Council Backs Tax-Relief Plan : Economy: Proposal would target businesses in depressed areas. But an aide to the mayor calls it a ‘giveaway.’

The Los Angeles City Council on Wednesday approved in principle a tax-relief plan for firms in the city’s most economically depressed areas, even though an aide to Mayor Richard Riordan called it a “giveaway” that would only fatten the profits of existing businesses, not promote true economic development.

On a 13-0 vote, the council asked the city attorney to draft an ordinance to waive or decrease the business taxes levied on all firms in an area of roughly 20 square miles from Watts to Pacoima.

If the measure wins final approval, it will spare an estimated 11,878 businesses about $3.8 million in taxes annually.

Deputy Mayor Michael Keeley appeared before the council to criticize the plan. But after several council members questioned him sharply about the mayor’s commitment to helping blighted areas, Keeley reassured lawmakers that Riordan favored some type of citywide tax relief, as well as benefits targeting its most depressed neighborhoods.

Wednesday’s debate came in the aftermath of the city’s stunning loss of a federal empowerment zone designation that most local leaders had considered a sure thing because the program was launched in response to the Los Angeles 1992 riots. Some partly blamed turf battles between political interests for the city’s failure to make the grade. The designation would have made businesses within the empowerment zone eligible for various forms of federal tax relief, including wage credits and accelerated depreciation schedules.

Riordan, whose office had taken the lead in crafting the city’s application for zone status, was so piqued by the loss that he snubbed President Clinton by refusing to participate in a news conference in which the President announced the winners and offered a consolation package to L.A.

Partly because of that, council members appeared stunned by Keeley’s opposition to the far more modest tax-relief plan being proposed for virtually the same area that would have been helped by the empowerment zone designation.

“This is no incentive at all, but a giveaway,” Keeley said, contending that the tax breaks would not cause existing businesses to expand or prompt new businesses to move into the targeted neighborhoods.

The plan “does not result in additional jobs or business expansion,” Keeley said. Rather, it would result in “additional profits” that “may be exported” outside the targeted areas by business owners who live elsewhere, he said.

Keeley also warned that the loss of $3.8 million in tax revenues should be viewed in the context of the city’s budget deficit, which reportedly will reach $200 million to $350 million this fiscal year.

Several council members publicly questioned whether the mayor, with his private-enterprise background, had a coherent program for helping the city’s urban core neighborhoods.

“What are you doing to revitalize South-Central?” Councilwoman Rita Walters asked Keeley, after expressing her disbelief that the mayor would continue a city practice of neglecting her district.

Councilman Joel Wachs, who represents a relatively affluent northeastern San Fernando Valley district, said it made no sense for the council to deny such relief to South-Central after the council on Tuesday had agreed to waive $1 million in fee payments to the Metropolitan Water District to induce it to build new headquarters in Los Angeles.

Almost lost amid the impassioned rhetoric was Keeley’s commitment that the mayor’s office would eventually propose what it hoped would be a better tax-relief package for blighted areas. That plan is still in the preliminary stages, he said.

Later, in an interview, Keeley said the mayor’s position is not inconsistent with his pitch to make the city more business-friendly and with the city’s empowerment zone application. In that application, the city promised the federal government that it would provide tax breaks of its own to businesses in the zone.

“Absolutely, we’re in favor of tax relief for business,” Keeley said. “But the question is whether this plan, for its cost, provides the most bang for the buck.”