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Updating Pico Rivera’s Business Tax License Fee Structure Would Generate $5.2 Million

 

The tax has not been updated since 1967, some businesses still pay only $10 annually.

By Brian Hews

July 29, 2022 ~ Over the last two years, amidst the uncertainty caused primarily by the COVID-19 pandemic, Pico Rivera has operated mainly through cost containment, early retirement incentives, and staffing moves. The moves by city council, management, and staff have produced balanced budgets while providing  funds for public safety, facility, park and infrastructure needs.

During that time, the city council gave administration and staff directions to bring back a city-wide Long-Term Strategic Plan to address the structural issues facing the city and build long-term, fiscally sustainable operating plans.

But the elephant in the room, presented at the May 10 city council meeting, was the $63 million in unfunded capital needed over the next five years, with $30 million related to street infrastructure improvements, that cannot be funded with the current city budget.

One of the city’s largest investment/expense is the approximately 152  miles of paved roadways. A Pavement Management Plan (PMP) concluded that the city’s overall average pavement condition was poor and would require $12 million annually to bring the roads to good condition.

Of this, only about half, or $6 million, can be funded through existing funding sources such as Los Angeles County Metro’s Local Return Funds.

So city administration began looking at ways to generate additional local funds, and it looks like they found a big nugget.

In January of this year, Pico Rivera contracted with HdL Companies to analyze its current business license tax structure; the city’s current code has not been amended since December of 1967.

The goal was to generate additional local funds and potential efficiencies from modernizing the outdated business license code.

The current code includes a fee structure based on the business type and sets flat dollar thresholds – on some businesses as low as $10 – businesses that have been paying $10 since 1967.

HdL’s report stated, “the city’s current business license structure is not reflective of the businesses that comprise it. Large-scale light to semi-industrial businesses are grouped together with retailers, gardeners, and physicians. Such a broad category masks the different contributions to and [most importantly] impacts on the city that different types of businesses leave.”

City Manager Steve Carmona told HMG-CN, “The business license fee update will create a more equitable structure for all our businesses in the city. To date, our small businesses have been shouldering the burden This measure will ensure the viability of our small businesses in our city. These fees have not been updated since the city was incorporated (70 years). If passed, the additional fees will be utilized to enhance and preserve city services and infrastructure

The city had also instructed HdL to address the impact some businesses have on city streets, especially those companies that utilize large trucks with heavy loads that impact the quality of those streets.

Focusing on this goal, HdL separated businesses into their own category – Industrial, which combined Warehouse/Distribution, Manufacturing, Wholesale, and Mining businesses.

In its report, HdL created five tax models with the goal of ensuring “simplification and equitability,” but in reality only two were feasible.

Of the two models, one set a rate of $5 per thousand dollars of taxable gross receipts; the second model used the same structure, $5 per thousand dollars of taxable gross receipts and added a layer based on the business’ square feet.

Based on the best information available to HdL through sales tax receipts, the company estimated that the two tax structures modeled in the report would generate between $4.5 and  $5.8 million annually; pre-pandemic, the city collected about $1.2 million annually in business license tax revenue.

But would the voters approve such a tax?

Recently, a survey by FM3 Research commissioned by the city showed 57% percent in favor, 33% opposed, and 10% undecided.

An additional question also boded well for passage with one asking residents if the city has a great need for additional funds; 80% said yes.

Four hundred twenty residents participated in the survey.

Pico Rivera Mayor pro team Erik Lutz told HMG-CN, “Our mission as a council has been to maintain strong finances and provide for a safer, cleaner city.   We have built trust with our community which will give them confidence that the upcoming November ballot measure will ensure a more equitable Business License fee structure,  protecting Small Businesses.  The measure will fund much-needed infrastructure and enhance city services well into the future.  

Pico Rivera Mayor Dr. Monica Sanchez told HMG-CN, “I believe the current proposal to increase the business license fee has strong support from our community with nearly 60% of our polled residents believing the city is going in the right direction and 80% recognizing the city has a great or some need for additional funds for infrastructure improvements,” said Pico Rivera Dr. Monica Sanchez. “The city budget is currently healthy, yet we need some additional improvements and indications are the business community supports this proposed fee increase because it is fair and equitable and our proposed infrastructure improvements will only contribute to a healthy economy and robust business climate.” 

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