Spending of Tax Fund Questioned

Business leaders across Los Angeles are demanding to know what the city has done with nearly $17 million earmarked for tax relief for businesses and affordable housing.

The Business Tax Trust Fund was created in 2000 to hold money collected from companies in arrears on their city tax bills. Three-quarters of the money collected was supposed to provide rebates and other relief for start-up companies and businesses that had diligently paid their taxes. The remainder was to be used to subsidize affordable housing.

A coalition of six major business groups complained Wednesday to Mayor James K. Hahn and Controller Laura Chick that there has been no accounting of the trust fund since Dec. 31, when the city ended an amnesty program for business-tax shirkers. At least one of the coalition’s leaders suspects that the money has been rolled into the cash-strapped city’s general fund.

That’s not so, Hahn spokeswoman Julie Wong said Thursday, and the mayor’s office will release as early as next week an accounting of the trust fund in a “comprehensive” review of business tax reform.

Of the $17 million collected during the amnesty period, Wong said, nearly $8 million has gone to offset tax exemptions for new businesses and for other changes in the city’s tax laws. Another $5 million has paid for a computer system to “make businesses’ lives a lot easier,” she said. The remainder--about $4 million--is in the city’s trust fund for affordable housing.

The Valley Industry and Commerce Assn., the Central City Assn. and the United, Hollywood, Venice and Mid-Valley chambers of commerce have asked Hahn and Chick for a written account of how much money the trust fund has collected and spent.

“I think it’s important in today’s environment, and always in a trust fund situation, that you have accountability,” said Mel Kohn, an Encino accountant who heads the city’s Business Tax Advisory Committee.

Chick said Thursday that either a “major misunderstanding or serious miscommunication” between the city’s finance office and Kohn’s committee has kept the trust fund records from being available.

But she added, “I don’t think there’s going to be any need for any audit. I think there’s a very readily available answer to the questions” that the business groups are asking.

The trust fund resulted from years of complaints from Los Angeles companies that the city’s tax rates are too high, compared with rates in other local cities, and, therefore, encourage businesses to set up elsewhere. Companies that paid their taxes complained that they were shouldering the burden for scofflaws.

In 2001, Los Angeles offered amnesty to any business that came forward to pay past-due taxes. The money collected was to be put into the trust fund.

Also directed to the fund will be money collected as a result of a 2001 state law that allows cities to collect taxes more thoroughly by cross-checking their records with those of the California Franchise Tax Board.

That law could add hundreds of millions of dollars in coming years to the trust fund, making it all the more important that the city disclose what it is doing with the money, said Fred Gaines, chairman of the Valley Industry and Commerce Assn.

Los Angeles businesses are assessed a tax based on their gross receipts, a method that has drawn complaints from businesses that say it’s a “job killer” that discourages companies from growing. And, Gaines said, “you can have a business and lose money and still owe the city a lot of taxes.”

In their letter Wednesday to Hahn and Chick, the business coalition members asked for an outside study of alternative assessment methods that they proposed last month.

Those methods include a flat rate, a tax only on profits and a tax on real estate that businesses lease or own.

The mayor’s upcoming review will not advocate any new methods for tax assessment, Wong said.