Tax Reform

By HOWARD FINE Staff Reporter When Mayor Richard Riordan unveiled his business tax reform proposal last December, he told reporters there would be little problem in getting it through the City Council. This was, after all, no fly-by-night proposal; it had been in the works for more than three years and was intensely scrutinized by consultants, council staff members and the business community. But last week the council unexpectedly shot down the carefully crafted plan, hastily devised an alternative, and then approved it during one of the most chaotic meetings in recent years. “I don’t really know what I’m voting on,” said a confused Mark Ridley-Thomas, one of three council members who voted against the measure that was approved. It was L.A. politics as usual, only more so. Under the plan that finally got through, any business that was to have received a tax increase under Riordan’s proposal could opt to be taxed at its current rate or choose to pay slightly more in taxes. The fact that no business would be forced to accept the tax increase means the measure does not have to be approved by voters. But before an ordinance can be drafted, several legal issues must be clarified by City Attorney James Hahn and City Clerk Mike Carey. The most thorny of those could be the legality of having two business tax systems operating simultaneously. Also, there is a possibility that some new businesses could be taxed at different rates than existing businesses in the same industry. “This is a long way from over,” said Councilman Michael Feuer, whose own proposal was merged into the Riordan plan that was shot down. And anything that’s “a long way from over” in L.A. politics faces the prospect of dying a slow, piecemeal death. Because the plan approved last week would not increase anyone’s taxes, there is no longer a constitutional deadline to qualify the measure for the ballot. That means the council will have at least another month or two for tinkering, both in committee and at the full council level. The council could even kill the entire package if lawmakers decide it would add too much to the budget deficit or if legal problems arise. So what went wrong? Why did a plan three years in the making end up being reinvented just 48 hours before the March 5 constitutional deadline to qualify it for the ballot? Council members and City Hall observers say that Riordan’s early optimism notwithstanding getting a business tax through a council not known for its friendliness to business was never an easy proposition. “It is probably more difficult in L.A. than anywhere else because the politics here is so much more complex, with 15 different council members and their own agendas often clashing with the mayor and his goals,” said Larry Kosmont, president of Kosmont & Associates, a consulting firm. “Just getting the council to approve the idea of reducing taxes on business in the face of a budget deficit has to be considered a major victory, if it sticks.” Council members blame Riordan and his staff for complicating matters by waiting too long to submit their proposal and not articulating why certain businesses would receive tax cuts, while others would have been forced to pay more in gross receipts taxes. “The plan’s proponents glossed over this repeatedly,” said a City Hall lobbyist. “Council members like Jackie Goldberg saw this and boy, did they ever exploit this. The council was left with the impression that the companies ended up where they did on an arbitrary basis.” Goldberg also alleged that some businesses targeted for tax cuts contributed to Riordan’s charter reform campaign, suggesting the tax relief was a favor in return. Riordan denied that, and said two of the companies Goldberg cited would have seen tax increases. Feuer said he tried to defuse the criticism with his compromise proposal, which knocked each business down one tax rate. But by then, even Feuer acknowledged it might have been too little, too late to clear the doubts of other council members. “It was submitted so late that I couldn’t even reach a compromise with the mayor until the last couple of weeks before the deadline. There was a definite unwillingness among some of my colleagues to adopt a compromise proposal with which they were not deeply familiar,” Feuer said. Another City Hall observer said that Riordan could easily have introduced the plan three months earlier, allowing the council more time to review the proposal and reach a compromise. “They lost votes not because it wasn’t a good plan which it was but because of the manner in which the plan was shoved in the council’s face. You don’t deal with the council that way and expect them to act positively,” the observer said. “There was this air that everything was being rushed,” said Michael Gagan, a lobbyist with the L.A.-based firm of Rose & Kindel, who represented five major health maintenance organizations in their business tax negotiations with the city last year. “This contributed to the confusion and chaos, especially at the end. And it also led to some resentment.” Rocky Delgadillo, deputy mayor for economic development and Riordan’s tax reform point man, said there was no intentional delay. He noted that the proposal was released as soon as all the economic models on which it was based were completed and the data analyzed. Delgadillo said that, despite the chaos, the council vote to support a plan with widespread business tax cuts is a “watershed victory for the business community.”