LOS ANGELES—The City of Los Angeles could generate millions of dollars in additional tax revenue by putting more emphasis on giving municipal contracts to local businesses, a move that would also support the city’s economy and create jobs, City Controller Ron Galperin said May 20.
Galperin sent a letter to the mayor and city council, saying city agencies paid $7 million in sales taxes that went to other California jurisdictions for commodity purchases between the 2018 and 2020 fiscal years due to out-of-area contracts. During that same period, the city paid just $4.1 million in sales taxes through local contracts that went back into the city’s general fund.
“Los Angeles is missing out on millions in sales tax revenue that is benefiting other cities instead because so much contracting is done with non-local vendors,” Galperin said. “I see an opportunity to change that, which would both support local businesses—including small businesses owned by women, people of color and LGBTQ individuals—and create more jobs for our communities. It would also put more money back into the city’s general fund to support services that Angelenos rely on and need.”
According to Galperin, despite the city’s local-purchase-preference programs, just 18 percent of the city’s commodities contracting went to Los Angeles vendors between 2018 and 2020. He recommended that the council make further refinements to the local-purchasing program to promote more contracts within the city.
Galperin said that during the 2020 fiscal year, the city’s commodities purchases topped $574 million, including $41.3 million on software, $24.9 million on automobiles, $22.4 million on construction machinery and equipment, $18.9 million on asphalt and $16.8 million on helicopters and related equipment.
“An unintended consequence of buying from vendors located outside of Los Angeles is that the local government’s share from sales taxes paid by the city goes to other jurisdictions,” according to Galperin’s letter. “For example, the city spent $22.6 million in FY 2020 for asphalt and other related goods and services from a vendor based in Carlsbad, San Diego County. The city paid $1.4 million in sales taxes for these purchases. Because the vendor is located in Carlsbad, $150,499 of the $1.4 million in sales taxes paid was likely allocated to the City of Carlsbad.
“The connection between where the city buys its goods and the allocation rules for sales taxes highlights an important point: buying from Los Angeles-based businesses not only increases local investment; it increases the city’s share of sales tax revenue.”