Larry Kosmont, President & CEO, Kosmont Companies, (213) 507-9000
David Huntoon, Fellow, Rose Institute of State and Local Government, (909) 621-8159
For Additional California City Charts (by County) Contact: Matt Goulet @ (818) 274-2206
2013 KOSMONT-ROSE INSTITUTE
COST OF DOING BUSINESS SURVEY REPORT
RELEASED BY THE ROSE INSTITUTE OF STATE & LOCAL GOVERNMENT AT CLAREMONT MCKENNA COLLEGE
California Cities Remain High Cost, but Los Angeles Mayor Proposes Relief for Business
Claremont, Calif. February 11, 2014 – Claremont McKenna College’s Rose Institute of State & Local Government today released the 19th annual Kosmont-Rose Institute Cost of Doing Business Survey. The Rose Institute with Los Angeles-based Kosmont Companies (www.kosmont.com) gathers business fees and a variety of tax rates from 305 selected cities, focusing in on the states where business relocation is the most active. The 2013 edition of the Survey takes a close look at the cost of doing business in California in the most recent calendar year, 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). Rankings for each city are divided into one of five “Cost Ratings” groups: Very Low Cost ($), Low Cost ($$), Average Cost ($$$), High Cost ($$$$), and Very High Cost ($$$$$). The Survey is available for purchase at the Rose Institute (http://roseinstitute.org/research/kosmont-rose-institute-cost-of-doing-business-survey/)
Highlights from the 2013 Survey
Most Expensive Cities
- California dominates the list of the most expensive cities, with a total of twelve cities – nine in Southern California and three in the San Francisco Bay Area.
- Los Angeles and the San Francisco Bay Area are the two most expensive metropolitan areas in the western United States.
- Eight out of the twenty most expensive western cities are in Los Angeles County: Bell, Beverly Hills, Compton, Culver City, El Segundo, Inglewood, Los Angeles, and Santa Monica.
Least Expensive Cities
- Texas stands out as a low cost state, with six cities on the list of twenty least expensive western cities.
- Both of the least expensive cities in California, Moorpark and Mission Viejo, are located in Southern California.
California Cities Continue to Rank as High Cost
“Real estate prices and occupancy are generally up, and unemployment is trending down and yet California’s cities still struggle to make ends meet,” said Larry Kosmont, President of Kosmont Companies.
Without help from the State to restore Tax Increment or provide financial assistance, California cities are left with only two basic options to raise funds: raise local taxes, which require a public vote, or encourage economic development via private sector investment.
Kosmont warns, “After disposing of Redevelopment Agencies and the Enterprise Zone programs, California has few economic development tools left in the shed to stimulate recovery at the State or the local level, often resorting to adding penalties or taxes to business rather than incentives to create jobs.”
Relying on its historic perception as the land of opportunity and good weather, California has been slow to react to an exodus of companies seeking cost-effective tax policies and friendlier politics. Cities do not receive a nickel of the state’s high corporate income tax rate and may lack sufficient local revenue to support them while taxing a shrinking local business base.
Los Angeles Mayor Reacts to LA’s High Costs and Plans to Reduce Business Costs
Since the 1994 inception of the Kosmont Rose Cost of Doing Business Survey, LA has always ranked in the Top 5 costliest cities for business, largely due to its business tax which is based on gross receipts surcharge to companies across 14 categories, the highest of which is 11 times the average of the other 304 cities in California covered by the Survey.
In a significant departure to the prevailing trend of taxing more, Los Angeles Mayor Eric Garcetti proposes a 15-year phase out of the Gross Receipts Tax, cutting it roughly in half the first five years, half again in the next five years and eliminating it completely in the final phase.
To illustrate its impact, if the Gross Receipts Tax was eliminated in 2013, the Survey computes that LA would have moved from the Top 5 most expensive cities in the entire Survey, in 2013 to the bottom of the Top 20 in LA County, the bottom of the Top 25 in California and the bottom of the Top 40 among all western cities.
California Desirable but Expensive
Firms still want to locate in California, citing the Golden State’s world-class weather, large and diverse workforce, and strategic Pacific Rim location.
“Large corporations have a love-hate relationship with California. They want to be in California. But in their attempt to minimize costs, CEO’s are compelled to ask, ‘How small an operation in California can I manage and still service that market?’ As a result, sales, technology or design offices may stay or even expand in LA or the Bay Area, but the remaining operating units are more likely to end up in states like Nevada, Arizona or Texas.”
There are signs that the anti-business sentiment in California politics may be waning. In October, Governor Brown signed three bills into law intended to promote economic growth by invigorating existing legislation and creating new methods to develop economic areas. The Legislature is considering additional bills that could further benefit Californian businesses.
Kosmont cautions, “California won’t become business friendly overnight. Change is apt to be incremental, but sooner or later the State will figure out that the long term answer to their budget deficit is private investment that creates jobs, and that means it will need to woo business back.
Governor’s Budget Offers a Little Relief, No Tax Increment Financing for Economic Development in Sight
Many experts, including Kosmont, maintain that economic development policy won’t have broad and lasting effects without a return of Tax-Increment Financing or “TIF”, which is the underlying tool that was lost when California dissolved Redevelopment Agencies in 2012. Today, the Golden State is one of only three states in the Union without this vital mechanism. The Governor appears open to enabling TIF for public infrastructure but only if requests for TIF are first put to a public vote, of which he is willing to reduce to 55% from the prevailing 66% threshold.
Kosmont feels it is unlikely the legislature will be able to advance any bill that uses TIF for economic development projects until the Governor can set aside ill feelings about the way TIF was used in Redevelopment. “The equation is simple. California gets 85% of its funding from income and sales tax. If we invest TIF in projects that create jobs and train workers and recent graduates, the State gets paid back 11 to 1 on its investment because the new job handsomely returns increased income and sales tax back to Sacramento. The Project gets to happen. The State gets a check. The City gets a job. That’s a natural win-win-win. With most counties in the State at over 9% unemployment the State should find the political will to bring TIF back in a productive way. Until then, attracting and retaining businesses will remain a heavy cross to bear for California.”
Kosmont describes the stark reality. “California cities are bringing a knife to a gun fight and losing business to other states that are better equipped. Until we get TIF and a more business-friendly culture, the economic development odds are stacked against local cities and counties.”
The Twenty Most Expensive Cities in the West in 2013
All have a Very High Cost ($$$$$) Rating
The Twenty Least Expensive Cities in the West in 2013
All are Very Low Cost ($)