Business-Friendly Cities Ring Valley Part of L.A., Survey Finds

The San Fernando Valley part of Los Angeles is virtually surrounded by communities that offer businesses substantial business tax breaks, a survey released Monday shows.

For the fifth straight year, cities such as Glendale, Burbank, Calabasas and Agoura Hills have finished ahead of Los Angeles in terms of their business-friendly tax structure or minimal developer fees, according to the annual Kosmont Cost of Doing Business Survey.

To demonstrate the disparity, the survey includes several case studies of the tax burden on hypothetical businesses in communities throughout California and in several neighboring states.

The study shows that a law firm with 30,000 square feet of space would pay $7,490 in annual business and utility taxes in Glendale, $11,660 in Burbank and $111,230 in Los Angeles.

An electrical equipment manufacturer with 50,000 square feet of space would pay $25,400 in annual business, utility and property taxes in Santa Clarita, roughly half of the $49,110 in fees and taxes assessed in Los Angeles.

Larry Kosmont, president of Kosmont & Associates, said his firm does not track the number of companies that move from one community to another based, at least in part, on taxes and the business climate.

But he said, “We know those comparisons are being made and a number of operations in the San Fernando Valley [part of Los Angeles] have moved to places like Calabasas.

“A lot of it has been as a result of the fee differential,” he said. “I don’t think taxes have been the only reason, but they have been part of the consideration.”

The new report, the fifth such survey issued by the company, comes as Mayor Riordan’s office is attempting to drum up support for a proposed reform of the 1930s-era business tax code--a move that would simplify the tax structure and result in $23 million in tax relief to businesses throughout the city.

Dan Margolis, a spokesman for the mayor’s office of economic development, noted that the migration of businesses within the Valley goes two ways. He said a number of companies have left Burbank for North Hollywood and Universal City, drawn by lower land costs in that region’s arts and entertainment district.

“If you include the cost of leasing land, sometimes it’s a net gain to move to the city of L.A.,” said Margolis. “Particularly for companies that may need a lot of space, oftentimes it’s cheaper to own a building in the city of L.A. versus leasing a building in Burbank.”

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Margolis also noted that residential property tax rates in neighboring cities may be higher than in Los Angeles.

“That also has to be taken into consideration as well,” he said.

Margolis said the mayor hopes to use the tax reform proposal, which has its second hearing before a City Council committee today, to send a signal to the business community.

“To unravel the old system, that’s a big step,” he said.

From a competitive standpoint, the challenge to Los Angeles is clear.

Calabasas, Glendale and Agoura Hills charge no business taxes, though Agoura charges an annual $35 registration fee and Glendale levies a one-time start-up fee of $140. By comparison, nearly 15% of the $1.9 billion in the Los Angeles general fund in 1995-96 came from business taxes.

Margolis said the proposed new tax code, which the mayor hopes to place on the June ballot, will provide “significant” tax relief for some businesses, with less noticeable tax breaks for others.

Some business leaders, while noting that the plan makes few large tax cuts, have called the measure a good first step nonetheless.

“We can see from the survey that they need to do this,” said Frank Taplin, a senior vice president of Kosmont. “They’re still very high.”

The Kosmont survey scores 200 communities on two measures. One measures business taxes and fees, utility user taxes and some property taxes. It does not include sewer use taxes and water fees.

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In addition, the survey measures how aggressive a community has been at using public dollars to help spur private development. On that measure, Los Angeles scores well, securing 10 or more such deals within the past 12 months or the last fiscal year.

“There were a number of companies that were pretty much out the door,” said Margolis. “But we were able to work out some deals.”

Taplin said that most tax rates reviewed in the survey were basically unchanged since last year.

“In general, the cities are riding the economy a little bit and because of that they haven’t really tried to raise rates,” said Taplin. “They’re aware of the competitive issues, more so than five years ago. I think cities are trying to stay competitive.”