AGENDA #6

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:       Revised Privilege License Fees

 

DATE:             September 12, 2005

 

 

The purpose of this memorandum is to recommend that the Council consider changing the amount charged for privilege licenses that are based on gross receipts.  We offer the Council five alternative schedules for privilege licenses that are based on gross receipts, and recommend adoption of Alternative I which reduces the fees in the middle range and requires refunds totaling approximately $40,000 which would come from fund balance.

 

BACKGROUND

 

On April 11, the Council received a report from the Subcommittee of the Citizens’ Review Advisory Committee regarding budget recommendations for the 2005-06 fiscal year.  The Subcommittee recommended that each department look for ways to increase revenue by creating new fees and charges or by increasing existing fees and charges.  In response to this recommendation, the Finance Department examined the Town’s privilege license fees in comparison with the fees by neighboring communities and the Manager ultimately recommended a substantial increase in the fees. 

 

Privilege licenses are charges to businesses for the privilege of conducting business within the Town.  The Town charges for two types of privilege licenses: those that are based on gross receipts and those that are based on the category of business.  The latter carry a specific maximum charge established by State law.  The Council has the authority to revise fees based on gross receipts, but does not have the authority to revise the fees set by State law. 

 

On April 27, 2005, we presented a working paper recommending higher fees for privilege licenses based on gross receipts.   We included a chart showing the gross receipts license fees that were in place in 04-05 and the proposed new rates as shown below.

We also included the chart in Attachment 1 showing comparisons with nearby communities at that time and considered the possibility that some communities might increase their rates before the new fiscal year began.  We estimated that the increased rates would add $60,000 in total revenues.

 

In 2004-05, 714 businesses paid privilege licenses based on gross receipts.  Forty-six percent or 327 businesses paid at the $100,000 or less level of gross receipts and paid a charge of $25 or $50.  Under the new schedule, those same businesses pay from $25 to $100, amounts in keeping with neighboring communities.  All the remaining businesses paid the 2004-05 maximum rate of $75.  The 2005-06 schedule divides businesses with over $100,000 in gross receipts into three categories with fees ranging from $250 to $750.

 

The new rates and categories were included in the Manager’s Recommended Budget presented to the Council on May 9^th.  Community comment on the Recommended Budget was encouraged at the Public Hearing on May 18^th and welcomed in the business meetings on May 23^rd, June 15^th and June 20^th.  The Council did not receive any comments about the proposed privilege license revisions to the gross receipts schedule at any of those meetings.  The Council adopted the 2005-06 budget on June 27, 2005, and based the budget in part on the receipt of the additional fees.  After the new schedule for gross receipts was adopted we received correspondence from the business community which expressed concerns over the fee schedule.  (See Attachment 2 for a Summary of Comments Received and copies of actual correspondence.)

 

DISCUSSION

 

Different communities have different tables with varying break points for levels of gross receipts and have different rates as well.  For businesses at $100,000 of gross receipts, the Town’s charge of $100 is the same as for Raleigh, Morrisville, Cary, and is close to Durham’s rate of $92.50.  For businesses with $100,000 or less in gross receipts, the Town’s rates are comparable to the surveyed communities and are below rates for most small businesses, although the exact rate schedules differ.

 

Chapel Hill has higher rates than its neighbors for businesses with gross receipts over $100,000 and less than about $1,400,000.  At gross receipts of higher amounts, both Raleigh and Durham charge higher rates.

 

The Town based the proposed fee schedule on the current and anticipated gross receipts fees in neighboring communities.  While the rates were comparable to neighboring communities for gross receipts up to $100,000 and over $1.4 million, the rates were high in comparison with neighboring communities for businesses with gross receipts over $100,000 and less than $1.4 million as shown by the highlighted band in the chart below:

Based on our analysis and letters received, we have reviewed the current fee structure adopted for 2005-06 and offer five alternative fee structures that could replace the existing 2005-06 fees.

 

Alternative I

 

Retain the current categories of gross receipt divisions while lowering the fees charged in the greater than $100,000 categories.  The fees are capped at $750 for businesses with gross receipts in excess of $3 million.

 

 

 

Alternative II

 

Retain the current categories of gross receipt divisions while lowering the fees charged in the greater than $100,000 categories.  Cap the fees at $400.  This alternative would put the fees in line with neighboring communities for the small and medium-sized businesses.

 

 

 

Alternative III

 

Alternative III is the version proposed by the Chapel Hill- Carrboro Chamber of Commerce.  The Chapel Hill Carrboro Chamber of Commerce proposes a flatter schedule, but one that continues to be graduated for gross receipts up to $3 million.  The maximum charge under the Chapel Hill- Carrboro Chamber of Commerce proposal is $300.  

           

 

 

Alternative IV

 

Alternative IV would retain the current charge schedule. 

 

 

 

Alternative V

 

Alternative V would return the charge schedule to the level for 2004-05. 

 

 

 

Each of the alternatives, except Alternative IV, would require the Town to refund a portion of privilege license fees received for 2005-06.  Refund amounts for the purposes of calculating the total refund at this time were based on the number of gross receipts in each of the payment categories for the gross receipts schedule.  Refunds are estimated to vary from a maximum of approximately $60,000 for Alternative V to a minimum of $0 for Alternative IV as follows:

 

 

We would propose to reduce fund balance to cover a reduction in privilege license fees.  We believe that the proposed fee structure detailed in Alternative I is most in line with the surrounding communities.  Refunds could be processed within a month.

 

The chart below details the proposed Chapel Hill rates as compared to the rates of the surrounding communities.

 

 

 

 

RECOMMENDATION

 

That the Council adjust the privilege license fees for the 2005-06 fiscal year as detailed in Alternative I above and adopt the attached budget amendment.

 

ATTACHMENTS

 

1. Comparison of Privilege License Fees, April 27, 2005 (p. 7).
2. Summary of Comments Received and copies of correspondence (p. 8).

AN ORDINANCE TO AMEND “THE ORDINANCE CONCERNING APPROPRIATIONS AND THE RAISING OF REVENUE FOR THE FISCAL YEAR BEGINNING JULY 1, 2005” (2005-09-12/O-8)

 

BE IT ORDAINED by the Council of the Town of Chapel Hill that the Budget Ordinance entitled “An Ordinance Concerning Appropriations and the Raising of Revenue for the Fiscal Year Beginning July 1, 2005” as duly adopted on June 27, 2005 and the same is hereby amended as follows:

 

This the 12th day of September, 2005.