DOWNTOWN The scenery might be beautiful, the amenities of world-class dining and entertainment plentiful, but all of that comes with a high price tag for businesses.
That’s according to a survey released earlier this week by Claremont McKenna College, rating Santa Monica as one of the top 10 most expensive cities in the country to conduct a business.
The 14th annual Kosmont-Rose Institute Cost of Doing Business Survey compares 402 cities nationwide based on government fees and taxes that are imposed on businesses, finding that some of the most expensive places are in California, where Los Angeles and San Francisco are also in the top 10.
Santa Monica has always made a regular appearance on the list, mostly due to a combination of a high business license tax, Utility User Tax, and property tax that runs in the middle to high range relative to other municipalities in Los Angeles County, according to Larry Kosmont, who invented the survey and remains closely involved since signing it off to Claremont McKenna College.
The survey came out of Kosmont’s economic development consulting business after he was approached by customers about how to compare the costs of conducting businesses in different cities.
He started with 75 cities and it soon blossomed to more than 400 nationwide.
One city that was always among the most expensive from the early years of the study was Santa Monica.
“The combined effect of high business license tax and utility tax and middle-range property tax keeps it at that high-cost category,” Kosmont said.
He calls the survey a “first-cut analysis” that doesn’t take into account other factors that companies look for when choosing a location, such as the education system, the quality of workforce and other amenities, all of which make Santa Monica a desirable city.
“Santa Monica remains a prime address for many businesses,” he said. “It benefits from a good location, a pleasant urban environment by the water with good retail and quality housing.”
The business license tax in Santa Monica is based on a percentage of gross receipts with a rate that differs according to business type, according to Miriam Mack, the economic development manager for City Hall.
The revenues support services such as public safety, parks and recreation and street and sidewalk maintenance.
Auto dealers pay $1.25 per each $1,000 gross reciepts, whereas an agent/broker/contractor pays $3 per each $1,000 gross reciepts.
Voters also recently approved an expansion of the Utility Users Tax to include T-1 Internet for businesses.
Mack said the taxes do not typically play a role in decisions to locate in Santa Monica, adding that it is a small portion of the total cost of doing business overall.
“We don’t feel that we have necessarily suffered as a result of the fees that we have to charge for our services,” she said. “I think some cities may artificially work to adjust their fee structure in order to attract businesses when in fact business decisions are rarely made based on the fees that they’re charged.”
The decision is rather based on the land availability, proximity to where existing employees and owners live and adjacency to similar businesses, Mack said.
While the study states that Santa Monica is a costly city, City Hall has tried to maintain a stronger relationship with the business community, establishing improvement districts, working with merchant associations and collaborating with Santa Monica College for its Small Business Development Center, which provides resources for start-ups.
“The important thing is that our city has the revenues to support the level of service that our residents and businesses expect and that is the quality of life which businesses enjoy,” Mack said. “The fees associated with getting set up or doing business are such a small part of the business economic picture that it really almost isn’t a factor.”
Robert Kronovet, the chairman of the Pico Improvement Organization, said that doing business in Santa Monica isn’t any more expensive than in Los Angeles.
“I don’t think the expenses the city puts on the merchants prohibits them from having a business,” he said. “A business failing or succeeding is based on their ability to provide a service or goods that consumers want.”