Tony DeMarco and Rudy Torres are both longtime business owners in East Los Angeles. They agree that it’s frustrating to watch most residents go to neighboring cities to shop. And they agree that the lack of investment in their unincorporated community is discouraging.

But DeMarco and Torres disagree on the biggest issue confronting their community: whether East Los Angeles should incorporate and become a separate city. The debate over incorporation, which has been going on since the 1920s, is about to enter a crucial stage, with a possible ballot showdown next year.

DeMarco supports incorporation because he wants a responsive government that could improve prospects for the area. Torres opposes it because he fears it will lead to much higher taxes, which will make matters worse.

DeMarco, who owns the Western Loan and Jewelry pawnshop on Whittier Boulevard, said a locally elected council would pay more attention to the community than the Los Angeles County bureaucracy and also promote business investment.

“I see the cities around me growing and developing, getting new facades and looking much nicer,” said DeMarco, president of the Whittier Boulevard Merchants Association. “I don’t see that on Whittier Boulevard and I don’t see that in East L.A.”

But Torres, who co-owns residential and commercial insurance brokerage Torres Insurance, said a new city of East Los Angeles would likely run into financial trouble, and be forced to raise taxes on local businesses and residents.

“I fear that taxes would be two or three times higher than they are now,” he said. “Businesses like ours would be forced to leave the area.”

DeMarco and Torres reflect a larger split within the East L.A. business community. The largest business group, the East Los Angeles Chamber of Commerce, is spearheading the opposition to the cityhood drive. But two smaller business groups – the Whittier Boulevard Merchants Association and the Greater East Los Angeles Chamber of Commerce – support creating a new city, as does the East Los Angeles Community Union, commonly known as Telacu, a powerful non-profit with influence in the local business community.

Such divisions are nothing new, said Jesse Torres, president of Pan American Bank, which serves East Los Angeles. He is not related to Rudy Torres.

“Most business people I’ve talked to over the years say they support the idea of cityhood, as long as it doesn’t cost them any more than they are paying now,” Torres said. “But if the costs are going to be higher, that’s when the consensus breaks down.”

Based on his discussions, Torres, who is neutral on cityhood, believes about 60 percent of businesses in East Los Angeles oppose cityhood due to the prospect of higher taxes and fees. But he added that cityhood supporters seem to have gained traction among businesses in recent months.

Revenue gap

The Local Agency Formation Commission, a Los Angeles County government panel that oversees municipal annexations and incorporations, released a study on East L.A. incorporation this month. The study examined the financial viability of a new city of East Los Angeles, which would include 7.5 square miles of unincorporated territory bounded by Boyle Heights, Monterey Park, Montebello and City of Commerce, and have a population of about 126,000.

The study was required before a ballot measure could be put before voters. Cityhood backers are pushing for the measure to go on either next year’s June or November ballot.

The commission’s study concluded that a new city would run an operating deficit between $12 million and $20 million a year (or roughly $100 to $150 per person) unless the new city raised taxes substantially and cut some services, including public safety.

Specifically, the utility users tax paid by both residents and businesses would have to more than double from the current 4.5 percent to 10 percent and a new 10 percent trash collection fee would have to be levied. The study estimated the cost of contracting for Los Angeles County Sheriff’s Department services as $21 million. That’s almost one-third lower than the department’s estimate, and it implies that the department would be providing fewer deputies or other cost-cutting measures would be taken.

Business opponents said the study confirms their fears that taxes would rise if voters approved a new city.

“Our concern is that businesses will be asked to pay more and will get less services in return,” said Eddie Torres, president of the East Los Angeles Chamber of Commerce, which has been spearheading the opposition to cityhood. He is not related to either Rudy or Jesse Torres.

Torres, who owns the East Los Angeles Sign Co., said that many business owners believe the doubling of the utility users tax and the new trash collection fee would be just the beginning of a rash of new and increased levies as a new city searches for additional revenue.

One such business person is Jose Barajas, who owns a legal services company in East Los Angeles.

“Business assessments, licenses, property taxes – they’ll all go up,” Barajas said.

Opponents also said reductions in public safety services would be just as problematic as higher taxes.

“We’ve tried hard to overcome preconceived notions about East Los Angeles and crime,” chamber President Eddie Torres said. “We’ve got investors who want to come in. Now we’re going to cut public safety?”

But cityhood supporters said the formation commission’s assumptions that a new city would run a sizable operating deficit are off base. They contend that the study didn’t include all tax and fee revenues currently generated in the community.

The proponents are also planning to meet with county officials next month to see whether the county would continue operating the library branch and a park as part of negotiations to keep the incorporation revenue neutral for the county.

“The county stands to realize a net financial gain if East Los Angeles becomes its own city, so it’s only appropriate that they help share some of the cost,” said Benjamin Cardenas, president of the East Los Angeles Residents Association, the group that petitioned for the ballot measure to create a new city.

Long history

Attempts to turn East Los Angeles into a city have been going on for nearly a century. Several measures made it to the ballot, only to be defeated amid voter fears of higher taxes. Only 21 percent of voters supported the last ballot measure in 1974.

A turning point came in 1960 with the creation of Commerce. That took the industrial heart out of East Los Angeles, along with a huge portion of the tax base, making it more difficult to create a self-sustaining city of East Los Angeles.

Cityhood proponents said this may be the last chance for incorporation. Los Angeles is reportedly eyeing the annexation of a redevelopment zone on the north side of East Los Angeles as part of a long-planned biomedical park near Los Angeles County-USC Hospital.

But cityhood proponents want to use that land to attract light industrial and retail businesses that could bring additional revenue to the new city’s coffers. They fear that once the land is annexed, those prospects vanish.

Mainly, however, backers said incorporation could help East Los Angeles businesses get better service from government. One supporter, Louis Herrera, recounted how he made 17 trips to the Los Angeles County Hall of Administration just to try to get one permit for his auto dealership.

“I still don’t have the permit,” Herrera said.

He is president of the Greater East Los Angeles Chamber of Commerce, a splinter group that broke away from the East Los Angeles chamber several years ago; the group supports cityhood. Herrera said a new city would be more responsive to business.

Opponents disagree, saying that substituting bureaucracies won’t make much difference.

“It’s not going to improve our business climate,” said Rudy Torres, the insurance broker. “The new city would just create positions for council members and their staffs, and a new bureaucracy at City Hall. They would be the winners. The rest of us, who have to foot the bill, would be the losers.”