2012 Kosmont-Rose Institute Cost of Doing Business Survey Report Released by the Rose Institute of State & Local Government at Claremont McKenna College

Tue Dec 11, 2012 11:17am EST

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2012 Kosmont-Rose Institute Cost of Doing Business Survey Report Released by the Rose Institute of State & Local Government at Claremont McKenna College

Claremont McKenna College’s Rose Institute of State & Local Government today released the 18th annual Kosmont-Rose Institute Cost of Doing Business Survey. The Rose Institute with Los Angeles-based Kosmont Companies gathers data on business fees and a variety of tax rates from 305 selected cities. After 17 years of nationwide coverage, the Survey now focuses on the 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). Rankings for each city are divided into one of five “Cost Ratings” groups: Very Low Cost ($), Low Cost ($$), Average Cost ($$$), High Cost ($$$$), and Very High Cost ($$$$$).

Highlights from the 2012 Survey

Most Expensive Cities

  • California dominates the list of the most expensive cities, with a total of eleven cities – eight in Southern California and three in the San Francisco Bay Area.
  • Los Angeles and Phoenix are the two most expensive metropolitan areas in the western United States.
  • Seven out of the twenty most expensive western cities are in Los Angeles County: Bell, Compton, Culver City, Inglewood, Los Angeles, Pomona 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.
  • All five of the least expensive cities in California are located in Southern California.

2012 – “Year of the Tax” in California

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 (TOT), utility user taxes, and businesses license taxes.

The trend toward more taxes is expected to continue next year. In the City of Los Angeles, for example, a proposal to increase sales tax from 9% to 9.5% 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, which was advocated by Governor Brown as part of his plan to reduce the State budget gap. Proposition 30 increases the sales tax by 0.25%, raising California’s state sales tax from 7.25% to 7.5% for the next four years. Proposition 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.

Kosmont believes that legislators have to be reminded that Prop 30 is merely a fiscal Band-Aid. “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. While the Governor was targeting higher earners, it remains to be seen if the measure will inadvertently undermine entrepreneurial growth and small business expansion.”

Redevelopment Agencies Defeated… Economic Development Wounded

One can certainly claim the State has succeeded in taking out a key tool for California businesses. For decades, cities and counties across the State of California have 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.

Under a 2011 decision by the California Supreme Court, over 400 California redevelopment agencies were terminated on February 1, 2012, and 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.

Larry Kosmont called the Supreme Court's decision "a watershed event for cities,” especially for those that had overly relied on redevelopment administration funds, which are now gone, adding even more cuts to city services including police and fire which had already felt the scalpel of the recession.

To make matters worse for those businesses looking to invest, it has become difficult for cities to direct any attention to economic development projects, as they are busy tending to the tough deadlines under the RDA dissolution program. These staff-constrained cities also have fewer tools and pathways to economic development, and now have no future financing tool to leverage tax increment because redevelopment was terminated.

The Verdict? - California Cities Continue to Rank Poorly

“The past few years have not been kind to California cities,” said Larry Kosmont, President of Kosmont Companies. “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 states that 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. 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 LA or the Bay Area, but the bulk of jobs and back office functions will likely end up in states like Nevada, Arizona or Texas.”

The Twenty Most Expensive Cities in the West in 2012

(each has a Very High Cost Rating - $$$$$)

 

       
City Name         State
BULLHEAD CITY         AZ
CHANDLER         AZ
GLENDALE         AZ
PHOENIX         AZ
TEMPE         AZ
TUCSON         AZ
BELL         CA
BERKELEY         CA
COMPTON         CA
CULVER CITY         CA
INGLEWOOD         CA
LOS ANGELES         CA
OAKLAND         CA
POMONA         CA
SAN BERNARDINO         CA
SAN FRANCISCO         CA
SANTA MONICA         CA
DENVER         CO
PORTLAND         OR
SEATTLE         WA
 

The Twenty Least Expensive Cities in the West in 2012

(each has a Very Low Cost Rating - $)
 
City Name         State
ABILENE         TX
CORPUS CHRISTI         TX
DALLAS         TX
ENCINITAS         CA
EUGENE         OR
EVERETT         WA
FORT WORTH         TX
GRESHAM         OR
HENDERSON         NV
HOUSTON         TX
KENT         WA
LAKE FOREST         CA
LAS VEGAS         NV
MISSION VIEJO         CA
MOORPARK         CA
PLANO         TX
RENO         NV
SPOKANE         WA
TEMECULA         CA
YAKIMA         WA
       

The Twenty Most Expensive California Cities in 2012

(each has a Very High Cost Rating - $$$$$)
 
City Name         County
BELL         Los Angeles
BERKELEY         Alameda
BEVERLY HILLS         Los Angeles
COMPTON         Los Angeles
CULVER CITY         Los Angeles
EL SEGUNDO         Los Angeles
EMERYVILLE         Alameda
INGLEWOOD         Los Angeles
LOS ANGELES         Los Angeles
LYNWOOD         Los Angeles
MODESTO         Stanislaus
OAKLAND         Alameda
POMONA         Los Angeles
RIALTO         San Bernardino
RICHMOND         Contra Costa
SAN BERNARDINO         San Bernardino
SAN FRANCISCO         San Francisco
SANTA MONICA         Los Angeles
SEAL BEACH         Orange
STOCKTON         San Joaquin
       

The Twenty Least Expensive California Cities in 2012

(each has a Very Low Cost Rating - $)
 
City Name         County
ALISO VIEJO         Orange
CHINO HILLS         San Bernardino
COSTA MESA         Orange
ENCINITAS         San Diego
FILLMORE         Ventura
FOUNTAIN VALLEY         Orange
IMPERIAL         Imperial
LAGUNA NIGUEL         Orange
LAKE ELSINORE         Riverside
LAKE FOREST         Orange
MISSION VIEJO         Orange
MOORPARK         Ventura
PERRIS         Riverside
POWAY         San Diego
ROSEVILLE         Placer
SAN JUAN CAPISTRANO         Orange
SAN MARCOS         San Diego
SANTA MARIA         Santa Barbara
TEMECULA         Riverside
VACAVILLE         Solano

Kosmont Companies
Larry Kosmont, President & CEO, 213-507-9000
or
Rose Institute of State and Local Government
David Huntoon, Fellow, 909-621-8159
or
For Additional California City Charts (by County) Contact:
Matt Goulet, 818-274-2206

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