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Meeting Date: May 28, 2002

Subject/Title: Consideration of an ordinance amending Title 5, Chapter 5.04 of the Municipal Code – Business Licenses, Taxes and Regulations, as it pertains to Business License

Submitted by: Pamela Ehler, Director of Finance & Information Systems
Howard Sword, Director of Economic Development

Approved by: John Stevenson, City Manager

Direct staff to place the Business License Tax issue on the November 5th General Election and approve an ordinance amending Title 5, Chapter 5.04 of the Municipal Code – Business License, Taxes and Regulations, as it pertains to Business License. 

On February 24, 1948, the City Council passed Ordinance No. 2 which provided for the licensing of businesses within the City limits. Since Ordinance No. 2 was passed, the City Council has passed amendments to Title 5 of the Municipal Code. However, the only increase to license fees was a business license surtax added in 1975. This surtax (20%) has been used to subsidize the Brentwood Chamber of Commerce.

On February 26, 2002, the City Council directed Staff to amend portions of Title 5, Chapter 5.04 of the Municipal Code – Business License, Taxes and Regulations, as it pertains to Business License.

The business license ordinance has not been evaluated on a comprehensive basis since 1948. A small number of businesses generated $9,785 in license revenue for fiscal year ending June 30, 1949. In fiscal year ending June 30, 2001, 1521 businesses generated license revenue in the amount of $73,943, of which $12,389 was sent to the Brentwood Chamber of Commerce. 

Staff’s goals for revising the business license ordinance were:

· Ensure equity for the basis and rate of the tax and ensure that all business activities are required to pay a fair business tax;
· Provide consistent general fund revenues that reflect economic changes, either up or down;
· Establish a revenue source that will not be difficult or costly to administer and enforce;
· Establish a tax that is easy for the business community to understand, and priced to be competitive with other cities.

On April 18, 2002, the proposed business tax certification ordinance was brought to the Economic Development Sub-committee. The Sub-committee directed staff to meet with a group of Brentwood businesses in order to allow them to have input regarding the proposed tax rate structure.

The following businesses participated in meetings on April 30 and May 7, 2002:

Big B Lumberteria Mike Baker
Bill Brandt Ford Rob Brandt Brentwood Ace Hardware Jerry Thorpe 
Bunkers Grill Jim Shoemaker
Christopher A Becnel Attorney & CPA Christopher Becnel
Classic Awning and Canvas Ed Stack
Precision Cabinets Paul Taylor
Speedee Oil Change Madelyn Krebs

The business tax certification ordinance was then re-written to reflect the following proposed tax schedule based on gross receipts:

Gross Receipts Business Tax

Minimum $100
$333,334 - $500,000 $0.30 per $1,000
$500,001 - $1,000,000 $150 + $0.25 per $1,000 in excess of $500,000
$1,000,001 and up $275 + $0.15 per $1,000 in excess of $1,000,000

At gross receipts of $1,000,000, the proposed tax is below the Cities of Pleasanton, Antioch, and Pittsburg. As gross receipts increase, we remain well below Pleasanton and Antioch. The business tax generates general fund revenues that help support the levels of service for public safety. Police expenditures make up 49% of the $13,360,001 in budgeted general fund expenditures for fiscal year 2001/02.

In order to phase in the effect this increase will have on existing businesses, the ordinance reflects a proposed three year “ramp up” provision. This would allow existing businesses, that would otherwise pay over $500 in business tax annually, to pay 40% of that ultimate tax the first year, 70% of the tax the second year, and 100% of the tax the third year.

The business license surtax of 20% that has been used to subsidize the Brentwood Chamber of Commerce has been re-written, as follows, to allow organizations to compete for these funds:

Twenty percent (20%) of the business license tax collected shall be set aside for economic development for the explicit purpose of business promotion and institutional advertisement for the City of Brentwood. Organizations, including the Brentwood Chamber of Commerce, may apply annually for the use of these funds on a project by project basis to the Director of Economic Development. Disbursement of these funds would require City Council approval. 

The penalty for violating the new ordinance is subject to punishment as provided for in Chapter 1.08 of the municipal code. Chapter 1.08 states that “Any person violating any of the provisions or failing to comply with any of the mandatory requirements of the ordinances of the City of Brentwood shall be guilty of a misdemeanor.” Any person convicted of a misdemeanor shall be punished by a fine of not more than five hundred dollars, or by imprisonment in the county jail not to exceed six months, or by both such fine and imprisonment. It also provides for administrative citations which are in addition to all other legal remedies, criminal or civil, which may be pursued by the city to address any violation of the code. The current maximum fines for administrative citations are as follows:

· First violation $50
· Second violation $150
· Third violation $250
· Further violation $250

Staff will return to Council in June to propose an amendment to Chapter 5.04.100 - Violation a misdemeanor – Penalty, of the current municipal code to reflect the changes made in the proposed Business Tax Certification Ordinance.

On May 9, 2002, the proposed business tax certification ordinance was brought back to the Economic Development Sub-committee and they recommended the business tax certification ordinance be brought to Council with a recommendation for approval.

Business license taxes are considered a “general” tax because the revenues are not for a specific purpose but are used to supplement the General Fund. Pursuant to the guidelines for general taxes and in accordance with propositions 62 and 218, no local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. 

The following are the steps that will be taken if Council approves the proposed business tax certification ordinance:

June Ordinance calling for the election
Resolution outlining the steps for the arguments and rebuttals
Enter into contract with Contra Costa County for election services

July 1 Attorney impartial analysis

July 19 Post deadlines for filing arguments

July 30 Last day to file arguments

August 9 Last day to file rebuttals to arguments

November 5 Election Day 

Due to the fact that we will be adding this measure to the already scheduled November election, the costs associated with the measure will be greatly reduced. The printing and noticing costs associated with the measure are estimated to be $2,000. It is anticipated that if approved by the voters in November, this new business license tax will add approximately $90,000 per year to the general fund in fiscal year 2002/03 and will increase substantially in future years.