USC Study Criticizes L.A.’s Investment in Downtown : Growth: Redevelopment has failed to spur economy, report charges. It urges tax on profit from sale of homes.

The wisdom of the city’s billion-dollar investment in downtown redevelopment, a crowning achievement of Mayor Tom Bradley’s Administration, has been sharply challenged in a new report by USC researchers on local government’s role in the slumping economy.

The report, released Tuesday by USC’s School of Urban and Regional Planning, drew immediate criticism from within USC and from city officials for writing off 20 years of government intervention that created the downtown skyline and rebuilt its crumbling commercial core.

The study offers a number of recommendations for improving business conditions, including a novel proposal to impose a city capital gains tax on profits from the sale of homes. The proceeds would be used to finance the construction of affordable housing.

“This report is guaranteed to offend just about everybody,” Craig Lawson, a board member of the Headquarters City Assn., which commissioned the study, quipped to about 100 other members gathered Tuesday for the unveiling of the study.

Aspects of the report are likely to raise the hackles not only of downtown interests and homeowners, but environmentalists and organized labor as well.

Chester Widom, the association’s president, said the study’s purpose was not to search out politically acceptable solutions to local economic problems, but rather to stimulate debate. “It’s a call to action to public officials to address a subject of great concern to the region,” he said.

The study contends that up to now, local policy-makers have not had much impact on the economy. The city of Los Angeles, it states, “has assumed a largely passive role in promoting economic development, with the notable exception of downtown Los Angeles,” where tax levies and other incentives have changed the skyline but accomplished little else.

“The downtown ‘revival’ is not the key to the region’s (past) economic success,” the report says, contending that additional investment in downtown will not do much to spur a citywide economic recovery.

According to the report, job growth downtown has lagged well behind the county rate. The rate of housing construction has been even slower, the study says, maintaining that “the attempt to create a jobs-housing balance downtown has been almost a total failure.” Moreover, it adds, the effect of city assisted high-rise construction has resulted in an abandonment of older office space, creating a 20% vacancy rate and accelerating the process of “core city blight.”

The report goes on to argue that the city’s transit strategy of building commuter rail lines between downtown and other commercial centers will not work because it does not follow the most commonly used routes of travel. “Whereas local officials have pinned their hopes for rail transit success on the development of Los Angeles’ many centers, a (previous) USC study has determined that most trips are not between centers but rather between centers and their surroundings,”

Linda Griego, the city’s deputy mayor for economic development, took sharp exception to the report’s criticism of the city’s role in spurring downtown development.

“I think it has made us a financial capitol,” she said. “It has drawn institutions, including major law firms here. It has built up our image enormously. I saw downtown 20 years ago. I don’t think it gave the impression of the major city that we all wanted Los Angeles to be.”

Others reacted more heatedly to the report.

“This doesn’t in any way reflect the university administration’s position on these issues,” said Lloyd J. Griffiths, an associate dean of the USC School of Engineering and a member of the association that commissioned the report. “In fact, these recommendations would hurt USC. We depend on downtown growth. We’re an integral part of the community.”

Robert Biller, USC’s vice president for external affairs, said he was pleased that the USC faculty is engaged in the discussion of local economic development, but he took a more positive view of downtown development.

“Los Angeles is the only city in North America in the past decade that has shown signs of growth both at the periphery and the core. The area’s vibrancy explains why it has become a magnet for so many different cultures,” Biller said.

While critical of city policies in downtown Los Angeles, the report states that city government would accomplish more if it focused its resources on promoting development in the suburbs where job growth has been the strongest during the past decade.

The report urges city officials, who are struggling with a huge budget deficit, to avoid the temptation to raise taxes or cut services, warning that either tactic is likely to accelerate business flight. For the same reason, it recommends that city officials discard a proposed fee on new commercial real estate development to help pay for low-income housing. Instead, the report suggests the imposition of a 2.8% capital gains tax on the sale of residential property which, it estimates, could raise $30 million a year.

In other respects, the report echoes the advice of a variety of business groups. They contend that local government agencies, especially the Air Quality Management District, could best improve the business climate by easing growth-control measures and by making it less costly for companies to comply with environmental regulations.

The report also urges local policy makers to privatize government services. It cites a recent study by the Reason Foundation which estimated that privatization could save the city $440 million annually and the county $300 million. Moreover, the report says that the benefits of privatization outweigh the main drawback, the likelihood that union labor will be replaced by cheaper non-union employees.

“A slight slippage in a metropolitan region’s average wage is a tolerable price to pay for avoiding the alternative, the impact of higher taxes or poor services on the economy’s rate of economic growth,” the report states.