Valley VOTE Newsletter
July 2004
Vol. II, Issue 1
Editor: David DeVoss


Valley VOTE was created to promote a better life for the people of the San Fernando Valley. Toward that goal the organization has made significant progress on a number of fronts. Below are status reports on tax reform, zoning and public education from several Valley VOTE leaders. I hope that after reading their reports you will join Valley VOTE so that together we can work toward building a better city.

Joe Vitti
President, Valley VOTE


Business Tax Reform
Working to Create a Better Business Climate


Valley VOTE has tracked the business tax reform issue for quite some time. From the outset it was clear that it would be impossible to develop any meaningful reforms while saddled with a requirement for revenue neutrality. Valley VOTE’s position was – and remains – that to be effective business tax reform must be coupled with a sharp reduction in the business tax burden. Anything less would fail the city in shedding its well-deserved image of being unfriendly toward business.


It is quite obvious that, given a choice, companies are locating just beyond the city’s boundaries. That way, they can enjoy the benefits of being close, yet they bear none of the tax burden. Valley VOTE’s Business Tax reform committee discovered upon inspection that only four “Fortune 500” companies are headquartered in Los Angeles, while six are headquartered in adjacent cities. When the number of “Fortune 500” companies is related to population size, Los Angeles ranks last of the five largest cities in the U.S., with 1.1 firms per million population, compared to Houston with 9.2 “Fortune 500” firms per million.

The Committee compared the business taxes placed on L.A.-based businesses to the taxes borne by similar businesses in competing cities. Locally, Los Angeles levies higher taxes than seven other adjacent cities, and nationally only New York City is higher than Los Angeles.

Looking at the incidence of the tax burden on Los Angeles businesses, the Committee found that 44 percent of the business tax collections came from the 1,600 largest businesses, while only 21 percent of the business tax collections came from the 146,000 smallest businesses in the city, averaging only $513 per business. The Committee postulated that if these 146,000 small businesses were to be exempted from the business tax (in favor of paying a modest fixed business license fee, for example), the city would lose approximately $75 million of tax revenues, which would be partially offset by considerable administrative savings in the city’s Finance department and a few million dollars of minimum annual fees.

Recently, the city has tried to encourage greater compliance in paying the tax by simplifying filing procedures and eliminating the double tax on pass-through payments. Unfortunately, these actions fall far short of what’s necessary. None of these initiatives would make the tax simple. More importantly, these initiatives would barely make a dent in the aggregate tax burden levied on the city’s business community.

Frustrated by the political impasse and dismayed by the actions of consultants answering only to politicians paying their fees, Valley VOTE decided it was time to show some leadership on this important issue. Recently, the Business Tax Reform committee incorporated its own statistics into a while paper that includes the following recommendations.

1. Allow the deduction from gross receipts of certain standardized pass-through costs to determine the taxable amount.

2. Simplify the number of tax classifications by reducing them from the present 52 to
no more than about five.

3. Increase the small business exemption of $5,000 of annual gross receipts to approximately $180,000. This would exempt substantially all of those 146,000 small payers from paying the business tax. A business that has less than $180,000 of annual gross revenue is, indeed, a small business. Initiate a simple business license and a related modest annual license fee, between $25 and $100, for the privilege of doing business in the city.

4. In recognition that it will take time to grow replacement revenues, we recommended reducing the business tax in stages over a period of five to ten years.

5. Cap the business tax at some maximum amount for all taxpayers, perhaps striated by gross revenue levels.

Valley VOTE’s business tax white paper immediately caught the attention of the city. Recently City Hall’s Blue Ribbon Tax Advisory Commission made a series of proposals that more closer to reform. Council members Wendy Greuel and Eric Garcetti support several of the proposals. So does Mayor James Hahn, albeit with less enthusiasm.

Valley VOTE is proud to have provided some of the impetus for the current thrust, which calls for:

1. Elimination of the business tax for businesses with less than $100,000 of gross receipts (Valley VOTE had proposed a threshold of $180,000 of gross receipts), and initiation of a modest fee, on the order of $50 per year, for a basic business license.

2. Reduce the number of tax categories to five, which is the same number that Valley VOTE recommended.

3. Reduction of the business tax rates by 5 percent per year over five years. While Valley VOTE was not specific as to the amount, our thinking was more on the order of a 50 percent reduction over five to ten years.

4. Allow businesses to deduct from gross receipts pass-through payments to subcontractors.

Valley VOTE is proud of its to the long-festering situation at a time when the political will of the city’s leadership was wavering. VICA and the Los Angeles Chamber of Commerce now call for the Mayor and Council to adopt significant business tax reform by October 31, 2004 so that the tax return forms for 2005 can reflect the new order.

Immediately following that pubic call, Valley VOTE contacted every Council Member and the Mayor and echoed the demand for action now, lest the business community’s perception continues that Los Angeles is unfriendly toward business.

Richard Bort
Business Tax Reform Committee

Inclusionary Zoning
Coming to a Neighborhood Near You?

Increased population, tax and accounting changes, increased environmental awareness and simple NIMBYism contribute to a shortage of housing in Los Angeles. There is plenty of demand, but the supply of homes continues to decline because of developer fees, building requirements, bureaucratic red tape and city ordinances conducive to the deterioration of existing apartments.

In order to address the resulting lack of affordable housing, city council members Ed Reyes and Eric Garcetti are promoting a concept called Inclusionary Zoning. Simply put, inclusionary zoning requires developers to set aside a certain percentage of units in new housing developments for low-income tenants and buyers.

Inclusionary zoning has been tried in about 110 California communities. Initially, it has provided some relief to housing shortages. But a Reason Foundation report concludes that in later years it actually reduces construction and promotes even more serious hosing shortages.


The Los Angeles Inclusionary Zoning Ordinance now being considered by the city council is mandatory. It will apply to all building of five or more units in all parts of the City. The targeted occupancy will be for very low, low and moderate-income families. This housing - which will amount to 10% to 25% of all new developments - will require occupancy by these targeted groups in perpetuity. Both regulatory and deed restrictions will be recorded against the land. Inclusionary zoning will preempt all current community development and zoning plans. There will be resale restrictions and occupancy restrictions.

For rental units, a developer must set aside 10 to 12% of the units for households at or below 30% of the area median income. Twenty to 40% of units for sale must be set aside.

Backers of inclusionary zoning say their scheme will reduce the gap between rich and poor, but logic, and the reality of how inclusionary zoning has worked elsewhere, cast doubt on this conclusion. One major flaw is that the value of the low cost apartments, condominiums and homes can’t appreciate along with the surrounding real estate. There is no incentive for an owner of inclusionary property to maintain and upgrade his dwelling since its value is permanently capped so that it only can be sold to persons living below the poverty level. Indeed, according the Reason Foundation study, the requirements regarding for-sale units actually force the sale prices below the limited price. The study also indicates the loss of $553 million of local and state tax revenue annually.

In order to offset the cost impact of inclusionary units, certain incentives are offered to the developers. Those include an additional 15% density bonus, reduced parking requirements, and reduced common open space. All zoning and development plans negotiated over the years are out the window. In fact, the present inclusionary zoning proposal specifically states that it would “Allow town home construction of affordable units in a single family detached home development.”

The answer to Los Angeles’ housing shortage is not inclusionary zoning. Simply building more affordable housing can eliminate the shortage. One way the city could reduce the cost of homes is by reducing bureaucratic red tape. On average it takes from nine months to two years between the start of the permit process and the start of construction. Inflation adding to the cost of the land and labor over this period is passed on to the buyer.

Secondly, the city should encourage construction of high-density, mixed-use housing along major transportation corridors. This could cut down the normal parking space requirements, as residents would have easy access to public transportation. An additional step toward housing sufficiency would be to reintroduce market incentives for rental housing. Currently there is no incentive for investors to put their money into multiple dwellings, as the rent control restrictions are burdensome. These restrictions need to be modified and simplified.

Lastly, second homes on larger residential lots needs to be encouraged.

Victor N. Viereck and Pauline Tallent
Land Use Committee



Education in the Valley
Standing Up for Charter Schools


The LAUSD With a budget of $5.3 billion, more than 750,000 students, and 806 schools, LAUSD is the biggest public school system in California and the second largest in the nation.

Back in 2000, eleven mini districts were created. The idea was to provide more parental involvement, local control and better construction oversight. Some of those goals have been met, but at a cost of $40 million mini districts also have become one more layer of the bureaucracy on an already top heavy district.

Yielding to pressure from UTLA, which argued that dismantling of localized administration would leave more money for teacher benefits, the LAUSD board voted recently to eliminate three of the 11 local districts. In theory, the decision saves $17 million, but the immediate result is to crowd the Valley’s 227,000 students into two districts instead of three.

LAUSD’s budget has increased at a record pace. But despite a massive $10 billion construction program, many schools are crumbling because of neglected maintenance and a soaring enrollment that often places 40 students in a class with a single teacher. Billions in new bond money is dedicated to repairs, library books, expanded kindergarten programs and charter schools, but few schools have seen the promises redeemed.

Two new Valley high schools are planned. One will be constructed alongside the West Valley Occupational Center in Woodland Hills. The other is to be located on 11 acres presently occupied by the bankrupt Granada Hills Hospital.

Many educators see charter school as the salvation for California’s school children. The state presently has 471 charter schools and hopes the number will rise to 750 in coming years. But centralized school districts often oppose the local control, independent funding, budgeting flexibility and parental involvement on which charter schools are based. Administrators of large districts worried over losing control disparage charters as “private school paid for with public cash.”

LAUSD has 50 charter schools. This year Valley VOTE’s Education Committee was in full support of the five-year charter renewal for Granada Hills Charter High School, which with 4,000 students is the largest of the state’s 471 charter schools. Granada Hills charter was approved two months ago after months of lobbying on the part of local parents and teachers.

Armineh S. Chelebian


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