Fee Freeze Plan Gets Cold Shoulder From Vernon

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Fee Freeze Plan Gets Cold Shoulder From Vernon
CEO Eric Gustafson at Coast Packing’s facility in Vernon.

When Vernon businesses last week got their first look at promised protections under a state lawmaker’s plan to dissolve the city, they didn’t feel comforted.

They said the guarantees in the bill to freeze rates and fees were inadequate and full of loopholes.

“AB 781 doesn’t even come close to addressing our concerns,” said Eric Gustafson, chief executive of Coast Packing Co., a meat packing company in Vernon. “Nobody in the business community feels reassured by it.”

In the months-long heated battle over the future of Vernon, the author of the bill that would dissolve the city repeatedly promised businesses there that he would craft additional legislation to keep utility rates, taxes and fees from skyrocketing if Vernon were disbanded.

Last week, as Assembly Speaker John Perez’s bill to dissolve the industrial city southeast of downtown Los Angeles cleared a Senate committee, Perez unveiled a companion bill that would replace most of Vernon’s city government with a special district under the control of the Los Angeles County Board of Supervisors.

Under AB 781, electricity and natural gas rates in Vernon would be frozen for a year, while business taxes and other city fees would be frozen for five years. Zoning designations that allow for heavy manufacturing would be kept intact for 10 years. A special community services district under the direction of county supervisors would deliver fire protection, utility and street services.

Gustafson and other Vernon business leaders said they feared that utility rates, business license taxes, and other fees and taxes would skyrocket once the limited guarantee periods expire. They also say the top-notch fire, police and environmental health protection services they get from Vernon would suffer if put under county control.

“We know there will be no long-term stability in our tax or utility rates,” said Juliet Oehler Goff, president of manufacturing company Kal Plastics. “We know we will not have the same level of services and economic advantages we enjoy today.”

AB 781 is slated to be considered July 6 by the Senate Local Government Committee. It is a companion measure to AB 46, the bill that would dissolve Vernon, and is attached in a way that one can’t pass without the other.

Perez is pushing for the dissolution of Vernon because the city government is seen as a fiefdom riddled with corruption and favoritism.

John Vigna, spokesman for Perez, an L.A. Democrat whose district covers Vernon, said AB 781 grants businesses in the city greater protections than other businesses in the state.

“No other business in California will have the protections in business license fees and taxes for five years that Vernon businesses will have under AB 781,” he said.

He also noted that Vernon’s Light and Power Department recently enacted a 16 percent hike in power rates and indicated that further increases would likely be necessary to pay off bond debt.

“They are talking about stability and rate guarantees, but there are no such guarantees as things currently stand in Vernon,” he said.

But even with the recent hike, Vernon’s power rates are still about 30 percent lower than the Los Angeles Department of Water & Power’s. Business leaders in Vernon say that when the one-year freeze period is over, there will be a temptation to increase power rates higher and faster, which would have a devastating impact on power-hungry manufacturing companies.

Likewise, they believe that business tax and fee rates could skyrocket once the five-year freeze ends. There’s even concern that the county could use loopholes in the language of the bill to step in and increase power or tax rates during the freeze periods. One such loophole states that power rates could be increased if justified by an audit and discussed at a public hearing.

“The tax environment would become very unpredictable,” said Marisa Olguin, chief executive of the Vernon Chamber of Commerce.

Olguin said the language in AB 781 has raised more questions among Vernon business owners than it has answered. That uncertainty, she added, will prompt many companies to re-evaluate whether they remain in the city.

“This is going to force companies to look very seriously at their long-term prospects in Vernon,” she said.

Texas officials, eager to exploit this uncertainty, have already targeted Vernon businesses. Earlier this year, Lone Star State Gov. Rick Perry e-mailed scores of Vernon businesses, inviting them to visit Texas and consider locating facilities or relocating there entirely.

Coast Packing’s Gustafson said that many of the businesses in Vernon will now be more tempted than ever to consider offers from Texas and other states.

“Those businesses that lease will let their leases expire and use the rate freeze time in this bill to go look for other places to do business,” he said. “Businesses like us who own our property will have to crunch new sets of numbers under AB 781 and see if it still makes sense to stay here,” he said. “I for one am not going to let our company that’s been in business 90 years fail on my watch because of this legislation. If that means we have to move, so be it.”

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