City Council - Regular Meeting

Great. Welcome.

I'd like to call to order

our city council adjourn regular meeting of Tuesday, 05/12/2026, and we'll begin with a pledge to the flag. All rise, please. Thanks, George. And in your heart. Madam city clerk, may I a roll

call, please?

Council member Tarne. Here. Council member Sherrillian. Here. Council member Howard. Here. Mayor Pro Tem Franklin. Here. Mayor Lesser.

Here. Is there a motion for the approval of the agenda? Motion by council member Tarne with a second by mayor Pro Tem Franklin. Call for questions.

Motion passes five zero. Thank you. We now move

on to public comments where members of the public have an opportunity to speak for up to three minutes on any matter within the subject matter jurisdiction of the council and the city. And if you care to speak from your chair, just raise your hand and a member of the city clerk's team can bring you a microphone. Please come on down.

Let me

get my glasses on so I can see what I'm doing here. Good evening, mayor Lesser, city council members. My name is Paul Wafer. I'm a forty year resident of Manhattan Beach. And over the weekend, I submitted an unsolicited report analyzing the city's labor staffing and productivity based on data contained in the preliminary fiscal year twenty twenty seven budget and departmental performance information.

I want to start by making one thing very clear. This report was not created to criticize the hard work of the city employees. In fact, many departments are doing a very good work, provide excellent service to our residents. The purpose of this report is to encourage broader discussion about efficiency, productivity, accountability and long term financial viability. Over the last several years, the city's labor costs and staffing levels have grown significantly.

At the same time, we are now facing projected budget deficits that could exceed $10,000,000 next year. This should concern everybody. What I attempted to do in this report was apply the same type of operational analysis that large organizations and private industry routinely use to evaluate staffing adequacy, workload and productivity. Using the city's own published data combined with modern artificial intelligence research tools in my own professional background in labor productivity consulting, I compared Manhattan Beach to operational benchmarks and best practices. One of the most important conclusions from the exercise is that the city already collects a tremendous amount of data, but much of it is not being used in a way that truly measures productivity or staffing efficiency.

Counting activity alone is not enough. We also need to measure outcomes, turnaround times, workload ratios, service levels and operational efficiency. Another important takeaway is the potential impact artificial intelligence could have on municipal operations. What could have taken weeks of manual analysis only a few years ago now can be accomplished in days. That technology is only going to improve.

Cities that learn how to responsibly use these tools will be able to improve service while controlling costs. The report also identifies areas where staffing may exceed what comparable benchmarks would suggest while recognizing that service expectations, policy choices and community standards all play an important role in determining final staffing levels. I'm not suggesting every recommendation in this report be automatically adopted, but I do believe this information can help start an important conversation about how we maintain excellent city services while also protecting the city's long term financial health. I dedicated a significant amount of personal time to preparing this report simply because I care deeply about the future of Manhattan Beach and I hope you will take the time to review it thoughtfully. Know you're all very busy.

I also provided with you for you tonight a one page summary of the

Yes.

Most important things.

Thank you, mister White.

Karen Lester, City Council. Hello. My name is Alan Franz. I'm a Eagle Scout. I've been an Eagle Scout now for about forty years.

And I say that because I've also as a Scoutmaster of Troop eight forty nine here in Manhattan Beach, highly supportive of working through solutions to get a new Scout House. As mister Wolwedge has taken over my role in the Scout House, I've also moved on to the district, the Pacifica District, which oversees scouting in Torrance, Palos Verdes, Manhattan Beach and other areas in the South Bay. I'd say that wanted to say that the Scout House has been there about seven years. Seven years is our seventy year celebration this year. We estimate, Troy and I talked about this a bit ago, about 3,500 scouts have been through that facility, let alone all the other girl scouts and seniors that have used that facility.

Also, 172 Eagle Scouts and soon to be tomorrow, 173. I say that because the time and the amount of energy I've put in a Scout in my life has impacted many more people than just those 3,500 people. So 3,500 in Scouting to me impacts many more people in society and our community. I feel very strongly that we need to invest in those scouts that become leaders that are leaders now and future leaders in front of us. So I really not only we're investing in scouting, but we're investing in community and our society, and I I eagerly hope that we can work a solution to get our new scout house in place. Thank you very much.

Thank you.

Good evening, honorable mayor and the city council members. My name is Beth Gessner. I'm the vice chair of the Friends of Senior and Scout Community Center. I missed all the festivities last week, so I thought I would come and share my thoughts about the senior and scout house tonight. I fully support this project, moving forward with the two story design that we have submitted to the city and is currently in its third phase of round of review.

The plans are very close to being approved by the city and ready to go to bid. I know that the numbers for the project are staggering, but any further delays will be detrimental to this project. I do have a few comments about some of the numbers being used. Tonight's PowerPoint presentation lists our cash contributions at 2,100,000, when in fact it was 2.294, million that we donated to the city. I believe the 2,100,000 reflects, and somebody can correct me if I'm wrong, but reflects what's currently in the account.

And if that's the case, that means a 132,000 of our donated money has already been spent. I know that's peanuts compared to the whole project, but we haven't been told what the money was spent on. But if it was used for any of the actuals that are listed, it should be deducted from the total amount of the money that's needed for bond that to be bonded. Also, over over several years at city council allocated 4,600,000 to this project, and we were surprised to learn that the money had been suddenly removed in 2024. We were never given a good explanation other than to be told that the project would be funded by bonds.

I believe that money should be reallocated to this project. And last, I was happy to see the breakdown of the 3,338,000 soft costs that are listed for this project. Those costs are primarily for four positions that are not necessarily full time positions, and they're based on a percentage of the total of the construction cost and not a flat rate or an hourly rate. And that means that if the cost of materials goes up, then the cost the soft cost goes up as well for the same project. The salaries to me seem a bit excessive for this type of thing.

$480,000 for the inspectors, which I know is a part time, you know, once a week type job is just seems a little excessive, but now I know why projects for the city are so expensive. And real quick, we are continuing to fundraise, throughout this whole process, and we are hoping that once we are approved and have permits, that will boost our ability to get more donations. Thank you very much.

Thank you. Any other speakers? Yes.

Hi. Good evening, City Council. My name is Avi Karaniya, and I'm a member of Troop eight forty nine. And I'm here today to ask you to reconsider cutting funds for our new building. For me, scouting has never just been about earning merit badges or going on camping trips.

I remember being a younger scout, coming into these troop meetings, and barely knowing anyone, not really sure where I fit in. Older scouts helped me learn skills, taught me how to set up a tent, lead a patrol, or how to speak up when I had something to say. Over time, this troop became a place where I learned confidence, responsibility, and leadership. And our building matters because it gives scouts a place to grow. It is where we plan service projects, plan campouts, organize food drives, and work toward eco projects that benefit ourselves and our community.

I've seen scouts who used to be quiet but later become great leaders because they had a space where people trusted them and gave them responsibility and respect. This building would not just help our troop today, it would help future scouts for years to come. It would give younger kids the same opportunities I had, a place to belong, a place to learn, and a place to serve for something bigger than just themselves. I understand the city has many tough decisions to make, but cutting funding cuts away from a program that gives directly back to the community. Scouts do not just use city resources. We serve the city, improve it, and grow into people who care about the city. Thank you.

Thank you. Are there any other members of the public that would care to address council during public comment? Seeing none, Patty, is anybody on Zoom that would care to address counsel?

No requests on Zoom.

In which case I'll close public comment. We now move on to our consent calendar. Is there a motion? There's motion by council member Howard, the second by council member Tarney, I presume to approve the consent calendar. Would you like

Yeah. I'd like to pull number one.

I'd like to pull number one. So mister city attorney, do we have we now approved the council agenda? Do we need to reconsider the agenda if we're going to be pulling item number one? Yeah, you should go through that process of a motion to reconsider. Is there a motion to reconsider?

We didn't actually vote on the motion. I can we can draw the motion.

Motion by council member Horace with a second by council member Charnay call for the question to reconsider.

We didn't wait. We didn't vote on the other motions. So we don't have to vote to reconsider.

On the approval of the agenda.

Right. So I made a motion. It was seconded, we never voted on it.

On the approval of the agenda?

Yeah. Oh.

So we don't have

to reconsider. Just need to make a new motion.

Okay. So we're still part of D. Well, was before public comments.

Okay. Doesn't matter,

but Okay.

We didn't We did vote.

We did not vote. We did.

Did we? We just had the motion.

We just made the motion. Yeah.

Okay.

But that's okay. It's okay. I just

So but this motion is passed, so now you can, request that, item e one be considered individually.

Okay, waiting for the screens to catch

What are

we voting on? What's the motion?

I'm going to ask the assistant city clerk. Can you confirm whether there was a motion to approve the agenda?

There was a motion to approve the agenda.

Was there a vote on the motion?

Yes. So

now what we need to do, I believe based on process is to reconsider and that's what we were going through just now I believe.

Yes, I thought there was five in favor of that motion to reconsider.

Correct. We just need council member Schirlian to Now we're voting to reconsider. We didn't vote before. Motion passes five to zero.

Okay. So at this time you can make a motion to pull item F1 off the consent calendar.

I'd like to make a motion to pull item one, F1 for further discussion. Okay.

So moved and call for the question.

Motion passes five to zero.

Okay. In which case, can we now proceed directly to the consent calendar and the one item that has been pulled? Yes. Alright. Let's move on to item number one, which is consideration of second reading and adoption of an ordinance amending the Manhattan Beach municipal code relating to bicycles, etcetera.

Who would be the staff person taking the lead on this, madam city manager?

I'd like to pose a question to Councilmember Franklin. Is there a comment that you wanted to make or do you have questions for I

want to make

a comment and an observation just for the benefit of the public is you can see that this is a you know, there's a lot more regulations here to manage and control the use of bicycles. Bicycles are mentioned, and it applies to e bikes. But I just want to remind that this is an an an amend amendment addendum to what already exists. So somebody has already asked me about, well, how about you know, it doesn't say you can't ride on the green Belt or on the strand. Well, that was we've already adopted those back in 2023, I believe. So I just wanted to confirm that and use that and remind people that there's a lot more robust regulations.

That is correct.

Any council member questions for staff? Seeing none, I'm going to open this item up for public comment. Does any member of the public have a comment on this item? I see no one in chambers. Patty, is anybody on Zoom that would care to address this item?

No request on Zoom.

Which case we'll close public comment on this item. I see that there has been a motion.

May I state my motion?

Please.

That would be

a good idea these days. I move approval of second reading and adoption of an ordinance amending the Manhattan Beach Municipal Code.

And I see that has been seconded by council member Tarne. Any council comments? Seeing none, we'll call for the question.

Thank you. Motion passes, five-zero.

Okay. I'll speak up properly.

Okay. We move on to public hearings. And the one public hearing we have is item number two, which is conduct a public hearing in consideration of an informational report regarding the status of vacancies and recruitment efforts pursuant to a b two five six one and authorize the overhire of one police captain on an ongoing basis. Good evening.

Good evening, city council. My name is Lisa Jenkins, and I'm your human resources director. And this evening, I will be conducting the public hearing on employee vacancy rates and recruitment and retention efforts. So this discussion tonight is really the flip side of some of the public discussions that we've been having lately around budget deficits, a potential for reducing positions or freezing positions or maybe even slowing down hiring. The intent of a b twenty five sixty one, which is a new law as of last year, and this law amended, the Myers Melius Brown Act, which is our state law that governs employee employer labor relations.

And its intent was to address the public service delivery impacts that a high number of vacancies can have. And in addition to direct service impacts, this, intent discusses how a high number of vacancies can have an impact on other staff, leading to increased burnout, exacerbating, staffing challenges, and, creating higher levels of turnover. And so this annual public hearing is on vacancies as well as recruitment efforts, and it's now required by law. And, also, in instances where there's any bargaining unit where vacancy rates exceed 20, there's additional requirements, that the city needs to report on upon request. And these are things like the average number of days to complete the hiring process, opportunities to improve compensation, and other working conditions.

So effectively, the purpose of this law is to increase transparency and accountability and to create a heightened focus related to agencies that are perpetually understaffed. And so the climate that our city and other cities have been grappling with in the past several years, include a number of factors that have resulted in, for the most part, a job seekers market. So the these are things like increased, resignations, that were at a peak following the pandemic, an increased retirement wave, and this, amounted from, many retirements that were delayed or postponed during the pandemic. We have changing workplace expectations. We have historic inflation that it has been driving higher than average or historic increases for public agencies.

And especially as to police agencies, we've been seeing agencies offering very large recruitment incentives as well as salary increases that in some cases have been up to 15% in one year. So it is a difficult labor market right now and especially in areas that are considered in the industry difficult to fill, and these are things like police officer, like engineering and accounting positions, and that's what we're seeing here in our city as well. And if you look specifically as to our city's hiring trends, we've been filling an exponentially greater number of positions than we have in the past, two to four times the amount of positions that we filled historically. And this represents approximately 20% of our full time staffing. Our average has been around 70 full time positions annually.

And in addition to that, we've had a higher number than we've had before in terms of promotions as well as internal appointments. And about 50% of our city employees have been with the city for four years or less. So with the increased promotions as well as our workforce being newer to the city, it does underscore the need for continuing training and development efforts. And even in the midst of that increased hiring, the time to recruit has decreased significantly, and we're currently around thirty to thirty five days between our position opening until candidates are referred to the hiring manager, and that's dropped significantly from prior fiscal years. And with our recruitment efforts, we've continued to focus on more efficient and effective recruitment and hiring.

We implemented a neogov online application platform in 2020, and this was to streamline recruitment efforts as well as the ability to track applicants. Now with this did come an increase in our volume of applications as well. We've developed some creative, what we call, pipeline programs, so ways that individuals can start city employment in either a trainee or a part time capacity and hopefully eventually move into full time employment. And examples of this are our internal office assistant pool, which effectively functions as our own temporary staffing agency, additional a program with our fire apprentices who are trained to be fire inspectors after they complete training, and within our police department, police interns and explorers who develop an interest in law enforcement, and many of the individuals who have been part of these programs eventually seek city employment within the police department. And so we've also looked to consolidate our testing and focus our testing efforts on those skills that are most needed for the positions.

And so with our recruitment and retention efforts, they've been supported by the city council by approving a variety of recruitment and retention incentives and related benefits. So these include reevaluating the recruitment bonus for our police officers, extending a hard to fill bonus for positions outside of the police department, and increasing the amount of that incentive, as well as expanding the referral bonus for employees outside of the police department who refer successful police officer candidates. The council has also maintained an eye on retention incentives for all employees, such as the provision of wellness resources, like active and fit, which is a fitness membership and the Calm app, as well as providing additional holidays. And then last year, council approved multiyear agreements with the majority of its city labor unions. And within a competitive labor market, many city councils, even though they're faced with economic uncertainty and confronted with budget challenges, feel that even though there may be these affordability challenges, we also can't afford to not invest in our employees.

And the competitive in increases, the additional wellness benefits, these are all part of the city's value proposition as an employer, and it's likely that the city would be in a worse recruitment and retention position without its continual focus on maintaining competitive benefits. Just to give a preview of what we'll be looking at with our vacancy rates, the city maintains in its budget a 6% vacancy factor, which is effectively an assumption that at any given time, we're not going to be fully staffed, and this is due to attrition, people leaving the city. So it's always a dynamic rather than a static number, and that means that whatever our vacancy rate is needs to be looked at in the context of that 6% vacancy factor. And just because there is a 6% vacancy factor, that doesn't automatically equate to 6% in salary savings. And the reason for that is because many of our vacancies need to be backfilled on an overtime basis.

For example, firefighters where we maintain a set service level for the community or with specialized contract services such as engineers or with acting in interim positions. And the vacancies that we have in the city are primarily in these hard to fill areas as as discussed, police, engineering, and accounting. And continuing recruitment efforts is important to remain competitive in these areas. And when we look at the actual vacancy rate, it's a simple calculation, the number of positions filled over the positions that are budgeted or, in this case, with the vacancy, the positions that are vacant over the positions budgeted. And they can be broken out by bargaining unit or department.

Since we'll be talking about police recruitment tonight, I wanted to also add a note that we have police academy trainees, and these are individuals who are training to be police officers, but they're not sworn positions yet. So they are effectively under filling a police officer position, but they're in our Teamsters bargaining unit rather than our police officers association, so they don't really fill an actual And because there is a high attrition rate during training, we don't count them as part of our vacancy rate. So really, are two additional if there's two people in the academy, there's two additional positions that are not included anywhere in the vacancy rates that you'll see. And so this slide, provides an overview of vacancy rates by depart I'm sorry, by bargaining unit. And earlier, I mentioned how if there is a vacancy rate within any individual bargaining unit that exceeds 20%, we have additional reporting requirements.

At this time, we don't have any of our city bargaining units with a vacancy factor exceeding 20%. Our overall city vacancy rate is 8.6, and that is about a percent and a half less than when this report was given last year. We're looking at a total of 348 budgeted positions, And I'd like to mention with that that this number will differ from the 354, full time number that you'll see in the budget, and that's because in the budget, elected officials have historically been included in the full time position number. These numbers that you're looking at right now do not include elected officials.

Do we feel excluded?

But

there is a 0% vacancy factor

with our elected officials. What a relief.

Thank you.

So far.

Tonight is young.

This slide breaks down the same number of vacancies, but this is by department. And as you can see in the majority of our city departments, there's between one and three vacancies. We'll talk a bit more about the police vacancies tonight, but even with seven vacancies, the police department has one of the lowest vacancy rates rates, which is 5.9%. Percent. And, again, this doesn't include the trainee employees, the police academy trainee employees.

You'll see a number of vacancies in public works, and I'd like to point out there that five of these vacancies are in our engineering division. And as I mentioned, when we don't have employees in those positions, and engineering has been a hard to fill position over the past many years, these positions, if there is a desire to maintain the same pace on the capital improvement projects, these positions are backfilled by consultants who are paid at a rate that's higher than what our city staff members are paid at and are paid hourly. So, essentially, with the focus the continual focus on ensuring that CIP projects remain on track, are completed in a timely manner. These vacancies require backfilling, with consultants. Even at full staffing, consultants are necessary to supplement for certain projects and for specialized services.

At our quarterly budget meeting, the council requested to review police hiring in particular, and this was connected to the police department's request to add a deputy police chief position. So we wanted to provide a bit of a background on our police counts as well as history. So between twenty and twenty twenty one, obviously, this was pandemic times, and there was some limitation on being able to do in person testing for a bit of time. However, coming out of the pandemic, this is when we established continuous testing for police officers. So we test either every month or every other month, and this has been the case for the past several years.

We've also increased resources around background investigations. At that time, we added in contract background investigation firms to expedite the background investigation process. The application software NeoGov, which I spoke about, also expanded the applicant pool. At this time, the total sworn staffing number was 65, and there were seven sworn vacancies in 2021. So there was 58 sworn filled positions at that time.

Between 2023 and 2024, there was an increase to authorized sworn staffing, and that increased the total sworn from 65 to 72. And there was also a civilian background investigator added in order to continue to expedite those background investigations. This is when the council considered enhanced recruitment and referral bonuses and looked at the amounts of those bonuses because prior to this, they had remained stagnant for many years. And this is when some of those additional recruitment and retention incentives that we discussed were authorized. And the ongoing continuous testing continued at the same pace.

And 2025, last year, the council authorized the POA MOU, which the purpose of that was to ensure that the compensation package remained competitive within the labor market. And vacancies, in a period of several months, reduced from 10 to six. We've remained around that six number since then, and that's because, as we'll see during this presentation, even with the continued pace of hiring, we have, employees leaving the cities. We have, retirements, resignations, all of those things, and so it's always a moving target to get to full staffing. And we are increasing the number of candidates that we're placing into the background process.

I believe since February of last year, there's been 80 police officer candidates who have gone into the background And, when we look at hiring, we can look at the different categories that we hire. And I've used this terminology a little bit, but I wanted to make sure for, everyone listening that it's clear what those definitions are. So we have our police academy trainee position. These are individuals who are hired with no experience and no training. So the city hires these trainees or recruits.

They start a police academy. They're non sworn during the time of that academy. After they graduate, they're sworn in as police officers, and then they participate in in an extensive field training and observation period. And this probationary period effectively is eighteen months for trainees. Then we have police officers called academy graduates.

They've graduated from the academy but either don't have any experience in a police officer position or haven't completed at least a year at a law enforcement agency, which is what's required to obtain the post basic certificate and to be considered a lateral. The laterals have completed that year of service at another agency. And for both academy graduation I'm sorry. Academy graduate candidates and lateral candidates, there's a twelve month field training and observation period or probationary period. And so just to give a sense of what some of these numbers look like when you consider new hires against other position changes, since 01/01/2024, there's been 17 new hires for either officer or academy trainee level.

There's also been two retirements, 10 resignations or separations, three promotions, and then we've actually had eight of our trainees who have successfully graduated the academy and moved to police officer. So every time you make 17 hires, that might be a net 13 depending on the time period you're looking at or 12 or 16. It just depends on how much attrition happens during that same period of time. The police officer maintains, high standards for hiring, and the examination process is extensive, and that includes a background investigation process. So when you look at the applicants, we are still getting a large volume of applications.

This data is also 01/01/2024 to present. We started off with approximately 1,300 applications. By the time we move through a written exam, that's the the post written exam. It's for it's a required part of the testing process through interviews, and then we get to what's called an eligible list of candidates. We've already whittled down to a 147 candidates just through the testing process.

And from that a 147, 16 have been hired. So that's approximately 1% of all those applicants who are hired, and that is related to the testing process. And it's also related to the fact that there is a comprehensive background investigation process that is required by the state and that Manhattan Beach maintains standards above and beyond the minimum requirements. And the background investigation, again, includes we have dedicated background investigators who review a comprehensive personal history questionnaire. They talk to all prior employers, neighbors, family members, basically wanting to know every aspect that relates to their ability to be a police officer with us.

They also undergo a polygraph, a medical exam, a psychological exam as part of this background investigation process, and this is all designed to ensure that the candidates who are passing through and are ultimately hired are fit to do the job as a police officer here in Manhattan Beach. So this is a shorter time period, May 2025 to present. We've had 67 individuals start the background process. 47 either didn't pass some aspect of the process or withdrew, and we've had 10 hired so far. 10 are still in the background process.

And so this represents approximately 17 and a half percent pass rate from when somebody starts the background process to when somebody is hired. I wanted to share our our current recruitment pipeline, specifically as it relates to people who are either already hired or set to be hired within the next few months. So as I mentioned, we have the six sworn vacancies, which doesn't include two police academy trainees who are currently in the academy. So two currently in the academy with graduation dates in the coming months, and then we have additional two police academy trainees who have been completely cleared and are scheduled to start on 06/01/2026, which is the date of the next academy. There's an additional two candidates that are nearing the end of their preemployment process, and, we're targeting that same academy if we can get the spots and get them cleared through all stages of the process.

There's an additional candidate who's been cleared and does not yet have a start date, and then we have a number of candidates that are actively in the background process. Now at the quarterly budget meeting, the council requested to review current recruitment incentives. So with the, enhancements that the council made to these incentives, back in 2023, the current recruitment incentive, and this is what, typically is for lateral candidates that we, recruit, is up to 10% of annual salary. One of the big changes that was made was moving a static number that had historically been approved to a percentage based number so that as salaries increase for police officer, the eligible amount of the bonus will also increase. The referral bonus was also moved to be a percentage based bonus, and this is again for any city employee who recruits or I'm sorry, refers a successful police officer candidate, and that's currently around $4,000.

The recruitment incentive, on the other hand, is currently on that percentage basis around a maximum of $13,000. And as we've discussed, council improves some enhanced benefits to make especially for lateral transfers, more desirable to to recruit, and one of those in particular was leave accruals, being counted based on their total sworn experience. So if a lateral comes in with experience, they have the ability to use their prior service in calculating their vacation accruals. Council also requested to review what, recruitment incentives are currently being offered in other agencies and how those have maybe translated to successful hiring. So we did survey our local agencies here that we typically look to as comparisons.

Our current police vacancy rate is 8.3%. That's our sworn vacancy rate, and we did try to utilize like for like comparison here. We do think that it's possible that some of these agencies that didn't specify may include their trainees as part of their, filled positions, so that might adjust the number a little bit. But our number of 8.3 is is commensurate with what our vacancy rates are. There's some vacancy rates that are as low as two or 3%.

There's some that are as high as 20%. But what we can see with the recruitment bonuses being offered that sort of are all over the map as well, there are some agencies that don't provide any recruitment incentive, and there's some that are up to a $100,000. Some of those larger dollar bonuses are structured in a way where they're tied to a base amount and then additional amounts that relate to things like veteran status, education exceeding minimum requirements, past experience, things like that. So there's some detail and nuance that goes along with some of these programs, but we just wanted to provide a snapshot for the city council's consideration. And as you can see on the whole, there really is not much of a correlation between the amount of the recruitment incentive and the vacancy rates.

With the city successfully with our city successfully hiring 30 police officers in the past four years and the current recruitment pipeline that we discussed, at this time, staff is not recommending, an increase to the recruitment incentive. So lastly, at the quarterly budget meeting, council also considered a request to add a deputy police chief position. The police department does maintain that this position level is important and provides needed executive and management support. However, the council also requested to look at alternatives that would provide similar management level oversight. Additionally, there's currently been a rotation of, police lieutenants into a captain position due to an employee leave.

And so there's also been some deficits in the management capacity due to being down, one position. So I guess the alternative request tonight doesn't replace the request the ongoing need for the deputy police chief, but what it does do is it alleviates the individuals who have been rotating into the position to return to their normal jobs of police lieutenants, and it also, addresses the immediate needs to provide management level support that's currently being shared by the police chief, the police captain, and that acting captain rotation. So an alternative at this time that would allow staff to keep up with these immediate workload demands would be to utilize what's been historically approved within the police department, the capability to overhire positions, but to utilize this to overhire at the rank of police captain. And so, this historical approval has been, at, two sworn employees above, authorized staffing levels. And there have been cases in the past where this has been, overhired at a higher level, such as a police lieutenant, and typically that's happened by way of administrative action.

However, given that counsel has requested to consider alternatives and in the interest of transparency, we are bringing forward this request to authorize the overhire at the police captain level. And if a overhire is made at a higher level as has been

done

historically, a lower level position would potentially not be filled in a short term basis or if an employee is out on a long term leave that results in an unpaid status, that the salary savings from that unpaid leave can be utilized. So given the potential for upcoming vacancies, staff believes that this can be paid through salary savings in the near term. However, should there be a need to consider additional budget for this position or to utilize salary savings, for example, from positions in other departments, staff would return throughout the upcoming year to apprise counsel of those updates. And the intent is to continue police officer hiring at full speed ahead. So continue working towards that full staffing level, although we know that upcoming retirements and other separations will likely create vacancies that will keep that number as a moving target.

So given our continued momentum, if additional funding is needed, we will return to counsel to have those conversations. And with that, myself as well as police chief Rachel Johnson are available to answer any questions.

Thank you. Council colleagues, council member Howard.

Thank you, Mr. Mayor. Let's see. That was an excellent report. I'm sort of glad that there's requirement for reporting out on, you know, vacancy rates. And I appreciate how it's tied to the budget. This is a lot of information. I mean, the the sheer number of applications that that the our police department receives, 1,300. I mean, as a resident, I think it makes me feel very good that we have the best of the best. So congratulations to all of you who made it through.

My question is slide 10. So let's see. Twenty twenty, that's the one where you talk about police officer hiring. So it says in 2020, sworn police staffing remains at 65 FTE, And there were seven sworn vacancies. And then in 2023, we approved increasing the sworn to 72. I remember doing that. What was the vacancies? Do we know what the vacancies were in 2023 when we increased it to 72? I think it took a while to hire those folks. But

I don't recall that number, but I would guess that it was around the seven. So Yeah. We have six vacancies now, but effectively our sworn police employees have increased from 58 to 66 currently. And I'm talking about actual staffed people in

the Right, staffed people. Okay. So it's roughly the same amount. And would you adjust in the simplest terms possible, I mean overhire, the definition of overhire. And I know as it relates to this discussion, we're talking about overhiring a captain. But when we talk about overhires, what exactly does it mean? Like, if we're saying we could have up to 72 sworn officers, Right? What does it mean if we were to overhire? Then we would do 73 because someone's gonna retire. Is that what it like, what does it mean?

Typically, means that if we were able to get to and beyond full staffing, we could have 74 sworn FTE.

But so why do we have okay. I I'm sorry. This is probably really frustrating to my colleagues. But I just if we have vacancies, how are we doing over hires? You know? Like, I just don't I I I know something really simple I'm not getting, so apologies.

Anybody? Good evening. I'm Betty Hurwirth, your police chief Rachael Johnson. What you're the question you're asking is why we're over hiring because we are are slotted for two police captains and we're asking to hire a third. So we're asking to move that number around a little bit. You know, typically speaking we confine ourselves to two police captains and we're asking the council to to compile on a third captain.

So it's not it's not a difference in the FTE as much as it is or is it? It is actually.

It could be a difference in the FTE should we reach the promised land of full police staffing.

Okay.

But as that often is a roller coaster with police academy trainees making the successful leap from graduating the academy to a police officer who's off probation. We have some attrition in that period of time from academy graduation to getting off probation because either the officer has decided that this profession is not for them or we have made the decision that they need to move on. So as that number is sort of a roller coaster, as Director Jenkins was discussing, we could yes, in a perfect world, everyone graduates the academy, everyone gets fulfilled training, we could be fully staffed and have a captain overhire that would put us above our slotted

That's helpful. You're saying that not everybody who completes the academy, they're just not quite up to it sometimes still.

Sometimes we learn that people that we we send everyone to a very vigorous academy and quite sometimes lose people in the academy and that's part of our hiring process. That's part of the process, part of the filtering process as I like to call it. But sometimes those folks graduate the academy and they come and, you know, rubber meets the road, if you will, with regard to doing police work. And either they are unable to meet our standards over time or they decide that the job is not for them. Both things happen fairly regularly.

One last question of my colleague. So so everybody who goes through the police academy training, they they may not make it because we say, you're you're just not cutting it. Do some of them say, oh, great. I've I've finished this police academy training. Now I'm gonna go work for Torrance.

That typically does not happen. As director Jenkins mentioned, they have to work at a police department for a year before they get their basic post certificate. After you graduate the academy, you have an academy certificate. But you have to work in a police department for a year and successfully complete probation before you can be issued your post basic certificate and that basic certificate is a certificate that qualifies you as a lateral. So typically that's not something we see right away.

Okay, thank you so much.

Yes, ma'am. Great,

thank you. Thank you. For my questions, I wanted to follow-up on an initial observation made by council member Horwitz and that is that this staffing report is mandated by state law, but we're adding to it tonight the discussion of the overhire. And I just wanted to confirm it overlaps with our proposed budget which we'll be talking about shortly, but there is not a proposal for a Deputy Police Chief in our budget for the upcoming fiscal year, is that correct?

Well, Mary, you're really giving away my budget presentation for later this evening, But that is correct, we are deferring our request for Deputy Police Chief as our operational needs are more to over hire a captain at this point and we want to focus our efforts there and we will bring that back at a time we deem appropriate to request That's

what's called a foundational question in the law because my follow-up is when there was a description of the need for that position, there was a list of administrative functions that your department indicated it needed. And I wanted to better understand even though this is a staffing presentation related to unfilled positions, to what extent those administrative duties will be filled. Would you like me to ask you that now or defer until we talk about the budget?

We've already now talked about some of my budget presentation Mr. Mayor, so we might as well continue. So to answer your question, over hiring a captain will allow us to kind of reduce some of that operational stress that I discussed in February at the mid year budget with regard to the administrative duties that we proposed for the deputy chief to have. It's important not only for a captain or higher position, which would include deputy chief to have the ability to do the job, but also the authority. And that's part of challenge with work.

You know, some of this work, you know, the council asked during that meeting if it could be done by a person of lower rank or by a civilian. And the answer is some of the work can be done, but the authority to make the work happen comes at that executive level. And so by over hiring a captain, this allows us to ameliorate some of those staffing strains that we discussed during the deputy police chief discussion, at least in part. I know at present, myself and and, you know, the captain or acting acting captain are really spread thin and trying to get that work done as well as work done at the lieutenant level and and beyond.

Helpful. Thank you, chief. Mayor Perjem Franklin. Yes.

So also to congratulations to our great hires that we have. It's appreciated not only by us, but by the residents as well for your performance. So thank you very much for selecting Manhattan Beach to work. I was a little puzzled by the deputy chief position. You know, I understand that there's more work that needs you know, there's more administrative work that needs to be done. But what is what are we pro proposing here in terms of salary for the Deputy Chief versus the salary of or a total salary on each of the Deputy Chief and what this captain overhire would be?

Certainly. So the proposed salary for the Deputy Chief in order for it to be a desirable incentive to promote beyond the rank of captain was I believe about $482,000 Yeah, fully burdened total compensation benefits and everything else that is not all salary because then I would want to be the Deputy Police Chief if that was salary. In contrast, the Police Captain position averages about $403,000 a year annually. So there is a difference in salary and that's also fully burdened as well with benefits, pension contributions and everything else that is the police captain salary.

Okay. And from what I understand both

of

those positions are not subject to overtime?

No, sir. Neither one is subject to overtime.

Okay. So we're moving from two captains to three captains. In the meantime, you've been having some of those captain duties being performed by our lieutenants?

Yes, sir. That's correct.

Okay. And we have five lieutenants?

Yes, sir. That's correct.

Okay. And then do the sergeants ever get involved with some of this administrative? Because I understand that there has to be some sort of executive officer knowledge for these kind of reports that was what you had said the last time?

Yes, certainly. So as we've had lieutenants rotating through the acting captain role, they've also had their elevated their sergeants to acting lieutenant roles as well. And we've also depending on the the bureau elevated officers to acting sergeants. So we've had a trickle down effect in the acting roles, which has been great in terms of succession planning and preparing those folks for any promotional opportunities that will exist in the future, but it also creates operational strain as everyone is trying to keep their bureau where they really belong together and mentor that acting lieutenant as well as trying to learn the role of the captain and be mentored as well. So we've certainly been using the acting roles quite liberally across the police department and it's been working, it is definitely everybody is working at maximum capacity right now.

Okay. But they're doing a great job, right?

They are they are doing a great job. They my entire command staff is really performing at much higher level than I would have ever anticipated. But certainly, the strain strain over time especially for myself and our permanent captain that's working right now because we have to assist and backfill and mentor and grow these folks into their roles, that strain is certainly felt.

Okay. And how do you go about hiring a captain?

Well, that's really interesting. So we would have an internal promotional process where our eligible lieutenants who have the opportunity to apply for and participate in the testing process. And once that process is complete, we would establish a promotional list of the candidates who interview with me and ultimately I would select another captain.

Okay. And then how about outside the force?

Hiring a a captain from another police department?

Yeah.

That that is certainly an option, but it really I it's not my preference as my preference is to provide opportunities for our internal post personnel who have been here a long time, especially those folks who have been serving in the acting role and really proving that they have the fitness and the capacity to do the work. So my current plan would be to have an internal process. We have a significant number of our lieutenants who are eligible to take the promotional exam and I suspect that all of those who are eligible will do so. So it will be a highly competitive process.

Okay. And as part of the proposal here for the extra pay, we're talking about taking away positions or are we just still going to go ahead and fill those?

We as Director Jenkins stated, we will still be moving full steam ahead on hiring police officer candidates. And while right now our numbers are such that with our folks that are projected to be in the academy, we would be approaching full staffing even though these police academy trainees under fill the position. That is a real moving target just due to the nature of police officer hiring. And so I would suspect that we will not need to leave any police officer positions vacant as they will become vacant due to attrition and other vacancies that we normally other ways that the positions become vacant that we normally have in the police department.

Okay, so we can we're going to assure the residents that those two sworn officers are going to be hired?

We are moving full steam ahead with This police officers changes nothing Mayor Pro Tem in terms of our hiring of police officers to be abundantly clear. We will be moving full steam ahead as we have been for the entirety of my tenure as your Police Chief with police officer hiring. Over hiring a captain will change nothing.

Okay. So the only expression that concerns me is the term over hiring, hiring, especially in expensive position

like I

mean,

I mean, will we find other efficiencies? Will we become more productive? I mean, I'm just trying to we seem No

certainly I understand your concern and certainly the police officer, the police captain salary is a competitive one for the region and you know and I can very much appreciate the fully burdened cost of a captain is kind of an eye popping number. But with an overhire at the captain rank, what we are expecting are increased efficiencies because we would have a full time police executive able to shoulder some of the workload that is currently being shouldered by our acting lieutenants and in some cases depending on the position by sergeants as well. So this would allow us to really realize some of those efficiencies and not overburden our staff on a continual basis. And I think it's worth noting to mention here, our acting lieutenants, our lieutenants who are acting as captains, they're still eligible for overtime. So they're still eligible for overtime because they are actually lieutenants.

And so even though they're in the acting captain capacity, they're still eligible for overtime. And so when they put in more time than a forty hour work week to meet the commitments of a police captain, they get paid accordingly. Whereas a full time captain, if the candles bring burning at berth ends or they're burning midnight oil, it all costs the same because they're salaried employees.

That's all for now.

Thank you, Mayor Batem. Councilmember Sheridan.

Those are all questions right?

This is questions at this time.

Thank you, Lisa and Chief. I got questions probably for both. But Chief, I'll ask you, I'm looking at Page 20 of the packet where it says we've hired over the same period that director Jenkins indicated January to April. So about sixteen, seventeen months, we've only hired of the applications we got, we got 142 applicants from police officer lateral, and we only hired two. I guess, you walk me through the process of, you know, I saw the rigorous detail of hiring someone, But we got 142 applicants from laterals who've gone through the background and all that.

So we've only hired two. Can you explain that for me?

Certainly. So obviously I know it begs the question if they were able to pass the background at another police department, you know, why are we not choosing them for our police department? And what I would submit to the council without disparaging any of our applicants is that the applicants that we've been receiving for the academy graduate lateral and lateral classifications have not been candidates that I would like to take a chance on. You know the longer you're in a position, no matter where you work and what you do, every now and then you get some baggage and I'm really not I'm not really not handling anyone else's luggage if you understand what I'm saying, Councilmember Schirlian. And so while we have continued to enjoy some laterals applying with us, we again apply those same stringent standards that we apply for academy trainees to laterals.

And if someone has already demonstrated a propensity, let's just say for unsafe driving at their current agency and they have a lot of write ups for traffic collisions and things like that, that's not a person I'm going to take a chance on Manhattan Beach. Even though they're a tenured police officer, I don't want to take a chance on that unsafe behavior. So laterals while they are much faster to hire because they don't have to go to academy, sometimes they're not the people we're to take a chance on.

And just to add to that, I'm I pulled up the chart, think, that you're referencing from the packet. That does include laterals and academy graduates, and it's possible. I'm not sure the exact breakdown, but sometimes when people have graduated from the academy and haven't successfully passed a probation period somewhere else, then they're hired they're seeking employment as an academy graduate. And so then there's that's also part of the consideration is their employment or lack thereof since they've graduated from the academy.

Got you. I just a number that shut off the page, but I know you look for cream of the crop, that's what our residents deserve. So I appreciate thoroughness, but it was just a number that And caught my then with the incentive and I know we're you know, this is kind of our annual review, and I know staff's recommendation was not to change the incentive. But I think it'd be a great idea to change the incentive just a little bit or maybe a round number. I was thinking of instead of 13,058 or 10% of base salary, 3% to 10% of base salary, maybe making it like a potentially like a $20,000 or $25,000 and just get the buzz going again that Manhattan Beach maybe raise their incentive.

Guess my question to you is, are there analytics specifically? I mean, just what you're hearing out there. We looked at all the cities we typically survey ourselves with to see what the true numbers are of the incentives because I saw percentages, but the cities have different populations. Yeah. Yeah. That's what I'm looking at. So I'm just asking, you know, if, like, you know, if council decides to increase it to, let's say, around number 20 and we do a press release, Manhattan Beach increased to $20,000 for, you know, incentive to come here. Do you think that will help?

I I certainly appreciate, both your and the counsel's desire to do whatever is possible to, entice, lateral candidates to the police department. But as we can see from the slide here, that incentive is really all over the map across the board with some cities offering not only a decent bonus for laterals but also salaries above what we offer here in Manhattan Beach and they still enjoy a vacancy rate that is high. And what I have learned from my peer chiefs is that big numbers get you a lot of applications but they don't actually result in more hires. And a lot of that is because laterals when they're especially more than academy trainees. When you're an academy trainee, you just want someone to take you to the dance.

So the first person, you know, first department who says yes, you go with that department. That's what you do as an academy trainee because you want to get your foot in the door. By the time someone is ready to lateral, they are making a much more calculated decision on where they want to work, and a bonus is only part of that calculus. They wanna work somewhere where they're gonna have a good quality of life in terms of the calls that they answer, a schedule that they can rely upon and some appreciation from the community. And I think we have all of those things here absent a much larger lateral recruitment bonus. I don't know that increasing the bonus will increase the buzz. We are obviously are still getting lateral candidates and I read their backgrounds all the time. And again unfortunately sometimes people want to leave their departments for the wrong reasons and we're not going to take a chance from

those folks.

Understood. I just looking at the report saw an opportunity to do that. Again looking at the page you're looking at, El Segundo and Hermosa have lower vacancy factors, which are our neighboring cities and there are similarities between both cities. Both laterals are 40,000. I was just thinking somewhere in the middle. So we kind of I want to be at the 35% instead of the 8%. But I understand what you just said.

Just to

mention one other detail that I probably should have shared in talking about the nuances of some of these programs. A lot of the agencies that have, for example, a $40,000 incentive, that's paid over three or four years. Sure. So effectively, what it does is it increases the salary or what their compensation over that time rather than being like a big, you know, bonus right at the start. And so with the council's authorization of a competitive wage package with the MOU, that might also play into the competitiveness with other agencies as well.

Sure, sure. And thanks for

the clarification. I would think that we would phase it in and it wouldn't be a one time bonus. Couple of other questions, on the captain overhire. So we have two captains, five lieutenants, is it eight sergeants?

11 sergeants.

11. Not even close. And then how many FTOs do we have? Field training officers. Those would be beneath the sergeant. Right?

They would be beneath the sergeant, and that's a collateral position that they that officers apply for. So it's not a rank. It it is a rank in terms of the fact that they wear two stripes, but they only have oversight and authority as it's related to the trainee that they're supervising. So they're not first line supervisors or anything like that.

Sure.

And I I would be remiss in giving you a a solid number, but I'd say between six and eight field training officers.

Okay, fair enough. Thank you. So again, understanding a little bit about over hires. We're not asking for any budget impacts with this for this over hire, but we are over hiring it. Is this similar to past police officer hires over hires that it's a short term overhire, that's the way the policy is worded for other police officers?

So it's a great question, Council Member Schirlian. And ideally, short term is it's a very broad term. This is not a forever addition to our staffing levels, but how long we carry this overhire depends on a lot of factors. And so I don't want to confine myself or the counsel to a hard number, but certainly this is not this is at this point in time, this is not an ask for a permanent addition to our executive staff level.

Got you. And a a fully burdened police officer is how much?

I don't have those numbers with you for a fully burdened police officer unfortunately.

Okay. I guess I'm trying to understand you have six police officers right now that are vacant. How many of those officers' salaries would make up the four zero three? I would imagine it'd be maybe two or maybe three. I don't know without having that number.

So if you do hire the full six or hire the fourth one, then you're impeding that not having enough funds to cover this position as an overhire. So at that time, will you come to us and say, you know, we are now impeding on our vacancy savings, and we need more funds. So in reality, there could be a potential impact to the disposition of adding an overhire police captain, not immediately, but could be if you're hiring, if you have all these in the pipeline individuals and you hire four of the six, then you're impeding and you're going to come back to counsel and say we're impeding them, which is a good problem to have I guess, but

So yes, great question. And you know, if I know that there are a lot of numbers in this report, but with two in the academy, two that we have slots for in the next academy and that's trying to get two more in that same academy, that's six there, right? But again, not everyone traditionally makes it through the Academy and the field training process and we also have some projected retirements and vacancies that we know are happening in the coming months that will help us continue to not exceed, know, not actually be over hiring on paper in terms of getting above 72. But you are correct, Council Member Cherilyn, that if we find ourselves in the enviable position of being fully staffed and with a captain over hire and we need more funding to sustain our budget we will return to the council to report.

Yes, again over hiring term means we're not adding a captain, we'll only have two captains from that's all the org chart shows is the two captains with this overhire.

With this overhire, our org chart will show two captains, but we will have three captains on paper if we are authorized as overhire. We will have three captains. We have a captain who is currently out of the workplace with an unknown duration for his return.

I got a couple more there. I'll be almost done. Let's see. I think this is more for director Jenkins. I appreciate the legislative background and the intent of AB2561, which is there because the impact of public service with the underlying understaffing leading to burnout and increased turnover that further exasperates staff challenges, which is on Slide two.

I'm looking at page 18 of the packet where it talks about turnover and statistics for full time positions. And I'm looking at that statement. I guess about halfway down that chart, it's kinda I know Legislature is hard to put tables in, you know, where it says separation totals, which is almost 10%, this includes voluntary, resignations, is about 10% of our almost 10% of our total employee headcount. Is there something underlying going on that's causing this many separations and is a part of AB 2561 when it's looking at these terminologies on Slide two?

Is that part of AB?

No, meaning like the legislative intent was, are the is this turnover based on like burnout or shortage of staff or what do you just broadly, I don't need to know specifically, I just because looking at prior to 2020, I mean, our numbers were a lot lower. So I guess some post COVID, don't want to blame everything on COVID, but post COVID, the numbers are nine percent to ten percent respectively averaged over five or six years.

Yeah, I think that's a function of a few factors, increased staffing throughout the city, increased police officer hiring. As the chief mentioned, there are situations where somebody doesn't meet city standards. Often, individuals are given an opportunity to resign. There's other factors that contribute to a person's desire to leave. Sometimes it's promotion.

Sometimes it's a what we saw actually during COVID and coming out of COVID a lot was lifestyle factors changing, people choosing to move out of state. That voluntary resignation number doesn't include retirements because those are generally considered something that the agency doesn't have a lot of impact on, but they do include situations where somebody resigns in lieu of another action, so it's not completely voluntary in that regard. And some of these, police officers in particular who may not be meeting standards might opt to resign. I did look at the past year in particular, and it seems like those being reported as part of the current fiscal year are really just a function of timing. We happen to have a lot of resignations last summer starting July 1.

Okay. Thank you. Mhmm. Thank you. Councilman Howard.

Yeah. Two pretty quick questions. Have we ever had a time with our police department where we've been, fully staffed, where it had no vacancy?

Not that I'm aware of. So that would have

been that I I mean, in my twelve years, I don't ever

Performer time.

Thank you. And then, so slide 13, which was this cute, this one. So I imagine well, is it who is who is running this? Is it HR? Are you taking in all the applications, or is it somebody in the police department?

It's a collaborative effort. So we have a dedicated HR personnel who's the primary point person on a variety of recruitments, one of them being police recruitments, working collaboratively with personnel and training unit that's overseen by a police sergeant.

So there must be quite a bit of work, though, that has to happen by somebody in the police department because with interviews and decide I mean, this is a incredible amount.

There's work on both sides. And, for example, for the testing, there's HR personnel there. There's also police personnel there. I should have mentioned as part of expediting the recruitment hiring process, the candidates after they interview immediately following their interview, if they are moving on, they'll go and do a pre background questionnaire Mhmm. Right off the bat to expedite the background process.

And the police department is involved with the interviews. They oversee the background. HR participates as well in coordinating those processes and reviewing backgrounds. But the resources dedicated to background investigations, the hiring of a full time civilian investigator, as well as contract resources, I think, have also been a significant factor, as well as the oversight of that police and training sergeant who It's

gotta be a lot.

It's a critical position to ensuring that the candidates move through the pipeline because a lot of these candidates, as the chief mentioned, are in process in a variety of agencies, and sometimes it's a race to get the good candidates on board.

Thank you.

Thank you. Council member Charnay.

Thank you. Thank you, mister mayor. I don't know if it's this is gonna be a question for you, director Jenkins or the chief, but what's the burden the fully burden rate of a lieutenant?

You have that, I believe.

See it's truly a team effort even from this presentation. So the fully burden rate for a lieutenant based on the average of our current lieutenants is $369,000 right now.

And theoretically you would be hiring That's

not including overtime, that's just their base So

theoretically you would be hiring the third captain if we Right. The overhire from one of the lieutenant

positions?

Okay. And then I know that there is a lot of concern in our community about having sufficient staffing, you know, to to be on the beat. I don't know if that's the right

Yeah. Absolutely. That's right.

And so what I'm hearing is by hiring over hiring a captain, it gives you more flexibility to do the administrative side of what you need because as what I'm understanding, what I'm hearing is that there is more administrative oversight needed because we are current we're we're currently staffed for two captains, but effectively just having one and then rotating through and incurring overtime because of that trickle down over that backfill. Right? Is that correct?

That's very, very accurate and you're correct with one permanent captain with the other one out of the workplace. We are certainly trying to assign as much executive level work to those acting captains, but there is a finite amount that you can do during the for the pendency of their rotations in terms of what you can assign them and expect them to be successful with even with mentoring and what the other captain and I are taking on to make sure the work happens. And I very much appreciate the community's desire because I am a member of the community, to have boots on the ground and have police officers there, when you call them. And that's always our first priority is to make sure that you're there, when you call us. When I was appointed as your police chief, our staffing was lower than it is now.

And so rather we we went short in the detective bureau, not the patrol bureau because we our primary mission is always to be there when you call. And so that's always going to be our guiding light and our focus. What sometimes will be, know, it's it's hard to fully appreciate unless you're in the police department is how much these managers and executives support the work of the patrol officers. With the state mandates that we have, with the over the review that we need to do for any use of force, any pursuit and the overview of our, you know, our reports and our statistics. That's all done at the manager and executive level.

And by keeping making sure that we are keeping on top of all of those all of those reporting requirements, that's that's actually keeping officers on the street because we're catching things earlier. If we have someone who's got a the need for speed, we're catching that much earlier through our administrative oversight, and we're making sure we use our administrative processes to kinda rein that behavior in and make sure officers are safe and acting in accordance with the community standards. But that's the unseen work of the police executive at the captain level and above.

Okay. Thank you. So so I know we've been in the weeds about and I really appreciate getting an understanding, especially, you know, new to newish to this c I don't know how much longer I can say that. Right? A year in. But just understanding the staffing challenges and the rotations and and really the incoming and outgoing, and it's always fluid. Right? So Yes, ma'am. Is it my understanding that you're doing this so that we can ensure there's flexibility so that you can fill officers on who are in the field and then still have the capacity to have the the people who are overseeing and making sure that the the, you know, in house work is getting done so officers can be on the street to do what they need to do. Is that

I can't say it any better than that, councilor McKimney. Thank you.

So that's my that's my comment and lay person's understanding. So I appreciate that.

Thank you. You, council member. Not bad for new.

Not bad.

Mayor for

Tim Franklin. Yes. So

chief, we were pleased with your reports earlier, other council members of decrease in crime.

Right.

Here. And, you know, having joined council in 2020 during this we were well into the well into the pandemic. And crime was a real issue because we frankly, at the same time in 2020, we had a county district attorney that did not seem to wanna prosecute criminals. And it frustrated, I believe, the police force and also the the residents because there was sort of a, you know, a revolving door. In fact, there was talk of, somebody being arrested three times in the same day.

I mean, they would be booked and then go out and they would go ahead and go again because they didn't sense that there was any impact. You know, there there there was no consequences of their crime. So so so having having that for well over two years and in fact, we tried to get a prosecutor, prosecutorial services close by, but that same county prosecutor denied us the ability to do that. So so how is the effect of having a new county prosecutor who prosecutor who does prosecute crime? What has been that effect for your, you know, for your police department?

For the crowd, but also the efficacy and

Well certainly we are appreciative District Attorney Hawkman's outlook on law enforcement and he has made a concerted effort to be a great partner to law enforcement agencies across the region certainly including ours. I speak with his law enforcement liaison quite a bit about cases that are of significance to the city. But what I'd like to point out to the council and the community is we enjoyed a 13 over 13% reduction in crime in the last year of George Gascon's tenure and that's due to the work of the police officers using data to direct their Patterns of Patrol and also this community. If you recall in 2023, we started distributing the weekly and monthly updates beyond just a small user group and started submitting them via social media and now we've gotten to the point where you can subscribe to them on the city's website, and they're also also on our socials every week. And I believe it's those efforts, within our department, to, you know, wrap our arms around crime a little bit more, especially coming out of the pandemic where we're like, don't touch anybody because you might, you know, get coronavirus, to, you know, using data and really going out there and be proactive.

So across two different district attorney tenures, both the final year of DA Gascon's tenure and the current, you know, year and a half of DA Hawkman's tenure, due to the hard work of the police officers in this community and partnering together, we've enjoyed successive years of crime reduction over 13% in twenty twenty four and six percent in 2025.

Okay, thank you.

All right. Councilmember Sherbet.

Real quick. Something that Councilmember Tarne indicated kind of brought this question to my mind. So I might have missed it. I apologize. But so we're taking a tenant position and making it into an overhire captain or not a tenant position, but I So thought I we're now five lieutenants.

We have five lieutenants and we will still have five lieutenants if this overhire is approved. But we will promote a captain and which will cause a trickle down effect where we promote another lieutenant. At the end of the day, this overhire is not meant to be forever at the captain level. Is when it will end, I don't know, but this is not a forever addition to our staffing model. This is a temporary measure to provide for that continuity and oversight that we

need.

Understood. I just wanted to

Yeah, we're going promote all. We would have the trickle down effect promotion of Lt. And Sergeant Lobel.

That makes sense. And just for clarification, mean, my questions are all from place that, all the boots on the ground are the most important thing I think to the community and they're the optics out there. And seeing that you do almost 17,000 calls a year, it's incredible.

And 25,000 calls that are initiated by our personnel over and above the 16,000 calls. So our folks are busy. Our boots on the ground are really those boots are made for walking. We're out there.

No, I appreciate that and I didn't want to take everything off of your budget slide.

It's okay. It's okay.

All right.

Any other council member questions? Now I'd like to open this item up for public comment. Any members of the public in chambers that would care to address this item on staffing and the proposed overhire?

Just a brief comment. Having been in the nursing profession for a long time, I know a lot about recruitment and retention because that was always a big issue in hospitals across the country. The only thing I would say is that I understand the law and focusing on vacancy rates, but that's not the only reason for staff turnover. It can be work processes and environment, etcetera. And that's part of my report and I think that's what you need to look at. It's not just vacancy rates, that alone is not what's going to cause it. In fact, if you have bad processes, your vacancy rate is going to go up.

Thank you.

Thank you. Any other members of the public in chambers that would care to address this item? Seeing none, Patty anybody on Zoom?

No requests on Zoom.

In this case I'll close public comment, turn over to council colleagues. Is there comment or a motion? It's a motion by council member Tarneh. First, so what is the motion and then we can use that as a basis for discussion.

Alright. My motion is to receive the oops. Where'd it go? Okay. Receive the informational report regarding the status of vacancies and recruitment efforts pursuant to AB twenty five sixty one and authorize the overhire of one police captain on an ongoing basis.

See that has been seconded by council member Haworth. Council member Charney, did you wanna make any I

did. As I mentioned earlier in my question earlier, I think it's important for us to give I think there's been a thorough evaluation of what's needed in the department. And I appreciate the overview. I think it having it done in conjunction with the AB2561 report is really helpful so that I can understand so the public can understand what just kind of the moving forces of what it takes to run a department. And I appreciate the deep dive.

I know that previously we had discussed the hiring of a deputy police chief and I really appreciate staff listening to what counsel and the public shared, you know, concerns about our bulging budget and still finding a way to meet the needs of the department without increasing our budget, you know, hopefully for the time being and hopefully for the foreseeable future that we can keep a robust department without increasing our budget. So thank you.

Thank you. Mayor Pertem Franklin?

Yes. So we see it on the reports all the time. Know, this, heinous increase in crime, breaking and entering even while people are in, you know, in their homes. Our residents have told us so many times we wanna see our officers. We wanna see them patrolling. We wanna even see them walking. For a time, we had officers on ebikes, you know, making a presence throughout the town. This is what the residents want. I appreciate the need for some executive level help, but it's not boots on the ground. And I just wanna maximize that opportunity to get those recruits.

We got a good overview today of the challenges. You know, we all live here, and we think it's a great place to be. So, that doesn't necessarily translate to the needs of these officers who have families and they wanna, you know, and they choose to live elsewhere. So I just really wanna focus the opportunity there. I don't wanna see money taken away from that.

We have two, from what I understand, two captains. I I see it as a pathway for for the lieutenants and even for the sergeants and the like. But the reality is in our is in our past, you know, someone's gonna have help me with the history. You know, we went outside, you know, for for the, you know, for the, you know, for the chief and alike. And sometimes they bring people along.

That's just sort of the way things happen, you know, in the world. So focus, focus, focus, boots on the ground. You know, this is a budget report. This is tagged on to or within a budget report, and the budget is not looking great. I mean, we just have to really get that all under control.

The reason I brought up Nathan Hoffman is because I've heard from some on the force. It's great now. Now that their work is you know, when they bring somebody in, it's gonna go through the prosecutorial process. We were denied three times, you know, by George Gascon to allow us to contract prosecution services from Redondo Beach from their district attorney, and it was turned down three times. And that has a incredible effect on morale, not only of the of the police force, but also of the residents.

So I think we just want to we, you know, we see the crime all across LA County. I mean, we're part of LA County. I, you know, I say sometimes that, you know, LA sneezes and we get we catch cold, okay, because everything is so close. So I I just wanna opt for as many boots on the ground as possible for the for the money that our residents spend on taxes and the like, that they deserve that kind of level of a protection. K? Thank you.

Councilmember Sheridan.

Thank you, mayor. I'm just gonna reiterate a few things. So chief, you you mentioned that this is not going to take if you can come up to the to my room. This is not gonna take boots off the ground.

Correct.

So we have six open vacancies right now.

Right.

And once once, you know, if we were at higher three and there's only three left, you'd be impacting this over higher salary and you would come counsel to talk about any fiscal impacts at that time. Is that 100%

correct.

100%. So we're not taking any boots off the ground.

We are not stopping anything that we're doing.

If you're strengthening kind of your management and you're not adding a position. It's short term overhire, whatever, however long short term is defined. And I think that's probably within the year term, but we'll be able to reevaluate that several times with different quarterly reports with the budget. But no boots out of off the ground, having more managerial oversight in the police department. Right now, you're utilizing lieutenants and sergeants and everybody's over again, it's impacting over time, so you're still kind of cost neutral. No boots off the ground helping the police department do their job and keeping the community safe.

Accurately stated.

Thank you. Councilmember Horwitz.

Thank you, mister mayor. I seconded the motion because I wanna support our chief and our police department. Public safety is has to be our number concern. As residents, it's always a thing that they bring up. And, you know, I it was great to hear the chief said that even during the last district attorney, we still had a decrease in crime because of the efforts of our men and women, and we continue to.

Our chief has reduced the vacancy rate. So to one of our residents who brought up and I agree. I thought it was a great point that it's not only salary that contributes to other people who wanna work here. It's the culture and it's the way employees are valued and our police department, our fire department is valued. And I value our police department and our fire department. And I see the chief trying to do something here that is relieving stress within the department. It's not just a paper pusher. I appreciate Councilmember Sherlyn's clarification. This is not taking boots or do you guys wear boots?

We all wear them?

Oh, yeah.

Too bad.

Should be.

Loafers? Okay. We're not reducing boots on the ground. So I also want to thank the chief, the budget department or finance department and our director of human resources because I think they really, really tried to creatively solve a problem for the folks in our department, but yet they heard council members say, oh, we're not we don't think we need deputy police chief. Although, again, I think that was the chief trying to make it a better place to work for everybody because you see how much work is involved in maintaining a top notch police department.

So I want to support our chief, our police, and I'm happy to support this. And anecdotally, my husband is one of those who says things like, you know, I don't think I see the police around. You know, that's a good comment. We sorry. I'm I'm making fun of my husband. He's not watching. Anyway, he'll say, well, you know, I don't think I see that. You know, I don't see them around. And every he's done this a couple of times. Like, okay. Let's play the game. So get in in the car, we're driving some place. Oh, look. There's somebody in the car. Oh, look. There they are talking to somebody on the street. It's it's easy because sometimes just when you need somebody, somebody's not right in front of you. They're out there. They're keeping us safe, and I thank you. So I'm happy to support this.

For my own comments, we all support as many patrol officers as we can afford and as are needed based on an assessment of what our community needs are. I was proud to serve on the council that increased the number of sworn officers from 65 to 72 based on our assessment of need, and based on some of the information that we heard this evening. And that is, there's a regular turnover, whether through retirements, for long term leaves, through lateral transitions, to have that higher number has helped with regard to our staffing as council member Howard just indicated. We thank the chief, we thank our human resources director. But what this presentation is about, particularly with the overhire, has to do with administration to be sure that we can accommodate these patrol officers.

We appreciate the staff listening to concerns of counsel about the deputy police chief position, and instead coming up with a solution, a short term solution, an interim solution to be able to have sufficient administration capacity to be able to accommodate our patrol officers and keep our community safe. It's what our residents want. I'd be happy and looking forward to supporting the motion. Any further council member comments? If not call for the questions.

Motion passes four to one. Mayor Pro Tem Franklin voting no.

Okay. Council continue or do we need a break?

Think it's short break.

You take a five minute break? Stand and recess for five minutes.

Pegasus, we're ready to go live.

I'd like to call back to order

our city council meeting of Tuesday, May 12, and we now continue with item number three, consideration of a business license tax study results and the feedback from the business license tax form. And just for purposes of disclosure, for those of us that have business licenses, I wanted to turn to our city attorney very quickly. My recollection is there is a general exemption from a conflict of interest loss to be able to participate in an item when it applies to the city as a whole. Can you describe what that exemption is?

Yeah, that's true. There's no conflict of interest. It's called the public generally exception, where it applies to typically about 20% of the population. And so some like a zoning ordinance for instance, would not have to recuse yourself. Okay.

Thank you very much.

Mayor, before

we start,

just for transparency, too have a business license.

You for So bringing that up. You. Thank

you. Good evening, Mayor Lesser, members of the City Council. My name is Libby Brettoeur, your Finance Director. And before we move into the presentation, I just wanted to take a brief moment to thank our staff because a tremendous amount of work has gone into this effort. And in particular, I want to thank Amy Rose Hannah, who will be presenting here in a moment, our financial services manager, as well as Josh Grady, John Alby, and Tony Page, who couldn't be here in person with us tonight.

So a tremendous amount of work has gone to it gone into this on the staff side, and I'd also like to thank our partners at HDL companies who've been partnering with us on this tax study, in particular, Eric Myers, who you will meet here in a few moments. So with that, we can go ahead and get started, and we'll be glad to take your questions later.

Thank you, Libby, for the introduction. Good evening, mayor Lesser, mayor Pro Tem Franklin, and members of city council. My name is Emmy Rosanna, financial services manager with the city's finance department, I have the honor of providing an update on the business license tax modernization plan along with providing updates on feedback from the recent business license tax forum that was held recently on April 23. So diving into our agenda this evening, we're going to touch briefly on just some background and a little bit of history on the city's current business license tax code and the tax structure. From there, we're going to dive into the five primary goals of the business license tax modernization plan.

And thereafter, we'll have an overview of the main priorities that are broken up into two phases under phase one, which is already completed based on the March 3 City Council meeting. In addition to Phase two, which is currently underway and why we're here tonight. From there, we're going to turn over the presentation to our partners at HDL who are experts in local agency taxes and they're going to present the results on the tax study and present alternative tax models for consideration. And then we'd like to also share feedback from the Business License Tax Forum that occurred recently on April 23. From there we'll have an overview of just the next steps and the tentative timeline in the weeks and months ahead.

And lastly we'll dive into the recommendation. So what is a business license tax? Not a great sandwich called BLT but we refer to it as a BLT often, in short to reflect what the business license tax is within the city. So generally speaking, the purpose of the business license tax is really to fulfill two goals. One, to ensure that businesses are complying with local regulations and two, to contribute to public services to which they do benefit from the city's clean and well maintained streets and sidewalks as well as the safe and secure community that Manhattan Beach offers.

The business license tax supports the general fund, which helps contribute to the overall quality of life and atmosphere that makes the community so attractive for businesses to operate and residents and visitors to come to the city. So there is a nexus to the taxes that contribute to general funds, which help maintain the city's overall well-being. Just a bit more background on our business license taxes in general, it's typically based structured on alternative methods based on number of employees of a business, on number of vehicles or square footage of a building. And just to share a few statistics, we found over 95 cities imposed this business license tax. And according to data compiled by the League of California cities, on average, a business license tax makes up about 3% of a city's general fund revenues.

Some cities can generate up to 30% of revenues from this tax. Here in Manhattan Beach, the license tax makes up about 5% of general fund revenues. And later on in this presentation, we will explore how we compare to our neighboring and comparable cities in terms of the percentage of revenue within the general fund. Briefly on the city's history, our business license tax code was established over fifty years ago in 1971 and hasn't really changed since then other than a few minor amendments over the years in the 70s, 80s, 90s and early 2000s. However, since then so much has changed in the last fifty years where there have been overall shifts of how businesses operate, new industry types have emerged and so a comprehensive review of this current tax code is warranted.

So as we embarked on the business license tax modernization plan, we focused on the city's current tax structure. We wanted to share this because we've been told that our current business license tax is one of the most complex in the region. You may have heard the same but we present here that there's over nine different ways in which the tax is assessed on businesses and it depends on the business type. So on this slide, we include gross receipts basis, which is the most common type of tax that our city includes, most businesses fall into this category where there's a base tax plus incremental gross receipts basis tax with a cap of 12,156. In alternate types, there's a flat tax for contractors, subcontractors or PO boxes.

In other cases, some businesses are assessed on a per unit or per room basis, so this would apply to hotels and apartments of three or more units. In some instances, the tax is applied on a per vehicle basis, which is applied for gardeners, landscapers, mobile vendors of that type if they operate out of a vehicle. And then continuing on to the different types of tax, there is a per employee basis tax that's applied for administrative and sales offices. There's a square footage basis and number seven here, you'll see there's a commercial property tax base where there's effectively two different tax types that would fall under a commercial property and whatever it calculates to, it takes the higher of the two. So in this instance of a commercial property, there's a square footage basis versus a gross receipt basis and whichever calculation is higher is what is utilized for their tax payment.

There's also similarly research and development also has two calculations and it's whichever is higher and that one varies depending higher on the square footage basis or the employee count basis, again whichever is higher is what is remitted. And then lastly, there's other miscellaneous license types which is supplemental handbill solicitation. So I did want to note that for most businesses, there is a current cap, which is the maximum tax that can be paid on a license of about $12,156 The only exception to that rule is for commercial property and research and development. If the square footage basis is utilized, that cap is different and that cap is 251,168. So that is the exception to the standard 12,000 cap.

So as you can see, there's a variety of complex tax structures that are applied upon the different business types in the city and this is within our current tax structure. So one of our primary goals of this plan and this effort was to focus in trying to simplify the tax structure since it is so complex. And with that, I mentioned earlier that we held our first ever business license tax forum on April 23 mean, we wanted to share the results of that forum as it relates to the different tax types. So as mentioned earlier in the agenda, we held the tax forum and approximately 68 community members attended the forum with about 53 attending on Zoom and 15 attending in person in this council chambers. All attendees had an opportunity to participate in the poll throughout the presentation.

They were asked three different questions, which we'll be presenting this evening, the results of which we'll be presenting. The city also posted the QR code for additional voting to provide opportunity to vote after the forum. So we allowed votes to be cast up until May 1 to give anyone an opportunity that would like to participate. So having just seen the nine different types of taxes that are assessed currently in our structure, we had asked participants in the forum as to what tax structure they currently fall under. And so as you can see on this slide, a majority of the participants, about 81% fell into the gross receipts tax structure, which is not to our surprise and this reflects 34 out of 42 respondents to this question.

While the remaining eight participants are taxed based on a flat tax per vehicle, per employee, a commercial basis or there's about four of them that just did not know what tax they're assessed. So again, that goes back to the complexity of our taxes. You don't know how you're taxed, that means it's it's not simple enough. So moving on, in in diving into the current cap of the tax structure. So one area of focus was to understand and also explain the the city's current cap.

So as you could see on this slide, a business license tax payment goes up as their gross receipts increase, but only up until they reach the cap, is the $12,156 with the exception of those two other categories for commercial property and research and development. So currently to reach the cap, a business must generate about $4,500,000 in gross receipts. So any business making more than that amount would pay the exact same in business license taxes. So as an example, a business that generates $5,000,000 pays the $12,156 they would pay the same exact amount as a $20,000,000 or $50,000,000 business. So it's the limit that's established in the current structure.

In the last column to the right, you'll notice that the percent of their tax payment compared to their overall gross receipts, which goes down considerably the more the business earns. And so another primary goal of this effort was to look at fairness and equity across all the different business types. And with that, we wanted to share the results of the other polling question as it relates to these varying levels of gross receipts. So again, throughout the forum, we continue to engage the audience to learn about their business mix. So, asked what range in gross receipts they generate and based on the results, a majority of their participants, about 79% generate $1,000,000 or less, so they fall under the 1,000,000 range or less and that reflects about 34 out of 43 respondents, while the remaining nine participants generate that responded generate anywhere from 3,000,000 up to 50,000,000.

I will add that because this poll only reflects a sample of 43 respondents from the forum, we were curious as to how this compares to our actual breakdown of businesses. And so based on the latest available data from last year's completed licensing year, the tax study shows that about 44% of actual businesses are in the 0 to $100,000 range. The other 49% of all businesses are in the $100,000 to $1,000,000 generating range And then the remaining 7% are in the over $1,000,000 range. And so that indicates that if you look at the up to $1,000,000 that represents about 93% of all businesses generate $1,000,000 or less, which is actually far above the 79% that we reflect here on the poll. So we wanted just to gauge the comparison of what was submitted in the poll versus what is the actual breakdown of the businesses in terms of what's reported.

So moving on to our primary goals of the business license tax modernization plan, this may look familiar since we did dive into this at the March 3 city council meeting, but we wanted to share this again as it was recently shared at the forum that the five primary goals of the plan are to simplify, clarify, and modernize the code, to create a more fair and equitable tax structure, structure and to maintain fiscal sustainability for the city. And as mentioned, these goals were developed by taking into account feedback from the business community over the years. And in these next few slides, you'll see that these five goals are really incorporated and helped shape the individual priorities of the overall plan. And so with that, we wanted to share the two primary phases of the plan. So since we presented 20 individual priorities already at the March 3 City Council meeting, we won't dive into those details.

But we really just wanted to highlight the two phases where we completed Phase one, which was really just the administrative cleanup of the code. And then Phase two is currently underway where we are currently addressing the remaining 10 priorities that involve significant updates to the code that would trigger voter approval because they would essentially adjust the tax structure. I will add that since we have since we're currently in Phase two, we'll be presenting the results of the tax study this evening and the feedback from the forum. And then depending on the outcome of tonight, we will continue Phase two by conducting community polling and explore potential ballot measure for the November general election. So that's essentially the basis of Phase one and Phase two.

And with phase two requiring voter approval, we wanted to share these 10 individual priorities again as they were discussed at the recent forum. So these 10 additional or these 10 priorities, begin with item 11 here, was to update the business license categories based on the business type rather than their location. So as an example, a PO Box isn't tied to a business type, it was just a or a home occupation wasn't tied to a business type, the classification is currently a home occupation. So the goal is to streamline it so that it would fall under its reflective category, whether it be an accounting firm, a service, retail or whichever category it would reflect. Item 12 is to simplify and consolidate the tax types based on gross receipts and this would be to streamline all the different ways of taxing and uniform it, unify it into one basis of a gross receipts basis.

Item 13 is to clarify and expand the professional services and real estate categories along with creating new business types that have emerged and just did not exist fifty years ago. And then Item 14 here is to clarify the tax category for short term rentals versus hotels. As mentioned earlier, hotels are currently taxed based on a per room tax, whereas short term rentals are on a gross receipts basis. So we look to uniform that to ensure fairness. And then item 15 here is to consider a standard deduction or a threshold for business license taxes.

And then moving on to item 16, was to consider changes to the current sales tax credit that's currently only available to commercial property owners. And the way this works is a commercial property is able to receive a credit or a reduction in their tax liability by applying a sales tax credit generated by their tenants. However, this credit is not available to the tenants that generate the sales tax directly. So this goes back to fairness and equity and looking at applying the tax the same way to all business types. Item 17 is to address apportionment by eliminating or reducing the base tax and also clarify exemptions, deductions for revenues generated in other jurisdictions.

So regarding the term apportionment, we wanted to highlight this today and we also highlighted this during the forum because there's a little bit a little confusion on this topic and it's not a widely known term. So we wanted to expand on this. So apportionment is the process of reporting gross receipts generated within the city and paying the business license tax applicable to that city. So for an example, if a business operates in multiple cities say Manhattan Beach, Hermosa Beach, and Redondo Beach, then they would only be responsible for reporting the gross receipts that are generated within the City Of Manhattan Beach jurisdiction. They would not report the cumulative gross receipts generated across all jurisdictions, so it's targeted within the city.

So moving on to 18 is to clarify the definition of employees since employment has changed due to remote work and other advancements in on-site and telework. And then item 19 is to update the current tax structure by looking at neighboring cities and later in this presentation, HDL will show a comparative analysis of the other tax rates in our seven other cities. And then the last priority here is to look at either research or reevaluate the current business license cap. And so we'll spend some time later in the presentation discussing alternatives to that function. So at this point, I'd like to turn it over to Eric Myers, our expert director in business license tax from HDL and he'll lead us through the remainder of the presentation along with the results of the tax study.

Mr. Myers before you start, can we check the temperature of the council Chambers? It's 73 and

it went up from 71.

Where do you see that?

Perfect. Thank

you. It's gotten warm.

Thank you.

Usually the temperature doesn't go up till I start talking.

Done. Thank you. You know it's bad when even I'm

No, no, I was just. Thank you. Thank you.

Well, evening. I'm going to present the tax study really as an answer to three basic questions. First, what does the city's current tax structure do in broad strokes? I will only touch on that briefly. Emmy's covered that beautifully in what she's provided so far.

Number two, how does that current tax structure compare to seven comparison jurisdictions that we used for the tax study? And then number three will be, let's look at the four alternative models that the study presents. Yes, I'll grab that. And we will look at those models, then we'll take a moment to step back and look at how in about five specific scenarios, those businesses would be taxed under the different models, under your current model and in those seven comparison jurisdictions. We really have to use specific scenarios to do that well because the different cities may tax on different bases, right?

So We'll go here. First, your five year revenue trend, which is what the title says, but we've actually got six bars on there. So the you had moderate growth. That's pretty obvious. One thing that may not be obvious here is this is not fiscal year.

This is on a cash basis. So if you're looking to reconcile it, say, to your financial statements, it won't match up exactly. What we wanted to do for the study was we use the license period, right? So that if somebody came in and paid two years at once because they were in arrears, that's not showing up. It's showing up in each year for which they owed the tax.

So we used the license period here. It's not a cash basis. Now you've had moderate growth in your revenue as we just saw. You've also had moderate growth in the number of businesses over the last sort of six years or so. Again, why?

It's an interesting question. It looks like, just from the timing, that there are two key drivers, and I'll get to the second one in a minute. But one is coming back and the recovery out of COVID. The second, and you'll see this if you look at the goldish line, there's been an even faster rate of growth in the outside businesses, and that's turns out to be almost all in the contractor arena. So contractors and subcontractors, a lot of building going on in the city and a lot of work by the city staff to make sure that those people are pulling their licenses.

And so you can see that in the counts. And you'll see it here as well. The top two lines, contractor and general for contractor general or contractor subcontractor, We went ahead and looked at 2020 versus 2021 and then the 2025, 2026 license period. And if you look at that, you see that's the area of the greatest growth in the city over those two periods. Part of what we're seeing here is just a confirmation of what Emmy has already showed you, which is the potential complexity for businesses in the city.

You've got, depending on how you want to count this, 26 if 27 if you want to include exempt businesses of rate types. And then within those rate types, as you saw from Emmy's presentation, you have lots of different ways that the tax could be calculated as well. So a fair amount of complexity at the moment. Just a little color for the evening, but here, we're looking at the total share of tax revenue generated by business type. So retail sales and service, about 26% commercial property contributing at about 17% professional services, another 16% restaurants have their own business type at the moment, again another 12%.

So and then your contractor general is a little bit over 10%, which not bad. I've seen cities, particularly coastal and in the Southern California region, where that number is closer to 25% coming from contractors, which would be a reason for some concern and to watch out for. That's always variable money. Depends on how many projects are ongoing. All right.

This is a fairly important slide from my perspective. And so I hope you won't take offense if I take a moment to walk through it carefully. On the left, the sort of dark blue letter C looking donut there, this represents the percent of total reported gross receipts that come from your top 100 businesses. As you can see, that's about 85 of the reported gross receipts. Now it's not yet the tax, but this is a decent reflection of the concentration of business activity.

Your top 100 contributed about 85% of the business activity in the city. We looked at that also for employees, but because that's not a dominant method of measuring in that middle chart, I don't know that it's terribly helpful, but it's there in case you want to compare. Now here's where it really gets interesting. If you look at the orange section in the far right chart, what you see is that your top 100 make they report 85% of your taxable activity. But because of your two different cap structures and primarily your cap at about well, it'll be 12,000 pretty soon here.

That cap structure means those top 100 are only paying about 36 percent of the total tax revenue in the city. Contrary to what it might sound like, I'm not passing any moral judgment on that. That's just a structural feature of your tax at the moment. That cap results in that structure. Now in the next few slides, we're going to look at these seven cities that I mentioned and where Manhattan Beach sort of stacks up right now.

We chose these seven for a few reasons. One, they're nearby. Two, several of them are destination areas. Three, Culver and Santa Monica, for example, were pretty recently updated. Culver City in 2022, Santa Monica in the twenty twenty four election cycle.

And so provide potentially some good comparisons. And at a minimum, are going to be places where as you consider this from a policy perspective, okay, El Segundo is right next door. Could somebody move and pay a different rate? That sort of question. What you'll see here, and I'll walk you through this chart, it's got a lot of numbers.

I need to come up with a better way to make this easier to digest. But let's go through the line with Manhattan Beach, and that will probably clear up some of my confusion here. So Manhattan Beach is highlighted in blue. As you can see from its vertical position, it's actually about on the middle to the low side of this comparison group. The way we sort is on revenue per capita.

So it's sorted by revenue per capita in this chart. You could also sort by revenue per business, it wouldn't really change the results in this particular case. We do that because it allows you to sort of compare apples to apples. We're controlling for the size of the population of each of the cities here by using a per capita number or the size of the business community and economy by using a revenue per business number. What you'll see is that this is the oldest of the tax structures in terms of significant modifications.

It's been just about fifty years. It's primarily gross receipts here. We did look at some differences. Beverly Hills, for example, has gross receipts, but it also has a significant per employee tax. As you may know, El Segundo has got this sort of hybrid that it adopted in 2022 that's per employee and square foot, so you pay on both.

And if you'll note, of the seven comparator cities, Manhattan Beach is the only one with an explicit cap. Now, again, this is another way of visualizing what was in that table a little bit better. The revenue per cap is in the darker blue, the revenue per business in the left hand chart is in the lighter blue. You'll see Manhattan Beach right about in the middle there as you would expect from the chart or the table, excuse me. And also as Emmy mentioned, Manhattan Beach is right about in the middle in terms of the percent of general fund revenue in the budget from business license tax.

Let me pause there and see if there's any questions on that jurisdiction comparison before I move to the models.

Colleagues?

I

mean, I'll

please might as well.

Important item. Thank you for that. I know you're subject matter expert with HDI. I respect your firm. So the jurisdictions, how can you explain to me, or maybe it's a staff question, how we derived at those? Because it are those ones that HDLs work with in updating their models? And why not do I know there's a cost involved, but this is an important item, I guess. And for due diligence, I would have liked to see a broader, But maybe you can answer just my question to start with. Are these all ones that HDL has worked on?

I wouldn't say they're all ones we've worked on. For example, we had no hand in El Segundo's 2022 change. We helped implement Culver City's 2022 change. We did not work on the tax study. We did work on Santa Monica's 2024 change. So from those and we administer actually do some backup administration for Beverly Hills. So we have some connections with these. Let me broaden out my response a little bit. In an ordinary tax study, we go this deep only on three cities. Your staff insisted that we do seven.

We could have done a lighter look at a whole bunch of cities because those are reported to the state controller. They're a couple of years out of date, but we have all the cities in the state in the state controller's data. To look at the more detailed, it's a matter of time and kind of a trade off, a payoff. How useful are they for you as a comparison? We start to get up to ten, fifteen, 20 and it may feel good, certainly takes up a lot of paper, but it isn't going to be useful for making the comparisons.

That's our experience for you as policymakers. So I think your staff went above and beyond in saying we want all seven have a more detailed analysis when we normally offer three as the standard for our tax studies. I don't know if that you would like to respond.

I just wanted to add, Councilmember Schirlian, that when we came to the council for the discussion about phase one, at that time, we indicated which cities we had selected, and the council deliberated that and gave us the direction to move forward with these cities.

Yes. Thought there was also financial impact if we increased it, but I could be wrong.

At that time, the council did consider that, but told us to remain with these cities.

Okay. Further questions at this time. Great.

Any other Yes. I took mine off because all I wanted to know is do those cities use us when they do a

study? I'm

just kidding. Yes.

Of them will.

Yes. Yes. Mean but seriously, just a quick comment is I'd like to see a little bit more tangible. I mean, we're not El Segundo. They're big tax business tax contributor, I imagine, is the refinery. Where we're more our retail and our restaurants and the like. So just I can see the challenge as far as developing the fabric and the different formula.

I think Mayor Pro Tem when I get closer to the end and we're going through the scenarios, think some of those will maybe what your appetite even more for that, but hopefully answer some of that question. Okay.

Thank you.

And I think for my own comment, it's less a question that I'm mulling about the jurisdiction comparison tends what some of the objectives might be of these other jurisdictions. And you're going to be getting into that with our models that we're about to discuss. But clearly, what motivated some of these other jurisdictions to do what they're doing? We'll talk about that when we get into the potential models.

Sure. I think your staff has nailed a number of the questions that I see. So I'm involved in about 20 of these tax studies this election cycle up and down the state. And generally speaking, under the rubric of modernization, what we're looking at is, is there equity? Can we simplify for both the business and the staff?

How do we administer these things? A lot of them, if they haven't been really updated in a while, have baked in assumptions about the nature of business that is no longer true. So how do we update that? So equity and simplicity of administration. And then quite frankly, I think a lot of cities in the state of California find themselves with high demand for their services.

Their residents want great services that they've come to expect, and those need to be funded somehow. And in this state, a lot of that burden falls to the local agencies. And so a lot of the time, revenue is a nontrivial component of that. Thank

you. Any other questions at this time? You may proceed. Thank you.

Okay. Thank you. So let's dive into the four we're going to look at four models here today. The first model really sets a baseline. Essentially, what it does is it keeps everything else in place right now except it pulls the caps out, right?

So we wanted to see what would happen if we did that. What if we kept everything the same, so the only change you'd get, you wouldn't get any simplification, no more modernization of the categories, you're going to get just potentially additional revenue and some equity improvement because you no longer have the cap at the top end, right? Not to put too fine a point on it, but a cap always is going to give you equity challenges. It may be necessary for practical reasons. It may be a good policy decision.

It always is going to create some equity friction. So what would happen if we removed the cap? So this is sort of the baseline I'd like you to keep in mind. Just removing the cap, so no simplification, We don't fix some of the other equity issues. We it looks like about $2,900,000 in increased revenue from removing the cap.

I'd like to use that number against which we can then compare the other three models that I'm going to share with you tonight. But I will also note, this isn't a forecast. So I'm sort of engaging in alternative history here. What we did with our model was take your actual reporting behavior from the last license full license period. If those people had been taxed at these new rates, right, given what they reported, this would have been the result, right?

So if the economy continues to go up, this could be low. If the economy took a turn south, you could see a significantly different number. But this is what would have happened in that alternative history if the cap had been removed and the reporting behavior were the same. Okay. Now Model one, you've already seen this chart once.

I'm going to take just a minute to go through it and beg your indulgence here because I'm going to use it in a couple of different places. You've seen from Emmy before, we're not proposing a tiered model. That's not what this slide does. What we're trying to show with this slide and the others like it is, if you are a business that falls in one of these 10 lines, one through 10 on the left, okay. So let's say you fell at you made and reported $4,500,000 that's line number five.

Under the current business license tax, you'd hit the cap, 12,156 million. That would be 27%, so 0.27%, not 27%, excuse me. So it's not even a full percent, it's 0.27% of your current gross receipts would be taxed, right? That's what you'd pay in Model one, be the $12,657 So you'd pay a little bit more because the cap is no longer there. And how much does that increase your percent of gross receipts?

It goes from 0.27% to 0.28%. And then you can read down the table, pick a larger business and see the impact of removing the cap on a larger business. So you'll see tables like this throughout the presentation. So I just wanted to take a moment on that. So as you would expect from removing the cap, what you see is that the you get a flattening out at the top of the taxable gross receipts rate instead of it trailing off, which is what it does the larger you are right now.

All right. Now we get to some interesting variations. Model two is a single gross receipts rate. Everybody pays on gross receipts. We're going to have a small flat rate. We're going to remove the cap. And essentially, we're only going to have two categories of businesses, right? Businesses who pay and those who are exempt, right? So easy for businesses to understand. It's a very simple and powerful form of equity.

Everybody pays the same rate. You get some increase in revenue. And the lower flat rate is going to reduce the burden on small, let's call them micro businesses under $100,000 or so. So what is this rate structure in a little bit more detail? So the flat rate currently is close to varies across category, so that we clean that up and make it more consistent.

The flat rate is $100 flat rate up to $100,000 That would be about a third of the higher end of your flat rates right now. So $100 flat rate up to $100,000 Then so everybody gets that. You get to take the first $100,000 off, pay the $100 then you have your gross receipts tax at $280 per $1,000 in excess of the $100,000 We estimate that there's about $2,900,000,000 in taxable gross receipts that flow through the city in a given year. Your twenty twenty five charges for your existing structure with the caps, it's about four point five point four, a little bit less. And then the tax amount here would be about 7.7.

So an increase in revenue of about 2.3. A little less than just removing the cap. Why is that? As we reduced the amount for the small businesses, that's why. Okay?

So this Model two, probably worth looking again at the $5,000,000 here at Line six, right? So right now that $5,000,000 business hits the cap. If we read across, we'd see that they'd have a modest increase and they'd be paying the same rate because that cap is removed. And then you'd see again the significant increases to the larger businesses. I say significant, and I don't downplay the size of those numbers, but it's the same rate that all of your other businesses are paying under this model.

Now something to note here is that in these cap analyses, I'm not taking into account the $250,000 square footage cap. This is focused on the $12,000 which most of the businesses are paying. But you've got about a $251,000 cap for those commercial rental as well as research and development who are paying on square footage. So they may not be hitting the cap at the moment in any event. All right.

Model three, single gross receipts rate, okay? Uniform gross receipts rate for all businesses, small flat rate tax increases the cap to $100,000 So its difference from Model two is that we put the cap back in, we just increase the cap up to $100,000 Still keeps a lot of the simplification. You're going to get more equity, more people are paying the same rate because we've moved the cap farther up and the rate stays the same. Again, op add increased revenue about $1,100,000 in terms of revenue impact. Now we can take a look at it here again.

If we look at Line six, there's really no difference there. You wouldn't see a difference until you were making close somewhere between the 20,000,000 and $50,000,000 I think the actual calculation is $35,700,000 in gross receipts is where roughly about where you'd hit the cap. Again, excluding that $251,000 cap at the moment. Last model. Thank you for bearing with me here.

Model four. Now Model four is different than what you just saw in Models two and three. In Model four, we're going to have five base categories, but they'll roughly be charged the same. It's simplifying the number of base categories. That gives you a little bit more flexibility future wise.

And essentially, this model makes a policy suggestion, if you will, a trade off that says, hey, look, what would happen if instead of everybody paying $2.8 your retailers essentially, these businesses in that classification paid $2 and everybody else pays the $2.8 So you can see that here, that's essentially how this is structured. Again, notice it's still the same, dollars 100 flat rate and up to $100,000 of gross receipts. So the same benefit for small businesses, right? The cap is going to still be at $100,000 in this model. The real difference here is, do you want to have differential or variable as we've creatively called it, variable gross receipts

rates, right?

That is not uncommon in the state of California to have different rates for different business types. So it is within keeping of modern practice. I will point out let me go back really quickly here. I didn't go back.

There we go.

I will point out here that even with this structure of five, you don't have nine different ways of calculating the tax and you don't have 26 different rate classifications. In effect, you've got five plus the exempt. You'll note that Model four with those rate structures with the $100,000 cap and the small or micro business benefit, the $100,000 for $100 is it doesn't produce much in increased revenue. And I know that I may sound like I'm completely tone deaf by saying $500,000 or $05,000,000 isn't much of an increase. But that's again, remember, that's an estimate from a model.

The actual could be lower than that. And the model essentially eats up most of what you get by moving the cap by giving the benefit to the small businesses. And so it doesn't really increase your rates in any measurable way, in fact, decreases for one of your largest groups, which is your general retail businesses. Again, the Model four analysis here, because Model four uses a variable gross receipts rate, the cap is different. It's still $100,000 for everybody, but you're going to hit the cap at different amounts of gross receipts.

If you're a retail business so we'll start with everybody who's not a retail business, they're going to hit it at around $37 $35,700,000 in reported gross receipts, they'd hit the $100,000 cap at $2.8 per $1,000 whereas here for general retail, you're not going to hit that cap until basically just slightly over $50,000,000 So more of your tax dollars more of your dollars will be taxed, but they'll be at a lower rate if you're in general retail and you still hit the same cap, dollars 100,000. Okay. At this point, we're going to lay out five scenarios to compare these different models, your current tax and then how this hypothetical business would be taxed. It is a hypothetical. We can't use actual businesses even if we obscure their name for confidentiality reasons.

So we're going to use these five hypotheticals to take a quick look. First, subcontractors. If you look in the upper left, we see the factors that we used. These were factors that some of the cities or all of the cities used as inputs into calculating their tax. So category, subcontractor, gross receipts, 40,000 to employees if they happen to have square footage, 500 square feet, we were saying.

How would that currently be taxed? $246 Model one, you're just removing the cap, doesn't change anything. Model two, three and four, they're at $40,000 they'd hit that $100,000 it would be $100 Beverly Hills, you can see you're kind of in the middle here. You're already kind of in the middle and you don't get significant movement other than decreasing it here. Hermosa Beach would be $2.39.

Torrance is two eighteen. Redondo would be higher than models two through four. El Segundo would be higher than models two through four. Culver City is zero because they have a 200,000. That's what they adopted in 2022 was first 200,000 is tax exempt, then they added a surcharge for anybody over 100,000,000. So they raised the rates there. Example number two, a restaurant. So again, just hypothetical restaurant, gross receipts of about $600,000 current tax and Model one are the same. Models two through four would actually reduce that. You're already the highest there.

So we're not looking to add to that burden in the models. None of the models would add to the burden of this particular kind of business here. With as far as these assumptions. Obviously, if you're hitting the cap right now as a restaurant, then there's a different story. There would be some increases. But you're already the highest for restaurants. Medical offices. Talking with your staff, I understand this is something of a growing area, for the city. This is also an interesting one for Beverly Hills. It's been an area of contention and growth there for quite some time.

Your current tax puts you in the top well, puts you right in the middle. And the models on these assumptions would put you about the same place. There's not a lot of movement to this area here as well. Commercial property. Now in the community forum, this was probably our most controversial topic.

It's an area of deep concern. I want to address an unfortunate oversight on my part. When I put the models together for the community forum, I had kind of an unrealistic relationship between the gross receipts and the amount of square footage and it made it look like smaller commercial properties were going to get hit with an increase. You'll see that's not really the case here. You will see the increase in the next slide if you had a lot of gross receipts, but a smaller commercial property, you're actually going to see likely a small decline in models two through four.

And again, you can see Beverly Hills, that's an area where they tax pretty heavily. You're already second only to Beverly Hills and would remain roughly there. And then finally, for a larger commercial property, we would see some amounts that are over potentially over the cap depending on how it's calculated. They're using the square footage method, not so. So if they're using the square footage method right now, okay, their current tax would be $94,000 That's what they'd be paying.

They'd actually probably pay less under these models. Please note, and I didn't point this out on four, but it's true, in Models two through four, part of what we're doing is eliminating the sales tax credit for the commercial properties as well. To be frank with the council, recommendation on that is just that, it's a, hey, take a look at this. But the sales tax credit for commercial property really allows the landlord to take to get a credit for the sales tax being generated by the tenants. And from a tax policy perspective, we want to align caps and those things with the taxable behavior.

So at this point, I would like if it's amenable not to pause for questions here, but I can if the council prefers it, give a summary of the models and then I'll pause for questions if that's okay.

Any objection? Great. So

I've just thrown a lot of information at you. I really like the summary slide that Emmy and her team put together. So you can kind of read on this slide, Model one and Model two, they removed the cap, okay? None of the rest of the models remove the cap. All the rest of the models have a cap, but it's modified.

Models two, three and four, reading down the next row, they reduce the flat tax. That's the $100 for the $100,000 okay? So all of the new models have that feature. They set the cap to $100,000 both Model three and Model four reinstitute a cap, but move it to $100,000 And then Model four is the only one that adds sort of the variable gross receipts. That means Model two and three, everybody pays the same rate.

And then you can see sort of the impact on projected revenue. So reducing the flat tax benefit to the small businesses. Setting the cap to 100,000 recognizes the fact that we're going to trade off a little bit of the equity for some of the practicality for the businesses here in the city. And then setting a variable gross receipts rate is another potential option. As you look, you see that each of those has a different payoff in terms of the revenue generated and they have different profiles in terms of modernization and simplification.

I'll pause there for a second for questions from me on the models, think. And then I'm going to turn it back over to Emmy for some.

Thank you. Lot of data. Yes. Good information. Council Member Sheridan?

Thank you. Thank you for there is a lot of detail and definitely complex taxing structure. I had a question for you on, I will say, the slide number starting on Page 28 or Slide 28.

Pardon me, I'm going to come back here. Okay.

And then, well, I guess $29 would be better. That's the starting of Model one. So $2,900,000 And how many businesses in town are going to feel that increase? That's an important question.

Yes. Everybody who is paying at the cap right now, I don't know if we have that exact figure. I mean we will grab that.

Okay. The reason I asked that we he's looking at the number. But the reason I asked that number because although we're modernizing the taxing structure, there's also gonna be an increase of burden. Correct? All models have an increase, is that correct? The tax Yes.

Yes, all of them because they either move up the cap or would remove the have an increase on your top tier businesses. Shut up for grouping.

I can help answer address your question. So we currently have 105 businesses that are at the cap. So that would be the number of businesses that would be affected by removing or lifting the cap.

Got you. Okay. So 105 businesses would potentially carry the burden of the $3,000,000 increase. Is that accurate?

In this model? Yes. Yes, sir.

Okay. Thank you. No, no. I had a couple more questions on the structure. On, Model four, that's the lowest tax increase to To the businesses,

the majority of your businesses,

yes.

Correct. Was there a reason to have the variable gross versus the uniform gross on that one? And what would have the variance been if you did the uniform approach versus the variable approach and cap and put the $100,000 cap, which is 8x higher than the current cap?

Yes. So as to the first question, the reason is it is a modern practice in California that is available to you, so we wanted to put it on the table for you. The uniform or the variable? The variable. Okay. In fact, the variable is more common than uniform.

Got you. And then I guess the same question for the uniform ones. Why did we if it's a modern practice, why did we use uniform versus the variable on two and three?

So the reason we used uniform going the wrong direction, dug on it. The reason we use the Uniform is, while it's not as common, it does give you sort of peak simplicity and peak equity. So we want it there as a comparator for you. It also to answer the second part of your question, Model three does what you were asking. So if we kept everybody at the same $2.8 per $1,000 with the $100,000 cap, so we didn't do the variable rate, then you get the result you see in Model three. So that was part of what we were trying to model already to bring that to you.

Got you. So one is the so Model three and four are the same except for the variable versus the Uniform?

Yes. Okay.

So the Uniform would generate be a less of a tax increase?

Yes. Because you a large group of your businesses that fall in the general retail rate and they get an even further reduction in the variable gross receipts rate.

Got you. I think that's all the questions after now for

this section.

For my question, I want to better understand the role of a cap in either attracting or retaining businesses. So I'm curious to what extent you have any awareness of any data that supports the proposition of either the cap attracts or deters and particularly given this other comparative cities you referenced, we're the only one with a cap. I'm just trying to understand what that means.

Means. So I wish I had great data on that. Historically, the answer has been it doesn't really matter. Historically, in California, these local taxes again, I do not want to minimize what we're asking of businesses with this. But I do need to speak somewhat frankly, which is to say, at $2.8 per $1,000 we're talking about a tiny marginal increase in the tax.

If you are a big business, that's a large check to write, I get that. But it is very small on the margin, right? Your sales tax is 1%. We're at a fraction of that, pennies on the dollar. And so historically, the answer has been when we've seen rate increases or cap reductions or excuse me, cap removals, you just haven't seen businesses move for that reason.

Talking to my colleagues in the economic development department at HDL who help site businesses for cities, they're like, they're never asking us about the business license tax, right? But I will say, in my experience over the last six years or so of doing these tax studies, that large businesses who are looking to leave the state may consider it. They may say enough is enough, I'm going to Texas or I'm going to Florida, right? Now that tends to be more in the manufacturing realm, where we'll just pick up and, hey, we'll pay the shipping and it doesn't matter if we're here or somewhere else. But it is an important thing to keep in place.

In principle, what a cap provides to a business is no matter how much we grow, we know we'll never pay more than this and that is a certainty that I can budget into my business and that's a benefit to the business. In principle also, that means everybody who's under the cap is subsidizing that business and that's the choice that we're making.

Nonetheless, if we were to have more comparative cities, would we find others that do have a cap or is this really the trend to eliminate the caps in those cities with which you've worked?

In the cities with which I have worked, removing a cap can become politically very difficult. Those that don't have them tend not to put them in. Those that do tend to increase them rather than remove them altogether. I worked with the city in the Bay Area in the twenty twenty four election cycle. Their cap was 25,000. They wound up getting support to move it to 250,000. But we couldn't get political support to remove it altogether. So does that answer your question, sir?

Thank you. It does. Councilmember Horowitz.

Well, that adds a new question. So just following up on that.

Council member, is your mic

Oh, sorry. I I mute my microphone so it doesn't bother my colleagues when I move my papers around. Thank you. I mean, I'll I'll piggyback on that. Removing the cap, which is suggested here, is not politically you're saying it's politically more difficult to do that.

It is. You have businesses who Of Yeah. You're taking something away.

Yeah. Okay.

It's human nature. Got it. Becomes more difficult. So

could we gosh. And I'm so sorry. I I thought I was being so organized. One and two of them are removing the cap or you're suggesting.

Yeah. I think

Based on the model.

And two.

Just model two.

Just model two. Just one.

Okay. Yeah. Models three and four move the cap up

Got it.

Rather than remove it.

That's important information because, know, between two and four, there's similar things within them that are things that so that's very interesting. So okay. Now let me try to okay. In model four, underneath that, there's the five simplified categories and general retail, which is also restaurants. Correct?

That's Yes. Okay.

Restaurants would fall there

under our

So what's rationale for that to be $2 rather than $2.18

Generally, the rationale is they're an important part of your economy. You want to recognize that and you want to incentivize the growth of that with a little bit lower of a rate, but that's generally the rationale.

Makes sense. Regarding that, if I look at example two, it says restaurant, which is comparison of four models, the four model. Okay, that is slide 44, I'm sorry. So example two. Alright.

So why so right now, why is why is r ours so much higher than a lot of other places just now? I mean I mean, what so what what makes that more expensive? Because it's if every you know, is it because we do are we doing employees plus square feet, are we doing sales, what is it that do you know? Because that just jumps out at me.

Yes. So I believe you've currently got, let me just find the restaurants here. But generally the answer would be two combined factors. One is your higher base rate at around $300 combined with your current gross receipts tax is about $2.71 I believe, And we'll be going to $2.8 here shortly.

Okay. And then do hotels and short term rentals pay the same rate of tax like that they pay the same? Is it no, wait I'm seeing our finance director, I'm seeing Emmy, I'm seeing all kinds of action. I feel like I'm narrating the rates. Go ahead Emmy.

Thank you, Councilmember Haworth. So short term rentals currently pay on a gross receipt basis because there's no way to capture a number of hotel rooms within a rental. So that is the category they currently fall under is gross receipt basis, whereas hotels are they fall under the per hotel room tax. So they're they're taxed differently and so the effort of you know, the goal of this process is to look at unifying the same tax basis based on gross receipts. Okay.

And if I could clarify as well, we might not have the slide here but for restaurant other businesses have a different basis of the tax where it may be assessed on a per employee of that restaurant tax which could significantly reduce the tax liability for the restaurant and that could be a variety of policy, you know, council policy priorities.

You're saying we could do that?

Well, that's I'm saying that other cities may have adopted a different type of tax structure that have led to a lesser tax rate and currently our restaurants are taxed on gross receipts and so that is reflecting keeping that same basis intact.

I really appreciate that. I mean it's sort of like the different metrics that you all that you presented in the beginning. Are we modernizing? Are we making it more equitable? Are we making more revenue for the city? What what is the reason we're doing this? Right? There's different reasons. One more question. Underneath let's see.

Oh, gosh. Which one was it?

I believe it's for commercial real estate. Yeah. Commercial property, which is slide 47 example five. This is probably a dumb question, but is it possible for the tenants to be able to get a sales tax credit?

Our model did not add that option. And I'll be happy to explain why, if you'd like.

Well, I see Finance Director coming

up here.

That'd be great. Any one Okay.

So generally speaking, our recommendation is contra sales tax credits for a simple reason. The you've got a taxable activity, it's the conducting of a business. It's not based on whether you have taxable sales or not. And I know it doesn't feel this way to the businesses, but they are not paying the sales tax. They're collecting and remitting something they collect from their customers. It's not their tax.

Okay.

They hold it as sort of fiduciary and have to remit it over. And so it doesn't make from a policy perspective. Again, practically it may be necessary. I'm working with a city in LA County that has one right now, Irwindale. It may be practically necessary, but from a tax policy perspective, it doesn't make a lot of sense for me to give you a break on your business license tax based

on

the fact that your customers paid the sales tax for the sale of Got tangible personal

it. One last quick question, I'm so sorry. Or no. I'm not sorry, actually. Oh, go ahead.

Well, if I could just add that model four does give them a slightly lower rate, and part of that thinking is that they are generating other activity in the city.

Yes. Okay. And then currently, do we tax if you have a license a real estate license in the city, currently, do we do they pay a business license tax based on sales or how you correct your Brent Howard.

I'm sorry.

I didn't mean to be, go up and down.

Yes. Well, this is Thank you. Probably a controversial item, so thank you

for raising it. My understanding,

there's there's a lot of history here. And years ago, I'd have to I don't have the year fresh in my mind at this point, but I I know we've researched this in the past and that it has come up in the past. And so for the at least the last ten, twelve years, we do not require a business license from agents in the city because but we are taxing brokers. So there's a lot of confusion on that. And when we've discussed this with both the tax analysis, partners as well as our special legal counsel we've been working with, Michael Colantuno's firm, the feedback that we've gotten is that this is unusual because we are essentially just giving a break to one Right.

Category. So that's why But no one else is getting this break, and the general concept is if you're conducting business within the city, you need to have a business license and pay a tax.

So that's why on page 13, it says clarify and expand professional service to include real estate.

Yes. That was one of the equity issues we would like to address, but we also know it will be politically sensitive. So, that's maybe not something we have to decide tonight, but our current practice has been not to require license. Thank you.

Am. You.

Council member Schrubick. Thank you.

I appreciate those questions by my colleague. Something that council member Howard indicated against to why we're doing this. And part of it, you know, we have the staff report and all the information, but part of it was to modernize. But ultimately, all four of these examples do increase the tax revenue. Is that accurate?

That is accurate.