Ensure fiscal sustainability with proactive measures like diversifying revenue sources, analyzing your market, and automating administration tasks.
Overview
Rising employment costs coupled with persistent inflation are pushing the U.S. towards a fiscal tipping point. Local businesses are grappling with balancing operational expenses amid decreased staff and increased prices for goods and services. However, the burden extends beyond the private sector. Local governments face widening budget gaps as revenue streams struggle to keep pace with the rising costs of maintaining essential services. With California currently facing an estimated deficit of $73 billion, innovative solutions are imperative to ensure fiscal stability.
The Ripple Effect of Minimum Wage Increases in Your Community
Starting April 1, California legislation AB 1228 will increase the minimum wage of fast-food workers to $20 per hour. While the intent behind the new legislation is to bring relief and solutions to 500,000 plus workers, the effects extend beyond the realm of paychecks. To offset labor costs, affected business owners are faced with few options:
- Increase food costs - McDonald’s, Chipotle and Jack in the Box plan to pass on the cost to consumers.
- Automate jobs - Wendy’s chatbot will be taking orders as early as this year. Shake Shack and El Pollo Loco will add self-serve kiosks. Chipotle will use an avocado peeling robot.
- Decrease staff - Pizza Hut and Round Table recently announced layoffs affecting over 1,280 employees and outsourced deliveries to vendors like Doordash.
- Close or relocate out of state - Boston Market, Burger King and Steak ‘n’ Shake have filed or been close to filing bankruptcy and could be among the first to close California locations.
The ripple effect has already manifested in job losses, increased service fees, and longer wait times. A decrease in product demand and fewer restaurant choices could follow. While the minimum wage increase has put the fast-food industry in the limelight, it is not alone in its use of automation. Grocery, retail, and convenience stores increasingly invest in self-checkout, cleaning robots, inventory management systems, and apps to promote sales and marketing. The use of automation to streamline operations and mitigate rising labor expenses is on the rise. These trends highlight the need for adaptive strategies to stay ahead of impending shifts in employment and sales tax revenue.
Local Government Solutions
Local governments have access to numerous innovative strategies to manage rising costs and declining revenue while safeguarding essential services.
Ordinance Reviews and Tax Studies
Many agencies levy business taxes, licenses, or regulatory permits on their local business community, which provide goods or services within the city or county. Historically, the standard practice was to tax on a per-employee basis, suitable for an era when businesses operated with large workforces. However, the advent of automation has rendered employee-based taxes or fees regressive.
Ordinance reviews and tax studies serve as vital functions not only to bolster revenue but also to modernize outdated municipal codes,
some of which we’ve found to be over 50 years old. Agencies relying on employee-based taxes or fees may face ongoing revenue declines as automation reduces the need for human workers. Models such as gross receipts or others, though more volatile, may offer a more accurate reflection of current business trends and promote a fairer tax structure.
Discovery, Compliance and Revenue Recovery
Your business community is in a constant state of change. Increase compliance by balancing education with enforcement for a business-friendly approach. HdL ensures entities subject to taxation or licensure are notified, properly registered, accurately reporting, and are compliant with your municipal ordinances. Ensuring fairness and equity in tax collection can maximize revenue without straining business relations.
Diversification of Revenue Sources
Relying solely on sales tax revenue can be risky, especially during economic downturns. Local governments can diversify their revenue sources by exploring other taxes and fees (such as hotel occupancy taxes, rental registration, short-term rentals, cannabis tax, utility users tax, and more) that both drive revenue while saving money on the expenditure side and support the local community in beneficial ways.
Market Analysis
The more insight you can provide into your community, the easier it is to increase economic development. Potential businesses, developers, site selectors, and real estate professionals rely on market analytics. Reports like the following can increase both business attraction and retention:
- Resident vs Non-resident Comparison: Determine the breakdown of sales tax generation from both residents and non-residents to understand spending patterns. This data can be useful when considering a ballot measure for a sales tax increase.
- Consumer Demographic Profile: Understand the consumer demographic changes as your market sizes vary. This report utilizes the STI: PopStats database and contains 1,200+ variables. Using a bottom-up approach, it ensures high accuracy and reliable demographic data.
- Household Segmentation Profile: Understand what consumers like and how they behave. This report uses the AGS Panorama Lifestage database to divide household clusters into one of 18 Lifestage Groups. Identifying the most concentrated groups can encourage attraction of the most suitable businesses for your community.
- Employment Profile: Break down distinct types of industries and jobs to help accurately assess the number of people working in the region during the day. Knowing the types of businesses and workers near key areas can strongly impact decision-making.
- Consumer Demand & Market Profile (GAP Analysis): Know your overall trade area, rather than just agency boundaries, to pinpoint potential opportunities in a specific market. Analyze opportunity/surplus gaps across retail areas and major products and services. This data is crucial for development planning, recruitment strategies, and market analysis.
- Trade Area Maps: View your agency with an overlay of General Merchandise, Retail, Markets, Restaurants, or other specific trade areas targeted to your agency to see what additions would compliment your community.
Automate Administration
Cyclical processes like applications, returns, renewals, payments, and more can be – you guessed it – automated! Combine multiple revenue programs, processes, community education and relationships with a click. HdL’s online taxpayer portal offers quick tax calculations, automated reports, payments, and electronic notifications yielding a higher level of customer service and efficiency.
As local governments navigate the complexities of rising costs and decreased revenue, proactive measures are essential to ensure fiscal sustainability. By embracing innovation, collaborating with expert partners, and leveraging data-driven insights, local leaders can steer their communities towards economic resilience and prosperity.
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