Apparel Industry Mulls Hollywood/ Valley Secession

The issue of whether or not to break apart the San Fernando Valley and Hollywood from Los Angeles has yet to fully engulf the attention of the apparel industry, but the political tug-of-war to come may pose substantial tax implications as well as business issues for retailers and manufacturers alike.

While many retailers and manufacturers are taking a wait-and-see approach on secession, the issue is expected to become a hot potato in the business community as secessionist and anti-secessionist campaigns begin to heat up for the Nov. 5 general election. For retailers and manufacturers, the main concerns are taxes, crime and stronger control of services.

Regarding taxes, Los Angeles imposes higher taxes on business than any other city in Southern California. In comparison, incorporated Valley cities including Burbank and Calabasas have some of the lowest taxes.

At stake for the city of Los Angeles if it were to lose the Valley is 40 percent of its population as well as half of its manufacturing base. The Valley population also has a substantially higher median income level and, together with that of Hollywood, earns lots of power from the entertainment industry. The secession of Hollywood would create a city of 160,000 and a $180 million budget.

And while most of the area apparel manufacturers are based in Los Angeles proper, Hollywood and the Valley are retail powerhouses that reap millions of dollars in tax revenues for Los Angeles, thanks to Hollywood and Ventura boulevards and the dozens of Valley shopping malls.

While the politicos at City Hall obviously oppose secession, Los Angeles residents are mixed on the issue. Recent polls show that non-Hollywood/Valley residents as well as Hollywood residents are against secession while Valley residents are for it. Local apparel resources reflect those figures to a degree.

“It makes sense [to secede] because Los Angeles is such a big city,” said Mark Holler, president of San Fernando-based Aussie Manufacturing, which makes custom sportswear. “It would probably be better to have more officials taking care of fewer people.”

Valley retailers such as Randy King, who owns King’s Western Wear on Ventura Boulevard in Studio City, have not had many complaints against the services provided by the city of Los Angeles.

“That may be because we have a very active homeowners’ association that gets on the city the minute there’s a problem, whether it’s a signage issue or an undesirable business proposed or whatever. However, we relocated from Van Nuys, where a number of businesses did have issues with changes for the worse, so I can see how this issue is important,” he said.

Added Hollywood retailer Michelle Hansel, a buyer for Seventeen, a juniors-driven boutique at the Hollywood & Highland shopping center, “More revenue could be allocated to the revival of the area if Hollywood becomes its own city and that could help the process of getting more traffic to the area.”

Gene La Pietra, Hollywood nightclub owner and leader of the secession movement, said he believes that businesses in Hollywood are having a hard time succeeding now, alluding to the difficulties at Hollywood & Highland, which has witnessed the departure of a few tenants.

“Look at the alternative we have to now—the Chamber [of Commerce] reports that 20 million visitors come to Hollywood yearly and spend an average of 12 minutes and an average of $1,” he said. “You really can’t do any worse than that.”

Taxing Issues

Recently, several unions publicly opposed secession while Valley chambers of commerce from Chatsworth/Porter Ranch, Encino, Northridge and Canoga Park/West Hills took a stance in support of Valley secession. The Hollywood Chamber of Commerce hasn’t taken an official stand yet, but Leron Gubler, the chamber’s executive director, noted the significant progress the area has made in the past 10 years, which counters the secessionist perspective.

“The one big argument that secessionists tout is that things are really bad, but those who live here think things have improved substantially,” Gubler said.

Gubler added that there’s a concern that secession could impede ongoing revitalization efforts in Hollywood because of the likely time gap that would exist from the time of secession until the new city organizes. Should the cost of doing business escalate in Hollywood, the movement’s chances of success would diminish, he said.

“If taxes increase, you can kiss this proposal goodbye,” Gubler said.

But La Pietra said Hollywood businesses are already paying above and beyond their city taxes for the promise of added services such as street maintenance and security.

“Businesses have already burdened themselves by taxing themselves twice as members of the local [business improvement districts],” he said. “They’re willing to tax themselves for services that the city promises and can’t deliver.”

On the Valley perspective, Allen Glazer, president of the Chatsworth/Porter Ranch Chamber of Commerce, said: “We’re feeling we’re not getting what we pay for taxwise. Our councilman is Hal Bernson and he has to represent 250,000 people. If we were to secede, it would be more like 94,000 to 97,000.”

Glazer said most business are concerned about Los Angeles’ business license tax structure, which charges a gross receipts tax based on cumulative revenues regardless of whether a company is profitable or not. The city has attempted to reform the tax but nothing has come to fruition, and some garment companies have been trying to skirt the tax but have been paying the consequences. Last fall, Angela Chen of Carnation Creations, a Los Angeles Fashion District wholesaler, was found guilty by the federal government of failing to report her company’s gross tax receipts on her tax return.

Valley cities such as Burbank use a per-employee base tax, which is substantially lower than Los Angeles’ system. A study by Los Angeles research firm Kosmont Cos. showed that the difference could be as much as $6 per square foot a year. The Valley has a significant apparel manufacturing and business base with firms including Cherokee Inc. and Olga Inc., along with dozens of smaller outfits that are paying Los Angeles taxes.

Gauging the Current Climate

The Los Angeles County Economic Development Corp.’s (LAEDC) chief economist, Jack Kyser, said the LAEDC is not taking a public stand on the issue, but he advised that secessionists should be concerned about the current business climate before they undertake the task of starting a new government.

“You’re not talking about establishing a new city with lots of vacant land. These areas are older and have their own problems to deal with, and I haven’t heard about anyone coming out with a business plan. Plus, you have to consider that they’re talking about the state budget deficit sticking around for a few years as well,” said Kyser.

Research by consultant Kosmont Cos. showed that the Valley would start out $31 million in debt due to the cost of splitting from Los Angeles, though no changes will be incurred during a nine-month transition. Other sources figure a Hollywood split would cost the entertainment capital $21.4 million. So any realization in lower business taxes may not come right away, according to anti-secessionists. And it could actually result in higher sales and land-use taxes, said local developer Tom Gilmore.

“One absolute that’s a minus is that anyone in business who is planning on anything for the next five years really can’t,” Gilmore said. “What the hell will happen with the political and tax structures and what kind of infrastructure will there be? They’ll be creating new Hollywood building departments and new zoning departments from scratch in an area that’s on the upswing. In terms of momentum, it couldn’t be worse.”

Officials at Hollywood & Highland, a city development project that would still pay sales tax and parking revenues to Los Angeles if Hollywood secedes, say they’re still studying the issue.

“We have a great appreciation for the city as a result of our direct partnership,” said Russ Joyner, the mall’s general manager. “Should we need to deal with change, then we need to prepare ourselves for it.”

West Hollywood Model

Those in favor of Hollywood secession point to the success of their neighboring city West Hollywood, which incorporated in 1984 and recently implemented a new streetscape along Santa Monica Boulevard boasting restaurants, bars and retail outlets.

“We think property values can go up like in West Hollywood,” said Jeff Luster, president of brokerage firm Major Properties, which represents clients along Hollywood Boulevard. “As a smaller city, we can focus more closely on cleaning up crime and creating a beautiful environment that draws in more business.”