The Los Angeles City Council Wednesday authorized an economic study of a ballot initiative that aims to repeal the city’s business gross receipts tax, with some members warning a repeal could devastate services and programs.
In a unanimous vote, the council referred the proposed ballot initiative to City Administrative Officer Matt Szabo, who had already been instructed to report on the matter. The council will have 30 days to decide whether to conduct a special election, place the initiative on the November ballot or adopt it as is.
A special election would cost the city about $31.8 million, according to the City Clerk’s Office.
“We’re all sort of genuinely struggling to understand how anyone thinks this is even remotely a responsible thing to do right now at this moment,” said Councilwoman Katy Yaroslavsky, who also chairs the Budget and Finance Committee.
She warned that if voters approved the ballot initiative it would result in the loss of $800 million per year, impacting the city’s general fund — the source of major funding for various services and programs such as police and firefighter response, and repairing roads and sidewalks.
“Close to a billion dollars in funds for basic city services. No plan to replace it, and we know what the consequences of that would be,” Yaroslavsky added. “They would be immediate.”
The councilwoman named United Airlines and the American Hotel and Lodging Association as the entities who are largely driving the initiative. She added that those companies are not based in Los Angeles.
Representatives for United Airlines and the American Hotel and Lodging Association did not immediately respond to a request for comment.
Yaroslavsky alleged these companies and some local businesses are pushing the plan because they “didn’t get their way” in the so-called “Olympic Wage Ordinance.” The City Council approved that ordinance last year, which increased the minimum wage to $22.50 per hour for hotel and airport workers with the goal of reaching $30 per hour by the 2028 Olympic Games.
It also enshrined other worker protections, and boosted health-related credits for employees.
Critics of the ordinance including hotel owners and concessionaires argued that it would force them to eliminate jobs, reduce hours and increase prices to cover the new wages. They also claimed it would further impact tourism as costs would dissuade travelers from shopping or traveling.
“So now they’re throwing a tantrum that would result in devastating consequences for us and our residents,” Yaroslavsky said. “I agree we need to make LA more business friendly.”
The councilwoman said she would be happy to review a “serious” proposal that shows how opponents plan to replace the revenue. “But this is not serious. We know that this effort isn’t about actually solving problems. It’s about scorched-earth warfare,” Yaroslavsky said.
Councilwoman Monica Rodriguez touted a recently created micro enterprise program to help local small businesses.
“I think we have to really have honest conversations around this horseshoe about what economic development looks like, about genuine efforts to support a strong local environment for businesses to create jobs, and this body and this city has frankly failed at that,” Rodriguez said.
Rodriguez said the repeal proposal comes from deep frustration, but that she hopes businesses and the city can strike a balance.
A coalition of business groups called The LA Alliance for Tourism, Jobs and Progress submitted more than 73,000 signatures for the ballot initiative in February. In late March, the Los Angeles County Registrar-Recorder/County Clerk certified the initiative.
The coalition includes all three major Los Angeles business groups — the Central City Association, LA Chamber of Commerce and the Valley Industry Commerce Association, along with other organizations and individuals representing trade associations, small businesses and others, a spokesperson for the campaign told City News Service in an email April 2.
The LA Alliance for Tourism, Jobs and Progress argued that a Business Tax Advisory Committee formed by the city in 2010 had recommended removing the business tax.
A 40-page report by the committee published April 18, 2012, detailed a phased approach to simplifying the business tax over a 10-year period with the goal of eliminating it in the final year.
“City revenue would increase because businesses would move back to LA once this unfair and burdensome tax is repealed,” a spokesman for alliance told CNS. “The city of LA vastly overspends against its tax revenues year over year, just ask the city controller. Just last year, the city worked through a $1 billion deficit without a single layoff or service cut.”
While the group’s leaders recognized efforts by the city to assist small and legacy businesses, they argue it fails to address core issues with the business tax. The coalition anticipates that the matter will be placed on the November ballot.
“We expect to win and bring much-needed cost reduction and relief to consumers and small businesses alike,” the coalition told CNS.