SOLANA BEACH — With a rapidly approaching deadline and a May 27 meeting that produced more questions than answers, City Council opted to delay until March a mail-ballot election to possibly implement a business tax in Solana Beach.
Despite tough economic times and decreasing tax revenues, the city drafted a balanced budget for the upcoming fiscal year by eliminating $1 million in spending. It did so by reducing some services, scaling back projects and cutting everything from travel and training to unfilled positions and office supplies. But with a $25 billion budget deficit, the state continues to present a “very real threat” to city coffers, City Manager David Ott said. Solana Beach could lose more than $1 million in state takeaways.
To meet that potential shortfall without eliminating services, staff began investigating ways to bring more money into the city. During a Feb. 2 special meeting billed as a fiscal sustainability workshop, staff presented five options to create new revenue sources. A sales tax increase and utility tax were rejected, as was a decrease in the minimum night stay for short-term vacation rentals after it failed to gain support from the Condominium Organization of South Sierra Avenue.
Council members discussed an increase in the fire benefit fee, which may come later, but decided to pursue a business tax, which requires passage by a majority vote. According to state law, the soonest the city could conduct a mail-ballot election is August. To do that, all paperwork had to be ready May 29.
A special meeting was scheduled before the regular May 27 meeting to discuss “proposed revenue enhancement action.” The staff report recommended approving a business tax and calling for an August mail-ballot election.
The special session, scheduled for 30 minutes, lasted about two hours, during which time more than a dozen residents and business owners weighed in.
Many speakers said there was insufficient notification. (The city sent two e-blast notices about the meeting the week before, and an article about the proposed tax and meeting ran in the May 22 issue of The Coast News.) Several business owners said they weren’t completely opposed to the tax, but added that it shouldn’t be infinite.
“It is an emergency,” Peter Lambrou, a home-based business operator, said, noting the move was an obvious reaction to the current economic situation. “It isn’t something that ought to be put in place that will ultimately become a blank check for decades to come.
“You’ve done very well when business was doing well … to manage our city without having that business tax,” he said. “I think that there will be a time when you’ll be able to do that again without having to have, in a sense, an open-ended source of revenue.”
City Attorney Johanna Canlas said without such a provision, council can eliminate or reduce the tax anytime. But if a sunset clause was added and the tax needed to be reinstated, another election would be required.
There were also concerns the tax might drive existing businesses out or scare new ones away. However, 13 of the 18 jurisdictions in the county collect some sort of business tax, with Solana Beach and Encinitas currently the only two cities in the North County coastal area without one.
By the end of the special session, nearly everyone agreed additional input was needed and the issue should be deferred until March, the next allowable time an election can be held.
“I do feel as a business owner and a resident that this is trying to be submitted quite quickly with really little or no public input,” Terry Wardell said. “I wondered why there wasn’t at least a one-day workshop where business owners were invited to speak because I know that many business owners don’t live in town. … I think that’s somewhat unfair.”
Council members agreed. “We don’t have enough time to correct this ordinance and get it ready in two days,” Councilman Tom Campbell said, adding that based on the planned timeline, there would be only a three-month loss of revenue.
“I think that working with the public we can come up with a methodology to assess this business tax,” Mayor Mike Nichols said. “We need to take the time to do it right.
“I think it’s worth pursuing,” Nichols said. “It’s probably long overdue because things have been so good in the city for so long.”