The Los Angeles City Council Tuesday tentatively approved an extension of a program that exempts new companies from paying the city’s business tax during their first three years of operation, despite concerns there was no proof the exemption was actually luring any businesses to the city.
The Business Tax Holiday, an incentive program designed to attract businesses, was scheduled to expire at the end of the year. If the council gives it final approval next week, the program will be extended until 2015.
The extension was approved on a 10-2 vote, with Paul Krekorian and Jan Perry dissenting. Since the vote was not unanimous, the issue must return for a final council vote.
Councilman Eric Garcetti championed the extension, saying the city needs to do everything it can to attract business to Los Angeles.
“When we get business friendly, we actually make more money,” he said.
But the proposal was met with skepticism by Krekorian, the head of the council’s Budget and Finance Committee, who said the exemption amounts to a $30 million hit to the city budget — without any proof it is actually attracting businesses.
“This idea of giving away tax revenue to businesses, many of whom likely would be here with or without this, is in my view at best premature,” Krekorian said. “It’s a good concept but it’s premature until we have a proper economic analysis.
“… We have zero evidence that there’s been any increase in business activity because of this tax incentive,” he said.
Several council members noted that the city has long been criticized for being unfriendly to business, and more changes need to be made to make Los Angeles a place companies want to move.
Extending the business tax exemption is a step in that direction, Councilman Mitch Englander said.
“We’ve got to do these other incremental steps to make sure we’re competitive,” he said.
Mayor Antonio Villaraigosa was among those urging the council to approve the extension. Although he did not attend the council meeting, he issued a statement saying the Business Tax Holiday “has proven that Los Angeles is open for business and has helped make Los Angeles competitive in attracting jobs.”
The mayor noted that the number of firms that gross $500,000 or more taking advantage of the tax exemption doubled between 2011 to 2012.
But Krekorian said the statistic was misleading and did not mean that the number of new businesses opening in Los Angeles had doubled. He noted that the city changed the eligibility requirements for the program, and some companies that didn’t take the exemption during their first year of operation began taking it in their second year.
He also said there was no proof that businesses taking advantage of the tax might have opened in Los Angeles anyway.
“Until we have some of that analysis it would