El Segundo, Firms Work Out Accord on Business Taxes : Revenue: In a new spirit of cooperation, the council and Chamber of Commerce agree on a $3.3-million boost that makes both sides happy.
In 1985, when El Segundo tripled its business license tax, there was an outcry from businesses and threats by one aerospace giant to reduce its work force in the city.
Two years ago, the City Council clashed with industry again, this time over a proposed payroll tax that big aerospace companies labeled discriminatory because of their large payrolls. The council, instead, opted to raise the business license tax again.
This year the city once again is looking for more revenue, but one thing is different: Business, through the Chamber of Commerce, has worked with city officials to craft a business tax package.
It increases some charges, most notably the utility users’ and acreage taxes, but reduces the tax on unoccupied property. It offers an incentive for retail stores and other businesses that generate sales taxes in the city by increasing the tax credit that offsets the business license fees.
The changes, which are expected to be given preliminary approval Tuesday by the council, will add $3.3 million to business tax revenues in the next fiscal year. The city estimates that the present tax will bring in $10 million in the current fiscal year, out of total city revenues of $38 million.
“It is a 180-degree turn for the business-council relationship,” said Councilman Scot D. Dannen, who served on a special council committee that worked with a chamber committee on the tax issue. “We learned we all have to live together.”
Chamber President Karen Ackland said that unlike in the past, when “the parties were not talking to each other,” business and the city opened a dialogue.
“We had a clear understanding of the additional revenue that was needed to keep the city whole” and pay for needed work on streets and sewage and water systems, Ackland said.
City Manager Ron Cano said the city--which was headed toward depleting its reserves by the mid-1990s--should be stable financially “for the next five to 10 years” with the new package.
According to city and business representatives, the package involved compromises on both sides.
Initially, the city developed several tax formulas to boost revenue between $2.5 million and $4.5 million.
Ackland said business thought $4.5 million was excessive because “it would have increased the acreage tax to enormous amounts.” After considerable horse-trading, the chamber proposed what it felt was a more reasonable $3.3-million package, and the city agreed.
During six months of discussions, the city agreed to halve the square-footage tax on unoccupied buildings, from 20 cents to 10 cents. Business said the tax had been a burden because vacant property produces no income.
On the other hand, the large Chevron USA refinery and Allied-Signal Inc., a chemical company, agreed to a threefold boost in the acreage tax, from $500 to $1,500 per acre, that will apply only to the two companies.
It was also agreed that the basic business license fee, which mainly affects small businesses, should be raised from $50 to $100. “If we hit the big companies,” Dannen said, “we should ask a little bit from everyone.”
Other components of the tax plan are:
* Increasing the city utility users’ tax, paid only by business, from 2% to 3%. Telephones are excluded.
* Keeping the employee head tax, which raises more revenue than any other component of the business tax, unchanged at $127 per employee. However, the number of employees exempt from the tax will be halved, from 10 to five. Ackland said this will spread the tax to smaller businesses, but won’t burden them.
* Increasing the square-footage tax on occupied property from 20 cents to 24 cents. The 5,000-square-foot exemption remains.
* Increasing the sales and use tax credit against business license fees from a 30% maximum to 50%. With this change, Ackland said, businesses that generate sales tax could recover up to half of their business tax bill. “This encourages businesses that generate sales tax,” she said.
Cano said a major gain for the city is an increase in taxes based on factors other than the number of employees who work in the city. Jobs fluctuate with the economy, he said, whereas acreage and square footage are more stable. The city’s income from the head tax has dwindled as the aerospace industry downturn has caused the loss of 4,000 to 7,000 jobs.
The city and the chamber plan to continue to work together developing a marketing plan to retain businesses now in the city and attract new ones. “There’s a lot of good about El Segundo, and we’ve got a lot to market,” Ackland said.
El Segundo Business Tax Package
The El Segundo Chamber of Commerce and the city have crafted a new business-tax package that would add $3.3 million to the city’s business tax revenues in the next fiscal year. Listed are the current taxes paid by businesses, along with the proposed changes.
CURRENT PROPOSED Utility users tax 2% 3%, excluding telephones Acreage tax $500 per acre $1,500 per acre Employee head tax $1.27 per Unchanged, employee but exemption reduced from 10 to 5 employees Square footage tax 20 cents per 24 cents; 5,000- square foot square-foot exemption remains Square footage tax on unoccupied property 20 cents per square foot 10 cents Basic business license $50 $100 Sales and use tax credit 30% 50%
