Wu: How to make a bad situation worse

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.”

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.

“The appraisal received from James Netzer concluded that commercial marinas, both large and small, in Newport Harbor should have a minimum fair market rent of $1.45 per square foot of tidelands against 20.0% of the gross revenue from slip rental fees if the tidelands were not joined (same ownership) with uplands,” according to the city staff report on the issue. “If the uplands and tidelands were joined, the amount should be 25% of gross slip revenue.”

The formula developed includes what I find to be strange qualifiers, such as public bathroom access.

“Further, in other jurisdictions, the uplands is owned by the city … and the justification for taking a percentage of gross can be justified since the government would provide parking, restrooms and public access … there is no justification for this intrusion,” former Mayor Todd Ridgeway wrote.

The last time I was at Duffy Boats, I don’t remember seeing city-managed bathrooms or parking, and I think I remember Duffy telling me that the bulkheads he installed himself cost him hundreds of thousands of dollars.

But that’s not how the council majority saw it, is it?

They just see the $200,000 a year lifeguards — who were shown this week on “Inside Edition” — and then they try to figure out how they are going to pay exorbitant salaries and big fat pensions, which make up $20.3 million of the $25 million Tidelands Fund.

Good luck getting these businesses back after they are taxed out of town.

Welcome to Newport Beach, now go pay your tax at the new Taj Mahal.

JACK WU is an accountant who lives in Newport Beach and practices in Costa Mesa. He is a longtime Republican Party loyalist and a volunteer campaign treasurer for Rep. Dana Rohrabacher (R-Costa Mesa). His column runs Sundays on the Daily Pilot Forum page. He can be reached at jack@wubell.com.