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HomeMy WebLinkAbout04/18/2002 BAKERSFIELD ~,~ ~.//,~ Mike Maggard, Chair A~an Tandy, Citydl~ana~ler Harold Hanson Darnell Haynes, Assistant to the City Manager Mark Salvaggio AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, April 18, 2002 4:00 p.m. City Manager's Conference Room 1501 Truxtun Avenue - Suite 201 1. ROLL CALL Call to Order at 4:05 p.m. Present: Councilmembers Mike Maggard, Chair; Harold Hanson and Mark Salvaggio 2. ADOPT MARCH 14, 2002 AGENDA SUMMARY REPORT Adopted as submitted. 3. PUBLIC STATEMENTS 4. DEFERRED BUSINESS A. Discussion and Committee recommendation regarding application of the business license ordinance to commercial and residential rental property businesses City Manager Alan Tandy gave a brief history of the Committee Minority and Majority Reports which were sent to the City Council. Communications were received regarding the business license tax including a letter from the Bakersfield Association of Realtors. As there seemed to be questions and concerns, the City Council referred the issue back to the Committee for more community input. City Treasurer Bill Descary gave an overview of his response to the letter received from the Bakersfield Association of Realtors. Business license tax applies to rental/leasing of commercial and residential properties and property management because these businesses provide services that generate revenue or "gross receipts," which is the basis of the tax. ADOPTED AS SUBMITTED ON MAY ,1,6, 2002 AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, April 18, 2002 Page -2- Owning common stock in a portfolio and owning real property for rent or lease are not synonymous. He further explained business license tax does not apply to property owners per se. It only applies to those who are in the business of rental/leasing property. Federal and State Income tax, as well as property tax, are different from business license tax and, therefore, not redundant. In summary, Mr. Descary stated staff recognizes the association's concerns; however, local business license tax will not impede one's ability to own and invest in real property as the rate is very Iow. The non-Professional tax rate is $.30 per $1,000 for the first million and $. 15 per $1,000 for $2 million through $10 million. $25.00 is the minimum tax. The tax rate has not been increased since 1991. This tax has been in place for over 30 years. It is not a new tax, but has become more visible. As new technology becomes available, property ownership is on the Internet and property owners who were not aware of the business license tax are now being contacted to comply with the business license tax. Staff explained the debate has been with the application of the business license tax to owners of commercial and residential rental and lease properties and whether there should be a minimum number of units excluded before the tax is applicable, or some other method of exclusion before the business license tax is applicable. Committee Member Salvaggio spoke regarding the history of the business license tax and his voting record. When the business license tax rate was restructured and raised in the past, he voted against the tax rate increase at that time. He explained his and Committee Member Hanson's recommendation was to exempt owners of residential rental Properties that own four or less units, who without that exemption are required to pay the business license tax under the current ordinance. Mr. Greg Hanvey, Bakersfield Association of Realtors, spoke in opposition to the business license tax. Most rental units are owned by individual people, not companies. The Association's goal is to protect the right of property owners and if they are investment property owners, to make it hospitable for them. He expressed the tax is Iow now, but had concerns it could increase. The individual businesses in the complexes have business licences to operate their businesses, so the property owner should not be required to have one also. He expressed this business license tax should be rescinded. Mr. Leo Hinds, Attorney at Law and CPA, spoke against the business license tax and expressed it should be repealed. He had concerns about retirement funds, IRA's and KEOGH's, which have investments in rental or lease properties and how the tax will impact these types of activities. AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, April 18, 2002 Page -3- Ms. Cheryl Miller, Stockdale Property Management, stated she is being charged, not $.30, but $.65 per thousand for everything over $38,462. She feels the rates are discriminatory and should be the same. In her business she only gets a fee from the property owner. Gross revenues are not attributed to her but to the owner of the property, so she should not be taxed on gross receipts. Bill Descary stated Ms. Miller's business may not be classified correctly. He will check it out. There are two rates: Class A - Professional and Class B - non-Professional. The Professional rate is $.65 per thousand. Ms. Chris Frank, Chamber of Commerce, expressed concerns that. this tax is double taxation and should not be allowed. Mr. Michael Freedman, Kern County Apartment Association, stated he has been flooded with 70 phone calls. Many of the owners renting their property are losing money' and should not be charged on gross receipts. Committee Chair Maggard stated his position from the beginning has been it is inappropriate to charge a business license fee on rental proceeds. He expressed the activity of investing in real estate should not be subject to the business license tax. However, if people are in the business of renting or leasing, then they should pay a business liCense fee. For example, If there is an enterprise like a shopping center in the business of owning and operating a shopping center, that is a business and they should pay a business license fee. The Committee discussed whether the tax should apply to investors in real estate and if there is a legal definition to define an investor from someone who is in the business of renting and leasing properties. ' Committee Member Hanson stated with the questions brought up and without all the facts being clarified, he could not make a decision today to move forward with the business license tax on owners who rent or lease residential or commercial properties. He asked about other cities in California and how they apply the business license tax to owners of rental or lease properties. He requested staff to provide the amount of annual revenue to the City from the business license fee as currently applied to owners of rental or lease properties. The Committee requested staff to research and also check with other cities t° see if they have a better model or differentiation that could be used to define when someone is in business and when someone is just an investor in real estate and not in business. AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, April 18, 2002 Page -4- 5. NEW BUSINESS A. Staff report and Committee recommendation regardingCost Recovery Program Assistant to the City Manager Darnell Haynes explained the Municipal Code provides for staff to review these fees annually. Every two years there is a thorough review of all fees. New fees and updated fees are required to be adopted by resolution after a public hearing. An overview has been compiled of fees being proposed for an increase and new fees staff is recommending as a result of new law, direction from the Council, or task force study recommendations. Some fees in the development area are being proposed for reduction to bring them in line with revenue being collected based on new information from the April 2001-02 building evaluation data, as well as review and discussion with the BIA. Staff would like to move forward with the Cost Recovery Program as it is a part of the budget process. The Committee unanimously approved staff to move forward with the Cost Recovery Program with the exception of four items: B-23 Fire Prevention Oversite, B-26 Owner Initiated Parcel Merger, D-61 Public Convenience and/or Necessity Approval, and B-34 Concurrent Applications Maps. These four items will be discussed at a later hearing. B. Staff report and Committee recommendation regarding a request from Cornerstone Group for $26,000 forgivable loan (Community Development Block Grant Funds) to rehabilitate additional office space for a southeast incubator program At the request of the loan applicant, this item was pulled from the agenda to be agendized for the next Committee meeting. C. Discussion and Committee recommendation regarding a long-term financial plan for the City This item was deferred. ' 6. COMMITTEE COMMENTS Committee Member Hanson explained his position on the business license fee. He finds it difficult to waive fees that raise revenue for the City. However, before he can feel comfortable making a recommendation, more clarification is needed so he has the facts to explain the basis for his decision and be able to answer questions he may be asked by the public. 7. ADJOURNMENT The meeting adjourned at 6:10 p.m. AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, April 18, 2002 Page -5- Staff present: City Manager Alan Tandy; Assistant City Manager John Stinson; City Attorney Bart Thiltgen; Assistant to the City Manager Darnell Haynes; Public Works Director Raul Rojas; Economic Development Director Donna Kunz; Recreation and Parks Director Stan Ford; Development Services Director Jack Hardisty; Building Director Dennis Fidler; Finance Director Gregory Klimko; Director of Environmental Services Ralph Huey; Public Works Civil Engineer Marian Shaw; Assistant Finance Director Nelson Smith; Assistant to the Public Works Director Georgina Lorenzi; Deputy City Attorney Michael AIIford; City Treasurer Bill Descary; Planning Director Start Grady; Recreation and Parks Business Manager Becky Jamison; and Assistant Recreation Superintendent Sally Ihmels. Others present: Chris Frank, Chamber of Commerce, Peter J. Rudy, KUZZ News; Cheryl Miller, Stockdale Property Management; Leo Hinds, CPA and Attorney at Law; Greg Hanvey, Bakersfield Association of Realtors; Michael Freedman; Kern County Apartment Association; Cassie Daniel, Bakersfield Association of Realtors; and James Burger, reporter, The Bakersfield Californian cc: Honorable Mayor and City Council DWH:jp S:\Darnell~2002Bud&RnanceCornrnittee~bf02apr18sumrnary,wpd