Industry spokesmen Wednesday said they felt "betrayed" by the City Council's decision this week to triple El Segundo's head tax from $20 to $60 per employee while also retaining a recently imposed tax on floor space.
Facing a $2.3-million shortfall in the proposed city budget for 1985-86, council members voted 3 to 2 to raise the tax that companies pay per employee. Companies with fewer than 10 employees continue to be exempt from the head tax.
In addition, despite a recommendation from its staff that they suspend a 5-cent-per-square-foot tax on business floor space and instead use $1 million of the city's reserves to balance the budget, council members voted to retain the tax. The business community complained bitterly about the tax when it was passed in January to correct a $750,000 deficit in the current budget. Retention of the floor tax means the city will have to use only $200,000 of its estimated $19-million reserve fund to balance the new budget. The 1985-86 operating budget adopted on Tuesday totals $23.7 million.
In the past, industry has criticized the city for its reluctance to dip into the reserve fund, which is by far the largest in the South Bay.
Hughes Aircraft Hardest Hit
Hardest hit by the increase will be Hughes Aircraft Co. Under the new plan, Hughes--with more than 25,000 employees and 7.5 million square feet in El Segundo--will pay more than $2 million a year to the city, up from $900,000 this year.
"We feel betrayed," said Jim Hurt, spokesman for Hughes and president of the city's Chamber of Commerce. "We were under the impression that they would raise the head tax but eliminate the floor tax and use part of their own money to make up the difference. With them kicking in a million and us kicking in a million, we at least felt we were working together.
"So everyone gulped and decided to take our medicine with the milk. Instead, they gave us the medicine and took the milk away."
Hurt said that in a meeting last week with Councilman Jack Siadek, who voted against Tuesday's measure, and Mayor Charles (Chip) Armstrong, who voted for it, both men implied that they would go along with staff recommendations to suspend the floor tax.
Reservations About Eliminating Taxes
Armstrong insisted Wednesday that he told industry representatives at that meeting that he had reservations about eliminating any taxes while the city faced its third deficit budget in as many years.
"I know I'm going to catch a lot of flak for this," he said. "But we need to put in place a funding mechanism that will run this city without a deficit.
"Main Street doesn't cause the city any more problems than it did in 1946. Small business has stayed virtually the same. Our resident population has remained stable. The tremendous growth east of Sepulveda is why we have wider streets, more lighting, more police, more of everything. Industry is just beginning to carry its weight in this town."
Speaking of efforts to lure industry to the city, Armstrong said: "Before it was always 'Come on to my house, baby, I got chocolate candy.' That crap's got to go out the window. We can't afford it anymore."
Population Swells to 100,000 by Day
In El Segundo, industrial development is confined to the area east of Sepulveda Boulevard. While the city has a resident population of about 14,000, its daytime population swells to more than 100,000 as aerospace and industrial workers crowd into city's employment hub.
That growth, Armstrong said, represents a "tremendous drain" on city services.
Of the $60 head tax, $20 will pay for a $10-million capital improvements budget that has yet to be detailed. That $20 has a seven-year cap and is designed to provide only the amount needed to pay for capital improvements that have been put off for several years.
"I know they complain that they won't be able to stay competitive," Armstrong said, "but I guarantee we're still one of the cheapest games around. They'd still have to pay much more in Los Angeles or Culver City. We don't want to bleed them, we just want to be able to run the city. If we wind up with too much money, we can always credit the excess against the following year's taxes."
Industry officials acknowledge that taxes in Los Angeles and Culver City are more costly for businesses, but also say other cities are becoming more attractive than El Segundo.
"We're not looking just at existing cost," TRW spokesman Michael Jackson said. "Business needs a predictable, stable climate. The signals we're getting here are 'Let's soak industry.' We can go to other cities, like Redondo Beach, and find a stable climate that appreciates business and still has the same worker population to draw on."
Jackson said industry was "hoodwinked" into remaining silent on the proposed head-tax increase at Tuesday's public hearing because it believed the council would vote with staff recommendations to drop the floor tax.
"If we had known they were going to pull the rug out from under us, we would have spoken out strongly," he said. "That's what we're going to have to do now."
Jackson and representatives from most of the major companies in town have said they intend to make their feelings known to the council before it votes on the ordinance that actually will implement the increased taxes. The three council members who voted to adopt the budget and the tax plan Tuesday night, however, said they will not change their votes for the second reading.
'Rape, Pure and Simple'
Siadek, who was joined by Councilman Keith Schuldt in voting against the plan, described the tax increase as "a rape, pure and simple."
"Council keeps talking about industry paying 'its fair share,' " he said. "I've got figures from staff that say industry is already paying more than its share. We're going to tax ourselves right out of an industrial base if we keep this up. We already hit up industry any time we want something. Somewhere, industry's going to draw the line and start leaving town."
According to a cost-benefit analysis released by the city staff this week, the average commercial or industrial employee costs the city $139 yearly in services. That same employee represents $144 in revenue for the city in taxes or fees. Armstrong said he disagreed with those figures, and maintains that industrial employees represent a greater drain on services than the revenue they generate. He said he will ask staff for further analysis of its figures.
El Segundo has faced a mounting deficit every year since 1983, after Chevron lost a major contract to provide low-sulfur fuel oil to Southern California Edison Co. Sales tax revenue from Chevron fell from $12.8 million in 1980-81 to $2.4 million in 1982-83, representing a 40% drop in total city revenue.