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December 31, 2008 > Economic development update

Economic development update

By Dustin Findley

Mayor Livengood had asked the city manager for fairly regular updates about economic development in the city. Staff presented their first such report for the December 16 City Council. Economic development manager, Diana Barnhardt, provided the staff presentation. She gave the first initial overview of the economic development program and staff activities.

In Milpitas our general fund revenue is projected to be, for fiscal year 08-09, 72.6 million and of that there are 3 categories that economic development can have some noticeable impact on. One is the property tax, which accounts for 24% of our general fund revenues. Sales tax, which is right behind it with 23, and our transient occupancy tax, of about 8%, which is the tax that we get from our hotel rooms. We are very hotel room wealthy in this community.

We were trying to look at the trends over the last three years, even going back to 2002. Property tax is up 8% since 2002. From 2002 to 2008 sales tax is up 7%. Hotel tax is up 29% in the last three years. So we have seen some real success and some strong growth in those areas.

As a city the question is often how we can impact the local economy. The road map to service improvements has been one of Milpitas' biggest successes. It's helped us understand and to show the business community when they come to city hall, that we understand that time to market, and the cost of carrying land and property to them. If we can speak their language, they feel more comfortable with us.

We have had some success in business retention and attraction. Companies like Sandisk and Kovio most likely found a really good facility for a really good price in Milpitas.
Spectra Labs were shopping a couple of cities, looking at a couple of sites, and the initial meeting with their team, with building, with fire, planning, said to them, "you're important to us" and they made the decision to come to Milpitas. We're going to see growth from them both in jobs and in revenue stream.

So when we look at sales tax, we went back and in our most recent sales tax report from the second quarter of 2008. General retail makes up about 35% of our sales tax revenue. Business-to-business is about 25%. This is a very volatile economic sector. This refers to businesses that are actually calling out a point of sale in Milpitas. Not just in production, or in research and development, that they are actually selling from their facility. Where businesses are selling to other businesses, and they are accumulating their sales/point of sales in Milpitas, that is business-to-business sales.

Business-to-business sales have declined, and this is attributable to internet sales. Businesses account for them differently. They are not actually having hard sales. For example, Cisco used to have sales offices in various communities around the Bay Area, and whatever they sold out of that office, going to various manufacturing companies, they would account for that sale, right there in that city. That was all brought in to their headquarters in San Jose for point of sales. They have maintained a pretty strong point of sale. But, some are selling over the Internet like Adobe. When Adobe first went to San Jose it was more of a hard sale, and now a lot of sales occur over the Internet and they don't accumulate as much tax.

We hit our peak in that area of the third quarter of 2006. General retail is certainly the most stable of the two, where business-to-business is very volatile. Food products is very big for our city as well. We are fortunate that we have an increasing in transportation sales tax revenue with a car dealership and second car dealership coming in.

We asked what are the growth areas, and what areas can we help as a city stabilize during the upcoming economic turmoil. We keep reading that 2009 is going to be very rough nationally, for states, and for localities. We are endeavoring to answer how we can be of assistance to be that stable environment or to help business remain stable during that turmoil.

Given the flux of the economic situation at the state level, we need to change our economic development priorities. And we need to be able to revise frequently our approach to continue to meet that changing dynamic that business is going to have in front of us.

Businesses want to know that we, the city of Milpitas, understand what their issues are, and even though we can't control what's going on globally, we can let businesses know they have a face, a name, and a phone call at city hall that they can reach out to. So that type of one-on-one outreach is going to be critical for 2009.

We were talking about economic incentives that do not decrease revenue flow, like low-interest business loans, help with marketing assistance, even a local preference purchasing policy.

If the council is interested we could address the issue in the economic subcommittee, work out how we could set aside redevelopment money so they have those funds available to talk to businesses when they come in. There was one business that Milpitas strived to support, getting them necessary approvals, but the business went to San Jose because they got a low-interest loan. San Jose is our competitor. So we are looking at what we can do with redevelopment funds for very specific things like this.

Mayor Livengood was pleased with the urgency that the report recommends, and said that the council will review economic development reports every month.

Council decided to accept the report, direct staff to immediately pursue local preference ordinance that will include performance measures, coordinate with Mayor Livengood and the city council economic development subcommittee to schedule a plan for targeted coporate business outreach, study and report back to the council regarding redevelopment (RDA) incentives for low income loans and other ways the RDA can help.

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