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Should the City have Waived Fees for the Grammy Awards?

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At the Grammy Museum | Photo by Eric Richardson of blogdowntown

At the Grammy Museum | Photo by Eric Richardson of blogdowntown
In a time when the city of Los Angeles is in the red by $433 million, the Grammy Awards yesterday got $124,163 in special event fees waived (you know, permits, officers, street closures and the like). With city services being cut and fees to residents being raised (like parking meter rates, etc), some folks are not happy. After all, with all the advertising, the glamour and lawsuits against college students, the music industry can't afford this drop-in-the-bucket (to them) fee? Besides the music industry being douchey, in the end, like all things, it's a game of numbers and economics and they know that. The Grammys, which is estimated to inject $45 million into the local economy, has jumped back and forth between Los Angeles and New York. In recent years, it's stayed in Los Angeles, except in 2003.

"This is an event of international significance that puts an enormous spotlight on the city of Los Angeles, generates a lot of revenue in terms of hotels, restaurant, service opportunities," said Jan Perry, the councilmember who asked the council to waive the fees, to the LA Times. "This is something that competitively . . . we cannot afford to risk losing to another major city."

Let's say that $45 million is spent locally strictly within city limits on taxable goods (in reality, it's not that simple, but stay with me here). With an 8.25 percent sales tax in LA County, that's $3.7 million in taxes. But wait, 6.25 percent of the sales tax goes to the state and 1.25 percent to local transportation leaving .75 for Los Angeles (a little of that 1.25 percent to transit goes to the city, but we're not counting that in this case) . That makes for a grand total of $27,843.75. We're still losing about $100,000 if you're keeping score.

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I'm no economist, but as money works, lots of it can stay recycled within a local economy. For example, Graham sells $1 million in red carpet to the Grammys. $82,500 in taxes are added to the cost and $7,500 goes directly to the city. Now Graham has to make more carpet to sell so he goes to Tim and buys $250,000, not including tax, in supplies. Tax comes out to $20,625 giving the city $1,875. Now Tim needs to buy more raw materials from his supplier. The pattern goes on and on, each time someone spends money, it's taxed. If all those purchases happen within the city, it creates a good recycled economy.

Reality doesn't stick to city borders, but millions among millions being spent is good for the region, our local businesses and ultimately, our neighbors and friends. The Grammys can afford and should pay the special event fees, but the city has to play smart like any business would to keep a client. In this case, it's a pretty big client who seems whiney enough to move the show to another city if they don't get what they want. Fortunately, what they want isn't much when you look how it all plays out.

Update: In conversation with City Controller Laura Chick's office, they noted that a .25% share of the 6.25% collected by the state goes back to the city via the property tax giving the city a total of a 1% share of the total 8.25% collected on sales taxes. The article numbers have been kept at .75% as originally reported.

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