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Tax Plan Puts Segundo Firms on Offensive

August 04, 1985|PATRICIA LOPEZ | Times Staff Writer

EL SEGUNDO — Until recently, Hughes Aircraft Co. and other big corporations here considered themselves benefactors, almost patrons, to the city's 14,000 residents.

Paying a mere $48 a year each in business taxes in 1983, companies were happy to indulge the city's relatively modest requests--remodeling council chambers, providing consultant services, donating thousands of dollars to the city's educational foundation, adopting schools and generally being soft touches.

Those days are over.

A tentative City Council decision last month to triple an employee head tax instituted just last year--to $60 from $20--has touched off a wave of outrage among the large business community, souring relations in a town where employees outnumber residents 5 to 1 and leaving many companies doubtful about just how welcome they are in a city once known for its pro-industry environment.

The new taxes also may shatter the city's reputation as "the cheapest game in town," as the mayor recently put it--a reputation that in the past drew industry like a magnet, transforming El Segundo's bean fields and strawberry patches into a dense hub of aerospace installations and towering office buildings. A comparison with other South Bay cities with large industries shows that the increased taxes would rank El Segundo among the most expensive in terms of business taxes.

If the proposed increase wins final approval at Tuesday night's council meeting, Hughes alone will pay business taxes of about $2.1 million a year, more than 10% of El Segundo's $19-million proposed general budget for 1985-86. That figure represents a 124% increase from the $900,000 the company paid in 1984-85.

City officials argue that El Segundo is strapped, facing a $2-million deficit that is the result of providing increasingly costly services to industry's 75,000 employees. That drain, they say, has outpaced the revenue that industry brings in, forcing the city to tap its reserves for the fourth consecutive year.

Until 1982, sales tax from the massive Chevron USA Inc. refinery provided more than 80% of city revenue, fattening reserves and eliminating the need for any other taxes. But when Chevron lost a major fuel oil contract that year, sales tax revenue plummeted, leaving the city scrambling for new sources of income.

While reserves have dwindled steadily since then, industry officials counter that with an estimated spendable reserve of about $9 million, the city still has little justification for raising taxes. The $9 million is part of a $19.6-million reserve that includes "dedicated" funds that cannot used for the general budget.

Claiming that in El Segundo, "voters don't pay taxes and taxpayers don't vote," Hughes officials last week fired the first round in a battle they liken to the Boston Tea Party.

"We were considering placing little tea bags in front of each of the City Council members at the next meeting," quipped John Brown, Hughes vice president in charge of taxes, "because what we have here really is taxation without representation. But instead, we've decided that we need to educate the residents about the issues and what we think is at stake."

City officials, he said, "have roused a sleeping giant."

Unlike residents of most other cities, people who live in El Segundo receive city services such as trash pickup and sewage treatment for free and pay only property taxes. In the past, residents have strongly protested any proposals for a resident utility tax or service fees, preferring instead that the city turn to industry.

However many of those residents also are employed by the city's "Big 7" corporations--Hughes, Chevron, Rockwell International, TRW Inc., Northrop Corp., Xerox Corp. and Continental Development Inc.--that form a virtual employment conglomerate in town.

Several companies are considering following Hughes' lead in appealing to residents to take into account industry's perspective on increased business taxes.

No-Holds-Barred Letter

Mailing a no-holds-barred letter to the 1,400 Hughes employees who, together with their families, make up one third of El Segundo's population, Hughes officials hope to convince employees that the company's continued well-being rests with them.

"We're not saying we're going to leave town," spokesman James Hurt said. "But when these facilities become obsolete--and eventually they will--we may opt to transfer groups elsewhere rather than modernize here. If we need to expand, we may look to other areas.

"We've got a very picky client--the U.S. government--and that client is not favorably disposed to increased costs right now. The Air Force once called the Justice Department to investigate in Culver City because of a tax increase they proposed there. Just because we're big business doesn't mean we have endless pockets."

Culver City eventually dropped its proposal.

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