Hesperia tied with Upland and Chino Hills as one of the least expensive cities in San Bernardino County to do business, according to the 18th annual Kosmont-Rose Institute Cost of Doing Business Survey.
Every High Desert city ranked well in the survey, with Adelanto, Apple Valley, Barstow and Victorville considered “low cost” places for businesses based on taxes, fees, incentives and more.
However, California dominated the survey’s list as the most expensive state in the West to do business. A total of 11 cities here ranked as “very high cost,” including San Bernardino, Pomona, Los Angeles and Santa Monica.
“The past few years have not been kind to California cities,” said Larry Kosmont, president of Los Angeles-based Kosmont Companies, which conducted the survey along with Claremont McKenna College’s Rose Institute of State & Local Government. “The recession exposed fiscal weakness in California that has been present since public unions became king of the hill: namely unfunded pension obligations and a state so entitlement-burdened and reliant on high taxes and fees, that it has become routinely adverse to the needs of business. Add to that structural deficiencies, the reduced tax receipts from the downturn, and the recent loss of redevelopment agencies and you have a quadruple-punch in the gut of local governments.”
Kosmont said firms still want to locate in California, citing the Golden State’s world-class weather, amenities, large and diverse workforce, and strategic Pacific Rim location.
“The truth is companies want to be in California,” he said. “But in response to the pressure to control costs and remain price competitive, CEOs are compelled to ask, ’How small an operation in California can I manage with and still service that market?’ As a result, the sales or design office may stay or even expand in L.A. or the Bay Area, but the bulk of jobs and back office functions will likely end up in states like Nevada, Arizona or Texas.”
Texas stood out as a low cost state, with six cities on the list of 20 least expensive western cities.
To conduct the study, Kosmont and Rose Institute gather data on business fees and a variety of tax rates from 305 selected cities, focusing in on states where business relocation is the most active. The 2012 edition of the survey takes a close look at the cost of doing business in California, along with eight other western states that many companies view as possible alternatives to California: Arizona, Colorado, Nevada, New Mexico, Oregon, Texas, Utah and Washington.
In California, the November elections were populated by 124 ballot initiatives that would increase or expand local taxes. Eighty-three of these 124 passed, including increases in taxes that directly impact business such as sales and use taxes, transient occupancy taxes, utility user taxes and businesses license taxes.
The trend toward more taxes is expected to continue next year. In Los Angeles, for example, a proposal to increase sales tax from 9 percent to 9.5 percent has been preliminarily approved. Voters will decide on the proposal on the March 2013 ballot.
The most recent blow to business may be unintended fallout from the recently passed Proposition 30, the study states, which was advocated by Gov. Jerry Brown as part of his plan to reduce the state budget gap. Prop 30 increases sales tax by 0.25 percent, raising California’s state sales tax from 7.25 percent to 7.5 percent for the next four years. Prop 30 also imposes higher income tax rates for the next seven years on California residents making over $250,000 a year. As a result of Prop 30, top earners in California will pay the highest state income tax rate in the country.
“Revenue remains an issue in Sacramento, but California’s economy is increasingly reliant upon small businesses, many of which are sole-proprietorships and partnerships in which business income is taxed at individual income tax rates,” Kosmont said in the study. “While the governor was targeting higher earners, it remains to be seen if the measure will inadvertently undermine entrepreneurial growth and small business expansion.”
Another blow came with the defeat of redevelopment agencies, which the study states had been a key tool for California businesses.
For decades, cities and counties across California relied on redevelopment areas to attract private investment and to reinvigorate and improve blighted, deteriorated, and economically challenged areas, thereby improving the municipality’s local economic conditions. But under a 2011 decision by the California Supreme Court, more than 400 California redevelopment agencies were terminated on Feb. 1. The former host cities are now entangled in a complex, time-consuming dissolution process which will end with a fire sale of property sometime in 2013.