businesses that are here. So if they don't have business the next year, they're not going to be here. They're not going to be here. They paid you the $100. You really missed out on what they really made instead of just paying the base tax. So I think that needs to be... more clarified in the approach.

Yeah, I hear and agree with that complication, definitely. Just for everyone's benefit, what currently happens when any business comes to the city to be licensed for the first time is we ask them to estimate what their gross receipts will be. on that first year and then the following year then and years after they would be reporting the actuals. So as the council member noted it gets tricky for contractors and subcontractors who may be out of town businesses and they're coming and going and each year they have different jobs in different cities. I think what also complicates it is that we are fortunate to have several contractors who their primary location in business is here in Manhattan Beach, so then they would also be benefiting from a different rate. So it does get very tricky, and I'm not sure if there is a way to fairly um apply it there and john if you could jump in here as well but my understanding is that we would not be able to apply a different rate to out-of-town businesses compared to in-town businesses correct john that's correct that's uh that's the commerce clause of the federal constitution that goes all the way down to local governments liby correctly describes it

Right, but I guess you would be able to do it if you did something with the industry as part of your taxing schedule. Is that correct? If you did it by industry, by gross receipt, by variable rate.

Yes, I believe so.

Because you wouldn't be using disparate treatment. It would be all across the board, variable rate. But again, that's not even my concern. My concern is like we're rewarding, you know... CONTRACTORS AND LOWERING THAT RATE, SO THAT'S ALL.

COUNCILMEMBER LESTER. I'M TRYING TO REMEMBER THE ORIGINAL PRESENTATION WE HAD IN THE SPRING WHERE WE LOOKED AT OTHER CITIES BECAUSE THE COUNCILMEMBER'S QUESTIONS ARE RELEVANT TO THE EXTENT THAT WE WERE AN ISLAND, BUT IF WE ARE LOOKING AT HOW OTHER CITIES APPROACH THE SAME ISSUE, CAN YOU REFRESH MY RECOLLECTION AS TO HOW MANY OTHER CITIES HAVE THIS GROSS RECEIPTS MODEL? so that we're looking at adopting something that would be consistent with other cities, particularly as it relates to where the work is generated, which might vary from year to year, et cetera.

Yeah, I would have to re-look at the slides to give you an exact number.

Maybe at a minimum we could just simply ask Council to what extent there's more commonality in the gross receipts approach.

John, do you have anything to add there?

Well, this goes back to our earlier discussion about the, and actually I appreciate the opportunity to maybe circle back. Occupational hazard of my job is that, you know, if you haven't handled the question in a while, sometimes you don't have an answer ready to go. But this gets kind of back to the net versus gross receipts discussion we had earlier. And one of the reasons, the basic thing in that discussion is that you can't tax income. And so that doesn't mean that taxing net receipts is necessarily income, but it does mean that state law has carved out something for you that says gross receipts are not income, right? And so because state law has provided that safe harbor, overwhelmingly cities across California have jumped on that. And the reason state law did that, if you're curious, is that you're not allowed to tax income, but you are allowed to tax the volume of business that comes through your jurisdiction. And so the idea is that gross receipts really does, it can be a metric for that volume of business that comes through. and you know it's the wonderful distinctions that say that's not income but um because of that the the direct answer to your question sir is that because of that specific card out carve out for gross receipts cities jump on that and so i don't know the specific number but there are 400 something cities in the state i would guess it's probably 400 cities around that thank you

We were looking at the previous comparison that was presented in May, but it doesn't give specific details. If your question was specific to contractors and subcontractors, we would have to further research that. But if you are asking in general, then... of the businesses, or sorry, the cities surveyed about half were gross receipts, but half were not. But again, it also depends how, some of those tax codes are also very old. So, and they just haven't looked at updating them yet. So, it's not a simple answer. I'm sorry.

I have a question.

Council Member Overs.

Thank you. Sorry, and I just said it just in case you weren't looking. I have a question. We're seeing contractors. So does contractor mean someone who's like building a house or working on plumbing, or does it mean someone like myself who contracts out, you know, as a 1099 for consulting up inside, you know?

Oh, we would be, when we're saying contractors, we mean building homes and things like that. Thank you for that. General contractor. No, and I would classify other independent contractors as likely having in the professional services category. Right.

Okay, now I appreciate that, because like to Council Member Cherillian's concern, which I share, or not, I think it's your point. Sorry, what was that noise? Sorry. That... You know, they're in and out of our community. They have a lot of impact on, you know, parking and traffic and impacts to residents. But they're not our brick and mortar. So I do understand sort of bifurcated or variable rates based on that. But anyway, continue on.

So let's go ahead and proceed because I'm anxious to get to public comments.

Okay, thank you. So yeah, I just have a few more slides here. So commercial property. So I wanted to address this because, again, we heard this from several businesses who initially, and it even came up at the forum in April as well. So the initial concern was that if you tax my landlord more, they're just going to pass that on to me. But what we wanted to present was, if we could focus on the table at the bottom, that of all the commercial properties in the city, which the tax model included a count of 212, a majority of those are reporting gross receipts under $3 million. So that would mean, based on the options presented, 95% of commercial property owners in the city would actually pay less in the models. So I would hope that if they were going to pass on any tax increase, that they would also pass on this tax decrease to their tenants as well. Now, of course, the bottom of the table shows that we do have some large commercial properties in the city, as we know. However, again, it's my understanding based on our research that any tax increase that they're passing on, they're at least likely passing it on to multiple tenants to kind of spread out that impact. So it may not be as large as people are maybe afraid of, but again, we're happy to discuss any specific tax questions with specific businesses in a confidential matter. So the last couple slides, we also wanted to separate out retail businesses in the same way. So we currently have 738 licensed retail businesses. So this is also an additional slide that we added to address certain questions. So this slide and the next slide, and we'll again post these after the meeting. So 738 retail businesses in the city 94% of them are reporting gross receipts under 4.5 million, which would mean that in the models, they would pay less than what they're currently paying. Now, of course, the other larger businesses generating gross receipts over 5 million, they would pay more in the models on a proportional fair share. So the last slide that I added was for impacts to our restaurants. So we currently have a total of about 141 restaurants licensed in the city. And a very similar story that a huge majority of those restaurants are reporting gross receipts under 4.5 million, so they would also pay less in the proposed tax models. Of course we do have some very successful restaurants in town too who would pay slightly who would pay more, a proportional share. So we just wanted to highlight those specific categories and show it really is a range of businesses seeing a decrease or an increase. And again, it's all based on their gross receipts and the proposed taxes would be applied uniformly across everyone with the goal of being more fair and equitable. So finally getting to the last recommendation slide, we would recommend city council discuss and provide direction on the final decision points and which tax model you might want to pursue. And whether to proceed with placing a ballot measure on the November 3rd election. And if approved, we would actually be returning in two weeks on August 4th to present an ordinance and final ballot language, resolution to call the election, resolutions for the ballot measure submission and filing of the rebuttal arguments, and then also to select the ballot letter designation for the ballot measure. And then we would also be providing any additional outreach to residents and businesses to address any other final questions. And that concludes my presentation. We're happy to answer any additional questions or open it up to public comment.

Any additional questions?

Mayor? Yes. I did have one. Thank you. Council Member Shirley? I did not press my button. Real quick, Libby, I know we have Northrop in town. Now, does the Department of Defense transactions, are they going to be exempt from business license taxes? Or is that a Michael question?

John is with us. Who's Michael? Oh, Michael Colantuno. We've been working with him as well, and he will be in person on August 4th if we're proceeding forward with the ordinance about measures. John, would you be able to address that question? It might be something we would need to further research.

Yeah, I'll look into that for you because it's the Department of Defense. Honestly, sir, I can't remember off the top of my head, but I would conservatively say you should probably assume you might not be able to tax them. But Michael's the guy with his name on the door.

I'll talk to him.

I'll look into this and get your answer.

So real quick, I have one more quick question. And maybe this is more for Jonathan as well. Of the cities that we surveyed, to see kind of what their models were like, or the ones that just recently upgraded their models. Do we know how, if they treated their, like in-town businesses, brick and mortar versus out-of-town contractors, and if they did, did they reduce their rate, their base tax from $508 to potentially $100? Is that something you can, or maybe Jonathan knows, Culver City or whoever, did they reduce thousands of their contractors taxes down from 500 to 100.

I think we'd have to research that and look at the specific changes and see what they were before their tax measure versus after. So we might have to do a little more research on that.

Thank you.

I don't have that data either. I heard my name, so I wanted to make sure I let you know I can. I don't have that information off the top of my head.

Thank you. That's in there for me.

Okay. Thank you. We'll now proceed to public comments. Well, you'll be given two minutes, I think.

Three minutes.

Two minutes. Is it two? It says here two, but... Two minutes.

Mayor Franklin. I give you three. Mayor Pro Tem. I would actually like four minutes, only because I represent two different types of business in our community, hotels and restaurants. You've got to change clothes in between. I will.

Change your voice.

I like that idea.

First of all, I want to thank Libby for all of her work as a finance director. I've never worked with somebody that's so diligent and so listening and trying to solve the issues, but there's a lot of issues, you guys. It's a very complicated thing you guys are dealing with. Council members, Steve Shurillian, Amy Hillworth, for meeting with the DVPA, talking to us through. It's very concerning to all of us, and we want it to be great. This was all, let's go back in time. This was all requested by the DVPA. We wanted a fair tax rate. We all love fair. There were some big box stores not capping out at $1,200. $12,000 and doing $100 million in business, and we just didn't find that fair. I think the impetus for this was to get the brick and mortars, the tabula rosas, the bookstores, the things that make our community great, a lower... licensing rate, whatever you want to call it, tax rate. It was always supposed to be revenue neutral. I think the city council should be council. In the last meeting, you guys were throwing around 500 grand, 750 grand. Figure out what the number is. Be righteous and tell us what it is. If it's 500 grand, I think the downtown business would support you. Nothing's gotten cheaper in Manhattan Beach. Staffing hasn't gotten cheaper. employee costs haven't gotten cheaper, pension funds haven't gotten cheaper. Just come together and figure out what the number is, and then you'll have the support of everybody. The current proposals look like double, I mean, The current proposal you look at not only doubles some of our rates, doubles, like literally my taxes would double in some of my businesses, but it also raises between 500 grand more and 1.6 or 1.5 million in some of those models. To me that starts to feel like a money grab, okay? I think if you make it lower for the brick and mortars, that's what we're trying to accomplish today. By lowering the rate from $313 to $100, you have just given a subsidy to every outside business outside of our community who should pay more than $313, in my opinion, because they're the ones that inconvenience the community the most. When you're driving down the street and you get stuck on your street and you have to back up and do all these things, it's all those subcontractors. I'm not dogging them, but don't give them the break. You're supposed to give a break to our businesses in the downtown, up at all the local businesses. Cities hired new enforcement for business licensing. So what, all of a sudden now we're out grabbing more money. So we're saying like the landlords weren't paying. Well, now the landlords are paying. They are passing it down to us, but there's a lot of people that aren't paying. So I have a feeling that if you just kind of focused on enforcement and getting everybody to pay their fair share, you might not have to change anything. That could be one thing. I think you'll find a lot more income over the next two years just by doing that. About one more minute. This doesn't feel like a cleanup of an ordinance. Sometimes it feels a little bit like a money grab. So I think you've got to find that fine line. I propose that if you look at that Model 4, that's kind of the model that if you just made it equitable and you look at the top number you have at like .10, which is, we keep saying 10%, it's 1%. Why are we giving 1% to all these outside people? It's just, if you want equitable, make it 1.8 all the way across the board, no discounts for anybody, and then put a cap on it. Say, we're going to do 1.8%, and then we're not going to, you guys all agree on what that, Revenue, we do need more money. The city does, I know it. Is it 500 grand? Then you say, okay, we're going to take it to 1.8 and we're going to audit it for two or three years. And if we raise more than 500 grand, we're going to lower the rate even more. I think you could put that in your thing. And I think you get a lot of support from everybody. And if you do these other kinds of things, the downtown businesses and all the businesses are going to fight you. And you don't want to put something on the docket that's going to get loose. Thank you. I got to go pick up my daughter. Ciao.

Good evening once again, Stefan here. Again, I think accolades to Libby and team because this is a very complex issue and it's nice to see it getting clear and able for us to make comments. You know, listening here, I don't own a business, but I'm trying to figure out, you know, what would make the most sense and the principles of simplicity, fairness and equitable. I see the Model 4, I think it's Model 4, but I think we can base it all on gross receipts. Just everybody's based on gross receipts. but the tax rate is by your business type or your industry type. And I know that'd be a lot of work to try to figure that out. However, I did a little chat, GBT search real quick, and I just basically said, What are the gross margins by industry type for the top 20? And it provides. You've got software and SaaS, 70% to 85%, restaurant and food, 60% to 70%. Then you go down to grocery stores, you're 10% to 15%, 5% to 15%. So that can provide a guideline right there. Boom, you can start getting your rates by that guideline. So that will help you get to those rates. And I think that will make it very simple, very easy to understand, and very easy to communicate to our community. On the broker-realtor side of the house, I'm not sure why that's our problem or your problem because there's only, they're making one fee. The realtor is getting paid by the broker. Don't make it your problem. Just it's the broker. If they want to pay them, give them a different percentage of the deal, that's their issue, not your problem. On example, the businesses that are headquartered here but doing business elsewhere, give them a lower rate for just being a business in town. And then if they do business in town, they're going to pay an additional piece for that. I think it's solvable. On the contractors, Steve, I think, as I was thinking about this since break, the small guys, they're not going to be making a lot of revenue, right? And if they're not going to stick around for a year, okay. The big guys who are going to make the big revenue, they're going to stay in town. They're going to continue. They're going to pay the rate, and they're going to show it. So I think that problem is going to solve itself. Thank you.

Thank you.

Mr. Mayor, members of council, Jim Burton, resident and business owner here in downtown. And Libby, again, to you and your team, this is... It is complicated. I've actually realized I'm actually paying more tax. I am including all of my surrounding cities in this, and so that's something I need to talk to somebody about. Not out-of-state stuff, but certainly in some of the local cities. And some of these other cities, I just pay $175 or something. They don't charge me gross receipts or anything. I bring it all back here because it's easier for accounting, but maybe I need to talk to somebody else. A couple of things. Number one, Mike, I would echo absolutely everything he said. I do think that the brick and mortar is like I've got an office here in downtown Manhattan Beach. I've had a business license in downtown Manhattan Beach since 2009. And we're here. I think the effort of this, I do appreciate the additional slides. That's one of my questions. And looking through all of this, that was my number one. I had a whole bunch of notes. What are the breakdown? I think it is disingenuous is the right word, but I don't buy into the argument about 75 percent of our businesses are lowering taxes. I don't because whatever the numbers were, you had 2,500 of them that are contractors. I don't know how many they're out of town. And in the survey that I got, and I did participate, I appreciate Dr. McClerny, and all of his work is absolutely fantastic. I'm running out of time here. But the 75% of local businesses, if you're not here in downtown or in the city of Manhattan Beach, you are not a local business as far as I'm concerned. Just because you come in here once or come in for this year, that year, whatever, to say that 75% of businesses are lowering taxes, I don't buy that equity argument at all. And the idea that just because something is 50 years old is bad and needs whatever, the fact that, you know, I don't buy that either just in terms of your ballot measure and how that's going to work. The other thing, I do like Model 4. I don't think you should go to the ballot with Model 3 the way it is right now. And whether you vote on doing that or not, I do think that whatever the survey we did is not representative of what the discussion was happened here tonight, period. And there is a lot more complexity in this than I realized. Certainly, you've got a lot of work to do. Those are my two cents.

I will not waste any more time. Thank you.

No waste.

All right. Thank you.

I'll keep talking to her.

I 100% agree it's not double taxation.

It's far more than that. Because if you're a property owner, you're paying property taxes. You're paying income taxes. Then you start paying these taxes. And then your tenant, who's a business, is now paying their tax on top of that, plus their income tax, plus all these other taxes. And then the landlord has increased the tax so that person has to pay that tax. So it's just layer on top of layer on top of layer. And, you know, it's... When you guys are talking about like, oh, we're going to lower your taxes so we can do city improvements. They always say that, but there's still the potholes. There's still all the, you know, the problems on everything. And if you look at 15 years ago, builders could buy a property within 18 months, have that property on the market for sale.

Today, they're lucky to get a permit.

You know, it's, you know, you look at permits are running between nine and year and a half. before they would be done with the project. So you're asking for a lot more revenue, and we're not getting the services. And that's very, very problematic. And then you're going after realtors for our income, but what about consultants like yourself? You're not going after them. You're not going after other kinds of, you know, consultants in the city that are, they're doing, you know, whether it's, you know, engineering consulting or all this other kind of stuff. Or if they're doing interior design stuff, you're not going to, you're picking very, very small segments of people. And then you want to tax people who work in town and live in town, but people are out of town coming in here working, you're not taxing them. So you're hitting very, very small segments with a big penalty, and that just isn't fair. Thank you. Thank you.

Any comments online?

No requests on Zoom.

Okay. So we'll close public comments.

Your Honor, can I just real quick ask a question of our city attorney? Mm-hmm. Thank you. Sorry, I saw your- That's fine, go for it. Just for clarification and for the minutes, before we start further diving into this now, for those of us that have a business license and pay a business license, for the record, can you just please clarify what to do, or how do we move forward?

Yeah, so you're essentially asking, do you have a conflict of interest?

In English, yes. Yes.

The answer is no. There's an exception that for things like taxes, et cetera, it affects the public. Generally, that's the term that they use. It affects everyone who has a business. And so you can act on this. Thank you.

So Knox can still sell lemonade.

Yeah, and I have just a quick question and a comment now. Or it's a clarification to Mr. Joseph's comment. I do pay. I have a business license. My category is professional. So I'm not suggesting going after some folks while I don't pay a business license tax. I want to correct that for the record.

And if I may jump in, too, from my perspective as the finance director and tax administrator in the code, we would discuss or reach out to any business we're aware of operating within the city that they need to obtain a business license and pay the tax, with the one exception of the prior direction on real estate agents.

Right, so that was the reason that came up is that was some carve out, some exception. So it's just in the spirit of cleaning up.

But any other professional services consultant, any other business, we would send them our customary welcome to the city letter and you need to obtain a license. Okay.

And I just have one quick question before we go to our discussion is how is this enforced? I mean, is there active enforcement?

Yes, so historically what we've done is we would call them desk audits as businesses were renewing their license every year or applying for a new license. We would ask them to provide us documentation on their gross receipts and we would do the calculations with them and process the payment and issue the license. So in the last two years when we've implemented the online solution, Because of that, it's more of a self-reporting basis where businesses are able to do it all online, report their gross receipts, the system calculates their tax. Since we're not doing those ongoing desk audits on every single business license, now we've moved on to a little bit different model where we are doing... additional audits, just randomly selected audits. We've just started that process in the last several months, started that process. So hopefully that answers your question, but like I said, it's kind of a self-reporting basis, but businesses could be randomly selected for audits and then we would ask for that documentation and then either issue a refund if needed or require that they pay the additional tax due. I'll add to that, Mayor, if I may.

The new consultant that we've been using for the last two years, HDL, also offered a program called Discovery, which is what we've been utilizing where they are proactively going out and looking for businesses that advertise Manhattan Beach as their location and then coming back to us and confirming whether or not they have business license here. So through that discovery program, Libby might know the number off of her head, off the top of her head, but we have been able to collect a significant amount of additional revenue because of the discovery program that we initiated about two years ago.

All right. Okay. Thank you.

That revenue number has exceeded the initial expectations of about $500,000 or $600,000, and I believe we're north of $800,000 just from those discovery accounts, as we call them, that they are now in compliance and will continue renewing their business license every year.

Okay. Fellow council members, discussion. Discussion. Who wants to start?

I think it'd be helpful to get some framing questions answered in terms of, so let me go ahead and ask some and see if it represents all of us. If council were interested in exploring other models Help us understand what the timing would be because counsel gave direction on one model that was explored with legal counsel, explored with the pollster. So what are our realistic options to the extent that I believe this has to be on a general election ballot if we are to move forward working backwards from November, is that right?

You are correct. So if we were to reach the November 3rd election, the City Council would have to approve the ordinance language by early August. So that our next meeting on August 4th is the date that we would have to, you would have to approve the language because then we have to get signatures and it has to be submitted to the county maybe August 8th or something. that Thursday. So I think as to your first question, like what flexibility do we have now that we had this certain model, we did the polling, and I would think the answer to that would be it depends how far we're deviating from what we pulled on. I don't know if Charles Heath is still online. Our Other consultants? I don't know if he has anything to add with respect to that question. My answer would be that it probably depends.

Would it be helpful for me to note the answer? Would it be helpful for colleagues to?

Yes, hi Libby, this is Charles, I'm here. Can you hear me?

Yes, we can hear you. Would you like him to weigh in on that?

I would, I think so. Thank you, Charles. Thank you. Sure, sure, no problem. Yeah, I mean, honestly, I think you've captured it well, Libby. August 7th is the statutory deadline to qualify for the November ballot. So August 4th is your last council meeting to adopt the resolution and ordinance to place this measure before voters. Within the models that have been, I think, discussed, if we were choosing between those models, it seems feasible that between now and that August 4th election, we could prepare the documentation for council adoption. But if we're sort of inventing a new model on the fly, that seems like a tall order between now and August 4th.

That's helpful.

Thank you.

All right, Council Member Holworth.

I'll start with some initial comments. I probably have questions here, too. Oh, I do have a couple questions. In one of the slides, and we got this in an email from a resident about micro-business, and I think they want to know what a micro-business was. Can you describe, can you define that?

I don't, we'd have to see if there's a technical definition of a micro.

But what were you, like what were we thinking of it? I'm sorry, I can't find the slide. I can't remember where it was. It might be in the staff report or it might be. Hold on. I'll try to find it. I think it's back in the text.

According to our quick search here, it looks like micro-businesses typically generate up to $250,000 per year. I know I recently did some research on what would be a small business with the Small Business Association. I want to say that was... in the couple of million range, but we'd have to confirm that as well.

Because the owner who had emailed us was concerned, and, you know, I'm just representing what somebody, you know, communicated to us, that it's like, listen, I don't care if the person selling sandwiches out of their cooler gets a break, right? And that's not what we're talking about here. We're literally talking, you know, we're talking about you know, possibly my hairstylist. You know, we're not talking about that. So just wanted to... Okay.

If I could... I think that was another reason why we added some of these extra slides with retail businesses and restaurants showing that we do have quite a few restaurants generating, say, under $5 million in gross receipts. So that's the majority of the count in the city. Yeah. And... And I think you're working right up. Decreases.

Yeah. There's 90% decreases. And I mean, it's important to leave. I know that this is one of those cases. I know you've been running models since forever. I know you ran some extra ones for this meeting that we had on Friday with the Downtown Business Association. Now you've run these. And so I know that. I'd like to say that if I had them ahead of time, I'd study them and I'd really get them, but I wouldn't because it always helps me to speak about it out loud. But I appreciate you running it. So another question I had before, a few more comments. So I know, for instance, I believe Pages, the bookstore, and don't look at any models of income because we don't call that out, but I believe that the person who runs pages also owns their building. Are there any exceptions for someone like that, for someone who might own their building and be the business operator inside that building? Could there be, because that does seem like one of those cases, right?

Well, and John, feel free to jump in here as well, but we have had some instances pop up because as Talene mentioned, we, you know, signed on with this discovery program and HDL made us aware of several commercial properties in Manhattan Beach and we sent them letters to obtain a business license. Although we've always had this part in our code that commercial properties should obtain a license and several had, but there were several others who just weren't aware that they were needing a license. So that's why this has been percolating so much in the last year. I don't know the specific example off the top of my head that you used but if someone owns their property and then has a business at that property and they are an ownership entity is the same name and their taxes are filed under that same name, then we at the city would also consider them to be one business and would not be requiring them to have two licenses. Where it gets tricky is that, and I'm assuming it's for very specific reasons that they've decided on with either tax or legal, advice that they have a property owned by one business entity name, and then the retail business might be a different name. And that's where, you know, we feel stuck because we're trying to apply it fairly in saying you have two different businesses here, both conducting business, they would both need a license.

And I noticed in the original ordinance, and I can't, it might still be in this one, that there is some discretion that, you know, so perhaps, you know, I don't know what would have to be written in, but I mean, that would be something that I would want to explore that, you know, you're right. They could have it a different legal name, but it is the same exact. So I don't know. That's just, it's just a question. I don't know.

It's definitely something we've been, it's going to be very minor. Yeah. And then I'm also aware of kind of like ownership groups who might own a property, and that's where I start to really spin out of control because it's like, well, what if that person owns maybe one-tenth of it, and then how are we supposed to try to say, like, is that truly the same entity or not? It gets really sticky.

Yeah, no, I understand. So let's not – I think that – whatever the decision is, it should be for the majority. You don't make policy and law for the exceptions, right? At least I don't. Do you have a way to put up business model for, do you have that slide from May 12th? It's slide number, there's slide 40 and slide 41 because I know we talked about, we came to an agreement on Model 3. And I think I mentioned it to Council Member Shurley at the break. This has been so interesting because it's taken at least two meetings for us to really work through it, right? And to really kind of flush out the nuances and stuff. And as I look at Model 4, which you guys don't have in front of you, but I think we're looking for it. it does this thing where it gives a different rate to general and retail, which also includes the hotels. Yeah, so there it's $2, you know, $2 per thousand or two, you know, and then contractors are higher, professional, higher, property, rental, higher, services, higher. So then if you go to the next slide, you can see, oops, page 40, I guess, is that it? No, no, the analysis. So then this one is the one with the 2.8. It's everybody but the general hotel and restaurant or whatever. And this is one where you see lower taxes. You can just look. I don't know what the percentages are, but it doesn't get higher until you get up to line six with the $5 million. But it doesn't jump so hugely as Model 3 does. I mean, I think what I was hearing from business community people was, or if you look at line seven in this model, it goes, or is it, which one is it?

Are you looking at the, so this slide that I'm showing right now is all of the other categories. Oh, yeah. Contractors, professionals, which would include, say, medical offices, dentists, things like that. People like me. Property rental and service, or professional services. Right. The following slide is general retail category. And in this model, this was meant to be a very broad category, so including retail businesses, restaurants, and as I mentioned earlier, hotels would also fall into this category.

So in this one, when you look at line 7, which is $10 million in gross receipts, They're making a climb. It's still more money, but it's like $7,000 more rather than double, right? And it just feels – it's acknowledging the brick and mortar is what this one is doing. It's acknowledging these are the people – There used to be this Muppet, there used to be Sesame Street, these are the people in your neighborhood. And that's what these are. These are the people in your neighborhood. So to the extent, and it's still, but it seems like, and it is an increase for those at the higher end, but again, when you look at those tables, And it's very uncomfortable talking about all this, especially some of us are thinking about serving again. But I also know that we are lowering taxes for such a large percentage of people. And it's not, I really appreciate Council Member Sherlian's discussion about contractors out of town, all this. And to me, this takes care of that, right? Because you're still giving them a different rate. So that's kind of what I'm looking at right now, but I'm, you know, and I've got other questions and, but I'll give it up.

Okay. Council member.

Happy to sing anytime.

Thank you, mayor. Um, yeah, I'm, I'm just kind of stuck somewhere between Model 3 and Model 4. I like certain aspects of each model. I'm still in my head trying to wrap around a solution or find a solution for the contractors, which represent, again, 2,000-something of our 5,000 businesses that we used on our basis in the polling, which, again, it's... in manhattan beach and again i don't want to disregard someone doing business in town and utilizing you know our city but i want to try to find a solution i don't know if we can do it tonight but try to talk through how we can you know maybe lower the cap but increase um increasing the business license tax somehow to I don' t want to do it for industry it' s going to get a little sticky but I guess I' m asking for some help to find for me with the stickler is about 100 businesses are either going to double in taxes on their cap or 10 times their taxes, depending on where they are from $5 million to $4.5 million to $100 million. So I don't, you know, it is increasing the tax. I mean, this is what this is. You know, I heard money grab, but I don't see it as that. I think it's a good approach as far as we're looking at somewhere between three and four. But if we increase the cap, A business license, even if it's 10 businesses are paying 10 times the cap, we're raising the tax by 10 times on some businesses. So those are my sticking points since we're having a conversation. That's something that would get me to buy in if we could find some way to reduce the cap. you know, again, help the small businesses, but help the in-town small businesses and not put that burden on the contractors, which I don't know. You have contractors that work in town, but others that come and go. And I don't know if that, these are all assumptions. So that's all I got for now.

To follow up just quickly, sorry, to ask a question on his thing. How many businesses are at the $20, $50, and $100 million? Just so we would know, it depends. So it doesn't change, I mean, it doesn't change your point. It's 25.

Like 20, yeah. 25 businesses are from the 20 million on up.

Okay.

And that would be a five-fold. Sure.

Yeah, I agree. Lower the cap. I would say lower the cap because for me, anyway, go ahead.

So thank you. Thank you for everyone's input. I think this is a great exercise because we are hearing from so many different perspectives, which only shows us how difficult this task really is. So I commend staff for trying to find a fair and equitable solution that works for everybody. And primarily my main interest is, you know, helping our local brick and mortar businesses. So I think we all have that in mind because we, can all agree that those are the businesses that make our city great. And as far as low, I'm just, for me, and I'm going to have to disagree on lowering the cap, because the way that I look at it, I feel like our small businesses have been subsidizing these. These are a huge discrepancy. It is so much harder for a small business, and the margins are, I mean, the percentage is so much. They've been carrying the heavier weight to begin with. And so while I understand the number doubles, triples, quadruples, tenfolds, or whatever the number is, that's how long they've had over the 50 years since we've updated it. To me, I look at that as we've been subsidizing these businesses. And we're talking about... $100 million, $75 million, and they're carrying, they've been paying 0.01%, 0.02%, and we're moving them up to 10.13.20. I mean, we're barely getting them close to where our local small businesses are. So that's going to be a calculus that I think we should keep in mind. And I know it's a matter of perspective, right? Like how we're looking at the changes that we're making. I think at the end of the day, I do see the differences between the type of industry people are in and how certain margins, and I'm amenable to considering option four again, so I think I'm You know, I'm open to those discussions. And I understand Councilman Sherillian's concern about the out-of-town businesses that come in. And it's just a really hard carve-out. And I worry that we're going to open up a can of worms and really... I don't know how we can distinguish it legally between a person who does the same business. We can't tax them at different rate just because they live out of town. So those are things that are weighing in my mind as we're trying to make this decision. It does to me... I appreciate that even though it will capture some of these out-of-town businesses, the percentage of businesses that will see a decrease is significant for the smaller businesses. So, you know, that's why I think, you know, and... Mike Zislis brought up, this wasn't the exercise. This is not a revenue-generating discussion. This is an equity discussion. This is about finding that balance that works for our businesses and then really trying to get the larger $50 million, $25 million businesses to pay a proportional share to what our smaller businesses have been bearing. So thank you.

Could I make a quick comment on that as well? I think you reminded me of something Mr. Zislis stated, or he brought up the idea that, and I want to reiterate that these are estimates on the amount of money the city could generate. And I think you raised the idea of if in two years, what if we do generate a lot more than what's expected? Could we revisit it? And to that I would say, yes, I do believe we would. And that If voters approved a certain gross receipts rate, legally we cannot charge one person one more dollar above what voters approve. However, it's my understanding, and John can correct me if I'm wrong, but the city council could then have a policy to charge less. So I do believe that would be something we could come back and look at if the estimate is, or if our actual revenue generated is higher than expected. Because I do 100% agree with you that, at least from staff's perspective, this was never about a revenue generation measure. It was about bringing more fairness and equity to the tax structure. And again, simplifying the code, clarifying it, and modernizing it to today's best practices.

And just to then confirm what Libby said, yes, the voter approval is the cap on what you may tax. City policy can always be to charge less.

Thank you.

Okay, so I'm going to take this turn. Boy, there's just a lot here. I also, too, I'll start with my conclusion is I'm favoring Model 4. Number one, while it doesn't produce the most money for the city, I don't think that's the point here. I think we're hearing it that we have to modernize it. Although Mr. Burton did make a comment, what's wrong with what we were using 50 years ago? Our business is more complex, of course. But I'm also bothered on slide seven, polling question from business license tax forum. So what was that business tax forum?

One second. Yeah.

Yeah, we were going to pull up Model 4 again as you were starting to talk about that, but we can get back to the, you said slide 7?

Well, we can go back to 4 later.

You're asking about what the business tax form was in April?

Yeah, it says polling question from business, yeah, this one.

Oh, yes. So in April, we had advertised alongside the Chamber of Commerce an open forum one afternoon here in the council chambers where we tried to We invited all businesses in the city to hear about what we had been working on, hear about the goals and the different models. We presented models one through four. Our consultants from HDL helped present the models, answered questions. So it was a community business forum to try to answer questions and get feedback through the process.

And you don't have to say which ones, but what was the mix? I mean, if you were able to go through and say- So many were like this, and so many were like that.

As to the businesses in attendance that day?

Yeah, in the 48, because the 48 is a relatively small number.

Oh, the respondents to the survey? Yeah. We'd have to pull up any demographics that we collected from that. But again, the people who took this survey- Was it the same 35 that Stefan talked about?

Maybe.

I would guess that it was a lot of businesses who were really active and engaged in the downtown and the north business district, people who read the Chamber of Commerce emails that Jill puts out. The city pushed out information, the Chamber, the Downtown Association pushed out the survey and asked people to review the information and weigh in.

Okay. So I assume that there was some basic information provided, probably not quite as in much detail.

Yes, we recorded the session, provided the recording, asked people to review it. There was also a PowerPoint of each of the models, and then we asked people to weigh in on the survey based on what they thought.

Okay, because they're going to model. I mean, they like Model 4. In fact, almost the least amount of people, like Model 3, that we were kind of providing as guidance for the changes there.

And as I said, I think a lot of the respondents were probably those actively engaged in the business community, which does include a lot of the retail and restaurant brick-and-mortar businesses in the city.

And then the initial ballot test language, which was on slide five of the True North. You know, we're not wed to this, right? We're not... The whole purpose of this is to maybe come with a modification, or the next meeting I saw is when we really have to fine-tune the language and make that decision to get it onto the ballot.

We would like to receive any direction tonight, so that way on August 4th we would be coming back to you with the redline ordinance, with the resolutions. To your question about are we married to this, we do have some flexibility. It looked like our city manager wanted to jump in.

I will say, though, and Charles can contribute to what I'm about to say, we are very limited on the number of words that we can include. And so we have very specific parameters that we must stay within. And that's why we get help from our consultants to try to address what's the best way to word these words. were the verbiage for the ballot specifically. But depending on where the council lands tonight, we would then have to go back and speak to our consultants about how to frame that language with any additional direction from the council.

And prepare educational materials as well.

Yeah, I'll just, I'll add to that. Yeah, the ballot question is strictly limited to 75 words with some specific word count guidelines. I would suggest that we don't try to work Smith that tonight. I think if the council can give us direction on the general model approach. Goals and intents of the business license tax update you'd like to do. We can go away and draft language that reflects that. Um, I would just keep in mind that, you know, as Dr McClarnie emphasized. You know, what we think voters were responding positively to and what was proposed to them in model 3 was the idea of simplicity, fairness. You know, relief for some smaller business owners, ensuring this big business pay their fair share. The more we deviate from those big picture concepts, the less reliable our polling becomes.

Right, got it. Okay. So generally, you know, I look at the collective value and contributions of businesses to Manhattan Beach. You know, their advertising dollars and marketing efforts drive people to the city. So they're a very necessary partner. This is their money. I want to keep as much of this money as possible in their budgets and in their pockets because they're the experts. They're the sales experts. They know what's going to sell. They know the pricing of the items and things like that. It would benefit the city the most to have them keep the most money here and not cost an inordinate amount of money. Let's see. The city also benefits from property taxes, right? So in the case of contractors, you know, they add value because what was, it's happening in our street. Well, it's happening a lot, but it's happening right now. There's like five homes, you know, that were, you know, the lots were sold for two, two and a half million dollars, but the ultimate property there. So there was a bump in the property tax. you know, for Manhattan Beach. And why are people doing this? Because it's a desirable place to live. Why is it desirable? Because we got great public safety. We're safe. We're clean. People want to come here. Okay? These people that come here feed our parking meters. They feed... You know, they get citations, sadly. But still, it's driving so much other revenue sources than just this. I'm trying to justify why this amount doesn't have to be a lot. You know, an additional burden on these businesses. Figuring out which ones have to, you know, or should pay and, you know, watching out for the double charging, you know, the... You know, the leases are called triple net lease, and so the owner of the building passes the property tax bill onto the tenant or their pro rata share. So, you know, there's just a lot happening here. A lot of, you know, things moving back and forth that we want to make sure we don't make a mistake. So... I would like to, of course, hear from my colleagues, but also just sort of push towards number four and give that direction based upon number four this evening. Thank you. Okay, let me see who's next. Okay, Council Member Holworth.

Oh, I'm next. Well, I have sort of questionees. Questionees? I don't know. On this initial ballot test, this slide that's up right now, I had asked a question earlier of our polling, our True North, and Charles is still on the phone, so we can confirm with him. But... that paragraph that says by applying a 0.26% growth rate, if we were to go to model four, which I agree with the mayor, it's the one to me that, kind of makes the most sense and I think had the most buy-in and still. That's really the main thing that would have to be changed because it would still be simplifying the business license tax, it would still lower tax. for the top paragraph, right? So, first of all, that's the question. I'm not saying, oh, it's really easy, it's just one paragraph. So, Charles, if you could answer that. Like, if we were to agree, and I don't know that we will. If we don't come to an agreement, I appreciate why. But if we were, that's what you would need to really work on changing, correct? That paragraph, the ballot testing paragraph, language.

That's right, we would have to accurately reflect the rate structure in model 4 and then we would also have to make sure that we're accurately representing the, you know, the impacts of that statement about 75%. I'm sure that would probably change under model 4. I don't know what the exact number is, but.

So maybe we should put Model 4 back up just so everyone can refresh their memory before we go down too far. But we do have that estimation. Patty, right now I'm looking at slide 41 on that May 12th presentation.

Excellent work, Patty. My goodness. She doesn't even shake. She's just like, yeah, I got this. But Council Member Lesser had asked this question earlier, like, well, if we do Model 4, would we still be able to come back in two weeks? And that's what I'm trying to get at, that we would. If it's not grossly different. Grossly? That's sort of... And I still have another question, but...

I don't think it's going to be that.

I think it's going to be less, actually. I think it's at 41.

I mean, it's less revenue, and I think it's going to be less.

So I just wanted to... Just make sure everyone's on the same page. So some of the key features of Model 4, as presented on May 12, and at the tax forum in April, was that a flat rate of $100 would be applied to five simplified categories. Yeah. Sorry, this is what I was looking for. This is the one. So the $100 flat rate up to the $100,000 in gross receipts, and then we would have five simplified categories compared to the nine or so categories we have now. So contractors... general retail, professional, property rental, and services. And so if you notice on the right side, the rate per thousand for contractors, professionals, property rental, and services was calculated at $2.80, which is what businesses paying on the gross receipts basis currently pay. But the general retail category was calculated lower at $2 per $1,000. Again, this is all over that initial $100,000 where you're just paying the flat rate. So that was the structure that was calculated then. And then this slide gives a little bit more on the impacts. On the estimated gross receipts in each of those categories in that middle column, as well as the number of businesses in each category. And then the variable gross receipts, the estimated revenue, and the overall estimated revenue to the city at about $500,000.

So you can see there who goes down. It can show you certain things going down right there too, some of it. Anyway.

Yeah, the property rental category, that's the interesting one because of the current structure there where some who utilize the square footage basis are paying up to $250,000. So that's why you see that big decrease there because, again, one of the goals was to simplify it so that they're all paying the same gross receipts model but at a different rate.

And we're going, I mean, again, for my colleagues, and I don't know if we need to go to the next page, which this actually doesn't show you, like, the general retail, how much less they're paying. But we could figure that out. It's still like a large, that's, it's still at least 75% that are paying less, I believe. Yes.

Specifically that general retail category? Or everyone?

Well, in total.

Oh, in total, the model indicated 73% would see a decrease.

Okay, so, okay, 73%. Okay. The other thing I want to be sure we don't lose sight of is, and to find out, if we do come to agreement on a model... We also have to, do we also have to make a separate motion about the realtor policy? That would have to be a separate thing. And I don't want to lose sight of that because that was a carve out. That was a carve out. That wasn't, so I would like to, if we're truing things up, we got to true things up. And that's not included in this increased revenue. And I'm not trying to make more revenue, but I do think it should be trued up, my own opinion. Bifurcated, but my own opinion.

It would be difficult. We just don't have the data to do a true estimate because we don't know exactly how many realtors are out there. And then also, if you were going to go down the path of the brokers being able to deduct the commissions that the agents would be paying, then maybe the revenue would almost be neutral there. But we'd have to see how it worked out.

Council Member Lester?

Well, I need to take a step back. there's a reason why the city has not addressed our business license tax in a number of years and we're experiencing it tonight, particularly after having given some direction and then realizing that there'll be some winners and losers, those that will be paying more and those that will be paying less. I agree with Councilmember Tarnay as to what motivated me and why I think this has been a worthy process so far, which is As someone who certainly has been paying business taxes in our city for 28 years, I was looking for something that had more equitable applicability, more fairness, and greater simplicity. And that was why Model 3, I think, was attractive in general. What concerns me is we've heard there's an August 4th deadline. There's already been polling with the model that was already directed by council. And then something that's in the staff report printed but was not presented. And that is any increase in the business license tax must first be approved by the city council through at least a two-thirds vote of all members. Four out of five council members and then a simple majority vote in the next municipal election in November. So I want to make sure that there really is going to be enough time to evaluate if we go back to Model 4, which I share the comments of my colleagues. I think it has benefits. I'm hopeful we would get more buy-in, but that's an assumption. So I guess I'm asking the question, is this enough time to do the sort of necessary?

But the question, I don't understand the question, because we already have, we had Model 4. There's no more analysis that we would do on Model 4. There's no analysis that would be done.

My understanding is polling was done based on model three, is that correct?

No, but they said that would still work with model four.

So, and Charles, maybe you could jump in here again, but- They don't have to- So we have the data points and the calculations done. Those were already presented in May. So it would just be massaging the ballot language, plugging in the different numbers, and then, but The one nuance to this is that this is no longer, it would no longer be a uniform gross receipts, it would be a variable rate. So that's what I don't know about fitting that within the 75 word limit. So Charles, do you have any thoughts on that?

I do, and I, I think model 4 is similar enough to model 3 that our polling results are still applicable because the general concept of what we're trying to achieve with the update, the simplification, the fairness, the reduction for the vast majority of businesses stays intact. I have written ballot questions for other business license taxes with variable rates. And based on what I'm seeing in model 4, I do think we can capture that in 75 words.

Helpful, thank you.

Okay, who's next? House member Shirley.

May I ask just to be sure that if we were going to stick with model four, you would be proposing to stay with these proposed rates of the $2.80, which again is what it currently is. And then the overall rate of $2 for that general retail category.

Can I jump in? Do we know that this is an acceptable model for some of our community stakeholders? I mean, I want to listen to my colleagues who have been the council delegates to these groups, but I'm just wondering to what extent they've taken a position.

Pull up the graph from the business license tax. And you heard Mike Zissel say that number four was closest to N. Yeah, three was low.

I almost disagree. I think we were focused on this Model 3 with the different options. And I'll look at Kelly to maybe clarify it. Does the Downtown Association have any thoughts on Model 4? I'd rather her speak to it than Mike.

Can she jump in?

We have to reopen the public hearing. Let's do it. If Kelly wants to speak.

Do I just reopen? It's up to you. You reopen public hearing and then...

Okay. Reopen public hearing?

Kelly, do you want to speak? All on you.

I hope you feel special, Kelly.

I think I'm going to have a snack at the break. Can you repeat the question?

I'll repeat it. I guess, you know, it seems like there's a pivot to option number four. And I don't know how much feedback you've gotten on the different models because I feel the emphasis as being the council delegate to you guys from the feedback that I got from the last two meetings were on option three. So do you have any, how would they take now pivoting from option three without having a chance to vet it?

One moment, please. I'm just pulling up model four, so I have it in front of me. Can I put it up? I have it in front of me.

Patty, can you do anything?

Okay. Okay. I can, this is what I can say. Are we good?

Oh, time.

I'm just asking, do we need to put the timer on?

Do we need the timer?

No, let's just let Kelly. Do we need the timer?

No, we need the timer. Timer, a gong, anything? Okay, this is what I can say. Originally, after the first business license forum that Libby, Emmy, and Jill did when we all came together, and initial conversations at that point, so that's a couple months ago, and each conversation has been said, we understand more and more, and we've got this. After that initial conversation and our board meeting, Initially, they were all in favor of two or four. They were not in favor of three. That was pre-modified, Model 3. I know after Model 3 modified was decided upon and has moved forward, we've had a flurry, I think that's a nice word, to use of comments, discussion, vetting, meetings with Libby and Emmy who have been fantastic with our council reps, which now we're fortunate to have two because there's been a transition. And they're very unhappy with Model 3 modified. So I think going back to one of our initial reactions, which was Model 2 or Model 4, and we're concentrating on Model 4 right now, I'm comfortable in saying that this would make many people very happy. If you look at... the flat versus the cap. I do think it's more equitable. Yes. That's on the fly. Is there anything else you would like to ask me while I'm up here? I do think, and I know just some texts that I've been receiving tonight for the last several hours, people were excited to see Model 4 come back as an option. And I know it's difficult for all of us to wrap our heads around that and calculate all the numbers, you know, quickly. But we... definitively have not been happy at all with Model 3 modified. So Model 4 is a little ray of sunshine.

Okay. Great. Thank you so much.

Okay. And since you reopened it, should we have Jill speak?

Yeah. Anybody else?

Thank you. Good evening, Council. Jill Lampkin, Chamber of Commerce. Kelly and I are both in kind of an awkward position because our boards are all over the place. And I shouldn't say all over the place, but they're coming from a lot of different perspectives. And so we... didn't have a board position on this particular item. I will tell you one concern that I would see with this one. I also preferred four from the very beginning. That was, I thought, the preferred model. So I agree. I think that's great that we're reconsidering it. But if you listen and think back to what Mike Sislas was saying earlier in terms of the rate per thousand, this is the highest rate again now. So we're back at a much higher rate here. So that would be something that I would want to have... considered in terms of how much more revenue that would generate than the, and I'm trying, again, without all the numbers in front of me right now at this moment too, I'm just thinking to what there, a lot of comments were the actual rate being as high as 280 per thousand versus what we were discussing in the modified was 260 and then it went all the way down to 225 in one of those. So that rate per thousand may be an issue depending on how much extra revenue is raised. I also want to echo the sentiments that everybody has said about the finance department. This, I mean, Steve, you know when I started my job downtown, I came and met with you about this seven years ago. This has been going on for a long time, and these guys have worked hard. so hard and taken so much feedback and sat down for hours on end with the spreadsheets on the thing and us playing with numbers and asking people and going back. The amount of time that you guys have spent on this is a fraction of what has been put into this. And so thank you, thank you, thank you for all of your hard work and for listening. And that to me was the most important thing when we had that business license forum. You guys gave the businesses a chance to give feedback and you're continuing to do that. And so I thank you very, very much for that. That would be my main concern. I think four being open as an option is a great thing, but the 280, I think, is my only concern.

Could I ask a question of her, or can I point something out? The model four, the total revenue right now is $552,000, which was the least of the models, I believe.

Well, in the modified threes, there was one that was 400 something, I believe.

My bad. I will say, though, that I want to make sure that we all realize, because we were just chatting about it, the general retail category includes restaurant and hotels. Correct. So a vast, you know, a lot of those people. And then the 2.8.

Is it possible to see the revenue slide for model four, just so?

39.

Yes, it's 39 from the last one. We're getting there, guys. And then the 2.8, is the comparison graph, do we have that one?

No, because we took it off on the comparison graph, so we don't have that.

Okay.

Yeah. But it was 4 point something? Modified? Model 3 modified was the lowest one, right?

I got it. It was 443.

Okay, sorry. Sorry that I misrepresented. Okay, so that would be something when Mike said have a target, right? If there's something that you're going for, and if there would be a way to reduce that amount of revenue, I mean that taxable rate, and still make some revenue, but you're not making... maybe as much revenue, I think that's a fair way to kind of look at that. Does that help at all? I feel like there was a lot of words in there. Thanks, you guys. I know it's hard.

Patty, can you check to see if there's anybody on Zoom for this public hearing?

I was going to say, I have a raised hand from Michael Zislis, but he did already speak on the item.

But is this a reopening?

Well, the mayor has flexibility. I mean, that... It's a departure from our practice, but this is two things about this. Number one, this is not a public hearing. This is just a general, you know, regular business item. So you have greater flexibility with respect to due process. And two, the second part, which I did not mention earlier when Steve asked the question, Council Member Sherrillian, it's not just the fact that you're – you can act on tax measures. All you're acting on is placing something on the ballot for people to decide. So you're just presenting that to the voters. And so to answer the first question, yes, you can allow them to speak.

Okay.

Please.

Council members. Mayor, so I'm looking at a different chart that was forwarded to me by Kelly Stroman tonight. It's It's a report, May 12th, 2026, page 41. It's called Analysts of the Model 4 Business License Tax Structure. And it shows that at the $100 rate for the first licenses, it's 0.10%. Then it goes to 0.18, 0.19, then 0.20, all the way down back to the wealthiest amongst us paying only $10. 0.10 which is you know one percent you know i i just think that if you use that if you can find that slide you guys and you made it all 0.18 i think you would find that it would be fair to everybody and you would make you know and then put that 500 000 language in there So you can lower the rate, but I think at this 0.18, you will lower the rate for more than 75% of the businesses. And I think everybody would support it 100%. And I don't know what the chart is that Libby was showing that it was like 0.29, 0.29 and 0.20 for retail. I think this is the chart I really think is the most just and equality.

if I may jump in, so I think we were, depending on where we were at in this discussion, we were either looking at this slide, number 40 from May 12th, which was for the other categories of contractors and professionals and others, so that's where that .29 percentage of gross receipts is, but the following slide, the general and retail category, that's where you're seeing that .2%.

I think that chart right there, if you made them all 0.18 and you ran the numbers for council real quick, I think that would be the winning combination that everybody could get behind.

As I recall, when we dipped below $2 per thousand, that's where we started to, the model actually went negative or we were so very close to where we couldn't reliably say that we weren't going to lose money on the changes.

Yeah. People will see it's close enough. Okay. Okay. Let me just double check for anybody else that wants to speak. Okay. Mayor Potem, Tarnay. Oh, close public comments.

Thank you, Mr. Mayor. Okay, so based on everything that I'm hearing, I'm just trying to move things along. So it sounds like all of my colleagues were okay with number four and discussing the parameters of what in number four we're okay with, right? So based on, can you pull up the, like that $2 and then $2.80 rate? Okay. This one? Sorry. Yes, so based on what I'm hearing from the public and from my colleagues, if we ran the number, if the rate structure was $2 for retail, general retail, and then we lowered it to the 0.225%, so $2.50, or $2.25 for retail, the rest of the categories, would we be okay? What would our revenues look like there? Would we be-

Thank you, Council Member Tarnay. Emmy Rose Hanna, Financial Services Manager. And thank you for the question. So factoring a variable rate structure, setting a $2 rate for general retail and setting a $2.25 rate for all other categories based on the flat tax of $100. covering the first $100,000, it would result in a negative reduction in business license tax revenue, around $16,000 under the prime. So it would go below. So there's a threshold. Once you adjust the rates in different methods and you adjust the flat, it would go backwards and reduce the revenue for the city. Thank you.

Okay, so I think for me it would be finding that number, right, that works for my colleagues to come to an agreement on. What about $2 for the general retail and then $2.50 for

I can calculate that in just a moment. Thank you for the question. I have a scenario where all the other rates are 260 and the general retail is $2 and that results in 347,000 revenue generation. Very minimal. I will caution this information that was echoed from our tax consultants that once you get close to a net neutral zero dollar amount, it could go either way because it'll depend on how businesses report their gross receipts. A lot of the tax study for the categories that don't report their gross receipts, they're built on estimated gross receipts that they would report. And it's a conservative estimate, and so it could go either way. There's a margin of error where it could dip below. If it's close enough to zero revenue generation, that it could go the other way.

Okay, thank you. Okay, so I would propose us discussing the possibility then of keeping that general retail, so structure number four, general retail at $2, and then for the other categories at $2.60.