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City of Santa Clara
Item #6 – Adoption of
Resolutions calling for a
Municipal General Election
for a Business License Tax
and Utility Transfer Charter
Amendment
July 5, 2022
• Ballot Measures Under Consideration
• Utility Charter Amendment
• Business License Tax Update
• Outreach and Engagement Process
• Proposed Model
• Action Items/Next Steps
Agenda
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2 POST MEETING MATERIAL
2 • 1951 – Voters approve partial use of utility rate revenues for City services
• 1996 – Voters pass Proposition 218 (water fees)
• 2010 – Voters pass Proposition 26 (electric fees)
• Current – 5% transfer to support essential services “for services rendered”
• Charter Amendment necessary to align to new legal requirements and preserve long-standing practice with no increases to taxes Utility Charter Amendment
Background:
3 • City of Santa Clara No Tax Increase/ Services Protection Measure. To protect essential services without raising taxes, such as 9-1-1 response; police patrols, fire protection; street/storm drain repair, and maintaining reliable local utility service; shall Section 1320 of the Charter continuing the annual budget transfer of funds from City utilities to the general fund at 5% of gross receipts until ended by voters, generating approximately $30,000,000 annually, with independent audits, all funds local, be reaffirmed/adopted? • Business License Tax Update
4 Utility Charter Amendment
Proposed Language:
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•Evaluate modernization of Business License Tax based on employee headcount
•Be equitable in an update so that all businesses pay their fair share
•Be business friendly & mindful of the impact to small
businesses
•Work collaboratively to develop solutions that will address modernization needs and help maintain essential City services Council Direction – Modernization of the
Business License Tax
6 Schedule for Businesses on Per Employee Count Basis
Commercial
Employee(s)
Professional
Employee(s)
Manufacturing
Employee(s)
1 $ 15 1 $ 15 1 – 3 $ 15
2 – 5 30 2 – 3 30 4 – 20 45
6 – 10 70 4 – 6 70 21 – 30 65
11 – 15 90 7 – 10 90 31 – 50 100
16 – 20 115 11 – 20 115 51 – 75 135
21 – 25 175 21 – 25 175 76 – 100 175
26 – 30 225 26 – 35 225 101 – 125 225
31 – 40 280 36 – 40 280 126 – 175 280
41 – 55 330 41 – 45 330 176 – 225 330
56 – 75 380 46 – 50 380 226 – 300 380
76 – 100 460 51 – 55 460 301 – 400 460
101+ 500 56+ 500 401+ 500
Business Tax: Current Structure
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7 • Ambulance service
• Billiard and pool tables, bowling lanes
• Carnivals
• Christmas Tree Lots
• Circus
• Contractors
• Detective agency
• Entertainment permits
• Escort service (personal, funeral)
• Fortuneteller
• Intracity bus service
• Itinerant merchant
• Juke box
• Parade vendor
• Pawnshop
• Peddler
• Promotional show
• Public market vendor
• Secondhand dealer
• Theaters
• Taxicab companies
• Vehicle used for commercial purposes
• Vending Operator
Simplify model by removing alternate tax structures such as:
Business Tax: Current Structure
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City
Single
Employee
5 Employees
50 Employees
1,000
Employees
2,500
Employees
5,000
Employees
Mountain View $75 $95 $445 $84,195 $271,695 $584,195
San Jose $207 $307 $1,966 $59,544 $159,219 $166,365
Santa Clara $15 $30 - $70 $100 - $380 $500 $500 $500
Sunnyvale* $41 $69 $694 $13,188 $13,188 $13,188
* Last major update in 2005, on current workplan to update Business Tax: Benchmarking (Current Fee)
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5 • Voter research
• Focus groups
• Listening sessions – w/Chamber (1); City sponsored (2) • Council briefings – 2 rounds
• Best practice research; conversations with other cities • Meetings with Chamber (2) plus Chamber Luncheon & Women in Business Mixer • Meetings with data centers and large company representatives (3) • Meeting with commercial real estate development association (NAIOP) • Invitations to all current business license holders
• Two interviews with SJ Spotlight; one interview with San Jose Business Journal 9 Outreach and Engagement
10 Key values that should guide modernization of the BLT:
• Fair and equitable, accounting for the range of different types of businesses in the City • Simple and easy to administer for the both the business and the City • Take into account changes in the work environment (remote work vs. in-person) • The rate and administration of the BLT should not be a disincentive for attracting new business or a factor compelling current businesses to re-locate outside of Santa Clara How the BLT should be structured:
• A tiered, employee head count is preferred
• The current $500 cap on employees is not seen as fair (advantage to large businesses) • Gross receipt tax is not seen as fair and can be a disincentive for business growth • There needs to be a fair and accurate way define and measure square footage • Consider how to tax remote/virtual and hybrid employees Business License Tax – Listening Sessions
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The need to seek creative solutions and alternative sources of revenue:
• Encourage retail and implement a vacant space tax
• Add a utility tax for Data Centers
• Allow for Cannabis Dispensaries
• Increase fees to ensure cost recovery
Ensure City services and programs are delivered efficiently and effectively:
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Prioritize services in order to ensure that essential services are sufficiently resourced • Ensure that services are being delivered in the most cost-efficient and cost-effective way possible • Focus on maintaining services rather than expanding them during times of budget shortfalls • Public Safety and Libraries are priority City services • Reliable utility delivery
Business License Tax – Listening Sessions
• Tax Structure
/g165Ease of administration
Consolidate bills for companies
Eliminate categories with different tax rates
/g165Availability of data
Employee count data
/g165Distribution across business types
Consistent fee structure across business types
12 Business License Tax Considerations
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7 • Business Tax Rates
/g165Self-employed/small business vs. large business rates Be equitable so that all businesses pay their fair share Be business friendly & mindful of the impact to small businesses Remove $500 cap
Progressive tax structure
Comparability to other jurisdictions
/g165CPI adjustment
Small annual adjustments to maintain value
Avoid large adjustments
13 Business License Tax Considerations
14 Schedule for Businesses on Per Employee Count Basis
Range of
Employees Business Tax Rate
1‐4 $75 plus $15 per employee
5‐9 $135 plus $30 per employee over 4
10‐19 $285 plus $45 per employee over 9
20‐49 $735 plus $60 per employee over 19
50‐99 $2,535 plus $75 per employee over 49
100‐249 $6,285 plus $90 per employee over 99
250‐499 $19,785 plus $105 per employee over 249
500‐999 $46,035 plus $120 per employee over 499
1000+ $106,035 plus $135 per employee over 999
Business Tax: Potential Structure
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15 Business Tax: Benchmarking
(Potential Structure)
City
Single
Employee
5 Employees
50 Employees
1,000
Employees
2,500
Employees
Mountain View $75 $95 $445 $84,195 $271,695
San Jose $207 $307 $1,966 $59,544 $159,219
Santa Clara –
Model $90 $165 $2,610 $106,170 $308,670
Santa Clara –
Model w/ Cap* $90 $165 $2,610 $106,170 $308,670
Sunnyvale** $41 $69 $694 $13,188 $13,188
* Cap at $350,000 (approximately 2,800 employees)
** Last major update in 2005, on current workplan to update 5,000
Employees
$584,195
$166,365
$646,170
$350,000
$13,188
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Business Tax: Potential Structure
(Model with Cap)
Employee
Range
# of
Businesses
Estimated
Revenue
Average
per Business
1-4 3,838 $ 366,315 $ 95
5-9 842 173,820 206
10-19 559 268,620 481
20-49 445 607,635 1,365
50-99 151 591,135 3,915
100-249 87 977,715 11,238
250-499 34 1,053,945 30,998
500-999 32 2,211,720 69,116
1000+ 15 3,218,490 214,566
6,003 $ 9,469,395
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17 Business Tax: Potential Structure
Alternate Tax Changes
• Residential Rental Unit Revisions
/g165Update from current tax of $3 per rental unit to a base fee of $75 plus $15 per rental unit
/g165Flat rate rather than progressive rate generates approx. $365K annually • Out-of-Town Businesses
/g165$75 base + apply percentage of per employee fee
Number of
Days
Percentage of Per
Employee Fee
6 – 64 25%
65 – 129 50%
130+ 100%
Input Proposal Element
All Businesses to Pay Their Fair
Share
Progressive Tax Structure - $75 base rate w/consistent $15 increments per employee until cap is reached. Minimize number of businesses subject to alternative tax model to ensure equity and consistent methodology/application
Remain Business Friendly Tax rate comparable to other jurisdictions. (See Chart) Below Mt. View; higher than CSJ. CSJ has greater impact to small businesses which conflicts with Council direction. Proposal keeps SC rate in the middle while generating revenue & streamlining administration. Avoids voter confusion and potential organized opposition
Implementation delayed until January 2024 (to allow for adjustments to City’s billing system) should mitigate impact
Mitigate Impact on Small
Businesses
During Year 1 (2024), provide subsidy to smallest employers by allocating settlement funds designated for small business support ($330K available). This assistance to small businesses will mitigate impact as they transition to new tax rates Demonstrate Support for
Ongoing Business Growth
“Max” Cap of $350,000 or 2,800 employees so that taxation does not become a disincentive to growth. Cap viewed as recognition by the City of the overall contributions made by business community to the well-being of the Santa Clara economy
Increases Should Be Predictable;
Avoid Large Adjustments
Inclusion of CPI but with a cap of 5%
18 Business Tax: Addressing Feedback
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10 Input Proposal Element
Use Rainy Day Funds Instead of
Raising Rates
City reserves have already been used extensively to balance budget. Further use of reserves would jeopardize fiscal sustainability of the City and, therefore, is not recommended. However, use of settlement funds to provide small business assistance is recommended as an appropriate use of the settlement funds
Program Should Be Easy to
Administer
Transition to one bill/one payment per business per year. Eliminate by site license requirement.
Eliminate multiple business categories w/varying tax rates. Establish objective employee count mechanism and address issue of remote workers (EDD Definitions & Reporting). Max cap of $350K/2,800 employees will reduce administrative burden in reconciling employee count Simple Counting Mechanism Counts based on EDD reporting. Businesses with additional locations outside of SC, will self- report. Delegation of authority to Finance Director to develop criteria for validating self-reporting & compliance
Maximize Revenue Opportunity
w/o Sacrificing Viability
Revenue target increased from $6M to $9M with max cap so that no one employer would pay more than $350K
Work Collaboratively in
Development of Solution to
Maintain Essential Services
Extensive outreach including two voter research polls, one listening session sponsored by Chamber, three focus groups/listening sessions sponsored by City, two rounds of Council listening sessions, two meetings with representatives of the Chamber, three meetings with large companies, one meeting with NAIOP representative. Mailings to all business license holders 19 Business Tax: Addressing Feedback
• To protect Santa Clara’s financial stability and maintain essential services such as 911 emergency/public safety/crime reduction services, safe/clean public areas, pothole repair, parks and libraries, shall an ordinance to update Santa Clara’s 1992 business license tax to $75, increasing incrementally between $15 to $135 per employee or rental unit, with larger businesses paying more, generating approximately $9,000,000 annually until ended by voters with independent financial audits, all funds staying local, be adopted?
City of Santa Clara Business License Update /Tax Equity Measure 20 Business Tax: Addressing Feedback
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11 Comment Response
3.40.040(g) – Definition of fiscal
year should be deleted
Agreed. Definition will be deleted as updated ordinance no longer has a reference.
3.40.080(a) – Language related
to “Compliance with City, State
and Federal laws” should be
changed to read “as may be
necessary to determine
ownership”
As the business license program is tied to various other city, state and federal programs, this language should be retained to ensure compliance
3.40.090 – Application should be
deemed approved if City does
not act within 180 days
Staff recommends that the existing language should be retained which states that “If the City does not act within 180 days, an application is considered to be denied.” The City should be required to take proactive measures to approve a license. Some licenses require coordination with other City permits (Fire, Police, etc) and time is needed to ensure that coordination.
3.40.130 & 3.40.150(b) – there
appears to be a conflict between
a payment being defined as
timely within 7 days and a
penalty imposed upon 30 days
late.
These are two different issues. The 7-day timely definition is to account for holidays. The period between the 7-day definition of timely and the imposed penalty at 30 days provides for a grace period.
21 SVLG Comments and Responses
Comment Response
3.40.150(a) – Penalty to secure
new license should be modified
from 30 to 60 or 90 days.
Businesses are required to secure a business license prior to opening/operating. This is established practice and no change is recommended.
3.40.150(b) – Allow 60 days
before imposing penalty for non-
payment
Again, businesses are required to secure a business license prior to opening/operating and no change is recommended in order to facilitate compliance.
3.40.150(d) – Provide 180 days’
notice prior to revocation of a
license.
The current practice is to send notices 30 days prior to expiration, 30 days after notification and then again at 60 days. This is established practice and no change is recommended as this provides for ample notice to correct the deficiency.
3.40.170(f) – Include explicit
authority to raise the exemption
limit to avoid need for future
ballot measure
The proposed ordinance already provides for an annual review of limits. Per the City Attorney’s office, adjustment to the exemption limit can be made by the City Council as part of the annual review. No additional authority is required.
22 SVLG Comments and Responses
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12 Comment Response
3.40.250 – Director of Finance
should be given the authority to
waive penalties and interest.
No action needed. Ordinance states “The Director shall further have the power to compromise any claims as to the amount of any tax due and paid.”
Section 2 (c) - of the Ordinance
seems to refer to payments of
the new business tax being due
between January 1, 2023 and
December 31, 2023 when Section
2(a) says the new tax will go into
effect on January 1, 2024. I think
some clarification with regard to
this apparent discrepancy would
be helpful
Section 2 is discussing how the transition and implementation of the new ordinance. Section (c) is addressing that payments in 2023 will be prorated or credited in order to line up the January 1, 2024 pay date
23 SVLG Comments and Responses
24 1. Adopt a resolution ordering submission of a ballot measure to the qualified electors of the City; calling for a Special Municipal Election to be held in the City of Santa Clara on Tuesday, November 8, 2022, for the purpose of submitting to City voters a measure modernizing the City’s Business License Tax; requesting consolidation with the Gubernatorial General Election and election services from Santa Clara County; directing the City Attorney to prepare an impartial analysis; setting priorities for ballot arguments; and approval of the draft amendment to the Santa Clara City Code to incorporate the proposed changes if the measure is approved by the voters.
Recommendations
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2. Adopt a resolution ordering submission of a ballot measure to the qualified electors of the City; calling for a Special Municipal Election to be held in the City of Santa Clara on Tuesday, November 8, 2022, for the purpose of submitting to City voters a measure to amend the City’s Charter regarding Utility Transfers; requesting consolidation with the Gubernatorial General Election and election services from Santa Clara County; directing the City Attorney to prepare an impartial analysis; setting priorities for ballot arguments; and approval of the draft amendment to the Santa Clara City Code to incorporate the proposed changes if the measure is approved by the voters.
Recommendations
Next Steps
26 November 2022 Election
Action Required
November
Election Cycle
Council Adopts Resolution to Place Measure on Ballot and Call for Election July 5, 2022 Arguments due to City Clerk’s Office July 19, 2022
Rebuttals due to City Clerk’s Office July 29, 2022
City Attorney draft an Impartial Analysis July 29, 2022 Deadline to submit resolution to County Registrar of Voters by 5 p.m. August 12, 2022 Deadline to submit Arguments to County Registrar of Voters by 5 p.m. August 16, 2022 Deadline to submit Rebuttals & Impartial Analysis to ROV by 5 p.m. August 23, 2022 25 26
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City of Santa Clara
Item #6 – Adoption of
Resolutions calling for a
Municipal General Election
for a Business License Tax
and Utility Transfer Charter
Amendment
July 5, 2022
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