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HomeMy WebLinkAbout12/06/2001 BAKERSFIELD Mike Maggard, Chair Alan Tand~,, Ci~ager Harold Hanson Darnell Haynes, Assistant to the City Manager Mark Salvaggio AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMrr'rEE Thursday, December 6, 2001,4:00 p.m. City Manager's Conference Room 1. ROLL CALL Call to Order at 4:05 p.m.. Present: Councilmembers Mike Maggard, Chair; and Harold Hanson Absent Councilmember Mark Salvaggio (attending a State Water Board meeting) 2. ADOPT OCTOBER 4, 2001 AGENDA SUMMARY REPORT Adopted as submitted. 3, PUBLIC STATEMENTS 4. DEFERRED BUSINESS A. Review and Committee recommendation regarding application of the business license ordinance to commercial and residential rental property businesses City Attorney Bart Thiltgen explained this issue was brought forward several months ago as a result of an enforcement action by the City's Treasury Division against an organization that is running a commercial business, owns a building and leases out the offices. Anthony L. Leggio, Esq. sent correspondence to the City protesting the applicability of the City's business license tax to rental/leasing of commercial and residential property. His contention is a business license is not required as this is a passive investment of an organization under IRS rules. Eventually they did obtain a business license; however, subsequently Mr. Leggio sent a letter to Councilmember Hanson, who requested the item be put on the agenda for further consideration. The City Attorney's Office has been reviewing and checking with other cities on their business licenses for this type of operation. Eight out of ten comparable cities surveyed have a business license tax on leasing or rental of commercial and residential property. The two exceptions were Glendale and Modesto. For residential units, some cities have a minimum limit on the number ADOPTED AS SUBt'I~TTED'JAtlUARY I7, 2002. AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, December 6, 2001 Page -2- of units allowed before the business license tax is applicable. Deputy City Attorney Michael AIIford stated the City's past practice has been to apply this type of business license tax to renting and leasing of residential and commercial properties without limitation as to a minimum number of units. This is not a new tax, and therefore, not subject to Proposition 218. A list was handed out with examples of property rental/leasing businesses that currently hold City business tax certificates (licenses). Committee member Hanson stated that Mr. Leggio's dispute seems to be that this tax is not collected from everyone, and therefore, it is discriminatory and not equitable. City Treasurer Bill Descary stated the technology is currently available to track those who have property rental/leasing businesses. Committee member Hanson expressed that whatever method is decided upon, it needs to be fair and equitably enforced, or not require the tax. Committee Chair Maggard disagrees in principle with this tax because it is taxing an investment activity, which is passive, it is not earned income, and it is not subject to self-employment tax. It is not different from a home trader doing business on the Internet. Many people make a lot of money in their homes and are afforded the same benefits as anyone else in the community. He feels a business tax should apply to business and not investment activity. He expressed that some businesses, such as Castle and Cooke or Valley Plaza, are clearly in the rental/lease business and if they are paying business tax on the Market Place, for instance, because it is a publicly traded corporation in the business of managing properties, it is earned income to them. However, for those that it is not earned income and clearly passive, it is substantially different and there should be no business tax. Individuals with a few investment rentals are not in the business of renting. According to the IRS, it requires more than 500 hours per year working on an activity to constitute it as "active." City Attorney Bart Thiltgen said this tax has been in the code for years, but his concern is the equal protection issue. He suggested amending the ordinance to apply to those who have more that three rentals or some set number. Committee Chair Maggard directed the City Attorney's staff to come back to the Committee with an alternative or standard for residential and commercial properties to define those that are in business versus those that are not in business. B. Staff report and Committee recommendation regarding Sewer Service User Charges for hospitals Public Works Director Raul Rojas reported that during the budget process, staff brought the sewer rate to the Committee/Council with the issue of how to fairly distribute the charges throughout all of the users, which go toward paying the bonds for Plants No. 2 and No. 3 expansions. The State had threatened sanctions and penalties if the revenue program was not updated in accordance with current State guidelines. AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, December 6, 2001 Page -3- The Council adopted the rate charges, but one of the issues referred to staff to solve was the charges for hospitals and the care facilities (convalescent homes). The care facilities charges were on a per bed charge, but as they are not filled to capacity another method based on flow (the actual measurement from the water meter) was used and this resolved the fairness issue for the convalescent homes and satisfies the State. One of the ideas for the hospitals was to investigate using the actual flow measurement, instead of the per bed charge and staff was directed to monitor the water flow measurement to collect data. The data shows the water flow measurement method would cause fees for hospitals to dramatically increase. Staff recommends maintaining the current structure for charging hospitals, which uses the per bed method. It is fair and satisfies the State requirements. The Committee unanimously approved staff's recommendation to maintain the hospitals On the per bed charge. (Committee member Salvaggio absent) Staff was directed to forward the Committee's recommendation to the City Council for approval. 5. NEW BUSINESS A. Review and Committee recommendation regarding 2002 Budget and Finance Committee meeting schedule The Committee unanimously adopted the 2002 Budget and Finance Committee meeting schedule as presented by staff. (Committee member Salvaggio absent) The Committee noted that for the summer schedule, the 4:00 p.m. time may be changed to noon meetings, if Committee members' schedules permit. The adopted dates are on the following Thursdays: January 17; February 14; March 14; April 18; May 16; June 20; July 18; August 15; September 12; October 10; and November 14. 6. COMMITTEE COMMENTS 7. ADJOURNMENT The meeting adjourned at 5:05 p.m. Staff present: City Manager Alan Tandy; City Attorney Bart Thiltgen; Assistant City Manager John W. Stinson; Assistant to the City Manager Darnell Haynes; City Treasurer Bill Descary; Public Works Director Raul Rojas; Deputy City Attorney Michael AIIford; Public Works Civil Engineer Derrill Whitten; Assistant to the Public Works Director Georgina Lorenzi; Public Works Operations Manager Brad Underwood; Wastewater Superintendent Joe Turner; Wastewater Supervisor Wen-Shi Cheung Others present: Kerry Cavanaugh, reporter, The Bakersfield Californian cc: Honorable Mayor and City Council DWH:jp S:~Darnell~2001 BFCornmittee~bf01dec06summary.wpd