Hahn Unveils Plan to Revise Business Taxes

Los Angeles Mayor James K. Hahn announced several proposed business tax reforms Monday aimed at simplifying and updating the city’s much-criticized tax structure.

Hahn stressed that he had consulted key council members in drafting his tax plan, in an effort to avoid the political pitfalls that frustrated his predecessor. “I recognized very early on that, if we wanted to get things done, we need to work as a team,” Hahn said.

Reform of the business tax code was a major priority and a major disappointment for former Mayor Richard Riordan, whose proposals were mostly thwarted by a combative City Council.

Hahn, however, is moving more slowly and the threat of secession in the San Fernando Valley and Hollywood has made the council more receptive.

Among other things, the mayor, flanked by several council members and business leaders, called for:

* An independent study of tax reform alternatives.

* Extending the current tax exemption to include, not only start-up businesses, but also businesses that are new to the city.

* Simplifying the way taxes are filed for thousands of businesses.

“We want to create a better business climate here in Los Angeles,” Hahn said at a news conference at the Los Angeles Area Chamber of Commerce. “Los Angeles must plan for its financial future.”

While the mayor received praise for making the proposals, several people said the harder part of tax reform is yet to come.

“The tough part will be the details--it’s a very complicated system,” said Larry Kosmont, whose firm conducts annual assessments of the cost of doing business in the state. “The challenges are ahead of us.”

Los Angeles is routinely rated the most expensive city in California, and among the top 10 nationally, because of its various costly taxes, Kosmont said.

Several council members said they support the mayor’s proposals, which need council approval. “Let us commit today to cutting red tape,” Councilman Eric Garcetti, chairman of the council’s Economic Development and Employment Committee, said at the news conference. He said the city needs to show that it is open for business.

Councilman Nick Pacheco, who heads the council’s Budget and Finance Committee, said the focus must be on small businesses, which account for 99% of the city’s business taxpayers. “They are the backbone of our city’s economy,” Pacheco said.

The city collected $360 million in business tax revenue in the last fiscal year, officials said, and they are hoping to develop a plan that will update the system but remain revenue-neutral. In a slowly recovering economy, that could be difficult, some economists said.

Jack Kyser, an economist with the nonprofit Los Angeles County Economic Development Corp., said that the state’s budget problems this year could trickle down to the local level and that the economy might make it hard for the Hahn administration to develop meaningful tax reform. Still, with the November vote on secession looming, the timing is right for the mayor and the City Council to address this issue, he said.

If the city retains its complex tax system, Kyser said, pro-secessionists can continue to argue that businesses are unwilling to relocate here and that other cities can lure them with simpler tax rates and filing systems.

Councilman Dennis Zine, who represents the west San Fernando Valley, said at the news conference that the city “can succeed without secession.”

Under the mayor’s proposals Monday, businesses that now pay taxes in multiple categories could pay in a primary category. His plan would also modify the system by which the city calculates taxes for businesses that pay according to their gross receipts.

Hahn said he is directing the Office of Finance to report quarterly on the status of the tax reform trust fund. The mayor said his goal is to designate 75% of all revenues flowing to the city from the state Franchise Tax Board for business tax reform and 25% would be used for the housing trust fund. That money from the Franchise Tax Board, which represents about 10% of the general fund, could be used to offset potential tax cuts.

The mayor said that council members would introduce these proposals and that he believes he has their full support.