Plan to Aid Multimedia Firms Stalls : Business: City Council cool to bill that gives tax breaks to entertainment companies in Hollywood and North Hollywood.

Concerned over potential accusations of favoritism and hastiness, the Los Angeles City Council balked Wednesday at granting tax breaks to entertainment companies in Hollywood and North Hollywood, opting for further study of a measure that could cost the city $800,000 a year.

Despite a stern warning from Councilwoman Jackie Goldberg that Los Angeles is “daily losing” large multimedia corporations to nearby cities like Burbank and Glendale, the council sent her tax-relief proposal back into committee for at least a week, citing a need for additional analysis.

Most council members expressed support for the notion of offering financial incentives to the entertainment industry--the city’s No. 1 employer--to stay or locate in Los Angeles. But the conciliatory comments from those who voted against the motion prefaced sharp debate over a recurring theme in city financial policy: concerns over equity.

“Why aren’t we doing it for the textile (firms) that we’re losing to surrounding cities?” Councilman Mike Hernandez said.

Councilman Nate Holden reminded his colleagues that a $500 tax break for businesses in South-Central Los Angeles to counter the effects of the 1992 riots generated more controversy earlier this year than the current proposal, which could save a single entertainment company tens of thousands of dollars.

Holden said the new measure, introduced by Goldberg and Council President Pro Tem John Ferraro, should undergo the same scrutiny, at least in committee, as the tax break approved for South-Central.

Councilman Richard Alarcon expressed concern that entertainment businesses in his district in the northeast San Fernando Valley might relocate to Hollywood and North Hollywood if the tax break is approved.

But Goldberg said the exodus of important multimedia firms to greener pastures demanded immediate action, and requested that the issue return to the full council by next week.

“I’d like to say it were an attraction program,” she said of her proposal, “but it’s really a retention program. . . . Eventually, what we’ll have in Hollywood and North Hollywood if we don’t do this quickly is a ghost town.”

The measure seeks to cap taxes for entertainment companies at $25,000 or 10% of its current tax liability, whichever is greater. Under that formula, corporations now paying the most would reap the greatest benefits. For example, a firm that ordinarily owes $40,000 in taxes would be billed $25,000, a savings of $15,000, whereas a larger company accustomed to paying $300,000 would owe only 10% of that, or $30,000--a savings of $270,000.

A staff report said at least 23 companies would currently be affected by such a tax-relief measure to the tune of about $800,000 total.

Such financial breaks have been permitted since voters authorized the city last June to lower taxes as a commercial incentive in economically depressed neighborhoods. City officials said Hollywood and North Hollywood, both redevelopment areas, were prime spots for tax relief because of the concentration of entertainment businesses in Hollywood already and the proximity of North Hollywood to Burbank, a stiff competitor for multimedia interests.

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Indeed, the genesis of Wednesday’s motion was the loss of a prospective entertainment company to Burbank over the tax issue, said the city’s chief legislative analyst, Ron Deaton. He said the idea of a tax exemption for such corporations came from Mayor Richard Riordan’s economic development office.

But its passage Wednesday was stalled after criticism from council members such as Mark Ridley-Thomas, who said the bill needed more study, and Joel Wachs, who said a hasty decision could look like favoritism.