The city of Santa Clara is bleeding, and big business may be at the center of its new strategy for economic recovery.
Santa Clara faces a nearly $ 20 million budget deficit in the coming fiscal year and needs to find new revenue streams. Under a new proposed business license tax structure, the city will require companies to start paying a fixed “headcount” fee per employee. It could earn millions of dollars in revenue from its largest employers, but it’s unclear if residents and businesses will approve.
The city is home to many tech giants including Applied Materials, Intel, Advanced Micro Devices and Nvidia. All have hundreds of employees. Under the current system, total tax revenue from these behemoths is limited to $ 500 annually.
Santa Clara spokesman Lon Peterson said the current business license tax model — which charges $ 15 to $ 500 based on industry sector and number of company employees — brings in about $ 900,000 in revenue annually. -year, or 0.4% of the general fund. It has not been updated since 1992.
There are approximately 8,500 active-licensed businesses in the city, of which 6,100 businesses will be subject to the proposed “headcount” tax —about 137,000 employees. About 50 companies have 500 or more employees in Santa Clara and pay $ 500 to the city annually, according to a 2021 city presentation.
Peterson said the city’s goal is to update an old 30-year-old system that reflects changes in the workplace while making sure all businesses pay their fair share.
“The current structure creates a disproportionate impact on small businesses,” he told the San José Spotlight.
Santa Clara has scheduled community input sessions to determine how residents can vote. If the City Council approves the measure this summer, the measure will be on the November ballot.
Updated plan required
The revised license tax was first brought to the City Council in June, with a discussion on ways to modernize the business license tax taking place last October.
City polls held in January of this year brought pros and cons to changing the tax structure. However, Peterson said after telling voters the inequality of the 30-year-old model, 64% supported considering a new business license tax model.
Councilmember Suds Jain said he could not take any position in the tax structure before taking the vote. He said the idea reflects a request for quick action on the budget deficit, as the city is sinking into its reserves.
Jain said the main sources of income are property tax, sales tax and the transient occupancy tax (TOT). The city increased its TOT by 2%, from 9.5%to 11.5%. The transient occupancy tax level could rise again, he said, but time will be difficult because people travel less.
“We don’t really know what’s going to happen with COVID,” he told the San José Spotlight. “We feel we need to diversify our tax base and so we’re looking at all the different options for whatever we can do.”
Threat of removal
There is concern that businesses could move their headquarters to Santa Clara if the new tax model succeeds in the polls. But Jain is less worried about leaving businesses, he said. He pointed out healthy resources like affordable electricity and fiber internet connectivity are the reason why Santa Clara is more attractive than other cities.
Applied Materials is Santa Clara’s largest employer, according to city records. Major employers in addition to Intel, AMD and Nvidia are Marvell Technology, ServiceNow, Silicon Valley Bank and Dell Technologies.
“Santa Clara has been and has been our headquarters for many years,” an Nvidia spokesperson told San José Spotlight. “Just in recent weeks, we’ve opened our second major headquarters building in the past five years.”
Other businesses are not available for comment.
Silicon Valley Central Chamber of Commerce CEO Christian Malesic declined to comment on the proposed tax proposal and board chair Christian Pellecchia did not respond to requests for comment.
Peterson said the listening sessions are ongoing, and he wants the local business community to be part of the city’s recovery efforts.
“The city recognizes the importance of a balanced approach — one that recognizes the contributions made by the business community,” he said.
Finance Director Kenn Lee told San José Spotlight that there is no formal proposal until the tax goes to the City Council.
“A lot of the feedback we’re getting will help shape and determine how that potential proposal is structured, and how much revenue we’re going to get,” Lee said.
Assistant City Manager Cynthia Bojorquez added that this is just one of several ideas to alleviate the $ 19.6 million structural deficit. He said the draft measure will come to the City Council in late June or early July because the last day to push a measure on the ballot is in August.
“We need to think about our fiscal sustainability in the long run because we have unmet needs in the city,” Bojorquez said. “This will be an ongoing conversation in our community. Whether or not we are successful on the ballot will decide.”
Contact Natalie Hanson at [email protected] or @nhanson_reports on Twitter.