Staff recommends the City Council accept the recommendation of the Ad Hoc Subcommittee to work with staff and consultants to prepare a survey to test voter attitudes on extending the one-half cent local sales tax and continue the analysis to update the Business License Tax (BLT) for consideration on a future ballot.

• Study and prepare for placement of a revenue measure for the November 2022 election that addresses the expiration of the half-cent sales tax; or, prepare for $6.6 million in service cuts.  

•  Study the benefits and opportunity to update the City’s business license tax for voter consideration. 

Goal: Economic, Community Development, Public Safety

• Analyze the feasibility of transforming warehouses to attract high-value industrial and commercial uses for the benefit of the community.

Goal: Education and Outreach

• Conduct outreach and community education about the City services, financial resources, areas of cost, and impacts of failed ballot measures on city services

The City Council adopted a resolution authorizing the Mayor to appoint two members of the City Council to evaluate the placement of a BLT and extending the one-half cent sales tax, both of which require voter approval.

The Ad Hoc Subcommittee met on February 3 and February 10, 2022. Staff presented preliminary findings on the potential revenue generation of a BLT based on gross receipts and the extension of the one-half cent sales tax.  The Subcommittee’s review included Union City’s position among cities regarding the general fund, local sales tax rate, and local sales tax generation.  The Subcommittee also reviewed BLT data and how the proposed new rate would impact Union City businesses.

Revenues for the General Fund are composed of property taxes, City share of state taxes, the voter-approved one-half cent sales tax and Utility Users Tax, licenses, fees and permits, other forms of taxes and charges.

Business License Tax Update

The Economic Development Advisory Team (EDAT) explored BLT amendments to ensure all businesses pay their fair share for receiving services.  The existing Business License Tax, established in 1969, has 65 different categories of businesses and has not been modernized to reflect the changing business landscape.  HdL Companies (HdL) was engaged to evaluate potential options for the City to consider to update the BLT to generate new revenues and create a fairer model.  The preferred EDAT option was Model 4, a BLT based on gross receipts.  The proposed BLT would reduce the business categories from 65 to seven and establish new rates for most businesses.  The potential revenue generation was estimated to be $2.9 million. The City Council accepted EDAT’s recommendation to further study updating the BLT and consider placing it on a future ballot for voter consideration.

With the City Council’s direction, staff analyzed how HdL’s proposed Model 4 would impact existing Union City businesses.  For the purposes of the analysis, Union City staff used actual gross receipts of local businesses, if possible, and relied on industrial averages that were provided by HdL when actual data was not available.  Staff also compared the rates with the neighboring cities of Fremont, Newark, and San Leandro.  See Attachments 2 – 5 for details on each business category.

Based on this analysis, the proposed business license tax for many Union City businesses would increase by a factor of two, three or four times the current amount.  Some businesses (warehouses) would see an increase of 17 times their current payments.  The proposed Union City Business License Tax would generally be significantly higher than neighboring cities. Model 4 significantly increased the BLT for low employment and low tax generating uses, such as warehousing. It also impacted small businesses, large employers, and large sales tax generating businesses.

For example, the Business License Tax for:

• Medium Wholesalers would increase from $420 to $1,000.  Fremont’s tax rate is $347, San Leandro’s is $761, and Newark’s is $1,051.
• Large retail would increase from $38,700 to $90,000.  Fremont’s tax rate is $22,530, Newark’s is $14,311, and San Leandro’s is $1,595.
• Dental offices would increase from $261 to $832.  Dental BLT is likely underestimated because the industrial average gross receipts for a dentist is under $300,000 and the actual gross receipts is likely to be $1 to $3 million, which could result in a BLT of $2,400.
• Four-unit apartments would increase from $152 to $439.  Fremont charges $242, Newark $137, and San Leandro $199.
• Apartment complexes would increase from $5,300 to $31,472.  Fremont charges $13,689, Newark $2,387, and San Leandro $5,426.
• Commercial leases would increase from $12,900 to $44,950.  Fremont charges $19,530, Newark $3,061, and San Leandro charges $10,975.
• Hair salons would increase from$261 to $695.  Fremont charges $390, Newark $468, and San Leandro $806.
• Large warehouses would increase from $3,800 to $64,900.  Fremont charges $290, Newark $1,800, and San Leandro $22,966.
• Medium warehouses would increase from $198 to $350.  Fremont charges $30, Newark $91, and San Leandro $3,113.
• Small gas stations would increase from $602 to $1,400.  Fremont charges $380, Newark $1,100, and San Leandro $287.

Some of the biggest sales tax generators would also be burdened with large increases in the BLT.  See Attachment 7.  For example, the BLT for:

• Some retail stores would increase from $25,800 to $60,000.  By comparison the BLT for Fremont is $11,050, Newark is $9,901, and San Leandro is $8,970.
• A medium service station would increase from $2,580 to $6,000.  By comparison, the BLT in Fremont is $1,530, Newark is $1,801, and San Leandro is $366.

The Ad Hoc Committee agreed that more time was needed to understand the impact of a new BLT on individual businesses and to verify potential revenue based real gross receipts data rather than industrial averages.  The proposed BLT may be fair for some categories of business, but also may be an unfair burden on other business categories.  The Subcommittee concluded that it would be premature for the City Council to place a BLT on the November 2022 ballot and that further analysis was needed to ensure that an updated BLT would support the economic development goals of the City.

Sales Tax Extension

The one-half cent sales tax is a 50-cent tax on every $100 of taxable goods.  The one-half cent sales tax is levied against all purchases in Union City (visitors, businesses, and residents) and all on-line purchases. The tax is also assessed on vehicle sales where the purchaser is located in Union City. The one-half cent sales tax expires in April 2025 when it is expected to generate approximately $7 million annually for the General Fund.

Financial forecasts presented to the City Council by Management Partners and staff indicate existing revenues are stable for the next three years to pay for the cost of providing services to residents.  The one-half cent sales tax currently generates $6.6 million a year and represents approximately eight percent of the General Fund revenue.  If the one-half cent sales tax is not extended, or if new revenues are not generated, the City would begin deficit spending to fund City services, and the City would burn through reserves by FY 28/29.  Alternatively, new revenue sources would need to be established, or approximately $7 million in services would need to be cut.

As a point of reference, the current sales tax is equivalent to the operation of:

• Two fire stations; or,
• Twenty-six police officers; or,
• A mix of public safety, non-profit grant funding, social services for youth and family, recreational services, and maintenance of our parks and streets. 

To replace the this source of revenue would require the equivalent tax generation of:

• 10 new hotels; or,
• Brick and mortar retail sales equivalent to 2.5 Union Landings; or,
• Over 3,800 new homes that sell at $1,000,000 each (not in the RDA area); or
• Ten cannabis stores with sales tax revenue of over $600,000 each. 

The one-half cent sales tax has historically been supported by voters receiving 60 percent support in 2010, 73 percent support in 2014, and polling 61 percent support in 2020.  The City has a public education program in place to help the residents understand City finances, the cost of providing services, and the funding programs available.

The Ad Hoc Subcommittee reached consensus on moving forward with the community survey  to evaluate the residents position of extending the existing one-half cent sales tax on the 2022 ballot.  Waiting until the November 2024 election cycle for this analysis would create fiscal uncertainty for staffing, programs, and projects with the expiration of the tax in early 2025.

Proceeding with the survey now on voter attitudes toward extension of the one-half cent sales tax would provide the City Council current data to assist the City Council in making its decision on whether to proceed with placing a measure on the November 2022 ballot to extend the sales tax.

Proceeding with a survey on attitudes toward extending a one-half cent sales tax will not impact the General Fund.  The Council authorized in January a contract with TBWHB (and Godbe Research) to prepare a community survey.

Staff recommends that the City Council accept the Ad Hoc Subcommittee’s recommendation to proceed with a community survey on the one-half cent sales tax.  The Subcommittee will continue to work with staff and consultants to prepare a survey evaluating voter attitudes toward extending the tax.  The Subcommittee also recommends that the Council direct staff to further analyze the BLT to establish rates that supports the City’s economic development goals and work towards a possible ballot measure in 2024.