Despite an outpouring of protest from industry, residents and small businesses, City Council members voted 4 to 1 Tuesday to triple the city's business license tax to $60 per employee from $20.
The decision triggered a swift reaction from the city's biggest employer, Hughes Aircraft Co., whose business taxes, including the tax on floor space, will more than double under the proposal. Partly because of the increase, Hughes officials said Wednesday that the company is strongly considering relocating 1,100 of its 29,000 employees from El Segundo to adjacent Manhattan Beach, which has no head tax. The officials said overcrowding was another reason for the move, which involves employees in its electro-optical and data systems group.
The Hughes move would cost the city $66,000, but the company still will be paying about $2 million in business taxes, up from about $900,000 this year. The increase takes effect Jan. 1.
In another reaction to the increase, the general manager of the El Segundo Chamber of Commerce called for an independent audit of the city's finances because of a dispute over the amount of money the city has in reserve.
"I think we need to get some authoritative, unbiased answers on just how much money this city has and how much is encumbered," Wesley D. Bush said Wednesday. "There's a lot of confusion going on here, and we can't seem to get any straight answers out of the city. If our reserves really are $25 million when they reported $19 million, maybe we need to get the district attorney's office or someone else to review the books and find out what's going on."
While the city has reported reserves of $19 million, Councilman Keith Schuldt said Tuesday that Finance Director Jose Sanchez had told him that reserves are closer to $25 million. Sanchez said later that is incorrect and he denied giving Schuldt the figure.
Since proposing the increased head tax two weeks ago, city officials have come under heavy criticism from industry representatives, who insist that the city has an obligation to whittle its reserves before raising taxes.
In a show of support that industry representatives called surprising, about 250 residents and small-business people rallied to their side at Tuesday night's council meeting, pleading with the council to vote against the increase.
Many of those who spoke were employees of Hughes, whose workers make up more than a third the city's population.
"I'm sorry the city is now antagonistic to industry," said resident Neva Williams, whose husband is a Hughes employee. "Industry created El Segundo. Without it, El Segundo probably would have been just another runway,"she said, referring to the city's proximity to Los Angeles International Airport. "There are a lot of excellent results from industry being here."
Providing one of the few light moments of the evening, Hughes employee Vince Quella, who also lives in El Segundo, jokingly told the council, "If industry is causing such a drain, maybe they should secede from the city. Then you won't have any more problems. Of course, then you won't have any more money, either."
Said Ken Sproul, who owns a flower shop on Main Street, "Industry makes my business. With 14,000 residents, there should be only one business of my type in town. Instead we have five. The reason we have five is because of Rockwell, Hughes, Chevron and all the rest.
"If industry doesn't stay, we can't stay. I'm looking at prospective business. And when I look at it that way, you're running me out of business."
Chamber of Commerce President James Hurt warned council members that while the largest industries in town may remain, "others are not so heavily committed that they can't move out. Your real security is in maintaining a broad industrial base."
Fred Dennis, a Hughes employee, told the council, "When all this is over, I just hope you'll be able to explain to us why we have to move to Foley, Ala." Hughes has facilities in Foley.
Resident Walter Baynes, who works for El Segundo's Kilroy Industries, proposed that "it's only fair that residents pay sewer and trash taxes that we now get free. We enjoy some of the best parks and recreation in the South Bay free because of industry. We can't have this antagonistic relationship. It doesn't make sense."
Council members Schuldt, Carl Jacobson, Le Synadinos and Mayor Charles (Chip) Armstrong remained unmoved by the arguments.
Armstrong maintained that all the arguments presented by audience members already had been "considered and reconsidered." Synadinos lashed out at Hughes officials for sending a letter to employees asking them to appear at the council meeting to voice their opinions.
Although no one in the audience spoke in favor of the increase, Synadinos said she had received "many calls at my home from Hughes employees, telling me they favored this increase. When they asked me whether they should come tonight, I said, 'Please don't come down.' The risk is out there, and I don't want them to feel their jobs are threatened."
John Brown, Hughes vice president in charge of taxes, later said he was "shocked and insulted" by Synadinos' remarks.
Councilman Jack Siadek, who was the lone holdout against the increase, said he did not understand the council's reluctance to use reserves.
"No one on the council seems to understand that we have inordinate reserves. I would be the first to look for new sources of revenue if we were hurting, but we're not hurting. There's a real hardening of this council's attitude toward business that disturbs me."
Nicky Wislocky, a longtime member of the El Segundo Taxpayers Assn., a residents group, suggested that instead of raising taxes, the council put the issue of reserves on the ballot and create a local version of President Reagan's Grace Commission, which last year proposed a number of methods for reducing government spending.
While council members did not address putting reserves on the ballot, Jacobson later proposed that staff members prepare a report on creating a local committee that would examine methods of cutting city spending.
2,500 employees, 650,000 square feet of taxable floor space, $3 million average yearly utility bill; n/a means not applicable.
This chart shows the city-by-city comparison of the business license taxes that TRW would pay in El Segundo and those it would pay if it were located in other South Bay cities. Figures are based on number of employees, taxable floor space and average yearly utility bills. In last Sunday's edition the amounts for Redondo Beach, Hawthorne and Torrance were incorrectly listed in utility and gross receipts categories; this version has the right figures.
Floor tax $32,500 (Based on 5 cents per square foot) Per employee head tax $150,000 (Based on $60 head tax) Utility users tax n/a Gross receipts tax n/a TOTAL $182,500
Floor Tax n/a Per employee head tax $31,250 Utility users tax n/a Gross receipts tax n/a TOTAL $31,250
Floor Tax $72,988 (maximum allowable) Per employee head tax City applies greater of either head or floor tax, with ceiling on both Utility users tax n/a Gross receipts tax n/a TOTAL $72,988
Floor tax n/a Per employee head tax $14,300 (Based on $13 per employee for first 1,100 employees Utility users tax $150,000 (based on 5%) Gross receipts tax n/a TOTAL $164,300
Floor tax n/a Per employee head tax n/a Utility users tax $105,000 Gross receipts tax $50,000 TOTAL $155,000
Floor Tax n/a Per employee head tax $72,500 Utility users tax $180,000 Gross receipts tax n/a TOTAL $252,000