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THE NEXT LOS ANGELES / TURNING IDEAS INTO ACTION : How can we take advantage of the mosaic of entrepreneurship that makes business life so vital in Southern California? : Solutions : Spur Small Business With Tax Breaks

July 17, 1994

Terry Christensen , Los Angeles lawyer , and Jane Pisano, dean of USC's School of Public Administration and USC's vice president for external relations.

Christensen recommends tax incentives to spur small businesses, which are the engine of economic growth and create most of the new jobs in the region.

"We have a 1% gross revenue tax in the city of Los Angeles that is particularly onerous," he says. The tax is not on profit but on every dollar a business owner takes in.

Christensen recommends forgiving the 1% tax for a store or plant that sets up in the damaged areas, enabling business owners to make a higher profit and thus promise bankers more secure loan repayment and backers a faster return on investment.

Christensen also would have the city appoint an investment banker to be a conduit for small companies trying to get city contracts or loans or grant money from the state or federal government, including Small Business Administration loans.

The investment bank would take over some work done now by the Community Redevelopment Agency and other departments.

Meanwhile, Pisano recommends targeting tax credits for federally supported "empowerment zone" now on the drawing board. She says credits should go to industries in which Los Angeles can be a global leader, rather than merely spreading around aid without strategic planning.

The proposed empowerment zone, which would include parts of East, Central and South Los Angeles, should become an economic engine for the city, Pisano says. It should concentrate on industries "where Los Angeles has had, has and/or could have a global competitive edge, not just tax credits for any old thing."

Promising industries would include large and small companies in garment manufacturing and finishing, advanced transportation technology, biomedical research and manufacturing, multimedia and advanced communications, she suggests.

If the credits are granted too widely, she says, "it may help the area in a transitory way if industries are incentivized and started. But if they are not globally competitive, they are not going to last long."

REALITY CHECK:

These are good, specific ideas that could be implemented quickly. Unfortunately, that doesn't mean they will be. The city is strapped, so it will be reluctant to forgo any tax. Also, appointment of a private investment bank would trigger opposition from city entities like the Community Redevelopment Agency. However, devising a strategic plan for urban economic investment is within reach, and it makes good sense.

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