As Vernon plays out an existential drama – whether it will be a city or will not be a city – many of its 1,800 business owners are wondering if they will suffer the slings and arrows of outrageous misfortune if the city is pushed into oblivion.
Vernon is home to a large base of apparel makers as well as food processors, warehouses, toymakers and other manufacturers, which enjoy an L.A. rarity: relatively low costs. Many executives there fear that the threatened dissolution of the city – amid accusations of public corruption and overspending – could result in sharply higher utility rates, business taxes and other fees.
Some said that they may close or move out of state if Vernon becomes part of unincorporated Los Angeles County, or is merged with Commerce or the city of Los Angeles.
“If there were increases in overhead costs, then you have to take a second look at how those increases will be mitigated,” said Bryan Fried, chief operating officer at Fortune Fashions Industries. “And if they can’t be, then you look at more drastic methods like moving.”
Fortune Fashions pays $30,000 a month for electricity to run its 400,000-square-foot facility. But if Vernon’s city-owned utility is taken over by the Department of Water and Power under a merger with the city of Los Angeles, that could jump to about $40,000 a month. If the utility is taken over by Southern California Edison under a merger with the county, the electricity bill could climb to about $46,000 a month, based on a Business Journal estimate. (See sidebar.)
The company’s taxes would shoot up from about $1,000 a year to $174,400 (based on what the company made last year).
Marisa Olguin, chief executive of the Vernon Chamber of Commerce, points out that efforts to disband the city might never become reality. But she noted that businesses are already struggling under recessionary pressures and tight credit, so uncertainty about the future of Vernon adds to their concern. And that is making it easy for other states to recruit them.
“You’ve got companies that will just simply close their business down,” she said. “Companies will move out of state.”
Vernon, about five miles south of downtown Los Angeles, is one of the few business-friendly cities in the county thanks to its low utility rates and city services that suit the needs of industrial businesses such as manufacturers and wholesalers.
As a result, Vernon has become home to major apparel companies, including premium denim makers True Religion and Seven for All Mankind, high-end women’s fashion houses BCBG Max Azria and Tadashi Shoji, and men’s and women’s apparel manufacturer L’Koral. Major food companies such as meat processor Farmer John, frozen-food processor Overhill Farms and coffee roaster and distributor F. Gavina & Sons also operate in the city.
Problem plagued
But Vernon has long been plagued by scandal. The Los Angles Times recently reported that the city paid hundreds of thousands of dollars on first-class flights, stays at luxury hotels and limousine service for top administrators, who are among the highest-paid local officials in the state.
What’s more, the city’s former administrator, Donal O’Callaghan, was indicted in October by a Los Angeles grand jury on charges of conflict of interest and misappropriation of public funds involving two contracts that the city established with his wife.
The Los Angeles County District Attorney’s Office has been building a case to involuntarily disband Vernon, claiming that it isn’t a legitimate city and would never be allowed to incorporate today because its approximately 90 residents are beholden to the city government since they either work for the city or live in city-owned housing, according to the Times.
Meanwhile, the California Attorney General’s Office is investigating Vernon officials, officers and employees for possible violations of state law and misuse of public funds.
Los Angeles Councilwoman Janice Hahn introduced a motion last month calling for the city to annex Vernon, while county Supervisor Michael Antonovich announced earlier this month that he contacted the City of Commerce suggesting that officials there consider annexing or increasing their influence over Vernon.
Vernon won’t go away without a fight, however.
Mark Whitworth, Vernon’s interim city administrator, is opposed to the efforts to interfere with the city. He said in a statement to the Business Journal that there’s “no good policy or legal reason to embark on an unprecedented attempt to interfere with the operations of a local city.”
The Vernon Chamber of Commerce has sent a letter to local council members and Whitworth expressing their concern. The letter stated that the city’s elected leaders should renew their standards for the hiring and compensation of city employees in addition to implementing better contractual agreement practices and give the business community more involvement.
Business city
Vernon was founded in 1905 as an industrial city. In its first century, Vernon’s business community changed from heavy industry such as steel and automobile production to food processing, apparel manufacturing and warehousing.
A 2008 study by the Los Angeles Economic Development Corp. reported that Vernon’s top two employment categories are food product manufacturers, with 8,738 employees, and apparel manufacturers, with 7,408 employees.
Vernon is particularly attractive to the apparel industry because the city’s public utility, the Light & Power Department, offers rates that are about 20 percent to 28 percent less than the DWP and about 30 percent to 40 percent less than Southern California Edison, according to the chamber’s Olguin.
What’s more, apparel business owners said the numerous warehouses and other advantages such as wide streets, large parking lots and streamlined city services make it easier to operate a manufacturing company in Vernon.
“Most of us who own businesses in Vernon quite like being in Vernon,” said Lonnie Kane, president of women’s sportswear maker Karen Kane. “Vernon has a positive attitude about attracting businesses, keeping businesses and making it a good environment to keep businesses.”
Kane moved his business from Los Angeles to Vernon about 18 years ago. He’s opposed to Vernon being consolidated with Los Angeles because of the bigger city’s significantly higher costs of doing business.
Steve Stanton, owner of garment dyeing and denim processing company Stantex Inc., moved from Los Angeles to Vernon five years ago. He said his monthly utility bill dropped from about $6,000 to $4,500.
“The difference helps subsidize my rent,” said Stanton, who employs 50.
Fortune Fashions moved its operations from downtown Los Angeles and Commerce to Vernon about 10 years ago. The company, which employs 220 in Vernon and 1,600 worldwide, manufactures, prints and packages garments for retailers such as Wal-Mart, Kohl’s and Tommy Bahama in addition to the Walt Disney Co.
Fried of Fortune Fashions said he’s most concerned about the uncertainty that comes with the attempts to dissolve or merge Vernon.
“As a business person in the city of Vernon, I’m interested in stability and predictability,” Fried said. “And what’s going to happen tomorrow, next year and in five years, and anything that will upset that is of concern to me.”
