Public Scrutiny of Proposed Tax Revisions Begins By JACQUELINE FOX Staff Writer If the first public hearing on a report released in January outlining recommendations for reforming the city’s Byzantine tax code is any indication of things to come, expect a lengthy and complicated debate over the merits of the proposed reforms or whether they are even necessary. Representatives from the city’s Business Tax Advisory Committee (BTAC), commissioned five years ago to study alternatives to the city’s tax system, convened downtown Jan. 26 to discuss the findings of the draft report, the result of a $420,000, two-year study conducted by Fresno-based MBIA MuniServices Co. MBIA has proposed a two-tiered tax system that would levy businesses on their net incomes at a flat rate of $3.50 per $1,000, instead of their gross receipts, which taxes every business, big and small, on their gross revenues, regardless of whether they make a profit, and sometimes more than once through what are known as pass-thru taxes on subcontracting revenues. But the MBIA report also recommends the tax be based on the square footage of a business operation, beginning at 2 cents a square foot for some industries, such as grocery stores, doctors and auto dealerships, but going up as high as 30 cents for others, such as restaurants, apparel manufacturers and commercial landlords. Because the city nets a whopping $300 million annually through the gross receipts tax, MBIA’s report was compiled under a scenario of revenue neutrality, hence, there are winners and losers. And it’s expected that many from the business community on both sides are preparing to lodge a laundry list of complaints and concerns about the recommended changes at the next BTAC meeting set for Feb. 2. The first meeting, however, although public, was largely comprised of BTAC members and city officials, including Jack Walker, a retired tax attorney and committee member who says the current MBIA recommendations appear to involve huge risks and costs and fail to offer a compelling reason for a change in the city’s code, a move that would require voter approval. “There are always huge risks and costs involved when you talk about changing a tax system,” said Walker, who retired from the Los Angeles law firm of Latham & Watkins in January. “And on their face, I just don’t see in these recommendations a compelling need to do that. I also think the issue here is that it shouldn’t be that they (the recommendations) are only somewhat better, but that they should be hugely better before you go down that road of asking for changes in the law and making those expenses.” Walker also said a system based on net receipts and square footage appears now to be even more complicated than the current one based on gross receipts. More scrutiny But more important, he said, was the propensity for red flags under the net tax system, because it would open up businesses to more scrutiny through likely increases in itemized deductions. “I’ve been practicing tax law for more than 30 years and usually when you’re fighting with the Internal Revenue Service, you’re talking about deductions,” said Walker. “I can just see a whole new world of uncertainty and litigation coming out of it. I recognize that the existing system is patchy, but you only have to calculate one number. And right now I’m just not convinced that this report offers up anything better.” But other BTAC members disagree, sighting the need for a change in the tax code in order to both retain existing businesses and draw new ones in. They caution that this meeting was the first of many planned public hearings that will give both business leaders and community organizations a chance to weigh in with both their comments and their criticisms. “With all due respect, there is a huge compelling reason for changing the law,” said Marvin Selter, BTAC co-chair. “The overriding reason for changing the law is, in my opinion, to provide an incentive for businesses to stay here and to come here,” said Selter. Once BTAC has compiled further recommendations for changes it will submit a final report to the mayor’s office. The city council and the office of finance would then review the report and determine whether a ballot measure for altering the tax code should go before the voters in 2005. Reader Questions Sought In an attempt to provide a forum for thorough discussion of the issue, the Business Journal plans to publish a regular section devoted to the proposed revision of the city’s business tax system. In the section to appear in upcoming editions, Marvin Selter, Valley businessman and Business Tax Advisory Committee member, will answer questions submitted by business owners and concerned citizens concerning proposed changes in the tax system. Please submit questions to Business Journal Editor Jason Schaff by e-mail at [email protected] or fax to (818) 676-1747.

Peripheral Firms Enter Into Pact To Refer Clients By SLAV KANDYBA Staff Reporter Three Valley companies, each targeting different sectors of the computer peripheral industry, have joined forces. Chatsworth-based One Stop Shop Inc. has initiated a partnership with On-Site LaserMedic, also of Chatsworth and Faye, Pollack and Associates of Encino. One Stop specializes in telephone sales of toners across the nation and overseas. On-Site specializes in maintenance, while Faye, Pollack and Associates is an information technology firm. The companies will share client databases and will split profits, while functioning as individual businesses, their respective owners said. The annual sales generated by the three companies combined exceeded $14 million last year, said Marx Acosta-Rubio, owner and president of One Stop Shop Inc. and the driver behind the partnership efforts. Acosta-Rubio said that after his attempts to buy the 12-year-old LaserMedic didn’t go through, he negotiated a partnership with LaserMedic co-owner Gail Solomon to go into business together. The companies are entrusting each other with their respective clients. “We’re not going to spend the legal fees on these contracts,” Acosta-Rubio said. “We’d rather just trust each other.” Jim Forrest, a senior analyst at New Hampshire-based Lyra Research, an organization that covers the computer peripheral industry, attributes the partnerships to personal contact. While regional maintenance companies have it, telemarketers don’t, he said. Tricia Judge, the executive director at the International Imaging Technology Council in Las Vegas, said she hasn’t heard of such a business strategy in the industry before, but that it makes sense given the industry’s growth, she said. Businesses are trying to survive, she added. Judge said that although the businesses are collaborating, there does not appear to be any anti-trust concerns because the companies are integrating horizontally, not vertically. Solomon, who co-owns LaserMedic with Ellen Dee, said although she competes with Acosta-Rubio’s One Stop, the partnership is advantageous to both parties. “We’re competitors only in the toner end, but on the service side he doesn’t do service, we do,” Solomon said. Faye, Pollack and Associates, with which Acosta-Rubio said he closed the partnership about two weeks ago, forms IT relationships with companies “assuming complete responsibility for their computers,” according to the company’s Web site. It was founded in 1991, and has a staff of more than 20 people. CORRECTION (March 1): In the article above, Marx Acosta-Rubio, the owner and president of One Stop Shop Inc., is incorrectly identified as having negotiated a partnership with On-Site LaserMedic after approaching the company to purchase it. The two companies entered into the partnership after another firm approached by One Stop Shop declined to be purchased.

Long Dormant 40 Acres of Land To Be Developed By SHELLY GARCIA Senior Reporter A 40-acre parcel of land in the middle of the San Fernando Valley that has remained vacant for decades? Unlikely as it may seem, that has been the case for a Sun Valley property that was just acquired by a private investor group. The parcel, on the 11000 block of Peoria Avenue, has been vacant since Calmat Co. discontinued mining the land for concrete, but the former use made it too expensive to redevelop. Now Sun Valley Development Partners LLC plans to convert the property for use as surface storage yards that can store autos, equipment or materials. “I represent a lot of developers, and they have a tendency to want a project they can fall in love with,” said Anthony Bouza, an attorney with Bouza, Klein & Goosenberg in downtown L.A, who is representing the developers. “They can drive by and say, ‘I built this beautiful building.’ There’s a strong demand for surface use for storage, but it’s not sexy.” Manufacturers often require storage facilities for fleets or materials, but at an average of $12 to $15 per square foot, most industrial land is too expensive to house a supply yard or parking area. “The San Fernando Valley has a vacancy rate of 1 percent,” said Greg Barsamian, a broker with CB Richard Ellis, who is marketing the site along with Bennett Robinson. “You have automotive storage, marble and granite guys, truck terminals. You drive around and there is literally nothing available for those types of users.” Bouza declined to reveal what Sun Valley Development Partners paid for the land, but he did acknowledge that the cost of the parcel was well under the market rate for industrial land in the Valley. “The return is a lot less, but you don’t pay for this property what you would pay for typical industrial land,” Bouza said. “You’re also spending a lot less money to prepare it for surface use.” Because it was used as a sand and gravel mine, the ground is unstable, and it would require extensive work to bolster the foundation before a building could be erected. But the improvements required to use the land for storage are relatively simple and inexpensive. Bouza said the company expects to spend less than $1 million to prepare the land. “It’s not a huge number,” he added. Despite the strong demand for such storage facilities, the land was on the market for a number of years. The land is subdivided into eight separate parcels, and the owners did not want to sell off the parcels individually. “If they had been willing to sell one lot at a time it would have been easier,” Bouza said. “You need someone larger to be willing to buy all eight lots because you can’t get the usual suspects to finance it.” Sun Valley Development Partners became aware of the parcel while working on another nearby project, “and it just smelled like an opportunity,” Bouza said. “We started talking to Greg (Barsamian) about the market demand for surface use, and that’s what got us excited about it.” Grading is expected to begin sometime this quarter, and a marketing program is already underway. “It’s been very well received,” Barsamian said, “and I think it proves there is a demand out there.”

Companies Cautious as M & A; Activity Heats Up By SLAV KANDYBA Staff Reporter No more Vermont log cabins, at least not for Vitesse Semiconductor Corp. The Camarillo-based manufacturer knows better now than to buy them it did in the past, and the results were bad and officials there are remembering that as mergers and acquisitions in the tech industry pick up steam again this year. And Vitesse is not alone. As technology stocks are rising, firms along the 101 Tech Corridor have cash and want to spend it to grow their businesses. But the lessons they learned from the dot-com heyday, especially about valuations of the companies they acquire, are making them more guarded. That was the general consensus from officials at Vitesse, Advanced Photonix and United Online who spoke at the Gold Coast Venture Forum in Camarillo Jan. 22. And they were straight to the point. “Everybody’s pitching a deal,” said Yatin Mody, vice president of finance at Vitesse and one of the speakers. In the times preceding the burst of the dot-com bubble, Vitesse was making many acquisitions, Mody said. Sometimes the purchases were based on “dubious” reasons such as that Vermont log cabin staffed with four engineers and supposed potential. “Things changed from 1998 to 1999 people are losing profitability,” Mody said. “Valuations came down a lot in the last few years. We’re not actively looking.” Vitesse, whose chips are used in telecommunications devices, bought Cicada Semiconductor Corp. for $66 million, doubling its revenue and giving it faster data networks to compete with larger rivals. Robert V. Johnson, president of Agoura Hills-based IS West, a business-to-business broadband ISP, said companies like Vitesse and his own are looking carefully now into how an acquisition would fit into the firm’s “profile.” Johnson attended the forum and said companies are more interested in asset deals rather than buying whole, to avoid bookkeeping hassles and other problems the acquired company may have had. “If it is an asset-only purchase, you end up with a relatively clean deal from a buyer’s standpoint,” he said. IS West bought Camarillo-based VCNet in an asset deal and integrated the company’s equipment into its own infrastructure within months, Johnson said. Mike Balducci, vice president and controller at Westlake Village-based United Online, who engineered the merger of the low-cost Internet providers Juno and NetZero into United Online, said his company has cash and is going after asset acquisitions as well. “We’re very profitable, haven’t done anything in the last year and want to,” he said. Richard Kurtz, chairman and CEO of Advanced Photonix, a Camarillo-based optics company traded on the American Stock Exchange, said his company acquired two small businesses in the past few years, and had no plans to get anymore until about five months ago. That’s because, “after nine years, we’re no closer to taking over a market,” he said. Brent Reinke, a corporate attorney at the international law firm of Reed Smith, said he is being approached by companies interested in mergers and acquisitions. But valuations are the main thing being considered.

Boeing Moving Some Canoga Offices to De Soto Site By JACQUELINE FOX AND SLAV KANDYBA Staff Reporters A month after officials at The Boeing Co. said they were nearing a decision on whether to consolidate two Canoga Park facilities, the company is relocating several departments from one facility to the other. Although officials at Boeing’s Rocketdyne Propulsion and Power plant on Canoga Avenue deny any pending closures, they have confirmed the company is relocating several of its departments there, including some administration and machinists, to its facility on De Soto Avenue. “It’s simply a way of handling the workload,” said John Mitchell, Rocketdyne spokesman. The actual move will take place after expansion plans at the De Soto Avenue facility, now underway, are completed, Mitchell said. Mitchell said the exact details of the Canoga Park expansion plans were not available but scheduled for completion within a few months. Byron Wood, general manager and vice president of Rocketdyne will relocate his offices to the DeSoto facility, as will the company’s media relations department, including Mitchell’s offices and six workers, which have been anchored at the Canoga Avenue facility for about 50 years, Mitchell said. Meanwhile, the Metropolitan Transit Authority and Boeing are reported to be in final negotiations to allow the MTA to purchase a small triangular chunk of property at the northwest corner of Canoga Avenue and Vanowen Street to build a park-and-ride facility for the Orange Line, the city’s new name for the long-awaited East-West Valley Busway, set for completion in fall of 2005. “That’s all but a done deal,” said City Councilman Dennis Zine, who has been pushing for a park-and-ride to accommodate riders who may want to use the Orange Line to get from the west end of the Valley to other locations. Rumor’s have swirled about a potential move by Boeing from the Valley to other states over the last few years. But Mitchell and others have said the company has no intention of relocating any of its four Valley facilities, and insists the current reshuffling is merely a way to spread out resources where they are needed most, not a move toward any closures. “This doesn’t involve any layoffs,” Mitchell said. “I know people (at Boeing) that have moved several times over the years, and it has to do with workload. We’re not abandoning (the Canoga Avenue location).”

Box-Office News Deals Blow to Entertainment Firms By SLAV KANDYBA Staff Reporter If family members leave a family-owned business, it can’t be doing too well. That is perhaps the best sign of how bad things have gotten for Atlantic West Effects, a firm that simulates rain, body wounds and does other special effects for Hollywood studios. It has lost four of its six employees in the last few years most of them relatives of the owner. “They gave up the ghost and decided not to do this anymore,” said Jim Staples, owner and one of the two people left. Atlantic West may be an extreme case, but many Valley entertainment-related businesses, from post-production to catering, have been and are continuing to be hit hard by a decline in business from Hollywood. The firms, already hit by studios exporting work to other states, were dealt another blow recently with reports of a drop in overall box office receipts last year for the first time in a decade. Nielsen EDI reported that receipts dropped 1 percent from $9.27 billion in 2002, to $9.17 billion in 2003. This comes on the heels of a decline in movie filming days in Los Angeles County in 2003, reportedly the lowest number since the Entertainment Industry Development Corp. has tracked such figures. It released a report Jan. 7 that presents a shrinking number of film productions in the cities of Los Angeles, West Hollywood, and in the unincorporated area of Los Angeles County, from 8,024 days in 2002 to 7,329 in 2003. And Thaine Morris, owner of Sylmar-based Roger George Rentals, which rents out special effects equipment. said he saw his business steadily dwindle last year, continuing a slide that has been happening for several years. “Business now is 50 percent of what it was 10 years ago,” said Morris, who has been working for Hollywood studios since 1963. “It’s now starting to come back. Will it get to where it was no.” As to the box office drop, he said: “A producer went off the wrong foot and put out the wrong movies, and that happens,” Morris said. Atlantic West is bracing for more problems because of the box office news. It had an 80 percent decrease in business the last five years. Staples said his revenues had been in the $200,000 to $600,000 range. The reasons, he said, are studios’ filming overseas, where it’s cheaper; as well as more special effects being done by computer-generated imaging, or CGI. “If all this continues I don’t think it’s going to be able to rebound,” Staples said. ‘Cascade’ predicted Further, he said he believes that the box office news will trigger a “cascade,” affecting everyone from the studios and movie producers to moviegoers. Staples said he believes since less people are apparently going to the movies, companies will do fewer productions and trim their budgets. A good way to judge the condition of movie production in the Valley is to look out on the street for StarWagons, trucks which transport movie equipment, said Peter Kuran, owner of Sylmar-based VisualConcept Entertainment Inc. “When things are slow, not only do (idle trucks) fill up the parking lot, they are (parked) in the streets,” he said, adding that he has been in the business 27 years developing techniques for digital and photo chemical imaging in movies. He worked on last year’s “X-Men 2” and the “League of Extraordinary Gentlemen.” But there is some optimism. Morris is optimistic on the runaway production front. He said although Canada still has an edge due to government incentives for filming, “the level of experience here is extremely deep.” Further, he has seen business go to Canada twice in the past. Gourmet Chabar Inc. of Chatsworth, which caters to movie sets, has seen its revenue fall 40 percent over the past five years, from $1 million to $600,000, and went from 16 employees to six, said owner Barbara Peltola. Although Peltola said it has been an “extremely difficult” and “humbling” experience, she doubted the box office news will affect her, because she caters to smaller-budget films and not the blockbusters that are catered to by unionized caterers. Kuran said many productions are going forward because they are already in the pipeline. Further, he has reason to hope that the bad news coming from the box office may not impact his business. “It’s so irregular, from a global standpoint I can’t say that it affects me too much,” he said of movie production. “I’ve been in the business since 1977, and it goes in cycles.” Lisa Rawlins, Warner Bros. Pictures vice president for production and chairwoman of the board at the Entertainment Industry Development Corp., said despite the box-office drop, post-production businesses based in L.A. will get business, at least through the end of this spring. She pointed to “Constantine,” a feature film about the ancient emperor to be played by actor Colin Farrell that is being shot in Los Angeles. She also said that although some films are produced overseas, often in Canada, studios have post-production work completed in the Los Angeles area, and many firms in the Valley, especially Burbank and Glendale, do the work. “The whole budget doesn’t go with (studios going overseas), there’s still a lot of cost right here,” Rawlins said. Rawlins said the success of films is hard to predict, and is essentially “hedging bets on bankable stars and concepts.”

New Battles Are Waged Against Cemex Quarry By SHELLY GARCIA Senior Reporter A long running brouhaha over the mining of Soledad Canyon is again rising up from the sand and gravel quarry off Highway 14 in the Santa Clarita Valley. This week, U.S. Senator Barbara Boxer is due to introduce a bill that would block mining of about 56 million tons of the stuff and send what opponents estimate can be anywhere from 582 to 1,160 concrete trucks down the 405 freeway and into the San Fernando Valley daily over the next 20 years. Also in coming weeks, the 9th U.S. Circuit Court of Appeals is expected to decide whether the city of Santa Clarita can enter the fray that’s underway between the county of Los Angeles and the company that wants to mine the hillside, Cemex Inc., along with the federal government. Not that the city of Santa Clarita has remained outside the dispute that is now more than a decade old. Officials say they have already spent $2 million to oppose the project, which is technically a mile outside the city’s borders. But what an appeals court decision in favor of Santa Clarita would do is allow the city to join the county as a defendant in a lawsuit brought by Cemex and the feds against the county for trying to block mining of the quarry. And the county will likely need all the partners it can get. Monterrey, Mexico-based Cemex, is the largest cement producer and distributor in the U.S. and the third largest such supplier in the world with revenues of more than $1 billion. Cemex was granted rights to mine the quarry in a lease agreement with the federal government, but the deal requires the approval of the county of Los Angeles. The way the county sees it, that gives the local government jurisdiction over what gets mined at all. The way Cemex sees it, the county rights end with some limited control over how the site is mined. What’s so bad about digging concrete out of a hillside in north Los Angeles County? “The two biggest issues are air quality and traffic,” said Jeffrey Lambert, a Sherman Oaks based consultant in planning and government relations and the former director of planning for the city of Santa Clarita. Lambert points out that Santa Clarita already has the dubious distinction of having some of the worst air quality in the region. “We don’t need anything to press that level,” he said. At the same time, because the concrete will be used for construction, much of which will take place in and around the San Fernando Valley, Lambert said the traffic created by the movement of the concrete trucks will further snarl the local roads and freeways. Cemex officials insist that so long as the demand for housing and other building continues unabated in Southern California, gravel will be mined anyway. “If it isn’t delivered out of Soledad, it will be delivered out of Palmdale, so there will be no reduction in truck trips,” said Brian Mastin, a spokesman for Cemex. “That will result in more truck miles and the same number of truck trips. The question is whether you want to have longer truck trips or shorter truck trips.” Cemex and the Dept. of Justice filed suit in U.S. District Court against L.A. County claiming that the county has unjustifiably delayed the project over a 10-year environmental review process, and the sides have been in mediation to try to resolve the problem. Cemex has been waiting to move forward on the project since 1989, when it submitted the winning bid and was granted leasing rights to the mine. “The county has some rights to exercise reasonable environmental regulations over the project,” said Mastin. “They do not have authority to deny the project as they have done. They are pre-empted by federal law.” The county has a different interpretation. Citing the potential damage to air quality, ground water, it denied the project in 2002. Another lawsuit brought against the feds by the city of Santa Clarita also seeks to prevent the mining of the site under the Endangered Species Act claiming that mining the area will threaten the fish, frogs and birds that live in and around the Santa Clara River, which borders the site. The city expects to file briefs on that lawsuit this spring and is hoping for a decision this year. Meanwhile, two legislators have also joined the tumult. Congressman Howard “Buck” McKeon is trying to limit mining of the site. And Sen. Boxer’s bill seeks to terminate the leases to mine the area altogether.

Facey Medical To Open $750,000 Women’s Facility By JACQUELINE FOX Staff Reporter Facey Medical Group, one of the Valley’s oldest and largest medical groups, officially opens the doors on Jan. 19 to its new $750,000 OB/GYN and women’s diagnostics facility. The Women’s Center is now located inside an 8,300-square-foot building opposite Facey’s main building in Mission Hills. The center’s new building formerly housed Facey’s administrative services and related departments. Those departments have now been moved across the parking lot to the main building, originally built in 1963 and expanded in 1984. According to Dr. Fredrick Russo, Facey’s president, the older women’s center had outgrown its second-story location in the main building, primarily due to the expansion of the group’s bladder studies program over the last couple of years and the growth of Facey’s roster of OB/GYN practitioners. “Essentially, there has been a real need to expand our service area for our OB/GYN staff, but the move to the other side of the parking lot will also allow us to continue with the expansion of the services we provide for women exclusively,” said Russo. Facey has added a second mammogram machine and new ultra sound machine and diagnostics equipment. In addition, due to a growing number of women seeking help with urinary tract disorders, Facey is preparing for further expansion of its bladder studies program, including treatment of urinary incontinence, a growing field of practice, according to Russo. In addition, the new center will also make it possible for Facey to expand its outpatient surgery services for women, expected over the next couple of years. Facey held a ribbon-cutting ceremony and open house for the new center on Jan. 15.