Commissioner Arroyo casts sole ‘No’ vote this week on staff’s recommendation
With the necessary number of “Yes” votes, the Sarasota City Commission this week approved a 5% increase in the Local Business Tax rates — the first such adjustment since 2015, as staff and the board members noted.
The new fees will go into effect on Oct 1, 2023, which is the start of the 2024 fiscal year.
Commissioner Erik Arroyo cast the solitary “No,” vote, expressing opposition to the requirement to make businesses pay more to the city, instead of the board members’ working on steps to provide more incentives to businesses to relocate to Sarasota.
Myra Schwarz, general manager of the city’s Development Services Department, explained that most of the revenue from the tax has been allocated to filling the gap between the Florida Department of Transportation (FDOT) grant for the operation of the free Bay Runner trolley service from downtown Sarasota to St. Armands and Lido keys and the actual cost of the service.
Previously, Schwarz noted, the funds went to such efforts as the purchase of public art, special cultural events, and streetscape projects.
The total amount the tax raised for the last fiscal year, she pointed out, was $856,447.15. The 5% increase would bring in an extra $42,823, she said.
Further, Schwarz told the commissioners, the state law authorizing local government business taxes requires supermajority votes to implement any increases. By that, she meant that four of the five commissioners would have to vote “Yes” on the proposal.
When Arroyo asked her why staff was proposing the rate hike, Schwarz replied, “The city’s taken on some impressive innovations in the last few years. We can only see [such action] increasing” in the years to come. Therefore, the extra revenue is a necessity, Schwarz indicated.
‘The trolley fund’
The FDOT grant for the Bay Runner is $500,000 per year for the trolley’s three-year pilot program, City Manager Marlon Brown pointed out during the discussion. As it costs about $1.3 million annually to keep the Bay Runner on its loop, he said, the city has had to supplement the operations with $800,000 out of the business tax revenue.
After spending that amount for the trolley, Brown continued, the city has had only about $46,000 left out of the tax proceeds to use in other economic development pursuits.
He did acknowledge that the Downtown Improvement District and the St. Armands Business Improvement District also have contributed to the trolley’s expenses.
Moreover, Brown said, he had learned that FDOT is willing to provide another three-year grant to keep the trolley in service. However, he added, he expects the state assistance will fall below the $500,000 level. Therefore, he told the commissioners, he already is looking into other potential sources to help plug the gap when the original FDOT grant ends.
The trolley service, which began on March 2, 2022, quickly became popular, as city staff has pointed out in news releases. In April 2022, one release said, the Bay runner carried 14,291 riders. In February this year, the total was about 17,000, that release noted.
During the May 15 discussion, Brown called the Local Business Tax “a minimal tax,” with the money going into the city’s Economic Development Fund.
General Fund revenue and other sources of money, he noted, have been used to provide the necessary funding for projects whose expenses could not be covered by the Economic Development Fund.
The General Fund largely is made up by the city’s annual property tax revenue.
During the May 15 discussion, Commissioner Jen Ahearn-Koch told her colleagues, “When we did talk about the trolley, I made a snide remark,” that the Economic Development Fund should be renamed “the trolley fund.”
“We should [rename it],” Arroyo responded.
“I think it’s really important to keep this [Economic Development Fund],” Ahearn-Koch continued. If her memory was correct, she added, she believed that former Commissioner Shelli Freeland Eddie, who stepped down from the District 3 seat in 2020, after one term, was the board member who called for the city to revise the language of the original 1995 ordinance establishing the Local Business Tax to ensure that the revenue be set aside for economic development.
Ahearn-Koch added that the commissioners, for example, allocated some of the revenue to helping businesses survive the early stages of the COVID-19 pandemic.
However, she said, after reading through the draft of the revised ordinance, she felt that the language should be updated in a number of instances. For examples, Ahearn-Koch noted that “dog tracks” are listed, even though the state outlawed greyhound racing as of Jan. 1, 2021. She also referred to the line that mentions coin-operated music machines, eliciting laughter from some of the other commissioners and senior city staff members seated at the dais in the Commission Chambers of City Hall.
The ordinance has nearly nine pages of business types listed, with their current tax rates and the proposed rates.
If the board members that day approved the proposed 5% increase, City Manager Brown replied, then staff would go through the ordinance and revise it with updated language that the commissioners could review before their second and final vote, which would put the higher tax into effect.
Commissioner Debbie Trice pointed out that, like Ahearn-Koch, she had noted the outdated businesses. “I actually looked down the list … for buggy whips.” That comment drew more laughter.
Perhaps in its revision, staff could consider adding newer types of businesses, Trice said.
More pros and cons
“Have we been soliciting input from the businesses,” Trice then asked, to learn how the owners would like to see the revenue spent.
The tax first was implemented following a public hearing, Brown told her. That followed staff’s efforts to solicit direction from business owners about how the money should be used, he added.
“We can make [the tax increase] a little bit more palatable,” Trice said, by engaging in such outreach again.
With no one having signed up to address the topic that day, Ahearn-Koch made the motion to approve the tax increase and other changes, as discussed, with the final version of the ordinance to be provided to the commissioners for review before the second vote.
Trice seconded the motion.
Then Arroyo asked, “Is there a compelling reason to raise taxes on businesses? I would be all in favor for this [if such a reason existed],” he indicated, adding that he believes the current tax rate is “generating a sufficient amount.”
In fact, Arroyo continued, he believes that the city should eliminate some of its special revenue funds. That effort would attract more businesses to Sarasota, he added.
As an attorney, he pointed out, he is paying $1,000 a year for the tax. A new business also has to file articles of incorporation or organization with the state, Arroyo noted, indicating that that fee is $140. County fees have to be paid, as well, he added. Further, companies have to turn over sales tax revenue to the state, and they have to pay employees, he told his colleagues.
The lemonade stands of “the olden days,” he said, are virtually impossible in this era, “because of all the levels of government fees and compliance mechanisms in place.”
Vice Mayor Liz Alpert told him she understood his point. However, she continued, as an attorney herself, she would be paying only $5 more per year for the Local Business Tax. “I think the amount of money we’re looking at here would not stop a business [from relocating or opening in the city].”
The revenue derived from the tax, Alpert added, “benefits the businesses that come here, given how the money is used.”
Mayor Kyle Battie also voiced his support for the tax increase.
Ahearn-Koch reminded her colleagues that the tax had not been raised since 2015. Money is needed, she added, to pay for initiatives that the city has pursued in the past to improve the look of the downtown business district, including the beautification of storefronts and the addition of canopies, which draws more people to the commercial area.