Business Growth Is a Hot Topic

Developers expect to start construction in a few weeks at 9th and Flower streets on the first major grocery store in downtown Los Angeles in 50 years.

Several blocks away, a towering crane lifts steel girders onto the first condominium project built from the ground up downtown since Ronald Reagan was president.

The renaissance in the city’s urban core is part of an estimated $10.6 billion in construction that has enveloped the city since Mayor James K. Hahn took office in July 2001.

Hahn credits his policies for the redevelopment craze sweeping not only the long-forgotten downtown, but up-and-coming areas like Hollywood and North Hollywood.

But his top challengers in the March 8 mayoral election say the incumbent is due little credit. And they argue that the city’s mayor ought to be doing a lot more to expand the local economy.

Much of this recent construction is built on policies pioneered by Hahn’s predecessor, Mayor Richard Riordan, and a large part of it can be attributed to an improved local economy.

But some developers say Hahn has played a crucial role.

“Ten years ago, I was so frustrated with the city of L.A. that I told my wife, ‘I’m never going to do more work here,’ ” said Jeffrey Lee, president of the Lee Group, a Marina del Rey developer building lofts above the Ralphs supermarket at 9th and Flower. “Now 90% of my business is in L.A. because I can get things done quickly.”

But critics say Hahn lacks an economic development vision and has failed to do away with regulatory hurdles for business and to promote the city’s major industries.

“Los Angeles is considered to be a very difficult place to do business. Hahn is not only the candidate of the unions, he’s the candidate of entrenched bureaucracy, the candidate of inertia,” said Joel Kotkin, an urban historian and fellow at the New American Foundation.

Hahn’s supporters argue that he has led a “quiet revolution” to make Los Angeles more responsive to business by restructuring the housing department to encourage mixed uses and working with the City Council to overhaul the city’s arcane business tax system.

“Sometimes the best thing for government is to stay out of the way,” Hahn said. “We don’t want to control the growth, or inhibit the growth, of the toy industry or the fashion industry.”

Even with Hahn’s economic record subject to debate, none of his challengers has articulated an economic development vision.

The mayor has little direct control over the city’s economy, which is subject to the vagaries of the state, national and world economies. But he can rejuvenate the business climate by improving the city’s infrastructure and reforming business taxes and permit processes. And perhaps his most significant role is attracting -- and keeping -- companies here.

“Our mayor has remarkably little power compared with a lot of mayors,” said Chris Thornberg, a UCLA economist. “He isn’t able to dismantle a lot of structures that are in place as a result of opposition from the City Council.”

The city’s next mayor will face major economic challenges, including legislation at City Hall that many consider anti-business and the continuing perception that Los Angeles is a difficult place for companies to flourish.

This isn’t just an image problem. For the last 10 years, Los Angeles was ranked as the most expensive, or the second-most expensive, place to do business in the country in an annual survey conducted by Larry Kosmont, a local real estate consultant.

“Los Angeles-area leadership, especially the city of Los Angeles, is indifferent, if not hostile, to business activity,” wrote Kotkin and Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., in a recent report, “Recapturing the Dream: A Winning Strategy for the L.A. Region.”

The report singles out policies approved by the City Council last year, such as an ordinance requiring big-box retailers like Wal-Mart to study how opening a new store would affect the surrounding community.

Hahn and Councilman Antonio Villaraigosa, a mayoral candidate, both supported the law. Councilman Bernard C. Parks, another mayoral candidate, cast the sole vote against the measure.

“The big-box ordinance clearly tells these stores: ‘Don’t come to L.A. because we’re not only going to scrutinize you, we’ll tell you how your business will impact businesses that you aren’t even competing with,’ ” Parks said. “That’s the kind of thing that goes on that makes people clearly understand that their business is not welcome.”

Hahn bristles at the notion that the city is unwelcoming to business. “There’s a construction boom going on in this city,” he said. “People are recognizing that L.A. is not a market that they can ignore.”

Hahn’s challengers, however, have seized on the Kotkin and Kyser report, saying the city’s mayor must aggressively court companies -- something they argue that Hahn does not do.

To accomplish this, former Assembly Speaker Bob Hertzberg said, he would create a nonprofit agency, the Los Angeles International Foundation.

Parks said the next mayor has to “physically and personally get involved” in attracting businesses by providing incentives, such as several months of free water and electricity. And Villaraigosa suggested the city create an economic development bank to provide companies with access to capital.

Hahn did generate goodwill among the business community when he worked with the City Council to reform the city’s arcane business tax structure -- a plan seven years in the making. Although Hahn did not lead the effort, he approved reforms that will exempt 60% of the city’s businesses -- those with less than $100,000 in annual revenue -- from paying any tax.

Hahn’s challengers, however, say those changes were not enough, although they’re vague on how they would go further.

State Sen. Richard Alarcon (D-Sun Valley) suggests giving more credit to companies that provide good wages and benefits. Villaraigosa said he would “accelerate and increase those cuts.” Hertzberg says he would lobby to change state law to allow the city to tax net profit, rather than gross receipts.

Other problems that are also likely to absorb much of the next mayor’s time include aging infrastructure and a housing crisis that makes it difficult for companies to recruit workers.

Hahn’s challengers agree the city isn’t doing enough to encourage developers to build middle-class housing.

Los Angeles owns 2,400 parcels of land, said Hertzberg, who wants to lease them at “very low rates” to developers to build affordable housing.

The city’s 8th Council District, in South Los Angeles, hasn’t had a market-rate development for 15 years because the emphasis has been on affordable and senior housing, Parks said. The next mayor must deal with arcane zoning that often prevents developers from starting projects in blighted areas, he added.

Many of the city’s core industries are also concerned about crowding at the ports of Los Angeles and Long Beach, where freighters waiting for a berth sometimes stack up off the coast. Long lines delay shipments and lead businesses to miss deadlines to get products to stores.

“I have done relatively well,” said Charlie Woo, president of Megatoys, a toy manufacturer, “although it’s getting a little bit tougher now because of the port’s congestion.”

Hahn has suggested creating an “inland port,” where rail and trucks would whisk merchandise, easing the burden on existing facilities. He concedes, however, that officials are unlikely to begin construction on such a facility before 2010.

Alarcon said that the port must become a “24/7 operation,” to “reduce negative impacts of transportation in our community.”

Unlike his predecessor, Hahn has not made the city’s economy a priority. Riordan, an attorney and successful venture capitalist, made attracting and keeping business in Los Angeles a major goal during his eight-year administration.

“Under Riordan, there was a sense of excitement,” said Thornberg, the UCLA economist. “He used the bully pulpit to spread his message -- and Hahn really hasn’t done that.”

The redevelopment boom downtown began under Riordan. During his administration, the City Council approved an ordinance that provided incentives -- such as help in recruiting investors, assistance in obtaining tax credits and a streamlined permit process -- to developers who converted older buildings into residential communities.

Hahn expanded this policy citywide, prompting builders to start converting old industrial and retail buildings in Hollywood into apartments and for-sale lofts. Since 2001, 9,381 units have received permits under this ordinance, and 1,848 have been completed.

But even with development booming, the city needs to work harder to streamline permit procedures -- an effort that began under Riordan but has stalled under Hahn, business advocates say.

Specifically, more personnel is needed to handle the crunch in applications for water, variances, street improvements and utilities.

“Public works is totally understaffed,” said Kosmont, a Los Angeles real estate consultant. “They have more workload than they can handle, and it’s crippling projects.”

The building department has made huge strides in improving customer service, business advocates say, under its general manager, Andrew Adelman, who was hired by Riordan.

But Hahn’s challengers argue that more should be done to expedite the city’s planning and permit process. The candidates also say they would create business teams to shepherd companies through various city departments.

“Far too many businesses have had to wait months, or years, to get approval,” Alarcon said. “And in the meantime, the company is losing tens of thousands of dollars.”