San Diego has seen a steady decline in the number of businesses applying for city licenses since the pandemic began, a potentially concerning trend for the local economy.
Part of this decline may be due to businesses choosing to close or exit California based on affordability and regulatory concerns, the City Finance Department said in a recent budget report. he suggested.
A 7.5 percent decline in licenses since fiscal year 2019 has cost the city nearly $1 million a year in lost revenue. But the losses would be even greater if San Diego's rates weren't much lower than comparable cities.
The number of business licenses (officially called business tax certificates) reached a record high of just over 108,000 in the city in 2019. The number remained at that level in fiscal 2020, which ended three months after the pandemic began.
The number of licenses that need to be renewed once a year on anniversary dates will be 105,000 in 2021, 103,000 in 2022, and 101,600 in the fiscal year that ended last June. decreased to
“This drop did not happen in one year, but has continued every year since COVID-19,” said Ricardo Ramos, deputy director of the Ministry of Finance. “We are emerging from COVID-19, but it is a little difficult to see when the situation will stabilize.”
The pace of new applications and renewals continues to slow this year, with only about 100,000 accounts active by February 13, Ramos said.
Officials with the San Diego Regional Chamber of Commerce said they do not track business closures or exits, but agreed the pandemic is having a major impact.
Jerry Saunders, chief executive of the chamber, said: “The pandemic has been a devastating blow to the local business community, with many never recovering and those that have recovered still facing many pressures on their bottom lines. “I am doing so,” he said.
The San Diego Regional Economic Development Corporation said it could not comment on the downturn in city permits because it does not track closure or permit data.
In 2022, a study by the Rhodes Institute of Local Government found that California has experienced nearly 20,000 net business losses since 1990, and the trend is accelerating, with net business losses exceeding 20,000 per decade since 1990. It was found that the number of cases has increased from about 4,200 in the 2020s to 7,300 in the 2020s. In the 2000s, he reached 8,400 cases; in the 2010s, he reached 8,400 cases.
Also in 2022, a report from the conservative Hoover Institution blamed taxes, regulations, labor costs, energy prices and the cost of living for workers on companies moving their headquarters out of state.
The decline in San Diego's business license revenue leaves a hole in the city's budget, as the city has used up all of the $550 million in federal pandemic aid it received and is expected to face deep budget cuts. ing.
Business license revenue, which was $7.8 million in fiscal year 2019, is expected to decline to approximately $6.9 million during the current fiscal year.
The city had collected $4,489,731 in business license fees by February 13 of last year, but as of last Tuesday, only $4,199,349 had been collected, a drop of more than $290,000 in just one year.
San Diego charges much lower business license fees than comparable cities in California, but because business license fees are considered a tax, the City of San Diego cannot raise them without a public vote. .
San Diego charges a flat fee of $34 per year for businesses with 12 or fewer employees. Businesses with more than 12 employees, which represent only about 5% of businesses in the city, must pay an annual fee of $125, plus an additional $5 per employee.
Los Angeles collects about $850 million annually in business license revenue, more than 100 times as much as San Diego, because it uses a tiered fee structure and charges businesses based in part on gross receipts. .
The City of San Diego does not factor gross receipts into business license taxes.
The city of San Francisco, which receives more than $1 billion a year in business taxes, faces a lawsuit challenging the legality of its graduated tax rates.
Oakland, which is much smaller than San Diego, receives about $125 million a year in business taxes, more than 25 times that of San Diego, primarily because it taxes gross receipts like Los Angeles.
San Jose, like San Diego, charges a flat fee, but due to the higher fees, it receives more than $85 million annually (more than 17 times San Diego's revenue).
City officials frequently point out that many other California cities generate more tax revenue per resident than San Diego. This winter, an increase in local sales tax and city tax to cover stormwater costs are being discussed.
But officials have not publicly discussed the possibility of putting the business license increase on the ballot.
