Brain or gut thinking on license fees?

Considering business

We've discussed two ways of making decisions. The first is beneath-consciousness thinking, centered in the “animal” parts of our brain. Unconscious or emotional thinking is best suited for decisions like, “should I get in the elevator late at night with this disreputable looking person?”

Conscious thought is better suited for considering the options for financing a house – or evaluating increased business license fees*. We'll use a model to develop concepts.

A lemonade business model 

A Lemonade Franchise operated by Uncle Guido helps set up stands in Costa Mesa. Guido takes a cut of sales for protecting the stands from crime and unfair competition. He charges a fee of $5 per summer for franchises, and collects 10% of sales.

We have a stand on the Eastside, and we’re opening two more stands in Mesa Verde. Friends we met during a “Lemonade Layabout” conference want to expand to Costa Mesa from Santa Ana.

Why would they want to expand out of their cities?  It turns out that their franchiser raises the franchise fees. Three years ago it was $25 per summer, but it was raised to $50. This year the “share of sales” increased as well: from 12% to 15%. Stand owners raised their prices to stay ahead of the franchise costs. However, the Law of Demand tells us that as prices go up, sales volume goes down.

Expand near home or expand to elsewhere

They'd like to open stands in Costa Mesa because of the “lemonade friendly” climate. That’s great for our stands because, as more people are exposed to the joys of lemonade in the hot weather, more and more make a habit of buying lemonade – all the stand owners benefit. And the stand owners buy IPods, increasing other business’ sales. And Guido benefits from 10% of the increased sales.

The outside stand owners are seeking better opportunities for growth in Costa Mesa. We are staying for the stable, lemonade-friendly business climate.

Model for license fees 

If we use the Lemonade model, facts and conscious thinking to consider business license fee changes, we can see why raising them wouldn’t increase income significantly. However it would send a message to businesses that we want to gouge them to fund our ill-advised pensions – to pay for our mistakes.

Out of $76.5 million income last fiscal year, sales tax, occupancy tax, and property tax totaled $70.3 million; 92% of our income related to businesses prospering. Business license fees were applied to those who bothered to pay them, totaling $889 thousand; 1.1%.

Why irritate those who bring in 92% of our income to incrementally increase a source providing ~1%? That’s not based on a rational thought process. Perhaps on a gut level the “stick it to the businesses” folks are just expressing their ignorance of financial matters, or their fears that “the GOP no-tax agreements are preventing the City from increasing license fees.”

Rational or animal parts of the brain?

Or maybe finances and rational thought escape them; perhaps conspiracy fears are all they can discuss because they’re locked into relying on the emotional parts of their brains.

*(Newspaper comment)

Compare the focus and rationale of the commenters at this link, as well, for your amusement. Do the comments reflect rational thinking supported with facts, or emotion draped with irrelevant information? Did you notice the attempts to deflect discussion to irrelevancies?