CITY COUNCIL APPROVES CUTTING BUSINESS TAXES.

Byline: Rick Orlov Daily News Staff Writer

Mayor Richard Riordan's long-awaited business tax reform proposal won tentative approval Wednesday from the City Council, but only after a way was found to avoid a public vote - by boosting cuts to $31 million so no business would have to pay higher taxes.

Five years in the making, the plan got three hours of raucous debate from the council and on-the-floor wheeling and dealing that produced a 9-3 vote in favor of cutting tax brackets from 64 to eight and rejecting the mayor's plan to raise some taxes to reduce the loss of revenue.

``I think we have just proved we don't know what we're doing,'' Councilman Mike Hernandez said at the end of the chaotic debate. Councilman Rudy Svorinich Jr. cited an adage: Never watch sausage or laws being made.

``I think we have moved beyond the lawmaking part into the sausages,'' Svorinich said.

But mayoral aides said the vote was a victory, despite extensive amendments, because it simplifies the unwieldy tax code. Council President John Ferraro called it no-loser reform in which no business would be required to pay higher taxes.

Since the amended reform proposal does not raise any taxes, it need not be placed on the June ballot for voter approval. Riordan had proposed a ballot measure.

Councilmen Richard Alatorre and Mike Feuer, who helped work out a compromise with the mayor, added a provision that would allow businesses to use the current tax system, in which they might pay in two or three categories, if switching to the simplified system would raise their taxes.

``I think it will provide an incentive for businesses to move into the simplified category, even if they do end up paying more, because it will reduce other costs,'' Feuer said.

Councilwoman Jackie Goldberg, who had offered a competing proposal, voted against the mayor's amended plan, as did council members Mark Ridley-Thomas and Rita Walters.

``If you want tax reform, you should vote for my plan,'' Goldberg said. ``It calls for an immediate 4 percent, across-the-board cut for every business in the city.''

Ferraro, who had been prepared to delay the entire matter, said he likes the tax-simplification program pushed by Riordan and not included in Goldberg's proposal.

The reduction in tax categories from 64 to eight came after many business owners complained that they have to file in more than one category, resulting in higher accounting costs.

The mayor's plan also would allow businesses to use their own fiscal year for purposes of filing tax forms, rather than be forced onto the city's schedule. Unless the state provides access to its database, to reduce costs for the city to track businesses that have been ignoring city taxes, the plan would give a one-time amnesty, and then the city would begin an aggressive program to identify scofflaws.

Riordan aides said they would have preferred adoption of the mayor's package as a whole, but were pleased with the compromise.

``It's a victory,'' said Deputy Mayor Jennifer Roth. ``We are moving ahead with simplification, which is a real reform and something businesses told us they wanted.''

Deputy Mayor Noelia Rodriguez said it appears likely to be a big boost for business.

``He has been working on this for five years and, more recently, with council members Alatorre and Feuer,'' Rodriguez said. ``The mayor will look at this very closely with the eye to moving toward meaningful reform.''

Ferraro's vote was the key one for Riordan. Normally a strong ally of the mayor, the dean of the council had feared that the matter was being rushed to the voters and that a ballot measure, if adopted, lacks flexibility.

Keeping it off the ballot would allow the council to make changes by adopting ordinances.

The immediate effect of the council's vote was to direct the city attorney to draft an ordinance incorporating the plan. The draft, likely to take months to be completed, would then be submitted to the council and require a majority vote to take effect.

The council anticipates an effective date of July 1, 2001, for the ordinance.

Riordan and Ferraro aides met throughout the morning in aisles and back rooms to try to work out a compromise.

But the council was about two-thirds of the way through debate before a compromise was reached, with Ferraro saying he does not want taxes to be raised for any business.

``If we are going to have tax reform, it should be for everyone,'' Ferraro said. ``It doesn't seem right to label this tax reform if some are going to see their taxes go up.''

The loss in city revenues was estimated at $23 million under Riordan's original plan, with $8 million in higher taxes for some companies to offset part of the $31 million reduction.

A later proposal worked out by Riordan, Alatorre and Feuer had an estimated city loss of $16.4 million, while Goldberg's plan would have cost the city $13.4 million.

Councilman Joel Wachs embraced the notion of not raising any taxes.

``The reality is, the amount of a tax break we're talking about here is not as much as we have (given) the HMOs (health maintenance organizations),'' Wachs said. ``It is not as much as the tax break we gave telemarketers or what we're investing in Staples Center. We should be able to have a system where no one has to pay more.''

Councilman Hal Bernson said he will be pushing several of the proposals he has made in the past, such as giving even greater relief to start-up businesses, as the new ordinance is developed.

``The fact of the matter is this is something we should have done years before,'' Bernson said.