Biz Tax

0

Biztax//dp1st/mark2nd

By HOWARD FINE

Staff Reporter

More than a month after the L.A. City Council approved in concept a tax reform measure that would lower taxes for most businesses, the plan is in bureaucratic limbo and could stay that way well into the summer.

In addition, the proposal being considered could create new logistical headaches for many city businesses ironically what supporters, led by Mayor Richard Riordan, were hoping to avoid.

Both Riordan and Councilman Richard Alatorre, who has championed business tax reform, remain optimistic that the measure will pass, even though the council could consider significant changes.

“In government, you never get a whole loaf; you have to be willing to take less than a whole loaf,” Riordan said last week. “But it will be a good package.”

Alatorre, chairman of the council’s budget committee, believes the tax plan will get to the council either late this month or early next month. “Look, it’s not entirely what I would have wanted, but I’m committed to making sure it happens,” he said.

But Alatorre steps down from the council on June 30. Then, with two new members and a new budget committee chairman, it’s anyone’s guess as to when the tax reform plan will see the light of day.

Business proponents of tax reform have been pushing to get the proposal considered sooner rather than later. The L.A. Area Chamber of Commerce and the Central City Association sent a letter earlier this month to individual council members, urging them to act by May 1.

“We are not going to let this thing slide and die a slow death,” said Carol Schatz, president and chief executive of the Central City Association.

But even proponents acknowledge it will be hard to get final council approval.

“Our hope is that business tax reform will be adopted as soon as possible,” said Anita Zusman, legislative affairs vice president for the L.A. Area Chamber of Commerce. “But we recognize there are intervening factors that may slow it down.”

Michael Gagan, a lobbyist who has represented local businesses on tax matters, sees the odds as “just a little better than 50 percent” that a business tax plan will pass the council before June 30. After that, he said, the chances for passage go down considerably.

“The more time that elapses, the more difficult it becomes to reach a final agreement,” Gagan said.

Because the council voted to allow businesses to stick with the current system rather than face tax increases under a new system and with it, the required voter approval L.A. could be faced with two separate business tax codes.

For about 80 percent of the city’s businesses that now have a single tax rate, it would simply be a matter of computing the old and new rates. But it could turn into an accounting nightmare for the 20 percent that now pay two or more tax rates. (Some businesses, like bowling alleys or department stores, pay at least five different tax rates, depending on the products they sell or the services they provide.)

“One of the main purposes of business tax reform was to simplify things for businesses, so they wouldn’t have to spend time making complicated calculations,” said City Clerk Mike Carey. “With this proposal as passed by the council, people will have to compute both the current rates and the new rate, to see which is lower. There is a lot of concern out there about whether this actually creates more complexity than anybody wanted.”

Carey said that’s one of the issues he will look at after the City Attorney’s Office submits a draft ordinance for review later this month.

The other potential stumbling block is the size of the tax cut.

The initial tax reform plan proposed by Riordan would have meant an immediate $23 million hit to the general fund, which his administration hoped to offset with better tax collection methods targeting delinquent payments. But when several council members balked at the size of the hit, Riordan cut a deal with Councilman Mike Feuer that reduced the up-front revenue loss to $16 million.

On March 2, the council appeared ready to reject that compromise after questioning why certain business categories would receive cuts while others would be hit with increases. Instead, in what was subsequently referred to as “the huddle,” the plan was amended on the council floor to allow those businesses that faced a tax increase to stay with their old rates.

This appeared to satisfy the council’s desire not to raise taxes on any business. But it also posed a new problem: If enough of the businesses facing tax increases opted for the current system, it would mean a bigger hit to the general fund perhaps as high as $30 million. This might prompt several council members to balk, especially if there is a projection of a significant budget deficit for the 2000-01 fiscal year (when the plan would take effect).

Next week, Riordan is scheduled to unveil his annual budget for fiscal 1999-2000, which will include an updated projection of the 2000-01 budget picture.

“There’s no question the council would feel more comfortable if they could expect to be more flush with cash,” Gagan said. “If we’re looking at another sizeable budget deficit, it will be hard to convince people to vote for this.”

Feuer, who cut a deal with Riordan that resulted in the compromise brought before the council, said he expects the proposal to pass, but noted that lots of details must be worked out before he can sign off on a final plan.

“It would be preferable to conclude the business tax discussion as soon as possible,” Feuer said. “But the most important goal is to get it right, not to rush it through.”

Feuer said he will be pushing to keep incentives for start-up businesses. He also favors a relatively modest across-the-board tax cut for businesses in this proposal, with the possibility of deeper, more targeted tax cuts being enacted later on.

No posts to display