Burlingame City Council February 22, 2022
Approved Minutes
1 BURLINGAME CITY COUNCIL
Approved Minutes
Study Session on February 22, 2022
1. CALL TO ORDER
A duly noticed meeting of the Burlingame City Council was held on the above date via Zoom Webinar at 6:02 p.m.
2 . ROLL CALL
MEMBERS PRESENT: Beach, Brownrigg, Colson, O’Brien Keighran, Ortiz MEMBERS ABSENT: None
3 . PUBLIC COMMENTS
There were no comments.
4. STUDY SESSION
a. STUDY SESSION ON POTENTIAL TAX MEASURES
City Manager Goldman stated that this is the second discussion regarding potential tax measures. She noted that the staff report discussed the differences between a general tax and a special tax. She explained that:
• General Tax – is a tax imposed for general governmental purposes, the proceeds of which are deposited into the General Fund. A majority vote of the electorate is required to impose, extend, or increase any general tax.
• Special Tax – is a tax that is collected and earmarked for a specific purpose and deposited into a separate account of the General Fund. A two-thirds vote of the electorate is required to impose, extend, or increase any special tax.
City Manager Goldman stated that the Council previously discussed potential tax measures in September 2021. She explained that the Council was considering putting a measure on the November 2022 ballot. She added that during that discussion, Council asked staff to explore a few of the options discussed at the study session and return to the Council with additional information. The potential tax measures that staff was asked to explore include:
Burlingame City Council February 22, 2022
Approved Minutes
2 • Business license tax
• Cannabis tax
• Tax measure similar to the City of East Palo Alto’s Measure HH to address sea level rise, the Broadway Grade Separation project, or another large infrastructure project
City Manager Goldman stated that in 2021, when the Council adopted an ordinance allowing for cannabis retail delivery businesses, the Council expressed an interest in levying a cannabis delivery tax. She added that a representative for one of the cannabis retail delivery businesses noted that such a tax could bring in approximately $1 million annually from his company alone. She noted that according to the City’s consultant, HdL, one way to address the cannabis tax is to include it as a sub-section under the business license tax ordinance. This would avoid the need for a separate tax measure.
City Manager Goldman discussed the City of East Palo Alto’s Measure HH Parcel Tax. She explained that in November 2018, the residents of East Palo Alto voted in favor of enacting Measure HH, a parcel tax on commercial office space of 25,000 square feet or more at the rate of $2.50 per square foot. The measure was estimated at the time to raise $1.675 million annually for housing and career programs. As a parcel tax, the measure required a two-thirds vote of the electorate for passage, and the monies can only be spent on housing and career programs.
City Manager Goldman explained that given the work of OneShoreline and the potential for a regional sea level rise measure, staff recommends against a parcel tax for sea level rise at this time. However, she noted that should the Council be interested in a parcel tax measure to help with the Broadway Grade Separation project or other large infrastructure projects, such a measure could be placed on the November 2022 ballot.
Finance Director Yu-Scott stated that for the past few months she has worked with HdL to conduct a study on the City’s current business license structure. She noted that the goal for this project was to create a simplified, equitable, and fair tax structure for all businesses.
HdL representative Eric Myers explained that HdL conducted a business license tax study for the City. He stated that the purpose of the study was to provide a guided exploration of different tax structures while evaluating how closely each structure aligns with the City’s goals and values. He noted that the objective of the study is to recommend a tax structure that modernizes the code, increases revenue, and transforms the City’s business license structure to be equitable for all businesses in Burlingame.
Mr. Myers stated that the recommended tax policy outcomes for the City were:
1. Increased fairness and equity in rates for local businesses
2. Simplification of the tax structure
3. Increased revenues to the City
4. Increased efficiency for City operations
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3 Mr. Myers reviewed the city’s business tax revenue since 2017:
• FY 2017 - $587,729
• FY 2018 - $590,692
• FY 2019 - $589,737
• FY 2020 - $579,251
• FY 2021 - $583,600
He noted that the City’s business tax revenue is consistent because of the flat fee structure of the tax. He added that there are benefits to this because it is predictable and stable. However, the tradeoff is that it doesn’t allow the City to capture economic growth.
Mr. Myers next reviewed the business tax revenue of the City’s neighboring jurisdictions:
City Name Population Estimated
Number of
Businesses
Tax Type Estimated
Revenue
Last
Ordinance
Revision
Belmont 26,941 3,074 Employee and
Flat Rate
$880,000 1993
Burlingame 30,889 5,897 Flat Rate $589,737 2001
Foster City 33,693 3,714 Gross Receipts $1,764,875 2013 Menlo Park 34,138 5,491 Gross Receipts $2,295,367 1975
Millbrae 22,394 2,385 Employee and
Gross Receipts
$381,177 2004
Redwood City 85,319 16,175 Employee $2,697,658 2018
San Bruno 42,807 4,060 Gross Receipts $2,176,473 2019
San Carlos 30,185 4,245 Employee $1,020,000 2003
San Mateo 104,570 21,337 Gross Receipts $6,265,284 1984 South San
Francisco
67,789 5,590 Employee and
Flat Rate
$1,805,595 2008
He noted that the City’s neighbors are capturing significantly more revenue that is then used to provide services.
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4 Mr. Myers reviewed the different types of businesses in the City and how much each group contributes to the City’s business tax revenue:
Grouping Total Business Count Total Taxes
General Commerce/Retail 712 $71,200
Rental (Commercial and
Residential)
70 $7,000
Service 2,004 $200,400
Professional 1,596 $159,600
Administrative/Research and
Development
77 $7,700
Contractors $1,377 $137,700
TOTAL 5,836 $583,600
He noted that it is rare to have such a large set of outside contractors that contribute to a city’s business tax revenue.
Mr. Myers reviewed the different business tax revenue models that the City could utilize.
Business Tax Option 1 – Model 1
Mr. Myers explained that under this model, the City would retain its existing tax structure while modifying the tax amounts for each category. He noted that keeping the current structure in place would eliminate the need to create different categories and allow for a simpler implementation for the City and the business community. He added that it would not avoid the need for an election since it would entail an increased tax rate.
Mr. Myers gave examples of increasing the tax rate:
Number of Businesses Estimated FY 2021-22
Revenue
20% Increase 40% Increase
5,836 $583,600 $700,320 $817,040
Mr. Myers noted that this model doesn’t help with equity. Instead, he stated that the increases tend to be felt more by the smaller businesses.
Business Tax Option 2 – Model 2
Mr. Myers explained that this is a gross receipts tax model. He noted that this option has the benefit of spreading the burden of an increase across multiple business types. Additionally, the model includes basic rate increases for standard categories but can be further expanded or contracted to accommodate a different
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5 method of the City’s choosing. He stated that this option is simple to administer because everyone is charged the same rate.
Under this model there would be a base rate and a gross receipts tax. For example:
Tax Basis Total Count
Base Rate $25 flat rate on the first $25,000 gross receipts Gross Receipts Tax Additional one dollar per thousand dollars of gross receipts (0.001 x gross receipts)
Mr. Myer’s showed how this would affect the City’s business tax revenue:
Number of
Businesses
Taxable Gross
Receipts
Base Rate at $25
per Business
Tax Amount $1
per $1,000 gross
receipts over
$25,000
Tax Amount $1.25
per $1,000 gross
receipts over
$25,000
5,836 $2.3 billion $145,900 $2,230,767 $2,788,458
TOTAL $2,376,667 $2,934,358
Business Tax Option 3 – Model 3
Mr. Myers explained that this is a gross receipts tax model that is classification based. He explained that this option creates different rates for different business classifications. He added that this model affords the most flexibility for increasing revenues while accommodating certain business categories. He noted that the revenue yield is higher than in any of the previous models.
Mr. Myers explained how this option could work:
Categories Base Rate Gross Receipts Tax Rate
General Commerce/Retail
$25 flat rate per business for the
first $25,000 in gross receipts
0.001 x gross receipts
Rental (Commercial and
Residential)
0.002 x gross receipts
Service 0.002.x gross receipts
Professional 0.003 x gross receipts
Administration/Research and
Development
0.003 x gross receipts
Contractors 0.002 x gross receipts
Mr. Myers noted that this is the model that HdL recommended in their study.
Burlingame City Council February 22, 2022
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6 Mr. Myers reviewed how this model could look in Burlingame:
Categories Number of
Businesses
Estimated
Taxable Gross
Receipts
Base Rate of $25
per Business
Total Estimated
Annual Gross
Receipts Tax
General
Commerce/Retail
712 $669,835,011 $17,800 $1,304,070
Rental (Commercial and
Residential)
70 $36,338,070 $1,750 $69,176
Service 2,004 $862,416,375 $50,100 $1,621,633
Professional 1,596 $594,920,527 $39,900 $1,665,062
Administration/Research
and Development
77 $63,364,633 $1,925 $184,319
Contractors 1,377 $146,205,301 $34,425 $223,561
TOTAL $5,216,720
Councilmember O’Brien Keighran asked about basing business license tax on the number of employees and gross receipts. Mr. Myers stated that utilizing number of employees for the business license tax structure used to be popular because it was a good proxy for business activity. However, since the 1970s, productivity per employee has increased. Therefore, there is more business activity per employee. Another reason HdL doesn’t recommend that model is because it is difficult to apportion an employee.
Mr. Myers next discussed the City’s potential cannabis revenue. He explained that forecasting the potential size of the City’s cannabis market is beyond the scope of the business license tax study. However, preliminary numbers indicate that if the City were to capture a significant market share, at a rate of 4%, the City could stand to gain between $300,000 to $500,000 per year. He noted that this opportunity for revenue generation can be done through the creation of a separate classification or class for cannabis businesses within the existing business license ordinance provisions.
HdL representative Josh Davis stated that the cannabis revenue could be added to a business license tax measure so that there will only be one measure on the November 2022 ballot, not two.
Vice Mayor Brownrigg asked if the cannabis revenue tax could be added without changing the current business license tax. Mr. Davis replied in the affirmative but stated that it would need to be placed on the ballot.
Mr. Myers stated that HdL recommends that the City consider adopting a gross receipts tax structure similar to Model 3. He noted that Model 3 allows the City to charge different rates based on business activity while improving equitability and increasing business tax revenue. He explained that the basic structure of Model 3 should be fine-tuned to fit the City’s unique structure, particularly the large number of outside service firms providing personal services in the city.
Burlingame City Council February 22, 2022
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7 Councilmember Beach stated that HdL’s study included a table of how the three different models would impact different businesses. She discussed the example in the table of a restaurant with eight employees and $350,000 in gross receipts where under Model 2 and 3, their business license tax would grow to $350 per year. She asked what type of business this would be in Burlingame. Mr. Myers stated that this small restaurant would be a limited-service restaurant in the city. He added that the table that Councilmember Beach was referring to showed that smaller businesses might pay less than the City’s current business license tax under the recommended models. For instance, a small contractor with one employee and $75,000 in gross receipts would pay $75 under Model 2.
Councilmember Beach discussed the potential impacts that increasing the business license tax would have on smaller merchants. She noted that the Council received an email from a merchant stating that under revisions to the City’s tax structure they would go from paying $100 to $4,000. She asked if the cities ever phase in increases to business license tax rates. Mr. Myers noted that the example of a business paying less in business license tax makes the question of a phased-in approach difficult.
Councilmember O’Brien Keighran stated that she thought the City needed to increase its business license tax. She explained that because Burlingame is towards the top of the list in terms of number of businesses, but second to last in revenue, it shows that an increase is warranted. She stated that her concern was that she didn’t think the City should raise the business license tax to an extreme. She explained that she thought the City’s rate should be in the middle of the pack.
Councilmember O’Brien Keighran asked if all the revenue from the City’s sales tax of 9.63% goes to Burlingame. Finance Director Yu-Scott replied in the negative. She explained that the City gets 95% of the Bradley-Burn rate which is 0.9. She added that the City also receives the 0.25 from the Measure I tax. She added that the remainder goes to the County and State.
Councilmember Colson asked that prior to putting a new model on the ballot, that staff first conduct polling.
City Manager Goldman replied in the affirmative.
Mayor Ortiz opened the item up for public comment.
Jon Kevranian stated that as a small business owner he only supported Model 1. He added that if the Council needed to raise additional funds for the City, he thought they should copy San Mateo and put a city transfer tax on the sale of commercial and residential real estate. (comment submitted via [email protected]
).
City Manager Goldman noted that the real estate transfer tax is not an option for the City because it is only an option for charter cities like San Mateo.
Burlingame City Council February 22, 2022
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8 Alex Vaysberg stated that he owned a company in Burlingame and wanted to clarify that under the potential models, because his company does $17 million in revenue (not profit) they would pay $17,000 a year in new taxes. Mr. Myers replied in the affirmative.
Mr. Vaysberg stated that he felt this was too high as it wasn’t based on profitability and thought any tax should be based on equity.
Mayor Ortiz closed public comment.
Councilmember Colson asked if the City increased the tax from $100 to $200, would it need to go to the ballot. City Manager Goldman replied in the affirmative.
Councilmember Colson asked if the Council does decide to increase the tax, could it include a CPI adjustment. City Manager Goldman replied in the affirmative.
Councilmember Colson stated that pre-COVID there was a lot of revenue coming into the City from TOT.
However, she noted that the City needs to diversify its revenue base and thought the City needed to figure out a way to replace lost revenue from TOT. She added that she was open to having the conversation to increase the business license tax but thought Model 3 was too high
Vice Mayor Brownrigg stated that he had thought a lot about this and didn’t think the City should raise the business license tax. He explained that he didn’t think the City had an inequitable business tax. Instead, he thought the City had a de-minimus tax. He added that he thought the City took a lot of money out of the commercial sector. He noted that the addition of this tax would be unduly burdensome on businesses.
However, he stated that he didn’t feel this way about a cannabis tax.
Vice Mayor Brownrigg stated that he believed the TOT would come back and therefore didn’t think this tax was necessary.
Councilmember Beach stated that she appreciated the input and wished that the Council had more time to discuss the commercial office space tax like Measure HH in East Palo Alto. She explained that she thought the Council needed a more thorough discussion on this item. She concurred with Vice Mayor Brownrigg that she wasn’t sure if the change was worth it.
Councilmember Beach stated that she would want to hear from the small businesses to ensure that their tax isn’t raised that much.
Mayor Ortiz discussed how TOT hasn’t done well in the past few years and noted that in talking with the hoteliers, it wasn’t coming back in the next few years. He stated that he didn’t think Option 3 was a good idea but did think it would be okay to do a small increase on the business license tax. He added that what he would like to see is an option with a tiered system of $300 for large companies and then it works down to $100 for small businesses.
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9 Councilmember Colson asked when Mayor Ortiz stated “large company,” was he referring to number of employees or gross receipts.
Mayor Ortiz stated that he was referring to gross receipts.
Councilmember Colson stated that if the Council voted to put this on the ballot, she thought a lot of outreach and polling should be done.
Vice Mayor Brownrigg suggested scheduling the next discussion on potential tax measures during a regular meeting so that there wasn’t an hour deadline.
Councilmember O’Brien Keighran stated that she concurred with Vice Mayor Brownrigg. She asked that when this item is brought back, staff note what State and County measures will also be on the ballot.
Vice Mayor Brownrigg noted that the Council was in favor of putting a cannabis tax measure on the ballot.
City Manager Goldman stated that putting more than one tax measure on the ballot is generally a guarantee that neither will pass. She added that the Council has expressed a strong interest previously in increasing the business license tax because it is a regressive tax.
Mayor Ortiz thanked staff and his colleagues for the discussion.
10. ADJOURNMENT
Mayor Ortiz adjourned the meeting at 7:04 p.m.
Respectfully submitted,
/s/
Meaghan Hassel-Shearer
City Clerk