07-12-2018 - Business License Tax Analysis and Ordinance Review - Item No. 1 (2).pdf
DATE: July 12, 2018
AGENDA
ITEM NO. 1
AGENDA STAFF REPORT
City of West Covina | Office of the City Manager
TO: Mayor and City Council
FROM: Chris Freeland
City Manager
SUBJECT: BUSINESS LICENSE TAX ANALYSIS AND ORDINANCE REVIEW
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1) Authorize the City Attorney to draft an ordinance amending Chapter 14 entitled “License and Business Regulations” of the West Covina Municipal Code (“Business License
Ordinance”) that would adopt a new fee structure for business license taxes based upon
Gross Receipts – Classification Based Tax Rates; and
2) Direct staff to prepare necessary documents to allow the City Council to call for an election for voters to consider the amendments to the Business License Ordinance.
BACKGROUND: On May 1, 2018, staff proposed amending the Business License Tax Ordinance. The proposed
amendment to the ordinance was to adopt a new fee structure for business license taxes based
upon Gross Receipts – Classification Based Tax Rates. This amendment would require voter
approval. However, prior to calling an election it must be approved by at least four members of the City Council. On May 14, 2018, there was a lack of the required City Council votes to
proceed for a tax ballot measure. During the third preliminary budget workshop on July 2, 2018,
City Council directed staff to bring back this agenda item for further consideration.
The City issues approximately 5,000 business licenses annually and, over the last 5 years, generated approximately $2 million in business license tax revenue per year in accordance with
the Business License Ordinance. The Business License Ordinance has been in effect since 1960,
and the last time it was updated or modified was in 2010. In November 2015, staff contracted with
HdL Software, LLC (HdL) to perform compliance and operations management services, prepare
an analysis of the current ordinances and tax structures as they relate to the City’s business license taxes, and make certain recommendations and changes to accomplish specific goals based upon
their review.
Business License Tax Analysis and Ordinance Review Page 2 of 5 – July 12, 2018
DISCUSSION:
I. HdL’s Business License Tax Analysis and Ordinance Review
City staff identified the following key items to be addressed in the Business License Tax Analysis
and Ordinance Review report prepared by HdL: 1) Review current ordinances for any items that require updating including business classifications, definitions, and overall modernization of current structure.
2) Review the fee structure in detail and compare the rates and categories of the City of West Covina with those of other jurisdictions.
3) Provide recommendations for modifying rates and categories.
II. Summary of Relevant Provisions of Business License Ordinance
The following is a summary of the relevant provisions of the City’s current Business License
Ordinance to which HdL recommends changes.
A. Tax Structure & Rates
The City’s tax structure consists of a variety of schedules that tax businesses on different variables
based on their business type. For example, retail businesses are taxed based upon the number of employees, while commercial property is taxed based upon the business’ gross receipts. Additionally, the rates charged for number of employees or gross receipts can vary from category
to category of businesses. Although a majority of businesses are taxed based upon the number of
employee’s methodology, the gross receipts methodology applies to many different business
categories including its highest category of Commercial Rental. Application of the City’s current
methodology poses many challenges in that the number of employee’s methodology is difficult to audit and administer and does not typically provide the most equitable tax results for the City.
B. Filing Dates & Penalties
The City issues annual licenses on two different schedules which requires additional staff time and
is cumbersome to track. Approximately half of the businesses operating in the City are issued a
business license based upon the calendar year, while the remaining half are valid on a fiscal year
basis. Filing and payment of taxes are due in advance on the first day of the period and businesses
are afforded a 30-day grace period from the due date without penalty. Failure to file timely results in a 10% per month penalty with a maximum of 100% of the tax amount due. New businesses are
required to register within 15-days of commencement, then follow the same schedule for payment
and penalty.
C. New Business Prerequisites & Regulation
The City requires all new businesses to comply with a number of prerequisites including zoning
reviews, police permits, state and county regulations, and other related business compliance items.
These regulatory checks, including denial for reasons of public peace and safety, are performed prior to a new application receiving a license.
Business License Tax Analysis and Ordinance Review Page 3 of 5 – July 12, 2018
III. Council Options for Proposed Changes to Business License Ordinance
Attached is The Business Tax Analysis and Ordinance Review (Attachment No. 1). HdL provided
the City with two options regarding modifying rates and categories:
Option 1: maintain existing categories with simple increases Option 2: replace all categories with gross receipts tax
Within the gross receipts tax option there are two models being proposed:
• Model 1 is a simple gross receipts tax rate;
• Model 2 is a classification based tax rate.
The Option 2 Model 1 (single gross receipts tax rate model) provides an even distribution of the
effective tax rate because all businesses subjected to the tax will pay the same rate. This method
also provides the simplest method of calculation due to every business using a single multiplier.
Staff is recommending Option 2 Model 2 - classification based tax rates model. This would create
varying rate multipliers for gross receipts depending on business classifications. This model
affords the most flexibility for increasing revenue while accommodating certain business
categories. The table below shows a comparison of the business license fees between the current business license tax rate and the proposed gross receipts tax rate.
City of West Covina vs. Neighboring Jurisdictions
Rate Comparison Chart
Business License Tax Analysis and Ordinance Review
Page 4 of 5 – July 12, 2018
Locally, the cities of Alhambra, Azusa, Baldwin Park (Commercial Rental Property only), Claremont, El Monte, Glendora, Irwindale, La Verne, Monterey Park and Pomona issue business licenses under a Gross Receipts program.
If the classification based tax rate model is approved by voters, it is projected that $1,704,000 of
additional business license revenue to the City will be generated. If approved by voters, the projected implementation date will be effective February 2019. However, the business license tax due would be retroactive to January 2019. This will allow public outreach to the business
community during the months of December 2018 and January 2019.
IV. Election to Obtain Voter Approval of Business License Ordinance An amendment to the Business License Ordinance, that increases the City’s business license tax would require voter approval. A brief summary of the procedure for placing such a measure on the
ballot involves a number of steps including the City Attorney preparing the proposed Business
License Ordinance, City Council adopting a number of resolutions calling for the election and
placing the question to voters on the ballot, and submitting the Business License Ordinance and supporting documentation to the Los Angeles County Registrar at least 88 days prior to the election.
In order to pass currently, the ballot measure would require simple majority vote. However, there is
an effort to require supermajority approval, as opposed to simple majority approval, for any local
tax measure, not just special taxes, based upon a petition being circulated by the California Business Roundtable1 that would require supermajority (2/3rds vote) approval of any local tax measure. The initiative states that it covers any tax enacted or increased from and after January 1,
2018. We will not know whether this initiative will be placed on the November 2018 ballot until
about the end of June 2018. Right now, the proponents will need to gather over 500,000 signatures
and submit them to the Secretary of State's Office in late May/early June 2018.
COUNCIL GOALS & OBJECTIVES:
This item supports the 2018-19 City Council Goal of Build Financial Health and Economic Stability.
OPTIONS:
The City Council has the following options:
1) Approve staff’s recommendation;
2) Authorize staff to update the business tax ordinance without affecting the tax structure; or
3) Provide alternative direction.
1 The only registered supporter for the Initiative Petition is Californians for Accountability and Transparency
in Government Spending, sponsored by California Businesses, the primary donors to which (to date) are
members of the beverage industry.
Business License Tax Analysis and Ordinance Review Page 5 of 5 - July 12, 2018
ATTACHMENT NO. 1
Business Tax Analysis and Ordinance Review
Report Date: March 31, 2017
Amended: 04/25/2018
Prepared By:
1|P a g e
Business License Tax Analysis and Ordinance Review
Project Overview
The City of West Covina has contracted with the HdL Companies to analyze the current ordinances and tax
structures as they relate to business tax and make certain recommendations and changes to accomplish
specific goals of the review.
HdL has compiled data from the City, State, County, and other 3rd party sources for use in the analysis and
estimates contained within the report. Data provided from the City was for the period ending 07/01/2016.
The data was reviewed during the update process in March 2018, finding no significant variations from the
original data set. As the other data may have come from 3rd parties, the data cannot be certified by HdL and
should be treated as estimates and not actual values.
Specific Goals
The City has identified the following key items that will be addressed in this report.
1. Review current ordinances for any items that require updating including business
classifications, definitions, and overall modernization of current structure.
2. Review the fee structure in detail and compare the rates and categories of West Covina
with those of other jurisdictions.
Report Sections
The report is divided into two sections designed to simplify the review process. The first section will provide
background, data analysis, and other comparative information for reference and use in recommendations
and impact sections. The second section will cover proposed rate modifications and the potential impact
of those changes. Additional items requested by the City, and information or recommendations not covered
elsewhere in the report, can be found in the additional information section at the end of this report.
2|P a g e
SECTION 1 – City of West Covina & Comparative Jurisdictions
City of West Covina Business Tax Analysis
The business tax has been authorized and is administered in accordance with Chapter 14 of the City of West
Covina Municipal code. The last time the ordinance was updated or modified was in May 4, 2010. The City
currently issues approximately 5,000 business licenses annually and over the last five years generates on
average $2,000,000 in business license tax revenues per year.
Tax Structure & Rates
The City’s tax structure consists of a variety of fee schedules that tax businesses on different variables based
on their business type. Retail businesses for example are taxed on their number of employees, while
commercial property is taxed based on gross receipts. Additionally, the rates charged for number of
employees or gross receipts can vary from category to category. (See table 1 below for details)
Filing Dates & Penalties
The City currently issues annual licenses on two different schedules. Approximately half of those businesses
are valid on a calendar year basis (Jan-Dec) of each year, while the remaining half run on a fiscal year (Jul –
Jun. Filing and payment of taxes are due in advance on the first day of the period and businesses are
afforded a 30-day grace period from the due date without penalty. Failure to file timely results in a 10% per
month penalty with a maximum of 100% of the tax amount due. New businesses are required to register
within 15-days of commencement, then follow the same schedule for payment and penalty.
New Business Prerequisites & Regulation
The City requires all new businesses comply with a number of prerequisites including zoning reviews, police
permits, state and county regulations, and other related business compliance items. These regulatory
checks, including denial for reasons of public peace and safety, are performed prior to a new application
receiving a license.
3|P a g e
Data Analysis – Charts & Tables
Table 1 – City of West Covina: Primary Rate Schedule Summary (Active Licenses)
Classification
Rate Type
Number of
Accounts
Approximate Annual
Revenue
CELLTOWERS
- Per unit fees Unit 40 $3,500
Inside Contractors
-No Permits Flat 44 $5,000
Inside Contractors
- With Permits
Rate
62
$1,700
Outside Contractors
- No Location In City Rate 400 $35,000
Manufacturers / Wholesale Rate 23 $25,000
Office / Commercial Rental
Property Rental Rate 305 $931,000
Professional Services
- personal services Hybrid 1450 $185,000
Professionals
- Flat 400 $125,000
Residential Rentals Hybrid 280 $191,000
Retail
- Retail Transactions Hybrid 725 $225,000
Service Vehicles
- vehicles in city Rate 250 $23,000
4|P a g e
Business Tax Revenues By Fiscal Year
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Revenues
Business Tax Revenues Processed by Month
FY 2016-2017
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Revenue
5|P a g e
Top 5 Business License Tax Revenue Generators by Rate Type
FY 2016-2017 11.5% 9.9%
9.4%
6.4%
15.3%
47.6%
1. Commercial Rental 2. Retail Sales 3. Residential Rental
4. Professional Services
5. Professionals
All Other Rate Types
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
Business Tax and Sales Tax Percent Change
Year to Year (YTY) and Since 2011
5.00%
0.00%
-5.00% FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY1 15-16
-10.00%
Bus Tax % Change YTY
Bus Tax % Since 2010
Sales Tax % Change YTY
Sales Tax % Since 2010
6|P a g e
Covina Park
Similar and Surrounding Jurisdictions
Neighboring Jurisdictions Selected:
2015 Average Population by Jurisdiction
El Monte
West Covina
Azusa
Baldwin Park
Covina
Glendora
Monrovia
0 20,000 40,000 60,000 80,000 100,000 120,000
Average Business Tax Revenue by Jurisdiction *
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
West Azusa Baldwin Covina Glendora Monrovia El Monte
* Source: 2015 California State Controller Report
Average Business Tax Revenue Per Capita
FY 2015-2016 $39.58
$18.69 $8.82 $14.74 $16.90
$7.49 $8.57
West Covina Azusa Baldwin Park Covina Glendora Monrovia El Monte
7|P a g e
Azusa, CA
Demographics:
• Population: 48,799 as of 2014
• County: Los Angeles County
• Incorporation: December 29, 1898
• Estimated median household income: $50,717 as of 2013
• Land area: 8.90 square miles
• Population Density: 5,483 people per square mile
Rate structures and fees- renewal cycles: 5.08.111.12:
Annual License: Business Licenses are annual and renew one year from the month in which the business
started.
Rate structures and fees- Penalties 18-28:
For failure to pay a license tax when it becomes due, a penalty of 15% per month is added on the 10th day of
each month that payment is delinquent. This penalty does not exceed 100% of the license tax owed.
Rate structures and fees- Interest 18-28:
In addition to the penalties mentioned above, any business which becomes delinquent accrues interest at
the maximum rate allowable by law, from the date on which the remittance became delinquent.
Rate structures and fees- Miscellaneous fees:
Activity Associated Fee
New Application Fee (all except listed below) $187.00
New Application Fee (Contractors and rental properties) $56.00
New Application Fee (Home occupation) $93.00
8|P a g e
City of Azusa Business License Tax Rates:
Newly opened businesses in the City of Azusa that fall into the business types listed in table (A) pay an
employee-based tax for their first year in business. After their first year in business, the tax is assessed on
annual gross receipts- table (B).
(A) Business Type, 1st year in business Tax Rate
Sales, Manufacturer, Wholesale, Services (18-691) $90.00 if 5 or less employees
$150.00 if 6 or more employees Professionals (18-691)
Laundromats (in-city) (18-695)
Hospitals, Rest Homes (18-705)
Motion Picture Theaters (18-61)
Contractors
(B) Tax computation after 1st year in business
Gross Receipts bracket Associated Tax
$0.00 through $4,999 $50
$5,000 through $9,999 $90
$10,000 through $99,999 $150
$100,000 through $499,999 $300
$500,000 through $999,999 $750
$1,000,000 through $4,999,999 $750 + $0.15 per $1,000 gross receipts between $1M and $5M
$5,000,000 through $14,999,999 $1,350 + $0.135 per $1,000 gross receipts between $5M and $15M
$15,000,000 and up $2,700 + $0.10 per $1,000 gross receipts over $15M
City of Azusa Business License Tax Rates (miscellaneous):
Residential rental- If leasing 4 units or more on 1 property= $170.16 per unit
Residential rental- If leasing 3 units or less on 1 property= $50.00
Swap Meet - $125.00 per year
Mobile Home Parks- $24.00 for 1st 3 units + $12.00 for each additional unit over 3
Motels- $350.00 base tax + $1.00 per $1,000 of gross receipts
Commercial solicitors- $15.00 per day/ $30.00 per week/ $75.00 per month/ $300.00 per year
Outdoor advertising- Billboards - $70.00 + $0.14 per square foot – list locations
Sidewalk benches- $60.00 + $6.00 per bench
Handbill distribution- $10.00 per day or $40.00 per year
9|P a g e
Baldwin Park, CA
Demographics:
• Population: 77,119 as of 2014
• County: Los Angeles County
• Incorporation: January 25, 1956
• Estimated median household income: $49,755 as of 2013
• Land area: 6.66 square miles
• Population Density: 11,572 people per square mile
Rate structures and fees- renewal cycles: 5.08.111.12:
Anniversary License: Most licenses issued by the City of Baldwin Park follow an anniversary cycle, payable in
advance of the 1st day of the anniversary month of which the business commenced operations. Baldwin park
does not offer proration and most businesses are based on number of employees.
Rate structures and fees- Penalties 5.08.111.13:
For failure to pay a license tax when it becomes due, a penalty of 10% is added in addition to the tax that is
owed. This occurs if a tax is not paid within 30 days after the tax became due. An additional 10% penalty is
added on the 1st day of each month a business remains delinquent, but under no circumstances does the penalty
exceed 100% of the original tax amount owed.
Rate structures and fees- Miscellaneous fees:
Activity Associated Fee
Home Occupation review fee $133.00
10|P a g e
City of Baldwin Park Business License Tax Rates: Common rates:
Business Type (Flat Rate) Code Sec. Tax Rate Cycle
General Contractor (A or B class) 5.08.080 $100 per year Annual
General Contractor (Home based) 5.08.080 $50 per year Annual
All other Contractors 5.08.080 $50 per year Annual
All Home-based businesses 5.08.080 $50 per year Annual
Business Type (Professional) Code Sec. Tax Rate Cycle
Professionals (Attorneys, dentists, etc.) 5.08.150 $50 per professional + $9 per employee over 3 Annual
Real Estate
Real Estate (Home occ)
5.08.170
5.08.170
$100 + $9 per employee over 3
$50 per year
Annual
Annual
Business Type (employee based)
The tax rate for those businesses listed below is $50.00 (base tax) + $9.00 for each employee over three employees:
Auto parts/ supplies Entertainment Retail stores-all
Auto repair Furniture store Savings & loan co.
Auto paint or bodywork Gasoline station Security patrol
Bakery Grocery store Shoe store
Barber shop Income tax service Termite & Pest control
Beauty salon Jewelry store Trucking company
Burglar alarm co. Liquor store Warehouse/ Storage yard
Clothing store Manufacturing Wholesale sales
Dog kennel Meat market T.V. Repair
Drive-in dairy Misc. services
Drug store/ pharmacy Nursery/ florist
Dry cleaner Produce store
Business Type (Lodging, property leasing) Code Sec. Tax Rate Cycle
Rentals - Apartments 5.08.175 $15.00 per unit Annual
Rentals- Single family 5.08.175 $30.00 per unit Annual
11|P a g e
Rentals- Commercial 5.08.175 $50.00 + $0.95 per $1,000 gross more than
$25,000 annually
Annual
Rest Homes/ Convalescent 5.08.190 $50.00 + $5 per bed Annual
Rooming House 5.08.200 $10.00 per bed Annual
Hotel, Motel, Trailer park 5.08.110 $50.00 + $5 per unit over 3 Annual
City of Baldwin Park Business License Tax Rates: Entertainment/ Uncommon:
Business Type Code Sec. Tax Rate Cycle
Advertising 5.08.020 $80 per billboard/ advertisement Annual
Auctioneer 5.08.050 $175 (not prorated) Annual
Auto Wrecking Yard 5.08.070 $80 + $9 per employee over 3 Annual
Billiard & Pool Hall 5.08.030 $50 for 1st table + $15 per additional Annual
Bingo 5.113.19 $50 per year Annual
Bowling Alley 5.08.030 $50 for 1st lane + $15 per additional Annual
Carnival / Circus 5.08.030 $62.50 base per day + $12.50 per ride Daily
Cigarette & tobacco machine 5.08.030 $10 per machine Annual
Filmmaking 5.08.095 $100 per day Daily
Game or Mechanical Rides 5.08.030 $60 per machine Annual
Jukebox 5.08.030 $15 per machine Annual
Junk Dealer/ Pawnshop 5.08.120 $50 + $9 per employee over 3 Annual
Laundromat 5.08.210 $50 per year Annual
Newspaper 5.08.130 $100 per year Annual
Pool Table 5.08.030 $50 for 1st table + $15 per additional Annual
Restaurant (Diners, take-out, tavern,
etc.)
5.08.190 $50 if 0-25 seats, $75 if 26-100
$150 if 101 & over
Annual
Solicitor per person 5.08.220 $100 per year, or $15 per day Annual/Daily
Solicitor per company 5.08.220 $300 per year (requires 10 or more persons) Annual
Theatre 5.08.030 $0.25 per seat or car space Annual
If activated @ $0.25 or more = $10 per
Vending Machines 5.08.030 machine Annual
If activated @ $0.24 or less = $5 per machine
12|P a g e
Covina, CA
Demographics:
• Population: 49,002 as of 2014
• County: Los Angeles County
• Incorporation: August 14, 1901
• Estimated median household income: $65,079 as of 2013
• Land area: 7.03 square miles
• Population Density: 6,800 people per square mile
Rate structures and fees- renewal cycles: 5.04.250:
Annual License: Most licenses issued by the City of Covina are effective through an annual cycle, payable in
advance of the 1st day of January each year and expiring on December 31st of each year. Covina allows
proration on annual licenses, the amount of proration is determined by which quarter of the year a new
business commences operations:
o If in the 1st or 2nd quarter of the year- 100% of the tax is owed
o If in the 3rd quarter of the year- 75% of the tax is owed o If in the 4th quarter of the year- 50% of the tax is owed
Rate structures and fees- Penalties 5.04.260:
For failure to pay a license tax when it becomes due, a penalty of 20% is added in addition to the tax that is
owed. This occurs on the 1st day of the month after the due date. An additional 20% penalty is added on the 1st
day of each month a business remains delinquent, but under no circumstances does the penalty exceed 100% of
the original tax amount owed.
Rate structures and fees- Miscellaneous fees:
Activity Associated Fee
Business License Processing Fee $30 (all applicants)
Certificate of Occupancy Inspection $133
Downtown Association Business Area Enhancement District $125 (special district)
Environmental Compliance Fee $15 (all applicants)
Non-domestic Wastewater Disposal Fee $15 app fee, $223 - $2,210 Permit Fee
Prospero Park BAED Fee $125 (special district)
Shopper’s Lane Parking Improvement Area 50% of license tax (special district)
Storm Water Fee (manufacturers, automotive, waste) $85
Storm Water Fee (restaurants, food processors) $50
13|P a g e
Zoning Fee (one-time fee, commercial based) $199 for new business or change of address
Zoning Fee (one-time fee, home/ residential based) $75 for new business or change of address
City of Covina Business License Tax Rates & Fees:
Business Type Code Sec. Tax Rate Renewal Cycle
Advertising- Benches 5.04.350 $60 for 1st bench + $7 per additional Annual
Advertising- Outdoor (billboards) 5.04.340 $60 each advertising structure Annual
Advertising- Vehicle (sound, etc.) 5.04.370 $10 per day for each vehicle Daily
Bowling Alleys & Pool Tables 5.04.400 $40 for 1st vehicle + $10 per additional Daily
Carnivals, Circuses 5.04.410 $190 Daily
Contractors (general license type A or B) 5.04.420 $70 Annual
Contractors (special license type C or D) 5.04.420 $60 Annual
Dancing & Entertainment 5.04.430 $100 to $150 Annual
Delivery or Service Vehicle (Out of Town) 5.04.440 $45 per vehicle Annual
Filming in City 5.04.580 $300 Daily
Game Machines 5.04.380 $75 per machine (no proration) Annual
Hospitals & Convalescent Homes 5.04.450 $50 base + $4 per bed Annual
Laundromat 5.04.460 $52 for 1st 30 units + $1.25 per additional Annual
Manufacturing, Wholesale, Industrial 5.04.470 $50 base + $5 per employee up to 24
+ $4 per employee more than 24 Annual
Pawnbrokers, Second Hand Dealers 5.04.480 $150 Annual
Professionals (Doctor, lawyers, etc.)
5.04.490
$52 base +$30 per professional
+$8 per non-pro up to 4 employees. Rate is
$6 per non-pro more than 4
Annual
Rental Units (only if 4 or more units) 5.04.500 $38 for 1st 4 units + $6 per additional Annual
Retail Services/ General Business 5.04.510 $52 base + $8 per employee between 1
through 4, + $6 per employee more than 4 Annual
Rubbish & Junk Collectors 5.04.520 $77 for 1st vehicle + $64 per additional Annual
Searchlights 5.04.360 $5 per day Daily
Shoeshining Stands 5.04.530 $15 per stand Annual
Skating Rink 5.04.540 $180 Annual
Solicitors & Peddlers 5.04.550 $15 daily/ $40 per quarter/ $200 annum Varies
14|P a g e
Taxicabs 5.04.560 $52 for 1st vehicle + $35 per additional Annual
Theatres 5.04.570 $65 1st 500 seats + $0.20 per additional Annual
Vending Machines 5.04.380 $30 1st $5,000 gross receipts + $1.50 per
each $1,000 gross thereafter Annual
15|P a g e
El Monte, CA
Demographics:
• Population: 116,631 as of 2014
• County: Los Angeles County
• Incorporation: November 18, 1912
• Estimated median household income: $31,852 as of 2013
• Land area: 9.55 square miles
• Population Density: 12,209 people per square mile
Rate structures and fees- renewal cycles: 5.04.250:
Annual License: Most licenses issued by the City of El Monte follow an annual cycle, effective from January
1st of each year through December 31st. If a business is taxed under a gross receipts schedule, then the
business is required to provide an estimate of their annual gross receipts.
Rate structures and fees- Penalties 5.04.260:
For failure to pay a license tax when it becomes due, a percentage based penalty is added on the first day of
each month after the due date. The penalty increments are as follows:
o 1st month delinquent= 10%
o 2nd month delinquent= 25%
o 3rd month delinquent= 50%
o 4th month delinquent= 75%
o 5th month delinquent= 100% (maximum penalty amount)
Rate structures and fees- Miscellaneous fees:
Activity Associated Fee
Certificate of Occupancy (commercial) $283.29
Certificate of Occupancy (residential) $144.22
Conditional Use Permit $2,369.30
Zoning Clearance Application fee $309.04
Administrative application processing fee $25.00
Duplicate license fee $25.00
Change of address processing fee $25.00
16|P a g e
El Monte Business License Tax Rates & Fees – Gross Receipts:
(5.08.030)
The tax schedule for City of El Monte is increased or decreased per the Consumer Price Index. Gross receipts based
businesses tax rate is as follows:
Gross Receipts per Annum Tax Rate
Up to $100,000 $50.00 plus $0.50 per $1,000
$100,000 to $1,000,000 $100.00 + $0.55 per $1,000 over $100,000
$1,000,000 and above $595.00 + $0.15 per $1,000 over $1,000,000
The above rate applies to all businesses that are not assigned elsewhere in this document. It also includes coin-
operated devices, vending machines, Retail establishments, & service providers. Please note that if a business does
not generate gross receipts within the City of El Monte, then the tax is based on the cost of operations (5.08.040 c).
(5.08.080, 5.08.230)
Automobile wrecking and junk dealers Base tax = $200.00
Gross Receipts per Annum Additional Tax
Up to $100,000 $0.50 per $1,000
$100,000 to $1,000,000 $0.55 per $1,000 over $100,000
$1,000,000 and above $0.15 per $1,000 over $1,000,000
(5.08.160)
Dealers of New and used automobiles
Gross Receipts per Annum Tax Rate
Up to $1,000,000 $50.00 + $0.75 per $1,000
$1,000,000 to $6,000,000 $800 + $0.15 per $1,000
$6,000,000 to $10,000,000 $2,500
$10,000,000 $5,000
Over $100M $20,000
17|P a g e
El Monte Business License Tax Rates & Fees – Gross Receipts continued:
(5.08.290)
Pawnshops Base Tax= $500.00
Gross Receipts per Annum Additional Tax
Up to $100,000 $0.50 per $1,000
$100,000 to $1,000,000 $0.55 per $1,000 over $100,000
$1,000,000 and above $0.15 per $1,000 over $1,000,000
(5.08.320)
Professionals, Property Management, Insurance agents, Real estate brokers
Gross Receipts per Annum Tax Rate
Less than $150,000 $50.00 + $2.50 per $1,000
Over $150,000 to $1,000,000 $425.00 + $2.00 per $1,000 over $150,000
Over $1,000,000 $2,125 + $1.25 per $1,000 over $1,000,000
(5.08.350)
Secondhand Business Base Tax= $150.00
Gross Receipts per Annum Additional Tax
Up to $100,000 $0.50 per $1,000
$100,000 to $1,000,000 $0.55 per $1,000 over $100,000
$1,000,000 and above $0.15 per $1,000 over $1,000,000
El Monte Business License Tax Rates & Fees – Flat Rates:
18|P a g e
Business Type Code Sec. Tax Rate Renewal Cycle
Amusement machines, game machine 5.08.060 $75.00 per machine Annual
Auctioneers 5.08.070 $25.00 per day Daily
Billboards 5.08.090 $50.00 + $0.50 per sq. ft. Annual
Cabaret Dance (w/ live entertainment) 5.08.100 $500.00 Annual
Cabaret Dance (no live entertainment) 5.08.110 $300.00 Annual
Christmas Tree Lots, Pumpkin patches 5.08.120 $500.00 per location Seasonal
Circuses, Carnivals, Sideshows 5.08.130 $350 - $750 depending on # of attractions Annual
Closing out sales 5.08.140 $150 (30-day sale), $300 (60-day), $450
(90-day sale)
30 – 90 days
Contractors (if pulling permits) 5.08.150 50% of the permit fees cost (exclusive
plan-check fees)
Annual
Contractors (no permit required) 5.08.150 Gross receipts schedule 5.08.030 Annual
Exhibitions/ Entertainment 5.08.170 $10.00 per day Daily
Fortunetelling, Spiritual shops 5.08.180 $500.00 Annual
Handbills 5.08.200 $100.00 per person Quarterly
Incidental advertising 5.08.210 $100 per vehicle per year Annual
Itinerant Vendors 5.08.220 $150 per day per location Annual
On-sale liquor establishments 5.08.280 $200 per year + receipts schedule
5.08.030 Annual
Pool tables 5.08.310 $50 per table Annual
Solicitors or canvassers (quarterly) 5.08.370 $200 per person Quarterly
Solicitors or canvassers (yearly) 5.08.370 $500.00 per person Annual
Taxicabs 5.08.410 $350 + $25 per vehicle Annual
19|P a g e
Glendora, CA
Demographics:
• Population: 51,442 as of 2014
• County: Los Angeles County
• Incorporation: November 13, 1911
• Estimated median household income: $72,773 as of 2013
• Land area: 19.1 square miles
• Population Density: 2,687 people per square mile
Rate structures and fees- renewal cycles: 5.08.030:
Anniversary License: Licenses issued by the City of Glendora follow an anniversary cycle, effective from the
date of issuance for 1 year and expiring on the 1st day of the same month twelve months after.
Quarterly License: Contractors with one job in the city, or retail sales/ service class businesses not operating
for more than a 3-month period within a year may elect a quarterly renewal cycle.
Rate structures and fees- Penalties 5.08.050:
For failure to pay a license tax when it becomes due, a penalty of 25% of the tax is added on the first day of the
month it became delinquent. If it remains unpaid for an additional month, another 25% is added. If the
outstanding balance remains unpaid, the City of Glendora begins to record administrative costs incurred by the
City and these costs are added as an additional penalty to those mentioned prior.
Rate structures and fees- Miscellaneous fees:
Activity Associated Fee
Application review fee (1st year only) $77.00
Special outdoor display fee $15.00
Temporary Banner Permit $45.00
20|P a g e
Glendora Business License Tax Rates & Fees – Gross Receipts:
(5.08.080)
Hotels, Motels Base Tax= $35.00
Gross Receipts per Annum Additional Tax
Up to $20,000 $0.00
$20,000 and above $0.40 per $1,000 gross in excess of $20k
(5.08.090)
Public Utilities Base Tax= ($150.00 franchise) or ($32.00 other)
Gross Receipts per Annum Additional Tax
Up to $20,000 $0.00
$20,000 and above $0.03 per $1,000 gross in excess of $20k
(5.08.210)
Code Section 210 businesses (retailers)= $35.00 base tax
Type of Business Tax rate after $20,000 gross receipts
Auto Dealers, Gas Stations, Grocery, Food market $0.03 per $1,000 gross in excess of $20k
Building Materials, Hardware, Farm Supply $0.075 per $1,000 gross in excess of $20k
Apparel, Restaurants, Night clubs, General retail $0.10 per $1,000 gross in excess of $20k
Drug stores, Dry goods, Jewelers, Laundry $0.125 per $1,000 gross in excess of $20k
Auto repair, Printing shops, Newspaper $0.15 per $1,000 gross in excess of $20k
Barber, Beauty shops, Service class business $0.30 per $1,000 gross in excess of $20k
Businesses not elsewhere classified $0.10 per $1,000 gross in excess of $20k
Glendora Business License Tax Rates & Fees – Gross Receipts continued:
21|P a g e
(5.08.220)
Code Section 220 businesses (contractors)= $43.00 base tax
Type of Business Tax rate after $40,000 gross receipts
General Contractors $0.10 per $1,000 gross in excess of $40k
Electrical, plumbing, heating, air conditioning contractors $0.15 per $1,000 gross in excess of $40k
Sub-contractors and all other contractors $0.20 per $1,000 gross in excess of $40k
(5.08.230)
Wholesalers and Manufacturers= $53.00 base tax
Type of Business Tax rate after $20,000 gross receipts
Wholesalers/ Manufacturers $0.03 per $1,000 gross in excess of $20k
Glendora Business License Tax Rates & Fees – Flat Rates:
Type of Business Tax Rate
Rest Homes, Retirement Homes, infirmaries, hospitals $35.00 + $2.00 per number of beds
Funeral Homes, Chapels, Cemeteries, Mortuary $100.00 per year
Apartments, Mobile Home parks, industrial & com. rentals $35.00 + $2.50 per unit above 4 unites
Circuses, Carnivals $75.00 per day
Delivery vehicles $53.00 per number of vehicles
Street Vendors $50.00 + $20.00 per non-resident or $7.50 per resident
Dental Hygienists, physical therapist, oculists $58.00 per year
Dentists, chriopractors, physicians, psychologists, health specialists $88.00 per year
Collection agencies, cosmetologists, insurance adjusters $48.00 per year
Appraisers, bookkeepers, brokers, consultants, private investigators $63.00 per year
Accounts, architects, civil engineers, geologists, physicists, lawyers $88.00 per year
Motion picture/ Television production $750.00 per year
22|P a g e
Monrovia, CA
Demographics:
• Population: 37,415 as of 2014
• County: Los Angeles County
• Incorporation: December 15, 1887
• Estimated median household income: $69,997 as of 2013
• Land area: 13.7 square miles
• Population Density: 2,722 people per square mile
Rate structures and fees- renewal cycles: 5.08.110:
Anniversary License: The standard renewal cycle for business licenses in the City of Monrovia follows an
anniversary period; licenses are effective from the day they are issued and for one full year. The City also
has standard Quarterly, monthly, weekly, and daily tax periods but these are uncommon and reserved for
itinerant businesses.
Rate structures and fees- Penalties 5.04.100:
A delinquent penalty is assessed at the rate of 20% of the license tax for each thirty-day period that the business
license is delinquent past its expiration date, never to exceed 100% of the principle tax.
Rate structures and fees- Miscellaneous fees:
Activity Associated Fee
Application processing fee $30.00
Computer cost recovery fee $5.00
Fire inspection fee $206.00 to $1,184.00 depending on sq. ft.
Duplicate license fee $5.00
23|P a g e
City of Monrovia Business License Tax Rates & Fees:
Business Type Code Sec. Tax Rate Renewal Cycle
In-City business 5.12.010 $165.00 + $15.00 per employee Annual
Out-of-city Contractors (Annual) 5.12.010 $165.00 + $15.00 per employee Annual
Out-of-city Contractors (Quarterly) 5.12.010 $97.00 + $8.00 per employee Quarterly
Out-of-City Contractors (single job) 5.12.010 $53.00 + $5.00 per employee Monthly
Out-of-city Gardeners 5.12.010 $82.00 Annual
Home Occupations 5.12.010 $82.00 per year Annual
Commercial Property Owner 5.12.010 $165.00 per year Annual
Child Care Providers 5.12.010 $19.00 + $15.00 per employee Annual
Residential Rental (2 or more units) 5.12.010 Number of units x $32.00 Annual
Hotel or Motel, lodging houses 5.12.010 Total number of rooms x $26.00 Annual
Delivery Trucks 5.12.010 $58.00 per truck per year Annual
24|P a g e
SECTION 2 – Category & Fee Analysis
The City has requested that HdL conduct an analysis of the current fee structures as they relate to business
license and explore options for modifying the rates and categories. In Section 1, HdL prepared summaries
of each classification and to the extent data was available, provided a breakout of the number of businesses
and their contribution to the total tax pool.
In this section HdL has provided options for modifying the rate scale and the classifications. Using the data
compiled in section 1 of this report on current license revenues, models were developed to estimate
potential fiscal impacts to the City as well as how those changes may have an effect on the business
community.
License Classification and Rate Types
The City currently has a number of “classifications” that spans across multiple categories. This structure
assigns a specific fee to each type of business, listing many different types of businesses and their
corresponding fees. In addition to varying rate, the City also has a variety of different fee structures, ranging
from gross receipt to flat fees and number of employees. For the purpose of the analyzing and comparing
the options in this section, HdL has reviewed the 5 primary rate types that make up the vast majority of
accounts and City revenues. Due to the flexibility of the proposed model, the City could elect to have the
ancillary rate types remain unchanged, or could restructure the ordinance to include those businesses in to
one of the 5 primary rate types. For representational purposes, those 5 rate types are grouped into the 2
categories below.
Category 1 – Grouping by General Type of Business
Category 1 groups the businesses by similar type of activity. The table below reflects a summary of accounts
consolidated by similar business activities.
Grouping Number of
Accounts Total Revenue Average Revenue Minimum Maximum
Commercial Rental 305 $931,600.00 $3,000.00 $76.00 $211,000
Professionals 400 $125,000.00 $304.51 $86.00 $6,500
Prof/Services 1450 $190,000.00 $128.44 $86.00 $2,300
Residential Rental 280 $192,000.00 $687.35 $46.00 $8,100
Retail Sales 725 $215,000.00 $303.12 $52.00 $5,319
25|P a g e
Category 2– Grouping by Fee Amount
HdL has grouped the businesses categories by the fee charged for each type of business. The grouping
amount below indicates the payment made, total and average revenues, and the number of businesses is
the total of all businesses that pay the corresponding amount.
Category Record Count Average Paid Revenue
$1.00 - $50.00 880 $23.29 $16,000
$51.00 - $100.00 1,556 $74.99 $118,000
$101.00 - $250.00 1,942 $141.60 $275,000
$251.00 - $500.00 356 $347.42 $123,765
$501.00 - $1,000 169 $703.59 $118,906
$1,001.00 - $2,500.00 139 $1530.00 $212,724
$2,501 and Over 102 $9,253.39 $943,845
26|P a g e
Option 1 – Existing Categories with Simple Increases
The City may elect to not modify the existing structure, but rather modify the fee amounts for each category.
Keeping the current structure in place would eliminate the need to create different categories and allow for
a much simpler implementation for the City and the business community.
The City could choose to adjust each category separately, increase the rates on a select group, or apply a
standard rate increase across the board. An example of an across the board % increase is indicated in the
following Option 1 table. This table assumes a standard increase for both flat amounts and gross receipts
percentages.
Option 1 – Table A
Rate Classes Unchanged (with % Fee Increase)
Fee Amount Paid Number of
Accts
Current
Revenues
20%
Increase 40 % Increase 60% Increase
$1.00 - $50.00 880 $16,000 $19,200 $22,400 $25,600
$51.00 - $100.00 1,556 $118,000 $141,600 $165,200 $188,800
$101.00 - $250.00 1,942 $275,000 $330,000 $385,000 $440,000
$251.00 - $500.00 356 $123,765 $148,518 $173,271 $198,024
$501.00 - $1,000.00 169 $118,906 $142,687 $166,468 $190,249
$1,001.00 - $2,500.00 139 $212,724 $255,268 $297,813 $340,358
$2,501 and Over 102 $943,845 $1,132,614 $1,321,383 $1,510,152
TOTALS > 5144 $1,808,240 $2,169,888 $2,531,536 $2,893,184
Option 1 – Highlights and Impact Review
As indicated in the Table (A) above, a simple increase in each rate type amount could keep the existing
structures in place while yielding higher revenues to the City. The City can replace any of the sample %
increases with varying degrees of increase or could elect to only apply the increases to certain categories.
For example, increasing the rates on residential property rental by 60%, while increasing others rates by
20% or not at all.
This option provides the City with the simplest method of increasing and the most accurate to forecast.
While the City already has a standard CPI adjustment for certain categories to ensure the rates stay current
over the course of time, the relatively small increases are less than those indicated above.
Should the City wish to see specific calculations or examples of specific category rate increases, HdL will
provide the calculations and attach as an addendum to this report.
27|P a g e
Option 2 -Replace All Categories With Gross Receipts Tax
Taxing gross receipts is a common model for California business license and the City of West Covina currently
uses gross receipts as a method of taxing some categories in the City, however the majority of businesses
are taxed under an employee based model. A hybrid model relying heavily on employee count is difficult
to audit and administer and does not typically provide the most equitable tax results for the City.
A variety of models are commonly used including a scale method or the use a standard rate multiplier to
determine the tax amount owed. This model can be implemented as a standard rate applying to any
business or one that can vary by business class. For example, many cities elect to charge $1 per thousand
dollars of gross receipts (0.001 x Gross) for a retail business, while charging a rate of $2 per thousand dollars
of gross receipts (0.002 x Gross) for service or professional businesses.
Because the rate method can result in $0.00 returns or negligible amounts, most cities have a minimum tax
or other method of ensuring a base fee. Another option is to create a base tax plus gross receipts rate. This
allows for a minimum fee for businesses that generate gross receipts in excess of the base amount.
The “rate” method of taxing on gross receipts provides an even distribution of the effective tax rate because
all businesses subjected to the tax will pay the same rate. This method also provides the simplest method
of calculation due to every business using a single multiplier. This is the current method the City employs
some categories, including its highest category of Commercial Rental.
Option 2 – Background
Due to the lack of information available on current gross receipts for all West Covina businesses, HdL is not
able to accurately predict the impact of changing the structure to a single gross receipts model. HdL was
able to obtain averages for those businesses that are in the retail sector; however, direct comparisons are
not available on a City wide basis and certain information may overlap between categories. It is important
to note that HdL has used multiple assumptions as outlined in the options below that should not be relied
upon for actual budgeting and are meant to provide a picture of the possible impact.
Disregarded Categories
HdL only considered the City’s four primary categories for change in tax structure at this time. For
example, HdL did not consider converting the Contractor classification due to the “job fee” that is charged
in most cases. Those contractors not subjected to the job fee would be included as a standard “service”
business license. Additionally, HdL did not consider the commercial property classification as the current
rate structure is already at a peak for recommended taxation of this class.
Current Business Tax Data
The table below identifies the current average gross for those categories where data was available and
provides for the effective tax rates paid on average by those classifications. For those businesses on a flat
fee, the flat rate was reversed calculated to determine the effective tax rates on gross.
As an example, the current rate of $50 for a contractor, a tax implemented at .001
(or $1 per thousand dollars of gross), indicates the average contractor business is paying taxes on $50,000
28|P a g e
of gross receipts. In this case, any instance where the gross is above $50K, those receipts go untaxed when
considering a simple mill rate.
Current Business Tax Data
Category Record
Count
Min/Max
Rate Paid
Average
Paid
Effective Gross at
.001 Tax Rate
Services 1450 $86- $2.1K $127 $120,000
General / Retail 725 $86 - $5.3K $300 $300,000
Professional 400 $86 - $6.5K $302 $302,000
Residential Rental 280 $43 - $8.0K $680 $680,000
Option 2 – Data Analysis & Variables
HdL has prepared key data elements for use in estimating the gross receipts tax on businesses where
information was otherwise not available. The following information was used as a basis for the tax tables
and models in subsequent options below.
Residential Rental Unit Estimates
Category Total Rental Units Avg Rent / Unit /Year Total Gross Receipts
Apartments 9947 $16,800 $167,000,000
General Services Estimates
Category Est Nbr of Accounts Total Gross Receipts
Prof_Svcs 1225 $180,000,000
Professional Estimates
Category Est Nbr of Accounts Total Gross Receipts
Professionals 400 $144,000,000
General / Retail Estimates
Basis Est Nbr of Accounts Total Gross Receipts
Retail Inclusive 950 $1,300,000,000
29|P a g e
Business Tax Data – Current Effective Tax Rates vs. Estimated Actuals
Category Record
Count
Min/Max
Rate Paid
Average
Paid
Effective
Gross at
Tax Rate
Actual Avg
Receipts Based
on Estimates
Untaxed Gross
Receipts Per
Account
Services
(0.001) 1450 $86- $2.1K $127 $120,000 $180,000 $60,000
General / Retail
(0.001)
725
$86 - $5.3K
$300
$300,000
$1,700,000
$1,400,000
Professional
(0.002) 400 $86 - $6.5K $302 $151,000 $380,000 $230,000
Residential Rental
(0.002)
280
$43 - $8.0K
$680
$340,000
$596,000
$256,000
39|P a g e
Option 2 – Model 1: Gross Receipts Tax Rate
Model 1 reflects the potential revenues for converting the City’s four primary rate structures to a single rate
type gross receipts model. This would keep current structure for other categories of mixed gross, fixed fees
and unit variables and only changes the primary businesses. However, due to the limited revenues and
counts of other classes, the city could consider lumping the remaining categories in to the “General/Retail”
classification to simplify the whole structure with little financial impact.
Potential Tax Structure
Gross Receipts Tax Rate
$0 - $40,000 $40 Flat Fee
Above $40,000 $1 per thousand dollars of Gross (0.001 x Gross)
Model 1 Estimates Table
The table below indicates the potential revenues from implementing a gross receipts tax $1 / thousand of
gross receipts. Information for the estimates comes from the data in the section above.
Business Type Number of
Accts
Taxable Gross
Receipts Tax Amount
(.001)
Current
Revenues
Total New
Revenues
General / Retail
Including Misc Categories 950 $1.3B $1,300,000 $215,000 $1,085,000
Residential Rental Units
All Res Prop Rentals 279 $167M $167,000 $192,000 (-$25,000)
Professionals
Professional Firms 400 $144M $144,000 $125,000 $19,000
Service
Service Firms 1,225 $180M $180,000 $190,000 (-$10,000)
TOTALS> $1,791,000 $722,000 $1,069,000
Model 1– Highlights and Impact Review
Model 1 shows the most potential for expanded revenue while keeping the tax structure simple. This model
creates equity in the tax base by applying the same effective rate for all businesses across the board, rather
than the current method in place now, that considers employee and unit counts rather than gross receipts.
Using this option as our baseline, we can see that revenues are increased substantially in a filing year, with
the majority of the revenues coming from the general/retail base. This is primarily due to the relatively low
31|P a g e
per employee fee being paid by certain businesses that have large gross receipts. This disparity also may
be driven by lower and more conservative estimates for the other categories to the lack of gross receipts
data for those areas.
With this in mind, much of the burden will shift from the small businesses to the larger businesses where
gross receipts have largely gone untaxed. The revenue from the top 20 retail accounts would likely be more
than triple the City’s current annual revenue from the entire category. With this in mind, the City may wish
to consider a phased approach if a change in the tax was to be presented. This would allow small increases
over time to prevent the “sticker shock” of a drastic one-time change and allow businesses to build in the
additional costs to their budgets over a multiple year period.
Additionally, the impact on certain types of businesses that the City may wish to attract due to the impact
on sales tax or other considerations should be taken in to account. For example, auto dealers and other
high-end retailers would see huge increases where the original low fee may have been a consideration for
their original location in the City.
Option 2 – Model 2: Gross Receipts - Classification Based Tax Rates
Model 2, as indicated below, would create varying rate multipliers for gross receipts depending on business
classifications. The City could for example, choose to implement a rate for the retail/wholesale/Misc.
business activities at a base rate of .0005. This recognizes higher costs of goods sold and lower profit
margins for these types of business as well as their contribution to other City revenues such as sales tax.
Conversely, the City could consider implementing a higher rate for professionals and property rental. This
model affords the most flexibility for increasing revenues while accommodating certain business categories.
Tax Structure
Categories Tax Rate
Property Rentals .002 X Gross
Retail / General 0.0015 X Gross
Services .002 X Gross
Professionals 0.003 X Gross
32|P a g e
Estimates Table
Using the varying structures above, the table below indicates potential revenues from one possible
classification model based on the existing business data.
Business Type Taxable Gross
Receipts
Gross Receipt
Multiplier Tax Amount Current
Revenues
Total New
Revenues
General / Retail
Including Misc Categories $1.3B .001 $1,300,000 $215,000 $1,085,000
Residential Rental Units
All Res Prop Rentals $167M .002 $334,000 $192,000 $142,000
Professionals
Professional Firms $144M .003 $432,000 $125,000 $307,000
Service
Service Firms $180M .002 $360,000 $190,000 $170,000
TOTALS $2,426,000 $722,000 $1,704,000
Model 2– Highlights and Impact Review
This option has the benefit of spreading the burden of an increase across multiple business types. The City
has the option of modifying the rates and reassigning business types to different categories. The model
above includes basic rate increases for standard categories but can be further expanded or contracted to
accommodate a different method of the City’s choosing.
The rate structure chosen in this model was based on a general business activity as well as City of West
Covina’s unique make up.
Additional Models
The City has various options should it elect to move forward with a gross receipts based tax.
For example, a model could be designed to keep certain fixed fee structures in place while moving certain
categories over to a simplified gross receipts tax. In this method Rentals could be left under their current
model while all other businesses are lumped in as gross receipts based model, or vice versa.
The City could also elect to implement a scale model using expanding ranges, implementing caps, or by
additional rates and classifications.
33|P a g e
Additional Information
Voter & Additional Approvals
Some of the changes may or may not require voter or additional approval. The City should review each
change and determine which changes can be made via powers granted to the collector or other City staff
members and which changes will require additional processes.
General Regulatory Provisions
In general, HdL recommends that any City Ordinance for business license where the intent is to generate
revenue be limited to the scope of generating revenue. Many of the City current ordinance provisions are
designed to stop people for paying for or being issued a license. Many of these requirements can be
burdensome on licensing staff and many times create review requirements that are outside the scope of
their expertise.
The City would be better served and the intent of generating revenue preserved if the requirements for
things like building and safety are kept with the sections and regulatory provisions that govern those items.
HdL feels additional discussion of these items is warranted to review the implications of removing those
sections and others potentially affected.
Additional Support
While HdL is not able to provide specific legal advice, HdL will work with the City’s designee to assist in
crafting the final changes as well as provide advice and additional analysis should the City elect to move
forward with modification of its ordinances. Should the City wish to contract out legal services, HdL can
provide references for firms that specialize in local government ordinances.
Comparative Jurisdictions
The analysis of surrounding jurisdictions was conducted to provide background of the overall structure and
taxes imposed by neighboring cities. This information can be valuable and may be considered by the City
when making its final determinations to ensure that changes made to the tax structure remain competitive
with other cities.
Additional Cities
HdL selected cities from surrounding jurisdictions that were similar in size or tax structure. Should the City
wish to expand the analysis to additional jurisdictions, HdL can provide further details as an addendum to
this report.
34|P a g e
Rate Structure Modification
The primary focus of the rate analysis and change review was the current fee structure. Options indicated
in this report represent a few of the potential structures available for the City’s consideration. Additionally,
each proposed structure has the flexibility to be modified with rates that may be more in line with the City’s
ultimate goals. HdL will work with the City to craft any additional classifications or structures that the City
feels may be worth considering.
Confidential Data
Most cities ordinances contain language that protects certain taxpayer data from disclosure. During the
course of the review and of HdL’s Operations Management Program, it has been discovered that the
ordinance provides no clear instructions on how to handle data. The City should consider adding language
to address confidential data or to expressly state that the data is not confidential, if that is the intention.
City of West Covina vs. Neighboring Jurisdictions
Rate Comparison Chart
Sample Business
West Covina
Current Rates
Azusa
Covina
Glendora
El Monte
Monrovia
West Covina Option 2:
Model 2
Small Craft Business
$25,000 / 1 employee $89.67 $150.00 $52.00 $35.50 $62.50 $82.00 $37.50
Restaurant –
$100,000 Gross / 2 emp.
$108.02
$300.00
$60.00
$43.00
$100.00
$195.00
$150.00
Big Retailer –
$1,500,000 Gross / 25 emp.
$397.55
$825.00
$204.00
$183.00
$670.00
$540.00
$2,250.00
Hotel / Rental Property
$2M Gross / 80 Units
$1,520.97
$12,932.16
$494.00
$225.00
$1,650.00
$2,560.00
$4,000.00
Doctors Office-
$250,000 Gross / 2 pro.
$134.51
$300.00
$112.00
$176.00
$625.00
$195.00
$750.00
Professional Firm-
$1,500,000 Gross / 6 pro.
$470.77
$825.00
$232.00
$528.00
$2,750.00
$255.00
$4,500.00
Small Contractor –
$50,000 Gross
$18.35
$150.00
$60.00
$44.00
$75.00
$180.00
$100.00
Contracting Firm–
$500,000 Gross
$18.35
$750.00
$70.00
$89.00
$320.00
$540.00
$1,000.00
P a g e |35
AGENDA STAFF REPORT
City of West Covina | Office of the City Manager
DATE: July 12, 2018 TO: Mayor and City Council
FROM: Chris Freeland
City Manager SUBJECT: FISCAL YEAR 2018-19 FOURTH PRELIMINARY BUDGET
WORKSHOP
RECOMMENDATION:
It is recommended that the City Council provide Staff direction on the various City priorities related to the Fiscal Year 2018-19 Operating and Capital Improvement Program Budget.
BACKGROUND:
On January 30, 2018, the Finance Department held a Fiscal Year (FY) 2018-19 budget kickoff
meeting with City of West Covina staff to begin the development of the FY 2018-19 budget. All
department budgets were turned into the Finance Department by March 1, 2018, and reviewed
with the City Manager over the course of the following weeks. The Finance Department is
responsible for the development of the preliminary and final budget preparation.
As part of the FY 2018-19 Operating and Capital Improvement Program (CIP) Budget preparation,
one Community Budget Workshop was held on May 7, 2018. A FY 18-19 Preliminary Budget
Workshop was held on May 14, 2018, and a Second Preliminary Budget Workshop was held on
June 11, 2018.
At the first Community Budget Workshop, staff provided a Budget 101 to the residents to learn
the basics of municipal financing, including terminology, sources of revenues, use of funds, types
of funds, and reserves.
On May 14, 2018, Staff shared information on the various funds that make up the City of West
Covina’s Budget, department responsibilities and discussed the current financial state of the City.
Staff requested feedback from the City Council regarding the proposed budget priorities. In
addition, Staff sought direction from the City Council on various measures that will help close the
AGENDA
ITEM NO. 2
Third Preliminary Budget Workshop
Page 2 of 9 – July 2, 2018
FY 2018-19 General Fund deficit of $8.7 million and to discuss options to replenish the City’s General Fund reserves to 20% of the FY 2018-19 operating expenditures.
On June 5, 2018, the City Council approved Resolution 2018-64 to change the Fund Balance
Reserve Policy. The Fund Balance Reserve Policy states that the City shall maintain a minimum
unassigned fund balance of at least 17% of General Fund operating expenditures. If the reserve level ever falls below 17%, the City must amend this policy with a plan to rebuild it within three
years. At the fiscal year end close, the annual excess revenue over expenditures in the City’s
General Fund will be automatically allocated as follows, unless the transfer is overridden by an
action of the City Council: 25% stays in the General Fund Balance reserves, 50% is transferred to
the City’s Capital Projects Fund, and 25% goes to pay down the City’s Other Post Employment Benefit (OPEB) liability.
On June 11, 2018, Staff requested direction from the City Council on various measures that will
help close the FY 2018-19 General Fund deficit and options to replenish the City’s General Fund
reserves to 17% of the FY 2018-19 operating expenditures.
In addition, each City department was given a directive by the City Manager to prepare a list of
10% across the board expenditure cuts for City Council consideration, which were presented
during the budget presentation.
The City Council approved Staff’s recommendation to take advantage of the CalPERS unfunded
liability pre- payment option and to utilize the balance in the Section 115 Trust, which is
approximately $320,000, toward this pre-payment. Rather than make monthly payments towards
the City’s unfunded liability, the City can make a pre-payment of $10,060,883 in July 2018, which
will save approximately $364,393 over the course of the year for the General Fund and approximately $684,393 across all City funds.
Continuing Budget Resolution
On June 19, 2018, the City Council approved Resolution 2018-79 to continue appropriations up to July 2, 2018 consistent with the FY 2017-18 City of West Covina and the Successor Agency to
the Former West Covina Redevelopment Agency operating budgets and capital improvement
program. City Council directed Staff to bring back this item on the 3rd Preliminary Budget Meeting
for further City Council consideration.
On July 2, 2018, the City Council approved Resolution 2018-96 to continue appropriation up to
August 31, 2018 consistent with the FY 2017-18 Adopted City of West Covina and the Successor
Agency to the Former West Covina Redevelopment Agency operating budgets and capital
improvement program until the adoption of the FY 2018-19 annual budget.
Preliminary Budget Information as of May 14, 2018
As of May 14, 2018, estimated FY 2018-19 revenues (including transfers in) on an all funds basis
are $119,470,643. Many funds make up the total budget amount, with the largest being the General
Fund in the amount of $61,795,577, or 52% of the City’s total budget.
Third Preliminary Budget Workshop
Page 3 of 9 – July 2, 2018
Estimated expenditures (including transfers out) for all budgeted funds are estimated at $127,611,584. Many funds make up the total budget amount, with the largest being the General
Fund in the amount of $70,468,677, or 55% of the organization’s total.
Personnel costs inclusive of all City funds are anticipated to increase by $6.3 million from $58.3
million for FY 2017-18 to $64.6 million for FY 2018-19. The majority of the increase is a result of Public Employment Retirement System (PERS) rate increases for pension benefits, increased
medical costs, funding for Fire Engine No. 4, and the elimination of the $1.5 million managed
savings for Public Safety.
General Fund
The City’s principal financial goal is to provide an appropriate level of municipal services with
the ability to adapt to local and regional economic changes, while maintaining and enhancing the
sound fiscal condition of the City. The City’s General Fund has been negatively impacted in the
past number of years by the economic recession, increases in pension costs, the State’s elimination of redevelopment, and the State’s raid of local revenues.
General Fund Revenues:
Total General Fund revenues are projected to be $61,795,577, a decrease of $1 million or 1.6%
from the prior year adopted budget. The decrease is due to a decrease in Sales Tax revenues and a decrease in Charges for Services such as the Emergency Medical Service Assessment Fee,
Planning Filing Fees, and Fire Plan Check/Inspection Fees.
General Fund Expenditures:
General Fund expenditures for FY 2018-19 are projected to be $70,468,677. This equates to an increase in expenditures of 12%, or $7,558,093 when compared to the adopted budget for FY
2017-18. The increase is due to a $5.6 million increase in personnel costs and a $2 million increase
in materials and services. Personnel increases are due to rising PERS and medical costs,
maintaining Fire Engine No. 4, and the elimination of the $1.5 million managed savings for Public
Safety that was budgeted in FY 2017-18. Increases in materials and services include a $567,148 transfer to the Capital Projects Fund for residential street rehabilitation in order to meet the City’s
required maintenance of effort under Senate Bill 1, an increase in Property & Liability Insurance
charges, a transfer to cover the anticipated Police Service Group deficit, increases in contract costs,
utilities, and legal expenses, and expenditures related to the upcoming election.
General Fund Reserves:
The General Fund ending unassigned fund balance, or reserve, is equivalent to a “savings account”
to cover unexpected costs or significant economic changes. The intent is to not use this for normal
operating expenses. Unless changes are made to this preliminary budget, the General Fund ending
unassigned fund balance is projected to be $1.6 million, which is 2.27% of operating expenditures.
Third Preliminary Budget Workshop
Page 4 of 9 – July 2, 2018
Capital Improvement Program (CIP):
Staff is recommending a number of CIP projects for FY 2018-19, with the majority of them being
funded from special revenue funds. These projects are listed on Attachment No. 2 and include an
Energy Efficiency for City Buildings project, which staff is proposing to have funded through a
City loan, Sewer Main Replacement, upgrades to the Azusa sewer lift station, major and residential street rehabilitation, and Citywide Schools Crosswalk Improvements. Two projects are being
funded by the General Fund for a total of $657,148. The two General Fund CIP projects are for a
Historic Resources Study Update and the City’s Senate Bill 1 Maintenance of Effort portion of the
Residential Rehab project. As of May 14, 2018, the General Fund budget deficit was $8.7 million. To replenish reserves to
meet the City’s Fund Balance Policy of 20% of operating expenditures, an additional $3.6 million
is needed, for a total of $12.3 million.
Revisions to the May 14, 2018 Preliminary Budget
Since the May 14, 2018 Preliminary Budget Workshop, staff made a number of revenue and expenditure revisions to the budget. The revenue adjustments are based on new information from
the Department of Finance and to bring various revenue projections in line with projected actuals
for the current fiscal year. The expenditure adjustments are based on new information from the
Department of Health Care Services (DHCS) regarding the recent Ground Emergency Medical Transport (GEMT) audit, to correct the chargebacks, and Fire personnel budgets. These revisions include:
Revenue Adjustments
1) Increase Ambulance Service revenues 443,227 2) Increase Parking Fine revenues 75,000 3) Increase State Mandated Claims 74,500
4) Increase Towing Franchise revenues 50,000
5) Increase Cell Tower Rent 10,000
6) Increase Waste Management revenues 5,000 7) Adjust Successor Agency Admin Allowance (119,608)
Total Revenue Adjustments $538,119
Expenditure Adjustments 1) Correct Property & Liability Insurance Chargebacks 15,152
2) Correct Fire personnel budget 95,211
3) Add 3 Firefighters to the Quint 355,832
4) Payment to DHCS for GEMT Audit 357,000
Total Expenditure Adjustments $823,195
The net effect of these revisions is an increase of $285,076 to the General Fund Operating Deficit.
In addition, in accordance with the adoption of Resolution 2018-64 (Fund Balance Reserve
Third Preliminary Budget Workshop
Page 5 of 9 – July 2, 2018
Policy), the 17% of operating expenditures as a minimum for unassigned fund balance has been applied.
May 14, 2018 City Council Direction
At the May 14, 2018 Preliminary Budget Workshop, the City Council provided direction to
incorporate the following revenue enhancements in the Preliminary Budget: Revenue Adjustments
1) Business License – Commercial Rental clean-up 385,000
2) Towing Industries 200,000
3) Annexations – South Hills and Shadow Oak 100,000 4) Transfer of fund balance from Vehicle Replacement Fund 140,000 5) Sale of City/Successor Agency Properties 163,000
(AAA and MLC Properties)
Total Revenue Items $988,000 In addition, the City Council provided direction on the following expenditure cuts to be
incorporated into the Preliminary Budget:
Expenditure Adjustments 1) Make PERS Pre-payment and deplete Section 115 Trust 613,450 2) Eliminate vacant positions:
a. Community Services Coordinator 68,157
b. Finance Accounting Technician 67,719
3) Cut Commission/Treasurer/City Clerk stipends 19,927 Total Expenditure Items $769,253
Based on these recommendations, the General Fund estimated revenues are projected to be
$63,321,696 and the General Fund expenditures are projected to be $70,522,619. The General
Fund budget deficit decreased from $9 million to $7.2 million. An additional $1.6 million is
needed to meet the City’s 17% reserve requirement, for a total of $8.8 million still needed.
The City Council also gave direction to incorporate the addition of a new Technology Fee into the City’s Fee Schedule. If approved, this fee is estimated to generate approximately $230,000 per
year in revenues to the City. However, these revenues would be set aside into a separate account
to be used specifically for technology upgrades related to Building and Engineering, and thus
would have no impact on the General Fund. In addition, the City Council provided direction for staff to increase fees on the City’s Fee
Schedule, for an estimated $113,000 in additional revenues. However, due to the City’s financial
condition and anticipated delays in adopting the FY 2018-19 Budget, estimated increases to
existing fees may not be fully realized, and thus were not incorporated. The City’s fees are based
Third Preliminary Budget Workshop
Page 6 of 9 – July 2, 2018
on a number of factors and potential restructuring in various departments could drastically change fee amounts.
June 11, 2018 City Council Direction
At the June 11, 2018 Second Preliminary Budget Workshop, the City Council provided direction
to incorporate the following revenue enhancements and expenditure cuts into the Preliminary Budget. These revisions include:
Revenue Enhancements
1) Crossing Guard Cost Sharing with School District 100,000
Total Revenue Enhancements $100,000
Expenditure Cuts
1) Increase Commission stipends back to 2012 amounts (9,260)
Stipends were eliminated entirely as part of May 14th Mtg 2) Cuts to City Council / City Manager budget 169,393 3) Cuts to City Clerk budget 36,168
4) Cuts to Finance budget 26,150
5) Cuts to Information Technology budget 96,449
6) Cuts to Human Resources budget 83,972 7) Cuts to Planning budget 17,894 8) Cuts to Public Works budget 295,152
9) Cuts to Community Services budget 132,516
10) Cuts to Special Events 100,000
Total Expenditure Cuts $948,434
Based on these approved adjustments, the General Fund estimated revenues are projected to be
$63,421,696 and the General Fund expenditures are projected to be $69,574,185. The General
Fund budget deficit decreased from $7.2 million to $6.2 million. An additional $1.4 million is needed to meet the City’s 17% reserve requirement, for a total of $7.6 million still needed.
Revisions to the June 11, 2018 Preliminary Budget
Since the June 11, 2018 Preliminary Budget Workshop, staff made a number of revenue and
expenditure revisions to the budget. These revisions include:
Revenue Adjustments 1) Increase to Finance revenues 30,000
2) Increase to Animal Control revenues 50,000
3) Increase to Traffic Citation revenues 100,000
4) Decrease to Franchise Fees due to updated projections (64,000) Total Revenue Items $116,000
Third Preliminary Budget Workshop
Page 7 of 9 – July 2, 2018
Expenditure Adjustments 1) Increase personnel budget due to Misc. MOU Amendments (167,094)
2) Update Fire personnel budget (15,933)
3) Adjust Comm Svcs budget due to Orangewood Daycare closure 78,502
4) Increase Police overtime budget (1,619,250)
5) Decrease Fire overtime budget 863,600 6) Increase Animal Control costs (242,200)
7) BICEP Insurance Premium increase (109,567)
8) Increase professional services for Accounting Services (86,900)
9) Eliminate GF transfer to Police Service Group (non-operating) 460,314
Total Expenditure Items $(838,528)
Based on these approved adjustments, the General Fund estimated revenues are projected to be
$63,537,696 and the General Fund expenditures are projected to be $70,412,713. The General
Fund budget deficit increased from $6.2 million to $6.9 million. An additional $1.7 million is needed to meet the City’s 17% reserve requirement, for a total of $8.6 million still needed.
July 2, 2018 City Council Direction
At the July 2, 2018 Third Preliminary Budget Workshop, the City Council provided direction to
incorporate the following revenue enhancements and expenditure cuts into the Preliminary Budget. These revisions include:
Revenue Adjustments
1) Fire Emergency Incident Billing fee 206,000 Total Revenue Items $206,000
Expenditure Adjustments
1) Police deployment model & miscellaneous cuts 2,032,328
2) Fire Department restructure 1,077,500 3) Public Works Department restructure 143,231 4) Delete MOE for Senate Bill 1 (non-operating) 567,148
Total Expenditure Items $3,820,207
Third Preliminary Budget Workshop
Page 8 of 9 – July 2, 2018
Based on these approved adjustments, the General Fund estimated revenues are projected to be $63,743,696 and the General Fund expenditures are projected to be $66,592,506. The General
Fund budget deficit decreased from $6.9 million to $2.8 million. An additional $1.1 million is
needed to meet the City’s 17% reserve requirement, for a total of $3.9 million still needed.
DISCUSSION:
Since the July 2, 2018 Third Preliminary Budget Workshop, staff made a number of revenue and
expenditure revisions to the budget.
Revenue Adjustments 1) Transfer In of Cameron Park loan payment 921,680
Total Revenue Items $921,680
A timeline of the General Fund deficit is illustrated below:
PRELIMINARY
BUDGET
1st
Preliminary
Budget Wrkshp
CC DIRECTION
2nd
Preliminary
Budget Wrkshp
ADJUSTMENTS
2nd
Preliminary
Budget Wrkshp
CC DIRECTION
PRELIMINARY
BUDGET
SUBTOTAL
as of 6/11/18
3rd
Preliminary
Budget Wrkshp
ADJUSTMENTS
3rd
Preliminary
Budget Wrkshp
CC DIRECTION
PRELIMINARY
BUDGET
ADJUSTED TOTAL
as of 7/2/18
4th
Preliminary
Budget Wrkshp
ADJUSTMENTS
PRELIMINARY
BUDGET
ADJUSTED
TOTAL as of
7/12/18
5/14/2018 6/11/2018 6/11/2018 7/2/2018 7/2/2018
Revenue 61,795,577 988,000 538,119 100,000 63,421,696 116,000 206,000 63,743,696 921,680 64,665,376
Expenditures (70,468,677)769,253 (823,195)948,434 (69,574,185)(838,528)3,820,207 (66,592,506)(66,592,506)
Operating Deficit (8,673,100)(6,152,489)(2,848,810)(1,927,130)
Replenish GF Reserves per
Reserve Policy
(3,633,864)1 2,234,676 2 (1,399,188)(1,066,971)2 (1,066,971)2
Total Preliminary GF Deficit (12,306,964)(7,551,677)(3,915,781)(2,994,101)
UNASSIGNED FUND BALANCE:
7/1/18 Proj F/B & Adjmnt to
Non-Spendable Reserve
10,250,216 10,250,216 10,250,216 10,250,216
Operating Deficit (8,673,100)(6,152,489)(2,848,810)(1,927,130)
6/30/19 Adjusted Proj F/B &
Adj to Non-Spendable
Reserve
1,577,116 4,097,727 7,401,406 8,323,086
Required Unassigned Reserve 13,884,080 11,649,404 11,220,772 11,220,772
Note 1 : 20% General Fund Reserve Policy
Note 2 : 17% General Fund Reserve Policy
Third Preliminary Budget Workshop
Page 9 of 9 — July 2, 2018
Based on these approved adjustments, the General Fund estimated revenues are projected to be
$64,665,376 and the General Fund expenditures are projected to be $66,592,506. The General
Fund budget deficit decreased from $2.8 million to $1.9 million. An additional $1.1 million is
needed to meet the City's 17% reserve requirement, for a total of $3 million still needed.
To further close the gap, Staff is recommending the approval of the changes to the Business
License Tax structure.
Pending Items
There are still a number of labor contracts that are expired as of the date of this Fourth Preliminary
Budget Meeting. At the June 19,2018 City Council Meeting, City Council approved Amendments
to the Memorandum of Understanding (MOU) for the NonSworn Safety Support Association
through June 30, 2017, and the Confidential Employees' Association, General Employees'
Association, Maintenance and Crafts Employees' Association and Mid-Management Employees'
Association MOU' s through June 30,2019. Negotiations for other labor unions are still in progress
and the costs for amending these outstanding contracts are unknown at this time that might have a
financial impact to the FY 18-19 budget. The contracts that are currently expired are as follows:
• Department Heads — expired June 30, 2017
• NonSwom Safety Support — expired June 30, 2017
• Fire Management Association — expired June 30, 2016
• Firefighters' Association — expired December 31, 2016
• Police Officers' Association — expired December 31, 2016
FISCAL IMPACT:
Each of the proposed department cuts will impact City Services to varying degrees. Freezing of
vacant positions or other similar cuts to the organization staffing levels will increase the workload
on current employees; will impact wait times at public counters and processing times for service
requests; and likely increase response times from Public Safety on emergency and non-emergency
calls. City staff will make every effort to continue to provide the best quality service to the
community with the resources available.
Prepared by:
4',
Jry . of aster
inancial Consultant
eptAetAitt4,