Toughing It Out

Battered by the 1994 Northridge earthquake, the North American Free Trade Agreement, recession and defense downsizing, Pacoima is making a quiet comeback.

Problems plaguing this northeastern San Fernando Valley community have earned it eligibility for a long list of government programs that city officials believe are lifting--or will lift--much of its predominantly Latino population from below the poverty level.

A federal loan program was announced Wednesday to counteract damage done by the North American Free Trade Agreement. Vice President Al Gore will visit Pacoima on Saturday to unveil an empowerment zone that adds federal tax credits to state tax breaks businesses there already enjoy. And other city programs are in the works.

Pacoima has become a symbol of blight and a test case of how to revive a depressed area. But government help is just part of its success.

While the programs have lured some businesses in and kept others from leaving, Pacoima’s revival is due largely to a healing regional economy that makes industrial space hard to find, and a strong base of mostly Latino laborers who are increasingly branching into businesses of their own.

“Rents here are relatively inexpensive and labor is inexpensive and highly competitive,” said John J. Rooney, president of the Valley Economic Development Center, a nonprofit organization that provides assistance to small businesses.

“These special zones are a factor, but they are not the main driving force.”

Industrial vacancy rates have dropped throughout the eastern San Fernando Valley, and brokers estimate they are as low as 3% in Pacoima. As entertainment-related companies spread in the Glendale/Burbank area and push up prices, traditional small-manufacturing businesses are turning to areas such as Pacoima, brokers say.

To be sure, the existing government programs of tax breaks and targeted financing have helped.

Pacoima is one of five enterprise zones in Los Angeles that offer businesses state tax breaks on hiring, sales and new equipment.

Gore’s visit will add a long-awaited federal empowerment zone, which will take effect by 2000 and offers a $3,000 tax credit per employee hired from within the zone’s troubled core.

Businesses within the zone’s boundaries are already eligible for loans through the federally funded Community Development Bank. A newly created redevelopment area could further enhance the region, and a city program will channel $3 million into Pacoima’s rundown retail corridor. Yet another proposal would create a city business-tax-free zone that overlays the core of the empowerment zone.

“All the resources that have been put into Pacoima in terms of special government programs have added to the opportunities and embellished some of that activity,” said Los Angeles City Councilman Richard Alarcon, who represents the area.

Statistics are not available on how many businesses take advantage of the enterprise zones, which also cover greater Watts, central Los Angeles, the Eastside and the Harbor area.

But perceptions of higher crime in South Los Angeles and Pacoima’s small size have contributed to its relative success, said Rocky Delgadillo, deputy mayor for economic development.

“South L.A. currently is the largest producing/manufacturing region in the Southland, but it still has a vacancy rate that’s higher than Pacoima and an unemployment rate higher than the rest of the Southland,” he said.

When Al Gold’s sign and banner operation was damaged in the earthquake, the 20-year Pacoima veteran almost left. But government aid convinced him not to.

Gold Graphics Manufacturing Co. has received $2.5 million in loans from the Small Business Administration and Community Development Bank. He also takes advantage of the enterprise zone tax credits. His employee base has nearly doubled and his sales have tripled.

“We’re the recipients of some programs that kept us going,” Gold said. “I feel a strong attachment here.”

City officials concede the federal empowerment zone would have been more useful in 1994, when a stunned Los Angeles was passed over for the designation. But the zone will help lure businesses from outside the city and state, Delgadillo said.

Others are counting on it to ease competition accelerated by the Asian financial crisis, which has caused a steep devaluation of Asian currencies.

Michael Cheng, who launched Harrison Sports Inc. in Pacoima three years ago, said without the zone “it would be impossible to compete with foreign vendors.” The company makes golf shafts, competing with companies in Korea, Taiwan and China.

“We have been hoping and counting on the empowerment zone status to really give us a competitive edge. With this currency devaluation, it just has an added urgency.”

Pacoima’s vitality, however, is driven by a larger economic picture.

“The whole Southland is running out of industrial space,” Delgadillo said, contributing to lower vacancy rates in the Valley.

Pacoima manufacturing facilities of less than 10,000 square feet lease for as low as 35 cents per square foot, contrasted with a minimum of 60 cents in Glendale and Burbank, said Gary Cohen, an industrial broker with CB Commercial in Glendale.

Facilities of over 10,000 square feet with 28-foot ceilings are rarer and in greater demand.

Chris Sullivan, a marketing consultant with Daum Co. commercial real estate brokers in Woodland Hills, said his office purchased land in foreclosure with plans to build two warehouses. Both were snapped up before they broke ground.

Don Wetzel, of Wetzel & Sons Moving and Storage, is buying one because his Sun Valley location has gotten too expensive, he said. Carol Moran said she is moving her linen distribution and manufacturing company--A1 Hospitality Products Inc.--from Chatsworth because of the tax credits. She plans to hire 10 new employees locally, she said.

Moran said she knew nothing of the state enterprise zone when she searched unsuccessfully for buildings in Chatsworth and Northridge. A broker explained and she jumped at the offer.

Many of the smaller Latino manufacturers remain oblivious to the programs, or reluctant to take advantage because they shun government aid.

“They’ve been able to create some of these [growth] trends with very little involvement and very little access to these programs, so just think how powerful they’ll be once they start getting access to these things,” said Hector Barreto, chairman of the Latin Business Assn.

Pacoima is about 75% Latino, with the Valley’s lowest income levels and a poverty rate twice that of Los Angeles as a whole, according to the 1990 U.S. Census. However, more than 50% are homeowners, also twice that of L.A., a fact that contributes to a stable work force.

Daniel G. Morales, program manager of the Business Assistance Center, an arm of the Valley Economic Development Center, said about 60% of the center’s clients are new Latino manufacturers, many of whom were once employees in Pacoima.

George Eroza launched San Fernando Valley Pallet Co. two years ago after his employer, faucet manufacturer Price Pfister, closed its 500-employee Pacoima plant and moved operations to Mexico.

Eroza chose to remain in Pacoima because of the tax breaks but has been too busy to use them. Eroza’s 1997 sales topped $500,000, up from $276,000 in 1996.

Pacoima’s key challenge remains its retail corridor on Van Nuys Boulevard, said Rooney, of the Valley Economic Development Center. A recent study by the center showed that residents didn’t shop the strip and most landlords were absentee.

But there is hope even here. Van Nuys Boulevard is the focus of the $3-million city revitalization effort, and business owners say it’s already improved.

With $5,000 in merchandise and little more than first month’s rent, Maria and Mario Mora launched Luzma Toys there 15 months ago. The Moras, who picked the spot because they live nearby, hope the tiny store will feed a college fund for their children.

They are negotiating for a micro-loan to help them expand, and may sublet the modest space to a friend who sells audio equipment and another who yearns to start a flower shop.

“Things have gotten a lot better around here,” Maria Mora, 45, said.

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Special Incentives

A number of government programs offer incentives to Pacoima businesses. Vice President Al Gore will visit Pacoima on Saturday to announce the creation of a federal empowerment zone. Businesses operating anywhere in the zone will be eligible for a hiring tax credit of $3,000 per employee, provided they hire workers who reside within the core zone.

*

Empowerment zone: Hiring tax credit available to businesses operating in this area.

Core zone: Hires must come from this area.

Additional credits available.

Falling Vacancy Rates

Industrial vacancy rates have dropped sharply in the east San Fernando Valley since early 1995. The drop for Los Angeles County isn’t as dramatic. Quarterly vacancy rates:

East San Fernando Valley*

1997: 3.7%

*

Los Angeles County

1997: 6.2%

* Includes Burbank/Glendale, Arleta, Lakeview Terrace, Pacoima, San Fernando, Studio City, Sun Valley, Sylmar, Tujunga.

Source: Grubb & Ellis