The Santa Ana City Council Monday night approved a new downtown business tax, replacing a controversial special property tax that had divided downtown businesses and brought the issue of gentrification to the fore.

The funding for Downtown Inc. — responsible for promoting, cleaning and providing security for the city’s downtown core — was born out of a property business improvement district, which levied the special tax.

But the tax district died after more than a year of persistent opposition from a group primarily of Latino owners of small properties, who argued that the tax was too high, in some cases several thousand dollars for a single property. They said the tax was primarily benefiting the downtown’s burgeoning night scene, a mix of restaurants and bars catering to a mostly young crowd at Artists Village.

Under a settlement agreement, the city will for three years provide $400,000 annually for Downtown Inc.’s cleaning and security services. The proceeds of the new district will be equally split between two groups: Downtown Inc. and the Santa Ana Business Council, a group composed of business owners who opposed the special property tax and are likely to conduct more Latino-oriented promotions.

The revenue from the new tax district, approximately $250,000 annually, is far less than the revenue generated by the previous property tax district.

For retail stores, restaurants, theaters, hotels, service stations and amusement services, the tax assessment would be 1.5 times their annual business license fees. For commercial and residential rental property, the assessment would be one-fourth of the annual business license fees.

All other businesses would be assessed an amount equal to their annual business license fees, which average $415 per business, according to a city staff report.

According to a city presentation, a 12,487-square-foot property under the previous tax district paid $641. Under the new district, the business occupying that space pays $65.75.

The council received 58 protests from businesses against forming the district, with 53 being valid, City Clerk Maria Huizar said. But to block the council’s ability to approve formation of the district, the city would need to receive protests from businesses paying more than 50 percent of the tax proceeds. The 53 protests amounted to only 6.21 percent, according to Huizar.

One of the major complaints about the previous tax district was that property owners believed they had been excluded from the voting process. A relatively small number of property owners cast ballots in the election to approve the property tax district, and a large vote from the city swung the election in favor of the tax.

The formation of the new district was driven by businesses, city leaders said, so the city did not have a vote. Also, officials sent two letters — a certified mailer June 20 and a first class mailer June 24 — notifying business owners about their right to protest the district, officials said.

Only a handful of business owners attended Monday’s meeting to say they were against the district.

“We get no specific benefit whatsoever from this assessment,” said Walter Friedman, a representative of a downtown property owner. “It’s just not right.”

Some property owners made the same objection against the previous tax district.

Business and property owners on both sides of the battle over the property improvement district said at the hearing that they supported the new district.

“We are in support of anything that will bring attention and people to the downtown,” said Ryan Chase, president of Downtown Inc. “We’re on the verge of something special, and not just for downtown but for the city as a whole.”

Council members said that the new tax district was a good deal, especially because the city wasn’t swinging the election.

“This is a better deal. It’s a much cleaner election,” said Councilman Sal Tinajero.

The council also formed an ad hoc committee to study changes to the boundaries of the new district, which is along the same borders as when it was first formed in 1984.

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