Tom Butt
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  Measure U Business License Tax Debate Will Continue
December 18, 2020

Despite a landside vote on Measure U in November, most people have no idea what they voted for, and both opponents and proponents continue to debate both how the tax is calculated and the fairness of it. Despite some projections by City staff, no one really knows how much revenue the tax will generate because of a dearth of pertinent data.

The impact of COVID-19 on businesses ranging from rental properties to restaurants is also a factor, as many businesses that would pay the tax, whatever it is, have now disappeared -- some forever. The threat of businesses leaving Richmond for areas with lower taxes could result in fewer businesses to tax as well a loss of jobs and other taxes, such as sales taxes.

Measure U includes a provision that allows the City Council to set rates lower than those specified in measure U, even temporarily, but rates cannot rise above those specified in Measure U.

All these issues will play out in the coming year after a City Council takeover from a faction that is historically not just unfriendly to business but sees the business community as selfish, evil and greedy.

This saga really began in 2009, when some of the same forces that backed an aggressive tax schedule in Measure U placed Measure T on the ballot. Measure T was designed to levy a huge tax on Chevron. To discourage political opposition from the rest of the business community, the tax on every other business was both reduced and frozen. The strategy worked, and the tax passed. Chevron, however, cried foul and sued. Chevron won (Judge Strikes Down Richmond’s Chevron Tax), and Richmond was stuck with no windfall tax on Chevron and a lowered tax on every other business, including Chevron.

I was the one who, last year, actually initiated the move to reform the busines tax to provide a reasonable revenue stream, suggesting that we move to a gross receipts model. In December of 2019, I agendized an item, supported unanimously by the City Council, that directed staff to work on drafting a business tax reform measure based on gross revenues. I suggested Oakland and Berkeley as models. Instead, staff turned the process over to SEIU Local 1021 and IFPTE Local 21 and a group calling themselves “Lift Up Richmond,” who spent the next seven months behind closed doors, drafting a measure with no public input, especially no input from the business community. They sprang the draft on the City Council in late July 2020, one week before the deadline to place it on the ballot, with many questions unanswered. In the end, Measure U surpassed both Oakland and Berkeley, becoming the highest business tax in the Bay Area.

The primary backers of Measure U are SEIU Local 1021 and IFPTE Local 21 as well as the Richmond Progressive Alliance. Others, constituting “Lift Up Richmond” are listed below (RPOA and IAFF 188 later dropped out to protest the manner in which the measure was drafted). These are also the same ones resisting any temporary reductions or phase in of Measure U.

  • SEIU Local 1021
  • RPOA
  • Fire Fighters Local 188
  • IFPTE Local 21
  • RYSE Center Richmond
  • Alliance of Californians for Community Empowerment (ACCE)
  • Asian Pacific Environmental Network (APEN)
  • Contra Costa Central Labor Council

The problem we have is not just a lack of understanding by these proponents of business economics but even a disdain for business. As an example, Local 21 spokespersons had the following comments about the business community:

  • “From our perspective, a business earning over $30.8 million in annual gross receipts within the City of Richmond and with 1,000 rental units both has the ability to pay $888,537 per year, and also benefits significantly from improved investment in city services and infrastructure.”
  • “It should be discussed whether a business making $3 million dollars as a professional services firm (which should have a pretty high profit margin) would struggle to pay $12,000 in local business tax. Part of the problem is that the rates have been so low for so long that there is no way to avoid sticker shock from the Measure U rates in some cases.”

What do these people know about profit margins and the ability to pay (from a residential rental provider that can’t evict anyone because of COVID-19)?

These criticisms are from public employees who never had to worry about the economic impact of COVID-19, never missed a payroll, have no competition and have pensions that almost equal what they make while working, and yet they feel qualified to evaluate the impact on the business community and criticize them for not paying enough to support the public employees’ secure (sometimes lavish) lifestyles.

The City Council, especially the one coming in, is not much better. Not a single City Council member has any background in business. It’s no wonder they don’t understand it.

Following is an article from the Richmond Pulse, one of the few remaining media outlets covering Richmond news.

16 Dec City Council Votes to Explore Lowering Business License Tax Rates

Posted at 15:38h in Business, City Government, Economy by Danielle Parenteau-Decker 0 Comments

(Screenshot captured by Edward Booth / Richmond Pulse)
By Edward Booth

The Richmond City Council directed staff Tuesday to explore potential reductions to the city’s soon-to-be revised business license tax, which was shifted by voters to a gross receipts model in November.

Richmond voters passed Measure U in November overwhelmingly, with about 72.5% approving of the change. The measure, though it hasn’t come into effect yet, switches how business license taxes are calculated to be based on gross receipts — the total amount of income received by a business with no reductions — instead of the number of employees. As written, the measure establishes a ceiling, but no floor, for the business license tax rates. The City Council can vote to reduce the tax rates, but it can’t increase them beyond the rates established by the measure without the support of voters. The council can, however, increase the tax rates without voter support if it previously voted to decrease them, but those increases can’t surpass the rates put in place by Measure U.

The tax applies higher rates, separated into tiers, to businesses as they earn more. The rate of each tier only applies to earnings that fall within that tier, and doesn’t apply retroactively to earnings that fell into prior tiers. For example, a business in the “retail sales” category would pay a 0.12% rate for gross receipts under $1 million, and would pay a 0.16% rate for additional receipts earned in the $1 million to $2.5 million tier. But the original $1 million would stay taxed at 0.12%. Their final tax would be calculated by applying the separate rates to their earnings in each tier and adding up all the numbers.

Most businesses making under $250,000 in gross receipts are exempt from the percentage rates and instead pay a flat rate of $200. And the rates vary across industries. According to the city attorney’s financial analysis, the current rate structure is expected to raise about $6 million more for Richmond annually than the previous system. These proceeds can be used for any governmental purpose.

The council voted unanimously Tuesday for city staff to work with business groups and stakeholders to gather information on the tax rates, to create a committee to start examining the rates and to determine the factual accuracy of two conflicting presentations that kicked off the council item.

Mayor Tom Butt gave the first of the presentations, which was later alleged to be inaccurate by Kristen Schumacher, a research specialist at the International Federation of Professional and Technical Engineers Local 21, who also gave a presentation. Aaron Winer, board president of the West Contra Costa Council of Business and Industry, also spoke.

The bulk of Butt’s presentation made the case that the rates established by Measure U are too high and the council should lower them. Butt said that the council approved the item hastily in the first place, to get it to the ballot box in time, with the thought that the tax rates could and would easily be lowered if it was necessary.

“I think the consensus was, of the City Council, that we could always adjust the rates downward,” Butt said.

To bolster his point, Butt presented data on the rate increases for local businesses, some named and some not, the accuracy of which was later disputed by Schumacher. Butt used percentages to demonstrate the rate increases, and some increases were by several thousand percent.

Much of Schumacher’s presentation refuted points raised in Butt’s presentation. She said Butt’s claim that San Francisco’s tax rates are lower than those proposed by Measure U is inaccurate, adding that taxes at the highest tier — businesses making over $50 million in gross receipts — are much higher in San Francisco.

Schumacher said there seemed to be a lot of confusion over how the rates are applied and how business tax liabilities are calculated with Measure U. She said many of the examples of tax rates for businesses in Butt’s presentation are inaccurate.

“I don’t know where those tax rates came from,” Schumacher said. “This is why I think we need more outreach and education so we can correctly assess what the impact is actually going to be. Right now, some of the fears may not be based on what the reality is in the measure as currently designed.”

Winer said the business community doesn’t intend to roll back Measure U, that it acknowledges that the city needs to raise revenues and that business license taxes haven’t been raised in years. But, he said, many businesses can’t afford the raise in taxes established by Measure U, and several — including at least four businesses that earn among the most in gross receipts in Richmond — could end up leaving the city if the rates go unchanged.

Council member Jael Myrick said he didn’t want to vote on anything that the incoming council members will want to overturn when they take their seats in January. But, he said, he thinks everyone’s in agreement that they don’t want to cause an exodus of businesses from Richmond. He said the council should look to build consensus, and talked about some examples of changes the council could agree on: that businesses making under $250,000 in gross receipts should only pay $100, that some tiers or different brackets in the system might need to be added, and that, perhaps, hotels could be exempt.

Myrick said the sooner the council can create calm around the policy, the less they will have to worry about businesses leaving the city based on information that might not even be true.

“I think there’s some very simple things that we can have consensus on that we could do now and, let me just say this part, give certainty to businesses,” Myrick said. “The reason we’re trying to get this done is because businesses have that scare shock — they’re having that sticker shock right now and making decisions on what they’re going to do in the context of COVID.”