Santa Monica is the most expensive city to do business in, not only in Los Angeles County but throughout several Western states, according to a survey released this summer examining the cost of doing business in more than 200 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 216 cities, primarily in Southern California but also in nine Western states plus Minnesota and Texas.
For the first time in the 30-year history of the survey, every city in Los Angeles County was examined.
As in past surveys, cities in Los Angeles County dominated the highest-cost tier among the cities in the survey, with Culver City, Pasadena, Los Angeles and Burbank also placing in the top 10.
“For this first look at every city in Los Angeles County, the major surprise was how uniform it was that L.A. County cities were more expensive than other counties,” said Ken Miller, director of the Rose Institute and a co-author of the survey.
How the rankings work
Cities were ranked with scores between 1 (lowest cost) and 5 (highest cost) for each of seven categories, including business license taxes, minimum wage requirements, utility taxes, sales taxes, average commercial rents and a housing affordability index figure. A crime index figure, though not a direct dollar cost, was also included, on the assumption that a higher crime index translates into more burglaries and other crimes against businesses that impose recovery costs. Then the index scores were averaged out to yield a composite index score.
Based on this, Santa Monica was the only city to achieve the dubious distinction of the highest cost score of 5 in each of the seven categories. Although Santa Monica had topped the costliest cities list in previous surveys, it was not included in the last survey released in December 2022. That survey had been scaled back due to a lack of resources at the Rose Institute.
“Leaving a city like Santa Monica off the list that we knew to be expensive was the main reason why we decided to be more thorough in Southern California this time around and capture every city,” Miller said.
Culver City, which topped that December 2022 survey, slipped to No. 2 this time, with a score of 4.87.
Los Angeles, which had also topped several surveys in past years, fell to the No. 5 spot (tied at 4.57 with two other cities in the county).
Larry Kosmont, chief executive of his namesake economic development firm and the originator of the Cost of Doing Business Survey, said a major factor for Los Angeles falling in the ranking was reductions in some business tax categories.
“Don’t get me wrong: Los Angeles still has some of the most expensive business taxes around,” Kosmont said. “But in some categories, there has been significant progress, and that was just enough to push that ranking down to a 4 instead of a 5,” he said.
Kosmont also noted that the 9.5% sales tax in Los Angeles was lower than in several other cities in the county where the sales tax is maxed out at 10.25%.
Only one Los Angeles County city – Santa Clarita – was in the lowest cost tier, while only four of the county’s 88 cities – Palmdale, La Habra Heights, City of Industry and La Mirada – placed in the second-to-lowest tier.
Miller and Kosmont noted that cities in neighboring Orange, Riverside and San Bernardino counties generally ranked in the middle of the cost index, with a significant portion of the cities placing in the lower cost tiers.
“This may have something to do with the voters in those cities being more resistant to tax increases than in Los Angeles County,” Miller said.
Lower business costs out of state
The survey also made a concerted attempt to compare the same business costs in 40 cities in several Western states, plus Minnesota and Texas.
“We tried to look at cities where a lot of California businesses have fled to in recent years, to get a sense of just how much cheaper they are,” Miller said.
Given that history, the findings were predictable: cities in other states that have become home to relocated California companies have much lower costs, especially in Nevada, Arizona and Texas.
Dallas and Houston in Texas both came in with scores of 1.86, well within the lowest cost tier. Several large Los Angeles County corporations in the last decade have relocated to these cities, including Occidental Petroleum Corp. (Houston), infrastructure services giant AECOM (Dallas); and Jacobs Engineering Group (Dallas).
More recently, Elon Musk announced in July he is moving his Space Exploration Technologies Corp. (SpaceX) from Hawthorne to the company’s rocket launch site near Brownsville, Texas. And last week, electric fleet vehicle manufacturer Canoo Inc. announced it was moving its headquarters from Torrance to Justin, Texas, near Dallas. (Learn more about Canoo’s move on page 3.)
Closer to California, Carson City and Henderson in Nevada came in even lower, with scores of 1.57 and 1.67 respectively.
But the lowest cost score of any city in the survey was Boise, Idaho, at 1.43.
