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L.A. seeks to give local companies a competitive advantage

Lawmakers unanimously approve an ordinance that will give local firms an edge when seeking city contracts. It is intended to strengthen businesses, boost tax revenue and create jobs.

October 15, 2011|By John Hoeffel, Los Angeles Times

In a bid to crank up the city's economy, Los Angeles lawmakers unanimously approved an ordinance Friday that will give local companies an edge when seeking city contracts.

The program — spearheaded by Mayor Antonio Villaraigosa's office — is intended to keep the city's money close to home to strengthen businesses, boost tax revenue and create jobs.

"We're purchasing pencils and stationery from companies that are outside the state of California. That is ludicrous and that needs to change," said Councilman Paul Krekorian, who introduced the measure almost a year ago with Councilman Bernard C. Parks.

Under the approved ordinance, which the mayor plans to sign next week, companies with at least 50 full-time employees, or half their total employees or their headquarters in Los Angeles County, would get preferential treatment on contracts worth more than $150,000.

Villaraigosa said in a statement after the vote that the program "helps level the playing field, making it possible for local businesses to compete more effectively for city government contracts." The cost of doing business in Los Angeles is about 10% higher than in other cities.

About 85% of the money Los Angeles spends on contracts goes to businesses outside the city, according to an analysis by the mayor's office covering the 2008-09 fiscal year.

The city does not know how much it spends each year on contracts. Los Angeles spent more than $2.4 billion last fiscal year, the mayor's office said, but that doesn't include almost 20 departments that have not provided data. Of that amount, less than a third would be covered by the new ordinance because it excludes several big-budget agencies, including the port, the airports and the city's utility.

The council also voted Friday to instruct city staff to look into drafting a charter amendment that would limit the new ordinance's benefits solely to businesses in the city of Los Angeles. The city attorney's office has advised the council that the charter currently precludes preferential treatment only for businesses in the city.

"What it comes down to," said Councilman Dennis Zine, "is you've got to take care of your family before you take care of your neighbors." Zine noted that the city bought 3,500 lunches for police and firefighters at Michael Jackson's memorial from Jensen's Finest Foods in San Bernardino County. City Controller Wendy Greuel criticized that decision, concluding it would have been cheaper to buy them locally.

Limiting the contracting preference to city firms is supported by the mayor and many council members. But Councilman Tom LaBonge cautioned against it, noting that helping businesses in nearby cities, such as Pasadena and Glendale, could have desirable effects in Los Angeles. "If we go too parochial, we miss opportunities to be the regional leader that we are," he said.

The ordinance will cost the city money when it chooses local companies that have not submitted the lowest bid. But Charles Swenson, a business professor at USC, studied the proposal and predicted the city would make up any added costs through new jobs and tax revenues.

Under the law, businesses will get an advantage for being located in the county. In competition for city contracts, the amount submitted by a local company would be reduced by 8% when bids are ranked, although the company would still be paid the full amount proposed. For example, a local company's bid of $1 million would be ranked as though it were $920,000.

The ordinance is based on one in Philadelphia, but other cities, including San Jose and Pasadena, have adopted similar preferential programs.

Although the L.A. ordinance does not apply to some major departments, such as Water and Power, it encourages those agencies to adopt it. The mayor's office said he intends to press all city departments to join the effort. Noting the mayor's support and the 12-0 vote by the council, Krekorian said: "I would say they should consider themselves encouraged."

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