Secessionists Dispute Study of Valley Revenues

The San Fernando Valley has 35% of Los Angeles’ population, but has produced 31% of major tax revenues, according to an analysis released Friday that has potentially significant implications for municipal divorce.

Backers of Valley cityhood immediately challenged the accuracy of the report, which focuses on the 1998-99 fiscal year.

Several suggested city officials may have intentionally underestimated revenues in a way that could sabotage secession efforts.

“The number is suspiciously low, but it doesn’t surprise me that Los Angeles would try to use this kind of tactic,” said Richard Close, chairman of the secession group Valley VOTE. “The city of Los Angeles does have incentive to give the Valley the fewest dollars it can.”

Secessionists say the critical comparison isn’t revenue and population, but rather the percentage of revenue and the percentage of expenditures. Secession backers in the Valley and Harbor area say they believe expenditures, when tallied next year, will be significantly below tax revenues generated by both areas.

The city study of 80 revenue sources has long been awaited by the Local Agency Formation Commission, the panel entrusted by state law to study the financial impact of any secession. LAFCO has the power to place the issue before voters.

In some categories, revenues from the Valley were far below 31%. These included hotel bed taxes (16%), parking ticket fines (13%) and parking users’ taxes (8%).

The agency will independently check the city’s numbers and separately generate its own for a study to determine whether creation of Valley and Harbor-area cities would cause financial harm to the rest of the city, officials said.

“It’s a key piece of information,” LAFCO Executive Director Larry Calemine said.

The other half of the equation--the percentage of city services and expenditures being provided in the Valley and Harbor--will be addressed in a study now scheduled to be released in March.

Lower-than-expected revenue levels could have both negative and positive effects on Valley and Harbor secession proposals, observers say.

If revenues are less than the cost of services provided in the Valley and Harbor area, it could politically undermine secessionists’ claims the two areas need to break away to get their fair share of services, Councilwoman Laura Chick of Tarzana said.

An underestimation of revenues also could help the Valley’s secession bid. If the Valley generates more revenue than it gets back in services, secessionists say that means the Valley was subsidizing services in other parts of the city.

LAFCO cannot put cityhood on the ballot unless it determines separation would not harm the rest of the city. In other words, LAFCO might have difficulty approving secession for the ballot if the rest of the city would be forced to cut services because of a drop in revenue.

Under that scenario, one solution could be that the Valley would continue to subsidize services in the rest of Los Angeles through a tax-sharing agreement. But officials hope to avoid that sort of complex solution.

Secession would be most likely to go smoothly if revenues and expenditures in the Valley are about equal.

City Councilwoman Rita Walters, who opposes secession, said the report will help counter claims by secessionists that their areas have contributed more than their share of dollars to the city without getting sufficient services in return.

“I certainly don’t believe that they are victims or that they ever have been victims,” Walters said.

Chick said others such as her who want the city to stay together can use the results to make adjustments so the revenue and expenditures are better balanced for areas such as the Valley.

Chief Legislative Analyst Ron Deaton said the council-requested report is the best and latest analysis of revenue that the city has been able to put together.

“It is a snapshot of a single year and only evaluates why those areas produced those revenues that year,” the report said. “It does not attempt to determine potential future revenues and does not attempt to determine how pending decisions about the city would affect future revenues.”

Considering major revenue sources that can be easily broken out by geography--about 73% of total city revenues, or $3 billion--the report concludes the Valley generated 31% or about $956 million, the Harbor area generated 3% or about $90 million and the remainder of the city 66%.

About $869 million in licenses, permit fees and fines could not be broken down geographically.

The biggest sources were property taxes and utility user taxes, with each making up about 18% of the budget.

The Valley generated about 35% of the city’s property taxes, and the Harbor area generated 3%, according to the study. At the same time, the Valley generated 35.6% of the utility users’ tax while the Harbor area produced 4%.

The Valley, with its shopping malls and car dealerships, made a strong showing in business retail taxes, generating 43% of the citywide total, and sales taxes, producing 42% of the city total.

Close, the Valley secession proponent, said he believes the Valley generates about 45% of the city’s revenue, or roughly the percentage of land area the Valley represents in Los Angeles.

The report, the first of its kind, shocked Andrew Mardesich, executive director of the Harbor Study Foundation. He disputed its finding that San Pedro and Wilmington generate only 3% of the Los Angeles revenue, though they represent about 4% of the city’s population.

“I’m outraged,” Mardesich said. “Common sense and logic tells me that’s impossible.”

Mardesich said three major oil refineries in the Harbor area have long been listed on the top 10 list of property taxpayers in the city.

Councilman Hal Bernson of Granada Hills was also dismissive of the report, which was issued by the city controller, chief legislative analyst and city clerk.

“It doesn’t sound accurate,” Bernson said. “It just doesn’t sound right. I’ll grant you that there may be higher property tax values downtown because there are high-rises, but we also have Ventura Boulevard and we have areas of the Valley that are very affluent. I think we pay a lot of sales taxes.”

Councilman Joel Wachs of Studio City said he looks forward to LAFCO independently verifying whether the city estimates are accurate.

“My impression is that [an accurate figure] is higher,” Wachs said. “On its face that just doesn’t seem right but I’m willing to look at it.”