Costa Mesa May Raise Business License Fees to Close Budget Gap

Costa Mesa, a city in Southern California, may soon ask voters to approve higher fees for business licenses. City leaders voted 5–2 this week to put the question on the November ballot. They say the city is spending more money than it brings in, and the gap is only going to grow. Raising fees on businesses that earn a lot of money could help close that gap.

The city's budget manager, Mark Khou, explained the problem clearly. Every year, Costa Mesa's income goes up by about 3%, but the cost of running the city goes up by about 4%. That means the city could be short $1.9 million next year. By 2030–31, that shortfall could grow to $4.9 million. A review of city buildings, parks, and technology also found that Costa Mesa needs an extra $11.5 million every year just to keep things working properly.

The business license fee schedule hasn't changed since 1985 — more than 40 years ago. Right now, businesses that earn less than $500,000 a year pay up to $100 for a license. Even businesses that earn more than $30 million only pay $200. City leaders say those fees are far too low and need to be updated.

The new plan would only affect businesses that earn $500,000 or more each year. They would pay 50 cents for every $1,000 they earn. A business making between $500,000 and $1 million would pay between $250 and $500. One making between $1 million and $5 million would pay between $500 and $2,500. The most any business would pay is $15,000.

A research group surveyed 407 Costa Mesa residents in June to learn what they thought. About 62% said the city needed more money to keep services running well. Nearly the same number said they were open to raising business license fees. When people learned that only high-earning businesses would be affected, support grew by another 5%. But that support dropped when people heard arguments about hurting local businesses.

Not everyone agrees with the plan. Local business owner Cindy Brahs told the council that some restaurants could end up paying between 750% and 1,250% more for their license. She said that could force owners to raise prices for customers or even shut down. 'It's a constant struggle to keep these razor-thin margins intact,' Brahs said. She warned that the new fees could push businesses away from the city.

Mayor John Stephens supported the fee increase. He said the city has been charging the same low fees for far too long. 'No responsible business, no responsible city and no responsible fiscal entity has kept their prices the same for 41 years — this is the responsible thing to do,' he said. The city also decided not to raise a separate tax on hotel and motel stays, after hotel owners said higher taxes could hurt their bookings. Putting the business license question on the November ballot is expected to cost between $15,000 and $20,000.