Should City Cut Tax Rate to Keep HMOs?


City officials are pondering whether to change the tax structure for five health maintenance organizations--all but one located in the Valley--to keep the companies in Los Angeles.

For now, the issue has been pushed to the back burner as the City Council awaits the results of a broad study of tax issues. However, the five HMOs may not wait so long for a decision. They argue that when they became for-profit businesses years ago, the city arbitrarily put them in the highest tax bracket.

Should the city give HMOs a tax break to keep them in Los Angeles?

Los Angeles City Councilwoman Laura Chick:


“It’s not a break that the HMOs are asking for. It’s reforms and correction of a mistake where they have been asked to pay unfair and inordinate amounts of portions of the city’s gross receipt taxes on businesses. . . . A handful of companies are paying almost 7% of the city’s total revenues from gross receipts. . . . It makes sense to the bottom line if these big employers keep their headquarters and more than 7,000 jobs in the city of Los Angeles. . . . We receive more fiscal benefits from their being Los Angeles city employers. . . . They don’t want to leave. They like having their businesses where they are. . . . [But] if they can save millions of dollars a year by picking up and moving to a city that has a friendlier tax structure, they’d be fools not to do it.”

Los Angeles City Councilwoman Rita Walters:

“I’m opposed to giving them a tax break. . . . They’ve come to us saying they want a tax break or they’re leaving. I don’t think the city can give in to that kind of bullying. . . . I think we can examine the whole concept of city taxes with respect to equity and who pays more than others and we really ought to be able to determine where they are even and where they are not. . . . It will be sorted out in an orderly manner, but not with this patchwork way of doing it.”

Patrick Garner, senior vice president of Wellpoint Health Networks, which operates Blue Cross of California, headquartered in Warner Center:


“What’s at issue is what should be included in the gross receipts you are taxed on. The city proposes to tax us on all the money we take in everywhere in California. And so, I think that is the nub of the debate. . . . It’s very unfortunate that the debate has been framed that way [as a tax break] because we have been paying substantially into the system.”

Harvey Rosenfield, founder of Consumers for Quality Care:

“They are among the most profitable companies in the United States, and they should be forced to pay their fair share of the taxes to operate the services that they use in our community. . . . They live here like we do and they have to help cover the cost of operating here and meet their civic responsibilities.”

Brad Rosenheim, executive director, Warner Center Assn.:

“Absolutely. I think some determination and decisions were made unilaterally by the city clerk’s office that were not necessarily appropriate. . . . What really is being done is not a change, but a recognition that the issue needed to be more thoroughly addressed on the rate that gross receipts should be determined.”