Zone of Contention : Critics Blast Tax Incentives for Areas Untouched by Riots
When Douglas Aircraft Co. buys $13-million worth of equipment next year, it will receive a $107,000 tax break. If Long Beach officials build a proposed mega-shopping center, shop owners and builders could receive hundreds of thousands of dollars in tax credits.
It’s enough to drive some state officials crazy.
Douglas Aircraft and the proposed shopping center owners and builders can take advantage of special tax breaks because their property sits in a revitalization zone--an area created to help businesses and residents devastated by last year’s riots. But because the zone’s boundaries were broadly drawn, neither of the properties is located in neighborhoods hit by the riots.
In fact, some of the city’s biggest businesses, in some of the nicest parts of town where not a single building was burned nor one store looted, can receive the tax breaks.
This is not what was supposed to happen, said Assemblywoman Marguerite Archie-Hudson, (D-Los Angeles), who drafted the legislation creating revitalization zones.
Long Beach officials argue that the entire city will benefit, and that what they are doing is innovative, not insidious. They are quick to point out that they broke no rules. “There was nothing secretive, nothing dishonest about it,” said Gerald Miller, manager of the city’s Economic Development Bureau.
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In fact, the state Business, Transportation and Housing Agency approved the map of the Long Beach revitalization zone in December without question, even though its boundaries appear to violate agency regulations.
“That the map was approved is astounding to me,” Archie-Hudson said. “While frankly, I think (Long Beach officials) were being opportunistic and I am annoyed that they did it. . . . It’s not like they were sneaking around. The fact is the state signed off on it. I want to know why.”
Assembly Bill 38a signed by Gov. Pete Wilson in September, 1992, allowed 10 Los Angeles County cities to draw boundaries around areas that “suffered substantial property damage to businesses as a result of the civil disturbances of April 29, 1992.” Besides Long Beach, the cities are Los Angeles, Compton, Hawthorne, Huntington Park, Inglewood, Lawndale, Lynwood, Pomona and Signal Hill.
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The law was intended to help people such as Kathy and Ralph Neal. Four months ago, the young couple refinanced their North Long Beach home to open their first business. Henri’s Discount Mart sits in a cluster of four other small businesses in a gleaming white mini-mall on the former site of the Foodland grocery store, which burned during the riots.
“Basically, what we’ve tried to do is give hope to the community and become a role model, particularly to the Afro-American community,” Kathy Neal said, watching people come in and out of the store. “We want to say, ‘You can own your own business,’ and we also want to be able to hire people from the area and put them to work.”
Because their Pacific Avenue store is located in the revitalization zone, the Neals can receive credit for the 8.25% state sales tax they paid on their freezers, cash register, food racks--in fact, for almost all furniture, fixtures and equipment they purchased. The state will pay for part of their only employee’s salary because he lives in the zone. In addition, the law allows business owners more complicated tax benefits to help reduce operating losses.
Basically, it means if the Neals end up owing the state $100,000 in taxes, and they receive $15,000 in tax credits, they will pay the state $85,000. They can use the credits only to offset taxes they owe to the state at the end of the year.
The tax credits expire in December, 1997, and the total cost to the state is estimated at $150 million.
Sam Parades, who now oversees the program in the Trade and Commerce Agency, said state officials let Long Beach and other cities define their own zones.
“They know what is best for their communities, and they know what areas will generate jobs better than we do.”
However, Parades said, agency staff members are discussing with Archie-Hudson and the governor’s office whether the agency did something wrong, and if so, what to do about it. Parades declined to elaborate on what options are being considered.
The assemblywoman was alerted about three months ago that it wasn’t just people who lived in the riot-damaged central and north Long Beach areas who were taking advantage of the zone.
Lakewood city officials, who are engaged in a bare-knuckle campaign to keep Long Beach from building a shopping center on the site of the Naval Hospital--just three miles from Lakewood Center mall--realized the site is in the revitalization zone even though it is about five miles from the closest riot damage.
They examined the boundaries of the Long Beach revitalization zone and saw it included not only that property, but the Marina Pacifica shopping center, the Long Beach Marina, Los Altos shopping center, 7th Street in front of Cal State Long Beach and even fashionable 2nd Street.
“It is just an outrageous abuse of the revitalization law,” said Lakewood City Councilman Robert Wagner. “I mean, the intent was clearly to rebuild the areas that were damaged and to try to get employment for people who are disadvantaged and living in that area. But Long Beach extended this into every significant shopping commercial area, in fact, into the nicest parts of town.”
After Lakewood officials complained, Archie-Hudson tried to determine how Long Beach was able to include such areas. She discovered that state officials allowed Los Angeles, Pomona and Long Beach to expand their zones by 15% as is done with state enterprise zones that offer businesses similar tax benefits.
That, as the assemblywoman sees it, was the first mistake because her legislation said nothing about a 15% expansion. But even then, the Business Transportation and Housing Agency’s own regulations say the expanded territory must be adjacent to the “area of substantial damage.” The same regulations define adjacent as “having a common border.”
While Los Angeles and Pomona penciled in big chunks of land next to the riot-damaged neighborhoods, Long Beach officials added some of the city’s largest commercial centers and proposed developments and connected them to the riot-damaged areas by major streets. Thus, the Long Beach expansion area resembles an octopus with tentacles reaching out to businesses all over town.
Miller, the manager of the city’s Economic Development Bureau, argued that the city simply placed the zone where city officials knew development and job prospects would be.
“It is very common for people to drive or take the light rail or other methods of transportation to move across town,” Miller said. “So it didn’t seem a stretch for us to put benefits where we knew there would be jobs, hoping that in this way, the employers would use the (revitalization zone tax) incentives to hire people who most needed jobs, the people in the central city neighborhoods.”
Victor Hoskins, executive director of the Long Beach Community Partnership, worked for the city Community Development Department when he drafted the boundaries of the Long Beach revitalization zone.
“What the city did is marry the assemblywoman’s vision with development potential in the future,” he said. “It was visionary. They were very forward-thinking.”
At Douglas Aircraft, for example, where about 15,000 people have been laid off since 1991, the revitalization zone benefits could save jobs. Douglas can receive credit for the $107,000 it will pay in sales tax for equipment and use it to offset any losses.
“I think the thing that makes it so important to us is that ($107,000 in sales tax credits) equates to more than two jobs,” Brown said. “It is no secret we are doing everything we can to save money and keep this company viable. . . . If we save money, we save jobs.”
And that’s the point, said Miller, noting that Long Beach has a large low-income population, has suffered through the recession and the riots, and faces the eventual closure of the Naval Station.
“Long Beach needs help and we are trying to help ourselves,” he said.
Miller said Lakewood officials are envious because Long Beach can provide a more competitive market.
Lakewood officials, on the other hand, say Long Beach leaders provide a more competitive market only because they are forcing state taxpayers to subsidize private development in affluent areas.
“If you can locate in fashionable east Long Beach and get the same benefits as you would if you located in North Long Beach, a mile or two away from Compton, where are you going to go?” Don Waldie, a Lakewood spokesman said.
In the long run, Long Beach is hurting the neighborhoods the revitalization zone set out to help, Lakewood officials say.
But Miller disputed that claim, saying that people will not choose locations for their businesses based only on tax incentives. He said they will also take into consideration who their customers are and how easy it is to get to their business.
“This was not any sort of rip-off or ‘Let’s be unfair to anyone else,’ ” Parades said. “We responded very quickly to an incredible problem. It was a monumental effort, we worked really hard, and now Lakewood city officials have pointed out a problem. We need to evaluate how serious that problem is. Did we do something wrong? Did we violate the sprit of the law? If we did, then let’s fix it.”
Revitalization Zone Tax Credits * A business owner may receive 100% credit for all sales tax paid on most equipment, machinery, furniture and fixtures.
* An employer may get credit for 50% of an employee’s salary (up to $6.37 an hour) if the employee lives within the zone. The percentage declines 10% a year.
* A business owner may receive 100% credit on sales tax paid for all building materials the owner paid for directly.
* A contractor can receive credit for 75% of a laborer’s salary (up to $6.37 an hour) if the worker lives within the zone and performs construction work within the revitalization zone. The credit drops to 50% in January.
* Credits will expire in December, 1997, and can be used only to offset taxes owed to the state.
For information: The state Franchise Tax Board, (800) 852-5711.
Riot Recuperation
After last year’s riots, state lawmakers passed a bill allowing 10 Los Angeles County cities to establish tax breaks to businesses in the devastated neighborhoods by creating special zones. Officials also allowed Long Beach to expand its zone by 15%. That expansion has stirred controversy because it includes parts of the city, such as 2nd Street, where no riot damage occurred.
