L.A. and Its Businesses--a Love Affair Gone Sour : Economy: Many companies flee, citing rising costs and unfriendly bureaucracy. City officials pledge change.

Once a cradle of boosterism, where visiting businessmen were greeted at the railroad station with bouquets of flowers and advertisements for cheap land, Los Angeles today is struggling with an attitude problem that is helping to drive firms out of town and making a bad recession worse.

“This whole place was built on glitz and hype and promotion, and we don’t seem to know how to do that anymore,” said economist Jack Kyser, whose nonprofit Economic Development Corp. is one of the most pessimistic forecasters of the local business climate.

With at least 50,000 jobs lost this year, much of the blame is being leveled at City Hall and other government agencies for creating a maze of regulations and prohibitions that have significantly raised the cost of doing business in Los Angeles.

The protests of disaffected businesses and the outright defections of many to neighboring cities and states have prompted Mayor Tom Bradley to begin taking steps to make the business climate more hospitable. Other agencies, including the state’s Air Quality Management District and the County of Los Angeles, also have taken measures to ease the regulatory burden on business.

Nevertheless, some critics from the business world say the Bradley Administration has yet to grasp the depth of the discontent. Others worry that a rush to accommodate fleeing businesses might lead to the compromising of important reforms intended to clean the air, rid the waters of toxins and unclog the freeways--goals that most business leaders say must be met for the city to prosper in the long run.

“Historically, Southern California’s quality of life has been one of the main reasons businesses have moved here,” said Stephen Levy, director of the Center for the Continuing Study of the California Economy.

Yet it is increasingly difficult for government to ignore the signals of a distressed economy, especially when they often come from ordinary citizens.

Members of Estrella del Mar, a community of nuns, said they were forced to wait 15 hours in line over the course of three days to apply for a permit to operate a home for abused children. Robert Barbour, a boat accessories manufacturer, said his city sewer fees last year jumped from $3,000 to $10,000. The owner of a small metal fabricating plant, who asked not to be identified, said he has been forced to operate illegally--pouring toxic sludge into the sewer system--because he cannot afford to comply with the Bureau of Sanitation’s standards.

“Government is more interested in shutting you down than in achieving a balance between the environment and job creation,” said Andy Patterson, a consultant to high-tech companies.

Expected budget shortfalls are also signs of the times. City officials project a 13% decline in business tax revenue--more than $40 million--and a 5% drop in sales tax revenue during the coming fiscal year. The tourist business, the city’s second-biggest industry, has been flat for three years, and officials of the Visitors and Convention Bureau say they have been unable to come up with the money for a nationwide marketing strategy to promote travel here.

Meanwhile, corporate recruiters from Nevada and Arizona report that 50% to 60% of companies inquiring about moving there are from Southern California, many of them from the Los Angeles area. Six southwestern states have set up business recruiting operations in Southern California. A recent survey by Southern California Edison found that of 500 new plants built in Arizona, Nevada and Mexico, 160 had relocated from Southern California. In all, 388 manufacturers have left the area since 1984, Edison disclosed.

According to the survey, the main reason companies relocated, besides the rising costs of land, labor, benefits and taxes, was a belief that “regional regulatory agencies and local governments harbor anti-business attitudes.”

Many of the pressures on businesses are outside City Hall’s jurisdiction. The city controls only a handful of the 80 agencies that tax and regulate local businesses.

But City Hall’s historic role in building Los Angeles’ commercial base makes it a focal point of efforts to improve the local business climate.

Searching for antidotes to the souring economy, Los Angeles Mayor Tom Bradley has acknowledged that City Hall has been slow to respond.

The mayor’s top aides say that the prosperity of the 1980s lulled them into a false sense of security. From the soaring skyline downtown to Melrose Avenue’s glittering face lift, the city camouflaged ominous countertrends such as the steady erosion of manufacturing jobs, which fell by 53% between 1980 and 1990.

“Los Angeles and Southern California in general just took its economic prosperity for granted,” said Deputy Mayor Mark Fabiani. “As it turned out, the economy wasn’t as diversified as people thought.”

Recently, Bradley began to formulate a strategy to retain companies and attract new ones.

The mayor’s office has floated a series of proposals to help businesses grow and find easier access to credit. These proposals would amend city contracts to require greater use of locally manufactured goods and services. They would create “entrepreneurial centers” to assist struggling small businesses. And they would make the City Hall bureaucracy more responsive to businesses trying to comply with the myriad fees, permits and regulations governing private enterprise.

Business and government leaders say the city needs to do a lot more. The battle for business will not be joined, they say, until someone of Bradley’s stature steps up to the bully pulpit and declares an emergency. For example, some people have urged that the mayor use his influence to lobby for reform of California’s enormously costly workers’ compensation and health care systems.

“The mayor could draw on his personal prestige and the prestige of his office, call Sacramento and make it clear to his Democratic colleagues that the economic well-being of the state’s largest cities are on the line here,” said Woody Godbold, president of Zero Corp., an electronics firm that recently moved a part of its operations, including 400 jobs, to Salt Lake City.

Others say the mayor should divert some of the time and energy spent on foreign trade missions to attracting U.S.-based industry to the city.

“I think Bradley has done a tremendous job with the overseas market,” said city Controller Rick Tuttle. “Now, it’s time to get out and compete in the good old U.S.A.”

Even Bradley’s aides concede that City Hall has got a long way to go to overcome the crisis of confidence that is afflicting the city’s private sector.

“We are just beginning. The city still does not have a well-defined sense of what it ought to do,” said Linda Griego, a recently appointed deputy mayor who is heading the city’s economic development efforts.

Griego, who has started several businesses including the popular downtown restaurant Engine Co. 28, said her first task is to reach out to many of the people she knows best--small entrepreneurs who are convinced that the city is bent on squeezing them hardest when times are toughest.

Much of the concern is felt by small manufacturers distraught about a proposed rush-hour ban on trucking and about the latest wave of fees and regulations--some already in effect--governing sewer maintenance, hazardous waste cleanup, commercial construction and day care.

But business owners say they are angriest at a bureaucracy that they contend routinely misinforms them, overcharges them or simply ignores their applications, complaints and appeals.

“If you call and ask what regulations apply to you, or how to comply or why a certain fee has gone up, you’re asking for a nightmare,” said Robert Barbour, whose company makes boat parts. Barbour said he spent a year unsuccessfully trying to convince the city Bureau of Sanitation that he did not owe a $3,900 sewer use fee because he had capped the sewer at his plant. Barbour said he had developed a system to turn liquid waste into solids that are hauled off to a legal dump site.

Godbold said Zero Corp. has waited longer--about two months--for the city to approve a cross-town move to Pacoima than it did for the state of Utah to approve Zero’s expansion there earlier this year.

“You’ve got a company struggling to keep a presence here,” Godbold said, “and the city is acting like it couldn’t care less. We still haven’t heard from them.”

With her own stories to tell about excessive fees, costly delays and bureaucratic discourtesy, Deputy Mayor Griego said she will put a premium on reforming the government process.

“I have had that feeling of emptiness in my stomach when you can’t persuade the bureaucracy that if they don’t act on your permit soon, you’ll run out of money, your shop won’t open, 15 or 20 people won’t have jobs and the city won’t get the tax benefits of a brand-new business.”

But Griego maintains that the bureaucracy will not become more hospitable to business until politicians do.

“Politicians run on anti-business themes,” she said. “It’s a tried and true method of getting elected around here.”

Critics of that trend, such as economist Kyser, find it ironic that anti-business rhetoric is so much a part of a culture that owes its existence to the resourcefulness of business owners who built the city’s harbor and its water and transportation systems. For years, influential books and movies have demonized pioneer real estate developers, accused the auto industry--once one of the area’s biggest employers--of setting out to destroy the region’s first commuter rail system and condemned capital projects, from Dodger Stadium to downtown redevelopment, for their disruption of poor neighborhoods.

Today, said Kyser, “the prevailing view of business is that it’s not there to expand the tax base or provide employment, but to create a bigger nuisance. Because of business we have air pollution, traffic congestion and a host of other social ills. That’s the attitude we’re up against.”

In that environment, small business, the area’s dominant employer, stands to suffer most.

While large businesses often can afford to hire lawyers, accountants and lobbyists to do battle with the bureaucracy, small ones often lack the resources. And small operations--those that employ 50 or fewer people--make up 93% of all businesses in Los Angeles County, according to the U.S. Census Bureau and to the state Employment Development Department.

“It’s popular to beat up on the big boys,” said Griego. “But you have to remember the impact is also felt by the little people.”

The Bradley Administration has hardly been inattentive to business during the 18 years the mayor has been in office. Through the Community Redevelopment Agency, the Bradley regime has provided massive subsidies for the commercial rehabilitation of the city’s downtown, of Hollywood and Watts. Spokesmen for the mayor also maintain that Bradley’s frequent and oft-criticized trade missions abroad have helped make the port of Los Angeles the nation’s busiest and Los Angeles International Airport the second-busiest air cargo center.

But the successes bred a costly complacency, say officials.

“For years, the world beat a path to our door,” said Michael Collins, vice president for public affairs of the Los Angeles Visitors and Convention Bureau. “As a result, there was no active tradition of going out and soliciting the tourist dollar.

“Sometime in the early 1980s, things changed,” Collins said. “Significant competition began to develop from other states, and cities began to work harder at getting convention and tourist business.” By this year, Collins said, tourism in Los Angeles was stagnant, the annual number of visitors, about 11 million, was largely unchanged for the past three years.

Meanwhile, said Collins, officials had done little to attract business to the city’s new convention center scheduled to open late next year.

“We were the worst pre-booked convention center of any major metropolitan area in the country,” Collins said, with just 11 conventions scheduled between 1993 and the year 2000.

The number has been raised to 31, and the City Council has budgeted more money for promotional activity. But Los Angeles still lags well behind such competitors as San Francisco, which has scheduled close to 300 conventions.

Worse, said Collins, the city has not developed the beginnings of a strategy to compete with other states and cities.

“We need to create a strategy that identifies our market, that distinguishes L.A. from some other place,” Collins said. “We haven’t done it, and sometimes I wonder whether L.A. still believes in itself enough to present itself positively to the world.”

Some analysts think the bad news about the economy has been exaggerated.

Levy, of the Center for Continuing Study of the California Economy, argues that the economy is in a normal slump, no worse off than it has been in past recessions, and he says it is wrong to reach dire conclusions about the local business climate.

“Job losses in manufacturing and construction are almost totally explained by cyclical factors,” Levy said.

Levy’s organization predicts healthy job growth for the state in the 1990s and notes in a recent report that 33 of the nation’s 100 fastest-growing companies, as compiled by Fortune magazine, are based in California--nine of them in Southern California.

The danger in harping on the bad economic news, said Levy, is that it plays into the hands of people who blame business woes on statewide efforts to improve the environment.

“If you focus on the losers, the ones who are pushing an anti-environmental agenda,” said Levy, “you’re going to be dealing with industries that will probably leave the state regardless of what you do.”

And if you pursue that agenda, he said, you’ll be hurting “the winners,” the growth companies whose self-interests are tied to a clean environment and an efficient transportation system.

Kyser and other local business advocates argue that the changes they have in mind won’t scuttle environmental reform.

“You don’t have to roll back environmental regulations to make the city user-friendly to business,” Kyser said. “We just have to change our attitude. When a business comes to the city looking for assistance, explain the process, offer a helping hand.

“Just greeting ‘em with a smile would be an improvement.”