Warehouse Owners Challenge Tax Measure

A revolution, fought under the motto “no taxation without representation,” is challenging the controversial political system of Vernon--the tiny industrial community south of downtown Los Angeles.

Vernon is a city like no other in the state because most of its 58 voters are either city employees or tenants in city-owned housing. That, critics alleged, gives City Hall extraordinary power over the electorate and explains why the current council members have been in office for more than two decades.

Now a group of Vernon business owners is questioning the city’s political power structure in a lawsuit that seeks to overturn a voter-approved measure that is increasing property taxes for warehouses by 2,000%.

The Vernon Property Assn. is asking a Los Angeles Superior Court judge to invalidate the new tax, in part because the warehouse owners did not vote last November on the measure. The warehouse owners say a 1996 state initiative gives property owners say over new assessments.

Of the city’s 58 voters, only one owns a warehouse. That voter is Vernon Mayor Leonis Malburg, who has been on the council for more than 40 years. His grandfather co-founded the city 95 years ago.

“We are alleging that it is fundamentally unfair to have a vote where none of the voters, except the mayor, will be impacted by the vote one way or the other,” said Roy Ulrich, vice president of the association.

In the lawsuit, the warehouse owners suggest that the city’s 58 voters are beholden to the City Council--a charge city officials deny.

“Vernon controls who may live in Vernon housing, since all potential tenants must be cleared by the council,” the suit says. “Thus, Vernon’s City Council literally controls who can be part of the electorate, since there is almost no private housing in Vernon.”

The suit charges that the tax increase is meant to encourage warehouse business to leave Vernon because such businesses don’t buy as much electricity from the city-owned power plant as manufacturers would. It is a contention that seems supported by the city’s own staff reports.

Ulrich and other association members say they plan to lobby for legislation in Sacramento to let property owners vote to dissolve the city of Vernon, making it an unincorporated community.

Ulrich refers to the city of Vernon as a “business with a charter.”

By day, Vernon is a bustling five-square-mile industrial community of more than 55,000 workers. But at night and on weekends, only 85 people live in several clusters of city-owned apartments and homes scattered among the railroad tracks and businesses such as Kal Kan’s dog food factory and the Farmer John pork processing plant.

The tax increase has sparked outrage among warehouse owners who began receiving property tax bills last month.

Carol Bellezzo’s family owns a 10,300-square-foot warehouse in Vernon that her father bought nearly 40 years ago as an investment.

She opened her property tax bill last month and found it had shot up to $5,000 this year from $1,700 last year.

“I just think it’s horrible what the city of Vernon is trying to do,” she said. “It almost seems like highway robbery.”

Vernon officials defend the tax. They say the warehouses don’t generate their fair share of tax revenue. City officials argue that warehouses generate much of the truck traffic that chews up city streets, requiring expensive repairs, and causes road congestion.

Vernon officials reject suggestions that the City Council controls the electorate. Vernon spokesman Mike Gagan said he doubts the state Legislature would allow property owners to decide the fate of the city.

“The fact is, voting is based on residency,” he said.

Delores Petullo, executive director of the Vernon Chamber of Commerce, said her group has been trying to mediate the dispute, to no avail.

“Have I been inundated with calls?” she said. “Absolutely.”

The idea for the increase was born in 1998 when Vernon officials raised concerns about dwindling tax revenues that forced the city to take $6.3 million from a reserve account to fill a budget shortfall.

According to a report sent to the council in August 1999, the city staff recommended the new warehouse tax to generate revenues and create an economic disincentive for warehouse businesses.

The report by Kevin Wilson, community service director, said warehouses take up 27% of the city property but generate less than 5% of the city revenue. Manufacturers generate more revenue and more jobs than warehouses, the report said.

Based on those arguments, the council placed the warehouse tax on the ballot last November. Voters approved it 30 to 0.

The measure increased the warehouse parcel tax from 1 cent per square foot of land to 20 cents per square foot. The tax, which affects 318 warehouse businesses, is expected to generate $6.4 million per year--nearly the amount of the city’s 1998 shortfall.

Some business owners say the tax indicates a new anti-business attitude of a city that was founded 95 years ago under the motto “Exclusively Industrial.”

Business owners decry another city law that requires all businesses that take deliveries from big rig trucks to add enough paved space by 2009 for the trucks to turn. The requirement would force many businesses to buy adjoining land or tear down existing buildings.

“It’s a miserable place to do business,” said Easton R. Roberts, a longtime Vernon business owner and landlord.

The city-owned power plant, which warehouse owners say is at the heart of the dispute because warehouses do not buy much electricity, generate about 48% of the city’s overall revenues.

The city exempted refrigerated warehouses from the new tax because “refrigerated warehouses typically are large consumers of electricity,” according to Wilson’s report.

The lawsuit by the warehouse owners suggests the tax is really a fee intended to regulate land use and defray the adverse cost of warehouse operations.

If it is a fee, the lawsuit says, property owners should get a say under Proposition 218, the so-called “Right to Vote on Taxes Act” of 1996.

Gage, the Vernon spokesman, said city officials believe the tax will be upheld in court. A court hearing is scheduled for Dec. 7.

Many warehouse owners besides Bellezzo said they learned of the new tax only when they opened their bills.

Steve Freed, president of the Vernon Property Assn. and a partner in a 325,000-square-foot warehouse, received a $93,000 bill this year, up from $5,000 last year.

He said the new bill may turn his profitable business into a money pit. Freed said he is angry because he believes the city is trying to kill a business that the city itself permitted.

“They don’t want this kind of use,” he said. “They want to get rid of it.”

Bill Eftman, president of General Bearing, a 20,000-square-foot warehouse in Vernon, said his property tax increased from $290 last year to $4,000.

“I almost fainted,” he said.

Eftman, 55, said he was hoping the warehouse would generate some retirement income. Now, he said, he is not sure the business will survive.