Council Will Put Business Tax Reform Before Voters

Unable to decide between three proposals to reform Los Angeles’ 70-year-old business tax system, the Los Angeles City Council nonetheless agreed Wednesday to place one of the plans before voters in June.

The council was unable to decide on which plan to offer to voters because more work needs to be done on those submitted over the last week by Councilman Mike Feuer and Councilwoman Jackie Goldberg.

Mayor Richard Riordan’s proposal, a major priority of his administration, calls for a $20.4-million tax break, an 8% reduction in the city’s $290-million business tax revenue. The mayor’s plan also cuts the city’s 1930s-era business tax code from 64 categories to eight.

But the last-minute addition of new plans by Feuer and Goldberg presented obstacles to the mayor’s proposal. Rather than voting to place Riordan’s plan on the June ballot, the council was forced to ask the city attorney to draft all three proposals for the ballot while lawmakers decide which to adopt.

The lengthy council debate provided a glimpse into that process, with some council members expressing their concerns not only over Riordan’s plan, but also those proposed by their colleagues.

The dispute over tax reform sheds a new light on the vast political divide between the pro-business mayor and the more liberal council members, such as Goldberg and Feuer. More cynical observers suggest that the council, typically united in its dislike of the mayor, would never make it easy for Riordan to win approval of his plan; others say that it is more a reflection of the council members’ distrust of the mayor’s intentions. In that view, what Riordan really wants is simply lower tax rates for the city’s big businesses, such as law firms and doctors.

Goldberg, particularly, lashed out at the mayor’s proposal, at one point calling it symbolic, while acknowledging that neither her plan nor Feuer’s is perfect.

“What we’re doing, in my mind, is feel-good legislation,” Goldberg said. “I don’t dispute for one minute with the mayor’s office the need for tax reform. . . . The sky won’t fall if we take our time and do this right. I support tax reform.”

But mayoral aides said the move by the two council members to offer their own plans was an attempt to confuse and delay the issue.

Riordan said his tax reform proposal is well thought out and that it will be approved by the council with some fine-tuning.

But lobbying by Feuer and Goldberg began in earnest this week in an effort to persuade their colleagues to amend the mayor’s plan with their ideas.

Goldberg’s plan, offered last week, calls for a $4.7-million tax cut with a heavier burden on lawyers, doctors and auto repair shops. She also wants to create 14 tax categories, ranging from $1.18 to $5.91 per $1,000 with an average tax decrease of $19.57.

Feuer’s proposal, submitted Tuesday, calls for a $12.8-million tax cut with a larger burden on food stores and hospitals. His plan was closer to the mayor’s in most areas, but Feuer’s proposal calls for an average $52.73 tax decrease. (The mayor’s tax plan would mean an average $92.17 decrease.)

Feuer, who called his plan the middle ground between Riordan and Goldberg, said one of the most significant aspects in his proposal is the exemption of taxes for start-up companies with under $500,000 in gross receipts.

“This is real,” Feuer said. “This is not symbolic.”

Deputy Mayor Rocky Delgadillo, who is overseeing the tax reform issue, said Los Angeles’ business taxes are the highest in the region, giving the city national recognition as being unfriendly to business. Further, he said, the mayor’s proposal “focuses on the little guy,” such as gardeners and child-care providers.

But Goldberg disputed that the mayor was concerned primarily with small businesses, saying that under Riordan’s plan 199 businesses that pay more than $100,000 in taxes would get a quarter of the tax relief. “You can’t call it tax reform,” she said.

Other council members, including Mike Hernandez, Rita Walters and Joel Wachs, said they are unsure about the mayor’s tax plan, and those of their colleagues.

Walters went so far as to say the mayor’s projections were unknown and unverified.

“I think this is something that deserves months of study on our part, months of running the numbers, months of meetings . . . to come up with something that is consistent and fair,” Walters said.

But Councilman Richard Alatorre, who heads the council’s committee on tax reform and is a powerful ally of the mayor, said he believes the mayor’s plan has been under review and study for two years and that nothing was done in an arbitrary fashion.

“I assure you there was time, there was reason,” Alatorre said.

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Business Tax Reform Proposals

Business tax reforms for Los Angeles have been proposed by Mayor Richard Riordan and council members Jackie Goldberg and Mike Feuer. The following are highlights:

Riordan proposal

Number of rates: 8; from $1.20 to $5.40 per $1,000

Start-up businesses:

Exempt from filing tax. All pay minimum tax in the first 12 months. If under $200,000 gross receipts, get exemption from back taxes. Construction and film companies not considered start-ups.

Winners and losers:

Losers: 68,987 (33%)

Winners: 142,476 (67%)

Businesses with tax increase greater than $100: 7%

Average tax change per business: -$92.17

Revenue effect in 1995 dollars: $20.4-million loss

Goldberg proposal

Number of rates: 14; from $1.18 to $5.91 per $1,000

Start-up businesses: Same as the mayor’s.

Winners and losers:

Losers: 50,694 (24%)

Winners:160,769 (76%)

Businesses with tax increase greater than $100: 7%

Average tax change per business: -$19.57

Revenue effect in 1995 dollars: $4.7-million loss

Feuer Proposal

Number of rates: 8; from $1.20 to $5.50 per $1,000

Start-up businesses:

Exempt from filing tax. All pay minimum tax in the first 12 months. If under $500,000 gross receipts, get exemption from back taxes. Construction and film companies not considered start-ups.

Winners and losers:

Losers: 74,663 (35%)

Winners: 136,800 (65%)

Businesses with tax increase greater than $100: 7.5%

Average tax change per business: -$52.73

Revenue effect in 1995 dollars: $12.8-million loss

Source: Los Angeles chief legislative analyst’s office