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Higher Biz Taxes: Boom Or Bust For San Diego?

Audio

Aired 5/4/11

Local leaders are loath to raise taxes in San Diego. And voters typically shoot down the idea, as we saw last fall. Yet talk about a tax increase is bubbling up again.

— To be sure, San Diego is a notoriously anti-tax city. We’re talking about a place that once rejected an increase in hotel room taxes, even though hotel guests would be the only ones to pay them. But what’s the big deal if taxes are low? Well San Diego chronically spends more money than it takes in. That's led to service cuts and compensation reductions for employees, including police and firefighters. Firefighter Union President Frank De Clercq said cuts must stop. He wants San Diego leaders to pursue an increase in city business taxes. But he knows he’s up against a powerful opponent.

"You’ve got people who have an enormous amount of wealth and can spin a story to say how it’s going to hurt San Diego when it’s in fact not going to," he said.

De Clercq was speaking of the city’s business lobby, which he sees as standing in the way of an increase to the business tax. Every year businesses pay a flat licensing fee to the city based on how many employees they have.

Now, De Clercq isn’t exactly an unbiased observer. His union continues to take heat for the large pensions some firefighters receive. He has a stake in seeing San Diego’s financial situation turn around. But De Clercq points out his union has agreed to salary freezes and compensation reductions in six out of the last seven years. He thinks it’s time for the business community to pitch in.

"I started wondering, why is it that the business community is not becoming part of the solution? Why haven’t they stepped up?" he asked.

And De Clercq said there’s plenty of room for improvement. San Diego is the state’s second largest city. But out of California’s 10 largest cities it has the lowest business-tax rate, charging an average of just $79 a year per business license. And analysts say the $14 million a year made off of business taxes could be a lot higher. A report from the Center on Policy Initiatives found raising the average tax to $233, equal with San Jose, would bring in an extra $26 million annually. Hiking the tax to $671, the average amount for California’s top 10 cities, would generate an additional $95 million a year.

But San Diego Regional Chamber of Commerce President Ruben Barrales says it’s important to remember the country’s coming out of a recession.

"The private sector, meaning the citizens, have been suffering and have been paying for this," he said. "And really what you’re asking for people to do is pay more out of their pockets."

Barrales points to a recent survey of local business owners that found the top business needs to be economic recovery and lower business taxes. Barrales said the cost of doing business in San Diego is among the highest in the state, a fact that must be taken into account when considering the tax rate. But De Clercq said the taxes in other cities are high and those cities are doing fine.

"Let’s look at San Francisco and Los Angeles and I can assure you they have many nice restaurants and places that are doing business and they’re not shuttered or boarded up," De Clercq said. "There’s no businesses leaving there, nor are they here."

In fact, construction permits within the city of San Diego have ticked up in the last few years. That may be a sign of an upswing in the economy. Still, things aren’t where they were four years ago. University of San Diego Economics Professor Alan Gin said the city needs to find a good balance.

"There is an advantage to having low business taxes and being the lowest among major coastal cities in California," Gin said. "But do we have to be so far below? Perhaps we can increase the taxes a little bit and still maintain being the lowest-cost coastal city."

There may be some signs the business community is willing to budge a bit. The Chamber of Commerce did endorse last fall’s failed sales-tax increase. But Barrales said with that option off the table the business community is looking for some real change from city leaders.

"They’re definitely looking, they’re definitely pursuing, they’re definitely talking about the things that need to be done," he said. "But quite frankly, we in the business community are looking for action, for some results."

There are some actions city leaders could take to get more mileage out of business taxes. San Diego could require businesses that are located outside of the city but that do a lot of business in San Diego to pay some taxes. It could also step up its enforcement to make sure businesses operating within the city actually have permits and pay taxes. Ultimately, any change to the actual tax rate would have to be approved by voters, which could be a risky move in this anti-tax city.

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