Culver City has become the costliest city to do business in, not only in Los Angeles County but throughout several Western states, according to a survey released last month examining the various costs encountered by businesses in more than 150 cities.
The survey was co-authored by El Segundo economic development consulting firm Kosmont Cos. and the Rose Institute of State and Local Government at Claremont McKenna College. It compares local taxes, fees, business property rents and other costs that businesses face in 158 cities, primarily in Southern California but also in nine Western states plus Minnesota and Texas.
The survey was scaled back from previous years and only looked at 30 cities in Los Angeles County. Nonetheless, cities in the county dominated the high-cost rankings, holding seven of the top 10 spots among all 158 cities. Besides Culver City, the cities of Irwindale, Los Angeles, Inglewood, El Segundo, Long Beach and Covina were among the 10 costliest for business.
No Los Angeles County cities were among the seven least expensive cities in the survey.
“Doing business in Southern California has many benefits, but the costs make it increasingly hard to pull off,” said Ken Miller, director of the Rose Institute and a co-author of the survey.
The cost of doing business survey was originally launched on an annual basis by Kosmont Cos. founder and economic development consultant Larry Kosmont in the mid-1990s as a tool for companies to compare municipal taxes and fees throughout Southern California.
Kosmont eventually partnered with the Rose Institute, using the latter’s resources to help expand the survey coverage area to cities in other states, eventually ranking more than 300 cities.
When the pandemic hit, the survey went on hiatus. Last month, a retooled survey was released: the number of cities compared was sliced in half to 158, the comparison variables for each city cut to seven from 12 and the ranking methodology was rejiggered. The survey now compares sales and utility taxes, business license fees/taxes, minimum wage levels, average office rents, median home values and crime frequency. The survey regards higher crime frequency – including property theft – as an increased cost burden for businesses.
Less L.A. focus
From a local perspective, the biggest change was a sharp reduction in the number of Los Angeles County cities compared, from 74 in the 2019 survey to just 30 this time. The main geographic concentrations of the cities are now the San Gabriel Valley and the South Bay region, with no cities showing up from the San Fernando Valley and points further to the west and north.
According to the survey, the focus on the San Gabriel Valley came about because “the cities were chosen by moving outward from the Rose Institute’s location” in Claremont. As for the focus on the South Bay, the survey said that area has become a “hub for new businesses.”
For most of the previous years that the survey was done, Los Angeles placed either first or second as the costliest city in the county. But in this survey, Los Angeles came in third, behind Culver City and Irwindale. Culver City topped the list for the first time in several years, placing in the most expensive category for six of the seven variables. The city also tied with Seattle as the most expensive of all 158 cities in the survey.
Los Angeles fell just short of the most expensive category in sales tax, median home value and crime frequency. But the survey press release notes the passage in November of Measure ULA in the city of Los Angeles increasing the documentary transfer tax on property sales exceeding $5 million could change the city’s standing once again.
“Los Angeles city voters’ recent approval of Measure ULA…illustrates how businesses – especially those buying or selling property in the county’s largest city – will bear extra costs,” the survey said.
Inglewood has risen in the cost rankings to the fourth-most expensive city for business in L.A. County. Property values there have soared with the opening of the SoFi Stadium and the near-completion of the K (Crenshaw-LAX) rail line, which runs through the city.
The survey for the first time also included a section on business headquarters entering and leaving California, looking at the destination cities for business headquarters leaving the state.
Not surprisingly, the bulk of businesses ended up in the adjacent states of Nevada, Oregon and Arizona. The top five destination cities were Las Vegas; New York; Reno, Nevada; Phoenix and Portland, Oregon.
Contrary to the war of rhetoric that has heated up in recent years between Texas and California, Texas has not been the top destination for business headquarters relocating from California: Austin, Houston and Dallas came in at Nos. 6, 8 and 11 respectively.
The survey also tracked the number of business headquarters relocating into California and found that figure increased more rapidly than the number of business headquarters leaving the state. During the 1990s, 5,581 business headquarters were tracked moving into the state; that number increased by a factor of nearly four to 23,087 during the decade of the 2010s. The number of business headquarters leaving the state during those periods roughly tripled to 31,490 during the 2010s.
The survey did not break out the cities within California that business headquarters either moved to or away from.