Small businesses offer key fiscal support for government

The recent flurry of stories about small business woes often miss an important part of the picture: Small businesses’ role in helping fund government’s important responsibilities.

Consider the City of Placerville. Located in El Dorado County with the original colorful Gold Rush era monikers, the sometimes controversial Hangtown and the more staid Dry Diggings, the city is a tourist draw housing a number of buildings on the National Register of Historic Places. The City of Placerville itself is designated a California Historical Landmark.  Placerville has a population of more than 11,000.

“Without our small businesses thriving, we stand to lose significant tourism business as well as residents looking to other locales for their shopping needs.” — Michael Saragosa

Many small businesses in the town contribute through their own good will to philanthropic activities, but the prominence of small businesses is truly seen in the resources funneled to the city treasury through taxes on its commercial activity that will have a huge impact on the city’s progress if small business recovery is long and tortuous.

More than half of Placerville’s General Fund comes from sales tax revenue. Even with an auto dealership, chain stores and corporate businesses, the city’s small businesses powered the General Fund in 2018/19 with more than $1.2 million, which accounted for nearly 25% of the sales tax collected by the city.

Any loss of small businesses and their fiscal power to help the community is also a key element in two specific sales tax measures passed by the citizens of Placerville. Replacing worn out water pipes and fixing the roads are being funded by additional sales tax measures, not part of the General Fund. Small business contributes a quarter of the funds to these essential upkeeps.

Placerville Mayor Michael Saragosa is very concerned that the progress made by these critical repairs will be dramatically reduced if small businesses continue to suffer or disappear altogether along with their contributions to the repair funds.

“Both tourists and residents alike are drawn to our historic Main Street which still looks largely the same from over 100 years ago,” Mayor Saragosa said. “Main Street is largely made up of small mom and pop businesses. It’s all of our small businesses with their unique offerings and celebration of our Gold Rush history that makes Placerville a draw for tourists across the nation.”

Chapter 11 bankruptcies jumped 48% in May over a year ago and there were hardly any big businesses involved.

Saragosa worries about the prolonged shutdown and effects of the pandemic on Placerville’s small businesses. “Without our small businesses thriving, we stand to lose significant tourism business as well as residents looking to other locales for their shopping needs.”

The shock to the system is evidenced in the Placerville budget document that reported positive growth in the city’s sales tax before the effects of the crisis set in, “We continue to produce better than statewide averages, which is evidence of a good business climate in Placerville.”

That is threatened because of the economic downturn and a slow recovery.

Will small businesses survive? The American Banking Institute reported that Chapter 11 bankruptcies jumped 48% in May over a year ago and there were hardly any big businesses involved. Our organization, the National Federation of Independent Business, recently revealed a study showing that, if recovery doesn’t happen soon after Memorial Day, upwards of fifty percent of small businesses are doomed for closure.

Small businesses are often the culmination of a dream for people with an entrepreneurial spirit. Many are women and minorities who want to be their own boss and build a business from the bottom up, creating jobs and contributing to their community.

Small businesses must survive. Without them, many gains local communities achieve through government activity would be crippled.
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Editor’s Note: John Kabateck is California state director for the National Federation of Independent Business.