CITY OF HAWAIIAN GARDENS
CITY COUNCIL
STAFF REPORT
REVISED
Agenda Item #C5
DATE: July 8, 2026
TO: Honorable Mayor and Members of the City Council
FROM: Ernesto Marquez, City Manager
BY: Linda Hollinsworth, Finance Director
RECOMMENDATION:
RECOMMENDATION THAT THE CITY COUNCIL PROVIDE DIRECTION ON A
POTENTIAL UPDATE TO THE BUSINESS LICENSE TAX STRUCTURE AND RELATED CHANGES TO CHAPTER 5.06 OF THE CITY OF HAWAIIAN GARDENS MUNICIPAL CODE
SUMMARY:
The City of Hawaiian Gardens business license tax structure was adopted in 1993 by Ordinance No. 412 and is codified in Chapter 5.06 – Business License Fees of the Hawaiian Gardens Municipal Code (HGMC). The current business license tax structure has remained largely unchanged since 1993 and the City determined that a review and update was necessary. The City contracted with HDL to review the business license taxes and prepare an analysis of the current tax structure, the businesses within the City, and revenue trends for Hawaiian Gardens businesses, with a comparison of surrounding Cities. Using the results of this analysis, HDL developed three (3) models as described below that would update and modernize the business license tax framework and provide an adjustment to revenue to reflect the increased costs for municipal services.
Under the current framework, the tax is applied to various businesses with different types of rates including flat rates, percentage of revenue, number of employees, number of rental units or number of seats in a restaurant. There are approximately 34 categories of business types. The proposed models are designed to simplify this structure based on gross receipts. The proposed models also include a reduced number of categories and a rate that would be applied to all business types to fairly spread the tax burden.
In the years since 1993, costs for public services have increased but the revenue for the business license tax has been unchanged. Under the current hybrid framework, annual average business license tax revenue collected is approximately $140,000. Each of the proposed models is expected to provide additional revenue for the City to use in providing Agenda Item #C5
July 8, 2026
these municipal services for the business community. These services include, but are not limited to, public safety, fire services, animal control and maintenance of public infrastructure, including streets, sidewalks, traffic signals, landscaping, and street lights.
SUMMARY OF BUSINESS LICENSE TAX ANALYSIS
1. Concentration of Economic Activity Is Not Fully Reflected in Tax Outcomes The business license registry review shows that the City’s revenue under the current structure has remained relatively modest over the five years analyzed. The City’s business base has also remained relatively stable, with a total of 772 businesses. The study also found that the City’s economic activity is highly concentrated among a relatively small number of businesses. The top 100 businesses account for nearly 90% of reported gross receipts but only 72% of total tax assessed. This indicates that the current structure does not fully scale with business activity and may not capture revenue in proportion to the level of economic output occurring in the City.
2. Regional Competitiveness
Regional comparisons further show that Hawaiian Gardens generates comparatively low business license tax revenue relative to peer jurisdictions. The study indicates that Hawaiian Gardens trails cities such as Signal Hill, Artesia, Los Alamitos, Pico Rivera, Cypress, South Gate, Paramount, and La Palma on key business license revenue measures.. Peer cities with more modern business license tax structures, including gross receipts-based and employee-based systems, generally demonstrate stronger revenue performance.
3. Structural Complexity and Legacy Categories
The City’s current business license tax structure is an older hybrid system that no longer fully reflects the scale, diversity, or economic characteristics of the modern business environment in Hawaiian Gardens. While the current framework continues to generate some revenue, the study shows that it is relatively low-yielding, administratively fragmented, and less aligned with current municipal tax practices than the structures used by comparison cities. The current Ordinance relies on multiple tax bases and a broad mix of specific business classifications, including flat fees, per-seat taxes, per-unit taxes, and gross-receipts-based formulas. While these legacy categories may have reflected prior policy choices, they can make the structure harder to administer, more difficult for businesses to understand, and less transparent overall. Simplifying the structure could improve consistency and reduce confusion for both taxpayers and staff.
Agenda Item #C5
July 8, 2026
PROPOSED MODELS
Based on its analysis, HDL developed three (3) proposed models for an updated and more streamlined Business License Tax structure. Below is a summary of the three proposed options with the proposed rates recommended by staff.
Model 1 - The Single Gross Receipts and Contractor Flat Rate - applies a single gross receipts structure to all businesses, consisting of a $50 flat rate for businesses with up to $30,000 in gross receipts, followed by a rate per $1,000 of gross receipts above $30,000.
Under this model, businesses classified as contractors, without a business location in the City, would be charged a flat rate of $200. Applying a rate of $1.00 per thousand of gross receipts over the base of $30,000, this model is projected to generate an estimated annual revenue of approximately $594,000 annually, representing an estimated increase of $454,000 over current estimated revenue using current rates.
Model 2 -The Single Gross Receipts - applies a single gross receipts structure to all businesses, consisting of a $50 flat rate for businesses with up to $30,000 in gross receipts, followed by a rate per $1,000 of gross receipts above $30,000. As outlined for Model 1 based on a rate of $1.00 per thousand of gross receipts this model is projected to generate approximately $609,000 annually, representing an estimated increase of $469,000 over estimated revenue using current rates.
Model 3 - The Variable Gross Receipts - applies a variable gross receipts approach based on simplified business classifications, including Contractor, General/Retail, Professional, Property Rental, Services, and Exempt. Under this model, businesses pay a $50 flat rate up to $30,000 in gross receipts, with rates above that threshold varying by business category. These rates vary by municipality and can range from $.25 per $1,000 on the low end to $4-$6 per $1,000 on the higher end based on the specific business classification.
This model is projected to generate approximately $292,000 annually, representing an estimated increase of $152,000 over estimated revenue using current rates All modeled options are projected to increase revenue above the current structure and improve the City’s long-term ability to support essential municipal services, administrative needs, and fiscal planning.
Model 1 recognizes that contractors generally work in the City for limited periods of time, but may have multiple projects throughout the year. A flat rate would allow for multiple projects without requiring business licenses for every project while still providing revenue to cover costs for municipal services. Contractors made up approximately 12% of the business license tax revenue for FY 24-25. Of the comparison cities, two cities also have Agenda Item #C5
July 8, 2026
a flat rate for Contractors. Other cities apply a business license tax as outlined in Model 2 . Under the current tax structure contractors pay $120 annually.
POLICY CONSIDERATIONS
Selecting a new business license tax model requires balancing equity, simplicity, fiscal stability, and business impact. All models modernize the City’s revenue system, but the appropriate choice depends on the City Council’s policy priorities and the degree of alignment with community expectations.
STAFF RECOMMENDATION
Staff recommends the use of Model 1 - Use of a Gross Receipts Model boosts revenue for City services, applies the same rates for City businesses and a low base rate supports microenterprises. The recommended rates for all businesses other than outside contractors would be a flat rate of $50 for up to $30,000 in revenue and $1.00 per $1,000 for gross receipts over the base amount. Outside contractors would be charged a flat rate of $200. This recommended action supports the City of Hawaiian Gardens’ long-term fiscal planning objectives by strengthening the City’s revenue framework.
Modernizing the business license tax structure promotes:
• Responsible long-range fiscal planning;
• Alignment between economic activity and revenue generation; and • Improved sustainability of core City services.
SUBSEQUENT STEPS
In order to change the business license tax structure, a vote of the registered voters in Hawaiian Gardens is required. A simple majority is required to approve the proposed business license tax structure. Once a model is approved by Council, the City will move forward with preparing the Resolution, Ordinance and ballot language to place the new tax structure on the ballot in November. Staff will work with Englander, Knabe & Allen (EKA) and HDL to do community outreach to provide information and to answer questions from the local businesses and residents. The schedule for placement on the November 2026 ballot is as follows:
Agenda Item #C5
July 8, 2026
Resolution calling for placement on the ballot July 22, 2026 Submit to Registrar-no later than August 7, 2026
Election November 3, 2026
If the ballot measure is successful, the Ordinance will be presented for Council approval to implement the new tax structure.
FISCAL IMPACT
The proposed business license tax models are projected to increase annual General Fund revenue above current levels, as described in this report. Actual revenue will depend on the model selected by the City Council and, if approved by the voters, implementation of the new business license tax structure.
SUGGESTED ACTION
Provide direction to staff on the preferred business license tax model and direct staff to return on July 22, 2026, with the necessary documents to place the ballot measure before the voters.
ATTACHMENTS
A. HG License Rates, Tax Basis and Business Counts
B. Jurisdiction Comparisons