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Wu: How to make a bad situation worse

September 16, 2012|By Jack Wu

Marshall "Duffy" Duffield has lived in Newport Beach his entire life. He started building boats here in 1970. And he spent 10 years on the Harbor Commission.

The Duffy Electric Boat Co. chief recently received his plaque of appreciation regarding his commission service, which ended this year. The day after, the Newport Beach City Council rewarded him by voting to potentially tax him out of business — at least over time.

Here's how. At a council meeting last month, lame duck Councilman Steve Rosansky tried to empathize with the freeloading, gift-receiving commercial dock owners by telling them that "a new paradigm has been developed for Newport Beach. Some business may go away, some will change their operations," and that his "own business (a Togo's in Orange) had dropped by 30%; it's just the way it is sometimes."

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At a special council meeting Sept. 12, he, along with Councilmen Ed Selich, Mike Henn and Rush Hill, voted to charge commercial marina operators up to 20% of their gross income as rent (a tax).

The tax increase will be phased in over eight years, with no significant increase the first year. However, by year eight, if "Duffy" earns $1 from a boat rental, he could owe the city upward of 20 cents, give or take a few pennies, before he can pay one penny to himself.

The city is going to develop an index of marinas and average 20% of their gross income to come up with the exact formula, so the tax increase could be ultimately be a few points less, but nevertheless this is a new burden for local business owners.

The ridiculousness of Rosansky's statement is that his business, as well as most every one of the speakers who showed up to the City Council Chambers, is suffering because the economy is tough, not because their local city is imposing a new tax on longtime established businesses.

How and why did this happen?

Let's start with why. The city pays for harbor- and beach-related services from its special Tidelands budget. The city's $200,000-a-year lifeguards are paid from this budget, as well as police and firefighters, so as long as their work pertains to the beach and harbor. The city is required by the state to charge fair-market rates to businesses that benefit from the waterfront locations.

George Hamilton Jones, a nationally renowned and honored appraiser originally hired by the city, wrote that market rates would be 9.5% of gross income.

Then enter a second consultant.

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