Los Angeles presents a complex business environment, with challenges consistent with other U.S. cities, but organizations must also contend with some unique issues. LA is a vibrant city with vast opportunities because of extensive, talented resources. The economy is growing and thriving, with private equity groups actively seeking investments and businesses exploring expansion opportunities.
While LA is the country’s second largest city, with many large companies, it is also an established middle market business hub with growing companies driving the local economy. In LA and nationwide, middle market companies are very confident, as demonstrated in RSM’s Middle Market Business Index, which is developed in conjunction with the U.S. Chamber of Commerce. In fact, our most recent survey found the highest level of business confidence in the history of the quarterly report.
Generally, LA business owners are cautiously optimistic, eyeing potential tax reform and infrastructure investments that could have a tremendous impact on middle market companies. Businesses have cut expenses as much as possible, and most are taking a wait-and-see approach before initiating any new investments.
One significant measure for the Los Angeles economy is a possible tax holiday on repatriating money from overseas. Many Los Angeles-based companies have operations and finances overseas, and bringing that money back to the United States under some sort of tax holiday would be a major windfall for Southern California, creating the potential for new investment opportunities and infrastructure improvements.
Another reason for business optimism is Mayor Eric Garcetti’s pro-business stance. Mayor Garcetti has developed a business-friendly environment, attracting new industries and encouraging startups and middle market companies to establish a foundation in the city. Through federal tax reform, potential subsequent state tax reform and the city’s evolving business climate, local companies have reason for continued confidence.
Unfortunately, Los Angeles presents challenges that can pressure middle market businesses. LA is not a tax friendly business environment, with one of the highest state taxes in the nation, as well as an additional city business tax and more extensive environmental requirements than in most states.
The high cost of housing also drives some talented people away. Many employees leave the area, or move away from the city and increase their commute time. At RSM, we also face that challenge, and counter it with flexible work options, including telecommuting.
Despite those challenges, LA remains an attractive destination for employees and businesses. People want to live in LA because of the weather and culture, and will pay a premium for that quality of life. California’s strong education system enables companies to leverage the region’s vast resources for qualified personnel, from highly educated technical workers to manufacturing employees.