In a bid for more revenue, Costa Mesa to float business license fee hike in November
A ballot proposal to raise fees, the first increase since 1985, would not impact Costa Mesa businesses that gross less than $500,000 per year. But some balk at passing the pain onto proprietors.
Seeking to fill an anticipated gap in the coming years between the revenue Costa Mesa takes in and the ever-increasing costs of running a city, officials this week approved placing a business license fee increase before voters in November. The proposalwas put before council members, whoreconvened Wednesday— after a regular meeting the previous dayran well past midnight— and approved in a 5-2 vote. A second initiative being considered, an increase in the city’s transient occupancy tax (TOT) collected for hotel and motel room stays, was not recommended for passage, after local hoteliers expressed fears of losing bookings to neighboring cities. Budget manager Mark Khou explained while Costa Mesa’s revenues are expected to increase year over year by about 3%, forecasted expenditures will climb by 4%, resulting in an anticipated shortfall of $1. 9 million next fiscal year that could swell to $4. 9 million by 2030-31. Above and beyond that widening gap, recent needs assessments pertaining to Costa Mesa’s facilities, public parks and information technology infrastructure concluded the city will need to identify another $11. 5 million annually in order to keep buildings, streets, playgrounds and networks in good working order and to maintain city services. “These projections demonstrate while the city’s revenues continue to grow, they are not keeping pace with the increased cost of providing core service,” Khou told the council. A complete overhaul of the fee schedule, adopted in 1985 and untouched in the four decades that followed, was reviewed during aJune 9 study sessionfor council input and revised ahead of Wednesday’s vote. Officials reported that under the current structure, business license costs range up to $100 for businesses with gross receipts under $500,000. The fee is capped at $200, even for entities whose gross receipts exceed $30 million. The hike going before voters will impact only businesses with annual gross receipts of $500,000 or more. It would impose a $. 50 assessment for each $1,000 of a business’ total revenue, meaning those earning between $500,000 and $1 million would pay from $250 to $500, while businesses in the $1 million to $5 million range would pay from $500 to $2,500. The proposed fee would be capped at $15,000. Richard Bernard, a representative of Oakland-based FM3 Research, conducted a survey in June that asked 407 Costa Mesa residents and registered voters likely to participate in the upcoming election their thoughts about the fee increase. Roughly 62% agreed that the city needed some kind of additional funding to provide the level of service residents need and want, with 13% identifying that need as extreme. Almost the same amount of respondents showed some kind of appetite for increasing business licenses, with 26% opposed. Educating voters that license fees haven’t been adjusted in 41 years and only high-grossing businesses would be impacted beefed up support by an additional 5%, but that margin declined when negative arguments about hurting businesses and wasteful spending were introduced. “This is a proof point that communication is very important to let the community understand the fiscal position of the city,” Bernard said. While the overhaul ostensibly targets corporate monoliths, it could also ensnare Costa Mesa restaurant owners who operate on already thin profit margins, who could potentially pass on the pain to customers, according to detractors. Local business owner Cindy Brahs told the council many local restaurants that take in receipts ranging between $1 million and $5 million could have to pay from 750% to 1,250% more for a business license under the new structure. “It’s a constant struggle to keep these razor-thin margins intact,” Brahs told the council. “There’s a real risk in setting a rate that discourages businesses from operating in the city. ”Councilmembers Andrea Marr and Arlis Reynolds, who both supported the fee increase, requested a provision be made in the accompanying ordinance that, in the future, would give the council the option to exempt certain business types from the hike upon further review. Councilmember Jeff Pettis — who with Councilmember Mike Buley opposed the new fee structure — said he’d prefer to see the city address overspending rather than asking local business owners to pay more. Mayor John Stephens took a different view. “We have been suppressing this business license fee for years and years and years, and now it’s just time to right size it,” he said. “No responsible business, no responsible city and no responsible fiscal entity has kept their prices the same for 41 years — this is the responsible thing to do. ”Costa Mesa City Clerk Brenda Green on Friday estimated adding the business license fee increase to the November ballot would cost the city between $15,000 and $20,000.