By HOWARD FINE

Staff Reporter

Left to its own devices, DreamWorks SKG probably would not have considered locating its 21st century studio complex in the city of Los Angeles. The start-up costs would have been just too prohibitive.

But DreamWorks did have help specifically Mayor Richard Riordan and the L.A. City Council, which agreed, despite grumbling in some circles, to $70 million in various tax and regulatory breaks that covered everything from street improvements to utility hookups.

It was the classic public-private partnership deal, which represents one of the only ways that a tax-heavy municipality like L.A. can compete with places like Burbank, Thousand Oaks and Manhattan Beach.

These deals, which can involve outright grants of public land and money, or reductions in taxes and fees, are being embraced as a way for cities to grow. Through such growth, cities can bolster their tax bases, a crucial strategy since the passage of Proposition 218 took away their power to raise taxes outright without voter consent.

“Cities are realizing that they have less avenues to raise revenues and are, in fact, more ready, eager and willing to get into public-private partnerships,” said Larry Kosmont, author of an annual study on business costs in various local cities. “I think City Hall is open for business and it has become a development partner in the ’90s, and it’s going to continue through the year 2000.”

In his study, Kosmont found that six L.A.-area cities arranged 10 or more public-private partnerships in 1998. Not surprisingly, four of the six Los Angeles, Culver City, Long Beach and Pomona were among the costliest places to do business.

Even the business tax cut proposed by Mayor Richard Riordan would only make a small dent in the gap between L.A. and surrounding municipalities, according to Kosmont.

“The proposed changes would not reduce rates enough to earn a lower-cost rating,” Kosmont said. “It would only make Los Angeles a little more competitive with other high-cost Westside cities like Beverly Hills, Santa Monica and Culver City.”

Cities in other states long have used taxpayer money to attract businesses in some cases, launching publicly financed marketing campaigns to lure companies from high-priced locales like L.A. Among local cities, Alhambra and Lancaster are the most aggressive, because they combine low business costs with a willingness to contribute public dollars.

“These cities are really on an economic development mission,” Kosmont said.

That’s certainly the case with Lancaster, which was one of the six local cities that arranged 10 or more public-private partnerships in the past year despite being classified as a “very low cost” place to do business. (Alhambra, which is trying to revitalize its central core, was the other city falling into that category.)

“Our philosophy is economic diversification,” said Vern Lawson, Lancaster’s marketing and economic development manager. “We have been dominated by aerospace for so long, but we need other sources of revenue. And that is why our City Council has made attracting new businesses such a top priority.”

Lawson noted that in the last year, Lancaster has donated its abundant, low-cost land to three major businesses. That land now features a 1 million-square-foot Rite Aid Corp. warehouse that employs 800 workers, a 432,000-square-foot Michaels Craft Stores facility with 300 employees, and a 100,000-square-foot motor home manufacturer, Rexall Motor Homes, which employs another 300 people.

The city of Los Angeles also has been aggressive in cutting public-private deals, although it is discriminating about which businesses get subsidized.

“We do have to be strategic,” said Rocky Delgadillo, L.A. deputy mayor of economic development. “Our public investments are focused on wealth-generating industries, like new media, entertainment and manufacturing. The products that these industries produce here are sent around the world, while the wealth comes back to L.A.”

Delgadillo pointed to the city’s $4 million investment in the former General Motors plant in Van Nuys, which is now home to a cluster of companies that employ 5,000 workers. Among other examples of public-private partnerships are the Staples Arena and TrizecHahn’s Hollywood and Highland project.

But critics say the limited nature of this deal making is part of the problem.

“Only so many businesses can cut deals with a city at any given point of time,” said Sam Staley, director of the Urban Futures Program at the Reason Public Policy Institute. “All the rest suffer because they can’t get the same red-tape-cutting deals. Many of them may move elsewhere.”

Staley said cities should spend more time cutting red tape for all businesses. “If they do this, they may not need as many public private partnerships. And it would be better in the long run because it would give all businesses a break and create better overall investment climate,” said Staley.

Of course, there are cities like Santa Monica that have very high tax rates but only chipped in public dollars on four or fewer business deals in the past year.

And for good reason. Santa Monica is such a desirable place to live and do business that developers and business executives are practically banging down the doors to get in, without public help.

“I heard just last week that an unusual piece of land was becoming available in our city and the owners of that parcel had four deals already lined up,” said Gwen Pentecost, senior administrative analyst with Santa Monica’s economic development division. “We get so many calls from companies wanting to locate here that we don’t have to bring in the first one that comes knocking.”

Pentecost said Santa Monica has chosen to focus its economic development efforts on sprucing up retail districts, like the Third Street Promenade, and on housing.

“This city has chosen to put its money into quality-of-life issues, like housing, schools, roads and the environment,” Pentecost said. “It’s a different philosophy of economic development.”