Chick Backs Tax Breaks to Attract Firms, Jobs

Winners call it “recruitment.” Losers call it “poaching.”

It’s the practice of luring companies away from rival locales to capture jobs, and it’s hard to find a Los Angeles company that hasn’t been courted.

Now, L.A. is fighting back. Councilwoman Laura Chick wants the city to provide a package of tax breaks to entice new businesses.

She favors giving tax rebates to companies based on the number of jobs they bring to L.A. or create through expansion. Companies that are willing to locate in depressed areas and those paying higher wages would benefit even more.

The proposal, which could cost the city up to $5 million, signals that L.A. is poised to join the tax-base turf wars. “Look out Arizona, Palmdale and everyone else,” said Rocky Delgadillo, an aide to Mayor Richard Riordan, who backs an expanded version of the plan.

Chick’s approach draws support from others on the City Council as well as from a broad array of business interests. “You gotta play. . . . And this is the cost of admission,” said Barry Sedlik, economic and business development manager for Southern California Edison.

But some observers are dubious about what David Goodreau, owner of a Burbank machine shop and head of the California Industrial Leadership Council, calls “smokestack chasing.” Goodreau says the erosion of L.A.’s job base has causes that are too complex to be addressed by tax incentives. “The issue is, what really makes the region competitive?” he said.

Bidding wars between localities for new businesses--and the jobs and taxes they generate--have been heated across the nation in recent years.

Job-hungry cities such as Palmdale openly recruit L.A. companies, promising everything from free land to home-buying subsidies for workers. “We are kind of the picking ground for everyone else,” said Ian Filep, an aide to Chick.

Corporate relocation is one reason Los Angeles County has lost 422,000 jobs--10% of its total job base--since 1989, said Jack Kyser, chief economist with the L.A. County Economic Development Corp.

Although the exodus is believed to have slowed, statistics from the Los Angeles Department of Water and Power suggest that it’s not over. The average number of commercial power customers in L.A. fell by 3,827 between June 1990 and June 1995. About 300 of those lost dropped from the rolls in the last year counted, said Jan Merlo, a DWP spokeswoman.

L.A. has not remained completely on the sidelines. Last year, the city granted the Metropolitan Water District incentives of about $2 million to locate its headquarters downtown, city officials say, and it may eventually offer up to $10 million in job-creation incentives related to DreamWorks SKG’s development near Marina del Rey.

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Chick believes the city should have systematic guidelines for such incentives instead of slapping together packages on a case-by-case basis. She backs a proposal for business- and utility-tax rebates of at least $1,900 for each new job created.

Extra rebates would be offered to companies that pay high wages, move into depressed neighborhoods, hire city residents and make investments in land or buildings. For example, a machine tool company that renovated a dilapidated building in Pacoima hired 100 local residents and paid workers $15 per hour would easily qualify for more than $500,000 in tax rebates.

The tax-incentive plan is just one of a host of proposals--ranging from revamping the decades-old city business tax structure to creating a department of economic development--that are being discussed as the city grasps for the right formula to attract business.

But until the city has more to show for these efforts, tax incentives would be “something concrete” to offer businesses, Chick said.

Riordan has endorsed tax incentives, but has suggested controversial changes. For one, the mayor wants existing L.A. companies to be eligible for rebates to keep them from leaving as their leases come up. As Delgadillo explained: “It’s easier to retain companies than to attract them.”

Chick’s camp counters that this could make the city vulnerable to bluffing, turning the program into a giveaway.

Already, cautioned Christine Samuelian of the state Trade & Commerce Agency, “a lot of companies feel like this is a prime time for them to start complaining. They make it look like they are going to leave to see what they can get.”

Despite such risks, Samuelian said incentives are a fact of life in the new geographic scramble for jobs.

As markets have become more global, companies are less tied to localities. Many are as mobile as the people who work for them--at home in any number of identical suburban business parks.

“Companies are less tied to raw materials,” Sedlik said. “The knowledge worker is their real resource.”

The idea of tax incentives gets mixed responses from business leaders. Although few are opposed outright to tax breaks, many say L.A.’s problems go deeper.

“Incentives do help, but . . . they are not the end-all,” said Wilford D. Godbelt, president of L.A.-based Zero Corp., an electrical-equipment company.

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Godbelt said he is frustrated that he can’t find entry-level workers in L.A. with basic language and computational skills. He now provides schooling for his employees. “You shouldn’t have to do that,” he laments.

Tom Shen, president of Software Dynamics Inc. of Chatsworth, said his problem is attracting highly skilled software engineers. “I would like to recruit from Cal State Northridge,” he said. “But the education level is not very good.”

Haas Automation, a machine tool firm, is leaving Los Angeles chiefly because its executives feel that the permits required to expand here are too expensive and cumbersome. Tax incentives “would have limited ability to keep us here,” said Dennis Dupuis, the general manager.

The lack of suitable industrial space is another problem. Many of the city’s aging industrial districts are rife with dilapidated buildings that require extensive renovation, said John Molloy, administrator of the Community Redevelopment Agency. “We are talking about massive costs here, but ultimately we have to do it,” he said.

Rather than “worrying about turf,” L.A. should focus on nurturing start-up firms, argues Goodreau, the machine shop owner. “We have enough small, up-and-coming companies to dwarf anything we could get through business attraction,” he said.

Tax incentives might help the region, but more subtle issues such as problems with small-business financing shouldn’t be overlooked, added Linda Wong, general counsel of RLA, formerly Rebuild L.A. “We need to take more of a comprehensive, systematic approach” to rebuilding the job base, she said.

A public hearing on the tax-incentive proposal is scheduled for today at 10 a.m. in City Hall Council Chambers.