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Monday, Mar 20, 2023

Getting Started in Los Angeles

When Eric Garcetti was elected the new mayor of Los Angeles this summer, many residents expressed cautious optimism with regard to the longtime City Council member and council president’s ability to lead the city forward into the 21st century. Business owners, especially, were hopeful that the new mayor could provide the kind of leadership needed to help Los Angeles reclaim its place as one of America’s great business cities.

Garcetti has just completed his first 100 days in office. Since it’s customary to take stock of the first 100 days of a new leader’s term, I thought this would be a good time to do just that, but through the lens of L.A. business.

The good news for the mayor is that he is receiving overall positive reviews from city residents, according to a recent poll. His approval rating stood at 56 percent upon completion of his first 100 days in office. Even more impressive, he enjoys a 5-1 edge of positive over negative feelings with regard to how he is performing his job.

So it would appear safe to say that the mayor is off to a solid start. But a four-year term is a marathon, not a 100-day sprint.

It would be unfair to criticize Garcetti too harshly for not having taken drastic steps yet to improve the business climate in Los Angeles. But I, and I believe I speak for most L.A. business owners, strongly encourage the mayor to make this a top priority as his administration moves forward – the sooner, the better.

There are two specific areas in particular where I’d like to see the mayor focus like a laser over the next 100 days. The first is on the elimination of the city’s gross receipts tax. The Los Angeles Area Chamber of Commerce has called this the “No. 1 tax complaint of L.A. businesses” and noted that the city has the highest gross receipts tax rate in Los Angeles County and one of the highest in the nation.

There is almost universal agreement among business owners that the gross receipts tax is hurting our city’s businesses and makes Los Angeles a less attractive place for new businesses to launch. As a city councilman, Garcetti said he supported eliminating the gross receipts tax.

But now he is saying that he supports phasing the tax out over a 15-year period. This, frankly, is a joke. Such a long phase-out would have no impact on business creation in Los Angeles, nor would it do anything to ease the tax burden local business owners face.

The mayor needs to bite the bullet and eliminate the gross receipts tax in one fell swoop for all L.A. businesses, just as this was done for car dealerships. Not only is the tax a huge impediment to business, but it’s very inefficient — it’s hard to apply uniformly and results in expensive litigation that the city must defend.

If eliminating the gross receipts tax makes Los Angeles more business-friendly and results in more employers opening businesses here, which it surely would do, the added tax revenue generated by these businesses, along with the elimination of expensive litigation caused by the tax, would more than make up for the tax’s lost revenue.

The second area where I’d like to see the mayor focus his attention is on the public unions. Specifically, he needs to take a firm stance against many of the archaic and unproductive work rules that drive up costs but that unions insist on preserving, such as the more than 600 work rules of International Brotherhood of Electrical Workers, Local 18, the union representing Los Angeles Department of Water and Power workers.

I am not saying that union workers should not be treated fairly. But over the past couple of decades, there has been a complete reversal of roles when it comes to employers and unions, which were originally created to protect workers from dominant and often abusive employers.

Now, unions have gained the upper hand and their demands place many employers at a competitive disadvantage when compared with businesses in other cities.

I acknowledge that Garcetti faces enormous challenges when it comes to making Los Angeles a great city for American businesses again. The biggest is the simple fact that high taxes and excessive government regulation and bureaucracy have made California an unfriendly place for business.

But if he starts by focusing on these two areas — and preferably during his next 100 days in office – Garcetti can lay the groundwork for a pro-business agenda during his term as mayor. And that’s something we can all get behind.

Arthur F. Rothberg is managing director of CFO Edge, a provider of outsourced chief financial officer services.

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