Business & Real Estate

MV council advances controversial business-license tax hike


Data courtesy of City of Mountain View

Mountain View City Council members spent hours last week wrestling with a business-license fee increase meant to boost city revenues while being fair to businesses of all sizes.

When the dust settled, the council opted for a model that would generate appoximately $6.1 million annually – a considerable jump from the $260,000 per year the city currently collects. Los Altos, by contrast, collects approximately $453,000 in such fees annually.

Even so, it was less than the $10 million model Mayor Lenny Siegel and Councilman John McAlister proposed, and considerably less than a $13 million proposal introduced by a citizens’ group.

In each case, Google Inc., by far the city’s largest employer with more than 22,000 employees, would pay the lion’s share of the fees. The debate at the June 5 council meeting centered on the amount of the tax and whether charging too much might prompt some companies to take their business elsewhere.

How it’s set up

The council unanimously agreed on a hybrid of models proposed by Siegel and Councilman Chris Clark. One-person businesses would be charged a base rate of $100 per year; businesses with 2-25 employees, $200; and businesses with 26-50 employees, $400. Beyond 50 employees, businesses would be charged a base rate plus a per-employee fee. Businesses with 51 or more employees would be charged $75 per employee.

The per-employee fee would rise to $100 for businesses with 501-1,000 employees (seven businesses qualify); $125 per employee for businesses with 1,001-5,000 employees (six businesses); and $150 per employee for Google. The search-engine giant’s share of the proposed tax increase would total more than $3.3 million of the $6.1 million projected annual revenues, approximately 55 percent.

In total, the tax would impact more than 3,660 city businesses and as many as 94,000 employees, according to city records.

Clark said the fee structure is a compromise that doesn’t penalize small businesses, isn’t detrimental to medium-sized businesses and isn’t overly dependent on Google.

“I think this is a good way to go,” he said.

The council also approved a staff recommendation increasing the threshold for tax-eligible businesses from the current $500 in yearly gross revenues to $5,000.

General versus specific

Debate surfaced over whether fees should be directed to the general fund or used specifically to fund transportation improvements. McAlister, one of three council members who serves on the subcommittee studying the business-license increases, led the charge for a special tax funding transportation-related projects.

“We’re trying to help those businesses who are in Mountain View to help their employees get into town,” McAlister told Councilman Ken Rosenberg at last week’s council meeting.

Rosenberg expressed concern that the city was rushing on establishing the new tax and worried about the “unintended consequences” of the increases.

Ultimately, the council majority opted for a “general purpose” tax. Councilwoman Margaret Abe-Koga noted that getting the two-thirds majority required for a special tax is “way harder” than a simple majority needed for a general one.

Siegel, also a member of the subcommittee, said the tax could fund housing for middle-income workers.

The business-license fee discussion in Mountain View made national headlines. Siegel said the Fox Business Network interviewed him about it last week. Some observers see the city’s move as potentially precedent-setting, with nearby communities possibly following Mountain View’s lead.

Siegel rationalized the move this way.

“There is a nexus between a problem and a solution,” he said. “The reason we have so many people on the freeway is because our companies are hiring, and hiring very rapidly. They are externalizing their costs by having the community pay for transportation improvements and by suffering the impact of traffic. The logical thing to do when entities are externalizing their costs is to internalize them by taxing them.”

When forwarding the business-license fee restructuring, the council asked for a resolution pledging that most of the funding would be used for transportation upgrades.

Addressing deficits

The aim of the increase, City Manager Dan Rich indicated, is capturing revenues, not only to fund traffic solutions brought on by job growth, but also to address budget deficits down the road.

“The city does expect a surplus this year and next, but we also project deficits returning in a few years,” Rich said in an email to the Town Crier. “Beyond that, and more importantly, we have identified a number of very expensive transportation improvements to benefit the community (including businesses) that no surplus would be enough to fund, so we are exploring a new, ongoing and significant funding source.”

The council last week touched on two other revenue sources – taxes on retail cannabis sales and an increase in the current transient occupancy tax. The council, however, elected not to pursue an increase in the hotel tax and limited any cannabis sales tax to approximately $1 million annually (see article on page 5), leaving the business-license fees as the biggest moneymaker in the mix.

As a result of last week’s action, both the business-license and cannabis tax proposals are likely headed to the Nov. 6 ballot. The city is conducting a follow-up survey of businesses and residents. After that, the council is scheduled to make the formal decision to go forward at its June 26 meeting.

Reaction

Last week’s action is a culmination of extensive community surveying and outreach to the business community. Results revealed general support among residents for increasing the fees, while business leaders remained skeptical. Still, people generally agreed that an increase was overdue – most businesses have been paying $30 per year, a rate that has remained unchanged since 1954.

“The consensus I have heard is it’s outdated and needs to be updated,” Abe-Koga said.

Officials with Google, which stands to be most impacted by the business-license fee increases, have been conspicuously silent on the issue. On the other hand, the Mountain View Chamber of Commerce has been among the most vocal in opposing any significant increase.

Bruce Humphrey, representing the Chamber of Commerce at last week’s meeting, cautioned against an undue burden on businesses, pointing to the still-untapped revenue from Airbnb rentals that could generate millions of dollars annually. The city is in the process of establishing regulation and taxation of such rentals.

Chamber CEO Tony Siress noted that a $5 million model amounts to 20 times what businesses are paying now.

“Based on what we know so far, we don’t support a progressive business-license tax targeting $5 million-$10 million a year,” he said, prior to the June 5 council meeting.

After the meeting, Siress was cordial but clearly not happy with the council’s direction.

“We appreciate (Rich) and the staff working with us and thank the council for considering our proposals,” he said in a statement to the Town Crier. “We are happy it is not $10 million a year, and that they didn’t expect an employer (Google) with only 27 percent of the workforce be responsible for over 60 percent of the total tax. We still think a better plan could have been developed had the mayor spent more time on the details and understanding the business community and less time talking to the press.”

If the new business license fee schedule meets with voter approval in November, Rich said the city plans to implement the new rates in 2020, with larger businesses phased in over three years.

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