BUSINESS TAX MODERNIZATION AND MINIMUM WAGE INCREASE OUTREACH PLAN

Transcription

1 CITY OF CAPITAL OF SILICON VALLEY COUNCIL AGENDA: ITEM: 3.7 Memorandum TO: HONORABLE MAYOR AND CITY COUNCIL FROM: Toni J. Taber, CMC City Clerk SUBJECT: SEE BELOW DATE: December 1, 2016 SUBJECT: BUSINESS TAX MODERNIZATION AND MINIMUM WAGE INCREASE OUTREACH PLAN RECOMMENDATION: As recommended by the Community and Economic Development Committee on November 28, 2016: (a) Accept staffs report on the Business Tax Modernization and Minimum Wage Increase Outreach Plan; (b) Approve an ordinance adding a new Section to Chapter 4.76 of Title 4 of the San Jose Municipal Code to extend the deadline from July 1, 2017 to December 15, 2017 for residential landlords of 1 or 2 units to register with the City and pay the Business Tax owed as of July 1, 2017 without incurring interest or penalties; and (c) Adopt the following Appropriation Ordinance Amendments in the General Fund: (1) Increase the Finance Department Non-Personal/Equipment appropriation by $150,000; and (2) Decrease the Business Tax Outreach Reserve by $ 150,000.

2 CED AGENDA: 11/28/16 ITEM: D (7) CITY OF SAN JOSE CAPITAL OF SILICON VALLEY Memorandum TO: COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE FROM: Julia H. Cooper David Yossbrink SUBJECT: BUSINESS TAX AND MINIMUM DATE: WAGE OUTREACH PLAN Approved Date A/aa- (Si Jklb RECOMMENDATION (a) Accept staffs report on the Business Tax Modernization and Minimum Wage Increase Outreach Plan; (b) Approve an ordinance adding a new Section to Chapter 4.76 of Title 4 of the San Jose Municipal Code to extend the deadline from July 1, 2017 to December 15, 2017 for residential landlords of 1 or 2 units to register with the City and pay the Business Tax owed as of July 1, 2017 without incurring interest or penalties; and (c) Refer this item to the December 13, 2016, City Council meeting for full Council consideration. OUTCOME To provide the necessary outreach and communications to San Jose businesses regarding the changes to the City of San Jose Business Tax Code that was approved by San Jose voters at the November 8, 2016, General Election. The outreach efforts will encourage San Jose businesses and self-employed individuals with income reported on Federal Form Schedule C (Profit or Loss from Business) and Federal Form Schedule E (Supplemental Income and Loss from rental real estate, partnerships, S corporations, etc.) to register. In addition, the outreach efforts will inform businesses regarding the availability of the Business Tax Hardship Exemption that allows lowrevenue generating businesses to be exempt from paying the tax (although they are still required to register). With the recent City Council approval of a two-year phased approach to increase the minimum wage to $15 per hour by January 1, 2019, staff wants to ensure that employees and businesses are fully aware of the changes.

3 Page 2 BACKGROUND The City's Business Tax was first adopted on July 15, The methodology used for calculating the City's current Business Tax (Chapter 4.76 of the San Jose Municipal Code and referred to herein as "Business Tax" or "Tax") was adopted in 1984, and the current rates have not been increased since In the intervening decades, the buying power associated with business tax revenue has eroded significantly. The Tax, which is charged to business owners, currently generates approximately $12.7 million annually. The Business Tax Modernization Measure (Measure G) was approved by a majority of San Jose voters on November 8, 2016, and will be effective July 1, The Measure made a number of significant adjustments to the Business Tax, including: Increasing the base tax Increasing the incremental tax and making it more progressive Increasing the cap Updating the application of the tax Incorporating inflation-based adjustments over time (COLA) Adding a new financial hardship exemption for small business owners that have a household adjusted gross income that does not exceed four times (4x) the poverty level established by the U.S. Department of Health and Human Services ("HHS"). The new exemption is in addition to the current financial hardship exemption for low- revenue generating small business owners that have a business income threshold at two times (2x) the annual poverty level established by the HHS. Details regarding the changes are summarized in staffs Potential Business Tax Modernization Measure Memo dated July 20, 2016, which can be found here: id=&event id=2147&meta id= Based on current projections, the Business Tax updates are estimated to generate additional annual revenues of approximately $12 million. Additional General Fund revenues will allow the City to enhance service levels consistent with spending priorities identified by the community and the City Council through the annual budget process. On August 2 the City Council approved the following direction to the Administration, which incorporated recommendations from Mayor Liccardo's memo dated August 1, 2016: Mandate that the City authorize on-line registration and payment of business license tax Direct the City Manager to develop an educational campaign for those affected by this measure Direct the City Manager to report to the Community and Economic Development Committee in December 2016 with implementation beginning in January 2017 Return to Council in one year to review the possibility of raising the exemption level

4 Page 3 To further engage with the business community to discuss ideas for shared spending proposals The Mayor's memo can be found here: id=&event id=2147&meta id= ANALYSIS The voter-approved Business Tax Modernization changes and Minimum Wage increase will require outreach to the business community through a variety of mediums. Following are the outreach strategies that will be used, estimated administrative expenses, and recommendation for the extension of the filing date for new residential landlords. The proposed Outreach Plan is similar to the successful outreach effort the City undertook in for the Business Tax Amnesty Program and Minimum Wage Increase. Public Information Outreach Plan Goals Minimize public confusion and potential sense of surprise regarding the implementation of changes to the Business Tax and Minimum Wage. Minimize the number of potential public complaints, Call Center traffic, and demands on frontline customer service representatives in all departments and Council Offices. Achieve community understanding and acceptance, including by target audiences, of the changes to the Business Tax and Minimum Wage. Reduce costs of transition and implementation and impact on staff time. Strategies Direct communication is crucial - make every effort to deliver the information to businesses by direct mail, , or phone. Multiple contacts through various channels will be necessary over the next half year. Leverage community-based information resources to spread the word, such as neighborhood business associations and chambers of commerce. Present basic information in English, Spanish, Vietnamese, and Cantonese depending on audience, location and community. Utilize personal contacts where possible, such as the Office of Economic Development ("OED") Business Development and Planning, Building and Code Enforcement ("PBCE") Small Business Ally programs. Develop written materials that are available in print form and online for easy access. Use advertising to increase reach and frequency of messages. Conduct publicity outreach, including ethnic media.

5 Page 4 Audiences Internal: o City departments and frontline staff, especially Call Center, Finance, OED, PBCE, work2future, Business Owner Space ("BOS") o City Council offices and staff External (Business Tax): o All San Jose businesses o New payers of Business Tax-e.g., small residential landlords External (Minimum Wage); o San Jose businesses with local employees o Residents earning minimum wage o High schools and community colleges o Labor organizations External (Business Tax and Minimum Wage): o Chambers of commerce o Local and neighborhood business associations o Business services consultancies such as tax and accounting professionals, law firms with corporate practices, and other services Communications Channels, Including Partner Organizations City website - establish and update specific pages for Finance, OED, Public Works/Minimum Wage, work2future, BOS, etc. Finance Department - direct mail and billing mailings to businesses Finance Department - business databases, such as law, CPA, and business consultancies City Council district offices, newsletters and websites OED/Business Development - mailing lists, personal contacts Business Owner Space, small business outreach, business-oriented events PBCE - Small Business Ally program Chambers of commerce, including ethnic chambers Neighborhood business associations and community-based organizations e-lists Social media such as Nextdoor and Facebook News media, including non-english language media Messages Details about specific changes that affect different types and sizes of businesses; charts and tables Implementation schedule Resources available in other languages to get more information Reasons for the changes: regional context, General Fund supports services that are valuable to businesses

6 Page 5 Overdue correction of structure and amount of Business Tax San Jose voters approved the changes to the Business Tax and Minimum Wage Tactics Core collateral materials o Provide to all internal and external audiences, with language and images they can copy, use and share. o Downloadable handouts and FAQs on Business Tax ("BT") and Minimum Wage ("MW"). o Charts showing changes affecting business categories. o Explanation of exemptions to Business Tax for small residential landlords, notfor-profits. Online o Include core materials in multiple languages on Finance, OED, BOS websites in both downloadable format and searchable HTML. o Create "splash" on City department home webpages linked to BT/MW information for easiest access by visitors. o Create Facebook ad campaign and promote to specific geography and demographics, with core messages and links to City webpages. o Use City social media tools to alert community about MW and BT changes and to direct to relevant City information pages. Printed Materials o Develop handouts for distribution to libraries, partner organizations community centers, service counters, etc. for posting and distribution. Direct Mail (Business Tax) o Approximately 125,000 notices will be mailed informing current taxpayers and potential new residential landlord taxpayers of the changes in the Business Tax effective July 1, o Develop messages for customer bills beginning in January o Consider feasibility of creating a mechanism for newly impacted businesses to register and sign up for an reminder notice when the tax becomes effective o Send s to businesses and residents that signed up to receive City messages. Advertising o Place advertisements in print and online media oriented to local businesses and ethnic communities, o Public service announcements for radio stations from February through June 2017.

7 Page 6 Partner Organization Outreach o Staff will reach out to suitable organizations such as: Santa Clara County Association of Realtors, California Apartment Association (Tri-County Division), San Jose Silicon Valley Chamber of Commerce, Hispanic Chamber of Commerce Silicon Valley, Greater San Jose Hispanic Chamber of Commerce, Vietnamese American Chamber of Commerce, Black Chamber of Silicon Valley, Silicon Valley Leadership Group, Silicon Valley SCORE, Silicon Valley Small Business Development Centers of Northern California, BOMA, neighborhood business associations. News Media Outreach - Publicity o Provide background and updates about Minimum Wage and Business Tax and Minimum Wage changes to local news media, including direct contact, news releases, and news events. Community Meetings (tentative) o Staff is exploring the feasibility of conducting community meetings to inform businesses and business organizations Filing Date Extension for New Residential Landlords An initial review of property ownership records indicate there are thousands of residential properties in San Jose where the owner mailing address differs from the property address. Staff will engage in direct mailing outreach effort to each property owner informing of the need to register for a Business Tax certificate effective July 1, 2017, if their property is subject to the residential property business tax. This outreach effort and potential registration may require additional time beyond what the Municipal Code allows. Under the prior Business Tax Ordinance, residential landlords of 1 and 2 units were not required to register with the City orpay the Business Tax. However, effective on July 1, 2017, residential landlords of 1 and 2 units are now required to register with the City and pay the Business Tax. While the Municipal Code provides new businesses with a 90-day grace period to register and pay the tax, staff anticipates that it may take longer than 90 days for most residential landlords of 1 and 2 units (who never paid the Business Tax before) to register with the City. In order to not penalize these landlords and to have sufficient time for outreach, staff is asking the City Council to approve an ordinance extending the deadline to register and pay the required tax to December 15,2017. Also, to the extent any of the residential landlords of 1 and 2 units are required to pay a Business Improvement District (BID) assessment, the assessment due date will be extended concurrently with the extension of the deadline to pay the Business Tax since the BID assessments are collected at the same time and in the same manner as the Business Tax.

8 Page 7 Outreach Program Administrative Expenses As part of the Annual Report actions approved by Council in October, $150,000 was set aside in a Business Tax Outreach Reserve to fund a public education outreach program. At the upcoming City Council meeting on December 13, staff will recommend budget actions to allocate funding from this reserve to support the outreach program outlined in this memo. Additional resources may be necessary in FY for temporary staff to process Business Tax Registration Forms and payments as well as additional follow-up outreach. This need will be evaluated as part of the budget process. EVALUATION AND FOLLOW-UP Staff will provide an update to City Council on the increase in Business Tax revenue through the Finance Department quarterly report to the Public Safety, Finance and Strategic Support Committee beginning in the first fiscal year of implementation ( ) and as part of the regular bimonthly financial reports. Staff will provide an update on the expanded exemption categories and the feasibility of creating additional exemption categories approximately a year after the implementation of the changes. PUBLIC INTEREST This memorandum will be posted on City's website by November 21, 2016, for the November 28, 2016, Community and Economic Development Committee meeting. COORDINATION The Office of Economic Development, City Attorney's Office and City Manager's Budget Office have been involved in the coordination of this memo. CEOA Not a Project, CEQA Guidelines Section 15378(b)(4). COST SUMMARY/IMPLICATIONS The Outreach Plan will be funded by a $150,000 Business Tax Outreach Reserve that was established as part of the Annual Report actions approved by the City Council on October 18, Budget actions will be brought forward on December 13, 2016, to allocate this reserve funding to the Finance Department Non-Personal/Equipment appropriation. Additional

9 Page 8 resources may be necessary in for temporary staff to process Business Tax Registration Forms and payments as well as additional follow-up outreach and related activities. This need will be evaluated as part of the budget process. The FY budget process will include the additional Business Tax revenue as part of General Fund revenues available for City Council allocation consistent with spending priorities identified through the annual budget process. /s/ JULIA H. COOPER Director of Finance /s/ DAVID VOSSBRINK Director of Communications For questions, please contact Wendy Sollazzi, Revenue Management Division Manager, at (408)