Charles Crumpley’s Comment column in the Sept. 20 issue headlined “L.A. Localizes Bad Policy” fails to recognize the need for a local preference policy to level the playing field for local businesses.
To his credit, Crumpley concedes that the increased economic activity associated with awarding city contracts to local businesses will result in additional revenue to the city. However, his quarrel with this policy relies on his contradictory cost projections and his prediction of a future tax increase, which is unfounded. Crumpley ignores the fact that a city tax increase can only be imposed by a vote of the city’s residents.
Presently, Los Angeles is fueling the economies of other cities, counties and states with 84 percent of our tax dollars being spent on goods and services provided by companies located outside of Los Angeles. No one can really believe that this procurement framework is good public policy for the second largest city in the United States. The proposed ordinance will increase the likelihood that a greater share of the city’s spending will be recycled into the local economy, resulting in more jobs for Angelenos, more spending with Los Angeles businesses, and more money to our city’s coffers.
One important point Crumpley fails to acknowledge is that qualifying businesses will be located in Los Angeles. The local businesses that win city contracts, unlike out-of-towners, will pay business receipt taxes on the additional revenue. But, this tax revenue only represents a small part of the new revenue that will flow back to the city. A qualifying business will also have 50 of its full-time employees working in Los Angeles or 50 percent of its full-time employees working 60 percent of the time in Los Angeles. These employees will spend money in Los Angeles that would otherwise not be spent. They will buy homes and pay rent, purchase cars, buy new clothes, and they will pay sales tax and other fees on everything that they buy. Moreover, their patronage will enable other businesses to retain and add employees who will also pay sales tax on their purchases.
This virtuous cycle is what economists call “the multiplier effect.” The proposed local preference ordinance is not, in Crumpley’s words, a “handout” and the city will not “pay $64 million more to get the same stuff.” Most importantly, the proposed ordinance will generate approximately 10,000 jobs according to an analysis conducted by Professor Charles Swenson of the USC Marshall School of Business.
At a time when businesses and governments alike are being forced to do more with less, the local preference ordinance represents precisely the type of common-sense policy that our city needs to address the high unemployment rate that has plagued our families, friends, neighbors, and fellow citizens. I am surprised and disappointed that anyone would oppose a policy that leverages our city’s procurement dollars in a way that will cost the city nothing and generate 10,000 jobs.
Working closely with Mayor Antonio Villaraigosa, Councilman Paul Krekorian and Deputy Mayor Austin Beutner, we have carefully crafted this new initiative to help stimulate the Los Angeles economy during one of the city’s most difficult economic periods.
I hope that Crumpley will reconsider his position on this policy, and I invite the Business Journal constructively to join the dialogue regarding how best to address the economic challenges confronting the city.
Bernard C. Parks is a Los Angeles councilman. He is chairman of the council’s budget and finance committee.
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