Driving Biz to Burbank

The issue that in many ways drives all others -- the economy -- has remained in the background in the L.A. mayoral election. In part, the real estate bubble is to blame. Everrising housing prices have stimulated investment, construction and consumer spending.

But according to more meaningful measurements of economic activity -- the number of new jobs, creation of high-wage jobs, per capita income growth -- Los Angeles lags behind the region and the nation. Yet not a word of anxiety from Mayor James K. Hahn and his challenger, Antonio Villaraigosa.

Los Angeles has a national reputation for hostility to business -- and it’s getting worse. Recent business surveys by Kosmont & Associates, a private consulting group, and the Rose Institute at Claremont McKenna College rank the city as the second most expensive in which to do business in California.

Larry Kosmont, co-author of the Kosmont-Rose Institute report, says business costs in L.A. average between 2 1/2 to five times those of more business-friendly cities.

For instance, a $10-million office or retail operation pays about $59,000 in annual utility taxes and license fees to do business in L.A., compared with $9,300 in Pasadena, $904 in Burbank and zero in Rosemead.

There is nothing inherently unfair in taxing business when the revenue is spent on critical public services. But the business-tax burden in L.A. is way out of line with neighboring cities, which provide similar services while taking less from entrepreneurs.

Former Mayor Richard Riordan’s business teams helped companies maneuver their way through the city’s labyrinthine bureaucracy, a practice the Hahn administration all but halted. Hahn has not assembled much of an economic team, which may explain why the city failed to complete the necessary paperwork to be considered as the home of the state’s new $3-billion stem cell institute.

It also helps explain why entrepreneurs not politically connected to City Hall feel local government has little interest in them. “There’s a sense that they are against us ... like they feel what’s good for employers can’t be good for employees,” said Marx Acosta Rubio, president of One Stop Shop, a computer parts marketer in Woodland Hills. “At best, we are regarded as a necessary evil.”

Complaints about L.A.’s regulatory environment are rife among manufacturers, most notably in the food processing and garment industries. The regulations drive business from the city.

Over the last two decades, much of the new studio construction in the movie industry has occurred in Glendale and Burbank. Michael Jimenez, a senior DreamWorks executive, says Glendale not only has lower taxes but is far more responsive in arranging police protection or facilitating new permits when a shooting schedule suddenly changes.

Although he is advising Villaraigosa on the economy, Kosmont is not optimistic that the councilman would do better than Hahn if elected. Like the mayor, Villaraigosa is a strong backer of public-employee unions. He also supports ordinances -- living wage, zoning that requires construction of low-income housing in new developments -- that drive business people crazy, or to another city. Uncertainty about how the city will treat business in the future makes L.A. even less attractive.

Ironically, remedial legislation doesn’t benefit most working people, while the contributions of business expansion to the working class are clear.

During the city’s severe economic downturn in the early 1990s, the income gap between its poorest workers and its most affluent widened, according to a study by the Public Policy Institute of California. The state’s poverty rate rose from 13% to 17%. During the subsequent recovery, the wage gap narrowed and poverty fell to 13% despite continued heavy immigration from poor countries. As blue-collar manufacturing and middle-tier service jobs expanded, the percentage of workers in middle-income ranges surged.

Many working-class people aren’t faring as well in today’s business climate. Job growth is mostly occurring outside the city, in the San Gabriel Valley, Burbank, Glendale and the Inland Empire. According to a recent UCLA study, Los Angeles lags behind the Inland Empire not only in total jobs created but in those paying better than $55,000 annually since the mid-1990s.

Investment in infrastructure is a big engine of better-paying jobs, yet neither mayoral candidate has forcefully called for modernizing and improving the clogged, increasingly inefficient Port of Los Angeles. Their neglect is especially worrisome. Not only are U.S. competitors lining up for a piece of the action, but Baja California is planning to construct rival facilities.

There is nothing more critical to L.A.’s economic prospects than the maintenance and expansion of its port and other trade-related facilities. Since the 1950s, world trade has consistently grown faster than U.S. gross domestic product. Goods and service exports account for as much as 20% of Southern California’s economy. Much of this employment is highly paid, and some is unionized.

Hahn and Villaraigosa are also relatively silent about preserving the city’s still formidable industrial base, roughly half of which is obsolete by modern industrial standards. Roads in many of the city’s industrial areas -- most notably near downtown -- are run-down and pothole-infested. Many of the workers employed in these factories are immigrants. That they are nonunion may explain City Hall’s lack of interest.

The city’s early 20th century leaders didn’t have reservations about promoting economic growth. They knew that a favored climate and spectacular topography weren’t by themselves going to turn Los Angeles into an economic powerhouse. Public investment in ports, roads, water and power systems was also needed. Their capitalist expansion produced the city’s famed wealth and social mobility.

Hahn and Villaraigosa don’t understand the connection between boosting the local economy and social progress.

Yet until the growth of the private economy returns to the political front burner, Los Angeles will continue to squander its economic advantages to other cities that, although less favored, are more intelligently governed.