July 29, 2004 - From the July, 2004 issue

Councilmember Wendy Greuel Champions Effort To Reform L.A.'s Business Tax Code

A consistent theme of Wendy Greuel's tenure in City Hall has been the need to reform the city's complex and repellent business tax code. MIR is pleased to present this interview with Councilmember Wendy Greuel in which she discusses her latest efforts to make Los Angeles a more business friendly city by simplifying and reducing taxes for small and medium sized businesses.


Wendy Greuel

Wendy, when we last interviewed you about six months ago you spoke of the need for a more business friendly city and your priorties for the L.A. City Council's Government Efficiency Committee. Bring us up to date on what you've been able to accomplish as chair of that committee on business tax relief.

Since the last time we spoke, Councilmember Garcetti and I put together a business tax reform proposal to demonstrate to the business community that we are serious about changing the unfavorable business climate in this city. The proposal's aim is to simplify the system, make taxes more equitable, and provide tax relief for job creating businesses. The proposal would reduce the total business tax by 5% annually for five years, with the option to go forward with an additional 25% reduction after five years. It would also reduce the number of categories from the current 66 categories, to five categories.

One of the main goals of this proposal is to provide tax relief for small and medium sized businesses. We've asked the Office of Finance to consider the effect of eliminating the business tax for businesses with gross receipts of $100,000 or less. The Mayor is in favor of that exemption, which would impact about 57% of the businesses in Los Angeles.

The Greuel/Garcetti proposal package would also look at cash-based accounting system (versus an accrual-based system), which has also been recommended by Councilmember Smith. Under that policy, if a business has gross receipts over $100,000, but a large portion of that is "bad debt," which has not actually been paid to the business, the business wouldn't have to pay taxes on bad debt until they receive that income. In other words, they wouldn't be paying taxes on revenue they don't have. Lastly, we've introduced a proposal, with Councilmember LaBonge that would fund more compliance offers to make sure that law-abiding, tax-paying businesses don't subsidize scofflaws who dodge the business tax.

Two recent reports have recently been released, one on the state's business climate, the other on our region's. LAEDC's report was titled: "The Cost of Government Taxes and Regulations." It noted that 24% of the businesses in LA County plan to expand their operations in the next 12 months, but were finding it extremely difficult to do so in the regulatory and tax environment of places like LA. The California Business Roundtable commissioned a Bain Report, which MIR covered in March, which came to the same conclusions re the state. Is the government, in your opinion, doing enough to spur economic development both regionally and statewide?

Both of those reports support what we are doing. You cannot stick your head in the sand and assume people will come to L.A. just because we have good weather and a highly skilled work force. That no longer is the case.

We could be pennywise and pound-foolish by saying that business tax reform is going to impact the general fund and take away dollars from other services. If we don't take action, these jobs will go to surrounding cities, such as Burbank, Glendale and Simi Valley. With the internet and other kinds of technology, businesses don't have to be in a particular location to thrive. We have to be able to attract and retain businesses in a more competitive economic landscape.

We get $384 million in revenue from business taxes. It would be difficult to turn that spigot off and no longer receive tax revenue. However, if we look at the fact that these businesses might be going to other cities and we'd be losing that revenue regardless, then it really makes financial sense to become a business friendly city. For example, look at the single category tax filing, which we implemented about a year ago. It was probably a $2 million hit to the General Fund, but it impacted 12,000 businesses. We reached out to those businesses and said, "we want you, we are going to simplify the tax system." That it is critically important for a strong economy.

I also believe that there is a changing dynamic, even in the City Council. People are starting to recognize that if you want to create affordable housing, have a great school system, and a thriving city, you need to have a strong business climate. More jobs means less crime and more opportunities for our kids. These things are not mutually exclusive. There were days when I was in the Mayor's Office when people didn't always recognize the linkage between these issues.

Wendy, it seems the leadership for business tax reform is coming from just two members of the Council rather than from the full council and/or the Mayor's Office. With Mayor Hahn reorganizing the Mayor's Business Team established by Mayor Riordan, moving away from business attraction and retention towards the goal of greater housing production, do you expect broad based city hall support for your reform initiatives?

There were some councilmembers who suggested that unless it's revenue neutral, there would be no business tax reform in the city of Los Angeles. That is a very shortsighted position to take.

Leading up to this year's budget negotiations, the Mayor proposed utilizing business tax reform funds for items that were really not related to business tax reform.. Fortunately, a number of my council colleagues stepped up to the plate with me and refused to balance the budget on the backs of the business community. But I also have to give credit to BTAC, and the people who created that fund. Because of their foresight, we redid the ordinance a year ago to put in some checks and balances to ensure that the funds would not be raided.

The business community in Los Angeles has historically not been as good as other groups at getting their message out and lobbying people. When we have issues before the Council, we don't always have the business community represented other than through some of the larger groups such as the Central City Association, LA Chamber, VICA and Economic Alliance. We need all of the businesses, especially small and medium size businesses, to contact their councilmembers and make them aware that the action they take on this issue is going to impact the jobs in your community.

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Let's turn your attention to workers' comp. Bring us up to date on the effort to reform workers' comp at the state level and how it is playing out in the City of Los Angeles?

Workers' comp is still an extremely critical issue. I went up to Sacramento with the Chamber of Commerce several times to lobby for strong workers' comp reform. In that debate, the unions were standing with us in recognizing that the problems with the workers' comp system were jeopardizing jobs. For example, the city spent $154 million dollars last year on workers' comp. When you realize how many police officers we could put on the street with that money, it demonstrates the immense impact on workers' comp has on the City.

We have to continue to look at ways in which we can improve that system. It really is critical. We even need to look internally, at our own workers' comp situation in the city of Los Angeles. Currently there are two separate systems of care. If you break your leg at home, you go to the doctor and use your health care insurance. They take care of your leg, you get a cast and then you go home. With workers' comp, it's a totally different system. Many people don't go to the doctor right away, but call their lawyer first. We need to look at a system under which if you suffer a work-related injury, you receive the same treatment you would if you were injured at home. So the Council and our Personnel Department are looking at ways to reform our own healthcare system within the city of Los Angeles.

Returning to your leadership of the Council's Government Efficiency Committee, what other priorities are being address by you and your colleagues?

We have had several successes since I last spoke with MIR. First, we came up with the concept of an Office of Public Safety, which is consolidating all of the City's security functions into one department. Currently, the Library Department has their own security, Cultural Affairs has their own security, and Recreation and Parks has their own security. With all of the security functions consolidated under one department, we will be able to provide better services and save money at the same time.

We have also been working on a pilot program with DOT whereby stolen vehicle recovery can be done by DOT instead of LAPD. We could free up at least ten additional police officers, who could focus their efforts on more serious crimes if we transferred the stolen vehicle program over to the DOT. Another idea we are exploring is instituting a booking fee for convicted criminals, which could raise as much as $7 million for the general fund. That has been done in other cities, and the city of L.A. should be actively exploring these types of options.

Lastly, we have instituted new government reform and campaign finance reform working with Councilwoman Cindy Miscikowski. We banned political fundraising by City commissioners to show that we don't even want the perception of "pay-to-play" in the city. To create an open and transparent system, we need to enact reforms like the ban on commissioners from political fundraising. Commissioners should be focused on their work, not raising money for elected officials. We were surprised and pleased at the unanimous adoption of that ordinance.

Wendy, this newsletter has long had an interest in how cities and neighborhoods might best leverage the bond measures that the voters have recently approved for school facilities, parks, and libraries etc. You were instrumental in securing an MOU/consent aggreement between the CRA, whose function is to promote economic revitalization, and LAUSD, who mission is building new seats, at the Valley Plaza site. That MOU was meant to be a model for collaboration, knowing that there will be about $11- 14 billion spent over the next five years by the school district. Can you elaborate on whether collaboration is now more common and whether we can anticipate the leveraging of these school facilities investments for the benefit of the revitilization of neighborhoods and business environment?

That is the intent. It hasn't been tested completely in other locations, but we believe that the city, the school district, and the CRA can work together to meet L.A.'s infrastructure needs. We are running out of land and we are running out of money. Without having those kinds of partnerships, we will not be able to provide needed capital improvements in the city and adequate services. It's not even a question of whether we can do it-we have to do it.

Who, then, should be the point-person encouraging such collaboration? Are we seeing leadership within the city to realize the potential of such investments in infrastructure?

I don't think we have seen the kind of leadership that is really needed on this issue but it is going to require everyone to work around a common agenda. Right now, it seems that everyone has their own agendas about what they'd like to see. In these partnerships with the various agencies, as well as in economic development policy, we need an overall vision. We are going to challenge all of the mayoral candidates, including Mayor Hahn, about what their vision is to make that a reality. That kind of intergovernmental relationship building is going to be critical not only in the next few years, but also in the next few decades.

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