CITY OF BELMONT
CITY COUNCIL AND BELMONT FIRE
PROTECTION DISTRICT BOARD OF
DIRECTORS
www.belmont.gov
CITY COUNCIL SPECIAL MEETING AGENDA
Tuesday, May 10, 2022
6:30 PM
City Council Chambers
City Hall, One Twin Pines Lane, Belmont, California
TELECONFERENCE PARTICIPANTS
Some Members may Participate Virtually
Being held under Gov. Code 54953(e) and
Belmont City Council Resolution 2022-034
The meeting will be broadcast live to Belmont residents on Comcast Cable Channel 27, streamed live via the City’s website at www.Belmont.gov. The public may also attend the meeting in the City Council Chambers and address the council from the chambers. Social distancing must be practiced, and seating will be limited.
PUBLIC COMMENT:
To maximize time for live public comment, we encourage members of the public to provide comments by joining the City Council meeting via Zoom : For web, visit https://belmontgov.zoom.us/ select “Join” and enter Meeting ID: 95745673035. Use the Raise Hand feature to request to speak. You may rename your profile if you wish to remain anonymous.
For dial- in comments, call *67 1-(669) 900-6833 (your phone number will appear on the live broadcast if *67 is not dialed prior to the phone number), enter Meeting ID: 95745673035, and press *9 to request to speak. All public comments are subject to a 3-minute time limit unless otherwise determined by the Mayor.
If you wish to submit written public comment, you may send an email to [email protected] before the council considers the item. Please indicate the agenda item topic or agenda item number you wish to comment on in your email’s subject line. Any public comment regarding agenda items that are received 1 1. ITEMS OF BUSINESS
Persons wishing to orally address the Council on the items of business listed below will be given an opportunity to do so before or during the Councils consideration of the item.
2. STUDY SESSION
A. Business License Tax Modernization & Transient Occupancy Tax Update Recommendation: Receive presentation on the proposed rates and fiscal impacts of the Business License Tax modernization and Transient Occupancy Tax update and provide direction on next steps
Attachment(s):
Staff Report
BLT Categories
Presentation
3. ADJOURNMENT
If you need assistance to participate in this meeting, please contact the City Clerk at (650) 595-7413. The speech and hearing-impaired may call (650) 637-2999 for TDD services. Notification in advance of the meeting will enable the City to make reasonable arrangements to ensure accessibility to this meeting.
Meeting information can also be accessed via the internet at: www.belmont.gov. All staf reports will be posted to the web in advance of the meeting, and any writings or documents provided to a majority of the City Council/District Board or Commission regarding any item on this agenda will be made available for public inspection in the City Clerk's Of ice, One Twin Pines Lane, during normal business hours and at the Council Chambers at City Hall, Second Floor, during the meeting. from the publication of the agenda through the meeting date will be made part of the meeting record, but will not be read during the Council meeting.
2
Business License Tax
Transient Occupancy Tax
STAFF REPORT
Meeting Date: May 10, 2022
Agency: City of Belmont
Staff Contact: Grace Castaneda, Finance Director, [email protected] Jennifer Rose, Housing & Economic Development Manager, [email protected] Karen Clark, Administrative Assistant, [email protected] Agenda Title: Business License Tax Modernization & Transient Occupancy Tax Update Agenda Action: Discussion & Direction
Recommendation
Receive presentation on the proposed rates and fiscal impacts of the Business License Tax modernization and Transient Occupancy Tax update and provide direction on next steps.
Strategic Focus Area
Fiscal and Organizational Sustainability
Background
Business License Tax (BLT)
The City of Belmont requires all employers who conduct business in Belmont to obtain a business license and pay a business tax, regardless of trade, profession, or occupation. Belmont’s BLT structure was last updated in 1990 and currently generates approximately $1 million annually, or 4% of General Fund revenue. Since 2019, the following steps have been taken towards modernizing the tax structure:
1. November 2019: City Council authorized agreements with Management Partners and HdL Companies to review and provide recommendations to modernize the tax structure.
2. May 2020: The City conducted a series of focus groups with Belmont businesses to review BLT options and gather feedback on ways the update might better serve businesses.
3. June 2020: Staff presented City Council with several options for updating the BLT and took no action at that time so as to minimize any tax structural changes during the pandemic.
4. January 2021: As part of the annual Strategic Planning Workshop, City Council reaffirmed the Strategic Objectives of “maximizing existing sources of revenue” and “Identifying new revenue sources to maintain financial stability.”
5. March 2021: A survey was administered, indicating that the community was generally supportive of modernizing the tax structure to be more equitable to businesses of all sizes, and to provide the City with a locally-controlled source of General Fund revenue.
6. May 2021: Staff worked with HdL Companies and Management Partners to incorporate feedback from City Council and business focus groups, culminating in a presentation to City Council that provided modernization and equity to Belmont businesses via a gross receipts-based tax structure. 3
Business License Tax
Transient Occupancy Tax
Transient Occupancy Tax (TOT)
Per City Code Chapter 23, Article IV, the City requires all hotel operators and those who rent out private residences to overnight guests (through AirBnB, VRBO, etc.) to pay a transient occupancy tax (TOT).
The current TOT rate is 12%, which was approved by 75% of voters in the November 2018 general election. Prior to the onset of the COVID-19 pandemic in March 2020, TOT generated nearly $4 million in locally-controlled General Fund revenue annually, with 99% coming from Belmont’s 10 hotels and the remainder coming from private residences renting out properties.
Analysis
Business License Tax
The proposed BLT structure received general support from City Council in May 2021. The tax structure incorporates feedback from Council and business focus groups, including concerns regarding the inequity of the current tax structure for small businesses. In response, the proposed tax structure is based on gross estimated receipts and designates businesses into four classifications (as shown in Attachment A), with those generating less than $10,000 in gross receipts exempted from paying the tax (though they would still be required to register with the City). HdL Companies estimates that the proposed tax structure would generate between $1.1 and $1.5 million annually, compared to the current $1 million.
If City Council continues to support pursuing the proposed tax structure, staff will draft a revised BLT ordinance for Council consideration in July 2022.
Transient Occupancy Tax
While Belmont’s TOT generated nearly $4 million in General Fund revenue annually prior to the COVID19 pandemic, the chart below reflects the pandemic’s impact on the travel and tourism industry and corresponding TOT revenue. According to this analysis, prepared by Management Partners, TOT revenue is currently anticipated to recover by fiscal year 2026. $3.6 $3.8
$1.3
$2.3
$2.8
$3.2
$4.0 $4.1 $4.3 $4.4 $4.5 $4.5 $4.6
$0
$1
$2
$3
$4
$5
Millions
TOT Revenues
FY 2019-21 (Actual) & FY 2022-2031 (Projected)
4
Business License Tax
Transient Occupancy Tax
As shown below, Belmont’s current TOT rate of 12% is the lowest in the County (other than the County rate of 10%) and, if increased to 14%, would match the Cities of Brisbane, Half Moon Bay, San Bruno, and San Mateo. Half Moon Bay’s rate will increase to 15% in July 2022, and San Carlos’ rate will increase to 14% in January 2023. Increasing the rate to 14% would generate an anticipated $0.7 million annually in additional General Fund revenue based on pre-pandemic TOT collection levels.
To increase the TOT rate, City Council must adopt a resolution approving the proposed ordinance, which would also direct the City Attorney to prepare an impartial analysis on the measure and would call for a designated committee of two Councilmembers to oversee the preparation of a written argument in favor of the measure, along with rebuttal arguments on any written arguments filed by measure opponents. For the ordinance to go into effect, the ballot measure must receive a simple majority vote (50% plus one).
Staff recommends inclusion of the following elements in a potential ballot measure. • Increase the TOT rate from 12% to 14%;
• This would be a general tax, whereby all funds generated by the increase would be deposited into the City’s General Fund for unrestricted general revenue purposes; • All revenue would be kept local; and,
• TOT revenues would be paid by hotel and other lodging facility guests, not by Belmont residents who are not staying in such lodging facilities.
In accordance with CEQA Guidelines Sec. 15378(b)(4), submission of the tax to the voters would be categorically exempt from CEQA because it involves the creation of a government funding mechanism which does not involve commitment to any specific project.
11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5%
Redwood City
South SF
Pacifica
Millbrae
Menlo Park
Foster City
East Palo Alto*
Burlingame
Belmont (Current)
Daly City
San Carlos*
Belmont (Proposed)
San Bruno
Brisbane
Half Moon Bay*
TOT RATES IN SAN MATEO COUNTY
5
Business License Tax
Transient Occupancy Tax
If Council supports the proposed TOT rate increase, staff will prepare the ordinance revision, initiate outreach to local hotel representatives and the Chamber of Commerce, and obtain a quote from the Council Elections Office on adding the ballot measure to the November 8, 2022 election. Staff would also provide information to the public on the proposed change via www.belmont.gov and other means of outreach.
Alternatives
1. Provide alternative policy direction on modifications to the proposed tax rate structure
2. Take no action
Attachments
A. Proposed Business License Tax Rates
B. Presentation
Fiscal Impact
☐ No Fiscal Impact
☒ Funding Source Confirmed:
Business license tax and transient occupancy tax provide the City with important sources of locally-controlled General Fund revenue.
Source: Purpose: Public Outreach:
Staff Discretionary Action Posting of Agenda
6 1
Proposed Business License Tax Rates
Proposed Business License Tax
Categories & Rates
Business Categories
• Category I - $1.50 per $1,000 of the licensee’s gross receipts o General Business means the business of the sale of goods, including food, to ultimate consumers, usually in small quantities (“retail sales”); the sale of goods in quantity, as to retailers or jobbers, for resale (“wholesales”); operating an establishment where meals, prepared food, or beverages are served to customers (“restaurant”); or manufacturing, packing, or processing of any goods, wares, merchandise, or commodities at a fixed place of business within the city. • Category II - $2.00 per $1,000 of the licensee’s gross receipts o Contractor means a person conducting, managing, or carrying on the business of contractor, subcontractor, or builder; or engaging in the construction or repair of any buildings; or regularly employing help for building construction, sewer construction, plumbing construction, or general construction. “Contractor” does not include any business in the “Professional Services” classification, such as an architect or engineer.
o Services means the business of offering services that are not professional services and do not fall within the definition of “contractors” including, but not limited to lawn services, gardening and landscaping services (but not landscape architects), hairstylists, beauticians or cosmetologists, aestheticians, massage therapists, arts instructors, tutoring, test preparation, sports trainers, translation and interpretation services.
o Any business that does not fit into another category
• Category III - $3.00 per $1,000 of the licensee’s gross receipts o Businesses and Services means the business of offering any professional, scientific, or technical service including, but not limited to legal advice and representation; accounting, bookkeeping, and payroll services; architectural, engineering, and specialized design services; computer services; consulting services; research and development services; advertising services; photographic services; veterinary services; and other professional, scientific, and technical services. Examples of persons engaged in professional services include, but are not limited to lawyers, physicians, dentists, chiropractors, physical therapists, psychiatrists, psychologists, therapists, marriage counselors, accountants, licensed financial planners, licensed investment counselors, real estate agents, real estate brokers, property management, engineers, architects, and landscape architects.
The administrative offices or headquarters of a business are professional services. o Property Rental means the business of leasing or renting residential or commercial property, including a person engaged in the business of operating a hotel or apartment house or the leasing or renting of any residential property, dwelling unit, or room for dwelling, sleeping, or lodging and a person engaged in the business of leasing or renting any commercial property. 7 2
• Category IV - Up to $100.00 per $1,000 of the licensee’s gross receipts o Cannabis Business means the activity of any person or collective in the city relating to cannabis, including but not limited to cultivation (including nurseries), transportation, distribution, manufacture, compounding, conversion, processing, preparation, testing, storage, packaging, delivery, and sales (including both wholesale and retail sales) of cannabis, cannabis products, or any accessories for the use of cannabis or cannabis products, whether or not carried on for gain or profit, whether for medical or recreational use, and whether or not such business is licensed by the State. A cannabis business does not include any business the only relationship of which to cannabis or cannabis products is the production or sale of cannabis accessories.
Tax Rates
• Category I: $1.50 per $1,000 of the licensee’s gross receipts derived from business conducted in the city for the previous tax year, except for the first tax year of operation in the city for which the tax is instead measured by the licensee’s gross receipts derived from business conducted in the city for the first tax year. • Category II: $2.00 per $1,000 of the licensee’s gross receipts derived from business conducted in the city for the previous tax year, except for the first tax year of operation in the city for which the tax is instead measured by the licensee’s gross receipts derived from business conducted in the city for the first tax year. • Category III: $3.00 per $1,000 of the licensee’s gross receipts derived from business conducted in the city for the previous tax year, except for the first tax year of operation in the city for which the tax is instead measured by the licensee’s gross receipts derived from business conducted in the city for the first tax year. • Category IV: Up to $100.00 per $1,000 of the licensee’s gross receipts derived from business conducted in the city for the previous tax year, except for the first tax year of operation in the city for which the tax is instead measured by the licensee’s gross receipts derived from business conducted in the city for the first tax year.
Tax Exemptions
The following businesses are exempt from the tax.
• Any business exempt from the tax by the laws of the United States or the State of California.
• Any business with gross receipts for the previous tax year of less than $10,000, except for the first tax year of operation in the city for which this exemption applies if gross receipts for the first tax year are less than $10,000.
8 Business License Tax
Modernization &
Transient Occupancy Tax Update
May 10, 2022
9 2
BACKGROUND/ANALYSIS (BLT)
BACKGROUND/ANALYSIS (TOT)
NEXT STEPS (BLT)
NEXT STEPS (TOT)
QUESTIONS & COMMENTS
10 BUSINESS LICENSE TAX
MODERNIZATION
BACKGROUND &
ANALYSIS
311
5/10/2022 4 Business License Tax Modernization &
Transient Occupancy Tax Update
November 2019: City commenced effort to
modernize business license tax structure
May 2020: Focus group expressed concerns
about inequities in current structure
June 2020: Council deferred action on
proposed changes
May 2021: Business license tax structure
revised based on Council/business input
May 2022: Seeking final Council feedback
ahead of an ordinance/ballot measure
BUSINESS LICENSE TAX
MODERNIZATION
BACKGROUND
12 5/10/2022 5 Business License Tax Modernization &
Transient Occupancy Tax Update
Fairness Address inequities in existing tax structure
Adaptability Reflect current & future business trends
Similar structure used in surrounding peer
agencies Comparability
Simplicity Simple for businesses to understand
Reduce stumbling blocks to administer tax
ordinance Streamlined
KEY PRINCIPLES
FROM BUSINESS
FOCUS GROUPS
13 PROPOSED RATE
CATEGORIES &
BUSINESS TYPES
5/10/2022 6 Business License Tax Modernization &
Transient Occupancy Tax Update
CATEGORY TAX RATE* BUSINESS TYPES
Category I $1.50 per $1,000
of gross receipts
General Business (e.g., retail, wholesale, restaurant; manufacturing or processing goods)
Category II $2.00 per $1,000
of gross receipts
Contractor (e.g., construction or repair of buildings; employing help for building, sewer, plumbing, or general construction) Services (Non-professional services such as gardening/landscaping, hairstylists, massage therapists, tutoring)
Other (Any business that does not fit into another category) Category III $3.00 per $1,000
of gross receipts
Businesses & Services (e.g., lawyers, physicians, dentists, psychologists, accountants, real estate agents, architects.) Property Rental (Leasing or renting residential or commercial property, including operating a hotel)
Category IV Up to $100.00 per
$1,000 of gross receipts
Cannabis Business(Cultivation, processing, storage, distribution, delivery, sales, etc. of cannabis or of accessories to use cannabis) *Gross receipts derived from business conducted in the City the previous tax year, except for the first tax year of operation, for which the tax is measured by the licensee’s gross receipts derived from business conducted in the City for the first tax year. 14 COMPARISON CITIES
5/10/2022 7 Business License Tax Modernization &
Transient Occupancy Tax Update
CITYTAX TYPEADOPTED MIN TAX
TOTAL
LICENSES
EST.
REVENUE
Belmont (Current)Flat Rate/EE1990$3761,831$1.1 M
Belmont (Proposed)Gross Receipts1990$151,831$1-1.5 M*
BurlingameFlat Rate2001$10013,138$.8 M
Foster CityGross Receipts2013$1003,714$1.8 M
Los Gatos
Flat Rate/
Gross Receipts
1997$7510,113$1.5 M
Menlo ParkFlat Rate1975$254,500$1.6 M
Millbrae
EE/
Gross Receipts
2004$273,722$.4 M
Redwood CityEmployee2018$6816,175$2.7 M
San CarlosEmployee2003$1489,881$1 M
San Mateo
Gross Receipt1984$31104,570$6 M
BUSINESS LICENSE TAX
15 PROPOSED BUSINESS
LICENSE TAX STRUCTURE
5/10/2022 8 Business License Tax Modernization &
Transient Occupancy Tax Update
BUSINESS TYPE**
# OF
BUSINESSES
PROPOSED TAX RATE
(PER $1,000)2
ESTIMATED MIN
REVENUE***
General/Retail201$ 1.50 (.015%)$ 294,000
Rental Units188$ 3.00 (.03%)$ 261,000
Contractors579$ 2.00 (.02%)$ 104,000
Service/Professionals863$ 3.00 (.03%)$ 416,000
Cannabis* N/A$ 100 (10%)N/A
Total$ 1,075,000
*Cannabis businesses are currently not a permitted Land Use in the City **Businesses with gross receipts under $10,000 annually would be exempt from the tax but still required to register with the City
***Assumed current business licenses and market conditions; a cash receipts tax model is dynamic and will fluctuate with economic trends
(BROUGHT TO COUNCIL 5/25/2021)
16 BUSINESS LICENSE TAX
EFFECTIVE TAX RATES
5/10/2022 9 Business License Tax Modernization &
Transient Occupancy Tax Update
Small craft
business
Consultant
home-based Restaurant Big retailer Hotel/rentalproperty Doctor's
office
Professional
firm
Small
contractor
Contracting
firm
Current Tax Rate 2.69% 0.31% 0.18% 0.01% 0.02% 0.05% 0.04% 0.45% 0.10% Proposed Tax Rate 0.15% 0.15% 0.15% 0.15% 0.30% 0.30% 0.30% 0.20% 0.20%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Effective Tax Rate
Current Tax Rate Proposed Tax Rate
(CURRENT V. PROPOSED)
17 TRANSIENT
OCCUPANCY TAX
UPDATE BACKGROUND
& ANALYSIS
1018
TRANSIENT OCCUPANCY
TAX REVENUES
5/10/2022 11 Business License Tax Modernization &
Transient Occupancy Tax Update
FY 2018-21 (ACTUAL) &
FY 2022-31 (PROJECTED)
$3.58 $3.79
$1.32
$2.25
$2.80
$3.23
$3.98 $4.06
$4.34 $4.41 $4.48 $4.54 $4.61
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Millions
Estimated recovery
to pre-pandemic levels
19 TRANSIENT OCCUPANCY
TAX RATES IN SAN MATEO
COUNTY
5/10/2022 12 Business License Tax Modernization &
Transient Occupancy Tax Update
(EFFECTIVE JULY 1, 2021)
11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5%
Redwood City
South SF
Pacifica
Millbrae
Menlo Park
Foster City
East Palo Alto*
Burlingame
Belmont (Current)
Daly City
San Carlos*
Belmont (Proposed)
San Bruno
Brisbane
Half Moon Bay* *Half Moon Bay’s TOT rate will
increased to 15% on 7/1/2022
**San Carlos’ TOT rate will
increase to 13.5% on 1/1/2022
and to 14% on 1/1/2023
***East Palo Alto attempted to
increase its TOT rate to 14% by
1/1/2023 at the Nov 2020
election as a special tax to fund
affordable housing, but it was
defeated with 65.4% in favor
(requiring 2/3 voter approval)
Increasing the TOT rate to
14% will generate $0.7M in
locally-controlled General
Fund revenue compared to
pre-pandemic levels
20 TRANSIENT OCCUPANCY TAX
BALLOT MEASURE
5/10/2022 13 Business License Tax Modernization &
Transient Occupancy Tax Update
PROPOSED ELEMENTS
Increase the TOT rate from 12% to 14%;
This would be a locally-controlled general tax, whereby all funds generated by the increase would be deposited into the City’s General Fund for unrestricted general revenue purposes; All revenue would be kept local; and
TOT revenues would be paid by hotel and other lodging facility guests, not by Belmont residents who are not typically staying in such lodging facilities.
21 NEXT STEPS
1422
REVENUE MEASURES
5/10/2022 15 Business License Tax Modernization &
Transient Occupancy Tax Update
NEXT STEPS
JULY
2022
• City Council Consideration of Draft BLT and TOT Ordinances; Call for Election on Ordinances
SUMMER
2022
• Council committee to oversee prep of written argument in favor of ballot measure, along with rebuttals to any written arguments filed FALL
2022
• Outreach and Education to business community, hotel
representatives and Chamber of Commerce
NOV 8th
• Voter Election
23 QUESTIONS &
COMMENTS
1624