It all started in 2003 when the council, on the advice of its finance director, decided to charge contractors and subcontractors a business license fee based on .36 percent of 1 percent of the project's value, rather than the annual flat fee assessed in the prior years. While it was easy for the town to collect $250 from each general contractor, keeping track of numerous subcontractors was not.
The idea was to make up the revenue the town thought it was losing to hundreds of subcontractors who some officials said were side-stepping their $150 annual license fee.
The argument was convincing, and the City Council went along, voting unanimously on March 19, 2003, with the approval of its then city attorney, Marc Hynes, to impose the recommended new business license fee. The new charges were strongly opposed by contractors working in Atherton, who said the new fee overestimated the number of subcontractors on expensive jobs. They met with Atherton officials in an effort to change the new assessment plan, but the town held fast and revenues from the business license tax jumped from $150,000 to $450,000 annually.
The system remained in place although the town's resolve wavered last year, when more and more protests were lodged against the tax. Sacred Heart School, for example, said it was charged $55,000 in business license fees when it was building a new gym. Other residents echoed the private school's story, saying they had paid far too much for simple remodeling jobs.
Council member Charles Marsala took up the cause, and for the past year, has continued to press his fellow council members to consider changing the tax. Finally, under the threat of legal action, the city hired a consultant to review the business license tax system for contractors, and although the resulting advice was heard in a closed session, the council voted in December of last year to go back to its old method of flat fees and offer refunds for fees paid in the past two years.
This isn't the first time Atherton has had to refund money to irate and potentially litigious builders. In September 2006, the council rescinded the controversial construction off-haul fee a year after it was imposed, and announced it would refund the approximately $350,000, plus interest, that had been collected. Opponents of the off-haul fee, a charge on excavated dirt carted off building sites, said that it was an illegal tax, not a reasonable fee for road damage caused by heavy trucks.
In the next fiscal year, Atherton expects a negative swing of $1.1 million from the business license fiasco, based on $425,000 in lost income and an estimated $680,000 in refunds that will be paid to contractors who were overcharged during the last two years. No refunds will be given for the higher fees paid from 2003 to 2005.
Even in a good budget year, Atherton cannot afford to pay for a $1.1 million mistake that was approved on what appears to be terrible advice from its finance director and city attorney. Everyone is entitled to a bad decision now and then, but now it appears that a consultant's analysis of the new business license fee should have been commissioned before it was assessed, not five years later, after the damage had been done.