In Mayor’s Race, Talk Is All Business

If I. M. Pei’s First Interstate Bank Building downtown symbolizes the sky’s-the-limit business climate of Los Angeles’ recent past, its future is being etched in a small Westside cafe run by a struggling Brazilian immigrant named Humberto Magalhaes.

Mega-developers have been upstaged by mom and pop. Small business is in vogue, and nobody knows it more than the candidates for mayor of Los Angeles.

Richard Riordan may have made himself enormously wealthy restructuring such companies as Mattel Toys and Convergent Technologies. But during the campaign, Riordan prefers to talk about Magalhaes, a former waiter who gambled his life savings in an uphill battle against a hostile municipal bureaucracy to open his cafe.

Likewise, candidate Linda Griego invokes the struggles of a family-run bakery in South-Central Los Angeles to find a loan to expand its operations and hire more people.

Experts on the local economy have been arguing for several years that, as heavy manufacturing declines, the city’s economic future would depend on a new wave of small home-grown industries. They point out that more than 90% of the city’s businesses qualify as small because they employ no more than 50 people.

But the experts warn that small enterprises cannot bear up under the weight of taxes, fees, red tape and bureaucratic indifference that big companies were willing to put up with to do business in a boom town.

The mayoral candidates have heard the warning. Their stump speeches bristle with rhetoric about the city’s “outlaw bureaucracy” and its “permitting nightmare.”

Tom Houston says that, in the midst of a recession, City Hall has succumbed to a paralyzing case of “narcolepsy.” Riordan regales audiences with stories about the number of permits (eight) it took a friend to plant a tree outside an office building and the number of years (seven, so far) the City Council has taken to negotiate a community plan for Warner Center--the San Fernando Valley’s largest commercial enclave.

Virtually all candidates talk about making the city a more hospitable place for business. They call for “streamlining the bureaucracy” and reforming the city’s Byzantine permitting process.

“We must listen to the voice of business,” said candidate and Councilman Joel Wachs, whose economic agenda calls for making the city safer, curbing worker’s compensation fraud and tailoring job training to the needs of up-and-coming companies--ideas echoed by many of his rivals.

Most would offer incentives to small business in the form of loans or job training assistance. And several--including Riordan, Wachs, Assemblyman Richard Katz, lawyer Stan Sanders and Councilman Michael Woo--would establish community development banks or venture capital funds to help small businesses expand.

Keenly aware of the environmental sensitivities of many Los Angeles voters, the candidates insist that business interests can be accommodated without weakening environmental safeguards.

At a recent forum, Woo described the conflict between the environment and the economy as purely “theoretical,” adding: “I believe it is possible for us not only to promote the environment but also to restore the economy.”

The business community, in general, has responded skeptically to the candidates’ show of sympathy. They point out that four of the candidates--Woo, Wachs, Nate Holden and Ernani Bernardi--are members of a City Council that voted for the steadily rising taxes and fees, as well as the maze of regulations that has given the city a black eye in business circles.

“These are some of the same guys that have been turning a deaf ear to us for a decade or more, and now they say they want to be our friends?” asked the manager of a metal-plating firm who did not want to be identified.

“I will believe they are serious when they stop raising the sewer service fees or the business taxes.”

Thad Williams, a home builder in Watts, said he was dubious that any candidate could turn things around at City Hall.

“It will take an awful lot of initiative by an awful lot of people, and I don’t think that’s there.”

Williams’ houses sell for about $150,000--$50,000 to $100,000 less than they would in more affluent parts of town. But the cost of doing business with the city is the same everywhere. As a result, the fees he must pay and the interest-carrying charges--compounded by the city’s slow-moving permit process--bite deeper into Williams’ profits than they would if he were building his houses on the Westside.

“Investors see how little they are going to get back from projects down here and they are not eager to get involved,” he said.

Such burdens have only gotten heavier in the recession. City Hall, trying to cope with a growing budget deficit, has raised a host of taxes and fees that affect business. They include levies on business licenses and hotel beds, as well as user taxes on utilities and parking lots.

Meanwhile, building permit fees have risen by more than 35%, as have the fees charged developers for zone changes and conditional use permits.

Since 1990, all four council members running for mayor have voted for a variety of new levies on business. They approved a new tax on private parking revenue. Three of the four approved a 10% increase in the city’s business tax despite arguments that it would spur business flight from the city. Only Bernardi opposed the increase.

Wachs and Woo joined a council majority in voting for an increased levy on real estate transactions; Holden and Bernardi voted against it.

City taxes and fees began to move up in the early 1980s, when government turned to businesses to make up for property tax revenue cut off by Proposition 13. City Hall also turned to business to pay for expensive environmental improvements--in particular, the $600-million cleanup of Santa Monica Bay.

During the past decade, according to city records, sewer service charges quadrupled. Now, for a commercial laundry setting up operations in Los Angeles, the cost of hooking up to the city sewer can total more than $1 million.

Municipal fees, regulations and bureaucratic roadblocks are routinely cited among the reasons the city and county have lost more than 100,000 manufacturing jobs over the past decade.

Most of the candidates shy away from talk of new taxes, although Julian Nava has proposed a payroll tax as a way of requiring non-residents to help pay for the maintenance of streets and utilities they use.

Riordan has proposed the most detailed plan for restricting the role of politicians and bureaucrats in regulating business.

Besides selling government bonds to provide capital to attract high-tech firms to Los Angeles, he would limit the council’s right to intervene in the process of issuing permits. He also would require that environmental impact reviews of projects, which often take several years to finish, be completed within one year.

Like the other candidates, Riordan says that small business suffers the most from a run-away bureaucracy. To illustrate his point, he talks about Magalhaes, who was waiting tables at the Regency Club in Westwood when Riordan met him and heard his tale of woe about trying to start his own restaurant.

With construction of the restaurant nearly complete, and with what he thought were the necessary approvals from City Hall, Magalhaes figured he was just weeks away from welcoming his first customers in the spring of 1991.

But city officials informed him that the off-street parking requirements under which he had obtained preliminary approval to build had been changed. The City Council had passed a stricter ordinance.

Magalhaes said he argued in vain that they were changing the rules on him in midstream. But the law was the law, and he was no longer in compliance.

With $70,000 of mostly borrowed money invested and no way of acquiring the extra parking space, Magalhaes was on the verge of giving up on his dream, he said, when Riordan helped obtain a variance on his behalf.

“If Mr. Riordan had not gone to bat for me at City Hall, I would have lost all my savings and gone back to Brazil,” Magalhaes said.

It does not hurt a candidate to be known as someone with clout at City Hall. But Riordan and most other candidates say they want a bureaucracy that will work with fledgling entrepreneurs without prompting from influential intermediaries.

“Humberto was lucky,” Riordan said. “He knew someone who could make the right phone call. But he shouldn’t have needed anyone.”

Several candidates have talked about providing financial assistance to struggling small businesses, insisting that the money can be found despite the largest budget deficit in the city’s history.

Woo would take $5 million now used to produce educational videos for city workers and use it to guarantee $100 million in loans to small business.

Two candidates, Katz and businessman Nick Patsaouras, would tap into $180 billion in federal transportation dollars that will come to the city over the next 30 years.

Katz talks about making Los Angeles the Silicon Valley of transportation technology, using the $180 billion to develop a “clean fuel” vehicle industry.

Patsaouras, who serves on the Los Angeles County Transportation Commission, has proposed a variety of incentives to lure bus and rail car manufacturers to the region and to induce defense and aerospace manufacturers to convert to plants that produce clean fuel vehicles.

The pro-business agenda of this year’s mayoral election is a marked departure from past campaigns in which candidates bent over backward to accommodate the slow-growth sentiments of many voters.

Aware that potential supporters still tend to blame many of the city’s environmental and social problems on business, some of the more liberal candidates--including Griego, Katz, Wachs and Woo--are treading carefully. As one consultant put it, they are bowing equally deeply to “Clintonism and Rodhamism”--a reference to the President’s emphasis on stimulating the economy and the First Lady’s focus on social issues.

Several candidates have turned to two local experts, lawyer David Friedman and author Joel Kotkin, who have written extensively on the role small business can play in reviving the economy.

Kotkin and Friedman began to draw attention to themselves when they disagreed with the concept, fashionable in academic and political circles, that Los Angeles resembled a Third World city made up of rich and poor with no middle class left and no means of upward mobility for the working poor.

The pair argued that the Third World theory ignored the fact that the region had become home to hundreds of fast-growing industries, many of them run by immigrants, that were becoming standouts in such fields as computer software, electronics, medical equipment and textiles.

In partnership with local government, Friedman and Kotkin argue, these companies could expand their markets and offer a solid employment base for the future.

These days, the Friedman-Kotkin gospel echoes on the campaign trail as Wachs, Griego and Woo, in particular, incorporate some of their ideas into stump speeches.

Still, Friedman and Kotkin have not endorsed anyone, and they say they are not persuaded that the next mayor will do the right things for the economy.

Although Friedman describes himself as a liberal Democrat, he maintains that the liberal policies of the current city administration have choked off economic development.

“Take what’s going on right now on the Eastside,” Friedman said. “With one hand, the city spends millions to help new industries, but with the other, it builds as many shelters and soup kitchens as it can--all done to satisfy a homeless constituency or a minority agenda.

“In the process, what has been created is an extremely negative business environment full of crime and undesirable conditions. The same is true in Hollywood.”

Friedman said he is not urging politicians to turn their backs on the needy. “I do, in fact, believe we have to have programs for destitute people,” and he is skeptical of strategies that offer incentives to business without requiring commitments from them in return.

A number of the candidates--including Griego, Houston, Katz, Wachs and Woo--have talked about weighting city contracts in favor of firms that employ local workers and that use locally produced goods and services.

“The city should provide public safety, clean streets, prompt permitting and other kinds of help in return for promises to reinvest in the community,” Griego said. “We’re not just going to let industry move to Nevada or Mexico after getting subsidies, incentives and environmental waivers.”

Staff writer John Schwada contributed to this story.

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The L.A. Mayoral Race: Where They Stand

Most of the major candidates for mayor of Los Angeles say they want to reform the city bureaucracy to make it friendlier to business. Here’s a look at their views: THE CANDIDATE: ERNANI BERNARDI THE POSITION: Would seek City Council takeover of Community Redevelopment Agency, including ending the diversion of tax dollars from the city, county and school district for downtown renewal; would consolidate economic development program agencies into a single Community and Economic Development Department. *THE CANDIDATE: LINDA GRIEGO THE POSITION: Would set performance standards to speed up permitting and inspection, hold department heads accountable for achieving performance standards, eliminate duplicative regulations, instill in city employees a cooperative spirit that will make businesses want to locate in Los Angeles. *THE CANDIDATE: NATE HOLDEN THE POSITION: Would establish an Economic Development Department and assign a liaison in that department to work out of the mayor’s office. Would have a STOP (Special Task Office for Permits) center to act as a one-stop permit center and expediter for business concerns. *THE CANDIDATE: TOM HOUSTON THE POSITION: Favors amending the City Charter to create a strong-mayor system, placing the mayor clearly in charge of the executive branch of city government. Would depoliticize the Planning Department by blocking interference by mayor and City Council members in permit process, and would require Planning Department staff to log telephone conversations and meetings with members of the City Council or mayor’s office and make logs available to the public. Would create a Planning Department unit to expedite permit approvals on housing projects and projects that create jobs. *THE CANDIDATE: RICHARD D. KATZ THE POSITION: Would keep some city offices open later evenings and Saturdays. Would form cabinet composed of the presidents of major commissions and their department heads to meet regularly with the mayor to facilitate communication, consistency and efficiency among branches of government. Would assist women- and minority-owned businesses by simplifying the certification process. *THE CANDIDATE: JULIAN NAVA THE POSITION: Would help form a Los Angeles Regional Economic Development Council to foster greater cooperation among public entities and the private sector. *THE CANDIDATE: NICK PATSAOURAS THE POSITION: Would streamline permit process without eliminating or reducing environmental regulations and make it possible for small companies to get their city permits through one-step process. *THE CANDIDATE: RICHARD RIORDAN THE POSITION: Would sell government bonds to provide capital to attract high-tech firms to Los Angeles. Would limit the Council’s right to intervene in the process of issuing permits. Also would require that environmental impact reviews of new projects be completed within one year. *THE CANDIDATE: STAN SANDERS THE POSITION: Would provide one-stop services for certification of all businesses whose plans would provide more jobs. *THE CANDIDATE: JOEL WACHS THE POSITION: Favors adopting a city plan for attracting new industries, helping existing businesses expand, encouraging entrepreneurship and increasing overall business activity without sacrificing environmental quality. *THE CANDIDATE: MICHAEL WOO THE POSITION: Would hire an economic czar to oversee the city’s economic development programs and reform of the city’s permit processing system. Would also create a special unit within the city attorney’s office to prosecute workers’ compensation fraud.