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The City of Angels Heads Left
Los Angeles’s struggling businesses face crushing new taxes and regulations.
Summer 2003

Businesses in Los Angeles, which lost about 34,000 private-sector jobs last year, are struggling so badly that they’ve actually commissioned a poll to see how widespread the economic suffering is among city firms—and what’s causing it. Nearly a third of L.A.’s companies say that heavy government regulation has become the Number One obstacle to economic growth in the area, while another quarter say steep taxes are the main thing holding back the economy, according to the preliminary results of a survey by the Los Angeles Development Corporation. The grumbling is especially loud from the area’s shrinking manufacturing and wholesaling companies. More than 40 percent cited heavy regulations and another 35 percent excessive taxes as the biggest barriers for businesses trying to grow.

The companies have lots to gripe about. Part of their problem is the fault of California’s notoriously inhospitable economic environment, of course. A recent Tax Foundation study found that California has some of the highest state business taxes in the nation, and workers compensation costs are soaring, up as much as 70 percent in a single year for some firms. The state is hemorrhaging private-sector jobs—losing 375,000 since March 2001, when the economy turned south. Yet despite this already hostile business clime, state legislators, faced with a gaping $35 billion budget deficit, are considering yet more taxes. L.A.’s business leaders hoped that the poll would dissuade state leaders from adding to firms’ heavy tax burden and encourage them to pursue cost-saving reforms instead.

California’s tax-friendly state legislators are bad enough. But L.A. firms are facing a new threat, right on their own doorstep. Over the last two years, L.A.’s local government has taken a sharp turn left, with liberal James Hahn’s victory in the 2001 mayoral race and, more recently, the election of several ultra-liberals, including Hahn’s chief opponent in the mayoral race, Antonio Villaraigosa, to the L.A. City Council.

Instead of fighting for L.A.’s reeling private sector, local pols are making things much worse by cooking up a whole menu of new anti-business regulations. One proposal the City Council is considering, for example, forces builders to set aside up to 20 percent of any new private-sector housing construction for low- to moderate-income people. Also on the table is a law that sharply restricts the development within the city of big retailers like Wal-Mart. And progressives in the city are pushing for a law that would require any business planning a commercial development to file an onerous “community-impact report” with the city; city planners would then use the report to impose various intrusive regulations on the firm before letting it build.

No wonder that L.A. businesses are getting so tetchy. Battered by state and city, they’re asking, “Can’t we all just get along?”

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