COSTS—L.A. Affordability Rating Soars in Power Crisis

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Blessed with its own power supply at a time of soaring energy costs, the city of Los Angeles has vaulted over almost a dozen other local areas to become among the most affordable places in the county in which to do business, according to a just-completed survey.

It’s not that the city has suddenly become cheaper. It’s that virtually everywhere else is rapidly becoming more expensive.

The study, done by Kosmont Cos., which puts out an annual business cost survey comparing cities in Southern California and the rest of the United States, found that the city of L.A. rose from 14th place to become the third most affordable of 17 communities in Los Angeles County, taking into account the cost of utilities, utility taxes and business taxes.

“This is good exposure for L.A. right now,” said Kosmont’s Ava Lee, who put the survey together. “(The city) should capitalize on it now by reducing business taxes so companies consider Los Angeles as a good place to do business amid the energy crisis.”

Kosmont based its study on a typical 50,000-square-foot manufacturing facility as a constant, then factored in a 25 percent rise in electric power costs over the next several months for those in areas served by Southern California Edison. Eleven of the areas surveyed are in SCE’s service territory. By comparison, municipalities with their own utility are likely to become more attractive places in which to do business.

Vernon, which has a municipal power supply along with no utility user taxes and very low business taxes, remained the cheapest local place to do business. On the other hand, Pasadena, despite having a power supply of its own, remained the most expensive area of the county in which to do business, due to various charges the city imposes on its businesses.

“Pasadena has its own municipal power, and business taxes aren’t as costly as in L.A., (but) it does have utility user taxes,” Lee said. “It’s the entire component, everything put together. Pasadena’s cost per kilowatt hour is just more expensive.”

Other areas that have become relatively more affordable due to the energy crisis are Azusa, moving from sixth place to second; Burbank, which moved from 15th place to seventh; and Glendale, from 16th place to 10th. On the other hand, the City of Industry dropped from second place to fourth and Culver City from 12th to 16th.

Not surprisingly, Los Angeles city officials were pleased by the report.

“Our energy situation has given us a competitive advantage,” said Jeff Walden, director of Mayor Richard Riordan’s L.A. Business Team. “I think both short term and long term, it’s a benefit.”

Not that the report paints a rosy picture overall. It points out that while the rate increases by investor-owned utilities bodes well for cities with their own power supply, California as a whole is suffering from the perception that the energy crisis makes it is more expensive than other parts of the country to do business.

And L.A.’s business and utility taxes are among the highest in the county, so any advantage it gains from the current situation could be short-lived if those taxes aren’t reduced.

“Los Angeles would fare a lot better if it did not have such high utility taxes vs., say, Calabasas, which has zero utility taxes,” Lee said. “It still needs to look at business tax reform to remain competitive.”

Walden said the Mayor Riordan’s office and the L.A. City Council are working together on that very issue to make the city more attractive for companies thinking about relocating here. While those efforts have been going on throughout much of Riordan’s term in office, Walden predicted that some form of business tax reduction would get passed before Riordan leaves office this summer.

“We see that as an area that needs to be addressed,” he said, adding that the number of calls from businesses both within and outside of California seeking information on business costs in Los Angeles has increased “probably by 50 percent” since electricity costs began to skyrocket.

Walden echoed Lee’s suggestion that the study serve as a catalyst to get meaningful business tax reform passed.

“It does add more impetus,” he said. “We have to consider the advantage we have because of the energy situation and use it positively.”

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