If Hermosa Beach voters approve a ballot initiative to raise taxes on nightspots, the cost of their business licenses could soar from about $2,000 to a high of $640,000 a year, according to a study by city officials.
City Council members on Tuesday pledged to oppose the initiative, which activist Jim Lissner placed on the November ballot following a successful petition drive.
Restaurateurs told the council that the initiative could cost them their businesses.
According to Hermosa city officials, Lissner’s plan would raise the tax for Patrick Molloy’s on the Pier Plaza from $1,600 to $640,000 for a business license, based on factors such as late hours, alcohol service, dancing, and proximity to similar establishments.
In an interview, Lissner said some of the city’s estimates are probably inaccurate, but others are probably accurate, such as the $640,000 estimate for Molloy’s.
Also on the Plaza, Sangria Restaurant would pay $538,000, Sharkeez would pay $465,000, Hennessey’s Tavern would pay $451,000, Lighthouse Café would pay $248,000, Watermans would pay $131,000, and Fat Face Fenner’s/Paradise Sushi would pay $73,000, according to the city.
Among those hardest hit away from the Plaza, Club 705 on upper Pier Avenue would pay $334,000, Underground Pub & Grill would pay $255,000, Union Cattle Company on Manhattan Avenue would pay $217,000, Saint Rocke on Pacific Coast Highway would pay $174,000, Shore on Hermosa Avenue would pay $145,000, and the Comedy & Magic Club on Hermosa Avenue would pay $109,000.
Some establishments would see their taxes go 250 times higher than they are now, the city reported.
Eateries that do not serve alcohol would continue to see lower business license taxes. El Pollo Inka on Pacific Coast Highway would pay $970 a year, according to the city, and the Chicken Shack on Aviation Boulevard would pay $210.
‘Scary’
“Everyone knows we are in a recession. I’ve been running the club out of my savings for a few years. This would likely close the club,” Comedy & Magic Club owner Mike Lacey told the City Council.
“The losses would be tremendous to me. If that scenario happened, is there anything here that would happen where whoever caused this to happen – the person who wrote this [initiative], the voters, the city – who becomes liable for the losses that I would incur?” he asked.
“What happens if it destroys everything I worked for over 33 years? Isn’t somebody liable?” Lacey asked.
“Would it be constitutionally feasible to get enough signatures to redistrict in such a way that Jim Lissner’s home would not be within Hermosa Beach?” asked Chris Pike of Sangria. “…If that’s the case I’ll start collecting signatures tomorrow.”
“I saw my number and that’s scary, but some of these other numbers are completely egregious,” said Doug Howarth, owner of Silvio’s Brazilian BBQ on the Plaza, which would pay $21,000.
Howarth urged the council to “come out immediately and say, I’m against this.” He told council members that voters “need to hear it from the top dogs, and you guys are the top dogs.”
Lissner said the city’s estimates were probably inflated in some cases, such as that of the Comedy & Magic Club.
Lissner said his initiative would tax nightspots based in part on how late they stay open, and the city estimates appeared to be based on how late their permits allow then to stay open, whether they do so or not. Lissner said nightspots would be able to change their hours, even seasonally, and lower the tax.
Council members were vigorous in their condemnation of Lissner’s initiative.
“I find this to be a gross abuse of the initiative process in its intent. I think it is punitive. It is irresponsible. If we have problems, we need to be adult about fixing them,” Councilman Michael DiVirgilio said.
He said he lives next to St. Rocke, and said the establishment is a good neighbor.
“This is the exercise of the initiative process for the purpose of destruction,” Councilman Kit Bobko said.
Bobko and Mayor Peter Tucker urged Hermosans to back a competing ballot measure with lighter tax increases that is all but certain to emerge from a city committee, which was established to study business license taxes that have not been raised in 19 years.
Bobko said Lissner’s initiative “was clearly based on targeting that committee, and usurping what the committee was doing.”
“We need to do everything we can to make sure that it does not pass,” Bobko said.
“To take one industry and put them on the threshold of extinction is not fair,” Tucker said.
Tucker pointed out that the city’s Finance Department estimates the cost of policing the Pier Plaza at about $500,000 a year, based on police salaries.
Lissner places the figure at about $1.5 million, not counting the cost of prosecuting assaults, DUI and other crimes. He arrived at the figure by taking the number of officers who work in the field, subtracting 10 percent for vacation and leave time, and dividing that total into the full Police Department budget.
Such tax increases could bring the city an additional $4.7 million, the study reported.
City Attorney Michael Jenkins told the council that “confiscatory” taxes, which deprive a business of the right to operate, are illegal. But, he added, such taxes can be challenged in court only if they are in place, and not before.
Jenkins did not take a position on whether the Lissner taxes would be confiscatory.
‘Cover the expense’
Lissner said his initiative aims to tax nightspots for police and other services that the city must provide.
“No, I don’t think it’s too much,” he said of the potential $640,000 tax for Molloy’s. “We station cops outside their door three days a week. We provide a lot of service to that area.”
“It’s very expensive to host all those people down there. The businesses, when they have a security problem, toss it out on the street for the city to handle,” he said.
Lissner said his initiative, if approved by voters, would not change the nature of the entertainment-centered downtown.
“I don’t think it’s going to change. I think we have to accept it as it is and tax it to cover the expense of running it. I don’t think those guys are going out of business. I don’t think any tax could change it,” he said.
Lissner has told restaurateurs that they can defeat his tax initiative by making sure that the city’s competing measure will be “substantial.”
“If they raise $50,000 or $100,000 [in new tax revenue], it doesn’t resolve the revenue problem, and it just could be said that they wasted their time,” Lissner said.
Lissner said his initiative was prompted in part by his view that the city tax committee had been preparing to offer a “revenue neutral” proposal to the voters.
“Now the city is talking about some distinct raise, and yes, that’s because of my initiative,” he said.
“We have to be able to pave the streets, to do the things that a high quality city does,” he said.
