L.A. Has Software to Analyze Your Tax-Overhaul Idea, but Clock Is Ticking

Los Angeles city officials--equipped for a limited time only with a gigantic computer program capable of running complex tax analyses--are calling for ideas on how the city’s taxes should be revamped.

The city is considering overhauling its tax system and is looking for ideas that would make taxes more equitable. The computer has already analyzed proposals to create a payroll tax, exempt start-ups from taxes, and tax higher-profit industries at a higher rate.

But small businesses were conspicuously absent last week at the first public hearing when the computer model was explained and ideas sought from the public.

“We sent a mailing to every Chamber of Commerce in the city, big and little, and hoped they would get the word out,” said Debbie La Franchi, Mayor Richard Riordan’s assistant deputy mayor for economic development. “We had really hoped for better attendance.”

The clock is ticking on the city’s $330,000, high-tech experiment, which has been conducted with help from computer experts, economists, city officials and various databases for the last two years.

Adding to the sense of urgency: The 1995 to 1996 data has a short shelf life, the computer contract expires in June, and only 25 “scenarios,” or large-scale tax ideas, can be run through the computers.

So far, about eight scenarios have been tested, so city officials--who have set a March 16 deadline for ideas--are casting about for 17 more. They are seeking ideas from small business in particular.

“What we don’t want to see is City Council members putting in motions that we have to do this or that scenario,” La Franchi said, “or come May . . . have three scenarios left, but lots of [late] ideas from the business community.”

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The computer enterprise is part of the Tax Equity Study, a first-ever attempt to combine technology and local government to completely revamp the city’s tax system. Mayor Riordan, Councilman Richard Alatorre and the heads of various city departments, plus a half-dozen tax and legislative consultants are members of the Tax Equity Committee and are working with the computer model.

By itself, the city, which has stumbled along with a database compiled in the 1970s, could not have performed the sophisticated overview analysis. Indeed, the city’s computers are not even large enough to contain the data or computer model that has been built.

Instead, computers at the Milken Institute in Santa Monica house the city model, which draws upon data from Dun & Bradstreet, the city’s Department of Water and Power, the state’s tax board and the Employment Development Department, among other sources.

The idea is that the computer can predict the effect of potential changes to the city’s tax regulations on jobs and city revenues, based on inputted scenarios.

So far the scenarios include a proposal for a payroll tax of $8.90 per $1,000 in payroll costs, with a $100 minimum tax. The computer calculated an increase of up to $10 million to city coffers and the loss of about 1,000 private-sector jobs.

By contrast, another proposal for a graduated gross receipts tax with higher rates for higher-profit industries, coupled with a two-year exemption for start-up businesses, would cost the city $17.4 million in lost revenues and spur the creation of about 1,000 private-sector jobs, according to the computer model.

A third scenario, where companies would pay $2.75 per $1,000 in receipts, the computer predicted would gain the city $15.7 million and cost the private sector 1,000 jobs.

A mini-computer model was also created that the city can load onto its computers in order to run limited scenarios. The committee used the mini-model to study a minimum-tax proposal that all businesses earning less than $5,000 annually be exempted from paying any tax, and businesses earning between $5,000 and $18,000 pay only a $30 tax.

The computer calculated losses of $2 million in city revenue, but with City Controller Rick Tuttle and Councilwomen Jackie Goldberg and Laura Chick all supporting some sort of minimum-tax idea, momentum is gaining. Such a measure would provide relief to many small and home-based businesses.

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But those working with the committee emphasize that the scenarios are simply ideas to be run through the computer. The hard work of actually proposing tax reform will require not only council approval but a public vote, perhaps on the June 1999 city ballot. State Proposition 218 specifies that tax increases must be approved by voters.

The advantage of a minimum-tax proposal is that because it would lower taxes, no public vote would be necessary.

But there could be innovative ideas out there that the Tax Equity Committee and the tax consultants have not thought about that could provide relief to small businesses, start-ups or growing companies.

The next opportunity to propose ideas for study will be at 10 a.m. Monday in the CAO Conference Room, 1500 City Hall East, 200 N. Main St. Or contact the City Clerk at (213) 485-5708 or (213) 485-4465.

Times staff writer Vicki Torres can be reached at at (213) 237-6553 or at vicki.torres@latimes.com