TO: HONORABLE MAYOR & CITY COUNCILFROM: Erin RosemanDirector of Finance SUBJECT: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDATE: April 11, 2024 INFORMATION RECOMMENDATION Staff Recommends That City Council Receive An Informational Report That Provides An Overview Of The Financial And Structural Challenges Facing The City During And After The Fiscal Year (FY) 2024-25 Midcycle Budget. REASON FOR SUPPLEMENTAL INFORMATIONAL MEMORAMDUM Staff recommends that City Council receive responses to questions raised during the March 26, 2024, Finance & Management Committee meeting related to the informational report that provides an overview of the financial and structural challenges facing the City during and after the Fiscal Year (FY) 2024-25 Midcycle Budget. Specifically, the committee directed staff to report on the following questions: STAFF RESPONSES Question 1: What is the number of businesses that have not paid taxes for Fiscal Year 2023 -24? How much of those taxes did the City end up collecting in Fiscal Year 2022 -23? As of April 4, 2024, the total number of businesses that have not paid taxes for Fiscal Year 2023-24 are 6,960. Currently, we do not have the amount of taxes the city ended up collecting in Fiscal Year 2022-23, from the 6,960 currently delinquent businesses. We would need to contract this work out to our software vendor who would perform a detailed review of each business account currently delinquent, and determine how much, if any, revenue the City collected in Fiscal Year 2022-23. Note: Some businesses may be closed and or no longer operating in Oakland and have not provided notice to the city.
DISTRIBUTION DATE:
CityAdministratorDate:Approval
HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 2 Question 2: Provide information on a chart showing what taxes were paid or unpaid year-by-year, by business category, and whether the delinquency notices were sent. Table(s) 1, 2 and 3below show the paid and unpaid business taxes by fiscal years, by business category for FY2021-22, FY2022-23, and FY2023-24, respectively. Delinquency notices are scheduled to be sent for FY2023-24 after all accounts have been validated by the Business Tax Unit as paid or not paid for the current renewal period and amounts have been assessed by the Tax Compliance Unit for each delinquent account. We estimate to have the amounts populated on each account by July 2024 and will shortly begin sending out Notices of Delinquency during the months of July/August 2024. Delinquency notices were sent on October 21, 2023, October 28, 2023, November 18, 2023, and December 9, 2023, for FY2022-23. Note, there was a 2-month delay in starting and ending this phase of work due to the ransom attack, which impacted systems and computers throughout the Revenue Bureau. Mailing dates for delinquency notices sent during FY2021-22, are being compiled by the city’s software vendor and staff. The actual mailing dates will be available late.
HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 3
HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 4 Note: Some businesses may be closed or no longer operating in Oakland and have not provided notice to the city. The unpaid amounts in the tables above are calculated using the last year’s gross receipts reported by a business and increasing that amount by 10% or using industry averages for the business category. The unpaid amount is only an estimate, and the actual unpaid amount cannot be determined until the business reports their gross receipts for the year in question. Question 3: What are the delinquency timeline and the statute of limitations to collect on the delinquencies?The delinquency timeline and statute of limitations to collect on delinquent business license taxes is 3 years. The clock starts to run when the creditor is required to maintain an action. Business licenses have an expiration date of 12/31/XX and usually must be renewed no later than March 1stof the following the year, unless an extension is granted; March 2ndis usually when the debt is officially delinquent.
HONORABLE MAYOR & CITY COUNCIL Subject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund Deficit Date: April 11, 2024Page 5 **Questions Not Included in the Motion but Requested by the CAO & Council**Question 4: Provide more information on corrective action to address the structural deficit including more information about the referenced leaning more on County services. Any requisite corrective actions to address the structural deficit will be considered as a component of the Midcycle budget process. Specific actions may be proposed by the Mayor and/or added by City Council amendment. Generally, corrections to the structural deficit requires either: 1. A permanent ongoing reduction to expenditures (staff, contracts, etc.) and accompanying reduction to services either by discontinuing the service or with another entity taking responsibility for that service; Or 2. A permanent ongoing increase to City revenues. This would exclude increases from one-time events such as land sales, revenue audit projects, or use of fund balances. Significant increases in revenue generally require increased rates of taxation which under California law must be approved by voters. Question 5: Identify lost revenues because of businesses lost. All sources of revenues previously collected from a business are lost when a business closes or moves out of Oakland. Depending on the nature of the business the primary revenues lost includes Business License Tax, Sales Tax, Transient Occupancy Taxes, Utility Consumption Tax and Parking Tax. Other economic impacts to city revenues includes loss of jobs, lost parking citation fees and lost service charges as patrons and employees will not be parking near the business location. Business Tax Question 6: What is the status of payments of delinquent business taxes from last year? Notices of Determination (NOD) have been sent to all non-rental businesses with delinquent business taxes having an expiration date of December 31, 2023. These notices were sent on October 23, 2023, October 28, 2023, November 18, 2023, and December 9, 2023. A total of 3,020 accounts received this notice. Notices of Violation (NOV) have been sent to all non-rental businesses with delinquent business taxes having an expiration date of December 31, 2023. These notices were sent on February 15, 2024, February 27, 2024, and March 8, 2024. All unpaid non-rental business accounts that received NOD’s and NOV’s having a business license tax expiration date of December 31, 2023, have been referred to the Collections Unit. A total of 1,183 accounts were referred in the amount of $1.9 million. Notices of Determination for non-rental business accounts that have multi-year delinquent business taxes, including last year are being populated by the city’s software vendor with assessed amounts for each delinquent year. These notices are scheduled to be populated by the City’s vendor no later than Friday, April 12, 2024. Notices are scheduled to be mailed out beginning Monday, April 15, 2024. Notices of Assessment (NOA) for all rental businesses with delinquent business taxes, having an expiration date of December 31, 2023, are being populated by the city’s software vendor with the HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 6 assessed amounts. These notices are scheduled to be populated by the City’s vendor no later than Friday, April 12, 2024. Notices are scheduled to be mailed out beginning April 15, 2024. Question 7: How many businesses are currently delinquent in each industry category? As of April 4, 2024, 6,960 accounts are estimated to be delinquent. Table 3below shows the estimated number of delinquent businesses by industry category.
Note: Some businesses may be closed or no longer operating in Oakland and have not provided notice to the city. The unpaid amounts in the table are calculated using the last year’s gross receipts reported by a business and increasing that amount by 10% or using industry averages for the business category. The unpaid amount is only an estimate, and the actual unpaid amount cannot be determined until the business reports their gross receipts for the year in question. Question 8: How many businesses in each industry category were considered delinquent last year, but have now paid in full? What is the total revenue collected from these businesses? Table 2below reflects the total number of 48,875 businesses that have paid in full as of April 4, 2024. The total revenue collected from these businesses is $113,742,891. We would need the City’s software vendor to review which of these accounts were delinquent after April 17, 2023, the extension date, which was granted due to the ransom attack, and compare that with those accounts that now reflect paid in full.
HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 7 Question 9: What is the total estimated amount of delinquent/late business tax payments from last year that is still outstanding? The estimated assessed amount of revenue for delinquent business taxes is $16,017,265.Note: These amounts are only estimates based on prior year reported gross receipts. Some businesses may be closed, no longer operating in Oakland or have a reduction in gross receipts. Staff determines the current unpaid amount by adding 10% to the last reported gross receipts. In the absence of last reported gross receipts, staff determines the assessment amount by adding 10% to the respective business category.Question 10: When will the city send notices to business that they are delinquent this fiscal year?Notices of Determination are scheduled to be sent beginning July 2024, after all accounts have been validated as paid or unpaid or closed and amounts have been assessed for each unpaid account.
HONORABLE MAYOR & CITY COUNCIL Subject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund Deficit Date: April 11, 2024Page 8 Question 11: On what date were delinquency notices sent out in prior fiscal years?Notice Type Date Notices Mailed NOLH 11/5/2013NOLH 5/6/2014, 11/4/2014NOLH 5/6/2015NOLH 5/11/2016NOLH 5/9/2017NOLH 4/27/2018, 6/27/2018, 10/5/2018, 12/17/18 NOLH 1/25/2019, 5/10/2019, 10/4/2019 NOLH 2/7/2020, 10/5/2020NOLH NOA & NOIL NOHL 2/19/2021, NOA 7/29/2021, NOIL 9/3/2021NOA & NOIL NOA 10/7/2022, NOIL 11/14/2022NOD 10/21/23, 10/28/23, 11/18/23, 12/9/23 Cannabis Reminder 2/6/2024Cannabis Delinquent 3/26/2024Note: NOLH “Notice of Lien Hearing” was replaced by NOIL “Notice of Intent to Lien” Additional dates of delinquency notices that were mailed in prior years (2022 and prior) are being pulled by the City’s software vendor and staff and will be available later. Question 12: The business tax ordinance called for a notice of all liens to be brought to city council (5.04.415 Notice of hearing on lien). When will the department produce a report to council listing liens against businesses with delinquent business taxes? Staff intends to produce a report for City Council to approve during the month of June 2024. All unpaid business taxes subject to a Notice of Intent to Lien (NOIL) will be included on the August 10, 2024, Alameda County Property Tax Roll, if such taxes remain unpaid as of that date. Question 13: How many businesses were not timely in paying business taxes last year, but were given amnesty, had interest or late fees forgiven, or received another type of refund from last year's collections process? What’s the total amount of revenue? What industry categories are these businesses in? No businesses were granted amnesty, had interest or late fees forgiven or received another type of refund from last year’s collections process. Question 14: Does the department have an estimate of how many businesses are operating, yet have not paid any business tax? There are 6,960 unpaid business accounts as of April 4, 2024. Some businesses may be closed and or no longer operating in Oakland and have not provided notice to the city.
HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 9 Question 15: What is the department doing to identify businesses that paid no business tax but are still operating in Oakland, particularly landlords?Notices of Assessments are being sent to these businesses beginning April 15, 2024, once the assessed amounts have been populated in these accounts by our software vendor. Thereafter, Notices of Intent to Lien (NOIL) will be sent to all accounts that remain unpaid. Staff intends to produce a report for City Council during the month of June 2024. The report will list all unpaid business tax accounts subject to a Notice of Intent to Lien (NOIL), which will be included on the August 10, 2024, Alameda County Property Tax Roll, if such taxes remain unpaid as of that date.Question 16: How many delinquent businesses were sent to collections and how much revenue is outstanding in collections?There were 1,183 delinquent business accounts referred to collections. These accounts have an expired license date of December 31, 2023, and assessed revenues are $1.9 million. Currently, there is $9.466 million in collections, $9.353 million of this amount is with the City Attorney’s office. The grand total of revenue in collections as of 2024 is $11.36 million. Question 17: Is additional capacity needed to send notices or perform other duties to collect outstanding fees?During FY2022-23, the Tax Compliance Unit had 5 Tax Enforcement Officers II’s (one was out on leave) and 1 Revenue Assistant. The Revenue Operations Supervisor position, which oversees this Unit was and is currently still frozen. In the past, this unit had as many as eight (8) Tax Enforcement Officers II’s. It is recommended that all unfilled and frozen positions supporting the Revenue Management Bureau be filled. RAP FeesQuestion 18: What amount of RAP fees are outstanding, and from how many property owners of what size, for this year and last year? Have we sent collection notices and how are we prioritizing collecting them? Below is a summary of accounts with outstanding RAP fees from last year and this year. RAP fees which are outstanding from last year are included in the Notices of Assessments. These fees are typically assessed and collected on the same notice that is sent to rental property owners who have delinquent business taxes. This year’s outstanding RAP fees will be sent beginning July 2024, once we determine the assessed amounts for any outstanding accounts.
HONORABLE MAYOR & CITY COUNCIL Subject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund Deficit Date: April 11, 2024Page 10
Question 19: Part I of the consolidated financial policy requires the City administrator to come up with a plan to reduce expenses in any department that is exceeding its general fund budgeted expenditures by more than 1% listing steps to bring the department’s expenses back in line with budget. What is the status of that plan for OPD? When will this be scheduled to FMC? The Consolidated Fiscal Policy Requires that such a report return with 60days. We estimate that an informational report on OPD Overspending that lists the actions the Administration is taking to bring the expenditures into alignment with the budget we be heard in conjunction with the Third Quarter Revenue and Expenditure Report at the final FMC in May. Question 20: Please provide a description of where overspending is occurring in the police department by unit, service area and expenditure type. Page Intentionally Left Blank HONORABLE MAYOR & CITY COUNCILSubject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund DeficitDate: April 11, 2024Page 11
HONORABLE MAYOR & CITY COUNCIL Subject: SUPPLEMENTAL – Fiscal Year 2024-25 Midcycle Budget General Purpose Fund Deficit Date: April 11, 2024Page 12 ACTION REQUESTED OF THE CITY COUNCILStaff Recommends That City Council Receive An Informational Report That Provides An Overview Of The Financial And Structural Challenges Facing The City During And After The Fiscal Year (FY) 2024-25 Midcycle Budget. For questions regarding this report, please contact Bradley Johnson, Budget Administrator, at (510) 238-6119 or Sherry Jackson, Revenue and Tax Administrator, at (510) 238-7480. Respectfully submitted, ERIN ROSEMAN Director of Finance Finance Department Reviewed by: Sherry M. Jackson Revenue and Tax Administrator Bradley Johnson Budget Administrator Prepared by: Revenue Management Bureau Budget Bureau