At City Hall, Big Deals Squeezing Out Small Business

Questions, jokes and business anecdotes flew through the air on a recent Tuesday evening as 20 small-business owners gathered in a second-floor room above Van Nuys Boulevard at the Valley Economic Development Center.

Members of a business training class, these eager entrepreneurs provide jobs for 48 full-time employees, 13 part-timers and a dozen more contract workers.

To enroll for 10 weeks of business training, the business owners had pledged to hire at least one more employee or pay $1,000.

“I jumped at the chance to take this class,” said Carlos Solares, a certified public accountant and real estate agent with Gretna Green Management Corp., during a break in the three-hour session. “The information is very good and it’s a free program.”

But funding for such programs, held at eight small-business centers in the city, will be severely cut back if a proposal by Mayor Richard Riordan takes effect.

The city has underwritten the programs for the last four years, allocating more than $2.5 million in federal Community Development Block Grant money last year. The centers have helped create 451 new businesses and 1,095 new jobs and have generated $11.5 million in taxes, $4.8 million of which has flowed to the city.

But for next fiscal year, which starts April 1, the mayor has cut back CDBG money for these small-business programs to $1.75 million, but is asking the centers to carry on the training nonetheless.

Center operators now find themselves in a position similar to that of a mother whose $100 for shoes and shirts for the kids is snatched away and replaced with only $55.

The operators say they cannot provide the same level of entrepreneurial training, maybe none at all. And the reduction threatens the intricate matching and linking funding some centers had pieced together. Center operators have banded together to lobby the City Council, which must make a funding decision by March 20.

But why is the mayor’s office striking at small business, the very community that has been cited nationally and locally as a generator of jobs?

“There were more than $200 million worth of requests to the mayor’s office and only $100 million worth of CDBG funding, so things have had to be pared down,” said Debbie La Franchi, Riordan’s assistant deputy mayor for economic development.

Riordan, under pressure to spend more of the $109 million in CDBG dollars for public housing, believes money should be spent on job creation, which, in the long run, helps lessen the need for housing assistance, La Franchi said.

Toward that end, Riordan has created a $3-million Los Angeles Equity and Growth Fund aimed at industrial development of vacant lots in South-Central and East Los Angeles. The city will act as a venture capitalist, plugging financing gaps for developers whose projects still need a push, even with city grants and tax increment financing.

The new program joins the existing Commercial and Industrial Project Investment Fund, another development-lending program. The advantage of these lending programs is that the money will never be spent but recycled, La Franchi said. Plus, new industrial projects could generate as many jobs if not more than the entrepreneurial training programs, she said.

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But those bigger deals may be deceptive, say the small-business training center operators.

Government-assisted development creates short-term construction jobs, but the tax breaks and perks given to developers hurt the community in the long run, said Debra Esparza, executive director of USC’s Business Expansion Network, which receives CDBG money.

There’s often no net gain for the region when companies from another part of the city or county are lured into a targeted neighborhood. And large developers or business operators brought in from outside the community often have no real loyalty to the neighborhood. Their decisions are based on economics and, if operating costs run too high, they promptly leave, Esparza said.

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Finally, isolated developments don’t really help a community, said Mark Whitlock, executive director of FAME Renaissance Program, another CDBG recipient.

“You can develop buildings all day long, but until you have the infrastructure, you won’t have the capacity to fill the buildings that the mayor proposes we build,” Whitlock said. “Growth does not come from isolated development initiatives; job development comes from small businesses.”

Political insiders say that council members Jackie Goldberg, Mike Hernandez and Mark Ridley-Thomas are likely to lead the fight to restore entrepreneurial training money, as they did last year when it also came under threat.

But the political handwriting is on the wall. Big deals are in and small business is out at City Hall, at least for CDBG funds.

“It’s a change in priorities in economic development,” Esparza said. “It’s subtle, but it’s there.”

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Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com