Riordan’s Tax-Reform Proposal Raises Lots of Questions

The slam-dunk Mayor Richard Riordan expected for his proposed overhaul of Los Angeles’ tax code has instead turned into a slam from several City Council members whose objections threaten to stall the measure.

Faced with an excruciatingly tight deadline that requires full council approval of a complete draft ordinance by March 5 to make the June ballot, the mayor’s office is now scrambling.

Alarm bells are being sounded to drum up support from the small-business community. Wake-up calls are being made to the media, which typically ignore obscure council committee meetings like those by the Ad Hoc Committee on Tax Reform, where the measure currently sits. Negotiated changes to the tax proposal are being finessed. And noses are being counted on the full council to make sure that once the measure passes out of committee, it gets at least eight of the 15 council votes needed for approval.

It’s a completely different tone from the celebratory, optimistic stance Riordan’s deputies and supporters took in mid-December when, with much hoopla, the mayor’s glossy, bound proposal was released at a cheery breakfast press conference attended by more than 150 business owners.

“It’s going to be an uphill struggle,” admits Carol Schatz, president and CEO of the Central City Assn., whose group stands firmly behind the now-bruised tax-reform proposal. “We’ve still got a couple of weeks, and we’re going to use every day of it that we can.”

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Riordan’s proposal was created over the last two years using some of the city’s top department heads, outside consultants and computer-generated economic models. The proposed measure would reduce the city’s 64 tax categories to eight, decrease city taxes for most businesses, exempt businesses earning less than $5,000 annually, exempt start-ups from the first year’s registration fees and create a tax advisory group to suggest further changes in the years ahead.

Councilman Richard Alatorre is doing his best to hurry the measure through the ad hoc committee, but questions were raised by council members Michael Feuer, Rita Walters and Jackie Goldberg. They include:

* With the city facing a $50-million shortfall over the next two years, can it really afford to lose $23 million in revenues that the tax-code changes are expected to cost? Even though most of that will be recovered from more businesses registering and paying taxes via an amnesty program and through increased enforcement, the council members wondered whether such money couldn’t be better spent providing city services, such as road repair, needed by small businesses.

* The proposed tax-table changes would result in, for the most part, small “symbolic” tax deductions for most businesses. Will this symbolism be enough to change the anti-business perception of Los Angeles? Rather than broad-based deductions that may not bring businesses to Los Angeles or stop their flight, the council members ask, shouldn’t at-risk industries be targeted for meaningful tax aid?

* The first-year start-up exemption would come to only $75, or less than $1.50 a week. Would that really prompt businesses to choose Los Angeles over other cities?

* Lawyers would get a tax decrease, but multimedia companies would see an increase. Other tax-rate changes would occur. On what basis were these proposals for changes made? And why was there no discussion?

Some of these questions could be resolved at the committee level, but even if they are, that’s no guarantee that the full council might not raise them again.

Which brings up another objection: the very process Riordan used to create the proposals. Council members say they were left out for the last six months while Riordan’s office fine-tuned the proposal, missing by three months a planned September release date.

“When you’re trying to do this much change and you give it to council members this late in the game, it’s a pretty big order to ask,” Goldberg said. “I’m very disappointed that we didn’t get much more chance to work on this before we are jammed up by the time line.”

Although some call such complaints merely council squabbling and politics at work, the bottom line is that revamping the city’s tax codes is a political process. A skilled politician would not have spent two years on the proposal and excluded during that time the very people needed to pass the measure to get it on the ballot, made an end-run around the council by using a press conference to announce it and then dumped it on the council and told it to hurry up and pass it.

Meanwhile, also left out of the picture are the thousands of small businesses the tax-reform package is supposed to help. For that community, the City Hall struggle is distant thunder, barely heard, and Riordan can count on only a handful of small-business associations for lobbying help.

“The business community is somewhat cautious because we don’t know what the details are, and we don’t know how it will work out,” said Ron Merkling, director of governmental affairs for the Hollywood Chamber of Commerce.

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Although the Hollywood chamber favors the tax-reform measure in general, has written about it in the chamber newsletter and gave out information booklets prepared by the mayor’s office, “some business owners are concerned they didn’t get a chance to look at it before or earlier than this,” Merkling said, echoing the council complaints.

Other small-business activists say that with the good economy, small-business owners are busy running their companies and won’t be brokenhearted if the mayor’s proposal doesn’t pass. For them, city tax reform is not on the front burner now.

“When the economy was really bad and a lot of companies were suffering, it was like the deal breaker,” said one activist who doubts the proposal will pass and asked not to be identified. “Now that companies are feeling stronger, it’s important but not critical.”

With this unfortunate scenario in play, the next two weeks are crucial. The outcome could determine if Los Angeles steps up to the task of reforming its antiquated tax code or descends once again into political bickering and public indifference.

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