By Alex Dobuzinskis
LOS ANGELES (Reuters) - Leading candidates for mayor of Los Angeles are trumpeting the need to reduce business taxes to grow the city's economy, even as the nation's second-largest metropolis scrounges for new revenue to plug a budget hole set to top $1 billion over the next four years.
A non-partisan primary will be held on Tuesday, and if no candidate secures a majority, the top two will advance to a May runoff to decide who will replace Mayor Antonio Villaraigosa. One of the nation's most high-profile Latino politicians, Villaraigosa has held the office for eight years and cannot run for re-election due to term limits.
A recent independent poll shows that two Democratic elected officials from inside City Hall, Wendy Greuel and Eric Garcetti, and conservative talk-show host Kevin James are the top three contenders for the post.
Greuel and Garcetti have at times borrowed a theme promoted by Republican candidates at the national level by calling for a reduction in business taxes to promote economic growth and increase city revenues. James, the only Republican among the top candidates, has taken a similar position.
This follows years of complaints by business groups that Los Angeles imposes too many burdens on commerce. The top contenders are also opposing a half-cent sales tax increase that is on the March 5 ballot and is backed by Villaraigosa.
"Somewhere along the line, the ghost of Ronald Reagan took over the campaign for mayor of Los Angeles," said Dan Schnur, who has been one of California's top Republican political and media strategists.
Elections in Los Angeles are non-partisan, which reduces the role of party politics. The city has 3.8 million residents.
All three top contenders have said they want to overhaul the city's gross receipts tax on businesses. The tax varies by type of commerce, with Internet-based companies charged $1 per $1,000 in revenue, and professional service firms docked $5 per $1,000.
James, a former federal prosecutor and local AM radio host, said the tax should be eliminated because it takes money "right off the top."
"There's two groups that get away with that: The city of Los Angeles and the mafia, so we ought to be able to reform that," he said.
Greuel, a former City Council member, describes herself as the architect of a 15 percent cut in the gross receipts tax between 2006 and 2011. That was passed despite concerns among some officials that it would take away too much revenue.
"There were stories of doom and gloom, and in fact what we saw was more businesses come into the city of Los Angeles," said Greuel, who in her current role as Los Angeles city controller is tasked with looking for money lost to waste and fraud.
Garcetti, who supported the 15 percent cut, is the son of former Los Angeles District Attorney Gil Garcetti and in 2001 he was elected to the City Council, where he still serves. The candidate said Los Angeles needs to grow its local economy to turn around the city's finances.
"If we try to tax and cut our way out of this, I don't think that long term we'll be a fiscally healthy city," he said. "We have to get rid of a gross receipts tax that chases businesses away; we have to become more business friendly."
The campaign trail proposal to reshape the tax code comes at a time of heightened concern about the city's finances, which James has seized on to argue Los Angeles might go bankrupt.
A report last year from the city's budget office estimated that between mid-2013 and 2017, Los Angeles will accumulate debts of $1.1 billion if it does not gain new revenue or make cutbacks.
The city's budget office last year also produced a report from consulting firm Blue Sky that said eliminating the gross receipts tax would rob the city of nearly $400 million in annual revenue, despite a boost to private sector activity that would accompany a cut.
Amid criticism that the city cannot afford to lose revenue from businesses, Greuel and Garcetti have said they want to reduce the gross receipts tax gradually over time, to insulate city coffers from harm.
They are the two top candidates in the latest poll from SurveyUSA, which was conducted between February 14 and February 17 on behalf of local television station KABC. Garcetti led with 26 percent support from registered voters, followed by 23 percent for Greuel, with James at 14 percent.
City Councilwoman Jan Perry, another candidate in the race, trailed at 12 percent support in the survey, which relied on the views of 820 respondents and had a margin of error of 4.4 percent.
(Reporting by Alex Dobuzinskis; Editing by Cynthia Johnston and Lisa Shumaker)