COUNCIL ORDERS NEW BUSINESS TAX PLAN STUDY.

Byline: James Nash Staff Writer

A $400,000 study that was supposed to be the cornerstone to reforming Los Angeles' controversial business tax system has met such broad opposition that the City Council voted Friday to spend $90,000 more to study an alternative plan that would actually lower taxes.

Several city officials and business community leaders have said the study was worthless because it was revenue neutral - lowering rates for some businesses while raising taxes on others - so it would do nothing to improve the city's business climate.

``In the long term we need to look at improving the overall business climate and this doesn't do that,'' said Valley Councilman Greig Smith.

A consultant last month proposed reforming Los Angeles' long-debated business tax by lowering taxes on industries such as car dealerships and gas stations and raising taxes on other business, such as movie theaters and apartment buildings.

The proposal would require a vote of the public under Proposition 218, which mandates voter approval of tax increases. Because of that and the general unpopularity of tax hikes, the proposal is now seen as dead on arrival.

``I don't think anyone is pleased at all with this report,'' said Bruce Ackerman, president of the Economic Alliance of the San Fernando Valley. ``It just doesn't do anything. It doesn't go anywhere.''

On Friday, the co-chairman of the city's Business Tax Advisory Committee, retired tax attorney Jack Walker, won backing for his proposal that would give tax breaks of up to 25 percent for some businesses while not raising taxes on anyone.

Although some civic and business leaders have questioned whether the city should have paid MBIA MuniServices Co. $400,000 to find ways to move, rather than lower, the overall tax burden, the firm was awarded the $90,000 contract to study Walker's proposal.

``I was looking forward to having more substance out of the MBIA report that was actually feasible, that we could actually implement,'' said Councilman Tony Cardenas, who chairs the council's ad hoc committee on business tax reform. ``The report has some value, but is it worth $400,000? I can't say one way or the other.''

Others say the report - funded by a special account that scofflaw businesses paid into under an amnesty program - was worth the money, if only to provide a thorough analysis of business taxes in Los Angeles and other cities. The report was made public last month and runs 165 pages.

``The MBIA report was marvelous, but its recommendations were not so marvelous because they involved some losers and having to go to the ballot,'' said Walker, who worked as a tax attorney for Latham & Watkins for 32 years.

Walker's proposal, which he outlined to the committee earlier this month, would cut taxes for some categories of businesses by 15 percent over five years. At that point, if the tax cuts generate more revenue by stimulating business in Los Angeles, the businesses would see an additional 10 percent of tax relief.

Other categories of businesses - the ones not found to be overtaxed - would see their taxes remain at current levels. No taxes would increase, and Walker's proposal would not require a vote under Proposition 218, according to City Attorney Rocky Delgadillo's office.

Some city leaders who have learned about Walker's proposal say it's superior to the MBIA recommendations.

``We don't want a tax proposal that creates winners and losers,'' said Councilwoman Wendy Greuel. ``We want everybody to be winners.''

But Councilman Bernard C. Parks, who chairs the council's budget committee, cautioned that business tax reform must not harm the city's bottom line. Parks, who met with Walker on Friday, said his proposal might cost the city millions in lost taxes at a time when the city can ill afford it.

``I don't think anyone is prepared to say this is the final plan,'' Parks said. ``In this time we're in as it relates to the budgetary conditions of the city we have to be careful that whatever we implement doesn't require us to make further cuts.''

MBIA, for its part, said it was simply doing the job city officials requested. When the city sought consultants to review the business tax in the summer of 2002, it stipulated that all proposals must not result in lost revenue to the city, either in the short or long term.

Many business leaders and some city officials now say that was a mistake, because it precluded tax relief for broad categories of businesses.

``The ground rule of revenue neutrality was ridiculous to begin with,'' said Joe Vitti, president of Valley Voters Organized Toward Empowerment, which has pushed for business-tax relief. ``(MBIA) was just handcuffed by that.''

MBIA spokeswoman Beverly Raine said the firm was never asked to look at alternatives that would reduce taxes overall.

``Had we been given full rein, things might have come out differently,'' Raine said.

James Nash, [phone]

james.nash(at)dailynews.com