City Explores Tax Revenues

Business Tax Update Coming Soon

During the January 20th Hayward City Council meeting, City Manager Jennifer Ott and Finance Director DeAnna Hilbrants said that this year’s budget was balanced. After the surprising $30,000,000 deficit was made public in August, the City took a number of measures to reign in spending, all of which Finance Director Hilbrants said would be implemented by January 31st. 

Councilmember Julie Roche said it was a very near thing. “We got there very barely, we barely got there,” she said. “This is not a sort of celebration [saying] we’re done.” Finance Director Hilbrants said that her department is monitoring budget-to-actuals every other week to ensure spending stays on track. The next step is to plan for the coming fiscal year, including developing a 5-year budget forecast and a fiscal sustainability plan that will likely include an updated Business Licence Tax.

According to Assistant City Manager Mary Thomas, a consultant has already been hired to explore changes to the Business License Tax, which hasn’t been updated since the 1970’s. In the coming weeks the consultant will reach out to stakeholders, including the Chamber of Commerce, conduct polling and outreach in March and April, and deliver the polling results and potential ballot language by May. The measure will need to be submitted by June 23rd to make it onto the November ballot. 

Getting Details On Business Tax

Councilmember George Syrop opened by asking how much the consultant would cost. City Manager Ott said it would cost a little over $100,000 and that the consultants were being paid on a “time and materials” basis. “We would only continue to pay for all of these services,” she said, “if it was worth it.” 

Councilmember Syrop felt that the expense was worth it. “The way I’m looking at all of these calculations is return on investment,” he said. “Not doing research is also fiscally irresponsible.” However, he wanted to see a progressive business tax. “The majority of this tax, to me, should fall on the largest corporations, not our mom and pop small businesses.” 

Other Councilmembers agreed with the progressive structure. “I’m interested in making sure that small businesses are the least impacted, as well,” Councilmember Angela Andrews said. Councilmember Bonilla said, “I think equity is really really important as we look at this.” 

Councilmember Syrop also pushed for landlords to be included in the Business License Tax, alleging that they were excluded from some version of the Tax. “If they want to treat themselves as if they’re operating a business, they should also be paying a Business Tax,” he said. 

Councilmember Francisco Zermeño asked when the City would start actually getting money if the tax is approved by voters in November. Finance Director Hilbrants said that the earliest would be January of 2027. 

But Councilmember Julie Roche appeared cautious about making changes to the Business License Tax. She wondered how many businesses were already behind on paying the existing tax and whether voters would support it. “I also want to make sure we’re taking a really hard look at the political climate,” she said, “What are the chances of us even passing it?” 

Matt Newman from Blue Sky Consulting made clear that a balance would have to be made in the language. “Some care has to be paid to making sure that the tax rates aren’t so high that moving to a neighboring city looks like an attractive idea,” he said. 

Making Money From City Land

Councilmembers also encouraged City Staff to explore other ways to increase City revenue beyond the Business License Tax. Councilmember Andrews asked for an update on why some City-owned parcels haven’t been sold or developed. “Especially since we have a real estate project manager,” she said. 

According to City Manager Ott, development has largely stagnated in the area due to high interest rates. This makes it more expensive for developers to borrow money to start projects, and more expensive for home buyers to secure loans. However, she said the City could explore other ways of generating revenue from parcels, like cell towers or other passive revenue. 

Councilmember Zermeño also asked after City parcels, including those on C and Main streets, and the City Center property. City Manager Ott said, “We’re actively looking at the theater project [and we’ll] include the City Center property and C and Main, as well.” The discussion will happen during a February 3rd Closed Session, however. 

Councilmember Syrop, however, encouraged creative thinking to make money from the properties in an ongoing way. “I don’t want us to necessarily rush into selling all of our city-owned property,” he said. 

Win/Win For Hoteliers And Renters

Councilmember Syrop encouraged City Staff to look at enforcement for Short-Term Rental properties--like Airbnbs--which are illegal in the City of Hayward, according to City Staff and a 2022 Planning Division Document concerning SB9. He said that between 300 and 500 short-term rental units existed in Hayward, according to Granicus, who he said he contacted about enforcing the short-term rental ban. 

He recommended that City Staff look into increasing enforcement of the short-term rental ban, saying it would generate money from fines, increase housing supply, and support local hoteliers. “Making sure that we’re steering folks that want to stay in Hayward to our hotels by banning short-term rentals,” he said. “491 units is the equivalent of maybe 8-9 brand new housing developments.” 

Councilmember Syrop recognized that it may cost money to enforce, but that it may be worth the investment--similarly to the Business License Tax. “When an investment of under $100,000 could yield $1,000,000, I think ‘What are we waiting for?’”

This plan appeared to get support from Councilmembers Bonilla and Andrews. 

Making It Easier For Development

Councilmember Andrews asked if there was any progress on a “one stop shop” for developers. “There seems to be some disconnect for developers and the City,” she said. She was also concerned about how prepared developers were for the process and wondered how the City could prepare them better. “I’m hearing 8 rounds of comments,” she said, “which is a lot relative to other cities and very expensive for the developer.” 

Councilmember Syrop elevated several concerns that had been brought up by the developer of the old Ace Hardware building on B Street and Watkins. He, and other Councilmembers, expressed a desire to streamline the permitting and development process as much as possible. “I’m just really interested in having a comprehensive vision or planning… to really encourage and attract new development,” Councilmember Syrop said. 

Sales Taxes Also Get A Closer Look

The City Council had the opportunity to speak with Tom Adams of Numo Consulting, who helps the City with its sales taxes. Mr. Adams explained that the sales tax revenue for the City took a big dip in recent years because BART stopped producing new cars for their fleet. Due to a quirk of California’s Sales and Use Tax, after BART moved manufacturing for their new cars to New York, the first place they were used wound up receiving the sales tax revenue from those cars. 

Hayward was lucky enough to benefit from having the Hayward Maintenance Complex within its borders. However, once all the cars were delivered, the City lost about $7,700,000 per year in sales tax revenue. “The new baseline [sales tax revenue] is $7.7 million less just because of the BART cars,” Mr. Adams said. 

Other larger trends, according to Mr. Adams, are that things that are subject to sales tax aren’t being bought as much. Services, experiences, and digital items, sectors which have seen a lot of growth recently, aren’t subject to sales tax. He also said that many businesses are recovering from the Pandemic, but that Hayward had a diversified economy which has kept it from being worse. 

Mr. Adams pointed out that the City’s Utility User’s Tax (UUT) may be worth changing since recent court cases have upheld the ability of cities to tax streaming services. Currently the UUT only taxes cable television, cell phones and landlines, and gas and electricity. The tax has seen reduced revenue due to the rise in streaming subscriptions at the cost of TV subscriptions. City Manager Ott said that Staff is looking into this, as well.

Councilmember Dan Goldstein expressed concern about data centers--seen by many on Council as a boon to the UUT due to high electricity demand. He said that many data center developers are investing in ways to create their own power, since local utilities have been unable to provide it for them--the incoming Stack Center had to get approval as a small power station for its backup generators. 

“It seems to me that maybe the way that trend is going is that they are looking at providing their own power,” Councilmember Goldstein said. He asked if the City could collect UUT on self-generated power, but Mr. Adams said his specialty was sales tax. 

When Councilmember Goldstein asked about sales tax revenue from some of the more recent industrial businesses the City has celebrated, like Zoox and Veev. Mr. Adams said that for the robo-taxis, “it depends on if it’s ever actually sold.” He pointed out that Zoox cars will only be rented out while the cars will still be owned by Zoox. For factory built homes, Mr. Adams said it was complicated, but could look into it.

The Hayward Herald is a non-profit 100% local newsroom. Please consider subscribing to support our work.