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By DANIEL TAUB

Staff Reporter

Making good on a reelection campaign promise to help the city's most impoverished areas, Mayor Richard Riordan is pushing for the creation of a "tax-free zone" for much of East Los Angeles, Pacoima, South L.A. and Watts.

Under the proposal, existing businesses in these areas would have their business license taxes frozen for five years.

In addition, businesses moving into the zone would not pay any business license taxes to the city for five years after June 30, when the zone would go into effect.

"We think it's important that the city stand united and that we send a very clear message that all parts of the city are committed to revitalizing the most economically damaged areas of the city," said Gary Mendoza, Riordan's deputy mayor for economic development.

According to the City Clerk's Office, businesses within the proposed empowerment zone an area that at one time was targeted to receive federal tax incentives to rebuild after the 1992 riots pay between $11 million and $12 million in business license taxes each year.

L.A.'s application for federal empowerment zone status was ultimately denied. However, the City Council approved a tax-credit ordinance for the same areas in January 1995. The ordinance limits the city taxes of most businesses in the areas to $25 a year.

Because only about 25 percent of businesses in the areas pay their full business license taxes, the Mayor's Office estimates a loss to the city of only $350,000 to $450,000 for the first year of the program.

Business community leaders in the proposed zone are hopeful that the tax break will encourage growth in areas that were hit hard by the 1992 riots.

"Any type of incentive to get people to come to this area to do business, to develop would be positive," said Frances Hashimoto, president of the Little Tokyo Business Association and president of Mikawaya, a pastry manufacturer that operates two stores in Little Tokyo.

But Hashimoto said that while it would be a desirable incentive, the tax-free zone is unlikely to create a significant amount of business growth.

"Overall, this is not going to get people to rush in here, but I think we have to have positive things happening," she said. "(But) the reason people don't come or move out is dependent on a lot of factors."

But Hashimoto added that the benefit of the zone would primarily be for new businesses.

"I think it's when new businesses start up that they need those incentives because they have so many start-up costs," she said.

Another problem the program could face is a lack of knowledge about it in the business community, said Jack Kyser, chief economist of the Economic Development Corp. of L.A. County.

"In many cases, communicating the existence of these things is not done full bore," Kyser said. "What you run into is that businesses know it's a government program and think there's going to be a lot of red tape."

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