The city of Fresno finds itself in a financial crisis in part because it's lousy at collecting its own taxes on local businesses.
The result: Probably millions of dollars slip through the fingers of city officials every year even as they lay off employees and cut services.
"I've got some real issues with how they do things" in collections, says Council Member Lee Brand. "Fresno is behind the times."
The city collected nearly $16.3 million in business license fees in fiscal year 2008. In fiscal 2010, it hauled in a little more than $14 million -- about 10% less than projected.
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The economic downtown hurt, of course. But City Hall acknowledges the fault is largely its own.
City officials admit they have no idea how many local businesses aren't paying. They admit they don't know how many aren't paying their fair share. They admit they don't know how many businesses operate in Fresno.
But, city officials emphasize, things are changing. They've signed up MuniServices, a Fresno consulting firm specializing in municipal finances, to help track down tax scofflaws. They're also installing new computer software that, among other things, will speed up the processing of renewals and payments.
In her 2011 budget, Mayor Ashley Swearengin is counting on $16.2 million from business license fees.
"We'd better get it," City Manager Mark Scott says.
Business license fees go to the general fund, most of which goes to police and fire protection.
Scott says no city enjoys levying a tax on its businesses, especially in a recession.
But, he adds, "it's a source of a lot of money. That's why a lot of cities can't give it up."
City officials say there are several reasons for the tax-collection problem:
- The collection office staff has been cut from 16 positions to 11 in the budget crisis.
Just last week, three of four candidates in the two City Council elections hurried down to City Hall and paid back taxes on their small businesses when told by The Bee that they were in arrears.
Another problem: The city's system depends on honor. The business owner takes out a business license and pays taxes -- typically every three months -- based on gross receipts. The city depends on the owner to state the true amount.
City Controller Joe Gray, who was hired last year, says the system worked fine in the boom years. Flush business owners had more reason to be honest; City Hall could afford a bit of fudging or uncollected taxes.
Times are tough now, Gray says, "so we're turning over all the stones" looking for money.
Gray says MuniServices will compare the city's records with state and federal tax information to find the deadbeats. If someone is doing business in Fresno, Gray says, they're most likely paying taxes to someone. The cross-checking will expose them, he says.
MuniServices gets a 40% cut of what it collects but that's only for the first year, Gray says. After that, the city will have an updated database of businesses and keep all taxes.
The contract with MuniServices goes through June 30, with two one-year renewals.
"We'll be ready when the economy gets better," Gray says.
Swearengin on Friday announced the city's launching of an online directory at www.fresnolocalbiz.com listing more than 18,000 Fresno businesses with a current business license. MuniServices is among them.
Robert Woolley, interim city manager in Clovis, says Fresno's problems aren't unique.
For example, Woolley says, it's relatively easy to make sure businesses in traditional retail areas are licensed and paying their taxes. He says competitors often alert City Hall if a business owner is trying to sneak by without a business license.
But businesses that operate in a living room or an obscure corner of an industrial area can fly under City Hall's radar, Woolley says.
Woolley cautions against assuming the solution is to simply hire more people to hunt down the offenders. He says MuniServices recently did an audit for Clovis that generated almost $800,000 in additional business taxes. But, he adds, the low-hanging fruit was quickly picked and the search eventually hit a point of diminishing returns.
On occasion, he says, Clovis has used a police officer on light duty to go door to door checking on business licenses.
Woolley also says cities in the midst of downsizing have good reason to cut staffing in administrative areas such as collections while trying to leave unscathed core services such as public safety.
If Steve Duquette, owner of Tower Dogs in the Tower District, is any indication, the biggest beef that Fresno business owners have with the tax isn't its existence but City Hall's lax enforcement.
"If we didn't pay, then what?" Duquette said. "We lose another fire station or another police officer. We should all have to pay."