Be Afraid? Or Be Very Afraid?

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If you run a business in Los Angeles, you know that costs are high here.

And Larry Kosmont, the local economic consultant, put out his annual report last week that reminded us how expensive it is.

Of the 421 U.S. cities he studied, Los Angeles is the 14th most expensive and Santa Monica is 18th, (For more on the latest Kosmont-Rose Institute Cost of Doing Business Survey, see the article on page 8.)

Although L.A. businesses enjoy low property taxes thanks to Proposition 13, those savings are crushed by high business license fees, gross receipts taxes and the like. The report says Santa Monica has the nation’s highest utility taxes, making companies pay an extra 10 percent on each of five types of utilities.

But as noted above, you already know the costs of doing business are high here. You may not like it, but chances are, you’ve accepted it and accounted for it. If you’ve survived thus far, you probably are not particularly scared of those high costs.

Of course, the high cost of doing business is just one of the detriments to living here. You know the others: public school challenges. Gangs. Schedule-altering traffic. Very high housing costs, and roads so pockmarked you wonder if you’re driving on the lunar surface.

But you know about those issues, too. You’ve probably learned to live with them or figured a way to maneuver around them.

And if you’re like a lot of people, you’ve concluded all those problems and expenses are weighty, sure, but they’re offset by the benefits of living in Los Angeles. After all, this is a place with fine weather and celebrity glitz, a city with excitement and diversity, and a spot that offers a surprisingly good quality of life for such a large urban area. Where else can you surf and ski on the same day? Trip over a TMZ cameraman on the way to lunch?

It’s kind of like an immense balance scale. On the one side are all the high costs, choking traffic, etc. On the other are the exciting places and fine weather. In the end, many of us look at that scale and figure the pluses outweigh the minuses.

But what’s alarming to many Angelenos – particularly business operators – are the yawning budget deficits at the state and local levels.

That’s because they portend even greater costs of doing business. Kosmont, in the aforementioned article, believes a “tax war” will erupt as governments search hungrily for new levies – almost anything – they can lay on businesses. For example, the state may assess a sales tax on services, he opined. That means Los Angeles, already a high-cost place to do business, will become an even higher-cost place.

It gets worse. Those quality-of-life detriments are likely to get more detrimental. That’s because governments will do less. Schools and roads, for example, aren’t likely get showered with new money.

In the past, we crossed our fingers and hoped that maybe some of those existing problems would get attention. You can forget about that. Can you really expect local officials to dream up inventive ways to alleviate traffic when the state is on the phone asking where they should unload the latest busload of prisoners they can’t afford to keep locked up?

At least, we’ll still have the fine weather. On second thought, please keep quiet about that. They may figure a way to tax it.

Yes, the cost of doing business here is high and has been for years. You know that and probably you aren’t particularly scared by it. What you don’t know is how much higher your costs may go. You don’t know how many new quality-of-life issues will pop up and how much worse the old ones may get.

We don’t know, ultimately, whether that scale that balances the pluses and minuses will tip the other way. That’s the part that’s scary.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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