By Shirley Aldana
For the Latino Policy Connection
To support our Feature Article, “The Rebirth of Redevelopment?” I recently interviewed Professor of Political Science, Morris Levy, at the University of Southern California who provided me with five measures Southern California local Latino elected officials, particularly city council members and mayor, could consider to gauge the business-friendly environments of their communities.
He shared a list of five areas he says cities should review or consider in their efforts to measure their business climate policies. They include:
- Business Tax
- Regulartory Policies
- Licensing and New Business Registration
Does your city offer temporary tax breaks? According to Professor Levy “some municipalities are willing to make allowances and offer businesses a lower tax break or sometimes even give multiple year breaks on taxes altogether. Why? Because by attracting a robust employer base, by offering tax credit/breaks, it will be worth the lost tax-revenue in the short run.”
One conclusion is that cities try to attract companies with low or no-tax privileges, which in turn draw workers who pay income tax on their earnings, and contribute to the economy. A caveat he said “is to also look at tax rates on the individuals who are likely to be working at high-income jobs is important too.” Why? Highly paid athletes sometimes make determinations of where they will go based on how much of their earnings they actually get to keep as in an example.
More resources on the impact of taxes on local economies here.
In 2011, when I worked for the Los Angeles New Car Dealers Association (GLANCDA), Los Angeles City Mayor, Antonio Villaraigosa, called to end business taxes to attract franchised new car dealers, stating new car dealers left the Figueroa Corridor to surrounding cites that offered lower business tax incentives. GLANCDA worked with then-LA City Council members Garcetti, Perry and Englander on this effort, and in 2012 the business-tax exemption was offered to the car dealers. In 2014, newly elected LA City Mayor Eric Garcetti proposed an expansion of that exemption and phasing out business tax all together for Los Angeles City.
Professor Levy encourages city policymakers and managers to evaluate both the rules on the books and the enforcement of certain regulatory policies. Sometimes Professor Levy says those policies may add undo burdens to doing everyday business. Regulations such as pollution control and employee safety provide important benefits to those communities, but a local economy yoked with unnecessary regulations stifles growth, he says. A review and removal of these regulations could ease the burden of doing business according to Professor Levy.
More about the impact of regulatory policies on local economies.
Licensing and Registration of New Businesses
How long and what exactly does it take to get a business license? Professor Levy has found that the length of time it takes for an individual or corporation to register or get a business license could be a key indicator if they will come to a specific city or region. He also notes that a “business healthy municipality will likely be one that has attracted an immigrant base as entrepreneurs and workforce and consumers.” With several cities in this region boasting significant immigrant communities, it’s worth asking local policymakers if their local economies provide opportunities for immigrant entrepreneurs to establish and grow their businesses.
Agglomeration is the phenomenon of economic activity congregating in or close to a single location, rather than being spread out uniformly over space.
While a city’s policies are a major component to measure business friendly environments, it is not always the only influence. Other factors like agglomerations could be at play, says Professor Levy. Silicon Valley is a great example. High tech companies were drawn to those places where similar companies had already established a workforce and a vibrant tech “community” was in full swing. When this happens there is a synergy that fuels information sharing as well as a competitive environment that stimulate further innovation. In addition, companies seek environments where they can draw from and recruit a similarly skilled workforce.
Here’s an article about how public transit can stimulate local economies.
Finally, Professor Levy says another critical area to assess is business “friendliness,” which is often difficult to gauge using other indicators like taxes, regulatory policy, licensing delays or agglomeration. Cities should consider conducting surveys, not only of businesses from their region, but also of businesses considering coming to the region. Why? “Because figuring out both the level of satisfaction of those in the region, but also taking the considerations of those businesses you would like to attract could shed light on those objective indicators like taxes and regulatory policy that may be need to be revised.”
Link to a great article about what makes a city business friendly.
Shirley Aldana has over ten years of business and non profit management experience. She is a senior at the University of Southern California where she is finishing her degree in Urban Applied Anthropology with a focus in Race, Ethnicity and Politics. She is currently the Membership Coordinator for the Southern California Latino Policy Center.