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Wednesday, Oct 4, 2023


By DANIEL TAUB Staff Reporter Forget buzzwords like self-determination and local control. Proponents of San Fernando Valley secession have an even more powerful, bottom-line argument to make to business lower taxes. Los Angeles has the highest average business license tax, and the highest non-residential electricity tax, of 143 California cities surveyed last year in the Kosmont Cost of Doing Business Survey. Community leaders who spearheaded legislation making it easier for the Valley to secede from Los Angeles say the promise of lower taxes will be one of the most appealing arguments for a new Valley city. “Our goal is to have lower business taxes, a more fair business tax structure, to have a more fair utility tax rate, so we can compete with other communities,” said Jeff Brain, co-chair of Valley Voters Organized Toward Empowerment, also known as Valley VOTE. According to the Kosmont study, the city of L.A. has a 12.5-percent commercial utility tax. Other nearby cities, including Santa Clarita and San Fernando, have no such tax at all. In addition, L.A.’s business tax structure contains 64 different industry categories with tax rates ranging from $1.18 for every $1,000 in gross receipts a company brings in, to $5.91 for every $1,000 in gross receipts. Thus, in L.A., a 30,000-square-foot law firm with $16 million in gross receipts would have to pay the city about $116,650 a year in business license, utility and property taxes, according to the study by L.A.-based Kosmont & Associates Inc. In Calabasas, the same firm would only pay $8,520, and in Santa Clarita it would pay nothing. Kosmont & Associates President Larry Kosmont said it is too early in the secession movement to know how much cheaper it would be to do business in a new Valley city, but that it is likely to be less expensive than doing business in L.A. “I think it’s just an assumption that because the San Fernando Valley will be a new city, its cost of operation will be lower and it will be able to pass the savings to the taxpayer,” Kosmont said. “Given the historical basis of cities in California, that’s a pretty fair assumption.” Kosmont and others said it would be difficult to find another city to compare with a seceded Valley, because the last local secession was when Coronado broke away from San Diego more than a century ago. But many unincorporated county areas that recently have incorporated as cities for the first time have made an emphasis on being business-friendly by having low or even nonexistent taxes for their businesses. Santa Clarita, located just north of the San Fernando Valley, was incorporated as a city nearly a decade ago. Since its incorporation on Dec. 15, 1987, the city with a population of nearly 142,000 has had no business license taxes and no utility user taxes. City planners “had decided as a group during the establishment of the city not to increase any taxes or incorporate any new taxes,” said Michael Haviland, marketing and economic development manager for Santa Clarita. “That was the basis for not creating a business tax.” To provide city services such as planning, city parks, code enforcement and public works and to contract with the county for fire and police protection Santa Clarita depends primarily on its share of local sales taxes, and to a lesser extent on its share of property taxes. “Those numbers added up fairly quickly,” Haviland said. And those numbers would also add up fairly quickly in the city of the San Fernando Valley, said Brain of Valley VOTE, because the Valley currently seems to pay far more in taxes than it gets in return in public services. For example, the Valley contains about 35 percent of the city’s population, yet only 1.2 million of the city’s 6.6 million library books are located in the Valley, Brain said. And of $28 million spent on street resurfacing in 1996, only $4 million was spent in the Valley, he said. “I think that if we became our own city and were able to keep those funds, we’d be able to have a better, more vibrant business front,” Brain said. But Jack Kyser, chief economist with the Economic Development Corp. of L.A. County, said there could be great expenses associated with forming a new city in an area as developed as the Valley. “You have a lot of key operational and financial questions you have to get through right away,” Kyser said. Such questions, Kyser said, include how to provide water and power services; whether to contract with the county or the city of L.A. for fire and police services, or to form new departments; and what to do with the Van Nuys Airport, which is currently owned and operated by the L.A. Department of Airports. “This is not a simple thing,” he said. “This is going to be a very complicated and, eventually, it’s going to be a very, very expensive issue.” But Kyser, like Kosmont, said that when all is said and done, the city of the Valley would likely be a cheaper place to do business than L.A. simply because the new city government likely would be more efficient than L.A.’s. “You would not be dealing with the overall bureaucracy you’ve got now,” he said. “The new city could theoretically say, ‘We could get this service or that service by contracting out.’ ” Kyser said the new city might also be pressured to provide lower business taxes because of the close proximity of such low-business-tax cities as Santa Clarita, Burbank, Glendale, Agoura Hills and Calabasas. “The city of the new San Fernando Valley would probably be very conscious of the competition,” he said. The city of the Valley would also be more business-friendly, Brain said, simply because of the involvement in the secession movement of people like himself (Brain owns a real estate business) and co-chair Richard Close (a Century City attorney). “Keep in mind,” Brain said, “Many of the people driving this are business people.”

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