Sunset Boulevard Billboard-Fee Fight Shows U.S. Cities Reach High for Cash

West Hollywood is earning $10,500 every four weeks from billboard operators, five months after voters rejected a broader tax on the signs.

Rather than put a 7 percent levy on all billboard revenue, which residents shot down in a March referendum, the city is requiring monthly payments in return for permitting new signs. Billboards can be leased to advertisers for as much as $100,000 a month along West Hollywood’s renowned Sunset Strip, according to Joan English, the city’s assistant manager.

“Cities need revenue these days,” English said in a telephone interview. “We said to ourselves, let’s figure out a way to make it work.”

Municipalities looking to raise taxes on the $6.1 billion- a-year outdoor advertising industry have faced lawsuits from operators challenging the legality of the plans.

Toronto, which introduced a billboard levy last year that generates about $10 million annually, is in court fighting outdoor operators who claim the city doesn’t have the right to tax the signs, according to Ted Van Vliet, the manager of the Canadian city’s billboard program.

Madison, Wisconsin, is considering a $1.1 million settlement for back taxes and fees owed to a billboard operator that successfully sued to prevent an increase in its property assessment, according to City Attorney Michael May.

Constitutionality Questioned

Singling out billboards for disparate tax treatment in the U.S. raises constitutional issues, according to Ken Klein, an executive vice president for government affairs at the Washington-based Outdoor Advertising Association of America, an industry trade group.

“A special tax levied on any one industry engaging in First Amendment activities is unconstitutional,” he said in an e-mail.

In West Hollywood, an enclave of 38,000 people about eight miles (13 kilometers) from downtown Los Angeles, the billboard- tax initiative was sponsored by Michael McNeilly, founder of SkyTag Inc., a Beverly Hills-based maker of large vinyl signs called supergraphics. In addition to imposing a 7 percent tax on advertising revenue derived from signs, the measure would have allowed more widespread use of supergraphics, which are typically stretched across the sides of buildings.

McNeilly said he modeled the initiative after a 7 percent billboard tax Philadelphia imposed in 2005 and that West Hollywood was entitled to its “fair share” of sign revenue collected by the outdoor-advertising companies. Billboard operators unsuccessfully challenged the Philadelphia tax in court.

Industry Fights Back

Opposition in West Hollywood came from an industry-funded group that called itself “Concerned Neighbors Against Illegal Billboards,” a reference to the supergraphics. The group spent almost $200,000 opposing the tax, according to city records. The money was raised from four billboard operators: CBS Outdoor, Clear Channel Outdoor Holdings Inc. (CCO), Van Wagner Communications LLC and Lamar Advertising Co. (LAMR)

Voters rejected the measure by almost 4-to-1, a fact McNeilly attributed to mailings and other community outreach efforts made by the billboard companies.

“They wanted to bury it,” McNeilly said of the tax in a telephone interview. “If it would have happened in the sign capital of the West Coast, every other city council would have adopted it.”

Los Angeles Stadium

West Hollywood officials, who opposed the ballot measure in part due to legal questions, are instead negotiating development agreements with billboard operators. Such deals are typically used when real estate developers request permission to construct new structures, according to English, the assistant city manager.

The City Council approved two new billboards along the Strip on Sunset Boulevard last month and will consider the replacement of two existing billboards with larger signs at its Aug. 15 meeting. The owners will pay the city $10,500 a month for the right to build them.

Outdoor advertising may also be a financing tool in Los Angeles, where developer Anschutz Entertainment Group Inc. is hoping to pay for a $1.4 billion football stadium complex in part with $5.3 million generated annually from 41 billboards circling the city’s convention center, according to an analysis of the plan Los Angeles officials released July 25.

A tax on other signs in Los Angeles was suggested to the City Council by Gerry Miller, the city’s chief legislative analyst, on Aug. 10.

“For various First Amendment-related reasons revenue sharing on private property is problematic,” Miller told council members. “We can revenue-share on public property.”

To contact the reporters on this story: Christopher Palmeri inLos Angeles at cpalmeri1@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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