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Saturday, Jul 2, 2022

Equity

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DANIEL TAUB Staff Reporter

Around City Hall, it’s the most hotly anticipated study of the year.

With a group of health maintenance organizations threatening to leave the City of Los Angeles because of high taxes, a tax equity study now circulating in draft form could be the blueprint for making L.A. more friendly to business.

Ordered by the mayor and City Council in 1995, the $331,000 study is supposed to be a thorough analysis of the city’s tax structure, with suggestions on which businesses and industries are paying too much in city taxes, and which are paying too little.

The study’s authors a consortium made up of UT Strategies Inc., Landmark Partners, the Milken Institute for Job and Capital Formation and Arthur Andersen LLP have submitted a preliminary draft to city officials.

But some city officials who have seen the draft say it is not as detailed as they would like in identifying specific businesses.

“It’s like sand slipping through my fingers to really get a grip on what this study is going to tell us,” said City Councilwoman Laura Chick, adding that a draft version doesn’t separate out HMOs as a distinct industry.

Chick said she is concerned that the final version will merely describe the city’s tax structure, but will not offer concrete solutions for reforming it.

But city finance specialist Rex Olliff, the point person for the study in the City Administrative Office, said that while the draft will largely present information gathered to date, the final study expected in July will actually include recommendations.

The draft report will likely include a 25-to-30-page executive summary detailing the direction of the final report, a 30-page analysis of the city’s tax code and broad-based suggestions for simplifying and improving it, he said.

It also will include a 75-page comparison of L.A.’s tax code with that of neighboring cities, and a 30-page comparison of how much in city taxes businesses pay versus how much residents pay.

“We want to see how to make this thing useful, rather than be just a volume that will sit on the back of our shelf,” Olliff said.

Although some awaiting the tax equity study officially dubbed “Competitiveness of City Taxes and Fees” have questioned why it’s so long in coming, Olliff said it is not the contractors who are to blame, but rather the nature of government.

Because the study requires information about the taxes every business pays, data had to be collected from such disparate sources as the Department of Water and Power and the state’s Board of Equalization.

That data is closely guarded by the agencies for reasons of privacy and competitiveness, so numerous hurdles had to be overcome. “It took nearly six months to just get access to the data,” Olliff said.

Steve MacDonald, director of Mayor Richard Riordan’s Business Team, said he hopes the final version will offer direction to the mayor and to the Council in reforming a tax code so old that it includes a separate rate for a traveling circus.

“We’re not setting out for any specific detail other than, hey, let’s get some obvious points down and let’s simplify this system,” MacDonald said.

The Mayor’s Office has been working to meet the demands of businesses such as HMOs and multimedia companies that maintain they are unfairly placed in high tax brackets because their industries are not recognized in the current tax code.

“We know the entire tax structure needs to be revamped, but we also know that individual things need to be done in the meantime,” MacDonald said.

Adding to the urgency is the increasing competitiveness of neighboring cities such as Burbank, Glendale, Calabasas and Vernon.

MacDonald said the study could give L.A. a framework for becoming more competitive with neighboring cities.

“We know we’re not going to have the lowest tax rate in the region,” he said, “but we also know we need to be in the ballpark.”

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