February 15, 2003 Saturday, Valley Edition

SECTION: NEWS; Pg. N1

LENGTH: 858 words

HEADLINE: IT'S (EXPENSIVE) BUSINESS AS USUAL IN L.A.

BYLINE: Harrison Sheppard, Staff Writer

BODY:
Running a business is more expensive in Los Angeles than in most cities in the nation and the state, especially the neighboring suburbs, a survey released Friday says.

The annual Kosmont-Rose Institute Cost of Doing Business Survey rates Los Angeles as the 11th most expensive among major U.S. cities and second in California, behind only San Francisco.

Echoing previous Kosmont surveys, the report says Los Angeles charges higher taxes and fees on business than do nearby cities such as Burbank, Long Beach and Santa Clarita.

"The combined message of L.A. and California is a difficult message: It just says we're big and expensive," said Larry Kosmont, president of Kosmont Cos., a real estate firm that has performed the survey for nine years.

The survey is based primarily on four levies imposed by local government: business, telephone, electric and property taxes.

The results were no surprise to business leaders who have long complained that L.A. is too expensive and unfriendly to business, especially compared with neighboring smaller cities. In particular, business leaders complain about the city's gross-receipts tax, which they call confusing and unfair.

"Yet instead of moving to rectify it, we've suffered through losing corporate headquarters after corporate headquarters, and having other businesses move out of the city," said Fred Gaines, chairman of the Valley Industry and Commerce Association.

"There seems to be a disconnect between our leaders' understanding that these budget deficits and this inability to provide services is linked to the fact that we're not creating jobs and economic opportunities in the area," Gaines said.

Los Angeles has been working to reform its business-tax system for several years with little progress. Mayor James Hahn and an appointed city panel, the Business Tax Advisory Committee, sent a package of reform proposals to the City Council last July. Only some pieces of it have been passed while others await council action.

In his fight against Valley secession last fall, Hahn pledged to make Los Angeles more business-friendly.

But Hahn said recently that further, more substantial tax reforms, may have to wait because of the state's financial crisis and the possibility that the city will lose millions in state funding.

Council President Alex Padilla is considering a request to form a council committee to study the business tax, but the issue is a lower priority than other pressing matters, such as seeking more federal money for public safety, said Padilla spokesman David Gershwin.

Kosmont said it is not simply lowering the tax that is important to stimulate business growth, but readjusting it to target certain growth industries, such as design, entertainment and technology.

Another problem is the Los Angeles Unified School District, which Kosmont described as "an 800-pound millstone around the neck of Los Angeles."

Critics accuse the nation's second-largest school district of bungling its responsibility by failing to provide an adequate education, partly because of inefficiency and mismanagement.

If the school district improved, Kosmont said, "you would see a gentrification and a renaissance in Los Angeles that would be breathtaking."

The survey examined 194 cities and counties in California and 40 from other states. In the previous eight years, the survey was performed solely by the Kosmont Cos., based in downtown, but this year the firm brought in the Rose Institute of State and Local Government at Claremont McKenna College.

While California is one of the most expensive states, Kosmont said, three of its cities ranked among the 10 least expensive in the nation, with San Diego the least expensive of major U.S. cities, San Jose fourth and Sacramento sixth.

Steven Frates, a senior fellow at the Rose Institute, said much of the difference between Los Angeles and San Diego stems from the political culture and history of the two cities.

Los Angeles, he said, has traditionally spent too much on employee salaries and bureaucracy, and placed burdens on business such as wage requirements.

San Diego has kept costs low by using a city manager form of government and being more careful about managing growth. It charged residential developers higher fees, putting the burden on those who were creating the population growth rather than the business community. It was also careful to make sure infrastructure kept up with growth, he said.

Frates added that political leaders in Los Angeles have been much more willing to increase taxes on businesses rather than on voting residents. "It's a simple calculus: Who elects you? If you want to keep your job, you don't hack off the homeowners."

The survey used a scale of one to four dollar signs to rank cities. Out of the 234 communities surveyed, 181 received one or two dollar signs, considered low cost or very low cost. Of the 33 considered medium or high cost, eight were in California.

Kosmont is scheduled to formally unveil and discuss the survey at a luncheon meeting Thursday with the Central City Association, a downtown Los Angeles business group.

GRAPHIC: Box:
COST OF DOING BUSINESS
SOURCE: 2003 Kosmont-Rose Institute Cost of Doing Business Survey

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