Businesses object to putting taxes in affordable housing: Garcetti says city needs income for $100 million fund.

Businesses are raising concerns about a proposal by Los Angeles City Council President Eric Garcetti to siphon off more business tax revenues into the city's affordable housing trust fund rather than make a tax cut.

In the wake of last fall's failure of a $1 billion housing bond, Garcetti contends the city needs to find a stable source of money to keep the trust fund at $100 million, the level promised by both Mayor Antonio Villaraigosa and former Mayor James Hahn.

The fund is used to subsidize affordable housing units in private developments, and so far the fund has been bolstered by the use of one-time monies, which will mostly disappear by 2008. The business tax is especially appealing, not only because it's a guaranteed revenue stream for the next several years, but also because it's growing as the city tracks down more scofflaws and pressures them to pay up, Garcetti said.

"The business tax represents the fastest growing revenue source that we have right now," he said. "And if we are to do this, it must be this year, before those other revenue streams dry up."

The business tax reform package enacted three years ago eliminated business taxes for most small businesses and cut rates 15 percent over five years for the rest. The reforms also required 25 percent of all additional business tax revenues go to the affordable housing trust fund.

But at least one business group is wary of the Garcetti proposal.

The Valley Industry and Commerce Association, which has long pushed for the abolition of the tax, said it would only support this diversion if it's accompanied by more tax cuts. Garcetti has indicated he would push for further business tax cuts, but gave no timeline.

VICA President Brendan Huffman also said that his member businesses feel pressured to support this proposal if only to avoid more onerous developer fees to fill the trust fund. VICA and other business groups have adamantly opposed inclusionary zoning, which mandates developers set aside a certain percentage of units for housing that meets federal low-income affordability guidelines, or pay a fee to the city.

Garcetti took an inclusionary zoning proposal off the table 18 months ago amidst this opposition, but said that if this proposal fails, he might reintroduce it. Garcetti and affordable housing advocates have been making the rounds at City Hall trying to drum up support for the proposal as Villaraigosa puts the finishing touches on his budget.

Villaraigosa, who has not publicly commented on Garcetti's proposal, has said he would like to try for another housing bond, perhaps next year. The bond measure last year garnered 63 percent of the vote, just shy of the two-thirds needed for passage. Villaraigosa was in Washington D.C. last week and could not be reached for further comment.

But Garcetti said that another attempt at passing a housing bond "would be an uphill battle," one that be said he would not want to rise "If we lose, the funding for affordable housing would rapidly fall off a cliff. I for one don't want to be scrambling to find the funds," he said.

BY HOWARD FINE

Staff Reporter