The Rose Report

The 15th annual Kosmont-Rose Institute Cost of Doing Business Survey has been released by the Rose Institute of State & Local Government at Claremont McKenna College. The Survey reports that California cities continue to be some of the most expensive locations to do business in the United States, and that many metropolitan areas nationwide are struggling with the effects of the 2008 sub-prime mortgage crisis and the subsequent recession.

According to the President and CEO of Kosmont Companies, Larry Kosmont, “California and many of its cities are now grappling with the triple witching hour of property tax losses, sales tax recession and income tax losses. It reflects today’s job losing economy in which families are too afraid to spend money on anything but the
basics and seek heavily discounted goods. Unlike retailers, who look to slash prices and hold on to their customers, many California cities are looking to adopt tax and fee increases, since there is no lifeline from the State. These increases may escalate the loss of business in California. Even well-run cities will have a hard time fending off tax increases, particularly since the financially faltering State wants to grab hard earned local
redevelopment money and gas tax from their local cities and counties. But opportunities are still there, albeit harder to find, and it is still anyone’s guess what effect Obama’s stimulus plans have in attracting business and reviving local economies. ”

The 2009 Survey provides a complete ranking of 411 cities in terms of their relative cost to business and divides this ranking into five groups called “Cost Ratings.” The Cost Ratings are termed Very Low Cost ($), Low Cost ($$), Average Cost ($$$), High Cost ($$$$), and Very High Cost ($$$$$).

Survey Highlights for 2009
National:

• The ten least expensive cities in 2009 (in alphabetical order) are: Austin, TX; Cheyenne, WY;Dallas, TX; Eugene, OR; Everett, OR; Fort Worth, TX; Gresham, OR; Houston, TX; Portland, OR; and Reno, NV.
• The ten most expensive cities in 2009 (in alphabetical order) are: Akron, OH; Chicago, IL; Jersey City, NJ; Los Angeles, CA; New York, NY; Newark, NJ; Philadelphia, PA; Phoenix, AZ; San Francisco, CA; and Tucson, AZ.
• The highest cost cities nationwide tend to be cities located in the Northeast, the Great Lakes, and California.

California:

• The ten least expensive cities in California in 2009 (in alphabetical order) are: Costa Mesa; Hesperia; Moorpark; Roseville; Sutter Creek; Unincorporated El Dorado County; Unincorporated Lake County; Unincorporated Merced County; Unincorporated Orange County; and Unincorporated Santa Barbara County.
• The ten most expensive cities in California in 2009 (in alphabetical order) are: Berkeley; Culver City; El Segundo; Inglewood; Los Angeles; Monterey; Oakland; San Bernardino; San Francisco; and Santa Monica.
• Cities in Los Angeles County tend to place in higher cost categories than the cities surveyed in San Bernardino, Ventura, San Diego, Alameda, Riverside, and Orange Counties.

Los Angeles County

• Of the 71 cities surveyed in Los Angeles County, less than one third (21 cities) have Cost Ratings in the lowest two brackets; with only 6 cities in the lowest bracket.
• Ten Los Angeles County cities are in the Average Cost bracket; 23 cities are in the High Cost bracket; and 17 cities are in the Highest Cost bracket.
• The ten least expensive cities in Los Angeles County in 2009 (in alphabetical order) are: Agoura Hills; Bell Gardens; Cerritos; Diamond Bar; Glendora; Lancaster; Santa Clarita; Signal Hill; Walnut; and Westlake Village.
• The ten most expensive cities in Los Angeles County in 2009 (in alphabetical order) are: Bell; Beverly Hills; Compton; Culver City; El Segundo; Hawthorne; Inglewood; Los Angeles; Pomona; and Santa Monica.

The Survey as a “Tie-Breaker”

The 2009 Kosmont-Rose Institute Cost of Doing Business Survey uses a proprietary basket of costs approach to compare government fees as determinants of what drives businesses’ location choices. The Survey objectively compares 411 cities nationwide based on the array of taxes and fees cities impose on businesses and that significantly affect business interests such as sales, utility, income, property, and business taxes.

According to the Survey’s founder, Larry Kosmont of Los Angeles-based Kosmont Companies, the Survey is best used as a “tie-breaker” for companies that are contemplating a move or an expansion and have already determined the best mix of factors important to them, such as the quality of the labor force, the cost of housing, and the proximity to their suppliers and customers. The Survey is an opportunity for these companies to narrow their short list of cities by comparing the “hard” numbers and ultimately make a comprehensive and strategic decision to remain, expand, or relocate.

The Survey also includes information on economic development incentives that each city offers. Such incentives and other development programs are not computed into the Cost Rating, but they add an extra layer of information to help bolster a business’s case for selecting a city.

General Conclusions
The Cost of Doing Business Survey® examines numerous types of fees, and each city has a unique approach to taxation and exaction. Nonetheless, trends still emerge year after year. (See map above.)

Two of the biggest determinants of a city’s cost of doing business tend to be business license fees and property taxes. Often politically-driven, business license fees tend to reflect the general attitude towards business in a city. Cities that charge the highest license fees (such as Los Angeles, Philadelphia, and Cincinnati) are often those that have a history of uneven relations with the business community.

As the 2009 Survey suggests, communities in western states such as Washington, Colorado, and Nevada consistently provide low cost areas in which to do business. California cities such as Los Angeles, Oakland, San Francisco, and Santa Monica continue to receive Very High Cost ratings and Los Angeles County continues to be one of the Survey’s most expensive counties. Of the 50 most expensive cities in the Survey nationwide, eleven are in Los Angeles County.

While there are quality of life reasons that companies have located in California for years, “paradise” typically comes at a high cost. Nearly all of the State’s expensive cities tend to be older and clustered together near the coastline. Established “pre-war” cultural hubs with aging infrastructure and higher density tend to be less businessfriendly and look to corporations to pay for their costly physical and social upkeep. In Southern California, high cost ratings in cities like Santa Monica, Los Angeles, Torrance and Pasadena prove that Los Angeles County’s pleasant weather and laid-back lifestyle can be expensive for businesses, while high cost ratings in cities like San Francisco, Alameda, Berkeley, and Emeryville show that a world class urban location comes at a price.