The cost of local business licenses would almost double under a proposal being circulated around Spokane City Hall as a way to help balance the city’s 2010 budget.
The concept, part of a long list of ideas presented to the City Council earlier this spring, would increase base fees from $60 to $100, double the amount businesses pay for each of their employees and require at least some nonprofit organizations to pay the license fees.
The city most recently increased base rates in 1998, said Chief Financial Officer Gavin Cooley. Rates for each employee last rose in 1988.
Mayor Mary Verner stressed that the idea is preliminary and indicated she has mixed feelings about it.
“If we brought our business licenses up to date, I don’t think it’s outrageous to consider that,” said Verner, who also indicated she would be uncomfortable raising fees on businesses: “I, of course, don’t think it’s a very good idea to increase the cost to business during this economic climate. It is still in a list for consideration because we are going to have to balance the budget.”
Spokane raises about $2.5 million a year from business licenses. The proposal as presented to the City Council would almost double that.
Besides the $60 base license rate, the city charges $10 per employee to businesses with five workers or fewer, $15 per employee to businesses with six to 10 workers and $20 per employee to businesses with more than 10.
Scott Adams, controller at Wendle Motors, said a doubled per-employee fee could be difficult for some businesses to absorb.
“The city needs to worry more about bringing businesses into the city rather than creating a tax that’s so high that people don’t want to be here,” Adams said.
Earlier this year, the city estimated it needed to trim $5.5 million to balance the books in 2010. That could grow to $7 million because of possible decreases in natural gas rates that would reduce the city’s income in utility taxes, Cooley said.
“We are very aggressively looking at ways that we can cut costs,” Verner said.
Officials say the city has begun talks with unions about possible contract concessions.
Supporters of raising business licensing fees note that Spokane companies have long benefited from the absence of a local business and occupation tax, which many cities in Western Washington impose. The local B&O taxes in those cities are in addition to the state B&O tax on all companies doing business in Washington.
Companies failing to buy their annual business licenses in Spokane can be sued by the city for nonpayment.
For comparison purposes, Cooley pointed to the cost of business licenses in Vancouver, Wash., which also doesn’t have a local B&O tax. Businesses there pay license fees of $125 plus $50 for each employee starting from the first worker.
Former Councilman Steve Eugster said business license fees are even “more regressive” than the B&O tax.
Eugster, a strong critic of the city’s tax structure, said he would prefer the city to consider a B&O tax that would exempt companies that generated less than a certain amount, perhaps $500,000.
With business license fees “you have to pay it,” said Eugster, who has announced that he will run for City Council this year. “There’s no way around it.”
Rich Hadley, president of Greater Spokane Inc., the region’s chamber of commerce, said the group hasn’t been briefed on the concept.
“A precipitous increase in anything will always bring a vociferous reaction,” Hadley said. “We need to reserve judgment until we see the full breadth of what’s being proposed.”
City law exempts many nonprofits from paying the fees. As floated to the City Council, the fee concept dealing with nonprofits simply said: “Require nonprofits to get business licenses.”
Cooley said Friday that the intent of the proposal is to only charge the fees on nonprofits that deal with health care, such as hospitals and nursing homes.
Nonprofit leaders said the city should take caution before ending or limiting exemptions.
“If a nonprofit has to pay a regulatory fee, it does mean that they have less money available to perform their service for the community,” said Spokane County Auditor Vicky Dalton, who leads the board of Spokane Neighborhood Action Partners, a nonprofit group that serves low-income families.
City Council members gave mixed opinions about the concept.
“Finding a way to tax business owners in this environment is counterproductive,” Councilman Mike Allen said.
Councilman Bob Apple agreed: “There are too many businesses that are hurting now.”
But Councilman Richard Rush said a fee schedule could be shaped to ensure businesses aren’t hurt.
“At some point we can’t just keep cutting personnel and services,” Council President Joe Shogan said. “We’re going to have to look at some kind of revenue, I’m sure.”
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