Proposed legislation to dissolve the city of Vernon may be changed to make it more business friendly, but labor and business leaders say they still oppose the bill.
California Assembly Speaker John Perez, D-Los Angeles, the main sponsor of the bill to disincorporate Vernon, has promised amendments to his bill in order to grandfather the city’s streamlined zoning and construction permit processes, guarantee its low electricity rates and keep its low business license and fee structure.
The move would protect existing businesses, but wouldn’t do anything to prevent higher costs for new companies.
Vernon, a small city about five miles south of downtown Los Angeles, is under investigation by the state over allegations of misuse of public funds. The city has only about 90 residents, but is home to 1,800 businesses that employ 50,000 people. County Supervisor Gloria Molina characterizes it as a company town “masquerading as a city.”
Since its founding in 1905, the city was designed as an enclave friendly to heavy industry. Today, food processing, apparel and light manufacturing are the mainstays of its economy.
While Perez has said his goal is to end the corruption and environmental pollution in Vernon, business leaders believe the true goal is for the financially distraught city of Los Angeles to annex Vernon and its valuable tax base.
John Vigna, a spokesman for Perez, said the bill would simply disincorporate Vernon and make it part of Los Angeles County. Later, the county’s Local Agency Formation Commission would decide whether the city should be absorbed into the county or be annexed by neighboring cities, which include Los Angeles, Huntington Park, Maywood, Bell and Commerce. Any decision would require voter ratification.
“The speaker’s top priority is to protect those 50,000 jobs,” Vigna said. “We haven’t put the amendments into writing yet, because we are largely inventing the process of drafting this unprecedented legislation, but those are the issues we plan to address.”
Despite these assurances, Peter Corselli, an engineering manager at US Growers Cold Storage Inc. and a board member at the Vernon Chamber of Commerce, said he firmly opposes disincorporation.
“No one thinks being a part of the county is a permanent solution,” Corselli said. “Sooner or later, the city of Los Angeles would take over Vernon and charge taxes that are substantially higher.”
The Business Journal has estimated that one Vernon company, Fortune Fashions Industries, would see its tax bill jump from $1,000 to more than $174,000 if its facilities came under the jurisdiction of Los Angeles.
A Feb. 28 study by Capitol Matrix Consulting in Sacramento, commissioned by the city of Vernon, estimated that on average, taxes would increase 20 to 40 percent, depending on the type of business.
After taxes, business owners see electricity rates as a major issue. Currently, Vernon generates its own electricity in a city-owned plant. The city charges rates far below those of Los Angeles City’s Department of Water & Power or Southern California Edison Co., which provides energy to unincorporated areas of Los Angeles County.
Not surprisingly, Vernon has attracted companies that require large electrical draws, such as food refrigeration firms and apparel manufacturers. The Capitol Matrix study found that a typical mid-sized food processing plant in Vernon would see its combined electrical utility bills and business taxes rise from about $1.5 million up to $2 million annually, or about 25 percent.
“If we become part of the county, our electricity would have to come from Edison, with rates as much as 30 to 40 percent higher,” Corselli said. “How are they going to write it into an amendment that we get lower rates than Edison’s other customers? It just doesn’t make sense.”
Marisa Olguin, chief executive of the Vernon Chamber of Commerce, said many Vernon business managers are wondering how a state law could legislate local utility rates or other special services that make Vernon’s business climate attractive. A chamber delegation met with Perez on March 8 with disappointing results.
“It was a very short meeting and it was clear he did not have a plan,” Olguin said. “Instead, he wanted the business community to develop a plan. We feel he shouldn’t move forward with the bill until (government) reform has had a chance.”
In addition to businesses, labor unions have come out in opposition to disincorporating Vernon. Stan Stosel, a manager at the International Brotherhood of Electrical Workers Local 47, thinks that if Vernon dies, so will its municipal power plant where union members work.
Stosel said many of the companies in Vernon are low-margin, high-volume operations. A double-digit electricity rate increase would wipe out their profit margins, forcing them to leave Southern California.
“As a labor organizer, I’m used to hearing companies threaten to leave and it’s mostly just smoke,” Stosel said. “But in the case of Vernon, after you pencil out the numbers, it makes sense to leave.”
Stosel said representatives from various unions have been in contact with Perez, a labor-friendly Democrat, but so far no one has seen any written drafts of the amendments.
Vernon, like its neighbor Bell, has paid its officials exorbitant salaries and provided luxury perks. Former city administrator Donal O’Callaghan was indicted by a grand jury in October on charges of misappropriation of funds. And the state attorney general is investigating Vernon officials for possible misuse of public money.
Both Stosel and Corselli said corruption in the city concerns them, but the answer is not to kill a municipal system that largely works well for businesses.
The Los Angeles County District Attorney has worked on a case to show that Vernon is not a legitimate city because its few residents all live in city-owned housing, making them beholden to city officials. The city has a history of canceling elections because only one nominee steps forward for office.
George Mihlsten, a partner at the law firm Latham & Watkins who represents the city of Vernon, said the city has taken steps to prevent future corruption. On Feb. 16 the city hired John Van de Kamp, former California attorney general, as an independent ethics adviser to ensure compliance with transparency and conflict of interest laws.
“If there is corruption, then the district attorney should prosecute the wrongdoers,” Mihlsten said. “The answer is not to kill 50,000 jobs.”
But Shannon Murphy, a spokeswoman for Perez, insisted the best way to clean up Vernon is disincorporation.
“It’s a racket,” she said. “We are trying to protect business owners and workers because we don’t see any stability in Vernon’s situation. This is the best way to ensure that those jobs stay in what is currently Vernon.”
On the docket
The Vernon disincorporation bill, officially named AB 46, has garnered plenty of support. Perez’s office confirmed that about three-fourths of the legislators in Sacramento are lined up to pass it. The Los Angeles City Council voted unanimously to support it on March 1 and two of the five county supervisors have come out in favor of it.
Perez spokesman Vigna said he expects the bill to clear the Assembly’s committees in April, then go to a floor vote in late June or early July. The bill would then go to the California Senate. He anticipates a Senate vote in September, and then it will go to the governor for his signature.
Mayor Mario Gomez of Huntington Park said he would love to annex Vernon. Many of its workers live in his city, so it makes sense to combine the industrial base and the labor force.
“The county and others look at it as windfall tax base,” Gomez said. “They have no claim and no reason to take Vernon other than the dollars.”
In particular, Gomez would oppose Los Angeles taking Vernon. If annexation becomes an issue, he predicted “a knock-down, drag-out fight to keep Vernon part of the southeast cities.”
