JOHN DURAN | Building A Better City: City Finances — Has the city become a parasite?

What is a symbiotic relationship? In common speech, symbiosis means both parties involved in a relationship are benefiting from each other. Examples of symbiotic relationships can be found in business, human relationships, and among living organisms like the sea anemone and the clownfish, or between bees and flowers. The clownfish cleans the anemone, and the anemone allows the clownfish to live within it for protection from predators without being stung or killed. Win/win. There are five types of symbiotic relationships, namely: mutualism, commensalism, predation, parasitism, and competition.

For decades, the West Hollywood business community and City Hall enjoyed a healthy mutualistic relationship. Sadly, in the past few years, it has transitioned into an unhealthy form of parasitism. Please let me elaborate.

I had not thought too deeply about this until I read the Wehoville article called “How Much Money is Weho making and spending?” with a quote attributed to Councilmember John Erickson regarding the City’s Budget. Here is what the quote was:

“So, we’re not seeing any negative impacts of the hotel worker ordinance or the minimum wage increase?” – John Erickson (based upon an increase in taxes received by the City).

“Hard to say…” – City Manager David Wilson (properly noting that the City doesn’t know the expense side of businesses).

Flummoxed, I didn’t know whether to laugh or cry when I read the exchange above. Neither. I am just flummoxed. Confounded. Frustrated.

The exchange suggests that Councilmember Erickson was either trying to intentionally mislead the public or he was recklessly mixing apples with oranges (increased tax revenues to the city do not translate into increased profit margins for businesses. The city gets taxes on gross receipts – not net receipts) or he really doesn’t know how finances work between the business community and City Hall.

Okay, let’s give him the benefit of the doubt. After all, he is a new council member with only two and a half years in public office. His major in college was Women’s Studies, not Economics or Business Administration. It appears he never had to meet payroll since his employment has consisted of working at nonprofit organizations and City Hall. So, I would not expect him to have a deep understanding of city finances and economic development after just two years.

So, here’s a primer. Let’s pretend I wrote a book to myself called “City Budgets for Dummies.” Just the basic brass tacks. A city produces zero wealth by itself. The city does not “make” any money. The city depends entirely upon the productivity and revenue streams of others. It relies upon tax revenues from corporations, businesses, property owners, consumers, parking tickets, license fees, and other federal/state/county governments. Even when it borrows money by issuing bonds, it is relying on the revenues and investments made by other people. It relies upon and feeds off others. A city produces no widgets, no income, no profits. Without the economic activity and prosperity of others, it would wither and die.

For the first 35 years of the city’s history, a symbiotic relationship existed between the West Hollywood business community and City Hall. An interdependent relationship where one needed the other. Collaborative. Reciprocal. Concerted. And collegial. It was not parasitic. One needed the other to thrive for mutual prosperity and success.

Remember that when the city incorporated in 1984, it was the blighted area between Beverly Hills and Hollywood that nobody wanted. The naysayers said, “They have no tax base. They have no industrial or manufacturing sector. They have a rundown Sunset Strip, a section of gay bars that cater to gay men, and not much more. AIDS is going to wipe them off the map as they struggle to develop an economic base and provide services for thousands of sick people. The County will just have to take that area back.” We proved them all wrong. But it was not by City Hall producing a tax base magically out of thin air. It was not by conjuring or wishful thinking.

No, we had to provide our business community with plenty of leeway and flexibility to be as prosperous as possible, to produce more revenues for themselves and for West Hollywood through hotel taxes and sales taxes. Yes, there were property taxes paid by those residents lucky enough to own a house or condo – but that was a lesser percentage of the city’s budget than the taxes the business community provided. The renters in town were only taxed on sales taxes paid with every purchase locally (not from Amazon or the Internet). Renters paid no property taxes, hotel taxes, or business tax.

The renters, who made up 80% of the residents in Weho, only paid sales tax. And that sales tax had to be shared with Sacramento and the County of Los Angeles. The same analysis is true for property taxes that are shared with the County of Los Angeles. The ONLY tax that went 100% to the City of West Hollywood was the hotel or transient occupancy taxes (TOT) – almost exclusively paid by visitors and tourists. That percentage, ranging from 12% to 14% per night on every room rented in a hotel, all went to Weho and NOT to Sacramento or LA County.

The hotel taxes were the golden eggs for Weho. When they were successful, we were successful.

We all knew we had to create brand images of being “chic, stylish, innovative, cutting-edge, raucous, outrageous, and glitter-filled”. We couldn’t be stuffy like Beverly Hills. And we couldn’t be as run-down as Hollywood next door. We had to be something unique. We certainly had a population that fit those descriptors. We needed the business community to continue to be its notorious self that drove tourism into West Hollywood. It was hard work.

But credit to the CEOs of City Hall (The City Managers), key staff like the late Ray Reynolds and Joan English, and the key business owners that made up the Chamber of Commerce. The City treated the business community really well and with respect. And the business community returned the same respect to the City by providing meeting space for numerous city-sponsored events along with the lion’s share of the City’s tax base (more than property tax or parking enforcement fees).

That’s how we grew a budget from $35 million per year to $50 million, to $80 million, to $100 million, to $150 million. It didn’t just happen by accident. It happened through an orchestrated effort by hundreds of players who all had the same goal in common: to turn West Hollywood from a beaten-down light industrial sector of LA County to what it is today. So, what happened? Well, COVID happened in 2020. And two allies of the UNITE HERE labor union got elected in 2020 (Sepi Shyne and John Erickson) when we transitioned from special elections in March to joining the general election in November 2020.

As the entire community got rocked from side to side for three years while COVID killed over one million Americans, our ship remained afloat. Our City finances were severely impacted, but we weathered the storm. We had built up a prudent reserve with over $130 million for an unexpected emergency like this. Again, not out of thin air, but out of that symbiotic relationship with the business community and the strategic thinking of City Manager Paul Arevalo and City Finance Director (now City Manager) David Wilson. And then, just as we were regaining our footing coming out of COVID, the UNITE HERE City Council trio, consisting of Lindsay Horvath, Sepi Shyne, and John Erickson, decided that it was time to advance labor’s agenda in the city. The agenda included a hotel worker ordinance, the highest minimum wage in the USA, and paid time off for both full-time and part-time employees. The hotels and business community reacted with alarm, exclaiming, “No! Not now! We are just emerging from COVID! We need time to recover. This is not the time to launch such an aggressive agenda for organized labor! Give us some time to recover from COVID first!”

However, their pleas were ignored by the council majority elected through the efforts of UNITE HERE. If you didn’t fully agree with UNITE HERE, you became their political enemy. UNITE HERE attacked former councilmember John D’Amico, Councilmember Lauren Meister, and myself. They also did not support John Heilman. Unless you were willing to align with their progressive labor agenda, they would not support you. In fact, they would vilify you and play hardball during election time. That’s fair in politics; they can choose to support candidates who align with their issues. That is the essence of politics, lobbying, and elections.

However, their agenda caused a significant shift in the politics surrounding City Hall. Almost all of the previous council members from 1984 to 2020 shared a common goal: building a solid financial foundation for the city to grow upon. We were all registered Democrats; not one Independent or Republican has ever been elected to the West Hollywood City Council. But there was a difference. While we were all Democrats, our purpose was not to simply promote the local Democratic Party’s agenda.

We were there to build a city, establish a financial base, and take care of the safety and well-being of the 35,000 people who called this place home. We understood that the best way to ensure our security and welfare was to build a strong economic base, allowing us to afford top-notch policing, social services for the needy, and the development of new parks and a library.

That was our primary focus.

The interests of labor or the Democratic Party came second. If we aligned with labor or the party, that was great! We could work together. But our paramount concern was the protection and expansion of West Hollywood, which meant we needed a thriving local economy and a symbiotic relationship with our businesses. However, things changed. Lindsay Horvath was ambitious and knew she had to play the game of the Democratic Party and its labor base to advance to the position of county supervisor. Sepi Shyne is currently running for Congress. I’m sure John Erickson thinks he wants to eventually move up to Sacramento, and Chelsea Byers moved from Arizona to West Hollywood two years ago with the dream of advancing politically. We have become a launching pad for political ambition, and there’s nothing wrong with that.

The nation is filled with ambitious people in politics who desire power and seek to climb the political ladder. I was once one of those people. However, while I served on the West Hollywood City Council, the city always came first. My personal ambitions for higher office would have to come second. What was best for the community wasn’t always best for my political career. But I knew the risks involved in siding with the City’s Chamber of Commerce and not toeing the line for labor and the Democratic Party. I knew that I would not be considered a “player” within the local Democratic Party, its political clubs, and allied organizations. And I also knew that by not aligning myself 100% with UNITE HERE, I would be on the receiving end of negative political mailers, hit pieces, and false accusations. So, to answer John Erickson’s question to the City Manager in a more thorough way: “Yes, it is true that gross receipts are up for hotels and businesses. However, it is important to keep in mind that we are currently experiencing a period of record-breaking inflation. Everything costs more due to inflation. Therefore, while you will see higher gross receipts, which translates to higher tax receipts for West Hollywood, it is crucial to acknowledge that government bodies are also buyers in the market. This means that expenses for city projects also increase, including construction materials, lumber, steel, fossil fuels, and the ever-expanding expense of city pensions for retirees. Higher receipts and higher taxes for city hall do not necessarily indicate that your business community is flourishing, nor does it imply that you have disposable cash for pet projects.

Now, let’s discuss what has transpired over the past few years. You passed a questionable hotel worker ordinance in Weho that did not result in an increase in jobs at the hotels. In fact, many hotels actually reduced their number of workers to comply with the demands of the new ordinance. Furthermore, the mandatory requirement of providing part-time workers with paid time off (which no other city in LA County does) in addition to having the highest minimum wage in the USA, compelled businesses to either reduce their workforce or raise their prices. And who bears the brunt of these increased prices? No, it’s not City Hall; it’s the residents of West Hollywood who end up paying higher prices at businesses across the board to cover the costs of your policy changes.

But wait, doesn’t this benefit workers? Yes, of course it does. However, most minimum wage workers in West Hollywood cannot afford to pay $1800 for a studio apartment or $2500 for a one-bedroom apartment within the city. Someone earning minimum wage at $20 per hour for 160 hours per month translates to $3200 per month before taxes. After deducting taxes, along with expenses for food, transportation, healthcare, and childcare, it becomes evident that most minimum wage earners will have to live outside of Weho and commute to work. Therefore, your policy can be summarized as follows: West Hollywood residents pay more for goods and services to increase pay and benefits for workers who do not reside here, while business owners face slimmer profit margins or, in some cases, insolvency. Some are even opting to move their businesses to Los Angeles to avoid these unnecessary increased labor expenses. Consequently, we see more empty storefronts and an influx of chain stores, resulting in fewer unique small businesses.

In the same November 2020 election, the voters of West Hollywood approved Measure E, which increased the sales tax on themselves. However, this was not for the purpose of increasing pay or benefits for workers in the city, nor for the agenda of UNITE HERE or the local Democratic Party. On August 3, 2020, the former West Hollywood City Council unanimously pledged that if the voters agreed to an additional ¾ cent per dollar sales tax, the new revenue would be allocated towards the following:

1. Retaining local businesses and jobs
2. Keeping public areas clean and safe
3. Addressing homelessness
4. Expanding health and mental health services
5. Supporting disaster preparedness
6. Maintaining HIV and AIDS health services

So, let’s evaluate these six promises made by City Hall regarding the sales tax increase. Are we retaining local businesses and jobs? No. Are we keeping public areas clean and safe? No. Are we adequately addressing homelessness? Apparently not. Are we expanding health and mental health services? Yes. How is our progress in supporting disaster preparedness? Are we effectively maintaining HIV and AIDS health services? Yes.

2 out of 6 promises kept. I think that translates to a grade of “D”. One final thought for the new council majority before I get off the Duran Soap Box for this week – you are STEWARDS of the City Treasury. You are public SERVANTS. You are here to serve the people of the City of West Hollywood. Not the workers of Los Angeles. Not the LA County Democratic Party. Not UNITE HERE. Are you capable of setting aside personal ambition and political agendas to help improve the quality of our lives? Or will you be the parasite that eventually bleeds its host into sickness and calamity? And then – our only solution is to remove you like cancer gets removed from its host? Your decision. Your choice. We are watching…….