L.A. business climate gets even cloudier.

Despite lowering business taxes, Los Angeles remains the costliest city for companies in Southern California, with Santa Monica, Beverly Hills and several other cities not far behind, according to the annual Kosmont-Rose Institute Cost of Doing Business Survey.

What's more, the survey authors say recent actions taken by the L.A. City Council to regulate private businesses threaten to make the situation worse.

The survey from L.A.-based economic development consultant Larry Kosmont and the Rose Institute of State and Local Government at Claremont McKenna College compares cites in California and across the nation. It looks at business, property and sales taxes, as well as utility and state income levies.

Los Angeles has consistently ranked as the most expensive city for business in the region, though the survey indicates its cumulative tax rates are lower than other major U.S. cities, such as Philadelphia and New York, and comparable to Minneapolis and Chicago. Conversely, cities in other western states such as Colorado, Nevada and Texas have consistently been among the lower cost locations for business.

"This is where Los Angeles and California as a whole suffer, when you stack them up against cities in nearby states," Kosmont said. "If you're a business owner looking to locate a new facility, places like Las Vegas, Colorado Springs, Dallas and Houston look much more attractive from a cost standpoint."

Within the county, the Kosmont-Rose Institute Survey classifies cities including Santa Clarita, Palmdale, Lancaster, Cerritos and Glendale as relatively low-cost, making them much more desirable for businesses looking to cut costs.

Besides Los Angeles, other high-cost cities include Santa Monica, Culver City, Inglewood, Compton and Pomona. The specific factors cited in driving up costs vary from city to city. They range from utility fees to high underlying land costs that help drive up property taxes, to business taxes.

But in Los Angeles, Kosmont said, recent City Council actions imposing requirements on business could even further alienate those seeking to expand or locate in the region.

In the last several months the council has voted to require grocery store owners to retain workers for 90 days after an ownership change and placed a moratorium on condominium conversions at downtown residential hotels.

The council also is considering making hotels along the Century Boulevard corridor near Los Angeles International Airport subject to the city's living wage law, even though the hotels do not receive any city funds directly. And the council is looking at requiring owners of commercial high-rise buildings (or their security contractors) to pay higher wages and benefits to security guards.

"While the businesses that are the targets of these ordinances will probably stay because they are basically anchored here, the message this sends out to prospective businesses is that they might be next in the council's experiments in social engineering," Kosmont said. "Business owners will look at these actions and may decide that, rather than set up shop in Los Angeles, they'll open up in a nearby city and poach the L.A. market."

City Council president Eric Garcetti, who has played a role in drafting most of the ordinances in question, said the city is still a jobs magnet, even with these regulations.

"Los Angeles is attracting jobs, building housing and attracting members of the creative class," Garcetti said. "It reflects our continued status as a place where a pro-business attitude co-exists with a commitment to the social fabric. And business only flourishes when that social fabric is healthy, when workers can find and afford housing near their workplaces or when young people are given opportunities to develop workplace skills."

Real estate slowdown

Looking ahead, the Kosmont-Rose Institute survey showed the fiscal stability that cities have had in recent years as housing prices have added to their coffers is nearing an end. Cities have benefited from the real estate boom in two ways: through higher property taxes and through taxes on the volume of real estate transactions. Los Angeles, for example, has seen its coffers swell by tens of millions of dollars for the last three years, just from this transaction tax.

Of course, if cities get a double benefit on the up side, then they also get hit with a double-whammy on the down side, as housing prices flatten or fall. Kosmont said he expects real-estate related revenues to drop sharply for virtually every city in the region over the next year, putting more pressure on other revenue streams (i.e.: business taxes) to make up the difference.

The cost of doing business in California cities could change dramatically in other ways, depending on the outcome of several key measures on this November's ballot.

On the positive side is the $40 billion-plus in five infrastructure bond measures on the ballot. If they pass, cities could get a much-needed infusion of state dollars to fix decaying roads, bridges, water systems and other needs. That, in turn, could reduce the need for cities to raise taxes and fees on business to pay for these fixes on their own.

"Cities could ultimately benefit from proposed bond measures and infrastructure improvements on the November ballot," the report states.

On the other hand, the report warns that cities could suffer devastating impacts from an initiative that qualified last week for the ballot. This measure would ban cities and redevelopment agencies from seizing privately owned land and then turning over that land to a private developer, such as what happened with the Staples Center in downtown Los Angeles.

"This could kill the whole strategy of public-private partnerships, where the city puts in some money for a major redevelopment project and the private sector puts in the rest," Kosmont said. "Without those private dollars, cities will have to fund redevelopment with additional tax dollars, mostly from businesses. And if they can't do that, the projects will simply die."

Proponents of the measure have said that it would not necessarily halt these types of redevelopment projects, just the threat of government seizures of land. Landowners could still be coaxed into selling their property. But Kosmont said this would drive up land acquisition costs, since owners would be more willing to hold out for top-dollar compensation from local agencies.

Meanwhile, Los Angeles Mayor Antonio Villaraigosa said he hopes to counter any perceptions that L.A. is anti-business by continuing to market Los Angeles and meet with business owners in person.

"If we can sit down with business owners, we can let them know we can compete favorably with any city in the region," he said last week. He noted that electric power rates charged by the Los Angeles Department of Water & Power are among the cheapest in the region.

HOWARD FINE

Staff Reporter