DreamWorks Picks L.A. Site for Studio, City Says : Entertainment: Plan for $70 million in incentives is prepared for locating near Marina del Rey.

The fledgling DreamWorks SKG entertainment company, the most ambitious new endeavor in the entertainment industry, has decided to build a high-tech studio and corporate headquarters on 100 acres near Marina del Rey, city officials said.

To lure the vaunted partnership of Steven Spielberg, Jeffrey Katzenberg and David Geffen to the property, the city of Los Angeles is preparing the largest package of tax breaks, fee reductions and other incentives in its history.

A general outline of concessions worth at least $70 million is scheduled to be introduced today to the Los Angeles City Council by Councilwoman Ruth Galanter, along with a preliminary declaration of support for the project.

DreamWorks executives said they will not comment until next week, when they have planned an official announcement and when the proposal will face an initial City Council vote.

Galanter, Mayor Richard Riordan and other city officials are already rhapsodizing about the potential benefits of the studio complex--which one analysis shows would produce about $500 million in new taxes and fees over 15 years for city, county and state governments. The project at the foot of scrub brush bluffs--within view of the ocean, where billionaire Howard Hughes once built airplanes and made movies--will be the first newly built, major studio complex in Southern California in more than half a century.

Those familiar with the negotiations said DreamWorks had strongly considered building a new studio on unincorporated county territory on the Universal Studios back lot, where the start-up company has been temporarily quartered and where Spielberg’s Amblin Entertainment is based. The firm also pondered moving to Burbank. It has already announced plans to build its feature animation division in Glendale.

“Symbolically, this shows that L.A. is back and we are the place to do business,” Riordan said in an interview Monday. “DreamWorks will also be a draw for many other interactive media-type companies and even other types of businesses.”

Galanter said the proposed deal shows that the city “is interested in helping businesses that want to contribute to our economy, particularly in a key industry like this one. I’m sick and tired of hearing that this city is unfriendly to business.”

Construction is expected to take at least three years. Before work can begin, though, several important hurdles must be cleared: The City Council must approve the incentive plan that offers benefits far greater than those offered to businesses in the past; the DreamWorks triumvirate must finalize deals to bring several multimedia partners to the site, and financing must be arranged.

Backers of the project hope that all those obstacles will dissolve in the face of the considerable financial power and entrepreneurial cachet of the DreamWorks principals.

Those familiar with the protracted negotiations said the three partners were driven to the Westside by a desire to create a new, technologically innovative facility from the ground up. In a concept shared with city officials, the company’s offices and studios will become the magnet for a “creative campus” that one day will include firms that make music, computer software, video games, digital imagery and other motion picture special effects. More than 7,000 people might eventually work there.

A DreamWorks movie director would, for example, be able to peruse CD-ROM files in an office rather than wander a musty warehouse to make costume choices, or maneuver tons of lighting equipment by simple computer command rather than by slow and costly manual labor, or walk a few buildings away to talk to experts on the latest digital breakthroughs.

In his talks with the city, Katzenberg has repeatedly said that the existing studios in this country are technologically obsolete. DreamWorks is better served to start from scratch, rather than following recent industry tradition and merely expanding someone else’s operation.

The entertainment firm’s conception of a creative center dovetails neatly with the plans of Maguire Thomas Partners, the real estate development firm that owns the property. For nearly seven years Maguire Thomas has been attempting to build a mini-city of apartments, condominiums, offices and shops called Playa Vista. The initial phase of the project, already approved by the City Council, was recently retooled by Maguire Thomas to turn some of the office space into studios and production facilities.

DreamWorks will now form a partnership with Maguire Thomas, owner of downtown office towers and other holdings, to build not only the studio, but also the housing and other components of Playa Vista.

Spielberg has already climbed a three-story-high scaffolding on the property to gaze out from a vantage point where his office might be and to imagine the 7 1/2-acre lake that one day is supposed to be created there.

But making these dreams a reality will come at a high price. A DreamWorks economic analysis showed that the project would be prohibitive because of the $700 million in roads, sewers, electrical hookups and other infrastructure costs that must be in place before a studio can rise, sources said. Riordan’s office commissioned a study that reached a similar conclusion.

The result was exhaustive meetings of the mayor’s staff, Galanter, city bureaucrats and DreamWorks negotiators to attempt to bring down those costs. They now have a formula that will do so in a number of ways:

* The deal will eliminate most of the $50 million in street construction and transportation expenses that Maguire Thomas had previously been ordered to complete to accommodate the huge volume of traffic Playa Vista is supposed to produce.

The widening of Lincoln and Jefferson boulevards, expanded ramps to the San Diego Freeway and other improvements will still go ahead, but now up to $40 million of the work is expected to be paid for by the state and completed by Caltrans. The remaining $10-million cost of regional street improvements will be split between the city and the developers.

* The cost of hooking up to the municipal sewer system has been cut in half, to $12 million. City sanitation officials have long been studying a reduction in the fees, which have been a thorn in the side of business. The new, lower rates will be available to all new business and residential hookups, not just DreamWorks, officials said.

* An estimated $10-million up-front charge for connecting to the city’s electrical system will instead be paid over as many as 25 years. In exchange, DreamWorks will agree to remain a power customer of the city’s Department of Water and Power for at least that long, at the utility’s most favorable business rates.

* The city would for five years reduce business license and utility user taxes and consider permanently reducing business taxes for all multimedia technology and entertainment firms, such as DreamWorks.

Under this scenario, DreamWorks would benefit from a proposal already pending in a City Council committee to offer tax reductions to all start-up businesses in the city. Under the plan, a firm would be permitted to reduce its utility or business license taxes by $1,900 for each new job brought to the city. That incentive might increase to as much as $3,800 for creating higher-paying “quality” jobs.

The plan is very much in flux, but officials in the city said they believe DreamWorks could reap at least $10 million in tax benefits over five years.

The economic incentive package was drawn in whirlwind fashion by a city that, in the past, has been criticized for being unresponsive to business. For example, Riordan, a member of the Metropolitan Transportation Authority board, saw to it last month that the studio-related traffic improvements were added quickly to the agency’s priority list of improvements. Final approval of the projects is in the hands of the state Transportation Commission, but that group of gubernatorial appointees is expected to fall into line because Gov. Pete Wilson is supporting the project, sources said.

One city transportation official, who asked not to be named, said the force of the DreamWorks name could get the new roads built by Caltrans in four or five years, compared to 10 or 15 years if the developer had financed the projects.

“Steven Spielberg can pick up the phone and get E.T., so why not the governor?” quipped the official. “These are powerful forces; I don’t think there is much doubt this is going to be approved.”

The massive concessions contemplated for DreamWorks are unique for Los Angeles, which for most of its history relied on its natural attributes to attract business. Still trying to crawl out of their city’s worst recession since the 1930s, though, some officials have decided it is time to turn to the kind of hard economic incentives other cities and states have long used to attract companies.

Riordan has made a pledge to make the city more business-friendly and, for that reason, he called the DreamWorks deal “probably the most important” thing he has accomplished in office, adding: “This is confirmation that we are a much safer city, a much friendlier city, that our economy is doing very well.”

Still, the proposals will be fighting what one City Hall official earlier called the perception that the breaks will merely “make a lot of rich guys even richer.” Some council members were uncomfortable last year when the city gave a much smaller package of concessions--worth about $1 million--to the Metropolitan Water District, in exchange for locating its headquarters downtown.

Riordan’s office expects the City Council to attempt amendments to the proposal that would give DreamWorks additional tax breaks, in exchange for hiring its employees from within the city and, in particular, from poor neighborhoods.

Riordan has said he is willing to listen to such proposals, as long as they don’t unduly tie the hands of business people.

He emphasized that the incentives are not available only to DreamWorks and that the tax breaks and reduced sewer charges will be available to other start-up enterprises citywide.

During the time it would take to complete construction of the DreamWorks studio, the company would remain at the Universal Studios back lot.

DreamWorks has spent the first 14 months of its existence laying the groundwork for its products. Entertainment giant MCA Inc. has agreed to distribute the upstart firm’s music and movies. Hasbro Inc. signed on to make its toys.

The company expects to release its first live-action feature next year, on its way to producing eight or nine films a year. An animated feature is expected to follow in 1998.