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Dissolution of Ordinance 7236and

Creation of Reduced “First Year” Business License Tax

Pasadena City Council

October 20, 2014

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Background

• For the past 23 years, Pasadena maintained local incentives as part of the Enterprise Zone agreement with the State.

• Program goals related to Statewide job growth and investment in equipment.

• Local Enterprise Zone incentives included:> Waiving Development application and permit fees (e.g. building permits,

construction tax, zoning permits, variances, conditional use permits, and processing fees).

> Waiving the City’s Construction Tax.

> Waiving the Transportation Traffic Reduction and Transportation Improvement fee.

> Waiving Business License taxes (new and renewals).

> Expedited Plan Check Review.

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Fiscal Impacts (2014)

Fiscal Year 2014 Program Cost Summary

Business License Waivers (A total of 831 accounts paying an average of $382)

$317,778

Permit and Entitlement Waivers(Estimated R&D total: $39,553)

$199,343

Gross Total of Waived Revenue $517,120

Enterprise Zone Revenue from Program Administration

($302,760)

City Cost for EZ and Local Incentive Program$214,360

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Fiscal Impacts (Future)

Future Cost Without Offsetting Revenue Summary

Business License Waivers (A total of 831 accounts paying an average of $382)

$317,778

Permit and Entitlement Waivers(Estimated R&D total: $39,553)

$199,343

Gross Total of Waived Revenue $517,120

Enterprise Zone Revenue from Program Administration

($302,760)

City Cost for EZ and Local Incentive Program $517,120+

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In 2013, Council directed staff to prepare an Ordinance (Ord. 7236) to extend local incentives to:

• Allow time to assess changing state programs and provide local Enterprise Zone businesses time to adjust.

• Provide staff the opportunity to consider possible new incentives.

• During Edtech discussion - directed staff to make sure any new incentives were “revenue neutral.”

Dissolution of Ordinance 7236

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Considerations

• Avoid any ongoing (year to year) waiver.

• Focus on businesses that we want to attract and those that might otherwise choose another City.

• No “blanket” approach to businesses that would include liquor stores, fast food, smoke shops, or businesses in non-commercial areas.

• Job growth.

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Proposed Incentive

• New “Introductory Rate” for New Qualified Businesses

• Certain Small Businesses with Five Employees or Less

• Business License Cost is $1 for First Year in Business in Pasadena

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Target Businesses for First Year Reduction

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Small start-up companies with growth potential and work to create a product.

Eligible Not Eligible

Retailers, personal service providers, fast food that are primarily service based.

NAICS

-Manufacturing (23)-Construction (31-33)-Information (51)-Scientific, Technical, and _Professional Services (54)

Agriculture, Mining, Utilities, Wholesale Trade, Retail, Warehousing, Finance & Insurance, Real Estate, Waste Management, Education, Healthcare, Entertainment, Food Service, Public Administration

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Approximate Costs

• Of the 277 new businesses in FY 2014, it is estimated that 40-50 new businesses would have been eligible for the proposed incentive. With $391 being average Business License cost for the target group, about $20,000 would have been waived in FY 2014.

• With an anticipated increase in attraction and proposed commercial space geared toward start-ups, lost revenues may go up, but is not expected to exceed $100,000.

• Home based businesses are not eligible (317 total in 2014).

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Recommendation

• Direct Staff to take Steps to Repeal Ordinance #7236 (Enterprise Zone set of Incentives).

• Direct Staff to return to Council with amendment to Schedule of Taxes, Fees, and Charges that includes the (reduced) Business License tax for first year businesses.

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NAICS

• North American Industry Classification System (NAICS) Coding Structure

>NAICS uses a six-digit hierarchical coding system to classify all economic activity into twenty industry sectors.

>Five sectors are mainly goods-producing sectors.

>Fifteen are services-providing sectors.

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Pasadena Local Incentive Area

Local Incentives for All Commercial Businesses (NW and East Washington)

Local Incentives only for Research and Development Companies

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Dissolution Transition

• Business License Taxes– After December 31, 2014, new or renewing business license application received are required to pay the applicable business license tax. For calendar year 2015 only, Business License will provide an additional 30 day grace period of any late penalties should a previously waived business, in good standing, not pay their reinstated amount after the City’s current 30 day grace period of receiving their business license renewal.

• Planning and Building Permit Fees – Any new permits submitted after December 31, 2014 will not be eligible for Ordinance # 7236 waivers. Qualified permits (for the existing incentives) must have applied for permits prior to December 31, 2014 to be eligible for fee waivers. Any modifications to a qualified permit(s) after December 31, 2014 are subject to the review of the Planning and Community Development Department to determine if such modifications are eligible for fee waivers.

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Other City Incentives

• Local Hire Ordinance #6995 continue to allow a partial construction tax rebate for Pasadena residents hired through voluntary or mandatory participation in this program.

• Research and Development Ordinance # 6884 continue to allow for a partial construction tax waivers for R&D improvements citywide.

• Expedited review for development projects within Northwest Pasadena.