btac final report on phasing out gross receipts tax 09.14.11

8/4/2019 BTAC Final Report on Phasing Out Gross Receipts Tax 09.14.11

1/35

Report of Business Tax Advisory Committee

Recommending How to Eliminate

September 14, 2011


2/35

Executive Summary

LAs Gross Recei ts Business Tax with Rates Ran in U to 0.507% is

Unconscionably High9.5 Times Higher Than Average for Rest of LA

County

s o s ave ontracte e opu a on as xpan e ver as

Decades

Citys Untenably High Unemployment Rate of 14.6% is 60% Higher Than

Nations Already Lofty 9.1% Level

City of LAwith All of Its Structural AdvantagesShould be Leading LA,

LAs Reputation for Being Business Unfriendlyand Thus Worker & Quality of

Life UnfriendlyEmanates from Most Visible Embodiment: Onerous &

Widely Criticized Gross Receipts Tax

Business Tax Advisory Committee, Task Force Appointed by Mayor & City

2

,

Receipts Tax Over Next 4 Years


3/35

Executive Summary (Cont.)

Econometric Anal sis Commissioned b Cit Indicates Im act from Elimination

of Business Tax Could Range from Revenue Neutrality (Worst Case) to $263-

Million Revenue Windfall (Best Case) for LA

,

Revenues Stemming from Increased Economic Activity Would Offset Impact asBusinesses Coming to, Expanding Within or Staying in LA Drive Strong

Analysis Estimates 131,000 New Jobs Would be Created, Returning LA

Residents to Near Full Employment Worst Case Ana ys s Est mates 423 M on o In rect Revenue Ga ns,

Effectively Neutral with Loss of Gross Receipts Tax, But LA Would be Better

Positioned for Economic & Employment Growth in Future Thanks to Newly

cqu re epu a on or e ng us ness r en y Average Case Shows $604 Million in Incremental Indirect Revenues, a Net

Positive Contribution to Citys Coffers of $179 Million

3

Best Case Indicates $688 Million, a Net Gain of $263 Million for LA


4/35

Executive Summary (Cont.) Indirect Revenue Gains Consist of

Increased Sales from ew Employer & Employee Purchasing Power

Property Tax Gains from Heightened Demand for Commercial & Residential

Real Estate

nsecure roper y ax ncreases

More Employers & Employees Driving Greater Utility Tax Streams Increased Economic Activity Driving Higher Permits, Licenses & Fees

4-year Phase Out Would be Designed to Prevent City from Being in a Deficit

Position as Direct Result of Reduction & Elimination of Business Tax

No Strings Attached Elimination of Gross Receipts Tax Necessary

Businesses Abhor Uncertainty and Wont Commit Money to Investing in LA

Operations if Theres Even a Possibility Business Tax Phase-Out Can be

Interrupted or Reversed New Business Tax Exemption Implemented in 2010 Should be Extended Until

Gross Receipts Tax Has Been Completely Phased Out

4

Removes Any Barriers to Immediate & Unfettered Business Attraction and

Job Growth While Business Tax Phase-Out is in Process


5/35

Where We Are Today

Tax Structure

Business Tax isNotCompetitive with Neighboring Cities

Businesses Believe Rates are Too High, with Ample Justification Classifications are Confusing & Lack Logical Connections

Many Businesses Have Left, are Leaving or are Threatening to

Leave Los Angeles Other Businesses Decline to Locate or Expand in Los Angeles

Increasingly Difficult to Attract New Businesses

e o oss esp e arp ncrease n opu a on High, Double-Digit Unemployment

5

. ,

Than the Nation


6/35

Los Angeles: Population Growth,

City of Los Angeles Population & Employment Trend Compared to Rest of LA County

Los An eles Cit Rest of LA Count

Population Employment Population Employment

1980 2,969,181 1,815,494 4,503,580 2,123,5082010 3,792,621 1,650,417 6,025,984 2,472,846

Change 823,440 (165,077) 1,522,404 349,338

Between 1980 and 2010, the Population of the City of Los

Percent Changes

1980-2010 27.7% -9.1% 33.8% 16.5%

Angeles has Grownby 27.7% while the Number of Jobs Created

in the City hasDeclinedby 9.1%

,(Excluding LA City) has Grown by a Similar 33.8% while the

Number of Jobs Created has Increasedby 16.5%, Fully 25.6%

6

and 514,000 JobsHigherthan LASource: Southern California Association of Governments (SCAG) RTP Database


7/35

Impressive City, Depressing Job Performance

, a on s arges y w ompe ng ompara veAdvantages, Should be a Business & JobsMagnet

Two World Renowned Research Universities USC & UCLA

Highly Skilled Workforce World Leading Industry Sectors Ranging from Entertainment &

Fashion to International Trade & Manufacturing

Some of the Worlds Most Valuable Fixed Assetso

o Worlds Busiest Origin & Destination Airport (LAX)

So Why Has LA Not Only Failed to Produce a SingleNet New

Private Sector Job in Three Decades, But ActuallyLost165,000 Net

7

Jobs?


8/35

LAs Gross Receipts Tax is a Job Killer

The Difference? LA City Has the Highest Business Tax by a

Factor of9.5 Times* the Average for the Other 87 Cities in theounty

o Citys Highly Visible Position on Top of Business Tax Totem

Pole Severel Hinders Business Attraction Ex ansion &

Retention and Thus Job Creation

o 2010 Survey byLos Angeles County Business Federation

Their City as Business Friendly vs. Only 26% in City of LA

As Weak Economy Drives Heightened Competition for Business &

Employment, LAs Gross Receipts Tax Looms Larger asDisincentive to Economic Activity & Job Creation

8

Including Business Tax (CB Richard Ellis, Travers Realty)*Source: 2010 Kosmont-Rose Institute

Cost of Doing Business Survey


9/35

Key Findings From 2007 Tax Foundation

Stud on Gross Recei ts Tax Structure Economic Neutrality: Gross Receipts Tax Interferes with

Private Market Decisions

Competiveness: Gross Receipts Tax Interferes with Capacity ofBusinesses to Compete with Companies in Other Jurisdictions

a rness: ross ece p s ax oes no rea qua y ua eBusinesses the Same. Businesses with Similar Net Incomes

Could Have Radically Different Tax Rates when Based on

Transparency: Gross Receipts Tax is a Stealth Tax with its TrueBurden Hidden from Taxpayers

Rate: Unlike most Taxes, the Effective Rate of a Gross ReceiptsTax is Higher than Statutory (or Advertised) Rate

9

Source: Gross Receipts Taxes in State Government Finances: A Review of Their History and Performance. Publication of Tax Foundation, John L

Mikesell, Jan. 2007. Web. 11 Mar. 2010. .


10/35

Penal Aspect of Professions & Occupations Catch-All

Out of Touch with Current Economic Realit Gross Receipts Tax 1st Adopted in 1936, when L.A. Economy was

Manufacturing Driven

Rates were Designed to Attract & Retain Manufacturing JobsTotal Nonfarm Employment*

Transportation &Utilities, 4.0%

Construction, 2.8%

Mining, 0.1%

1949 2010

Construction, 7.7%

Mining, 1.0%

Manufacturing, 9.9%Manufacturing,

30.3%

Utilities, 8.0%

Services, 52.3%

Trade (wholesale &retail), 15.6%

Services, 14.7%

, .

10

Government, 15.3%Trade (whoesale &

retail), 25.6%

*Los Angeles County


11/35

Penal Aspect of Professions & Occupations Catch-All

Out of Touch with Current Economic Realit Stark Reality of 2011 is L.A. Economy is Service-Based

Services Businesses were 52.3% of Total Last Year, Up from Just

14.7% a Half-Century Ago

Manufacturing Down to anAnemic 9.9% of Total from 30.3%

, . . rown

860% while Manufacturing has Shrunkby 11%

A Gross Receipts Tax Structure that Gouges the Regions PrimarySource of Employment is Counterproductive & Self-Defeating

No Surprise, 42% of Taxpayers Lumped Into Highest Catch-All

City Tax Should at Worstbe Neutral and at Bestbe Source of

Encouragement for Business Location & Job CreationL.A.s Onerous

11

Gross Rece pts Bus ness Tax s an O stac e, a Deterrent & an

Anachronism


12/35

Current Rates in 15 Highest Cities in Los Angeles

Count Professions & Occu ations Catch-AllLos Angeles 0.507%

Santa Monica 0.503%

Culver City 0.301%Inglewood 0.165%

El Monte 0.147%

San Fernando 0.132%

Claremont 0.111%

Compton 0.107%Gardena 0.101%

Hawthorne 0.100%

Lomita 0.073%

a m a e .Bell 0.044%

Huntington Park 0.040%

12

.

Source: 2010 Kosmont-Rose Institute



13/35

Current Rates in 15 Largest U.S. Cities

Professions & Occu ations Catch-AllGross Receipts Employee Tax

City Rate Per 100 Employees

New York 0.000 *

Los Angeles 0.507

Chicago 0.000 $4,320

Houston 0.000

a e p a .

Phoenix 0.000

San Antonio 0.000

San Diego 0.000 $560

Dallas 0.000

San Jose 0.000 $1,806

Jacksonville 0.000 $526

.

San Francisco 0.000 $105,500

Austin 0.000

Columbus 0.200

13

* Tax Imposed on Income




14/35

Current Rates in 15 Other Major Metros in U.S.

Professions & Occu ations Catch-AllGross Receipts Employee Tax

City Rate Per 100 Employees

os nge es .

Baltimore 0.000Boston 0.000

.

Cleveland 0.000

Denver 0.000 $4,800

Detroit 0.000

Las Vegas 0.000 $7,500

Miami 0.055

Minneapolis 0.000

.

Oakland 0.252

Seattle 0.216

St. Louis 0.000 $7,500

14

Washington DC 0.000




15/35

Gross Receipts Tax A Highly VisibleLightning Rod

Of 87 Competing Jurisdictions in L.A. County, Only 28 Employ a

Gross Receipts Tax &None as High as City of L.A.

Alternative, Fairer Methods of Imposing Business Tax

No Tax

Fixed Amount per Employee

Fixed Amount per Square Foot Owned / Leased Because ofProposition 218, No Quick Fix for Gross Receipts Tax

Prop. 218 Requires Voter Approval to Increase Any Part of

Eliminating Gross Receipts Tax & Replacing with per Employeeor per Square Foot Tax Could Reduce Business Taxes for 99% of

15

ompan es, u ou op epea n s rac s an s oProp. 218


16/35

City Policy Makers Take Action

at Behest of Mayor & City Council

9 Appointees to Committee

Kathy Faulk (Hahn) Michael Gagan (Perry)

Sal Gomez (Villaraigosa)

Lloyd Greif (Garcetti)

Craig Morris (Garcetti)

Melissa Patack (Villaraigosa)

Mel Wilson (Wesson) BTACs Mission

To Re orm the Los An eles Cit Business Tax to Create a Fair

16

Transparent, Competitive and Business-Friendly Environment


17/35

Successful investment banking career spanning three decades

BTAC Members

Foun e Los Ange es ase m e-mar et nvestment an Grei & Co. n 1992

Prior - Vice Chairman ofSutro & Co. and Managing Director of Investment Banking Division

Management Consultant with Touche Ross & Co. (Deloitte Consulting LLP)

Endowment ofLloyd Greif Center for Entrepreneurial Studies at USCin 1997

, os nge es o ce oun a on, , a orn a am er o ommerce

Chairman,LAEDC

BA - UCLA (Economics), MBA - USC(Entrepreneurship) and JD -Loyola Law SchoolChairman Lloyd Greif

President & CEO, Greif & Co.

State and Local Tax Partner with 27 years experience in KPMG LLCs Los Angeles office where he

Prior - lead tax partner for many ofKPMGs audit and tax clients

Co-authored Practical Guide To California Taxes: The Impact Of Economic Crisis a book on

recent developments in California taxation published in May 2010 Member,American Institute o Certi ied Public Accountants and Cali ornia Societ o CPAs

BS from Pepperdine University Accounting and MS in Taxation from Golden Gate UniversityVice-Chair Craig MorrisPartner,KPMG LLP

President and CEO ofLos Angeles LDC, Inc., a U.S. Department of Treasury certified Community

Development Financial Institution

Responsible for infusing $250 million of capital into low income and distressed communities while

stimulating new business and employment opportunities

Prior Vice President at Security Pacific National Bank

Past Chairman, Urban Land Institute District Council Executive Committee

17

, ,

LA Initiative

BA Loyola Marymount University (Bus. Admin.), USC Ross Minority Program in Real Estate

Michael Banner

President & CEO

Los Angeles LDC, Inc.


18/35

BTAC Members General Manager ofOmni Hotel Los Angeles at California Plaza

25-year industry veteran having worked with such companies asDestination Hotels & Resorts,

Rosewood Hotels,Hilton Hotel Corporation, Disney Hotels, The Mansion on Turtle Creekand

Richardson Hotels

Prior - General Manager positions at bothHilton Checkers andMillennium Biltmore

, ., ,

Executive Board for the Downtown Central Business Improvement District

BS Texas A&M Commerce (Business Administration)Kathy FaulkGeneral Manager, Omni Hotel

Partner with Kindel Gagan, a Los Angeles-based public affairs consulting firm

e eran o years o eg s a ve an a m n s ra ve serv ce w a e o a orn a

Specialties include water, agriculture, environment, public finance and transportation

Prior principal withRose & Kindel from 1988 through 2009, Chief Deputy Secretary of State

under March Fong Eu and Chief Deputy State Treasurer under Jess Unruh

Senior Manager and Project Manager forErnst & Youngs West region SALT incentives practice

ro essor, o cs o eve opmen a s ra uate c oo o ea state eve opment

Member, City of Los Angeles Commission on Revenue Efficiency

BA, Political Science and MS, Public Administration UC Davis

Michael Gagan

Partner,Kindel Gagan

During nine-year tenure, has provided SALT negotiated and statutory incentives services to manyofErnst & Youngs largest manufacturing, consumer/retail and healthcare clients

Prior - Senior Regional Manager with theLos Angeles County Economic Development

Corporation where worked alongside State, counties, and cities to retain and attract major

18

BS UC Berkley (Business Administration)Sal Gomez

Senior Manager,Ernst & Young


19/35

Past Managing Partner ofKirsch, Kohn & Bridge LLP, Certified Public Accountants

BTAC Members

Member of theAmerican Institute of Certified Public Accountants and California Society of Certified

Public Accountants (CalCPA)

Past Member of the Board of Directors of the Los Angeles Chapter ofCalCPA

Current Co-Chair of the San Fernando Valley Attorney/CPA Discussion Group

Vice President, State Government Affairs forMPAA

oar em er, a ey n ustry ommerce ssoc at on an a ey conom c eve opment enter

BS from UCLA Business AdministrationMel KohnFormer Managing Partner

Kirsch, Kohn & Bridge LLP

Has represented major motion picture studios in state and local government relations since 1997

Prior worked in the United States Senate on the legal staff of the Senate Judiciary Committee and

as counsel to the Chairman of the Senate Ethics Committee

Began legal career in Chicago as an associate with law firms Friedman & Koven and Sachnoff &

Weaver, spec a z ng n a or an emp oyment aw

Serves on the Budget and Finance Committee ofTemple Beth Am in Los Angeles

BS Cornell University (Industrial and Labor Relations), JD Boston University School of Law

Melissa Patack

VP, State Government AffairsMotion Picture Association of

America, Inc.

,

Realtor of the Year Award & former member,LA City Fire Commission Director,Metropolitan Transportation Authority (MTA), Past Chairman, United Chambers of

Commerce of San Fernando Valley and Founding Board Member, Valley Economic Alliance

President of the Southland Regional Association of Realtors, Californias largest local real estate

19

tradegroup, and Member of the California State University Presidents Advisory Board

BS California State University Northridge (Business Administration)Mel Wilson

Altera Real Estate MelWilson & Associates


20/35

BTAC Goes to Work

,Meetings and Countless Subcommittee Meetings, Hearingsand Forums with

y

City Council Members

Community Members

Entrepreneurs Business Executives

City Staff/Proprietary Departments

Academicians and Economists Business Organizations

20


21/35

BTACs Initial Recommendations

,Recommendations That Have Been Implemented To

Attract New Business & Bring Employment to Los Angeles

-

Create Consistency, Fairness and Transparency in Administration ofthe Business Tax

o eve opmen op on o a axpayer s o g s

o Expansion of Board of Review to Consist of a Majority of Public

Memberso Establishment of Clearly Defined Statute of Limitations for Tax

Audits

o Made Prior Board of Review Decisions on Business

ass ca on e roac ve y rrevers e o ange nBusiness Facts or Circumstances

Increase Compliance with City Tax Code by Businesses

21

o Established 3-Year Voluntary Disclosure Program to IncentivizeBusinesses Currently Not on Citys Tax Rolls to Come Forward


22/35

BTACs Proposals with Economic Impacts

Anticipated to Have Economic Impacts on the City withObjective of RevenueNeutrality

Reduce or Eliminate the Gross Receipts Tax Ca the Gross Recei ts Tax for Pa ers

Implement a Lower Corporate Headquarters Tax

Incentivize Com anies to Locate Near PublicTransportation Centers by Imposing Lower Tax Rates

Incentivize Companies to Remain in LA

Temporarily Exempt New Businesses from Taxation

Provide Tax Credits to Businesses That Create New

22

Jobs


23/35

Economist Retained to Analyze BTACs Proposals

,

Finance (Finance)Issued an RFP to Retain Outside Expert to

Conduct Economic Analysis of BTACs 8 Proposals

Professor Charles Swenson of University of SouthernCalifornias Marshall School of Business Selected by City to

Professor and Leventhal Research Fellow at USCs Marshall School of Business since 1987

Prior Visiting Professor at UCLA and Caltech

Conducts economics-based research on state and local taxation location-based credits and incentives

and enterprise zones

Published over 50 academic research and professional articles in theJournal of Law and

Economics,Journal of Public Economics,National Tax Journal and The Accounting Review

Serves on the editorial board of theJournal of Accounting and Public Policy and theAsia Pacific

ourna o axa on, e ccoun ng ev ew

Author of two tax texts and is the General Editor of the treatiseBenders State Taxation:

Principles and Practice

Has presented economics-based tax research before the California Senate Revenue and Taxation

Committee and the California Assembly Committee on Jobs

Charles Swenson, PhD

Professor of AccountingUniversity of Southern California

Marshall School of Business

23

PhD, University of Southern California; MS,Arizona State University; BS, University of Arizona

Three-time recipient of the Tax Manuscript Awardfrom theAmerican Taxation Association


24/35

Economic Analysis Supports Gross Receipts Tax Repeal Expert Hired by City Delivered Final Report to Finance and BTAC on August 3, 2011

Of BTACs 8 Recommendations, Dr. Swenson Determined Proposal to Eliminate

Business TaxIn Its Entirety Would Have Greatest Impact on Boosting Economic

Activity & Creating New Jobs

Professors Extensive Economic Research, Analyzing Past Business Tax Breaks,

Concluded That, at Worst, Elimination of Business Tax Would be Revenue Neutral toLA &, at Best, Would Generate Approximately $263 Million of Additional Revenues

os ncome rom us ness ax ou e ore an a e p or y n rec

Revenues Generated from Increased Economic Activity and Job Creation

New, Retained and Expanding Businesses Would Beget Greater Employment,

o Sales Taxes from Employer & Employee Purchases

o Unsecured Property Tax Gains

o

roperty ax a ns rom ncrease eman or ommerc a es ent a eaEstate

o More Employers & Employees Fueling Utility Tax Gains

24

o Increased Economic Activity Driving Greater Income from Permits, Licenses &

Fees, as Well as Power Revenue Transfers


25/35

Benefits of Gross Receipts Tax Elimination

,or Staying in Los Angeles

Increased Cash Flow for Businesses to Expand in City

Leads to: Job Growth

Business & Economic Expansion

Increased Sales Tax Base

o Businesseso Employees

Increased Property Values & Taxes

Increased Base of Businesses with Attendant Multiplier Effects

Brings Tax Code into Alignment with Reality of 21st Century Service-st

25

. -

Ago


26/35

Benefits of Gross Receipts Tax Elimination (Cont.)

LAs Onerous Gross Recei ts Tax is Not Just Unfriendl to Business

Its Unfriendly to Workers, the City and the Quality of Life for All

Residents

,

Indirectly Create More Jobs Together, These Direct, Indirect & Induced Jobs Generate Local & State

Tax Revenue that Supports Social Programs Which Support LAs Quality

of Life

Hence LAs Vastl More Burdensome Business Tax is Not OnlBusiness Unfriendly, Its Worker, City & Quality of Life Unfriendly, Too

Reduction in Jobs, Budgetary Resources & Quality of Life Due to Highly

Cities Have Either Much Lower or No Business Taxes

More Businesses Locating in City Also Increases Local Philanthropy

26

Corporate Giving is Greatest Where Company is Headquartered


27/35

Greater Economic Activity =

Greater & More Diverse Cit Revenue Based on Extensive Economic Analysis, Research & Empirical Data, USCProfessor Swenson Concluded That Elimination of Gross Receipts Tax Would

ncen v ze ore us nesses o ome o, xpan n ema n n

Resultant Heightened Economic Activity Anticipated to Drive StrongEmployment Growth of Approximately 131,000 New Jobs

Loss of Business Tax Revenue Estimated to Be More Than Made Up For by

Gains in Such Other Indirect Revenues from Increased Economic Activity and

Employment as: Power Revenue

Property Taxes

Sales Taxes

Secured

Property Tax,46.0%

Licenses,

Permits, Fees,etc., 10.0%

, . All

Others,8.0%

t ty axes Permits, Licenses & Fees

Power Revenue Transfers

Sales Tax,

19.0%

27

Unsecured

Property Tax,7.0%

Utility

Tax, 7.0%

Source: Report to the City of Los

Angeles on Potential Revisions to the

Business Tax, Charles Swenson,

August 2011


28/35

City Income from Increased Economic ActivityBusiness Tax Revenue vs. Indirect Revenues From Increased Economic Activity & Employment

($ Millions)

$21$55

$700

$800

$604

$688

$425

$42$48$42

$48

$80

$115$131

$42

$60

$69

$13

$18

$34

$48

$300

$400

$500

$423

$195$278

$317

$30$30

$0

$100

$200

Business Taxes Worst Case Average Case Best Case

Business Taxes Secured Property Tax Unsecured Property Tax Utility Tax

Sales Tax Licenses, Permits, Fees, etc. Power Revenue Transfers All Others

,

Expected to Receive General Fund Revenue of Approximately

$423 Million in Worst Case and $688 Million in Best Case

28

r ven y esu an ncrease conom c c v y mp oymenSource: Report to the City of Los Angeles on Potential Revisions to the Business Tax, Charles Swenson, August 2011


29/35

Impact on General FundLos Angeles City Current & Pro Forma Revenue

$4.30 $0.42

$0.28$0.04

$0.04

$0.11$0.06

$0.02$0.05 $4.48

$4.30

$4.50

.

s

$3.88

$3.70

$3.90

$4.10

$i

nb

illio

$3.50

General Fund Reduction in

BusinessTaxes

Revised

General Fund

Secured

Property Ta x

Unsecured

Property Ta x

Utility Ta x Sa les Ta x Licenses,

Permits, Fees,etc.

Power

RevenueTransfers

All Others New General

Fund

Business Taxes Make Up $425 Million of the Citys $4.3-BillionGeneral Fund

Elimination of Business Tax Revenue is Ultimately Expected to Result in

Additional Revenue of Approximately $604 Million (Average Case)

Including Incremental Property, Sales & Utility Taxes for a Net Gain toLA of $177 Million

Expected to Result in Strengthened General Fund of Approximately

29

$4.5 Billion Once Indirect Revenue Gains Take EffectSource: Report to the City of Los Angeles on Potential Revisions to the Business Tax, Charles Swenson, August 2011


30/35

Proposal: 4-Year Phase Out

of Gross Recei ts TaxProvide Pro Rata Relief to Taxpayers Based on Amount of Taxes Paid

Year 1 Year 2 Year 3 Year 4

- a us uo ssum ng e uc on ssum ng e uc on ssum ng e uc on u e uc on

Class Gross Receipts Rate Taxes Paid Rate Taxes Paid Rate Taxes Paid Rate Taxes Paid Rate Taxes Paid

1 $8,899,706,484 0.101% $8,988,704 0.076% $6,741,528 0.051% $4,494,352 0.025% $2,247,176 0.000% $02 30,049,286,477 0.101% 30,349,779 0.076% 22,762,335 0.051% 15,174,890 0.025% 7,587,445 0.000% 0

3 18,397,048,279 0.127% 23,364,251 0.095% 17,523,188 0.064% 11,682,126 0.032% 5,841,063 0.000% 0

4 45,167,372,001 0.127% 57,362,562 0.095% 43,021,922 0.064% 28,681,281 0.032% 14,340,641 0.000% 0

5 3,139,538,412 0.127% 3,987,214 0.095% 2,990,410 0.064% 1,993,607 0.032% 996,803 0.000% 0

6 4,337,977,300 0.255% 11,061,842 0.191% 8,296,382 0.128% 5,530,921 0.064% 2,765,461 0.000% 0

7 651,956,846 0.315% 2,053,664 0.236% 1,540,248 0.158% 1,026,832 0.079% 513,416 0.000% 0

8 4,069,850,285 0.356% 14,488,667 0.267% 10,866,500 0.178% 7,244,334 0.089% 3,622,167 0.000% 0

9 48,634,380,065 0.507% 246,576,307 0.380% 184,932,230 0.254% 123,288,153 0.127% 61,644,077 0.000% 0Other 26,596,953 19,947,715 13,298,477 6,649,238 0

All Classes (1-9) & Other Taxpayers Receive Immediate Relief in

Direct Proportion to Amount of Taxes Paid in Fiscal Year 2009/2010

$424,829,944 $318,622,458 $212,414,972 $106,207,486 $0

Provides Greatest Relief to Taxpayers Paying the Most Taxes

CitysExorbitant 0.507% Occupations & Professions Catch-All Category

30

Dollar Amount of Tax Burden Declines by 25% Each Year

f h d li i i


31/35

Revenue Impact of Phased Elimination

Business Tax Revenue & Indirect Revenue Gains Four-Year Phase Out($ in millions)

$600

$700

$524

$564

$604

Indirect RevenueGains

Business Taxes $300

$400

$50040

145

250 355

$459$465 $463 $462 $461

$0

$100

$200425

319

212

106

Status Quo

Persistent Negative

Sign Law EliminatingBusiness Tax Over FourYears

Public Relations

Begin Phase Out ofBusiness Tax 1 YearAfter Signed Into Law

Continue to See Indirect

Continue to See Benefitsof Indirect RevenueGains

All Indirect Revenue

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Unfriendly

Continuation of Anti-Competitive Positioning,High Unemployment &Job Contraction

Business Tax Revenue of$425 Million Will

Being Open for

Business Immediately See IndirectRevenue Gains of $40Million for Sales Tax,Unsecured Property Tax& Utility Tax as

Prior Year Grow to $80

Million Begin to See NewIndirect Revenue Gainsof $65 Million as AllOther Indirect RevenueSources Begin to Kick In

Achieved 7 Years After

Law Signed Total Indirect RevenueGains of Approximately$604 Million (AverageCase) a 42% IncreaseOver Original Business

31

Ongoing Loss ofEmployers & Jobs

Favorably to Phase-Outof Business Tax in NearTerm

. .,Tax, Licenses, Permits,& Fees, Power RevenueTransfers, etc.)

I di R Ph I A i


32/35

Indirect Revenue Phase-In AssumptionsEstimated Time Table for Indirect Revenue Impacts

Category Phase-In Assumption % of Total

Business Taxes Assume ordinance is signed Day 1, Year 0 and takes effect Day 1, Year 1

Secured Property Tax Starting one year after law is signed and fully complete in five to seven years (7 years assumed) 46.0%

nsecure roper y ax ar ng mme a e y a er aw s s gne , an u y comp e e n ve years .

Utility Tax Starting immediately after law is signed, and fully complete in five years 7.0%

Sales Tax Starting immediately after law is signed, and fully complete in five years 19.0%

Licenses, Permits, Fees, etc. Starting first year of tax change and fully complete in five years 10.0%

Power Revenue Transfers Starting one year after law is signed and fully complete in five years 3.0%

All Others Starting first year of tax change and fully complete in five years 8.0%

$ in millions

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Secured Property Tax $0.0 $39.7 $79.4 $119.0 $158.7 $198.4 $238.1 $277.7

Unsecured Property Tax 8.5 16.9 25.4 33.8 42.3 42.3 42.3 42.3

Utility Tax 8.5 16.9 25.4 33.8 42.3 42.3 42.3 42.3

Sales Tax 22.9 45.9 68.8 91.8 114.7 114.7 114.7 114.7

Licenses, Permits, Fees, etc. 0.0 12.1 24.2 36.2 48.3 60.4 60.4 60.4

Power Revenue Transfers 0.0 3.6 7.2 10.9 14.5 18.1 18.1 18.1All Others 0.0 9.7 19.3 29.0 38.6 48.3 48.3 48.3

Indirect Revenue Gains $39.9 $144.7 $249.6 $354.5 $459.4 $524.4 $564.1 $603.8

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Source: Report to the City of Los Angeles on Potential Revisions to the Business Tax, Charles Swenson, August 2011 and BTAC Estimates


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Business Tax Elimination

Phase-In Dos & Donts Elimination of Business Tax Must be Across the Board for All Industries & SizeCompanies

Reputation & Reverse 30-Year History of Job Declines Vast Preponderance (88%) of Net New Job Creation Driven by Small

*Net New Job Creation by Firm Size (Employees)

1993 - 2006

500+, 12.0%

20 499, 16.0%

< 20, 72.0%

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*Source: U.S. Small Business Administration, U.S. Department of Labor & Census Bureau


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Business Tax Elimination

Phase-In Dos & Donts Cont. Businesses Require Certainty & Predictability and WillNotMake Investments toExpand or Relocate if Elimination of Business Tax Has Strings Attached

Time Table for Elimination Needs to be Fixed & Invariable

Tying Pace or Amount of Phase-Out to Indirect Revenue Triggers or

Milestones Will Doom Initiative to Failure

Businesses Will Not Make Decision & Financial Commitment to Come to or

Grow in LA if There IsAny Potential for Phase-Out Not to Occur

Trust Us Doesnt Work in Good Economic Times, Let Alone Bad

To Accelerate Attraction of New Businesses to Cit New Business Tax Exem tion

Currently in Place Should be Extended Until Business Tax Phase-Out is Completed

Ordinance No. 181271 Set to Expire December 31, 2012

Should be Extended Until Business Tax Has Been Com letel Phased Out

Step Designed to Move the NeedleImmediately Since Bridges Over Phase-InPeriod to Spur Critically Needed Job Growth

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Start in or Relocate to LA


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Business TaxIndirect

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btac final report on phasing out gross receipts tax 09.14.11

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