Posted on 02/04/2014

Article Published in Los Angeles Daily News

In an attempt to make Los Angeles more competitive with neighboring municipalities, Mayor Eric Garcetti will propose phasing out the city’s business tax as part of his first budget.

It is the first sweeping initiative for Garcetti, who has made attracting and preserving jobs a key priority since taking office six months ago. That could happen if the tax is eliminated, proponents say.

Garcetti’s plan will unfold during budget discussions, which are now in the early stages, said Yusef Robb, the mayor’s spokesman.

It will likely be a hot topic because the tax generates more than $400 million for the city annually. “L.A.’s business climate is directly disadvantaged by our business tax, which is by far the highest in the area. To increase business and job growth, we look forward to working with our partners on the City Council on a plan to responsibly eliminate the tax over time,” he said in an email.

Garcetti was not available for comment Tuesday.

Not surprisingly, the plan is already drawing support from business groups.

The Valley Industry and Commerce Association, an influential business advocacy group that lobbies City Hall, has already mobilized its membership in backing the plan after being told by the Mayor’s Office that a phase-out is in the works.

Last month, VICA sent a form letter to its members urging them to put it on their company letterhead, sign and fax it to City Council members.

VICA President Stuart Waldman feels eliminating the tax would be a milestone for the city. “It would be monumental,” he said. “It would send a message to businesses that Los Angeles wants their business.”

No formal meeting between VICA and the mayor has been held on the issue, but the topic has been broached in discussions with the mayor.

The group’s letter notes that Los Angeles has some major attractors, like Los Angeles International Airport, the port, world-class universities and Hollywood, but the city is at a disadvantage because of the tax.

“Despite all of these valuable assets, the city continues to see an exodus of businesses that leave only to open up shop in neighboring cities. This is because the tax structure in Los Angeles simply makes us uncompetitive; L.A. has the highest business tax by a factor of 9.5 times the average of the other 87 cities in the county,” the letter points out.

“I get people calling me (about expansions or relocations), but they are looking at Santa Clarita, Burbank and Glendale. They are just not looking at Los Angeles,” Waldman said, adding the mayor’s plan would likely phase out the tax over four years and that it would actually have a positive impact on revenue. A 2011 USC study concluded the move would annually generate “$423 million at worst and $688 million at best.”

There have been prior efforts to get rid of the 8-decades-old tax, but none have been successful. Former Mayor Antonio Villaraigosa managed to get an exemption for the city’s new-car dealers, a big sales-tax revenue generator.

One key player in what happens with the tax is City Councilman Paul Krekorian, chairman of the council’s Budget and Finance Committee, who noted the committee does not have a specific proposal yet but that the issue will get a full airing.

“Any reduction or elimination of the business tax is going to have a significant impact on the budget,” Krekorian said. “We’re already facing a quarter-of-a-billion-dollar deficit for the next fiscal year.” Eliminating the tax, he argued, could made it harder to restore city offerings such as tree trimming, lost during the Great Recession, and improve on issues that are important to constituents, such as emergency-response times, street maintenance and public safety.

There have been “tens of millions or hundreds of millions of dollars” in business-tax reductions over the years, he said.

“Everybody in Los Angeles, I think, will agree that we need to do more to stimulate business activity to encourage job creation. But business-tax reform is not the only way to do it,” Krekorian said.

Waldman disagreed, citing VICA’s recent annual survey of its members’ most pressing city concerns. “It was the number one issue for our members,” he said of eliminating the business tax.