February 14, 2003 Friday

SECTION: NEWS

LENGTH: 916 words

HEADLINE: L.A. businesses face higher costs than L.B., others;
Survey: City rated as nation's 11th-most expensive, with its neighbors far cheaper.

BYLINE: By Harrison Sheppard, Staff writer

BODY:
Running a business is more expensive in Los Angeles than most other cities in the state and the nation, but the costs are far cheaper in cities surrounding Los Angeles, according to a survey released Friday.

The 2003 Kosmont-Rose Institute Cost of Doing Business Survey found that Los Angeles charged higher taxes on business than nearby cities including Long Beach, Burbank and Santa Clarita, as well as most larger cities such as San Diego and Santa Ana.

Echoing the findings of Kos mont surveys in previous years, the new report rates Los Angeles as 11th-most expensive among major U.S. cities and second in California, behind only San Francisco.

"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 the Kosmont Companies, a real estate firm that has performed the survey for nine years.

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

In Long Beach, the news wasn't all that new.

"I believe that we've been comparatively favorable over many of the larger cities for some time,' said Chet Yoshizaki, Long Beach's economic development manager. "We provide not only a broader spectrum of services, but I notice that our cost of doing business is lower.'

The formula of working to attract firms, a task that falls to Yoshizaki's office, and having a more affordable business climate has worked well for the city and surrounding areas, he said.

"As businesses are looking for a relocation site or an expansion site, the cost of doing business is definitely an overall factor,' Yoshizaki said. "The number of new business startups is continually rising in Long Beach.'

In particular, Los Angeles business leaders complain about the city's gross receipts tax, which they say is 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. He said city leaders need to understand that reforms are needed to promote jobs and economic opportunities, which would ultimately fight deficits.

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, but only some pieces of it have been passed while others still await council action.

Hahn also said recently that further, more substantial tax reforms may have to wait because of the state financial crisis and the possibility of Los Angeles losing millions of dollars of revenue from the state. The city has also put out a request for proposals for a consultant to study the gross receipts tax.

A spokesman for Hahn blamed the City Council for stalling reforms.

"There is a whole package of business tax reforms that the mayor developed in conjunction with BTAC that is in council and has not moved,' said Deputy Mayor Matt Middlebrook. "We would like to see council move that as quickly as possible.'

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 Companies, based in downtown Los Angeles, but this year for the first time the firm brought on a partner, 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 at 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 public employee salaries and bureaucracy, and placed burdens on business such as wage requirements.

San Diego, by contrast, has kept costs low by using a strong city manager form of government, akin to the practice of smaller cities, and being more careful about managing growth. It charged residential developers higher fees as they built new homes, 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.

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.

Los Angeles received a ranking of four dollar signs.

Here are some rankings around the Long Beach area:

$: Cerritos

$$: Downey

$: Lakewood

$$: Long Beach

$$: Norwalk

$: Signal Hill

$: South Gate

Because of the crisis, some of the smaller, cheaper cities may have to start raising taxes and fees soon as well, Kosmont said, but Los Angeles is already so high that it has little room to maneuver.

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

, Staff writer Don Jergler contributed to this report.

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