Theater of Shame The dangers of new politicians getting involved in complicated projects was never more sharply pointed out than it was by Councilwoman Laura Chick’s Community Redevelopment Agency (CRA) activity in the construction of a new Madrid Theatre in her Third Council District. This theatre is located on an approximately 75-foot frontage lot on Sherman Way near Canoga Avenue in Canoga Park. It is in the heart of a run-down area and is squeezed in between two old buildings. There is no readily available parking in the area, although Chick’s staff claims they have discovered 140 spaces in nearby areas. I checked this area myself and can’t imagine where these spaces can be found without condemning everyone’s backyards. This brings us to an interesting question: If Ms. Chick, with the help of CRA property tax increments, obtained $3.5 million to build a theatre, why didn’t she select a bigger piece of property in a better location for a theatre showplace? Any Realtor would have told her that the three prime requisites of any building are location, location and location. If $2.7 million is to be spent on the building alone, including the $173,000 spent on the land, why couldn’t the local citizens have an edifice of which they could be proud in a place where there is plenty of easily available parking? Somehow or other, some people got the attention of Councilwoman Chick to tell her that a lot of CRA money was available, a cheap lot was on the market and a load of property tax dollars was obtainable from the CRA. Laura fell for this story hook, line and sinker. Now the building is well underway and ready to serve as the centerpiece of a revitalization of the entire area. There’s an additional $800,000 that’s available to be spent on fixing and lighting these hard-to-find parking lots, as well as more street improvements for the Valley’s theater-goers. Eventually, people have to discover that general plans have an important function in business and governmental life. With no general plan now, I firmly believe that this redevelopment project will fall flat on its face! The public deserves better. LEONARD SHAPIRO Tarzana

PRODUCTION: THIS IS PART OF THE SECESSION PACKAGE With Gov. Pete Wilson’s signature on Assembly Bill 62, the L.A. City Council’s ability to thwart cityhood for the San Fernando Valley has been eliminated and the possibility of Valley secession has become real. Already, Valley Voters Organized Toward Empowerment also known as Valley VOTE is kicking off a petition campaign to force the Local Agency Formation Commission to conduct a feasibility study of Valley cityhood. Actual secession would require approval by a majority of the voters in the Valley and the rest of Los Angeles. The Business Journal’s news team recently assembled a group of Valley community leaders and elected officials to discuss the critical issues that lie ahead as the Valley mulls becoming its own city. The participants were City Councilman Richard Alarcon, who represents the Northeast Valley; Jeff Brain, co-chairman of Valley VOTE; Councilwoman Laura Chick, who represents the West Valley; attorney David Fleming, who sits on the city’s Fire Commission and who is expected to be a Valley VOTE leader; and Tony Lucente, president of the Studio City Residents Association. Question: Does the Valley have the makings of a city, irrespective of whether or not you believe it should secede? Chick: I very much think the Valley could be a separate city that in terms of logistics and figuring out the infrastructure problems, and setting up its own separate government, that’s absolutely feasible. Alarcon: Frankly I’m surprised that anyone would even ask the question. The San Fernando Valley has every reason to believe that it could be a separate city. The decision about whether to secede or not isn’t based on whether or not it could be a city. Fleming: I think that certainly you’ve got the critical mass in the Valley to form a separate city. We have a higher per-capita income per household than the rest of Los Angeles. We have higher individual income per capita than the rest of Los Angeles, and it clearly seems to me that we have an enormous edge in forming a separate city if that’s what we choose to do. So, yeah, sure we can be a city. Brain: The Valley clearly could be a separate city, and could be a great city. It would be the sixth largest city in the country. When you look at Burbank’s 99,000 people, West Hollywood’s 36,000 people clearly the Valley has a tremendous base with which to become a separate city. The infrastructure issues, the division of assets, the liabilities they’re all something to work through. But there is a process in place. It’s a well thought-out, reasoned process, just like a divorce. And those will be hatched out through LAFCO and the Valley, I believe, will become a separate city. Lucente: I agree that the Valley could be a separate city. The question is whether it really has the will to be a separate city. Q: Does anyone detect a will in the Valley to secede? Lucente: What the secession effort has begun to tap into is that feeling of not being a part of a greater whole, and the disenfranchisement, essentially, of the Valley. I think people, though, need to know the complete story before they will really fully commit to support or not support secession. And economics plays a big, big role in what people think and what they will decide. And I think that remains to be seen. Is there the frustration out there that is fueling this drive? Absolutely, and for good reasons. But I think it remains to be seen whether we’ll get full support. Brain: It’s a tremendous education process before you ask people yes or no. And, again, the LAFCO process we’ll have a study that will be done. It’s our commitment to the people of the Valley not to ask them to vote on that issue until they have all that information available to them and can make a good decision. I believe once the Valley has that information, they’ll make a proper decision. Fleming: Well, I think the more important question is, “Why did this issue come up in the first place?” Whether the Valley has the will to secede or not depends on a lot of unknowns, and I think most of us here at the table are not willing to say today we want to secede or not secede. I think there’s a lot of information that we have to develop before any voter can make that intelligent discussion. So the more fundamental question to me is, “Why is this even an issue?” This city has grown to include so many communities today that feel disenfranchised, that feel isolated. And for that reason I think that we’ve got to look at a restructuring of city government. And I would hope that that would happen before secession. But I also think, at the same time, we have to keep looking at secession as a possibility. Alarcon: I think it’s David’s last point that I want to emphasize with the question about whether there is the political will in the San Fernando Valley for secession. I believe there is a vast and deep political will to gain more control of our future. And the issue is whether or not secession will provide that in a greater sense than some alternative that we hope to see in the way of charter reform. Q: Is the interest in this issue greater than the interest, say, in charter reform? Fleming: Yes, because people understand secession more than they understand charter reform. Brain: Charter reform goes to the ballot in 1999. We go in the year after, hopefully, in 2000 (with a vote on Valley secession). If there is proper and good charter reform meaningful reform then people will have the right to vote no on secession and will do so, probably. But if there is not good, meaningful charter reform on the ballot in 1999, then people will vote yes. Lucente: I think it’s one thing to use the idea of seceding from the city of Los Angeles to fuel charter reform. Charter reform is, in and of itself, a significant process that the city is going through. And it’s very clear that the general populace of the city of Los Angeles was not engaged in the charter reform effort, nor did they really understand it. And I think while people do understand the idea of secession in a very broad sense, I don’t think they really understand what it means. And I would say, “Be careful what you ask for because you just might get it.” Fleming: (to Alarcon and Chick) Let me ask a question of you guys: Do you find that the secession movement has had any affect on your position and your leverage in the Council to get things for the Valley? Chick: One of my concerns is that there will be a growing sentiment on the part even of some elected officials who say, “You know what? I’m not going to fly well out in the Valley. Let the Valley become a separate city. I’ll take what’s left.” And I think there’s a sentiment on the part of some citizens on the other side of the hill that call this whining, which I always find so insulting. “Who needs them? Let’s get rid of them.” I’ve even heard the theory put forth that we’re costing them money, and that they think when the study comes out, that it will show that they’d be better off without us. One of the things that I think absolutely needs to happen the next time we do redistricting is to take a look, first of all, at keeping communities together, in terms of council districts. Alarcon: To answer David’s question, I have absolutely used the issue to leverage certain things. I can give you some specific examples. First of all, (getting) the empowerment zone (to include Pacoima). But there were also some comical things. I remember when LAHSA the Los Angeles Homeless Services Authority presented a draft of their budget for homeless services, and there was nothing in the San Fernando Valley. And I was vice-chairing the committee with Mark Ridley-Thomas, and I looked at the list, and I said, “There’s nothing in the San Fernando Valley.” And Mark Ridley-Thomas threw up his hands in the committee and said, “Just give money to Pacoima, because we don’t want to go down this road again.” To the extent that I need to use it as leverage, I will, to get services into my district. But it’s a substantive issue on its own, and the city of L.A. as a whole needs to really believe that it can happen. Q: Any closing comments? Chick: I think the biggest step and the most significant step and valuable step regarding the secession movement has been, as Jeff calls it, the movement for self-determination, and the removing of the ability for the council to veto. Secondly, the interest in secession can serve as a source of momentum for seeking to improve our governance through real and meaningful charter reform. But in terms of, does it have broad and deep support at this current time, I certainly do not see that it does. And I am doubtful that in the near future it’s going to. I think so much depends on the revealing of factual information, which will come as part of the process. Fleming: I believe that public apathy about government is really the result of government and the disconnect between the people and government. I think this: Secession is like an announcement that a new car is coming out. You haven’t seen it yet, sounds exciting, you want to take a look at it, you want to kick the tires, you want to test drive it. First of all, you want to find out the price. We don’t even know that. But it’s clearly something you want to take a look at. And I think that’s where the Valley is right now. If you put it to a vote today, they wouldn’t vote to secede because they don’t know. Lucente: The issue of secession is very complex, yet very simple from the eyes of residents. Ultimately I think the issue of secession will be viewed in very simple terms, and I think it will be viewed in terms of how it hits your pocketbook. I think that will be the ultimate deciding factor on secession.

How to choose a business bank Choosing a good business bank is an important step in the life of a growing company. A bank that is well-matched to a client can provide the best loan options, payroll services, fees and accessibility. By contrast, a bank that is ill-suited to your company can cost you time, paperwork and a significant amount of money. Knowing your needs One of the most important things to consider when choosing a business bank is the type of loans they offer. Even if all you are currently looking for is a commercial checking account, you eventually may need a loan. The right type of bank will be able to get you that loan as quickly and conveniently as possible. Will you need a Small Business Administration loan, a personal loan or a commercial loan? If you’re best qualified for an SBA loan, make sure to select a bank that offers this because other kinds of loans may be more difficult to get. It can be costly and time-consuming to switch banks. Consider the costs of the services you require. Direct and indirect fees can add up quickly. The fee-based structure a bank offers is particularly important. Extra and unnecessary fees can be detrimental to a start-up business, as can such things as maintaining the minimum balance of an account. One of the most important things is to find a bank with which you’re comfortable in dealing. As your business grows and changes, you’ll likely look to your bank to provide you with ever greater services. A bank that is already familiar with your company and its needs can get you these services and make your job easier. Finding a good match Choose a bank that is hospitable to your type of business. For larger companies, this may not be quite as big an issue. Banks often will woo them for their business. Small businesses often have to look harder to find the right bank. Some banks do not look at small businesses as warmly as others. After all, the small size of your business means a relatively small amount of capital to the bank, and the failure rate is high among small businesses. Researching a bank One good resource for someone looking for a business bank would be the Small Business and International Development Center, usually housed at a local chamber of commerce. There, small businesses can sit down and go through the qualifying aspects and identify what the best possible loan would be for a particular client. Banks are like any other service provider. Shopping for a bank is similar to shopping for a car: Go out and see where you can get the best deal. Call around to see what each bank has to offer, and choose the one that offers you the most practical services at the most affordable costs.

Several figures related to the financial performance of Gladstone’s Universal Hollywood were erroneously reported in the October List of the top-grossing restaurants. The correct gross sales figures are $10.2 million for 1996 and $10.1 million for 1995. Also, the average check for lunch is $11 and $20 for dinner.

Interview Leonard Schaeffer, chief executive of WellPoint Health Networks, talks about managed care and his company’s expansion plans. Page 12 Exclusion Latino leaders in the Valley are standing on the sidelines of the secession movement. Page 6 Acquisition The purchase of Great Western Bank has led to large-scale layoffs and questions about the future of its Chatsworth headquarters. Page 10 Spotlight On Simi Valley is trying to lure large companies to set up shop in its family-oriented community. Page 21 Fast Track Jammin’ Jersey in Northridge is surviving in a shrinking market by selling musical instruments and parts that the big boys don’t carry. Page 9

Alf Nucifora Barter it’s been a mode of economic transaction for centuries. In recent decades it’s prospered at a subterranean level with a committed and growing group of practitioners who swear by it. The numbers are impressive. At a national level, 400 independently operated barter exchanges represent a client base or network of more than 240,000 retailers, services and manufacturers. Barter is literally its own economy, representing a definable group of manufacturers, service providers, retailers and professionals who by supplying one another with operating needs also contribute to one another’s profits. Legitimate bartering is transacted through the mechanism of a commercial trade exchange, initially known as barter clubs when the concept was introduced some 30 years ago. As industry publication BarterNews states: Through the use of computers, exchanges can officially match the needs and wants of their clients. They use a medium of exchange known as a trade dollar (equivalent to one cash dollar for use of accounting purposes). Its use lessens the need for companies to locate reciprocal trading partners, as all transactions between businesses are facilitated using trade dollars. Each time a client makes a trade purchase, the exchange debits the buyer’s account and credits the seller’s with trade dollars, similar to an ordinary bank account. Sales are normally made at full retail value with a 10 percent cash commission typically paid to the exchange for its services. Under the Tax Equity & Fiscal Responsibility Act of 1982, trade exchanges are classified as third-party record-keepers, having the same fiduciary obligations as bankers and stock brokers. For tax purposes, trade dollars are taxable for the year they are earned and reported as such on 1099-B forms to the IRS. If executed in a professional fashion, barter can benefit the trading client in a number of key areas: – Generating sales and new business contacts. – Creating greater profitability, turning liabilities into assets by utilizing excess production or business capacity. – Moving excess or sluggish inventory by trading it, thus turning potential write-offs into profit. – Conserving cash. Computerized record-keeping eliminates accounts receivables and/or collection problems. – Providing greater flexibility, because trade volume is controlled by the client. You only trade when and what is appropriate to your own needs. Almost every product and service category in both the consumer and business-to-business sector is subject to barter. The list runs the gamut from accounting services to office equipment and supplies; from secretarial services to landscaping; from dental care to swimming pools. Even the Fortune 500 are in on the act. Economists have estimated that corporations barter approximately $55 million annually. Sixty-five percent of the corporations listed on the New York Stock Exchange are presently using barter, including such giants as General Motors Corp. (traded locomotives for tea in Sri Lanka), PepsiCo (traded syrup and technology for Russian vodka), Coca Cola, General Electric, McDonnell-Douglas, Pitney-Bowes, Turner Broadcasting System, Mitsubishi, Xerox and Standard Brands. At the small business and individual trader level, key barter categories include electronics, computers and personal services such as medical, dental, accounting and legal. In fact, barter is now finding acceptance as a means of employee compensation as part of rewards programs, incentive plans, bonus payouts, etc. As in all businesses that operate at a street level, barter has had and continues to have its shares of shysters, but the industry has gone to great pains to tidy up both its practices and its image. A common problem still involves the situation in which a bartering party places an unrealistic value on the product or service being offered, which in turn leads to conflict. But vigorous policing by the more reputable barter exchanges and the degree of satisfaction exhibited by successful clients would indicate that barter can be and is, in the majority of cases, a safe and effective transaction and it’s growing like wildfire. This is one to watch for both the prudent business person and the aggressive marketer. Marketing tips It’s a law of the universe that most small businesses suffer considerable constraints in terms of available time, energy and money for marketing support particularly during the first two or three years of the startup phase. From a marketing perspective, it very rarely makes sense to be a Jack or a Jill of all trades. The marketplace is simply too big and too complex to attempt to market to every available consumer. Unless you market a universal product like soft drinks or hamburgers the preferred course of action is to identify a select group of customers/consumers who provide the best marketing opportunity for your product or service. In marketing circles, these select groups are called niches, clusters or preferred demographics. For the sake of this discussion, we will address them as the target audience. The smart marketer will profile the target audience that is best suited to the product or service in question. In many instances, this will require some best-guessing in order to select and prioritize a particular target audience. Once you have succeeded in capturing or owning a particular customer segment or niche, be prepared to exploit it for all it’s worth before moving on. A friend of mine, a local attorney, had developed a particular expertise in the commercial roofing field. In a business category in which no more than a dozen players dominate the field, he has gradually built his business to the point that he now garners consistent work for more than half the companies in the business. All of this business was built by referral and word-of-mouth. Even within a competitive environment, companies have chosen to solicit his services because of his specific knowledge about this specialized industry, and because of his growing reputation for expertise and excellent service. As a smart marketer, he will continue to work the commercial roofing sector until he has secured every available piece of business. At that point, he will use the knowledge he has gained in the commercial building field to leap-frog into another commercial construction sector where he will repeat the process all over again. That’s doing segmented marketing the smart way. Don’t ignore the importance of segmentation. Be prepared to take customers wherever you can find them. But when it comes to pre-empted efforts, focus your energies and your spending on those targets that make the most sense geographically (where they come from), demographically (who are they and how they live) and psychographically (how they think, how they behave, what their needs and aspirations are). Always hunt where the herd is thickest. That is the best advice for any small business.

MEL POTESHMAN Personal Finance Selling a business takes as much planning as starting one. You should understand that the timing of the sale, how the company is valued, and your own financial goals are key factors in structuring any transaction. Here are answers to a few key questions that can help you in selling your business. The key to a successful sale is that both you and your company are ready to make the change. For starters, you must be willing to pass the reins of ownership and management on to someone else. Don’t automatically assume there will be a place for you even in a part-time or consulting role in the new organization. To get the most for your business, you want to operate from a position of strength. Your company should be performing well and there should be a great likelihood that current customers or clients will remain with the successor company. Be aware, too, if you want to sell your business by a certain point in time, such as when you reach age 60, you must allow plenty of time for the sale. Otherwise, you might feel pressured into accepting a price or terms that are below your expectations. It’s generally wise to avoid selling your business right before a major lease or important contract expires. Prospective buyers will want to have a fairly close idea of their costs for rent, supplies, labor, and other major expenses. Taking over a new business is tough enough and it’s best if the new owner doesn’t have to renegotiate key contracts right away. Even if you are an ardent jack-of-all-trades, at some point in the sale process, you’ll need help. Exactly who and how much depends on your expertise, the size of your company, and the complexity of the deal. Most small businesses face some federal, state and local regulations as well as significant legal and tax issues. Your CPA can advise you on the financial aspects of your sale and evaluate the transaction from a tax perspective. Your attorney can advise you on the legal aspects of the sale, ensure compliance with relevant state and federal requirements and review the sales contract. You may choose to engage the services of a professional investment banker who brings buyers and sellers together, acts as the seller’s representative, and handles negotiations, much as a real estate broker does. He or she can help you compose a sales memorandum, a comprehensive profile that summarizes your business’s history, nature, and operations, and provides a financial overview. In preparing to sell a business, you must, of course, evaluate and demonstrate its worth. This involves gathering appropriate documentation. For example, audited financial statements prepared by your CPA will help a prospective buyer understand your business’s operations and past financial performance. Tax returns also document business performance. Determining the value of a business is one of the most difficult aspects of any transaction and is best done with the help of a qualified business valuation specialist, such as a senior member of the American Society of Appraisers (ASA) and/or a chartered member of the Association for Investment Management and Resesrch (CFA). Valuation methods vary. Whoever you select to value your business, make sure he or she has performed at least 30 valuations recently, five of which were for the same purpose you need a valuation for. The best method depends on your specific situation. Don’t be tempted to set a price based on simplistic formulas or even on comparisons to the amount paid for similar businesses. Unlike home sales, there are too many variables between businesses to make such comparisons valid. Along with determining an acceptable price for your company, you should think about what kind of terms you would accept. This depends in part on your personal financial situation and the financial health of your business. Are you looking for an all-cash deal or would you be willing to finance the sale price? Do you want to sever your ties to the company or are you willing to remain involved? In any case, be willing to compromise. The more flexible you can be, the more likely you are to reach a mutually satisfying agreement. The outcome of selling your business is likely to have a significant financial impact on you and your family. Be sure you have realistic expectations of the amount you will be paid. Adequate planning, preparation, and professional advice will help ensure that you do it right and get the price you deserve. Household help If you have a housekeeper, maid, nanny, or even a babysitter who qualifies as your employee, you have certain tax responsibilities. As an employer, you may be liable for Social Security and Medicare taxes, as well as federal and state unemployment taxes when the wages you pay your employee exceed certain amounts. If you’re confused about how much you owe and to whom, the following information may answer your questions. When you pay a household worker more than $l,000 per calendar year, those wages are subject to Social Security and Medicare (FICA) taxes. It doesn’t matter how many domestic workers you employ. As long as each worker is paid less than $1,000 for the year, you are not required to pay FICA taxes. Social Security and Medicare taxes are withheld from your employee’s pay and matched by you. The combined rate for both you and your employee is 15.3 percent of the employee’s taxable income. You deduct the employee’s half (7.65 percent) from his or her paycheck. You also have the option of paying the employee’s portion yourself, in which case the amount you pay represents taxable wages to the employee and must be included on the employee’s Form W-2. The wages you pay to household workers under the age of 18 are not subject to FICA taxes (unless that work is their principal occupation), nor are amounts paid for household work provided by your spouse or your children under age 21. If you pay cash wages of $1,000 or more in a calendar quarter, you are liable for paying federal unemployment tax (FUTA). This tax is put into a fund used to help pay unemployment benefits for people who lose their jobs. Unlike FICA, this tax is paid entirely by the employer. The rate is 6.2 percent of the first $7,000 of wages paid to each employee. In addition to FUTA, many states that impose unemployment taxes on household employees require quarterly payments. You should contact your state employment office to determine your state tax obligations. Mel Poteshman is a certified public accountant and president of Poteshman Consulting International & Co., a West Los Angeles-based business consulting firm.

By DANIEL TAUB Staff Reporter Forget buzzwords like self-determination and local control. Proponents of San Fernando Valley secession have an even more powerful, bottom-line argument to make to business lower taxes. Los Angeles has the highest average business license tax, and the highest non-residential electricity tax, of 143 California cities surveyed last year in the Kosmont Cost of Doing Business Survey. Community leaders who spearheaded legislation making it easier for the Valley to secede from Los Angeles say the promise of lower taxes will be one of the most appealing arguments for a new Valley city. “Our goal is to have lower business taxes, a more fair business tax structure, to have a more fair utility tax rate, so we can compete with other communities,” said Jeff Brain, co-chair of Valley Voters Organized Toward Empowerment, also known as Valley VOTE. According to the Kosmont study, the city of L.A. has a 12.5-percent commercial utility tax. Other nearby cities, including Santa Clarita and San Fernando, have no such tax at all. In addition, L.A.’s business tax structure contains 64 different industry categories with tax rates ranging from $1.18 for every $1,000 in gross receipts a company brings in, to $5.91 for every $1,000 in gross receipts. Thus, in L.A., a 30,000-square-foot law firm with $16 million in gross receipts would have to pay the city about $116,650 a year in business license, utility and property taxes, according to the study by L.A.-based Kosmont & Associates Inc. In Calabasas, the same firm would only pay $8,520, and in Santa Clarita it would pay nothing. Kosmont & Associates President Larry Kosmont said it is too early in the secession movement to know how much cheaper it would be to do business in a new Valley city, but that it is likely to be less expensive than doing business in L.A. “I think it’s just an assumption that because the San Fernando Valley will be a new city, its cost of operation will be lower and it will be able to pass the savings to the taxpayer,” Kosmont said. “Given the historical basis of cities in California, that’s a pretty fair assumption.” Kosmont and others said it would be difficult to find another city to compare with a seceded Valley, because the last local secession was when Coronado broke away from San Diego more than a century ago. But many unincorporated county areas that recently have incorporated as cities for the first time have made an emphasis on being business-friendly by having low or even nonexistent taxes for their businesses. Santa Clarita, located just north of the San Fernando Valley, was incorporated as a city nearly a decade ago. Since its incorporation on Dec. 15, 1987, the city with a population of nearly 142,000 has had no business license taxes and no utility user taxes. City planners “had decided as a group during the establishment of the city not to increase any taxes or incorporate any new taxes,” said Michael Haviland, marketing and economic development manager for Santa Clarita. “That was the basis for not creating a business tax.” To provide city services such as planning, city parks, code enforcement and public works and to contract with the county for fire and police protection Santa Clarita depends primarily on its share of local sales taxes, and to a lesser extent on its share of property taxes. “Those numbers added up fairly quickly,” Haviland said. And those numbers would also add up fairly quickly in the city of the San Fernando Valley, said Brain of Valley VOTE, because the Valley currently seems to pay far more in taxes than it gets in return in public services. For example, the Valley contains about 35 percent of the city’s population, yet only 1.2 million of the city’s 6.6 million library books are located in the Valley, Brain said. And of $28 million spent on street resurfacing in 1996, only $4 million was spent in the Valley, he said. “I think that if we became our own city and were able to keep those funds, we’d be able to have a better, more vibrant business front,” Brain said. But Jack Kyser, chief economist with the Economic Development Corp. of L.A. County, said there could be great expenses associated with forming a new city in an area as developed as the Valley. “You have a lot of key operational and financial questions you have to get through right away,” Kyser said. Such questions, Kyser said, include how to provide water and power services; whether to contract with the county or the city of L.A. for fire and police services, or to form new departments; and what to do with the Van Nuys Airport, which is currently owned and operated by the L.A. Department of Airports. “This is not a simple thing,” he said. “This is going to be a very complicated and, eventually, it’s going to be a very, very expensive issue.” But Kyser, like Kosmont, said that when all is said and done, the city of the Valley would likely be a cheaper place to do business than L.A. simply because the new city government likely would be more efficient than L.A.’s. “You would not be dealing with the overall bureaucracy you’ve got now,” he said. “The new city could theoretically say, ‘We could get this service or that service by contracting out.’ ” Kyser said the new city might also be pressured to provide lower business taxes because of the close proximity of such low-business-tax cities as Santa Clarita, Burbank, Glendale, Agoura Hills and Calabasas. “The city of the new San Fernando Valley would probably be very conscious of the competition,” he said. The city of the Valley would also be more business-friendly, Brain said, simply because of the involvement in the secession movement of people like himself (Brain owns a real estate business) and co-chair Richard Close (a Century City attorney). “Keep in mind,” Brain said, “Many of the people driving this are business people.”

NON-PROFIT SPARKS QUAKE RECOVERY WITH BUSINESS LENDING by Bruce Dobb and Roberto Barragan In January l994, the San Fernando Valley was hit with the largest urban disaster in the history of the United States. The 5th largest economy in the country suffered $ 40 billion in damage, an immediate drop in population and the business disruption or shut-down of over 100,000 large and small businesses. Bank lending virtually ground to a halt as financial institutions accessed their damages and sorted through insurance coverage. Because over 50% of all businesses that initially applied to FEMA and the SBA for assistance were declined, their emerged a need to provide additional credit resources to the community. The Valley Economic Development Center(VEDC), at that time a small, non-profit Chamber of Commerce spin-off, requested additional assistance from the Federal government. VEDC designed a relief program that is open to all quake impacted companies. Known as the Financial Restructuring Assistance Program (FRAP), this revolving loan fund program was funded by the Economic Development Administration and the City of Los Angeles in October of l994 with a $ 7 million grant to VEDC. To date, VEDC has approved $ 12 million of loans under this program, funded $ 7.5 million and created or saved 1,500 jobs. These jobs have been for businesses ranging from clothing manufacturers, electronic parts assembly firms to restaurants and retailers. Companies receiving loans have had as many as 230 employees and as few as 2. But they all shared one characteristic, they represented healthy, thriving businesses that are part of the Valley’s recovery processes. In several cases, VEDC took a risk that private investors were either unable or unwilling to make. We financed recent acquisitions, new product development, debt consolidation or contract receivables that were outside of a traditional bank’s lending parameters. But in every case the risk was justified by solid repayment with few delinquencies or defaults. Not one dime of the original grant funds have been lost. The success of our portfolio reflects the overall success of the Valley’s recovery in general. Specific examples are many: Eclectic Cafe started as bar and grill in an area of North Hollywood along Cahuenga Blvd. that had little night life and few nearby places to eat. Annual revenues have more than doubled since it restructured its quake related debt with a VEDC loan. The restaurant has added 5 people and is planing a major expansion. The area since become known as NoHo and is thriving. Cownan Precision was denied an SBA Disaster Loan because the Agency ruled that the company was unable to repay new debt. VEDC lend the firm $ 180,000 to buy equipment based on solid projections and a strong track record by the owner. Our loan allowed the company to diversify its customer base, enhance revenues and hire two new employees. Ricon, Inc., the wheelchair lift manufacturer in Pacoima, was able to hire 100 new employees immediately in order to launch it’s auto van conversion program. Without a VEDC $ 695,000 loan the company would have required 18 months to fully activate this new division. Some 65 companies are currently in VEDC’s portfolio. In many cases these companies have been referred to VEDC by a Bank Lending Partnership which was formed in l996 to spur new investment in San Fernando Valley Companies. Sixteen banks ranging in size from billions in assets to under $ 200 million agreed to target their lending to Valley businesses and this effort has sparked over $ 20 million in new investment. VEDC has also been selected as a lending partner for the Los Angeles Community Development Bank and is presently making loans under $ 25,000 to businesses located in Pacoima, East Los Angeles and parts of Downtown Los Angeles. This program is currently restricted to businesses located in the federally designated Empowerment Zone, but VEDC hopes to expand it into a county-wide micro-lending program by the Spring of l998. Because the capital needs of growing companies have continued to change since January of l994, VEDC has started to explore new sources of investment dollars. We underwrite limited partnerships, private placements and other types of equity or near equity of investments. We also serve as investment advisors for transactions ranging from mergers and acquisitions to Industrial Revenue Bonds. The San Fernando Valley has the largest, most entrepreneurial and diverse business community in the nation. Thirty percent of VEDC’s loans are to minority owned businesses. In aggregate these companies represent an extremely dynamic and growing segment of the local economy. VEDC hopes to carve a unique niche in the financial markets by continuing to service the credit needs of these companies. Our success is largely due to the diligence and dedication of an all volunteer loan committee, a hard working staff and the good fortune of being able to serve the San Fernando Valley. We appreciate that opportunity. Bruce Dobb is chief credit officer for the VEDC. Roberto Barragan is Vice President of lending operations for the VEDC.

TIPS FOR NEW BUSINESSES: WHAT BANKS ARE LOOKING FOR by Todd Gavin Banks and institutions that lend money have a lot of knowledge about the success rate of small businesses. Bankers are often overly cautious in making loans to small businesses. For that very reason, it makes sense to study their approach, even though it may seem discouraging at first glance. 1. The Banker’s Ideal. Bankers look for an ideal loan applicant, who typically meets these requirements: * For an existing business, a cash flow sufficient to make the loan payments. * For a new business, an owner who has a track record of profitability owning and operating the same sort of business. * An owner with a sound, well thought-out business . * An owner with financial reserves and personal collateral sufficient to solve the unexpected problems and fluctuations that affect all businesses. Why does such a person need a loan, you ask? He or she probably doesn’t, which, of course, is the point. People who lend money are most comfortable with people so close to their ideal loan candidate that they don’t need to borrow. However, to stay in business themselves, banks and other lenders must lend the money deposited with them. To do this, they must lend to at least some people whose credit worthiness is less than perfect. 2. Measuring Up to the Banker’s Ideal Who are these ordinary mortals who slip through bankers’ fine screens of approval? And more to the point, how can you qualify as one of them? Your job is to show how your situation is similar to the banker’s ideal. A good bet is the person who has worked for, or preferably managed, a successful business in the same field as the proposed new business. For example, if you have profitably run a clothing store for an absentee owner for a year or two, a lender may believe you are ready to do it on your own. All you need is a good location, a sound business plan and a little capital. Further away from a lender’s ideal is the person who has sound experience managing one type of business, but proposes to start one in a different field. Let’s say you ran the most profitable hot dog stand in the Squaw Valley ski resort and now you want to market computer software in the Silicon Valley of California. In your favor is your experience running a successful business. On the negative side is the fact that computer software marketing has no relationship to hot dog selling. In this situation, you might be able to get a loan if you hire people who make up for your lack of experience. At the very least, you would need someone with a strong software marketing background, as well as a person with experience managing retail sales and service businesses. Naturally, both of those people are most desirable if they have many years of successful experience in the software marketing business, preferably in California. 3. Use the Banker’s Ideal It’s helpful to use the bankers’ model in your decision-making process. Use a skeptical attitude as a counterweight to your optimism to get a balanced view of your prospects. What is it that makes you think you will be one of the minority of small-business people who will succeed? If you don’t have some specific answers, you are in trouble. Most new businesses fail, and the large majority of survivors do not genuinely prosper. Many people start their own business because they can’t stand working for others. They don’t have a choice. They must either be boss or bum. They are more than willing to trade security for the chance to call the shots. They meet a good chunk of their goals when they leave their paycheck behind. This is fine as far as it goes, but typically, the more successful small-business people have other goals as well. Todd Gavin is a Valley-based independent financial consultant.