Downtown Los Angeles Forgot Who Pays The Rent

When Los Angeles talks about bringing downtown back, it usually talks about the big things. A stadium, a convention center, a subsidized tower with a famous tenant.

The conversation is almost always about the marquee — the project you can cut a ribbon in front of.

It is rarely about the law firm with eleven lawyers, the accounting practice, the architecture studio, or the small consulting company.

Yet those are the businesses that fill a downtown. They sign leases, pay rent, employ people, and put customers on the sidewalks at lunch.

If Los Angeles is serious about the recovery of Downtown Los Angeles, it needs to start paying attention to the businesses that make a downtown function every day.

Small Businesses Hear One Message and Receive Another

“Small business drives the economy” may be the most repeated line in American politics and one of the least reflected in how Los Angeles actually treats its small businesses.

Look at the city’s tax structure and its priorities become clear.

Los Angeles funds itself in part through a business tax based on gross receipts, meaning the tax is calculated on revenue rather than profit.

The distinction matters.

A firm can have a hard year, make almost nothing after expenses, and still owe the city money on the revenue that came through the door. For many professional services businesses, including law firms, accountants, consultants, and architects, the applicable rate is approximately $4.25 per $1,000 in gross receipts.

That tax is calculated before the firm has paid its employees, covered its rent, or absorbed the many other costs of operating a business in Los Angeles.

The City Already Knows How to Protect an Industry

Now compare that treatment with the industries Los Angeles has chosen to protect.

The city created a Creative Artist Exemption for qualifying creative professionals whose worldwide gross receipts from eligible creative activities do not exceed $300,000.

Entertainment is part of this city’s economy and identity. Supporting it makes sense. But the exemption also proves something important: Los Angeles knows how to use its tax code to signal that an industry matters.

It has simply never extended the same consideration to the small professional firms that could occupy offices throughout downtown.

Los Angeles also provides a general small-business exemption, but its $100,000 gross-receipts threshold is far too low to provide meaningful relief to most firms with employees, payroll, and a commercial lease.

For an operating business of any real size, the message is straightforward: pay one of the city’s highest general gross-receipts rates and expect little in return.

Businesses Can Leave, and They Do

The city appears to miss another fundamental point: professional-services businesses are not captive.

A small firm can move without uprooting a manufacturing line, a warehouse operation, or a large workforce. In many cases, it can relocate a few miles away without meaningfully changing where its employees live.

Pasadena openly promotes that it does not charge a gross-receipts tax and generally calculates its business-license tax using a flat rate and employee count. Other nearby cities also use registration fees or employee-based structures rather than taxing professional firms on revenue in the same way Los Angeles does.

A managing partner does not have to accept Los Angeles’ tax structure. The firm can sign a lease in another city and move on.

The tax does not fall on businesses that have no choice but to stay. It falls on the businesses that have not left yet.

Downtown Should Be the Easy Answer

This is where the issue stops being theoretical for me, because at Rising Realty Partners, we operate buildings in Downtown Los Angeles. 

Downtown should be an easy choice for a small professional firm. The rents make sense there in a way they don’t on the Westside or in much of the county; the space is available, and the empty towers need exactly these tenants. The city has supply and demand in the same place.

Then the rest of the equation gets in the way.

The firm that can afford the office looks beyond the rent and asks whether its employees will feel safe coming to work. It considers the walk from the parking garage or train station. It considers whether employees will feel comfortable staying after dark. It considers whether clients will want to visit.

For a managing partner deciding where to locate eight, twelve, or twenty employees, the decision may come down to safety, not real estate.

Downtown can win on price. But it loses on the basic need — safety. People need to feel comfortable getting from the train, sidewalk, or parking structure to the lobby, and many do not.

So the firm signs in Pasadena instead, and the city never even competes for it. The city taxes these firms at its highest rate, offers them nothing, and then fails to deliver the one thing that would make the affordable space usable: a downtown that’s safe to work in.

A Policy Working in Reverse

Put the pieces together, and the policy runs exactly backward. 

The buildings that most need tenants are downtown. 

The tenants who can use those buildings are small and mid-sized professional firms.

The city greets those firms with one of its highest business-tax rates, provides little meaningful relief, and has not consistently delivered the sense of safety and reliability that would make an affordable downtown lease an easy decision.

Then we wonder why office towers remain underoccupied and downtown’s recovery never fully arrives.

This is not an argument for subsidizing every business that signs a lease.

It is an argument for the city to stop actively working against the businesses that could help fill downtown on their own.

Tax profit rather than survival. Give small professional firms the same thoughtful consideration the city has already shown industries it has chosen to support. Make downtown safe and functional enough that its affordability becomes a genuine competitive advantage.

None of that requires another tower, another megaproject, or another ribbon-cutting ceremony. It requires Los Angeles to act on what it constantly says: small business is the economy, not a rounding error within it.

Downtown’s Recovery Will Be Built One Lease at a Time

A city cannot tax its way to a comeback.

Downtown Los Angeles does not have a demand problem that cannot be solved. It has a city that taxes and neglects many of the tenants its neighbors are glad to welcome,  and then waits for a recovery that keeps moving a few miles up the freeway.

Downtown does not need another ribbon-cutting; it needs to stop forgetting who pays the rent.

— Christopher C. Rising

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Fact-check note: The tax figures are verified. LA’s professional-services gross receipts rate (~$4.25 per $1,000), the Creative Artist Exemption (LAMC 21.29(b), up to $300,000 for entertainment), and Pasadena, Glendale, and El Segundo levy no gross receipts tax. Sources below.

LA Office of Finance, Tax Incentives & Exemptions: https://finance.lacity.gov/tax-education/tax-exemptions/tax-incentives-and-exemptions

City of LA Creative Artist Business Tax Exemption (LAMC 21.29): https://business.lacity.gov/incentive/city-los-angeles-creative-artist-business-tax-exemption