January 13, 2004
SUBJECT: Status Report of Business License Process Improvements
FOR INFORMATION ONLY
REPORT IN BRIEF
Council directed staff to examine the Business License Tax application and renewal processes to find ways to reduce costs and/or increase revenues. Staff has examined the current process, as well as process improvements such as renewals via the Web, two-year renewals, and other possible process changes. Certain changes would require an amendment to the Municipal Code.
Additional work needs to be completed before implementing any changes. Therefore, business license renewals for calendar year 2004 have been sent out. Although businesses have until January 31 to renew their license, the 2003 license expires on December 31.
Staff will continue to work on reviewing process alternatives and report back to Council for required policy direction on July 20, 2004. It is anticipated that any process changes that may be approved can be implemented prior to the 2005 renewal cycle.
BACKGROUND
As part of the budget reduction package for Fiscal Year 2003/2004, staff recommended that the Council approve a reduction in hours for the Business License activity by 50%. This amounts to a reduction from one full-time position to approximately half a position.
At the June 10, 2003 Council meeting, the City Council was asked to approve the implementation of two new fees: a processing fee for new business license applications and a processing fee for all business license renewals. The proposed fee was set at $27.00 for new applications and $17.00 for renewals. At that meeting, Council inquired what process improvement activities the Finance Department had considered to reduce the $17 renewal processing fee and when the Finance department would be prepared to bring recommendations back to the Council. Staff responded that they were looking at alternatives (including allowing renewals via the Web and two-year renewals to deal with the staff reduction and new processing fees) and would report back to Council before the next renewal period in January 1, 2004. Any staff recommendations for change would be brought back to Council for consideration.
Council then approved the proposed change to the Municipal Code relating to Business License Tax processing fees, with direction to staff to come back to Council with recommendations regarding any potential alternative methods for reducing the renewal fee before the next renewal cycle.
DISCUSSION
The Business License Tax was adopted in 1968 and the last tax increase occurred in 1976. The lowest tax is $10 for businesses located in Sunnyvale with one to five employees and the maximum tax is $325 for businesses located outside of Sunnyvale with 146 or more employees. Our tax structure is one of the lowest in the County.
Currently, our Municipal Code states that the Business License Tax is an annual tax. All business licenses expire in December of every year. Renewals are usually sent out in November and licenses become delinquent if not paid on or before January 31.
In order to research process alternatives, staff worked with the Deputy City Manager to prepare a process map of the current business license renewal process. Some key process improvement areas that staff has focused on include: allowing renewals via the Web, two-year renewals, staggered billing, and ways to eliminate unnecessary steps in the renewal process.
The City purchased the Hinderliter, de Llamas & Associates (HDL) business licensing software package late in August 2001 and went live with this system in April 2002. HDL has no current capability to issue renewals via the Web. HDL has indicated that they may be able to look at this alternative in about one year. In addition, they have not had any clients willing to pioneer this effort. One of their concerns is network security since allowing renewals via the Web would involve allowing businesses to change their business information (number of employees, mailing address, etc) as part of the renewal process. Allowing renewals via the Web would also require the assistance of our Information Technology department. Staff has requested cost and feasibility information on the development of a web-based front end for the existing business license system from the Information Technology department.
Staff has also looked into various alternatives to the renewal process in order to deal with the staff reduction. One alternative is to issue business licenses for a two-year renewal cycle instead of the current one-year cycle. This would cut the processing fee in half since businesses would only pay the fee every two years, instead of annually. There is the question, however, of whether firms that go out of business in the first year would be entitled to a refund of the second year’s tax.
We also have some issues to resolve if we want to move forward with a longer license period. For example, the Community Development Department uses the information provided by businesses on the renewal form to develop business retention strategies and to provide information to the Council. Information in the HDL database will not be as timely with a longer license period.
Another option would be to have staggered billing dates to allow the workflow to be more evenly distributed.
Any process improvement would most likely require a modification to the Business License ordinance, which takes time to adopt and effectuate. Because licenses were about to expire, it was not feasible to delay the 2004 renewal.
Work Plan
The Finance Department needs more time to evaluate these various scenarios in order to determine the best alternative. It became clear when working on this project that it would be difficult to implement a solution during the 2004 renewal cycle. We want to think through any process improvement carefully given the staff reduction. If the decision is made to stagger the billing and change the expiration date of any licenses, we need to identify the best way to determine new expiration dates for the existing businesses (determine expiration date alphabetically, by business start date, by license number, etc.).
Staff would like to continue to work on the process improvement study to also evaluate potential solutions to reduce the renewal processing fee to the business community. Staff can provide the Council with additional information at the July 20, 2004 Council meeting so that a viable solution might be implemented for the calendar 2005 renewals. In the meantime, renewals for 2004 have been mailed.
FISCAL IMPACT
There is no fiscal impact.
RECOMMENDATION
This report is provided for information only. Therefore, no recommendation is included.
Prepared by:
Therese B. Balbo
Finance Manager
Reviewed by:
Mary J. Bradley
Director, Finance
Approved by:
Amy Chan
Acting City Manager