Larry Kosmont Says New Taxes Will Make L.A. County a High Cost Place for Business for Years to Come

By Howard Fine

Don’t expect any relief in Los Angeles County, where local businesses continue to get nickeled and dimed with new taxes, fees and delays in their dealings with cities.

That’s the message from the annual Cost of Doing Business survey to be released by L.A. economic development consulting firm Kosmont Companies and the Rose Institute of State and Local Government at Claremont McKenna College.

Last month’s elections saw voters in several county cities – including Artesia, Commerce, Culver City and La Mirada – pass sales and other tax measures on top of Proposition 30′s statewide tax increases, prompting survey lead author Larry Kosmont to dub 2012 “the year of the tax.”

More taxes are likely on the way next year as cities struggle with stagnant or declining revenue and increasing costs. For example, voters in the city of Los Angeles will be deciding in March whether to hike the sales tax by a half-cent to raise $200 million a year in an effort to close the city’s ballooning budget deficit.

“All these new taxes and fees mean that Los Angeles County will be locked in as a very high-cost county for business for years to come,” Kosmont said.

According to the survey, only the Phoenix metropolitan area is as expensive for business as Los Angeles County, and that’s primarily because Phoenix has high property taxes.

The annual Cost of Doing Business survey examines the cumulative impact of taxes, fees and other external expenses on companies, comparing 305 cities, mostly in the Western United States. It puts cities into five cost categories, ranging from very high to very low.

Seven L.A. cities placed in the very-high cost category: Bell, Compton, Culver City, Inglewood, Los Angeles, Pomona and Santa Monica. The survey was based on numbers before the tax increases approved in November take effect, meaning several other local cities could join these in the highest cost category next year.

No L.A. cities fell into the very-low cost category. There were no substantial changes in rankings this year compared with last year.

Kosmont said that as a result of these high costs, businesses will continue to scale back their operations in the county or state or decide to expand in other states.

“The only choice that a CEO or CFO has is to limit their company’s presence in the county and the state as much as possible,” he said.

The only positive factor is that land costs and rents are relatively cheap. But he said that could change as the local real estate market recovers.

“Once rents start heading back up, then it becomes a truly bleak picture for the cost of doing business here in L.A. County,” he said.

REDEVELOPMENT LOSS FELT

Kosmont said businesses are also beginning to feel the impact of the loss of redevelopment money. When the state dissolved community redevelopment agencies in February, it also took hundreds of millions of redevelopment dollars away from cities, leaving many with big holes in their budgets.

Several cities – including Culver City and La Mirada – faced crisis situations as a result. They declared fiscal emergencies and put tax measures on the June or November ballots.

Other cities responded by slashing their planning and community development staff. Montebello, for example, has cut a total of four people from its community development and code enforcement departments in response to the redevelopment funding decreases. The staff cuts have resulted in delays of a week or two for simple occupancy permits and several weeks or even months for major development projects.

“This is affecting our ability to process speedily a variety of development projects, from building plans for a restaurant to new housing or new hotels,” said Michael Huntley, the city’s director of planning and community development.

Huntley said the Montebello Chamber of Commerce has complained to him on behalf of some of its member businesses about delays in permits that landlords need to make to buildings to accommodate incoming commercial tenants.

Pasadena cut three positions, though Assistant City Manager Steve Mermell said that so far, the cuts have not caused delays in processing permits.

Kosmont said the loss of redevelopment money will reduce cities’ ability to attract new businesses and improve business districts.

“Cities don’t have any resources now or future tax increments to engage the private sector in economic development plans,” he said.