A Long-Term Solution to Emeryville's Budget Shortfall

Modest Increase in City's Business License Tax Cap
Could Close Projected Budget Shortfalls for Next Two Years

By Brian W. Carver

Background
In a memorandum dated March 2, 2010 from the Emeryville Finance Department entitled "Budget Planning Discussions FY 2010-11 and FY 2011-12," (hereinafter, "Budget Planning Memo") a preliminary estimate of the budget gap was provided as follows:

"The projected budget gap for FY 2010-11 and FY 2011-12 is $1.66 million and $1.42 million respectively. " (Budget Planning Memo at p.7)."

City staff reported on the various city departments and their staffing levels, noting that many departments already have positions frozen and wrote:

"The City can reduce the number of FTEs in various departments with a
corresponding reduction of services to the community. The organization
already has a lean staffing level. We cannot do more with less or even
the same for less. " (Budget Planning Memo at p. 8) (emphasis added).

At a Special Meeting of the Emeryville City Council held on June 6, 2009 a sensible solution to the City's budget shortfalls involving examining alternative structures for the City's Business License Fee was briefly discussed, but fully exploring this option was ultimately postponed. The Council believed the proposal was an idea worthy of later study, but the Council at that time lacked a careful study of such alternatives and decided to proceed solely with an increased Card Room tax.1

This Memorandum presents such a study of the Business License Fees for every incorporated city in Alameda County and demonstrates that of those cities utilizing a gross receipts method of calculating their Business License Fees, EMERYVILLE IS THE ONLY CITY IN ALAMEDA COUNTY THAT PLACES A CAP ON THE MAXIMUM BUSINESS LICENSE FEE THAT IS OWED BY BUSINESSES.

This Memorandum then proposes that even without eliminating Emeryville's one-of-a-kind cap on Business License Fees, but instead with merely a modest increase in that cap from the 2010 cap of $115,774.03 to a cap of $400,000, an additional $1,705,355.82 in revenue could be generated annually, completely eliminating the projected budget gaps for FY 2010-11 and FY 2011-12 and even providing a modest surplus that could be utilized towards restoring some currently frozen staff positions. This change would only affect those businesses located in Emeryville whose gross receipts are greater than $144.7 million annually, thus no small business would be affected. The entire proposed Business License Fee amounts to less than one third of a day's gross receipts for those businesses affected.

Discussion
Business License Fees in Emeryville
Every business operating in Emeryville is required to have a Business License. Businesses calculate their Business License Renewal Fee by multiplying their gross receipts times 0.0008 (and adding a $10 renewal fee). This rate can also be expressed as $0.80 for each $1,000 of gross receipts.2

Emeryville is unique within Alameda County by having a cap on the maximum Business License Fee that a business utilizing a gross receipts method of calculation will owe. Emeryville's 2010 maximum Business License Fee is $115,774.03. Emeryville's Business Licenses Cashier indicated that currently approximately five (5) to seven (7) businesses in Emeryville pay the maximum fee.

Methods of Calculating Business License Fees
Emeryville utilizes a "gross receipts" method of calculating Business License Fees for most businesses. This method is common throughout Alameda County. However, many cities have a more complicated scheme through which businesses in different industries pay at a different rate of gross receipts depending on their industry type. Also, in many cities, some industries have their Business License Fee calculated through a non-gross receipts method, such as number of employees, or for taxicab services and delivery trucks, based upon number of vehicles used. For example, Emeryville bases this fee on square footage for businesses in the "Storage and Warehouse" category, but most other businesses in Emeryville utilize the gross receipts method of calculation. Thus, in order for the following comparisons to be most relevant to Emeryville's situation, this memorandum focuses on those Business License Fees that are calculated using the gross receipts method and on businesses within the given city in commercial space as opposed to home-based businesses, which occasionally are subject to different rates or methods of calculation.

BUSINESS LICENSE FEES IN OTHER ALAMEDA COUNTY CITIES
Alameda The City of Alameda utilizes a gross receipts method of calculating Business License Fees for businesses engaged in what it calls: Retail and Wholesale, Professional & Semi-professional, Bowling alley, Billiard/Pool room, Business Services, Theaters/Drive-ins, Vending Machines, and Manufacturing at a rate of $0.40 per $1,000 of annual gross receipts.3
The City of Alameda does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.4

Albany
The City of Albany only utilizes a gross receipts method of calculating Business License Fees for businesses providing utility service, defined as telephone, telegraph, gas and electric service at a rate of $1.00 per $1,000 of annual gross receipts.5 The City of Albany does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.6

Berkeley
The City of Berkeley utilizes a gross receipts method of calculating Business License Fees for
businesses engaged in what it calls: Business, Personal & Repair Services ($1.80), Construction or Contractor ($1.80), Entertainment/Recreation ($4.50), Grocer (retail or wholesale) ($0.60), Miscellaneous ($2.40), Motor Vehicle Sales ($1.20), Private Recycling Refuse Haulers ($1.80), Private Refuse Haulers ($1.50), Professional – Semiprofessional ($3.60), Rental of Real Property ($10.81), Retail and Wholesale Trade ($1.20) at the parenthetically-indicated rates per $1,000 of annual gross receipts.7 The City of Berkeley does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.8

Dublin
The City of Dublin does not utilize a gross receipts method of calculating Business License Fees.9 For this and other reasons suitable comparisons with Dublin are not obtainable.

Fremont
The City of Fremont utilizes a gross receipts method of calculating Business License Fees for
businesses engaged in what it calls: Retail Sales ($0.25), Service ($1.00), Rental Property ($1.30), Construction ($0.10) at the parenthetically-indicated rates per $1,000 of annual gross receipts.10 The City of Fremont does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.11

Hayward
The City of Hayward utilizes a gross receipts method of calculating Business License Fees for
businesses engaged in what it calls: Cleaning, Laundering, Dyeing, Pressing or Repairing, ($1.07), Bowling Alleys ($2.00), Professional – Semi-Professional Connected Business ($1.33), Wholesale Sales, Retail Merchants, Jobbers, Class I ($0.11), Retail Merchants, Jobbers, Other Businesses ($0.27) at the parenthetically-indicated rates per $1,000 of annual gross receipts.12 The City of Hayward does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.13

Livermore
The City of Livermore utilizes a gross receipts method of calculating Business License Fees for
businesses engaged in what it calls: Grocer ($0.50), Motor Vehicle Sales ($0.50), Licensed Contractor ($0.80), Manufacturing ($0.80), Recreation & Entertainment ($0.80), Retail ($0.80), Wholesale ($0.80), Utilities ($0.80), and Warehouse & Storage ($0.80), Rental Property Commercial and Residential ($1.20), Miscellaneous Professional ($2.40), Amusement and Vending Machines ($0.50) at at the parenthetically-indicated rates per $1,000 of annual gross receipts.14 The City of Livermore does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.15

Newark
The City of Newark utilizes a gross receipts method of calculating Business License Fees for
businesses engaged in what it calls Retail, Wholesale, General Businesses and Businesses not otherwise provided for ($0.15), Residential and Non-Residential Rentals ($0.15), Manufacturing ($0.10), Professions ($1.30), and Contractors ($0.80) at the parenthetically-indicated rates per $1,000 of annual gross receipts.16 The City of Newark does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.17

Oakland
The City of Oakland utilizes a gross receipts method of calculating Business License Fees for Retail Sales ($1.20), Grocers ($0.60), Automobile Dealers ($1.20), Wholesale Sales ($1.20), Business /Personal Service ($1.80), Professional / Semi-Professional ($3.60), Recreation/Entertainment ($4.50), Construction Contractors ($1.80), Rental Hotel/Motel ($1.80), Media Firms ($1.20), Public Utility ($1.00), and Firearms Dealers ($24.00) at the parenthetically-indicated rates per $1,000 of annual gross receipts.18 The City of Oakland does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.19

Piedmont
The City of Piedmont utilizes a gross receipts method of calculating Business License Fees for all businesses with gross receipts greater than $50,000 at a rate of $2.00 per $1,000 of annual gross receipts.20 The City of Piedmont does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.21

Pleasanton
The City of Pleasanton utilizes a gross receipts method of calculating Business License Fees for for all businesses with gross receipts greater than $250,000 at a rate of $0.30 per $1,000 of annual gross receipts.22 The City of Pleasanton does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.23

San Leandro
The City of San Leandro utilizes a gross receipts method of calculating Business License Fees for businesses engaged in what it calls: Coin Operated Devices and Towing at a rate of $1.10 per $1,000 of annual gross receipts and for Firearms Dealers at a rate of $33.00 per $1,000 of annual gross receipts of concealable weapons and ammunition.24 The City of San Leandro does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.25

Union City
Union City utilizes a gross receipts method of calculating Business License Fees for Hotels/Motels Leasing, Commercial ($0.86), Retail Sales and Retail – Firearms ($0.43), Vending/Video Machines ($3.25) at the parenthetically-indicated rates per $1,000 of annual gross receipts.26 Union City does not employ a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation.27

A LONG-TERM SOLUTION TO EMERYVILLE'S BUDGET SHORTFALL

• Emeryville's maximum cap on Business License Fees is extraordinarily unusual.

The above analysis shows that Emeryville compares very favorably to other cities in Alameda County with respect to the rate at which it calculates Business License Fees based upon gross receipts, and for most industries, asks for less in Business License Fees than its closest neighbors. Indeed, in comparison to Berkeley and Oakland, Emeryville offers every business type but Grocers a less costly rate.28 However, Emeryville is extraordinarily unusual in employing a maximum cap on the Business License Fee owed by businesses subject to the gross receipts method of calculation, and indeed the above analysis of every incorporated city in Alameda County demonstrates that of those cities utilizing a gross receipts method of calculating their Business License Fees, EMERYVILLE IS THE ONLY CITY IN ALAMEDA COUNTY THAT PLACES A CAP ON THE MAXIMUM BUSINESS LICENSE FEE THAT IS OWED BY BUSINESSES.

• The maximum cap need not be removed in its entirety.

At the Special Meeting of the Emeryville City Council held on June 6, 2009, some City Council members were in favor of removing Emeryville's Business License Fee cap entirely.29 While such a change would place Emeryville more in line with the rest of the cities within Alameda County, the preliminary estimates of the budget gaps facing Emeryville in FY 2010-11 and FY 2011-12 could likely be met without removing the cap in its entirety. Instead, a more moderate change that merely increased the 2010 cap of $115,774.03 to a cap of $400,000 would generate an additional $1,705,355.82 in revenue annually, completely eliminating the projected budget gaps for FY 2010-11 and FY 2011-12 and even providing a modest surplus that could be utilized towards restoring some currently frozen staff positions or to accommodate already-expected increases in expenses.30 This proposal also takes a conservative approach and assumes that no additional revenue is available from other sources. If such additional revenue sources were presumed available, then an even lower maximum cap could suffice.

• This proposal allows the Economic Uncertainty Fund to be preserved.

Any such change to the Business License Fee maximum cap should likely be implemented to take effect for the 2011 renewal period, and thus the increased revenues would become available by the end of February 2011. In the interim, the City could draw on its Economic Uncertainty Fund, repaying the partial draw down once a new maximum cap on Business License Fees was in place. This strategy would preserve the Economic Uncertainty Fund for the future.

• This proposal would have no effect on small businesses in Emeryville and an unnoticeable effect on large businesses in Emeryville.

At the current gross receipts times 0.0008 rate, an Emeryville business must have gross receipts exceeding $144,717,537.50 to owe the current maximum Business License Fee. Only five to seven businesses in Emeryville currently report gross receipts in excess of $144.7 million. Thus, small businesses in Emeryville will not be affected at all by this proposal. The five to seven businesses in Emeryville who do have gross receipts in excess of $144.7 million would be asked to pay $400,000 annually for their Business License Fee as opposed to the current maximum of $115,774.03, assuming that their gross receipts exceed $500,000,000 annually, the level at which the proposed maximum cap would be triggered. The difference between the current cap and the proposed cap is $284,225.97. That difference would not be material to any of the Emeryville businesses who have gross receipts in excess of 1/2 of a billion dollars annually. Every other city in Alameda County would ask them to do more than does this proposal.

• This proposal recognizes Emeryville's already "lean staffing level."

This proposal allows Emeryville to balance its budget without further cuts to staff or communityservices. Choosing instead to fire fifteen teachers at the Emeryville Child Development Center and to further dismantle the incalculably valuable services they and the Recreation Center provide to Emeryville residents would be appalling. If the City is to have "Community Life" at all it must not reject the key drivers of that community life: Community Services.

Conclusion
This memorandum, through an analysis of the Businesses License Fees calculated based upon gross receipts in every incorporated city in Alameda County has shown that Emeryville alone places a maximum cap on those fees. This memorandum thus proposes raising that maximum cap as a means of closing current and future projected budget shortfalls. The precises amount of a new cap could best be determined by city staff, who should have greater access to relevant facts, but this memorandum proposes that a modest increase to $400,000 would have no adverse effects and would likely eliminate the projected shortfalls.

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Brian Carver, an Emeryville resident, is an Assistant Professor at the UC Berkeley School of Information. This is a reprint of a memo he sent to the Emeryville City Council on March 2, 2010

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1 See Video of Special Council/Agency Meeting (June 6, 2009) available from http://www.ci.emeryville.ca.us/Media/
2 Commercial landlords in Emeryville pay at a lower 0.00035 rate. http://www.ci.emeryville.ca.us/index.aspx?NID=241
3 City of Alameda: http://www.ci.alameda.ca.us/services/business_license_fees.html Manufacturing businesses in Alameda are entitled to deduct the value of raw materials from their gross receipts.
4 City of Alameda Finance Department: 510-747-4880. Press "2" for Business Licenses. Confirmed on March 1, 2010.
5 City of Albany: http://www.albanyca.org/Modules/ShowDocument.aspx?documentid=7621
6 City of Albany Finance Department: 510-528-5730. Confimed on March 1, 2010.
7 City of Berkeley: http://www.ci.berkeley.ca.us/ContentDisplay.aspx?id=4258
8 City of Berkeley Finance Department: 510-981-7200. Confirmed on March 1, 2010.
9 City of Dublin: http://www.ci.dublin.ca.us/DepartmentSub.cfm?PL=exp&SL=buslic
10 City of Fremont: http://www.fremont.gov/DocumentView.aspx?DID=1616
11 City of Fremont Revenue Division: 510-494-4790. Confirmed on March 1, 2010.
12 City of Hayward: http://www.hayward-ca.gov/municipal/HMCWEB/BusinessLicenses.pdf
13 City of Hayward Finance Dept., Sr. Cust. Acct. Clerk, Eleanor Torres, 510-583-4622. Confirmed on March 1, 2010.
14 City of Livermore: http://www.ci.livermore.ca.us/finance/Business_license.pdf
15 City of Livermore Finance Department: 925-960-4310. Confirmed on March 1, 2010.
16 City of Newark: http://www.ci.newark.ca.us/images/uploads/finance /pdfs/LicenseFeeSchedule.pdf
17 City of Newark Finance Department: 510-578-4310. Confirmed on March 1, 2010.
18 City of Oakland: http://www.oaklandnet.com/government/b_and_f1/revenue/taxtables.htm
19 City of Oakland Business Tax Section, Anna Lawrence: 510-238-7478. Confirmed on March 1, 2010.
20 City of Piedmont: http://www.ci.piedmont.ca.us/html/forms/bizlicense.pdf
21 City of Piedmont Finance Department: 510-420-3045. Confirmed on March 1, 2010.
22 City of Pleasanton: http://www.ci.pleasanton.ca.us/pdf/zc.pdf
23 City of Pleasanton Business License Program: 925-931-5440. Confirmed on March 1, 2010.
24 City of San Leandro: http://www.ci.san-leandro.ca.us/pdf/buslicfeecompched.pdf
25 City of San Leandro Business License Division: 510-577-3392. Confirmed on March 1, 2010.
26 Union City: http://www.ci.union-city.ca.us/admin/admin_pdfs/Permits.Licenses/Fees_business.license.pdf
27 Union City Finance Department: 510-675-5343. Confirmed on March 1, 2010.
28 Again, this is true of those subject to a gross receipts method of calculating their Business License Fee.
29 See Video of Special Council/Agency Meeting (June 6, 2009) available from http://www.ci.emeryville.ca.us/Media/
30 This calculation assumes that six (6) businesses pay the increased maximum. Emeryville's Business Licenses Cashier indicated that currently approximately five (5) to seven (7) businesses in Emeryville pay the maximum fee, and so the amount of additional revenue generated may be slightly more or less depending on this number. That variation could be better predicted by City staff and taken into account in recommending a maximum cap to the Council. Additionally, this variation would be small enough that the City's Economic Uncertainty Fund could absorb any unexpected variation while maintaining that Fund's vitality. These calculations also assume that all those Emeryville businesses with gross receipts exceeding $144.7 million have gross receipts that exceed $500 million. If not, those businesses that fall within that range would not reach the proposed maximum cap and would thus pay less.