Some affluent areas qualify for tax breaks intended to benefit the poor
Among the advantages for those who live in multimillion dollar houses on the hillside in Los Feliz are celebrity neighbors, sweeping views of the downtown skyline, the Griffith Observatory in their backyard and designation by state tax authorities that they are economically disadvantaged.
That means tens of thousands of California businesses can claim tax breaks worth up to $37,400 each for hiring some of Los Feliz’s rich residents, through a program that provides benefits to companies for hiring welfare recipients, ex-convicts, military veterans and the chronically unemployed.
It’s impossible to say how many neighborhood residents or employers have benefitted from the tax breaks — city officials refused to release the names and addresses of the people hired under the program, citing a concern for their privacy.
But the officials acknowledged that because of the way the state measures impoverished communities, the tax breaks meant for residents of California’s most economically distressed neighborhoods can also be claimed for white-collar professionals living in upscale Westwood, parts of Silver Lake and the stretch of the Venice seaside that was home to Dennis Hopper.
The California Senate this year passed a bill that would eliminate the tax break based solely on where potential employees live and direct the savings to companies that set up job training programs in middle schools and high schools. The California Chamber of Commerce opposes the measure, saying it would effectively eliminate the state’s biggest economic incentive program; businesses claim hundreds of millions of dollars worth of the hiring credits each year.
While the debate continues in Sacramento, neither side is talking much about how the existing system has extended taxpayer largess to companies that hire residents of some of Los Angeles’ privileged enclaves.
“Disadvantaged is the last word that comes to mind when I think about Los Feliz,” said Alex Boyd, 25, standing at the top of North Vermont Avenue, where two houses are currently listed for nearly $3 million each.
A block away, on Glendower Avenue, two more are on the market for $7.5 million. Last year, actor Charlie Sheen listed his nearby home for $3.7 million.
The hillside neighborhood north of Los Feliz Boulevard is on the state’s map of Targeted Employment Areas because it lies within a census tract — typically several square miles that includes 2,500 to 8,000 people — where at least half of the residents are in households that earn the state’s median income of $47,493 or less. The area south of Los Feliz Boulevard, though not poor, has lower property values and considerably more people.
Local authorities issue vouchers for the tax breaks to businesses (including the Los Angeles Times) in state-designated Enterprise Zones, typically offices and industrial parks in such areas as downtown Los Angeles, where the state is trying to encourage development.
In Los Angeles, about 90% of the 23,118 vouchers issued last year were based on the employees’ home address, which is easier information for businesses to get than data on a new hire’s criminal history, and easier than asking if they have recently been on welfare, said Clifford Weiss, a deputy director of the city’s Community Development Department. But using addresses alone may mean including people the tax credits were never meant to serve.
In densely populated cities, census tracts are too big to say much about the economic status of the individuals living within them, said Public Policy Institute of California researcher Jed Kolko, an expert on the tax credit program.
“Neighborhoods like Los Feliz and Silver Lake have a fairly low income, on average, but also include a wide variety of people who wouldn’t be considered disadvantaged in any sense,” said Kolko, who has a Ph.D. in economics from Harvard. Kolko lives in a San Francisco census tract where residents qualify for the tax break. “I don’t think I’m the sort of person intended as a target.”
Weiss said it would be an “invasion of privacy” for him to provide addresses of employees for whom hiring credits have been issued in recent years, but he insisted the vast majority of the credits have gone to businesses that hired people living in “the places you would expect.”
He acknowledged that the map of qualifying neighborhoods in Los Angeles contains some census tracts that seem distinctly out of place.
“There are some locations, some census tracts on this map that look peculiar,” he said, referring to a tract just south of the Bel-Air Country Club that includes UCLA’s Westwood campus, where unemployed students drag down the median income.
“I think this money should go to neighborhoods that really deserve it,” said cosmetic surgeon Alexander Z. Rivkin, who has a clinic across the street from a bustling Whole Foods Market on Gayley Avenue, in the heart of the Westwood tract. “Median income is just not good enough; I think it’s too blunt an instrument.”
Cindy Parker, who sells Prada and Dolce & Gabbana frames at an optometry shop on Weyburn Avenue, said, “Uh, no, I don’t think many disadvantaged people live around here.”
Senate President Pro Tem Darrell Steinberg (D-Sacramento) is sponsoring the bill to eliminate the hiring credit and put the money into job-training programs. His spokeswoman, Alicia Trost, said she used to live in one of the designated neighborhoods, on “one of the nicest streets in Oakland.”
Despite evidence that many well-to-do people live in Targeted Employment Areas, dozens of business leaders, including lawyers and tax consultants who specialize in helping corporations claim tax credits, have sent letters to Steinberg and other legislators, arguing that changing the system would be devastating to the poor. Most of the letters say exactly the same thing: “Elimination of the TEA specifically targets the residents of low-income neighborhoods, with some of the highest levels of unemployment, poverty rates and crime in California.”
Craig Johnson, president of the California Assn. of Enterprise Zone administrators, who has strongly opposed Steinberg’s bill, acknowledged that using census tracts to identify disadvantaged neighborhoods is too broad and would allow businesses to claim tax breaks for hiring highly paid professionals.
“That’s a valid concern and one we take seriously,” Johnson said, suggesting that the employment areas be smaller and the hiring credit limited to new employees making no more than the median income for the county.
A salary cap could eliminate the possibility of tax breaks going to the fashionable residents near Abbot Kinney Boulevard in Venice, where a steady stream of customers arrived at the 3 Square Cafe on a recent morning in BMWs and other luxury vehicles, perusing a menu that includes litchi and passion fruit prosecco for $9 per glass.
The cafe sits at roughly the geographic midpoint of the Venice zone designated as disadvantaged. Dennis Hopper’s compound, which went on the market for $6.2 million following his death in May, sits a few blocks north. The white sand of Venice Beach begins a few blocks to the south.
“I’m a big believer in tax breaks for the disadvantaged,” said waitress Kelsey Jessup. “But it’s hard for me to justify them for the people in here.”