One day after the city unveiled a massive package of financial incentives for DreamWorks SKG, the Los Angeles City Council continued its pro-business drive Wednesday by approving a tax break for entertainment firms in Hollywood and North Hollywood.
Although the business tax break is relatively small--totaling only about $225,000 annually--proponents said it shows that Los Angeles is serious about keeping the title of "Entertainment Capital of the World."
"What this does is send a very important signal to a few large companies that are thinking of leaving Los Angeles," said Councilwoman Jackie Goldberg, who represents Hollywood and adjoining areas.
The tax break and the incentive package to entice DreamWorks to locate its studio in Marina del Rey are just two in a series of efforts by City Hall to become more business-friendly.
While Mayor Richard Riordan's office is studying citywide incentives for the entertainment industry, several council members are considering additional incentives to lure other business to Los Angeles.
If the tax break is extended citywide, as has been suggested by Riordan's office, the city would give up an estimated $2 million in revenue, according to city officials.
The move to provide more business incentives comes as Riordan and the council begin to tackle a projected $220-million to $250-million deficit in next year's city budget. But council members and other city officials did not express concern about losing the revenue through the tax breaks, saying the incentives will help to draw new business to Los Angeles, thus increasing the overall tax base.
The tax break takes effect Jan. 1 and applies only to entertainment and multimedia businesses in the Hollywood and North Hollywood redevelopment areas.
Entertainment businesses are defined as those that produce, market or distribute movies, television shows, videos or audio recordings. Multimedia firms are those that produce film, disks, tapes or photographs to be used for mass media.
Business taxes are generally based on a percentage of a company's gross sales. Under the ordinance, a firm would continue to pay business tax up to $25,000, but when the total exceeds that amount, the rate is cut by 90%, according to a city report.
The entertainment and multimedia industries have been targeted for such breaks because several studies have have identified them as "hot growth" industries that are replacing the aerospace and defense industry as the region's largest employers.
City officials have only identified seven businesses in Hollywood that would be affected by the break and none in North Hollywood. But proponents say the break will entice other large entertainment firms to the area.
Councilman Mike Hernandez suggested that the city's taxes are part of the reason Burbank--and not Los Angeles--is home to some of the industry's biggest studios.
"If you go to Burbank and walk into Disney Studios or Warner Bros., you've got to ask yourself, 'Why Burbank?' " he said.
Kevin McCarney, president of the Universal City/North Hollywood Chamber of Commerce, agreed that lowering taxes is important to keeping business in Los Angeles.
He owns restaurants in Burbank and North Hollywood that each generate about the same amount of business. But McCarney said the business tax for the Burbank restaurant last year was $50 while the tax for the North Hollywood restaurant was $2,800.
He added that he is happy to hear that the city is taking a more friendly position toward businesses. "It sends an excellent signal," he said. "It's the first signal that we've seen in a long time."
Councilwoman Ruth Galanter, who represents Marina del Rey and adjoining communities, introduced a motion on Tuesday to offer an incentive package worth about $70 million to entice DreamWorks to Marina del Rey. The package will be considered by the entire council next week.
Galanter said the DreamWorks package and the tax break for Hollywood and North Hollywood are part of a larger pro-business effort that city officials plan to soon expand to the entire city.
"I'm encouraged that this will be an effective forerunner of a citywide ordinance," Galanter said.