Los Angeles voters will get the chance to decide whether to make the city more friendly to business.
The March ballot will include an amendment to the city charter that would make it easier to grant tax and other incentives to businesses seeking to expand or move into the city.
Currently, most incentive packages require City Council approval. If the amendment is passed by a majority of voters, city officials could offer companies incentives without going to the council.
Passage isn’t guaranteed. Historically, Los Angeles voters haven’t been enthusiastic about giving subsidies to business.
Even if the amendment passes, labor leaders could want something in return: They could demand that companies receiving the incentives be required to hire union workers and pay more than minimum wage.
The charter amendment was introduced by City Councilman Greig Smith on Nov. 7 as part of a broader legislative package aimed at improving the city’s business climate during the current economic crisis. Other elements of the package include lowering the business tax, offering money to businesses to spruce up their storefronts and consolidating the city’s economic development functions in one department.
“Since the mid-1980s, this city has added nearly 1 million people, but we’ve lost 50,000 jobs,” Smith said. “We’ve got to start creating jobs again in L.A.”
Many of the proposals Smith introduced were outlined in a report issued earlier this year by the Los Angeles Economy and Jobs Committee, which was led by City National Bank Chief Executive Russell Goldsmith. Most of Smith’s motions were sent to city staff or council committees for further review.
But the council took quick action on the charter amendment in order to make the Nov. 8 deadline for the March ballot. The next opportunity for a citywide election is not until spring 2010.
Smith said the charter amendment is necessary because the city needs more tools to foster job creation. He said that while recent cuts to the city’s business tax have helped make the city a little more competitive in attracting and retaining businesses, they weren’t enough, especially in the current economic downturn.
“For so long here, there was an attitude that government didn’t care about business and there were lots of restrictions,” Smith said. “We need to loosen those restrictions here so we can compete more effectively with other states.”
But critics contend the charter amendment could facilitate unnecessary giveaways to businesses, depleting city funds at a time when the city is facing annual budget deficits in the hundreds of millions of dollars.
“All businesses seek to maximize gains, so why wouldn’t every business looking to relocate here or expand here ask for all these incentives even if they don’t really need them?” said James Elmendorf, policy director of the Los Angeles Alliance for a New Economy, a union-allied organization formed a decade ago to promote living wage policies.
If approved, the measure would change the city charter to “clearly express the authority of the city of Los Angeles to provide incentives to businesses that will encourage economic development.” The language of the charter amendment specifies that the incentives can be used to retain or attract businesses to the city.
The city has long used economic incentives to lure businesses to the city or allow businesses to expand. These incentives have included cuts in water and power rates, reductions or temporary suspensions of the city’s gross receipts business tax and expedited review for the permit approval process.
But these incentives have required council approval on a case-by-case basis, a time-consuming and unpredictable process as sometimes council members have added conditions or community opposition has sprung up.
The intent behind the charter amendment is to allow for the development of a standardized “menu” of tax and economic incentives that can be used for any business seeking to expand in the city or move here. As long as the incentives remain within certain parameters, they could be offered without council approval.
“This is how it’s done in other communities across the country,” said Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce, who spent several years heading various chambers of commerce in the Midwest before coming to Los Angeles. “It’s quick and it adds more certainty to the process. Here in Los Angeles, there’s little certainty, and that can scare away potential businesses and make them look elsewhere.”
Incentives are viewed as especially crucial in Los Angeles because the city has a high cost of doing business. Even with 15 percent cuts to the city’s business tax over the last four years, the city still remains the second-costliest community in L.A. County for business, behind Santa Monica. That ranking comes from the annual Cost of Doing Business survey from the Kosmont Companies and the Rose Institute for State and Local Government at Claremont McKenna College.
“When it comes to offering incentives to business, time is of the essence and this could do a lot to get incentives to business quickly,” Kosmont said of the charter amendment proposal.
Elmendorf of the Alliance for a New Economy said that if the measure passes, there would likely be a battle over what should be required of businesses in exchange for the incentives.
“We should set a higher standard for those companies receiving the incentives,” he said. “We want decent quality jobs paying livable wages. There should be some sort of guarantees about this,” Elmendorf said.
The Alliance and the building trades unions pushed hard for a similar policy at the city Community Redevelopment Agency. Under a policy approved earlier this year and currently being finalized, contractors working on projects receiving agency funds must hire most of their workers through union-run hiring halls.
Already, any business receiving city funds must comply with the city’s living wage law, which requires wages of $10 an hour if they give health benefits to workers or $11.25 an hour if they don’t. A key question is whether businesses receiving incentives made possible by the charter amendment would be subject to these living wage requirements.
Business interests say that if too many such conditions are attached to the incentives, it could scare companies away instead of encouraging them to expand or move here.