Agenda packet — Union City City Council, March 28, 2024

NOTICE AND AGENDA

CITY OF UNION CITY

CITY COUNCIL

SPECIAL MEETING
Thursday, March 28, 2024
7:00 PM
City Council Chambers | 34009 Alvarado-Niles Rd, Union City, CA 94587

1. CALL TO ORDER

2. ROLL CALL

3. ORAL COMMUNICATIONS - Comments limited to items on the Special Meeting Agenda

4. CITY MANAGER REPORTS

4.a. Accept The Business Tax Analysis Report Prepared By HdL Companies And Provide Broad-Based Policy Direction On
Next Steps To Inform The Placement Of Potential Revenue Measures On The November 2024 Ballot

4.b. Adopt A Resolution Approving The Formation Of, And The Mayor’s Appointment Of Two Councilmembers To, An Ad Hoc Subcommittee To Evaluate And Provide Recommendations On The Second Phase Community Survey To Inform The
Placement Of Potential Revenue Measures On The November 2024 Ballot

5. ADJOURNMENT
/s/ Carol Dutra-Vernaci
Carol Dutra Vernaci
Mayor
Agenda Item
DATE: 3/28/2024
TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: JOAN MALLOY, CITY MANAGER
SUBJECT: ACCEPT THE BUSINESS TAX ANALYSIS REPORT PREPARED BY HDL

COMPANIES AND PROVIDE BROAD-BASED POLICY DIRECTION ON

NEXT STEPS TO INFORM THE PLACEMENT OF POTENTIAL REVENUE MEASURES ON THE NOVEMBER 2024 BALLOT
Staff recommends that the City Council accept the Business Tax Analysis Report prepared by HdL Companies and provide further board-based direction regarding a potential Business License Tax (BLT) amendment as wellas areas where the City Council would like further analysis and fact gathering for a potential future decision.

Specifically, at this early stage, staff is seeking direction from the City Council regarding a potential revision to the proposed Business License Tax that would apply to all business as to the following areas:

Shift to a gross receipts modelacross all business categories; Simplify and consolidate business license categories from 65 to nine; Adopt a differential rate model;
Retain a minimum tax with CPI adjustments; and
Implement the changes at one time instead of phased changes to the tax over time.

Staff is also seeking direction to proceed with gathering more information through a second phase of a community survey, including which potential revenue measures to incorporate. Aside from possibly updating the BLT, the City Council is also considering an increase and extension to the Utility Users’ Tax (UUT) and/or a renewal of the Public Safety Parcel Tax (PSPT). Staff also seeks input on any additional information that the City Council seeks to better inform the placement of a potential revenue measure or measures on the November 2024 ballot.

No final decision on the revenue measures being considered is needed at this time.

STRATEGIC PLAN ALIGNMENT
This item is in alignment with Goal A. Financial Stability and Sustainability of the City Council Strategic Plan. Under GoalA, it is specifically related to the following strategies:

Strategy 1: Develop a comprehensive fiscal sustainability model to address the General Fund’s longterm structural deficit.

Strategy 8: Determine the feasibility of a revenue ballot measure for November 2024 and/or November 2026 to address critical facilities and infrastructure needs.

Strategy 9: Pursue the placement of a voter-approved revenue measure on a ballot to address the funding gap between revenues and expenditures for fundamental public safety and other city services.

Strategy 10: Study the benefits and opportunity to update the City’s business license tax for voter consideration.

BACKGROUND
Union City’s Financial Forecast
Challenges such as high inflation, supply-chain disruptions, labor shortages, and more have compounded revenue losses post-pandemic for local governments. Many of Union City’s retail sales tax generators were closed, hotels were empty, and the use of public transit dwindled – causing adverse fiscal impacts and bringing about significant uncertainty for City revenues. Today, the City continues to grapple with slow revenue recovery coupled with the escalating costs of labor, contracts, supplies, equipment, and growing retirement obligations.

While the City currently maintains a healthy General Fund reserve, this is primarily due to salary savings from vacant positions, deferred maintenance/capital projects, and assistance through an influx of American Rescue Plan Act (ARPA) funds. In reviewing the City’s long-range financial forecast, the General Fund is projected to fall to the minimum reserve fund balance of twenty percent of its annual operating expenditures by 2029. This anticipated operating budget deficit is approximately $2.8 million per year.

The City Council has expressed a desire to identify new, ongoing, and stable revenue sources in order to address the operating budget deficit. This will give the City long-term stability so that it is not constantly facing a “fiscal cliff.” Prudently, the City Council has expressed its commitment to protect reserve levels and its interest in exploring voter approved revenue measures to address future gaps in funding City services and the ability to maintain existing service levels. Possible options include an increase and extension to the Utility Users’ Tax (UUT), a renewal of the Public Safety Parcel Tax (PSPT), and an update to the Business License Tax (BLT).

This report is focused primarily on proposed amendments to the City’s BLT and to provide additional information regarding a BLT measure as one potential solution.

Union City’s Current Business License Tax Structure
The City Council established the City's BLT by ordinance in 1969 and was subsequently amended a number of times. The City's BLT is codified in Union City Municipal Code Chapter 5.08. The tax structure in which the City follows is a hybrid model that utilizes gross receipt, gross payroll, units, and fixed rate based on the type of business being conducted in the City. This structure can complicate reporting and tax processing, and it makes grouping businesses difficult, as there are 65 different business types identified in the City’s BLT.

As such, updating the City’s BLT would streamline administration and help modernize the existing tax structure. This in turn would also raise revenues to support essential services for the community. BLT revenues, as a general tax, could be used for any governmental purpose and would be vital in funding public safety and health, addressing critical infrastructure maintenance, and improving amenities such as parks and outdoor spaces. These core services benefit all community members, from residents to the City's corporate citizens and its employees alike.

BLT Study – Key Goals
To aid in this effort, the City engaged HdL Companies (“HdL”) to perform a study of the City’s business license tax structure. HdL performed an initial study in 2021 in response to the City’s desire to explore strategies that supported the transformation of stand-alone warehouse uses to more productive uses as identified in the City Council’s Strategic Plan and City’s Economic Development Strategic Plan. HdL evaluated the City’s entire BLT structure and provided several alternatives for the City Council for further analysis, fact gathering, and consideration. At the October 26, 2021 City Council meeting, the City Council accepted HdL’s analysis and directed staff to pursue a BLT model that would apply across the board to all businesses based on gross receipts that could be considered by the voters in the November 2022 election.

After further discussion in February 2022, the City Council determined that for the November 2022 election, efforts should be focused on the extension of the ½ cent sales tax measure and that consideration to amend the BLT should be postponed untiladditionalanalysis and fact gathering could be completed.

In the latter half of 2023, the City reengaged HdL to refine the BLT analysis and focus on a gross receipts model with the primary goals of increasing revenue and simplifying the City’s rate schedule. The analysis would help the City Council determine if the BLT was being fairly assessed, as wellas validate financial projections of the previous 2021 study.

In summary, the key study goals were:

DISCUSSION
BLT Study – Key Findings and Conclusions
Keeping the City’s study goals in mind, HdL closely reviewed the City’s current tax structure, comparing it to a number of jurisdictions including Union City’s neighboring cities, and explored different options to generate additional revenues while minimizing the impact on businesses. The full report of HdL’s Business Tax Analysis is attached to this report as Attachment 1. The key findings and conclusions of the study indicate that:

1. The City’s business tax revenue is mostly stable and there are no signs of large growth patterns.

2. The City currently relies on three key business types for a little more than half of its business license tax revenue. Options may spread the results more fully across more business types.

3. The City’s current tax revenues collected are near the bottom of comparative cities.

4. The City can simplify administration by consolidating and reducing the number categories.

5. The City can increase its tax revenues with mostly moderate increases and use a gross-receipts measure for most categories.

A BLT based on gross receipts is one of the most common methods of business taxation in California. As a widely used methodology, there are many established guidelines for what constitutes gross receipts and how to administer the tax. HdL’s Business Tax Analysis states: “Benefits of gross-receipts-based taxes are the potential equity of their effective tax rate, ease of calculation, and potential for capturing revenue from economic growth. The drawback is that it exposes City revenues to fluctuations in gross receipts in the economy and may concentrate revenue in the highest-grossing businesses.” Transitioning all categories to a BLT based on gross receipts would be one critical step to modernizing the City’s BLT. The next would be to consolidate and reduce the number of categories from 65 to nine. With these foundationalchanges, two models were considered. Staff is not seeking City Council direction to pursue either model, or an alternate model, at this time.

In Model 1, each category has its own rate. Whereas in Model 2, all categories would have a single rate (with the exception of Mobile Home Parks and Exempt businesses). This proposed tax structure is outlined in the following table:

Categories Minimum Rate Model 1 Model 2
General/Retail $147
$0.43 / Thousand X
Gross
$0.43 / Thousand X Gross
Professional $293
$2.50 / Thousand X
Gross
$0.43 / Thousand X Gross
Contractors $167
$1.50 / Thousand X
Gross
$0.43 / Thousand X Gross
Service $293 $2 / Thousand X Gross $0.43 / Thousand X Gross Rental $171
$1.75 / Thousand X
Gross
$0.43 / Thousand X Gross
Exempt Exempt Exempt Exempt
Industrial –
Manufacturing/Wholesaling
$147
$0.43 / Thousand X
Gross
$0.43 / Thousand X Gross
Industrial – Warehousing $147
$0.43 / Thousand X
Gross
$0.43 / Thousand X Gross
Mobile Home Parks $646 $35 / Space $35 / Space
Under Model 1, with a tax rate formula that fluctuates by business categories, the total revenues raised would be higher. Whereas, Model 2 takes a more conservative approach by applying the existing minimum gross receipts tax rate, but still achieves higher revenues for the City. Estimated revenues from each category and the total for each model is outlined in the following table:

Number of Est. Gross
Est. Annual
Gross
Receipts Tax
Est. Annual
Gross
Receipts Tax
Business Type Businesses Receipts Current Taxes Model 1 Model 2 General/Retail 655 $919,940,000.00 $451,823.71 $485,448.33 $485,448.33 Professional 1,011 $431,293,000.00 $263,881.16 $1,311,330.50 $470,821.49 Contractors 1,067 $374,099,000.00 $231,596.59 $699,325.00 $327,581.32 Service 60 $144,347,000.00 $25,436.54 $303,348.00 $79,020.12 Rental 2,210 $300,758,000.00 $503,057.30 $808,436.25 $483,696.45 Exempt 95 $59,488,000.00 $2,375.00 $0 $0
Industrial –
Manufacturing/
Wholesaling
209 $2,492,946,000.00 $238,294.99 $1,100,470.55 $1,100,470.55 Industrial – Warehousing
95 $441,971,000.00 $43,407.15 $202,991.28 $202,991.28
Mobile Home
Parks
2 N/A $28,942.00 $32,652.00 $32,652.00
5,404 $5,164,842,000.00 $1,788,814.44 $4,944,001.91 $3,182,681.54 Ultimately though, it is important to note that the proposed tax rates under each modelare presented simply for illustrative purposes and may be adjusted to better meet the City’s goals while balancing the tax burden and implications across business sectors.

Economic Development Advisory Team Feedback
On March 6, 2024, a draft report of HdL’s Business Tax Analysis was shared with the Economic Development Advisory Team (EDAT). City staff, along with its consultant, reviewed the study with EDAT members and received their feedback on further exploration regarding the findings. EDAT comments were in essence these three points:

EDAT expressed interest in further fact gathering related to Model 1, which has differential rates across categories, rather than Model 2 which applies a single rate across categories.

EDAT sought further information regarding the proposed tax rate on the Professional category and the impacts of such an increase on these business types.

EDAT proposed an across the board phasing in the increase to the proposed tax rates to reduce the burden on businesses and to allow businesses adequate time to build into their budgets and financial forecasts.

Overall Staf Recommendations/Policy Considerations
Given the results of the Business Tax Analysis and the feedback conveyed by EDAT, staff recommends the following for the City Council to consider:

1. A gross receipts structure across all business categories allows the City to charge different rates based on business activity and would reduce complexity, improve equitability, and increase business tax revenues with a potential for future growth.

2. Simplifying and consolidating business categories from 65 to nine broad categories would ease administration of the BLT.

3. A differential rate model allows a more measured approach to having businesses pay their fair share while also ensuring not any one business sector is particularly burdened. The BLT rate could be lower on a business category that contributes to the City’s revenue stream, such as retail sales, while a higher BLT rate could be assessed on a business category that does not contribute as significantly to the City’s tax base or may have a higher cost on infrastructure, such as stand-alone warehousing.

Staff is not requesting that the City Council identify specific tax rates by category at this time; however, the City Council could seek further broad-based information regarding particular categories and ultimately will be asked to consider how a business sector may be contributing to the community through sales tax or jobs when setting rates.

4. The minimum tax rate should be continued to safeguard the taxes currently being collected and ensure that existing business license taxes aren’t inadvertently lowered as a result of this process. Allowing for CPI adjustments to the minimum rates as recommended by the study would also ensure the City’s BLT is kept current and competitive.

5. Implement the new BLT rates at one-time. Staff acknowledges EDAT’s recommendation to phase in any BLT rate changes to allow businesses time to adjust. However, staff recommends a swift approach to reduce confusion to businesses that may occur over a several-year phasing process and be more stable for the City.

City Council Next Steps and Key Milestones
The BLT is a general tax that requires a 2/3rd majority vote of the City Council (4 out of 5 Councilmembers) to be placed on the ballot and a simple majority vote (50% + 1) of the voters to pass. By law, a general tax may only be placed on the ballot when there is a City Council election, except in cases of emergency declared by a unanimous vote of the City Council. For Union City, the next opportunity to place a general tax on the ballot is November 2024.

Alameda County’s deadline for submitting a ballot measure is August 9, 2024. The following is a tentative calendar outlining steps that would need to be taken for the inclusion of a ballot measure on the November 5, 2024 General Election:

Conclusion
At this early stage, staff is requesting that the City Council’s direct staff to pursue a BLT update that includes the following across the board revisions:

Shift to a gross receipts modelacross all business categories; Simplify and consolidate business license categories from 65 to nine; Adopt a differential rate model to be determined;
Retain a minimum tax with CPI adjustments; and
Implement the changes at one time; do not phase in changes to the tax.

The City Council may also indicate areas where it may seek more information to inform future potential decisions.

Staff is also seeking the City Council’s direction on whether to proceed with a community survey for the BLT.

From previous discussions, the City Council had expressed interest in conducting a survey of the UUT and PSPT. Adding the BLT would test three revenue measures at one time. While it would be possible to survey through a split sample design, City Council may also consider narrowing down the options being considered given it would not be advised nor likely that the City will place more than two revenue measures on one ballot.

For reference, the City’s existing UUT will expire in December 2028. The option of increasing the UUT, as a general tax would also only require a simple majority vote (50% + 1) of the voters to pass. Should the City Council desire to continue exploring an increase to the UUT, it would require an increase from the current rate of 5.0% to 7.5% to close the operating budget deficit. The 2.5% increase over the current rate would have an additional annual revenue stream of approximately $3.2 million per year. Seeking an extension on the UUT would also be recommended at the same time to avoid a possible fiscalcliff in 2028.

Moreover, the first community survey that was conducted between September 6-18, 2023 assessed voter attitudes and potential support specifically for a PSPT measure. The survey concluded that a PSPT measure in March 2024 did not likely have the community support to succeed, in part because the high voter threshold of 66.67% that would be necessary for a parcel tax to pass. A PSPT measure in November 2024 did not fare much more favorably either. As noted, should the City Council desire to continue exploring a renewal of the PSPT, TeamCivX suggests that a tax rate of $0.05 per square foot of limited duration be tested. This rate would have an annual revenue stream of approximately $2.6 million per year and average annualcost of $90 per household unit, which would not close the operating budget deficit.

If the City Council desires to move forward, staff will work with TeamCivX and Godbe Research to proceed with the second phase of a community survey. A separate item on this agenda seeks the formation of an Ad Hoc Subcommittee to support staff and the consultants in the preparation of the community survey and provide a recommendation to the City Council upon receipt of the survey results. This second phase of the survey will be shaped by feedback received from City Council to date, will demonstrate how voter attitudes may have shifted over the last six months, and help narrow the revenue measure options that the City Council may consider.

These revenue measure options are further detailed in the February 27, 2024 staff report (linked here).

Lastly, if there is any additional information City Council would like to obtain to better inform the eventual decision on placement of potential revenue measures on the November 2024 ballot, that feedback would help refine next steps.

FISCAL IMPACT
There is no fiscal impact of City Council taking the recommended action.

There is also no immediate impact associated with consideration of the potential revenue measures. Fiscal impact on the General Fund would be dependent on the direction received by the City Council and the outcome of any potential revenue measure.

The City’s long range financial forecast indicates a shortfall averaging $2.8 million from FY 2025 to FY 2035.

As previously stated, the General Fund is projected to fall below the minimum reserve fund balance goal of twenty percent of its annual operating expenditures by 2029 and would be depleted by 2035 if no corrective action is taken. The financial forecast assumes no expansion of staff or City services.

RECOMMENDATION
Staff recommends that the City Council accept the Business Tax Analysis Report prepared by HdL Companies and provide further broad-based direction regarding a potential Business License Tax (BLT) amendment as wellas areas where the City Council would like further analysis and fact gathering for a potential future decision.

No final decision on the revenue measures being considered is needed at this time.

Prepared by:

Jennifer Phan, Deputy City Manager
Submitted by:

Jennifer Phan, Deputy City Manager
ATTACHMENTS:

Description Type
Attachment 1 - HdLBusiness TaxAnalysis Report Attachment PowerPoint Presentation Attachment
1 | P a g e

SUBMITTED BY
HdL Companies
120 S. State College Blvd., Ste 200
Brea, CA 92821
hdlcompanies.com

CONTACT
Eric Myers
T: (424) 228-8517 Ext. 1022
E: [email protected]
March 20, 2024
Business Tax Analysis
Union City
City of
2 | P a g e
Table of Contents
Table of Contents 2
Executive Summary 3
SECTION 1 – Current Structure Analysis and Comparisons 4 The City’s business tax revenue appears stable. 4
Three business types make up roughly 50% of revenue. 5
Existing classifications and rates are numerous. 6
The City’s tax revenue is near the bottom of the comparison cities. 8 The City’s results are low even when controlling for population and business size. 10 The City could increase taxes and still be competitive. 10 SECTION 2 – Category & Tax Analysis 17
Gross Receipts Tax – Estimates 17
Key Options: Gross Receipts Tax – Classification-Based Rates 17 Proposed Rates Comparisons 19
Conclusion 20
3 | P a g e
Executive Summary
Background
The City of Union City requires entities or persons that are carrying on business in the City to obtain a business license and to pay what is referred to as a business license tax.
1 As noted in the City’s code, the purpose of this tax is twofold: (1) for regulatory purposes, where permissible by law; and (2) for revenue purposes. In this study, we review the revenuegenerating aspect of the business license tax.

The City currently faces a general fund shortfall. Without additional funds, the City services may be underfunded and begin to degrade.

The scope of the tax study
HdL Companies (“we” or “HdL” ) was asked to review the City’s current tax structure, compare that structure to a select group of cities, and, working with staff, to explore options for generating additional revenue from the business license tax while minimizing the impact on business.

Key findings and conclusions

1. The City’s business tax revenue is mostly stable. There are no signs of large growth patterns. Given inflation and increased costs of services for cities in California, a stable revenue source, while reliable, is likely to lag the increasing costs the City faces.

2. The City currently relies on three key business types for a little more than half of its business license tax revenue. They are retail businesses, residential rentals, and professional services. The options discussed in section two of this report spread the results more fully across more business types.

3. The City’s current tax results are near the bottom of the comparison set.

Model 1 would shift the City to near the top of that set. Model 2 would improve revenue, while keeping the City closer to the bottom half of the comparison set.

4. The City can simplify administration by consolidating classifications.

Both proposed models would reduce the number of classifications.

5. The City can increase its tax revenue with mostly moderate increases and use a gross-receipts measure for most classifications.

1 City of Union City Municipal Code (UCMC) §5.08.030. The tax is also referred to as a “fee” in some parts of the code. For example, in UCMC §5.20.010. But for simplicity and consistency, we will refer to the amount owed as a “tax”.

Five Key Components of A
Business License Tax

1.The taxable activity. In the City
of Union City, the taxable activity is
“…transact[ing] and carry[ing] on
any business, trade, profession,
calling or occupation in the City…”

2.The measure of the taxable
activity. Once we know what is
taxed, we must measure how
much of that taxable activity is
occurring. Some cities may
measure the number of
employees. A more modern trend
is to measure the gross receipts.

3.The rate. Given a certain amount
of taxable activity, a rate is applied
to determine how much tax is
owed.

4.The classification. Cities often
group certain kinds of businesses
together and apply different tax
rates to each group. For example,
a city might want to charge
restaurants a lower rate than
commercial rentals.

5.The results. Since we are
concerned with the revenuegenerating aspect of the business license, when we refer to the
“results” of the tax, we mean the
revenue generated for the City.
4 | P a g e
SECTION 1 – Current Structure Analysis and Comparisons
The City’s business tax revenue appears stable.

Union City has approximately 5,404 businesses contributing to the business license tax. Since fiscal year (FY) 2019, business license tax revenue has averaged approximately $1.78 million. This study is based on $1.79 million in business license tax revenue from business licenses issued between July 1, 2022, and June 30, 2023.

It is important to keep in mind this number of $1.79 million. Since one of the aims of the study is to explore what additional revenue might be generated, this figure of $1.79 million will form the baseline against which other revenue options will be measured.

As you can see in Chart 1, below, the results of the City’s business license tax have been steady. If the tax is not changed, and the economy remains roughly the same, the results of the City’s current tax will likely remain roughly the same. 2 $1.71
$1.85
$1.74 $1.79 $1.79
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
FY2019 FY2020 FY2021 FY2022 FY2023
Millions
Chart 1: City Business License Tax Revenue Trend (In Millions) A note about fiscal years. Throughout
this report, the fiscal year is referred to
by the second of the two calendar years.

For example, “FY 2019”, means the fiscal
year that started on July 1, 2018, and
ended on June 30, 2019.
5 | P a g e
Three business types make up roughly 50% of revenue.

Chart 2, below, shows the key business types that generate the City’s business tax revenue.

The City’s current business license revenue is heavily dependent on the retail, residential rental, and professional services industries. Professional, retail, and residential rental make up over 50% of the tax results in Union City. Retail Sales (General) makes up about 9% of the count of businesses within the city but generates 23% of the total tax results in the City. In comparison, professional services make up about 18% of the business community but contribute about 15% of the revenue. While the proportion of business to their revenue contribution is not likely to be one-to-one, it is worth noting the deviations. Those may indicate areas of opportunity to improve the tax structure. 23%
16%
15%
9%
7%
7%
6%
4%
3%
8%
Chart 2: Total Share of Tax Revenue Generated by Business Type Retail Sales (General)
Rental Residential (Individual
Owned)
Professional Services
Commercial Leasing
Wholesale
Contractor (General, Annual)
Manufacturing
Contractor (Sub, Annual)
Rental Residential (Company
Owned)
Warehouse/Distribution

ALL OTHER
6 | P a g e
Existing classifications and rates are numerous.

Below is the City’s rate schedule. It is a mixture of gross-receipts, gross-payroll, and fixed fee measures. As you read through, please note the number of classifications. Having this many classifications increases the administrative burden for City Staff and taxpayers, as does having several different measures of taxable activity.

Table 1: City Current Tax Structure
Group Classification Rate Calculation or Fixed Amount Min. Tax I Hotels/Motels $0.86 x (Gross Receipts/$1,000.00) $132.00 I Leasing, Commercial $0.86 x (Gross Receipts/$1,000.00) $132.00 I Retail Sales – Firearms $0.43 x (Gross Receipts/$1,000.00) $132.00 I Retail Sales – General $0.43 x (Gross Receipts/$1,000.00) $132.00 II Administrative/General Office $0.50 x (Gross Payroll/$1,000.00) $132.00 II Import/Export $0.43 x (Gross Payroll/$1,000.00) $132.00 II Manufacturing $0.43 x (Gross Payroll/$1,000.00) $132.00 II Warehouse/Distribution $0.43 x (Gross Payroll/$1,000.00) $132.00 II Wholesale $0.43 x (Gross Payroll/$1,000.00) $132.00
III General Contractor (1-4 emp.)
(Annual) $324.00
III General Contractor (5-10 emp.)
(Annual) $487.00
III General Contractor (10+ emp.)
(Annual) $487.00 + $4.80 for each employee over 10
III General Contractor (1-4 emp.)
(Quarterly) $81.00 x Quarters Operating
III General Contractor (5-10 emp.)
(Quarterly) $121.75 x Quarters Operating
III General Contractor (10+ emp.)
(Quarterly)
($121.75 x Quarters Operating) + ($1.20 for each employee over 10 x Quarters Operating)
III Sub-Contractor (1-4 emp.) (Annual) $159.00
III Sub-Contractor (5-10 emp.)
(Annual) $238.00
III Sub-Contractor (10+ emp.) (Annual) $238.00 + $2.10 for each employee over 10 III Sub-Contractor (1-4 emp.)
(Quarterly) $39.75 x Quarters Operating
III Sub-Contractor (5-10 emp.)
(Quarterly) $59.50 x Quarters Operating
III Sub-Contractor (10+ emp.)
(Quarterly)
($59.50 x Quarters Operating) + ($0.53 for each employee over 10 x Quarters Operating)
7 | P a g e
Group Classification Rate Calculation or Fixed Amount Min. Tax IV Advertising (see below for specific
types):

IV Billboards $13.00 x # of Panels
IV Signs on Buses/Posts $218.00 x Quarters Operating
IV Handbills, Samples, Stickers (Daily) $47.00 x Days Operating IV Handbills, Samples, Stickers
(Quarterly) $93.00 x # of Persons x Quarters Operating
IV Searchlights $35.00 x # of Weeks Operating
IV Display Ad or Loudspeaker (on
vehicle) $94.00 x # of Months Operating
IV Display Ad or Loudspeaker (on
aircraft) $129.00 x # of Months Operating
IV Auctions $159.00 + $67.00 for each Day over 1st Day
IV Billiard/Pool Tables $97.00 x # of Tables
IV Canvas/Soliciting $159.00 x # of Persons x Quarters Operating IV Carnival/Circus $1,286.00 + $641.00 for each Day over 1st Day IV Christmas Tree/Holiday Lots $198.00 x # of Months Operating IV Delivery/Catering Trucks (Annual) $265.00 x # of Vehicles IV Delivery/Catering Trucks (Event) $9 x # of Vehicles x Events IV Fireworks Booths $159.00 x # of Months Operating
IV Mobile Home Parks $583.00 + ($31.00 x # Mobile Home (MH) Spaces) IV Produce Stands, Temporary $9.00 x Days Operating
IV Public Dancing (Daily) $117.00 x Days Operating
IV Public Dancing (Quarterly) $198.00 x Quarters Operating IV Rental Residential (Company
Owned) $154.00 + $13.00 for each Rental Unit over 4
IV Rental Residential (Individual
Owned) $154.00 + $13.00 for each Rental Unit over 4
IV Street Musicians $37.00 x # of Persons x Days Operating IV Tool Sharpener $67.00 x # of Persons x Quarters Operating IV Transportation, Public $196.00 x # of Vehicles
IV Vehicle Parking Lots $10.00 x # of Stalls $33.00
IV Vending/Video Machines $35.00 x # of Machines
IV Vending/Video Machines (Excl.

Rights Distr.) 0.25 x (1.30% x Gross Receipts)
8 | P a g e
Group Classification Rate Calculation or Fixed Amount Min. Tax V Bingo $97.00
V Club/Sales $641.00
V Directories – Classified $218.00
V
Entertainment (over 500
seats/stalls) $1,286.00
V
Entertainment (under 500
seats/stalls) $641.00
V Home Occupation $159.00
V Pawnbrokers $2,562.00
V Professional Services $265.00
V Public Utilities $641.00
V Recreation Parlor/Rink $641.00
V Towing $324.00
V
UCLS Instructor (Ann. Inc. $2,001 -
$5,000) $32.00
V
UCLS Instructor (Ann. Inc. $5,001 -
$10,000) $63.00
V
UCLS Instructor (Ann. Inc.
>$10,000) $127.00
V Wrecking/Salvage $1,286.00
VI Exempt (Non-Profit or Exempt by
Law) $25.00
The City’s tax revenue is near the bottom of the comparison cities.

Union City is near the bottom for business license tax revenue generation when compared to nearby and/or similar sized cities. In descending order based on business license tax revenue, Table 2 illustrates key features of each jurisdiction, namely population, estimated number of businesses, and business license tax revenue. The revenue trend diagrams indicate the lowest revenue (red) and highest (green) between FY2018 and FY2022.

Please note that the revenue is for the fiscal year 2021-2022, which is the most recent data available from the State. State data is used to allow a snapshot of how the City compares to its neighbors at a moment in time. The trendlines in the right-most column show the relative trends over time.
9 | P a g e
Table 2: Jurisdiction Comparison Data3
Jurisdiction
Name
Est.

Population
Population
Density
Estimated
Businesses
Tax
Schedule
General
Year Last
Updated
Revenue in
FY 21-22
5-Year State Reported
Business Tax Trend
Modesto 218,464 5,075 11,000 Gross
Receipts 1997 $19,757,829
Fremont 230,504 2,943 17,700
Gross
Receipts /
Hybrid
2016 $11,663,725
San
Leandro 91,008 6,832 6,700 Employee / Units 2018 $7,572,846 Livermore 87,955 3,325 7,400
Gross
Receipts /
Gross
Expenses
1995 $7,738,628
San Mateo 105,661 8,711 10,900
Gross
Receipts /
Flat Rate
1984 $6,639,151
Pleasanton 79,871 3,309 9,500 Gross
Receipts 2017 $5,294,430
Hayward 162,954 3,556 8,000
Gross
Receipts /
Hybrid
1978 $3,170,501
Redwood
City 84,292 4,358 7,800 Employee 2018 $3,006,541
Foster City 33,805 8,920 1,800 Gross
Receipts 1990 $1,583,789
Union City 70,143 3,657 5,500 Multiple
Tax Types 2013 $1,787,652
Newark 47,529 3,414 3,300
Flat Rate /
Gross
Receipts
1970 $1,580,922
Tracy4 93,000 3,592 4,700 Employee 2022 $1,038,012
Union City has been mostly stable, while other nearby jurisdictions, like Fremont, Hayward, and Redwood City, have shown growth the business license tax revenue

3 Figures above are obtained from United States Census Bureau Records, California State Controller’s Office Revenue Records, estimations using statewide averages, and data available in the HdL software environment.
4 Tracy has recently adopted a Gross Receipts model of business license taxation. For the years in the table, they taxed on a per-employee basis. The increase in revenue will be seen in Fiscal Year 2023, and no publicly reported figure is currently available for the impact of the change. However, in their ballot measure, it was estimated that they would see a quadrupling of their generated revenues or approximately $4.1 million. 10 | P a g e
The City’s results are low even when controlling for population and business size.

The cities in the comparison set of Table 2 vary in both population and number of businesses. Yet, even when controlled for the variables of population and number of businesses, Union City continues to rank lower than comparative cities as shown in the graphs below.

The City could increase taxes and still be competitive.

In the following pages, a detailed analysis evaluates how the City’s business license tax compares with other jurisdictions when using hypothetical business types.

In Table 3 below, for example, hypothetical business types are compared among Union City, Fremont, Newark, and Tracy.

Fremont and Newark were chosen because Union City shares the same economic climate as these neighboring communities. Tracy was included because the city’s voters adopted a new business license tax formula, not unlike one of the models Union City may consider. The first column identifies the type of business. The second column from the left, lists the values for the key measures. For example, the Commercial Landlord is listed as having $150,000 in gross receipts, 1 employee, and 5 rental units. The Dentist's office has $2,000,000 in gross receipts, 10 employees, and zero rental units.

While the table mentions gross receipts, which Tracy uses for example, if Union City would apply gross payroll then the dollar figure in this column refers to gross payroll for Union City and gross receipts for Tracy.

The remaining columns are the estimated business license taxes each business would pay in each city. This allows for a quick view of how much a particular kind of business might pay and how that compares in other jurisdictions. For example, a restaurant of the size noted below pays more in Union City than in Fremont, but Union City charges the lowest for the dentist’s office. At the bottom of each column the total taxes from this set of business types are shown.

Table 3A: Hypothetical Businesses in Selected Comparison Cities - Revenue Generation $0
$20
$40
$60
$80
$100
Chart 3 (Revenue Per Capita)
Per Capita Union City
$0
$800
$1,600
$2,400
$3,200
$4,000
Chart 4 (Revenue Per Business)
Per Business Union City
11 | P a g e
Sample Business
Gross Receipts/
Employee/Units Union City Fremont Newark Tracy
(Adopted 2022)
Commercial
Landlord $150,000/1/5 $129.00 $225.00 $104.00 $50.00
Restaurant Chain $625,000/20/0 $268.75 $186.25 $431.00 $175.00 Dentist Office $2,000,000/10/0 $293.00 $2,630.00 $2,600.00 $1,550.00 Residential
Apartments $3,000,000/10/100 $1,515.00 $3,930.00 $1,261.00 $2,550.00 Warehousing/
Distribution $5,000,000/15/0 $1,433.33 $65.00 $666.67 $4,550.00 Supermarket $25,000,000/300/0 $10,750.00 $6,280.00 $4,561.00 $24,550.00 $14,389.08 $13,316.25 $9,623.67 $33,425.00
The table below compares current business license tax rates across the same cities. This analysis reflects the variable rates among cities and how the rates compare For example, the supermarket is charged under the “Retail Sales” classification in Union City at a rate of $0.43/$1,000 but under “General” classification in Newark at a rate of $1,051 plus $0.15 per $1,000.

Table 3B: Hypothetical Businesses in Selected Comparison Cities – Rate Structure Sample Business
Gross Receipts/
Employee/Units Union City Fremont Newark Tracy(Adopted 2022) Commercial
Landlord $150,000/1/5 Commercial Rental /($0.86 per $1,000) Rental Property/
($30+$1.30/$1,000)
Rental / GR
Under $150k -
$104
Rental ($50 + $3
per $1,000 over
$500k
Restaurant
Chain $625,000/20/0 Retail Sales/ ($0.43 per $1,000)
Retail Sales/
($30+$0.25/$1,000)
Rental / GR
Under $650k -
$431
General ($50 + $1
per $1,000 over
$500k
Dentist Office $2,000,000/10/0 Professional ($293) Professional/ ($30+$1.30/$1,000)
Professional /
($1.30 per
$1,000)
Professional ($50
+ $3 per $1,000
over $500k
Residential
Apartments $3,000,000/10/100 Residential Rental ($171+ $14 per Unit) Rental Property/
($30+$1.30/$1,000)
Rental / ($1,051
+ $0.15 per
$1,000 over
$1.6M)
Rental ($50 + $3
per $1,000 over
$500k
Warehousing/
Distribution $5,000,000/15/0
Warehousing/Distrib
ution ($0.43 per
$1,000 Gross Payroll)
Warehouse/
($65/50,000 SqFt)
General /
($1,051 + $0.15
per $1,000 over
$1.6M)
Industrial / $50 +
$1.50 per $1,000
over $500k
Supermarket $25,000,000/300/0 Retail Sales/ ($0.43
per $1,000)
Retail Sales/
($30+$0.25/$1,000)
General /
($1,051 + $0.15
per $1,000 over
$1.6M)
General ($50 + $1
per $1,000 over
$500k
12 | P a g e
Table 4A: Current Result Comparison Based on Sample Businesses Sample Business
Gross Receipts/
Employee/Units Union City Foster City Fremont Hayward Livermore Modesto Outside Subcontractor $5,000/1/0 $176.00 $200.00 $120.50 $53.50 $10.00 $85.00 Small Craft Business $20,000/1/0 $176.00 $100.00 $36.00 $101.30 $40.00 $35.00 Lawn & Gardening Services $50,000/2/0 $147.00 $100.00 $35.00 $46.70 $80.00 $150.00 General Contractor - Remodeling $85,000/3/0 $358.00 $200.00 $103.50 $53.50 $102.00 $135.00 Commercial Landlord $150,000/1/5 $129.00 $112.50 $225.00 N/A $120.00 $200.00 Engineering Firm $500,000/5/0 $293.00 $375.00 $680.00 $751.70 $800.00 $1,050.00 Restaurant Chain $625,000/20/0 $268.75 $468.75 $186.25 $132.00 $1,500.00 $675.00 Dentist Office $2,000,000/10/0 $293.00 $1,500.00 $2,630.00 $2,746.70 $3,200.00 $4,050.00 Residential Apartments $3,000,000/10/100 $1,515.00 $2,250.00 $3,930.00 N/A $3,600.00 $3,050.00 Warehousing/ Distribution $5,000,000/15/0 $1,433.33 $3,750.00 $65.00 $66.50 $4,000.00 $10,050.00 Supermarket $25,000,000/300/0 $10,750.00 $18,750.00 $6,280.00 $6,845.90 $12,500.00 $25,050.00 $15,363.08 $27,806.25 $14,291.25 $10,797.80 $25,952.00 $44,530.00 In Tables 4A and 4B, we again compare the tax results for different businesses, but this time across more jurisdictions. We include these other jurisdictions to compare different types of tax structures and other jurisdictions around the region. Because of the number of jurisdictions, we have broken the comparisons into two sets of charts. Charts 4A and 4B compare the tax results, while charts 4C and 4D compare the rates.
13 | P a g e
Table 4B: Current Result Comparison Based on Sample Businesses Sample Business Gross Receipts/Employee/Units Union City Newark Pleasanton Redwood City San Leandro San Mateo Tracy (Current) Outside Subcontractor $5,000/1/0 $176.00 $96.00 $25.00 $133.00 $226.60 $40 $50.00 Small Craft Business $20,000/1/0 $176.00 $39.00 $25.00 $133.00 $184.00 $25 $50.00 Lawn & Gardening Services $50,000/2/0 $147.00 $72.00 $50.00 $186.00 $357.20 $46 $50.00 General Contractor -
Remodeling $85,000/3/0 $358.00 $96.00 $50.00 $133.00 $396.80 $100 $50.00 Commercial Landlord $150,000/1/5 $129.00 $104.00 $75.00 $370.00 $353.50 $195 $50.00 Engineering Firm $500,000/5/0 $293.00 $650.00 $150.00 $345.00 $674.00 $394 $50.00 Restaurant Chain $625,000/20/0 $268.75 $431.00 $187.50 $1,140.00 $991.50 $466 $175.00 Dentist Office $2,000,000/10/0 $293.00 $2,600.00 $600.00 $610.00 $1,206.50 $1,249 $1,550.00 Residential Apartments $3,000,000/10/100 $1,515.00 $1,261.00 $900.00 $2,980.00 $1,421.50 $1,819 $2,550.00 Warehousing/ Distribution $5,000,000/15/0 $1,433.33 $666.67 $1,500.00 $875.00 $5,666.50 $2,959 $4,550.00 Supermarket $25,000,000/300/0 $10,750.00 $4,561.00 $7,500.00 $6,609.00 $12,891.50 $14,359 $24,550.00 $15,363.08 $10,576.67 $11,062.50 $13,514.00 $24,369.60 $21,653 $33,675.00 14 | P a g e
Table 4C: Current Rate Comparison Based on Sample Businesses Sample Business Gross Receipts/
Employee/Units Union City Foster City Fremont Hayward Livermore Modesto Outside Subcontractor $5,000/1/0
Sub-Contractor /
Less than 4 Emp.
- $176
Contractor
($0.75 per
$1,000 - Min
$200 - Max
$28,597)
Construction/
($125+$0.10/$1,
000)
Contractors / 3
or Less
Employees -
$53.35
Contractor /
Minimum Tax
$10 if < $5,000
GR
Outside
Contractor / ($75
+ $1 per $1,000)
Small Craft Business $20,000/1/0 Retail Sales /
(Min $147)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Retail Sales/
($30+$0.25/$1,0
00)
Class I / Less
than $30,000 -
$16
Retail / ($0.80 /
$1,000, $40 Min)
Home
Occupation /
$35.00
Lawn & Gardening Services $50,000/2/0
Home
Occupation
($176)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Service/
($30+$1.00/$1,0
00)
Class I / Less
than $60,000 -
$24
Miscellaneous /
($1.60 per
$1,000, $40 Min)
Professions and
Services/ ($50 +
$2 per $1,000)
General Contractor - Remodeling $85,000/3/0
Contractor/ Less
than 4 Emp. -
$358
Contractor
($0.75 per
$1,000 - Min
$200 - Max
$28,597)
Construction/
($125+$0.10/$1,
000)
Contractors / 3
or Less
Employees -
$53.35
Contractor /
($0.80 / $1,000,
$40 Min)
Outside
Contractor / ($75
+ $1 per $1,000)
Commercial Landlord $150,000/1/5
Commercial
Rental / ($0.86
per $1,000)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Rental Property/
($30+$1.30/$1,0
00)
Repealed by
Ordinance No.
68-030 C.S.

Non-Res.

Property Rental /
($1.20 / $1,000)
Retail-Misc. /
($50 + $1 per
$1,000)
Engineering Firm $500,000/5/0 Professional
($293)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Professional/
($30+$1.30/$1,0
00)
Professional /
($100 + $1.33
per $1,000 over
$100k)
Professional /
($1.60 / $1,000,
$40 Min)
Professions and
Services/ ($50 +
$2 per $1,000)
Restaurant Chain $625,000/20/0
Retail Sales/
($0.43 per
$1,000)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Retail Sales/
($30+$0.25/$1,0
00)
Class I / Less
than $700,000 -
$132
Retail / ($0.80 /
$1,000, $40 Min)
Retail-Misc. /
($50 + $1 per
$1,000)
Dentist Office $2,000,000/10/0 Professional
($293)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Professional/
($30+$1.30/$1,0
00)
Professional /
($100 + $1.33
per $1,000 over
$100k)
Professional /
($1.60 / $1,000,
$40 Min)
Professions and
Services/ ($50 +
$2 per $1,000)
15 | P a g e
Residential Apartments $3,000,000/10/100
Residential
Rental ($171+
$14 per Unit)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Rental Property/
($30+$1.30/$1,0
00)
Repealed by
Ordinance No.
68-030 C.S.

Res. Property
Rental / ($1.20 /
$1,000)
Retail-Misc. /
($50 + $1 per
$1,000)
Warehousing/ Distribution $5,000,000/15/0
Warehousing/Di
stribution ($0.43
per $1,000 Gross
Payroll)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Warehouse/
($65/ 50,000
SqFt)
Warehouse /
$1.33 per Sqft
Warehouse/
($0.80 / $1,000,
$40 Min)
Professions and
Services/ ($50 +
$2 per $1,000)
Supermarket $25,000,000/300/0
Retail Sales/
($0.43 per
$1,000)
General ($0.75
per $1,000 - Min
$100 - Max
$28,597)
Retail Sales/
($30+$0.25/$1,0
00)
Class I /
(373.35+ $0.11
per $1,000 over
$3M
Retail / ($0.80 /
$1,000, $40 Min)
Retail-Misc. /
($50 + $1 per
$1,000)
Table 4D: Current Rate Comparison Based on Sample Businesses Sample Business Gross
Receipts/Employee/Units Union City Newark Pleasanton Redwood City San Leandro San Mateo Tracy (Current) Outside Subcontractor $5,000/1/0
Sub-Contractor /
Less than 4 Emp.
- $176
Contractor / GR
Under $100k -
$96
General / GR
Under $25,000 -
$25
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Contractor/
($141.50 +
$85.10 per
Employee)
Sub-Contractor /
$40
Contractor ($50
+ $2 per $1,000
over $500k
Small Craft Business $20,000/1/0 Retail Sales /
(Min $147)
General / GR
Under $50k - $39
General / GR
Under $25,000 -
$25
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Retail / ($141.50
+ $42.50 per
$1,000)
General / (GR
Under $30,000 -
$25)
General ($50 +
$1 per $1,000
over $500k
Lawn & Gardening
Services $50,000/2/0
Home
Occupation
($176)
General / GR
Under $50k - $39
General / GR
Under $100,000 -
$50
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Service/ ($141.50
+ $85.10 per
Employee)
General / (GR
Under $500,000 -
$46)
Service ($50 + $2
per $1,000 over
$500k
General Contractor -
Remodeling $85,000/3/0
Contractor/ Less
than 4 Emp. -
$358
Contractor / GR
Under $100k -
$96
General / GR
Under $100,000 -
$50
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Contractor/
($141.50 +
$85.10 per
Employee)
Contractor / $100
Contractor ($50
+ $2 per $1,000
over $500k
Commercial Landlord $150,000/1/5
Commercial
Rental /($0.86
per $1,000)
Rental / GR
Under $150k -
$104
General / ($75 +
$0.30 per $1,000
over $250,000)
Commercial
Rental / ($80 +
$29 per 1,000
Sqft)
Non-Res.

Property Rental /
($141.50 +
$23.20 per
1,000Sqft)
General / ($115+
$2.85 per $5,000
over $100,000)
Rental ($50 + $3
per $1,000 over
$500k
Engineering Firm $500,000/5/0 Professional
($293)
Professional /
($1.30 per
$1,000)
General / ($75 +
$0.30 per $1,000
over $250,000)
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Professional/
($141.50 +
$106.50 per
Employee)
Professional /
($115+ $2.85 per
$5,000 over
$100,000)
Professional ($50
+ $3 per $1,000
over $500k
Restaurant Chain $625,000/20/0
Retail Sales/
($0.43 per
$1,000)
Rental / GR
Under $650k -
$431
General / ($75 +
$0.30 per $1,000
over $250,000)
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Retail / ($141.50
+ $42.50 per
$1,000)
General / ($115+
$2.85 per $5,000
over $100,000)
General ($50 +
$1 per $1,000
over $500k
16 | P a g e
Dentist Office $2,000,000/10/0 Professional
($293)
Professional /
($1.30 per
$1,000)
General / ($75 +
$0.30 per $1,000
over $250,000)
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Professional/
($141.50+
$106.50 per
Employee)
General / ($115+
$2.85 per $5,000
over $100,000)
Professional ($50
+ $3 per $1,000
over $500k
Residential Apartments $3,000,000/10/100
Residential
Rental ($171+
$14 per Unit)
Rental / ($1,051
+ $0.15 per
$1,000 over
$1.6M)
General / ($75 +
$0.30 per $1,000
over $250,000)
Residential
Rental / ($80 +
$29 per Unit)
Res. Property
Rental/ ($141.50
+ $14 per Unit)
General / ($115+
$2.85 per $5,000
over $100,000)
Rental ($50 + $3
per $1,000 over
$500k
Warehousing/
Distribution $5,000,000/15/0
Warehousing/Dis
tribution ($0.43
per $1,000 Gross
Payroll)
General / ($1,051
+ $0.15 per
$1,000 over
$1.6M)
General / ($75 +
$0.30 per $1,000
over $250,000)
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Warehouse/
($141.50 +
$110.50 per
1,000 Sqft)
General / ($115+
$2.85 per $5,000
over $100,000)
Industrial / $50 +
$1.50 per $1,000
over $500k
Supermarket $25,000,000/300/0
Retail Sales/
($0.43 per
$1,000)
General / ($1,051
+ $0.15 per
$1,000 over
$1.6M)
General / ($75 +
$0.30 per $1,000
over $250,000)
General / ($80 +
$53 per FT
Employee + $26
per PT Employee)
Retail / ($141.50
+ $42.50 per
$1,000)
General / ($115+
$2.85 per $5,000
over $100,000)
General ($50 +
$1 per $1,000
over $500k
17 | P a g e
SECTION 2 – Category & Tax Analysis
HdL has worked with City staff to explore options to increase revenue for the City. After exploring several options, two options have been refined. Each option is referred to as a “model.” Gross Receipts Tax – Estimates
Many California jurisdictions use some form of gross receipts tax structure for their business license tax. The benefits of gross-receipts-based taxes are the potential equity of their effective tax rate, ease of calculation, and potential for capturing revenue from economic growth. The drawback is that it exposes City revenues to fluctuations in gross receipts in the economy and may concentrate revenue in the highest-grossing businesses.

The following figures are used as the foundation for the models below:

Table 5: Key Estimates Used In The Gross Receipts Models Number of
Businesses
Estimated Total Taxable
Gross Receipts
Annual Business Tax
Revenue
5,404 $5.16 Billion $1,788,814.44
All models presented below should be considered a starting point for discussion. Decisions about specific rates should consider the increased tax burden on businesses, the current rate for business license tax, and the City's goals.

Please note that the total taxable gross receipts are estimates. This is not information that is currently collected for every business in the City. Accordingly, we used estimates based on statewide averages for a particular type of business and cross-checked with sales tax data and census data to try and hone the estimates.

In the models below, we have also assigned business to certain classifications. Since the models reduce the number of classifications, we sometimes assign businesses to new classifications. These, too, are “estimates.” They are based on the data given and some assumptions about how those classifications will be mapped. Since rates are tied to classifications, moving a business from one classification to another can impact the rate applied and the estimated revenue.

Key Options: Gross Receipts Tax – Classification-Based Rates Tax Structure and Estimated Revenue
Both models use multiple categories to allow for different rates per classification. Should the City decide to use a gross receipts model like the models below, HdL will work with City staff to finalize a structure that best serves the City’s goals. It is important to remember that these models use estimated gross receipts based on the business classification, which may overestimate or underestimate the actual gross receipts in the City. We believe, however, that it gives a useful representation of the potential impact of the proposed tax structure. While these numbers should not be used for precise budgeting, useful insights are contained in the industry averages for the business classifications. 18 | P a g e
Table 6: Basic Tax Structure For Classification-Based Gross Receipts Categories Minimum Rate Model 1 Model 2
General/Retail $147 $0.43 / Thousand X Gross $0.43 / Thousand X Gross Professional $293 $2.50 / Thousand X Gross $0.43 / Thousand X Gross Contractors $167 $1.50 / Thousand X Gross $0.43 / Thousand X Gross Service $293 $2 / Thousand X Gross $0.43 / Thousand X Gross Rental $171 $1.75 / Thousand X Gross $0.43 / Thousand X Gross Exempt Exempt Exempt Exempt
Industrial -
Manufacturing/Wholesaling $147 $0.43 / Thousand X Gross $0.43 / Thousand X Gross Industrial - Warehousing $147 $0.43 / Thousand X Gross $0.43 / Thousand X Gross Mobile Home Parks $646 $35 / Space $35 / Space
As shown in Model 1, each classification (or category) has its own rate. These are relatively small rates. For example, a service provider would pay $2.00 for every $1,000 in gross receipts. That is $.20 for every $100 or two pennies for every ten dollars. A sales tax, on the other hand, would be $10 for every $1,000.

Model 2 applies a single gross-receipt rate to all categories (except mobile home parks and exempt businesses). Model 2 essentially keeps the City’s current gross receipt rate but applies it to all the classifications.

Please also note that both models keep the existing minimum rate, and we would recommend that if the minimum rate is adopted, the City also include language allowing for CPI adjustments to the minimum rates.

The table below presents the estimated revenue from each classification and the total model for each model. As one can see, Model 1, with its more aggressive rates, would result in more revenue. Model 2 takes a more conservative approach but still increases revenue by nearly $1.5 million over the existing structure. Both models would simplify the classifications and thus likely reduce the administrative complexity of the tax.

Table 7: Estimated Revenue From Classification-Based Gross Receipts Business Type
Number of
Businesses
Est. Gross
Receipts Current Taxes
Est. Annual Gross
Receipts Tax
Model 1
Est. Annual Gross
Receipts Tax
Model 2
General/Retail 655 $919,940,000.00 $451,823.71 $485,448.33 $485,448.33 Professional 1,011 $431,293,000.00 $263,881.16 $1,311,330.50 $470,821.49 Contractors 1,067 $374,099,000.00 $231,596.59 $699,325.00 $327,581.32 Service 60 $144,347,000.00 $25,436.54 $303,348.00 $79,020.12 Rental 2,210 $300,758,000.00 $503,057.30 $808,436.25 $483,696.45 Exempt 95 $59,488,000.00 $2,375.00 $0 $0
19 | P a g e
Industrial -
Manufacturing/
Wholesaling
209 $2,492,946,000.00 $238,294.99 $1,100,470.55 $1,100,470.55 Industrial -
Warehousing 95 $441,971,000.00 $43,407.15 $202,991.28 $202,991.28 Mobile Home Parks 2 N/A $28,942.00 $32,652.00 $32,652.00 5,404 $5,164,842,000.00 $1,788,814.44 $4,944,001.91 $3,182,681.54 The new models shift more of the tax impact away from general retail, which is already contributing significantly, and toward professional services and the two industrial-based classifications.

Proposed Rates Comparisons
Table 8: Comparing Models By Hypothetical Business Type Sample Business Gross Receipts/
Employee/Units Current Rate Model 1 Model 2 Fremont Newark Outside Subcontractor $5,000/1/0 $176.00 $167.00 $167.00 $120.50 $96.00 Small Craft Business $20,000/1/0 $176.00 $147.00 $147.00 $36.00 $39.00 Lawn & Gardening
Services $50,000/2/0 $147.00 $343.00 $303.75 $35.00 $72.00 General Contractor -
Remodeling $85,000/3/0 $258.00 $257.00 $192.80 $103.50 $96.00 Commercial Landlord $150,000/1/5 $129.00 $389.75 $224.75 $225.00 $104.00 Engineering Firm $500,000/5/0 $293.00 $1,480.50 $497.25 $680.00 $650.00 Restaurant Chain $625,000/20/0 $268.75 $405.00 $405.00 $186.25 $431.00 Dentist Office $2,000,000/10/0 $293.00 $5,230.50 $1,142.25 $2,630.00 $2,600.00 Residential Apartments $3,000,000/10/100 $1,515.00 $5,377.25 $1,450.25 $3,930.00 $1,261.00 Warehousing/
Distribution $5,000,000/15/0 $1,433.33 $2,286.25 $2,286.25 $65.00 $666.67 Supermarket $25,000,000/300/0 $10,750.00 $10,886.25 $10,886.25 $6,280.00 $4,561.00 $15,263.08 $26,969.50 $17,535.55 $14,291.25 $10,576.67
Model 1 would move the City into the higher-grossing cities behind Tracy and Modesto. As shown in Table 8, however, Model 2 remains competitive compared to Fremont and Newark. And for some businesses, it could result in little to no impact.
20 | P a g e
Conclusion
The City’s business tax revenue is mostly stable. There are no signs of large growth patterns. Given inflation and increased costs of services for cities in California, a stable revenue source, while reliable, is likely lagging behind costs. To the extent that the City wants to increase revenue and simplify administration, both models presented will likely accomplish those objectives. Model 1 would likely yield more revenue but would position the City more aggressively than most neighboring jurisdictions. Model 2 keeps the City in nearly the same “competitive” position while increasing revenue by about $1 million annually.

Agenda Item
DATE: 3/28/2024
TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: JOAN MALLOY, CITY MANAGER
SUBJECT: ADOPT A RESOLUTION APPROVING THE FORMATION OF, AND THE MAYOR’S APPOINTMENT OF TWO COUNCILMEMBERS TO, AN AD

HOC SUBCOMMITTEE TO EVALUATE AND PROVIDE

RECOMMENDATIONS ON THE SECOND PHASE COMMUNITY SURVEY

TO INFORM THE PLACEMENT OF POTENTIAL REVENUE MEASURES
ON THE NOVEMBER 2024 BALLOT
Staff recommends that the City Council adopt a resolution approving the formation of, and the Mayor’s appointment of two Councilmembers to, an Ad Hoc Subcommittee to evaluate and provide recommendations on the second phase community survey to inform the placement of potential revenue measures on the November 2024 ballot.

Strategy 1: Develop a comprehensive fiscal sustainability model to address the General Fund’s longterm structural deficit.

Strategy 8: Determine the feasibility of a revenue ballot measure for November 2024 and/or November 2026 to address critical facilities and infrastructure needs.

Strategy 9: Pursue the placement of a voter-approved revenue measure on a ballot to address the funding gap between revenues and expenditures for fundamental public safety and other city services.

Strategy 10: Study the benefits and opportunity to update the City’s business license tax for voter consideration.

BACKGROUND
At the June 13, 2023 study session and public hearing for the FY 2023-2024 and FY 2024-2025 Biennial Budget and Five-Year Capital Improvement Plan, and review of the long-range financial forecast, the City Council expressed an interest in exploring possible voter-approved revenue measures to address anticipated future gaps in funding City services, in particular public safety services. While the City currently maintains a healthy General Fund reserve, the rising costs of supplies, equipment, contracts, and employee salaries, and retirement obligations, are projected to adversely impact the General Fund. The rise in expenditures is growing faster than City revenues. The General Fund is projected to fall to the minimum reserve fund balance of twenty percent of its annual operating expenditures by 2029, which is equivalent to approximately ten weeks of operations. The City Council has prudently adopted Financial Principles to maintain a minimum of twenty percent General Fund reserve. In addition, the City Council has identified fiscal stability and sustainability as its primary goal in the Strategic Plan.

Given the City’s long-term financial forecast, on July 11, 2023, the City Counciladopted Resolution No. 6164- 23 authorizing the City to engage TeamCivX in evaluating community support for a potential revenue measure in either the March 2024 primary election or in November 2024 general election, which included a statistically reliable opinion survey of local voters conducted by Godbe Research.

To support this evaluation process, a City Council Ad Hoc Subcommittee (“Subcommittee”) comprised of Mayor Carol Dutra-Vernaci and Councilmember Jeff Wang was created on August 21, 2023 via Resolution No. 6195-23. The Subcommittee was tasked to analyze and provide recommendations on the potential placement of a revenue measure in March 2024. The Subcommittee reviewed the preparation of the community survey that would help the City Council understand voter attitudes towards a ballot measure and provided recommendations to the City Council based on survey results.

The community survey that was conducted by Godbe Research assessed voter attitudes and potential support specifically for a Public Safety Parcel Tax (PSPT) measure to restore and protect public safety services. The survey occurred between September 6-18, 2023 and the results of that survey were presented to the City Council on November 14, 2023. The survey concluded that a PSPT in March 2024 did not likely have the community support to succeed, in part because the high voter threshold of 66.67% would be necessary for a parcel tax to pass.

At the November 14, 2023 meeting, the City Council directed staff to not proceed with the PSPT for the March 2024 primary election, and instead to focus on potential revenue measures that could be considered for the November 2024 general election. This included a possible increase to the Utility Users’ Tax (UUT), updates to the Business License Tax (BLT), and options for a renewal of the PSPT.

DISCUSSION
To further refine and help identify which revenue measure(s) should be placed in the November 2024 general election for voter consideration, staff recognizes that the City Council would need additional information.

Aside from generalcommunications on the City’s financial outlook, a second community survey is planned for the April/May 2024 timeframe.

Staff is seeking the formation and appointment of two Councilmembers to an Ad Hoc Subcommittee to work with TeamCivX, Godbe Research, and staff to review the proposed community survey and provide recommendations to the City Council once survey results are known. This second phase community survey will be shaped from the feedback received to-date and will aid the City Council in understanding how voter attitudes may have shifted over the last six months, as well as to help narrow down the revenue measure options being considered.

The City Council will consider next steps in terms of proceeding with additional outreach/engagement and the placement of a revenue measure or measures on the November 2024 ballot based on survey results and the recommendations of the Ad Hoc Subcommittee.

FISCAL IMPACT
There is no fiscal impact of City Council taking the recommended action.

RECOMMENDATION
Staff recommends that the City Council adopt a resolution approving the formation of, and the Mayor’s appointment of two Councilmembers to, an Ad Hoc Subcommittee to evaluate and provide recommendations on the second phase community survey to inform the placement of potential revenue measures on the November 2024 ballot.

Prepared by:

Jennifer Phan, Deputy City Manager
Submitted by:

Jennifer Phan, Deputy City Manager
ATTACHMENTS:

Description Type
Attachment 1 - Resolution Resolution
PowerPoint Presentation Attachment
RESOLUTION NO. XXXX-24

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF UNION
CITY APPROVING THE FORMATION OF, AND THE MAYOR’S

APPOINTMENT OF TWO COUNCILMEMBERS TO, AN AD HOC

SUBCOMMITTEE TO EVALUATE AND PROVIDE

RECOMMENDATIONS ON THE SECOND PHASE COMMUNITY

SURVEY TO INFORM THE PLACEMENT OF POTENTIAL REVENUE
MEASURES ON THE NOVEMBER 2024 BALLOT
WHEREAS, Union City has historically relied upon voter approved measures to provide fundamental services in the community, including, but not limited to, public safety, street and park maintenance, senior services, and youth violence prevention programs; and WHEREAS, the City Council adopted a five-year strategic plan in September 2019 and updated in 2021 and 2023 that established as “Goal A. Fiscal Stability and Sustainability” as its primary goal; and
WHEREAS, the rising costs of supplies, equipment, contracts, and employee salaries, and retirement obligations, are projected to adversely impact the General Fund causing it fall to the minimum reserve fund balance of twenty percent of its annual operating expenditures by 2028; and
WHEREAS, the loss of General Fund revenues threatens funding that support ongoing public safety and other critical services for the community; and WHEREAS, the first phase community survey was conducted in September 2023 to assess voter attitudes and potential support specifically for a Public Safety Parcel Tax (PSPT) measure to restore and protect public safety services; and
WHEREAS, a second phase community survey will gauge how voter attitudes may have shifted over the last six months, as well as help narrow down the revenue measure options being considered; and
WHEREAS, the City Council desires to establish an Ad Hoc Subcommittee to evaluate, review, and help inform the second community survey on potential voter-approved revenue measures to protect and fund critical City services; and WHEREAS, pursuant to California Government Code Section 54952(b), the Ad Hoc Subcommittee has a specific and limited purpose, and therefore, is not subject to the Brown Act and will be dissolved once it has completed its purpose – that is, once policy direction on placement of the ballot measure(s) is provided.

NOW THEREFORE, BE IT RESOLVED, that the City Council of the City of Union City hereby approves the formation of, and the Mayor’s appointment of and to, an Ad Hoc Subcommittee to evaluate and provide
Resolution No. XXXX-24

Page 2 ends

recommendations on the second phase community survey to inform the placement of potential revenue measures on the November 2024 ballot.

PASSED, APPROVED, AND ADOPTED by the City Council of the City of Union City at a special meeting held on the 28
th day of March, 2024, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

APPROVED:
______________________________

CAROL DUTRA-VERNACI
Mayor
ATTESTED: APPROVED AS TO FORM:
_________________________ ______________________________ THAI NAM PHAM KRISTOPHER J. KOKOTAYLO
City Clerk City Attorney

Union City City CouncilMarch 28, 2024

Union City City Council
March 28, 2024