Committee discusses new tax methods for Chico
With ongoing issues getting city revenue to increase, Chico’s finance committee discussed changes to several taxation strategies Wednesday.
The Chico City Council referred three issues to the committee for using the general fund — business revenue taxes, a cannabis tax and a sales tax increase tied to a road bond.
HdL Companies completed an analysis of the city’s business license tax and applicable ordinances. “We started realizing our business license tax ordinance was written in the 1970s and has not been reviewed since that time primarily,” Administrative Services Director Scott Dowell said.
This current business license model generates revenue for the
general fund and is not a typical regulatory license.
HdL’s Joshua Davis presented the report on new options to the committee Wednesday, explaining city revenues have steadily flat lined since 2014, despite a slight spike in 2019.
“For the most part revenues remain flat year to year,” he said, and business tax revenue is not keeping up with current business trends. About 75% of local businesses generating this revenue are commercial based, while those in residential areas are 16% of revenue, and 6% are based outside the city.
Compared to other local jurisdictions, Chico is near the top for population and near the bottom for overall revenue, therefore at the bottom for per capita revenue, he said. Chico also falls “near dead bottom” for business revenue in comparison to nearby cities like Yuba City and Red Bluff.
The monthly financial report at this meeting from Deputy Director of Finance Barbara Martin showed as expected, there are some areas doing better and some doing worse than was projected one year ago. Sales tax revenue is found to be “a little higher than expected” likely due to increasing residual property tax, although the investment portfolio for returns is “not as great as they were last year.”
Finance staffer Kathryn Mathes said data for the city’s fourth fiscal quarter shows “The impact of COVID-19 is kind of leveling out.” The latest federal stimulus payment will impact the next quarter, she said. The average home sale increased from $403,000 in 2020 to $444,000 in 2021, and property tax grew by 8.74% in 2021.
Given the flat line of revenue since 2014, Davis’s options presented different strategies for an overall increase, such as grouping increases by business type or fee amount, or by moving to a gross receipts based tax. The latter “seems to be the way that creates as much equity as possible,” Davis said, balancing amounts across all categories of business.
Given this presentation, Councilor Scott Huber expressed concern during the meeting about whether gross receipts tax can discourage development of larger businesses, though Davis said there is no evidence that can happen.
Councilor Sean Morgan and Mayor Andrew Coolidge were both against the idea of a gross receipts tax, with Coolidge saying he often does not do business in areas with this model as “they aren’t always indicative of profit.” But Huber said he liked the idea to “equalize the burden among various business types” and asked for a more conservative increase than trying to hit $2 million in revenue, when the city typically makes $375,000 annually.
Davis said in the future the council can change the tax rates or revenue at any time but can’t make it go up again, saying 10 cities in 12 months have also gotten the company’s analysis and are considering the same.
Options for a general way to choose how to distribute increases among businesses was ultimately favored for further exploration, although, “Exploration does not necessarily mean settlement,” Coolidge said.
A sales tax increase initiative Coolidge suggested, to fund the Chico Police Department and Chico Fire Department with a bond for roads as well, would need to be placed on the 2022 general election ballot.
Huber said he is in favor of a general sales tax, or else a special tax.
“We gotta have something to raise the deficit situation that we’re in,” he said.
Commenter Juanita Sumner said she has stopped shopping in Chico and does her ordering online as much as possible to show her lack of support for a sales tax increase.
“You people are out of touch if you don’t think that’s a burden on the public,” she told the committee.
The road bond needs a sales stream attached with those bonds to pay for them, Dowell said. Coolidge said his original idea was to use half of revenue to pay off bond, to fall away over time, but tentative ideas are needed from staff for a report.
The cannabis tax measure will also need staff review before a proposal to use for the 2022 general election.
While Morgan said he sees the measure as “pushing drugs on our youth,” he said staff recommendations need to happen. Huber agreed the community development agreement should be analyzed “so we can move forward with what the voters told us they wanted four years ago … and follow immediately with a vote on a tax in 2022 to do it the official way.”
Morgan recommended giving it to the city attorney’s office and asking staff to look at other municipalities to compare and come back with findings. But City Clerk Debbie Presson said at the March 2 City Council meeting the council already voted to have the attorney review the measure and she had passed it to City Attorney Vince Ewing.
Transparency
The committee was criticized by one commenter who did not give their name, for not recording virtual meetings and publishing them online. Presson has said in the past anyone can record a meeting on Zoom, but per the Brown Act meetings are not required to be put online.
“They’re not recorded then and they’re not recorded now,” Morgan said. “That would be a change of policy for us to suddenly make these public.”
The next meeting will take place 8:30 a.m. April 28 in the Conference Room 1 in City Council Chambers at 421 Main St. in Chico.