As companies flee high business taxes in Los Angeles for more business-friendly cities, one city official hopes to reverse this trend by rewarding businesses that decide to stay.

City Councilman Richard Alarcon has proposed giving companies that stay in the city for five years a 10 percent refund on all the business taxes they’ve paid, and companies that stay for 10 years a 25 percent refund.

“The idea is to provide rebates on taxes for long-term commitments to the city,” Alarcon said. “The city has incentives for businesses to move into the city, but none for those that remain.”

Critics of the plan, however, note that the proposal would take too long to have any real effect. They also voice concerns that the fund wouldn’t survive raids in tough budgetary times.

Alarcon’s motion is on its way to the city’s Business Tax Advisory Committee, which is reviewing dozens of proposals to overhaul the city’s business tax system. The committee’s reform recommendations will likely come before the City Council later this year.

Alarcon told the Business Journal last week he wants his “business commitment credit” to apply to all companies, from the corner dry cleaner to the high-powered downtown law firm. He introduced the proposal last month.

The gross receipts tax brings in more than $460 million a year to city coffers, making it one of L.A.’s main sources of revenue. Businesses have long complained about the tax, which can carry the highest rates in Los Angeles County. Reforms passed five years ago exempted many small businesses and reduced rates 15 percent over four years.

But business leaders say the reforms weren’t sufficient and since then, new problems have arisen, including recent city actions to reclassify companies from a new-media category to professional services, placing them in the highest gross receipts category.

Under Alarcon’s motion, 25 percent of each company’s business taxes would be set aside in a fund. Companies that remain in the city for five years from the start of the program would get 10 percent of their gross receipts taxes back from the fund; companies remaining in the city for 10 years would get all 25 percent. If a company closed its doors or moved before the five years or 10 years were up, the money would revert to the city’s general fund.

While business interests and Business Tax Advisory Committee members welcome Alarcon’s focus on business retention, they say the need for relief is immediate and are concerned that the city could raid the rebate fund.

“Businesses in this city need business tax relief now, not five or 10 years from now,” said Lloyd Greif, chief executive of downtown middle-market investment bank Greif & Co. and chairman of the city’s Business Tax Advisory Committee.

“With these deferred rebates, I can see a mayor from a city across the street saying to a business in Los Angeles: ‘If you come to our city, you won’t have to wait five years. We can offer you a business tax break today,’” Greif said.

Local business leaders are also wary of setting up a fund of more than $100 million on hold for five years at a time when the city is facing a projected $600 million deficit over the next 18 months.

“If this fund had already existed, the city would have raided it and it would be cleared out by now,” said Stuart Waldman, chief executive of the Valley Industry and Commerce Association. “It would be better to cut the tax up front.”