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Redwood City is dedicated to maintaining the City services residents value. These services contribute to our community's high quality of life and make Redwood City a great place to live, work and play.

Thank you to the hundreds of residents who participated in the City's recently conducted independent community survey. We are pleased to report that over two-thirds of residents remain satisfied with the job Redwood City is doing to provide City services. Through the survey and other community engagement, the City has heard strong support for maintaining existing City services.

To maintain services without increasing annual taxes on Redwood City residents, the City Council will consider a proposal to modernize the City's Business License Tax on July 22 at 6 p.m.

How did we get here?

Over the past three months, the City has hosted approximately 20 meetings with members of the business community, residents, and other stakeholders to explore modernizing the City's Business License Tax. Our goal is to maintain essential City services through increased revenue and to reduce the regressive nature of the current business tax by reducing the tax burden on smaller businesses. Additionally, we have sought community input on City services through surveys and polls, finding strong support for continuing those services at their current levels.

Changes to the Business License Tax would help reduce a persistent $9 million annual deficit. This approach was considered only after implementing other strategies for years, including economic development; cost containment through maintaining very lean staffing levels; updating our user fees; and obtaining voter support for a local sales tax.

Our ability to deliver services is at risk

Like many California and Peninsula communities, the economic fallout from the Covid-19 pandemic permanently reduced funding for City services. Without increased revenue, deep budget reductions will be required. These reductions would degrade services prioritized by the community, including public safety, street and sidewalk maintenance, and flood control. You can learn more in the Budget Message for our FY 2024-25 Budget, here.

Gross receipts-based business license tax initially studied

After evaluating several options, the City Council directed staff to study modernizing the City's Business License Tax, moving from an employee-based tax structure to a model based on a business's gross receipts in Redwood City. This approach was intended to reduce the regressive nature of the current tax structure, in which small businesses have a higher effective tax rate than large businesses, so that all sectors of the business community pay a fair share toward maintaining services.

Initial estimates indicated this change could generate about $7.5 million in net new income, offsetting approximately 80% of the projected deficit.

Key feedback we received through community engagement

In our conversations with residents, community groups, and businesses of all types and sizes in Redwood City, we heard significant support for City services. A few takeaways have informed the proposal before the City Council on July 22:

● Our community - including the business community - values the services Redwood City provides.

● Several businesses expressed a willingness to pay more to avoid service reductions.

● Many businesses expressed concerns that a tax based on gross receipts would be much more complicated to calculate and more expensive.

● Several businesses sought certainty in their annual tax bill, such as a cap or a maximum payment.

● Many in our community - including the business community - are concerned that the current structure means small businesses pay more than their fair share for services.

Updated proposal to the City Council to be considered July 22

Based on this feedback, the proposed changes to the Business License Tax have been updated. The new proposal retains the current approach of charging businesses based on the number of employees in Redwood City rather than on their gross receipts in Redwood City , however, the structure has been adjusted to reduce the proportionate tax burden on small businesses.

The full proposal and background information will be provided with the City Council agenda packet for the July 22 meeting. The agenda packet will be published on Thursday, July 18 and will be available by visiting www.RedwoodCity.org/CouncilMeetings.

Key elements of the proposal include:

● Continue to base the business tax on rates per employee, with different rates based on the business category (such as retail/commercial, contractors, services, and professional services). By charging different rates for different business categories, we can reduce the regressive nature of the current tax structure.

● Retain the current per-unit charges for residential rental property with no change in the rate, while ensuring that deed-restricted affordable housing units remain exempt from the tax.

● Retain the current square footage-based charges for commercial rental property, increasing rates to those common in nearby cities.

Ultimately, we believe this approach will balance the many interests the City has heard, including ensuring the business community pays its fair share of support for City services while continuing to foster a business climate that is competitive with other cities.

How you can learn more and provide input

The City Council will consider the updated proposal on July 22 at City Hall in the Council Chambers (1017 Middlefield Road) at 6 p.m. You can participate in person (including providing live public comment), or you can watch the meeting online. You are welcome to provide written public comment in advance of the meeting; the agenda will provide information on how to do this.

Importantly, the City Council's role is to decide whether to place a ballot measure before voters to update the Business License Tax; the City Council does not make the final decision on changes to the Business License Tax. If supported by the City Council, the measure would be on the November 2024 ballot for consideration by Redwood City voters.

We also invite you to bookmark www.RedwoodCity.org/CouncilMeetings to review agenda materials and also www.RedwoodCity.org/Respond for information and updates.

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