State Assembly Speaker John Perez has vowed that businesses in Vernon will keep low costs for utilities and excellent city services when the city is dissolved, but executives are tired of waiting to hear his plan. And there are real questions as to whether he can keep his promises.

Never fear, says a representative of Perez, D-Los Angeles. Amendments to the dissolution bill are being drafted carefully so they’ll be politically and legally ironclad.

Still, the conflict is heating up as the legislation advances. Perez wants to dissolve the industrial town, but said he’ll do it in a way that will allow the nearly 1,800 businesses there to keep their low natural gas, power and water rates while maintaining the high level of fire protection and other city services the businesses rely on.

Earlier this month, Perez’s bill to disincorporate the 5-square-mile city southeast of downtown Los Angeles moved through an Assembly committee without any of these amendments, and business owners said they feel betrayed. What’s more, they don’t believe the guarantees of low utility rates and high-quality police and fire protection that Perez has promised can hold up.

“These are promises that sound good on paper, but there’s no guarantee he can keep them,” said Juliet Oehler Goff, president of Kal Plastics, a family-owned company that makes plastic molds for containers, casings and other products.

Perez’s office calls for patience. Arnie Sowell, his policy director, told the Business Journal last week that the amendments will be introduced in the next month or two, and they will deal with the concerns that Vernon business owners have raised.

The bill could go to the full Assembly in the coming weeks, and passage is almost certain. The amendments could be added when the bill goes to the state Senate.

Among the amendments apparently will be a provision that sets up a separate utility district that would aim to keep Vernon’s low electricity, gas and water rates intact. Those rates are now roughly 30 percent cheaper than in surrounding jurisdictions.

“We have heard the concerns of the business owners and we are confident that when the amendments are introduced, those concerns will be fully addressed,” Sowell said.

Perez, whose district includes Vernon, introduced his bill in the wake of the scandal in nearby Bell, and after years of revelations of inflated salaries and pensions for city officials in Vernon. He has said that because Vernon has only about 90 residents who are mostly city employees and their relatives, it can’t be governed effectively. His solution is to disband the city.

Stating their case

Last week, a group of four Vernon business owners, accompanied by City Administrator Mark Whitworth, sat down with Business Journal editors and reporters to voice their concerns. They said the move would raise their utility and insurance costs; reduce the quality of police, fire and other city services they receive; and force businesses to go through more red tape.

“Vernon has been a safe haven for business,” said Lisette Gavina Lopez, who represented F. Gavina & Sons Inc. custom coffee roasters, which has its headquarters and major operations in the city.

Vernon was set up a century ago as a city devoted to manufacturing. It has long been one of the least expensive places to do business in Southern California, according to Larry Kosmont, an L.A.-based economic development consultant who publishes an annual Cost of Doing Business Survey that tracks state and local taxes and fees on business.

In the most recent survey, power costs in Vernon averaged about 30 percent lower than in the city of Los Angeles. Businesses in Vernon enjoy similar savings on their water and natural gas bills.

“The businesses in Vernon are getting a good deal and they don’t want to see it change,” Kosmont said.

Lopez said that if the Perez bill passes, F. Gavina & Sons would seriously consider moving its headquarters and most of its operations out of state.

“We previously had received offers from Houston and we would certainly look at that area again,” she said.

Another business executive said his firm would also consider leaving if Vernon were to be dissolved.

“We’ll go somewhere where we are wanted,” said Eric Gustafson, chief executive of Coast Packing Co., which packages pork and other meat products.

He said the company would likely move the bulk of its operations to the Midwest, as dozens of other meatpackers that used to be in Vernon have done over the last several decades.

Lopez, Gustafson and the other business leaders said that Perez did not give serious consideration to their concerns when they visited his Sacramento office last month.

But Sowell, Perez’s policy director, said the legislative leader is doing everything he can to ensure that the current advantages the businesses enjoy remain even if the city is dissolved.

“The speaker’s goal is to get rid of the corruption in Vernon while at the same time preserving the businesses that are there and the jobs that those businesses have,” he said.

Because of the unprecedented nature of the legislation, Sowell said that he and other Perez staff members are taking extra time to ensure that the amendments addressing businesses’ concerns can pass legislative and legal muster. He would not give an exact timetable for the amendments, but indicated they might be introduced once the bill passes the Assembly and is taken up by the Senate.

“We want to do this right, so that when we do introduce the amendments, they will be bulletproof,” he said.

Sowell confirmed that one amendment will focus on the issue of utility costs. He said that businesses there would not be folded into either Southern California Edison or Los Angeles Department of Water & Power service territories.

“There are other ways that power can be delivered,” he said.

The most likely alternative would be the creation of a special utility district to serve business customers in Vernon.

But even that would not be a guarantee of low, stable rates for water, power and natural gas, Kosmont said.

“Whatever entity is set up would have to have a governing board and that board would presumably have the power to set rates,” he said. “There’s no way you can permanently lock in today’s rates.”

Fast response

Another major concern of local businesses is the potential loss of local fire service if the city were to be dissolved. With four fire stations in Vernon’s 5-square-mile territory, the average response time to any location in the city is less than five minutes.

Vernon business leaders said that if the city were dissolved and the area were served by the Los Angeles County Fire Department or the fire department of a neighboring city, response times would go up substantially. This, in turn, would lead to higher insurance premiums.

But one local insurance broker said that any increases in property insurance for these reasons would be minimal.

Doug Simons, senior vice president with Scanlon Guerra Burke Insurance Brokers in Woodland Hills, said that while Vernon has the highest rating from insurance underwriters for its firefighting infrastructure, so do portions of Los Angeles and other cities in the county.

“Even if the ratings of surrounding jurisdictions are a notch lower, you don’t get a huge amount of premium knocked off just for being in Vernon,” he said.

Simons said that he would expect any premium increases resulting from Vernon’s possible dissolution to be 1 percent or 2 percent, if any at all.

Sowell, Perez’s policy director, said the speaker’s staff is working on an amendment that would address the issue of Vernon’s Fire Department.

“Vernon has a first-rate fire department and our goal here is to preserve that,” he said.

Other amendments are likely to focus on making sure that businesses have access to expedited systems for permits, business licenses and health inspections.

“We’re trying to make sure we’ve checked everything,” Sowell said. “I want to be very emphatic: There is a plan and there are methods to solve these issues that businesses in Vernon have raised.”

In addition to concerns about utility rates and Fire Department response times, business owners cite the intangible cost of not knowing what the future holds.

“There will be a tremendous amount of uncertainty with any new model for delivering utilities and government services that they come up with,” Kosmont said. “And for businesses, uncertainty is almost as big a problem as costs going up.”