City Officials Advise Against HMO Tax Break

City administrators have recommended against lowering tax rates for health maintenance organizations, dealing a potential financial blow to five HMOs that had sought tax breaks.

The recommendation was made in a report, released late Friday to the City Council’s Budget and Finance Committee, that was prepared by the city administrative officer, chief legislative analyst and city clerk.

The committee is expected to approve the recommendations Tuesday before sending them to the full council, where they will probably win approval, said Councilwoman Laura Chick, who called for lowering the tax rate.

“I would have liked to have seen some downward movement in the tax rate,” Chick said Saturday, adding that in retrospect, the focus on HMOs alone was too narrow.

“The difficulty was that in the absence of a full package, that deals with all business, it would be difficult to get it passed,” Chick said.

“My hope is that as we go forward with city tax studies in the near future, we will see some downward movement.”

The report recommends that all HMOs doing business in Los Angeles continue to pay $5.91 for every $1,000 of gross receipts, the highest of several rates the city charges businesses to operate within its borders.

Chick called for lowering the tax rate to $4.14 for every $1,000 of gross receipts early this year after five HMOs headquartered in Los Angeles--four of them in her district in Woodland Hills--threatened to move to cities offering better financial incentives.

But the administrators who prepared the report concluded that HMOs should not be singled out. Any decision on giving HMOs a tax break, they wrote, “should be deferred until we have determined how . . . it will affect our revenues at the current tax rate and until the mayor and council have reviewed and acted upon” a tax equity study.

In the five-page report, city administrators also called for the City Council to create a method for calculating taxable gross receipts generated by HMOs, and recommended that HMOs pay millions of dollars in back taxes they withheld in 1994 and 1995 in protest of the city’s tax formula.

The departure of the five who threatened to leave would have had its greatest impact on the San Fernando Valley because four of the companies--WellPoint Health Systems, CareAmerica, Health Net and Prudential Health Care--are in Woodland Hills. The fifth, Maxicare, is downtown.

Combined, the five HMOs employ 6,500 workers and generate more than $23 million in taxes annually.