Grassroots push aided L.A. tax reform.

After working to reform the city's business tax system for almost two years, Los Angeles City Councilwoman Wendy Greuel was celebrating last Wednesday as the tax reform package that she and fellow Councilman Eric Garcetti authored sailed through the city council with a 13-0 vote.

Since 1999, when the city first ordered the creation of the Business Tax Advisory Committee, politicians and business leaders have been waiting eagerly for a proposal that will preserve the city's revenue stream while making Los Angeles a more attractive place to do business.

The final Greuel-Garcetti package allows for $92 million in tax relief that eliminates taxes for 60 percent of the current ratepayers, reduces the number of taxpayer categories from 75 to seven, offers specific relief for the entertainment industry and gives a 15 percent across the board tax cut to all businesses. Greuel said that constant collaboration with the business community helped to push the reform package through.

"The coalition was established to ensure that the message got out to council-members that real people and real businesses are impacted by an arcane system." Greuel said. "We worked really hard and we talked to every councilmember and their staff and briefed them every step of the way. It wasn't as though when they came into council today people were surprised at what was in (the reform)."

In order to pay for the tax relief, the city will be relying on Tax Reform Trust Fund money, increased compliance, and growth in business tax revenue. The 15 percent tax cut will be phased into the city's tax code beginning in 2006 based on the amount of tax revenue received by the city each year.

Greuel said that while the business community has not typically acted as a grassroots advocate, in the case of business tax reform business owners took it upon themselves to promote reform and educate their peers on the issue. She said that her office received over 1,000 e-mails supporting her efforts to reform the system, a volume which is almost unheard of.

"It was really a Case study for political science," said Valley businessman Mel Kohn, co-chair of BTAC. "You had business groups, which comprised VICA (Valley Industry and Commerce Association), the chambers and others putting together a coalition of business and labor, which is one of the few times I would assume that business and labor have gotten together to propose something that was better for our city."

Kohn said the elimination of taxes for businesses that generate less than $100,000 in revenue in a year--60 percent of businesses within the city limits--was one of the most important components in the final package.

"As a general rule of thumb, 20 percent of businesses pay 80 percent of the taxes," Kohn said. "What this did was allow the Office of Finance to do compliance on the 20 percent and not concern themselves with the 60 percent."

Pushing more cuts

David Phelps, director of governmental affairs for VICA, said that he'd like to see the city reassess the current package's impact in a year and consider the possibility of additional cuts in the future.

Nonetheless, he said, the new reforms are significant.

"This is a big step in changing the business climate of Los Angeles, and today the city council has not only sent a message but a mandate to businesses large and small that we are turning the comer in making Los Angeles truly a business friendly environment," Phelps said. "Nevada may just want to rewrite their business recruitment plans, because L.A. is changing the odds in this game"

Phelps said that Nevada's economic development department currently spends its entire budget on luring businesses out of California.

Jack Kyser, chief economist of the Los Angeles County Economic Development Corp., said there was good reason for businesses to consider moving to other states before, but that tax reform should slow that exodus down.

"This puts us back in the economic development game," Kyser said. "We were out of it. If you look at any rankings done about the cost of doing business, Los Angeles was the most expensive city in the area."

"Hopefully by simplifying things and reducing taxes and allowing businesses to start growing again, businesses thinking about moving out of the area will give the city of Los Angeles a closer look."

In the Valley, Kyser said that reduced taxes will help maintain the growth in the aerospace industry. The elimination of taxes for individual artists, including television writers, is also timed well to spark a growth in LA's production world, he said.

"We're seeing an increase in production of television series," Kyser said. "The good news there seems to be that the reality TV craze seems to have peaked and people are looking more closely at scripted series."

Kyser warned that it's going to take time before anyone can know for sure whether the reforms have been successful in improving the city's business climate.

"Somebody who's expecting to see results tomorrow is going to understand that the economic data gathering system moves slowly. There are going to be some revisions to the data, it's going to be a couple of years," he said.

Tax Reform Package

* Eliminates taxes for businesses with gross receipts of less than $100,000

* Cuts taxes 15 percent across the board for all other businesses starting in 2006

* Eliminates taxes on bad debts (money billed, but not collected by businesses)

* Allows taxpayers' option of paying on cash basis or accrual basis 

* Reduces the number of tax categories

* Re-assigns rates

* Targets incentives for growth industries