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HomeMy WebLinkAbout01/17/2002 BAKERSFIELD '-/-~~L/L ~/'Lr_.~ Mike Maggard, Chair A~an Tandy, Cit~ I[tl~h~ger Harold Hanson Darnell Haynes, Assistant to the City Manager Mark Salvaggio AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMI'I-rEE Thursday, January 17, 2002 - 4:00 p.m. City Manager's Conference Room 1. ROLL CALL Call to Order at 4:09 p.m. Present: Councilmembers Mike Maggard, Chair; and Mark Salvaggio Absent Councilmember Harold Hanson 2. ADOPT DECEMBER 6, 2001 AGENDA SUMMARY REPORT Adopted as submitted. 3. PUBLIC STATEMENTS 4. DEFERRED BUSINESS A. Staff report and Committee recommendation regarding application of the business license ordinance to commercial and residential rental property businesses City Attorney Bart Thiltgen stated the Committee at the last meeting requested that he come back with a review of law associated with this. He has submitted a confidential memorandum to the Committee members, which addressed the status of the law and legal concerns. The position of the Attorney's Office in regard to this business license ordinance as it is written now, is that the licensing is for use of the property for commercial concerns, and not related to the ownership interests of the property. The original concern of Mr. Leggio was that their operation is a passive investment. From a legal standpoint, it is the City Attorney's opinion that the investment is an ownership interest and is not a use interest. The City is actually taxing the use of the property as a use for commercial rentals. The Committee also requested the City Attorney to look at alternative methods of taxation. After evaluation, the City Attorney was unable to come up with alternatives, which would not be facing an equal protection challenge from other businesses. From an equal protection standpoint, normally business licensing is based upon a nexus of the fact that the public entity is having to provide services to the business. The license tax is for the privilege of doing business within the community. If you separate out "passive investments" and ADOPTED AS SUBl~ITTED ON FEBRUARY 21, 2002 AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, January 17, 2002 Page -2- determine it should not be taxed, others paying the tax who are getting identical services could challenge and say this is not equal application of the law. The City Attorney stated from a legal standpoint, his recommendation is to continue to tax the commercial concerns, but when evaluating residential rentals, recognize that having a single residential rental may not necessarily be a business. His recommendation was to determine that if you own four or more residential rentals, you are conducting a rental business and subject to the business license tax and less than four (three) you are not. Finance Director Gregory Klimko stated his recommendation is the same, but is based upon the fact the business license ordinance is not regulatory. It is a revenue raising measure. Mr, Klimko's recommendation was to apply it as broadly as we legally can to raise revenue from the application of the business license ordinance. City Treasurer Bill Descary recommended a broad-based application of the ordinance based on gross receipts. If units are empty and there are no receipts, there would be no tax. Committee Member Salvaggio reiterated staff's recommendation to be as follows: 1) staff does not recommend that we exempt the owner of commercial rental properties from the requirement of paying the business tax; and 2) staff does recommend that we exempt residential rental properties for less than four units. Committee Member Salvaggio stated he could support this recommendation and agrees the tax should be applied equally among like businesses. Committee Chair Maggard stated with respect to his colleague and staff, he does not agree with staff's recommendation. He felt that just because we can tax, does not mean that we should. He stated staff is doing their job and being good and loyal in finding ways to raise revenue. However, his job as a Councilmember is to make sure that it is done equitably and the citizens are represented appropriately. He feels it is his charge to bring some balance. Committee Chair Maggard stated he does not think this applies the law fairly. If people are 'in the business of renting/leasing properties such as the Marketplace or Valley Plaza, they should have a business license because they are clearly in the business of managing properties. In contrast, there are many people in Bakersfield who own a few residential rentals or a commercial property as passive investments who are not in the business or actively making a living managing or renting properties. Many of these are retirees and should not be subjected to having a business license and paying business license tax on rental income. It seemed to him that it should not apply to passive rental of property, whether on a commercial or residential basis. It should apply at the purpose of the property. If someone leases a building to run a business, they should have a business license, which pays for the services they are receiving from the City. However, by subjecting the owner of the same building to a business license tax, the services are being paid for twice. If the purpose of the property is residential, it does not consume the same level of City services AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, January 17, 2002 Page -3- as does a business and, therefore, the property in his opinion should not be subject to a business license because it is not a business. The amount of revenue the City received from rental business licenses last year was approximately $20,563 from 74 businesses. With broad enfomement, staff felt this has a potential revenue soume of up to $100,000. Committee Chair Maggard stated there are very few rental businesses in Bakersfield of the size that someone makes their living from it. He requested staff to come up with various alternatives to set a threshold for application of the business license tax, with the hope that the casual renter of property would be exempt. Finance Director Gregory Klimko suggested perhaps it could be based on gross rental receipts instead of an arbitrary number of units. Committee Chair Maggard was interested in this concept and requested the City Attorney to explore this idea from a legal standpoint and any other possible alternatives and bring the information back to the Budget and Finance Committee. (Committee Member Hanson absent.) 5. NEW BUSINESS A. Finance Department report .and Committee recommendation regarding independent auditors reports and Management Letter for fiscal year ending June 30, 2001, including the following: 1. Comprehensive Annual Financial Report (CAFR) 2. Single Audit Report - Schedule of Federal Expenditures 3. Compliance with contractual requirements relative to the Bakersfield Subregional Wastewater Management Plan 4. Appropriations Limit Worksheet (GANN Limit) 5. Required Communication with Audit Committees in Accordance with Statement of Auditing Standards 6. Independent Auditors Report - Internal Control Structure The audits were all clean and there were no significant findings. It was noted the City has received two annual awards each year for 19 years for its financial reports. The Committee unanimously accepted the reports. (Committee Member Hanson absent). B. Staff report and Committee recommendation regarding proposed increase in loan limit for single family rehabilitation projects Community Development Coordinator George Gonzales explained since 1979 the Block Grant Funds have been utilized to make loans for rehabilitation of Iow-income residential AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, January 17, 2002 Page -4- owner-occupied single-family dwellings. The City offers two different loans: a 4% amortized loan and a 0% deferred loan. In 1999, the Council approved the loan limit of $35,000 for deferred and a $35,000 limit for amortized loans. Staff would like to be able to combine the two, instead of having either an amortized or deferred loan. In that way, a combination of the two loans could be offered when the homeowner's income cannot support the payment of the amortized loan or a project may require extensive demolition work and rehabilitation of the structure. Staff recommends that we amend the Loan Limit Policy to include authorization to allow approval of both amortized and deferred loans in an amount not to exceed $70,000 for each rehabilitation project. The Committee unanimously approved staff's recommendation and forwarding to the Council for adoption. (Committee Member Hanson absent) C. Staff report and Committee recommendation regarding Economic and Community Development Department's housing guidelines and proposed foreclosure policy Community Development Coordinator George Gonzales explained that since the beginning of the rehab loan program, the City has never had a foreclosure policy. If the City has to foreclose, there is no set policy. The Economic and Community Development Department has drafted a Foreclosure Policy. The Policy would apply to all loans given by the department to recipients of the City's various housing programs. Currently a loan recipient signs a promissory note and executed deed of trust in favor of the City. This Policy would provide that if during the life of the loan or term of the grant, the loan recipient is not in compliance with the contractual agreements, a pre-foreclosure analysis would be conducted to determine the best course of action for both the City and the recipient. If the recommendation is for foreclosure, the Economic Development Director would determine whether it would be in the City's best interest to foreclose on the property, take legal action against the client with regard to the promissory note, or request the Finance Director to write off the loan if it is deemed to be uncollectible. Every effort will be made by staff to ensure that displacement of any Iow-income resident who has received assistance under the City's housing programs will be the option of last resort. Staff recommends approval of the Foreclosure Policy by the Committee and forwarding to the Council for adoption. The Committee unanimously approved staff's recommendation and forwarding the Foreclosure Policy to the Council for adoption. (Committee Member Hanson absent.) 6. COMMITTEE COMMENTS 7. ADJOURNMENT The meeting adjourned at 5:32 p.m. AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, January 17, 2002 Page -5- Staff present: City Manager Alan Tandy; City Attorney Bart Thiltgen; Assistant City Manager John W. Stinson; Assistant to the City Manager Darnell Haynes; Finance Director Gregory Klimko; Assistant Finance Director Nelson Smith; City Treasurer Bill Descary; Deputy City Attorney Michael AIIford; Community Development Coordinator George Gonzales; and ED/CD Business Manager Rhonda Barnhard. Others present: James Burger, reporter, The Bakersfield Californian cc: Honorable Mayor and City Council DWH:jp S:\Damel~002Bud&FinanceCorn mittee\02jan 17summary.wpd