Finance Advisory Committee Meeting Was Enlightening
Tuesday evening, for the first time, I attended the meeting of the Costa Mesa Finance Advisory Committee, known in a previous life as the Investment Oversight Committee. In that previous iteration the committee was comprised of the City Manager, the Finance Director, a council member and a couple - maybe three - members of the public. Their role was more passive/reactive than proactive.
The new City Council has a much different idea about committees in general, and this one in particular. This committee is comprised of six regular members and two alternates, plus Mayor Pro Tem Steve Mensinger and City CEO Tom Hatch. Senior staffers typically in attendance are Finance and Information Technology Director Bobby Young, Assistant Finance Director Colleen O'Donohue and Revenue Supervisor Judy Vickers and Executive Secretary Kathy Ulrich.
A MORE PROACTIVE ASSIGNMENT
Having read the agendas of all previous meetings it seems clear that the council wants this group to play a much more active role in how the City's finances are managed and it has taken on assignments previously the purview of the staff. Tuesday evening was my first chance to actually watch this group in action.
NOT A FULL HOUSE
In addition to the staffers mentioned above, committee members attending the meeting were Shawn Dewane, Jim Fisler, Terry Shaw, David Stiller, Howard Hull and Richard Riva. Members John Hinson and Robert Juneman were absent, as was Mensinger.
NEW GUYS IN CHARGE
Stiller and Shaw are holdovers from the previous configuration. All the other members are new to this committee. Dewane is the Chairman and Shaw is Vice-Chairman. Dewane and Fisler are Directors of the Mesa Water District Board. They, plus Hull, can be said with accuracy to be tightly aligned philosophically with the current City Council majority - a fact that became crystal clear as the meeting progressed.
I wanted to attend this particular meeting because there were items on this agenda, HERE, that interested me. I was particularly interested in how they would handle New Business item 7a, Business License Tax Information/Study. As it turned out, that was the only item they covered - the other two New Business items, PERS Prepay and Revenue Sources, were trailed to a future meeting.
Dewane ran a crisp meeting, blitzing through the early agenda items before guiding the discussion on 7a for more than an hour. "Guiding" may not be exactly right - "dominating" would be more appropriate, in my opinion. He began his discussion by stating that this issue should not be political - a statement I later found very amusing because that's exactly what he did - politicize it.
PLENTY OF INFO
The staff had provided a large pile of reference materials, including several city council staff reports that covered the subject previously, focusing on the most recent serious discussion of increasing this tax last year. Also included were copies of a PowerPoint presentation Young had given to the council last year and the entire section of the Municipal Code that deals with Business Tax.
VIOLATING 4TH AMENDMENT?
As the discussion began Fisler expressed concern about section 9-58, which seemed to him to give authority to city officials to enter his home to look for his business license. Staff, in response to the concern, assured him that there had NEVER been an instance of that happening.
NO AUDIT, NO PENALTIES
He asked if there had ever been an audit of claimed revenue - our business license tax is based on tiers of revenue claimed by the applicant - or if any penalties had ever been imposed. The answer was NO.
TAKE A DEEP BREATH...
OK, I'm not going to try to regurgitate every comment word for word. I'm going to give you my impressions of the high and low points, with some specific quotes as appropriate.
It was very clear to me by the line of questions posed and the positions taken that Dewane and Fisler - and Hull to some extent - came armed with an opinion and were not eager to have the facts complicate it. Dewane, while dominating the early part of the discussion, frequently expressed disdain for the "insignificant" amount of revenue generated by our business license tax, which runs from $800,000 to $850,000 year after year. Hatch chimed in to observe that it has been our most consistent revenue source. And still, throughout his comments, Dewane referred to the amount as "nickels and dimes", and wondered if it was even worth it to have a Business License Tax. He also referred to the Business License Tax revenue as a "rounding error".
DEFENDING THE REVENUE STREAM
At that point Young jumped into the discussion, taking umbrage at that description, stating that it was a viable part of our revenue stream and, as Hatch had earlier stated, was our most consistent revenue source - much less volatile than the Sales Tax or Property Tax, as demonstrated over the past several years. To that Dewane stated that "1% of the Budget is insignificant!" Are you getting his drift?
BUSINESS TAX? TO RAISE REVENUE
At one point he asked the purpose of the Business License Tax and was told by Young that it was to raise revenue. That answer seemed inadequate to Dewane.
COLLECTING WHAT IS DUE
The discussion turned to how we collect our Business License Tax. Until about 3 years ago we had a person on staff that was tasked to check newspapers and other public records to see if folks doing business in our city were, in fact, paying our license fees. Keep in mind that Costa Mesa's Business License Tax is among the very lowest in the county. The maximum ANY business pays is $200, with most paying less than half that amount. Fisler and Dewane both suggested that we could generate enough revenue from the scofflaws that we wouldn't have to raise the tax. They offered no documentation for the opinion, though.
CMFD CHECKS FOR LICENSES
Hatch told us that the Fire Department, as part of their routine inspections, now looks for the Business License document.
TOO MUCH PAPERWORK!
Dewane continued, referring to the Business License Tax as a way to kill businesses and stifle recruitment of new businesses. He complained about the 22 page document a businessman must complete to begin a business in the city, observing that it just added to the paperwork burden businessmen face.
Dewane stated several times that it's more important to attract more businesses to the city than to raise taxes. Another part of the equation is the collection of the tax that is due to us. A new suite of computer software has been purchased and is online now. Soon it will facilitate the auditing process and aid in collecting ALL the taxes due to the city. It will also create new efficiencies in the handling of these transactions.
About 45 minutes into the meeting - it lasted 90 - Dewane asked any of the members of the public present if they had comments to make. Each of the four of us in the room took our turn to express views on the issue. Jeff Arthur briefly discussed the points Young had made and posited that perhaps we should increase the threshold of the tax. Dewane pumped Young about the cost to cut a check.
MOONEY - A SALES TAX RAISE INSTEAD?
Charlie Mooney wasn't satisfied with the purpose of the tax - to raise revenue. Among other things, he wondered whether, in place of the tax, an increase in the Sales Tax might be more appropriate. Dewane chimed in, complaining that businesses already pay taxes and fees. He mentioned a "supplemental sales tax". He then veered off into a rant about the power of government being unlimited and taxes are a violation of personal property rights. He said regulation is not business-friendly.
BETH AND I
Beth Refakes, a long time resident and participant in most important meetings in the city, said she had no real problem with the Business License Tax and suggested that volunteers might be useful helping reconcile unpaid tax. She also opined that the electorate in Costa Mesa probably wouldn't take kindly to the elimination of the Business License Tax. I suggested that anyone currently holding a license should be required to pay something - at least a modest handling fee - which is not the case today. You can keep your business license active at no charge if you have less than $1,000 annual revenue.
TO THE EXTREMES!
Dewane, in response to my observation that his opinions made it clear which way he was trying to direct the discussion, rejected that characterization - saying that he was just trying to carry the discussion to the extremes. Well, he did that well enough, believe me!
PERMITS VS. FEES
The discussion continued and got mired down into the difference between a permit and a fee. Briefly, Young explained that a permit typically covers the cost of the service - inspections, planning applications, etc.
TRYING TO FOLLOW HIS THOUGHTS
Dewane suggested this issue is highly complicated and political and wanted the staff to do some more work. He said that if he was a council member in a city with NO business license tax he might be tempted to "poach" businesses from neighboring cities who DO have such a tax. He also suggested a way to allow businesses to pay their license fees 5 years ahead, which seemed very contradictory to his entire premise before. Earlier he suggested that Segerstroms might just petition the local agency formation commission to become part of Santa Ana if the tax was raised. That was an astounding statement!
THE 10K DOOR-SLAMMER
The discussion turned to last year, when the council discussed this issue and did nothing about putting the issue before the voters. Some wondered what happened. At the end of the meeting I told them what happened. One of the scenarios Young presented to the council a year ago had a maximum tax of $10,000. When the council heard that number their collective brains just locked up and they never could get past it.
MORE GOOD QUESTIONS
Richard Riva presented a list of things he felt needed further discussion/explanation. He felt the committee needed to continue the discussion and asked the staff to consider several questions, including, What is the capacity for more businesses in the city? What are the types of businesses worth going after? He also indicated that permits needed to be part of the discussion.
NO HARM, NO FOUL
Hatch offered this comment. "Will we fall apart if this tax goes away? - NO. Will we fall apart if it stays the same? - NO."
HOW TO SPEND THE MONEY
Riva wondered what we would do with, say, an additional $2-3 million in additional revenue from an increased Business License Tax. Hatch mentioned infrastructure improvements, including City Hall, which is showing it's age. No, I didn't hear him say we could begin paying down the Pension debt...
MORE WORK FOR STAFF
Finally Fisler suggested that members email their thoughts to Young before the next meeting in July. The two remaining items will be considered at that time.
My impressions? I've heard many of the things Dewane and Fisler espoused last night coming from the mouths of Mayor Jim Righeimer, Mayor Pro Tem Steve Mensinger and councilman Gary Monahan over the past couple years, and during the discussions last year on this same issue. It was clear to me, as I said earlier, that Dewane, Fisler and Hull are carrying the water for the council majority on this issue. I was not surprised by this at all. The biggest problem I saw was that Dewane so dominated the discussion that he intimidated other members and stifled some of the discussion. Again, I was not surprised - at all. It will be very interesting to see how this plays out. There's still time for calm, rational discussions on this issue before the council gets into it to consider placing it on the November ballot next year.