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L.A. sales tax hike could cause a dip in business, report says

November 9, 2012 |  3:19 pm

City Council President Herb Wesson has proposed a half-cent sales tax increase in the city of Los Angeles. An analysis found that such an increase might result in a dip in sales within the city.A half-cent sales tax proposed by Los Angeles City Council President Herb Wesson could have a modest but negative effect on sales activity, with the biggest impact felt by sellers of building supplies, according to an analysis released Friday.

Beacon Economics, a consulting firm advising L.A. leaders, projected a decrease in sales of up to 1.3% if voters approve the tax March 5, with no effect at all for restaurants, supermarkets and service stations. However, the sale of building materials -- among the most expensive purchases -- could decline as much as 3.9%, the report said.

Jordan Levine, an economist with Beacon, said that for the city, the benefits from the increased taxes would outweigh any harm to L.A.’s economy. But his firm also suggested that a tax hike could create a “border city problem,” with consumers turning to adjacent communities with major shopping destinations and lower tax rates. Those cities include Pasadena, Glendale and Burbank, all of which border L.A.

Los Angeles “must consider the possibility that if consumer spending is quite high in neighboring municipalities ... consumers near those neighboring municipalities may choose to go outside of the city to spend,” the report said.

The firm's findings did not deter the council’s Rules, Elections and Intergovernmental Relations Committee, which voted unanimously Friday to endorse the tax. But they troubled Stuart Waldman, president of the Valley Industry and Commerce Assn., who worried that construction companies could look outside of Los Angeles for their supplies.

“If somebody’s spending $10,000 to fix up a house, or several hundred thousand dollars to build a house, all that sales tax adds up,” he said. “And if it’s easy for them to make a five-mile round-trip drive” to a city next to Los Angeles, “then they will.”

So far, business groups have not taken a position on the sales tax measure, which comes up for a vote Tuesday. A sales tax that generates $215.5 million a year could bring a decline from lost business activity of up to $7 million, leaving the city with $208.5 million, the report said.

Wesson last week called that loss minor, saying it pales in comparison with the good it would do for the city budget. A $216-million shortfall has been projected for next year, and Police Chief Charlie Beck has warned that without a sales tax increase, the city might have to eliminate 500 police officers.


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-- David Zahniser at Los Angeles City Hall


Photo: City Council President Herb Wesson has proposed a half-cent sales tax increase in the city of Los Angeles. Credit: Genaro Molina / Los Angeles Times