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A Year-End Review of San Diego's Small Business Climate

As published in the San Diego Daily Transcript

by Vince Vasquez

Wednesday, December 2, 2009

As 2009 comes to a close, it’s worth taking a closer look at how decisions from San Diego City Hall have impacted small business owners over the last eleven months. Fine-tuning our economic engine for long-term growth will require local lawmakers to be responsive and deferential to those in the trenches of today’s economic storm.

Overall, the regulatory changes from 202 C Street have been positive for business owners. New reforms advanced at City Hall this year that will expand contracting opportunities for small and local businesses, keeping more tax dollars in San Diego. Kudos are in order for Mayor Jerry Sanders for his efforts to securing new private sector partnerships that will assist small construction contractors to meet qualification requirements to bid on public works projects, and provide small business financing for energy-efficiency improvements. Also working its way through City Hall today is a new program to improve the competitive bidding prospects of small, local, and disadvantaged businesses for municipal contracts, addressing the need to stimulate local job growth and the historic government disenfranchisement of minority-owned enterprises in the City of San Diego.

Other notable achievements this year stemmed from a key legal victory that protects the interests of business taxpayers. This fall, the Fourth Appellate District Court of Appeals unanimously ruled that the City of San Diego may not charge a fee to collect the business license tax. Since 2005, the City had been unfairly levying a $25 processing fee to collect the business tax from companies and rental property owners, a run-around of a state ballot measure passed in 1996 which requires new and increased taxes to be put to a public vote. With the fee now permanently suspended, Council support has been successfully secured for 12-month “refunds” for rental property owners, a rebate that will affect more than 75,000 San Diegans.

The focus on small business relief today is the right one, as they are the backbone of our local economy – the city estimates that 92% of all businesses in our municipality are small, contributing half of all job growth over the last eighteen years. It is well documented in economic literature that when recessions occur, and job losses initially rise, growth in new business licenses increases, as more people find work as independent contractors and home-based entrepreneurs. However, now with our national economic downturn on the verge of entering its third year, business growth has dampened; data from the City of San Diego finds that the number of new business licenses in August 2009 was the lowest monthly tally since December 2007. Regrettably, this trend has been compacted by poor fiscal policy choices made by the City Council this year that raise the regulatory costs for many local businesses.

In an effort to raise revenues and close a multi-million dollar budget gap this spring, the City Council approved more than 40 business fee hikes, including fees for firearms dealers, event promoters, street curb painters, professional entertainers, door-to-door salesmen, pawn shop owners, massage therapists, and holistic health practitioners. Most egregiously, the City Council also increased the fees for businesses wishing to hold a “closing out” sale, only adding to the burdens of countless small business owners and retail stores facing bankruptcy and financial ruin.

Raising the costs of business is not the policy direction the Council should continue to take if it seeks to reverse job losses and the downward spiral of tax revenues in the coming year. With 2010 fast approaching, local elected officials should consider two prudent steps to improve the conditions in our economic climate.

Next year, the Council should weigh the merits of passing a short-term ban on new regulations that affect local businesses, a smart policy that has precedent. In 1993, San Diego Mayor Susan Golding secured bipartisan Council support a twelve month moratorium on new city regulations and fee increases that impact recession-weary businesses. High rates of unemployment in California are now projected to extend well into next year, which should compel elected officials to see the wisdom of the old axiom of “first, do no harm.”

Additionally, new business tax reform should be on the table. As a January 2009 policy brief authored by the National University System Institute for Policy Research revealed, the City of San Diego’s business license tax collects a deminimis amount of revenue, and has a collection process that is less than effective. Council leadership has emerged to advance reform; earlier this year, Councilmember DeMaio rolled out a comprehensive four-point Small Business Tax and Regulatory Relief Plan that will reduce red tape and improve business tax policies in the City of San Diego. City Hall needs to foster more common-sense approaches to setting policies that recognize the challenges of small businesses in our community, and giving DeMaio’s plan a closer look may just provide the fresh start they need for the new year.

Those business owners interested in sharing their thoughts and opinions on local business regulations should consider attending this Thursday’s free Small Business Summit hosted by Councilmember DeMaio, which will occur from 9-11:30AM at the Balboa Park Club. The Summit’s goals are to improve public access and education to small business resources, and to provide business owners with an opportunity to offer feedback to City Hall on how they can help improve our local economic climate.

As our nation enters another year of our historic economic downturn, lawmakers will need to hear the voices of small business owners now more than ever. The cues that will lead San Diego to economic recovery will come from Main Street, not City Hall.