Two simultaneous announcements this morning from L.A. Mayor Antonio Villaraigosa signal that city leaders might finally be in Great Recession panic mode.
The first and flashiest: Villaraigosa stood with City Council President Eric Garcetti (and Mitchell Englander, new kid on the City Council) outside the historic Porsche headquarters in Beverly Hills, and told the world that Porsche would be moving to Los Angeles.
'Twas a splendid affair…
… as evidenced by a stream of Twitpics from Englander's social-media cronies.
Almost in the same breath, the three pols introduce a motion today that would eliminate the business tax for new auto dealerships in Los Angeles.
Villaraigosa blames the existing tax — which many nearby cities have chosen to whittle down, or cut completely, in hopes of collecting dealerships' whopping sales taxes in return — for a mass exodus of 95 dealers over the last 25 years. (Big ouch.)
He's correct in arguing that sales-tax profits will far outweigh the business-tax breaks. The math, via the Los Angeles Times:
Auto dealers are coveted by cities for the enormous amount of sales tax revenue they generate. Los Angeles has 52 dealers that sell new cars. In 2010, those dealers brought the city $29 million in sales tax revenue, but Villaraigosa said that they paid just $3.6 million in business taxes.
… The mayor credited his business team with helping to persuade Beverly Hills Porsche to move by accelerating the permitting process. He said the luxury car dealer racked up $100 million in sales last year, which would mean about $1 million a year in sales tax revenue that would go toward the city's general fund. The mayor's office also said Beverly Hills BMW [which likewise moved to L.A. earlier this year] had $145 million in sales last year, which would mean about $1.45 million in sales tax revenue for Los Angeles if it hits that mark again.
But Porsche might have been wooed without this big promise of a break. As LA Weekly's Dennis Romero noted when Beverly Hills BMW moved into town, it had “space needs that outstripped its dense digs on Wilshire; the business used off-site lots on Olympic Boulevard to store cars and had to have runners shuffle them back and forth to show customers.”
So BMW, the only other dealer to brave L.A. in the last 25 years, moved here out of need for more space, not because of anything city leaders did. [Update: @BevHillsPorsche confirms via Twitter: “yep, you got it right. We already have our service and parts dept in LA. Moving the new car showroom next to them.”]
And we've got a hunch the unwillingness of other luxury car dealers to move into Los Angeles has less to do with our business tax and more to do with our crumbling infrastructure.
The qualitative difference in streets, sidewalks and other city facilities between L.A. and its neighboring towns to the northwest — West Hollywood, Beverly Hills, Santa Monica — is embarrassing. What foreign prince seeking a West Coast sports-car fleet is going to step off his helicopter onto the grimy, cracked surfaces of L.A. (probably with some ancient water pipe spewing off in the background) when he's got swanky, upkept Beverly Hills as an alternative?
Some Angelenos are opposed to the business-tax breaks for more ideological reasons, though they'll likely be profitable in the end.
Charles Crumpley, editor of the Los Angeles Business Journal, calls the mayor's approach “grossly unfair to older businesses“:
“What does the city say to the existing businesses, the ones that have stayed in the city and have been paying the full gross receipts tax all along? Is there any reward for them?”
But eliminating all business tax in the city, as Villaraigosa and Garcetti eventually hope to do, would likewise be “poor public policy,” two city advisers recently argued in a report on the proposal. “This would increase the tax burden on residents or result in decreased city services which would make Los Angeles a less desirable place to do business.”
From the Times:
The city's tax on gross receipts is projected to raise $439 million this fiscal year, making up about 10% of the general fund and 6% of the total budget. [City Administrative Officer Miguel Santana and Chief Legislative Analyst Gerry Miller] note that it has grown more steadily than other revenues and provided a “stable source of revenue.”
Indeed — until our crumbling city is repaired from the ground up, hastily wiping out the business tax and hoping it's enough to lure back the businessmen would be taking a huge gamble. And, as the above analysts predict, it would likely speed up the crumble in the meantime.
Anyway. Welcome home, Porsche! Might want to pave the nasty L.A. sidewalk out front your new digs in red carpet until Street Services gets its act together. Lord knows that's the only way the Academy still tolerates Hollywood.