Secession’s Legacy May Benefit L.A.’s Businesses
Secession was poised to lose on Tuesday’s ballot, but all of Los Angeles owes a vote of thanks to the people of the San Fernando Valley who carried the flag of independence.
That’s because they’ve forced all of us to take a hard look at the way the city is governed -- and, in the process, have helped to expose the burdensome procedures and high taxes that hurt local businesses and all of Southern California’s economy.
Decades ago, Los Angeles was run by a coterie of businessmen -- known as the Committee of 25 -- who decided municipal policy over drinks at the California Club and had their vice presidents of government affairs relay their wishes to the mayor and City Council, who were happy to do their bidding.
But the complexion of the business community here changed long ago.
Today, the economy of Los Angeles and the surrounding region is driven by entrepreneurial, small to medium-sized ventures that do not have corporate vice presidents to run interference with a political process that now regulates companies more than it listens to them.
These businesses still need City Hall for building and franchise permits, as well as for street repair, police protection and the like. In Los Angeles they pay higher business taxes for these services than are charged in almost all other municipalities in Southern California -- or indeed throughout the state.
On top of that, these businesses must pay consultants, lawyers and other intermediaries just to approach City Hall.
“For a small business such fees can run $10,000 to $50,000” a shot, says Larry Kosmont, a onetime city official in Bell Gardens and Burbank whose consulting firm publishes a survey comparing the cost of doing business in California cities and those of some other states.
Several owners of medium-sized companies say the cost of access to Los Angeles City Hall can easily run into the hundreds of thousands of dollars a year. And even then the process is torturous.
“I’d rather have pins stuck under my fingernails than do business in the city of Los Angeles,” says one large Southern California automobile dealer.
But, partly because of the pressure brought to bear by the Valley separatists, the structure of city government and financing may well be changing.
One intriguing idea is to divide Los Angeles into nine boroughs -- three in the San Fernando Valley, six in the city south of Mulholland Drive. Such a setup could help businesses have easier access to government.
“The genie is out of the bottle,” says attorney David Fleming of Latham & Watkins, co-leader of the Valley secession movement. “I think we’ll see a proposal for boroughs on the ballot next year.”
The business-tax system, which accounts for more than $1 billion of Los Angeles’ $5-billion annual budget, also is on the verge of getting fixed. A commission of municipal and business officials, including executives from the Valley, already is at work to reform the gross-receipts tax, a centerpiece of L.A.’s levies on business.
Though a city certainly needs a strong tax base, the gross-receipts measure is badly designed. It’s particularly onerous for big-ticket businesses such as automobile dealerships -- one reason Ford dealer Bert Boeckmann in North Hills was Fleming’s co-leader of the Valley’s secession campaign.
Los Angeles is a huge city, of course, with 3.5 million people and 34,500 municipal employees. But for all its size and wealth, it squanders much of its potential political power.
A study this summer by the Rose Institute of State and Local Government at Claremont McKenna College found that L.A. trails such prominent cities as Chicago and New York -- and even local burgs such as Long Beach -- in getting its share of state and federal grants and aid. That hurts local companies because the more grants the city gets, the more support it can give them and the less it needs to reach into their pockets.
The irony is that Los Angeles should be a magnet for federal funds because it has one of the most ethnically diverse business sectors in the country.
Among the most active entrepreneurs here is Danny Villanueva of Bastion Capital, a promoter of Latino businesses. There’s also Dominic Ng, head of East West Bank, which is fanning out from its roots in the Asian community of Monterey Park to become a force in finance throughout the region.
Charles Woo of Megatoys has helped make Los Angeles a center of the global toy industry, and David Lee is a respected real estate owner and developer in a surging Koreatown. Earvin “Magic” Johnson, the basketball Hall of Famer, has become a star investor in South Los Angeles.
And there are many, many more successful small-business owners one could name. Yet the city does relatively little to reach out to these folks. If anything, the bureaucracy is stifling them.
Los Angeles needs to “eliminate the perception that this city is cold and difficult for small companies,” says Bruce Ackerman, head of the Economic Alliance of the San Fernando Valley, a group of firms that remained neutral on the secession issue but is a forceful advocate of a strong future for business in L.A.
No one is saying that the city should return to the days of the Committee of 25. But a little smoother give and take between business and government is an imperative as a still-unified Los Angeles moves forward.
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James Flanigan can be reached at jim.flanigan
@latimes.com.
