L.A. Up to No. 16 in Business Costs

By Lisa Girion

July 3, 2006 12 AM PT

Times Staff Writer

The cost of doing business in Los Angeles grew steeper relative to other U.S. cities this year despite landmark tax changes designed to improve the city’s business climate, according to a survey to be released today.

Los Angeles rose to become the 16th-most-expensive major U.S. region for business, up from 17th last year, despite the Jan. 1 launch of a historic effort to reduce and simplify the city’s business taxes, according to the annual Kosmont-Rose Institute Cost of Doing Business Survey.

The changes, which were adopted in 2004 and are being phased in over five years, will exempt more than 130,000 businesses with sales of less than $100,000 from the tax on gross receipts and will eventually cut taxes by as much as 15% for larger operators.

The tax overhaul, long sought by the city’s business community, was the first significant change in decades and is expected to ultimately cut levies by more than $90 million a year.

But even when fully implemented, Los Angeles’ business tax cuts “will do little to improve the city’s overall cost rating,” the survey found.

The problem, analysts said, is that property, labor and utilities are so expensive in Los Angeles that taxes related to them -- and thus businesses’ overall tax burden -- will remain high compared with other places.

“It is great they did the reform,” said Kevin Klowden, an economist who has studied Los Angeles’ business climate for the Milken Institute, a Santa Monica-based think tank. “But it is unrealistic to expect that one reform is going to affect the entire tax structure and the entire cost burden for businesses.”

One of the most vocal proponents of the city’s tax cuts was Larry Kosmont, founder of the survey and chief executive of Kosmont Cos., a Los Angeles-based economic development consulting firm. Kosmont said he still believed the tax cuts were a good idea.

But now, he said, Los Angeles must cut the red tape for businesses to improve its footing relative to competitors, particularly neighboring cities such as Burbank and Santa Clarita.

“The problem is, it sits among a lot of other smaller, more facile cities that can beat it in terms of costs and also in terms of expediting permits and in terms of being business friendly,” Kosmont said.

City Council President Eric Garcetti, an author of the overhaul, was unavailable for comment. Garcetti spokesman Josh Kamensky said the tax cut package was one step among many.

“This is a very pro-business city government right now,” he said. “They are trying to figure out the big picture.”

In June, City Councilwoman Wendy Greuel, Garcetti’s co-author on the tax changes, proposed to exempt businesses from city taxes for their first two years. If adopted, the proposal would make permanent a new-business exemption set to expire at the end of the year. Greuel’s office said 26,644 businesses were started in Los Angeles last year.

The survey, conducted by the Rose Institute of State and Local Government at Claremont McKenna College, compared property, sales, utility and other taxes imposed on businesses.

Philadelphia ranked as the most expensive, followed by Cincinnati and New York. San Francisco came in at No. 8.

The least expensive major U.S. city was Las Vegas. The least expensive California city was Banning, followed by unincorporated Lake County, unincorporated Merced County and Westlake Village.

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Rankings

Most expensive

1. Philadelphia

2. Cincinnati

3. New York

4. Akron, Ohio

5. Rochester, N.Y.

6. Unincorporated St. Charles County, Mo.

7. Jersey City, N.J.

8. San Francisco

9. Yonkers, N.Y.