A committee of National City business leaders tasked with crafting an alternative to a failed city business tax hike voted on Tuesday to sharply reduce the size of the potential increase, lowering the amount of annual revenue the city would generate by raising its business tax rate.
The committee of 12 business leaders voted unanimously to forward to the City Council an alternative tax increase proposal that would raise $2.75 million annually in additional revenue instead of $7.5 million, as city leaders initially sought.
The proposal still requires approval by both the City Council and city voters.
The city’s original tax proposal grouped city businesses into different categories and imposed different annual business license tax rates on each category.
The alternative proposal business leaders approved Tuesday scraps that plan and replaces it with a flat .07 percent annual business license tax on all businesses’ total sales.
The proposal caps each business’ total annual business tax bill at $30,000, effectively shielding annual revenue above $42.9 million from the tax.
Committee members said the smaller amount generated by their proposal still would help the city because it would add to city coffers while also ensuring that National City remains an attractive place to do business.
“This enables [the city] to elevate their revenue while making National City more competitive,” said committee member Jenifer Ball, vice president of Ball Auto Group, one of the city’s largest car dealers. “We are ready to help the city. But we don’t believe it’s the businesses job to help them close their [entire] deficit.”
Earlier this year, on Aug. 5, a divided City Council rejected the proposed $7.5 million business license tax increase in the face of stiff opposition from the city’s Chamber of Commerce and a cross section of local businesses.
Business leaders said the proposed increase was too big, poorly crafted and would disproportionately impact small businesses.
City staff had proposed the tax increase to help balance the city’s budget, which currently faces a $13 million deficit.
Instead of the $7.5 million increase, a 3-2 Council majority voted to task a committee of local business leaders with crafting an alternative proposal businesses could support.
Tax increases such as the one sought by the city require voter approval. Businesses warned they would work to defeat the $7.5 million increase if it went to the ballot.
The committee included Ball, National City Chamber of Commerce President Karen McManus and Patti Finnegan, owner of locally beloved Niederfrank’s Ice Creams.
Starting in August, committee members met regularly with City Manager Doug Schulze and Economic Development Director Pedro Garcia to craft an alternative tax proposal that would raise new revenue for the city without, business leaders said, unduly burdening local businesses.
Schulze and Garcia on Tuesday proposed another alternative that would have raised an additional $5.8 million in annual business tax revenue. Business leaders said they did not support that large of an increase and voted for their own proposal instead.
Schulze and Garcia said they would seek to bring the business leaders’ proposal to the City Council for a possible vote on Nov. 17.
Told of the business leaders’ proposal, city councilmembers had divergent reactions.
City Councilmember Marcus Bush, who is running for mayor and initially proposed giving business leaders the opportunity to weigh in on the tax increase, called the alternative proposal “a huge step forward.”
“How we put [the original tax proposal] on the ballot, it would have failed, and we would have had a bad relationship with the business community,” Bush said. The alternative proposal marks a significant step toward reaching a compromise, he said.
Councilmember Jose Rodriguez, who also is running for mayor, disagreed.
“Unfortunately, it’s what many thought this committee would produce,” Rodriguez said of the alternative proposal. “It is significantly less than what the city continues to need in order to offset expenses.”
Following the City Council’s rejection of the original tax proposal in August, Rodriguez, who supported the proposal, formed a coalition of local labor unions and community groups to place their own business tax increase on the ballot via a citizens’ initiative.
That initiative would raise roughly $10.5 million in new revenue by raising the amount large businesses, such as WalMart and the city’s auto dealers, pay in business license taxes.
Rodriguez’s coalition currently is gathering signatures to put the initiative on the ballot in 2028.
Asked whether he would support the business leaders’ proposal and withdraw his coalition’s initiative, Rodriguez said, “I’ll have to talk to my coalition partners to see if they’re OK with it.”
“I find it hard to believe that a coalition of people who filed a petition to the city to put an initiative on the ballot that will bring in $10 million will settle for $3 million,” he said.
Business leaders said their proposal, calculated on a per-city-resident basis, still ranks second only to Del Mar among San Diego County cities for the size of a city’s business tax.
They said city businesses did not cause National City’s budget crisis and should not shoulder the sole burden of fixing it.
Instead of turning immediately to tax increases, they said, the city also should improve its own operations and seek savings and efficiencies to balance its books.
“We need to be fair to the businesses here,” said committee member Joel Tubao, a property developer who developed the Market on 8th food hall in downtown National City. “We would support our proposal at the ballot box…You would see a lot of businesses shuttering if Jose Rodriguez’s proposal passes.”
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