By: Matthew Hall
The cost of doing business in Santa Monica is exorbitantly high compared to other cities according to a new study published by Claremont McKenna College’s Rose Institute of State and Local Government.
Out of 216 municipalities ranked in the study, Santa Monica was the most expensive city to conduct business in. Researchers compared locations over a wide swath of Southern California and several out of state cities that are considered top destinations for businesses who leave California.
The report ranked cities into five tiers for business costs, including taxes, fees, wages, and rents. Santa Monica fell into the worst tier in every category for a composite score of 5. Close behind was Culver City which earned a “5” in most categories but achieved a “4” for Minimum Wage. Pasadena, Malibu, Arcadia, Huntington Park, Los Angeles, San Francisco, Burbank and South Pasadena rounded out the top 10.
Bellevue, WA, was the first non-Californian city on the list coming in at 25 with a score of 4.14. Boise, ID, took the top spot as least costly with a composite score of 1.43. The lowest cost in California was Fontana with a score of 1.83. Researchers said they used publicly available sources to rank each category.
Business License Fee: The fee was calculated based on a business with $500,000 in gross receipts and 10 employees. Administrative fees and gross receipts taxes were included, but specific location fees like fire marshal charges were excluded. Data for 50 cities was unavailable due to application requirements.
Utility Tax: California data was sourced from a 2021-22 state report, while non-California data came from city websites. Utility taxes cover electric, gas, and telecommunications, excluding special tax districts.
Sales Tax: Local sales tax rates as of April 2024 were sourced from state tax authorities and local research for non-California cities.
Minimum Wage: The survey calculated minimum wages for all cities as of January 1, 2024, with local adjustments above federal levels. Data was sourced from the Economic Policy Institute and UC Berkeley.
Average Commercial Rent: Office rent data for 145 cities was sourced from Commercial Cafe, based on properties over 25,000 square feet and spanning January to December 2023.
Crime Index: Crime data for 210 cities was sourced from Neighborhood Scout and includes seven crime categories. The data reflects 2022 crime rates.
Housing Affordability Index (HAI): The HAI quantifies a resident’s ability to afford a home based on income and local housing costs. Data from ESRI’s 2022 report provided city-level HAI scores.
“Our analysis indicates that cities in Los Angeles County are collectively more expensive places to do business than cities in other parts of the region and also more expensive than the top destination cities in other states,” said the report.
The authors said there are still good reasons to do business in Southern California but that high costs are a reason for relocation.
“The Kosmont-Rose Institute 2024 Cost of Doing Business Survey confirms the widespread belief that Southern California — and especially cities in Los Angeles County—face serious competitive challenges,” said the report. “In these places, basic costs are greater than in many cities in other western states where California businesses have been most likely to move. A number of countervailing factors help make Los Angeles County and other parts of Southern California attractive places for businesses to operate. But the high costs documented in this Survey place considerable stress on businesses in the region and understandably cause many to consider relocation.”
Santa Monica has long had a reputation as a difficult place to do business. Councilmembers and candidates for office have frequently mentioned the need to streamline the City’s permitting process.
The city recently approved a $3.8 million, five-year contract with Speridian Technologies to adopt the Clariti permitting system. This online platform aims to simplify the building permit process for businesses, home renovators, and property owners. Implementation will take more than a year, with the goal of easing the burden on both applicants and city staff.
The City will also be asking voters in November to revise the business license system in Santa Monica.
Measure F, if approved by voters, would impact small businesses, retailers, restaurants, auto dealers, corporate headquarters, and small property owners in Santa Monica. The gross revenue exemption for the business license tax would rise from $40,000 to $100,000. Businesses earning less than $5 million in annual gross receipts would see a tax rate reduction. Those renting out three or fewer residential units would pay a lower tax rate. Tax burdens for businesses in their first year of operation would be reduced. Late tax penalties would be capped at 50%, down from 100%. The $25,000 tax cap for auto dealers would be eliminated. Their tax rate would double from $1.25 to $2.50 per $1,000 of operational costs. A $40 fee would be reinstated, with the possibility of increasing it to $100.
In a statement, Communications and Public Information Manager Lauren G. Howland said Santa Monica’s taxes, commercial rents and business fees are in line with similar cities.
“Businesses, investors and consumers continue to choose Santa Monica because of the city’s universal appeal and community values, such as ensuring a living wage for local workers, prioritizing sustainability, and supporting innovation and entrepreneurship,” she said. “In addition, public safety is a key priority for Santa Monica. The city has dedicated increased resources toward enhancing public safety, including expanding our police force, using new technology to combat crime, and implementing proactive strategies and best practices to support our 90,000 residents and the thousands of visitors and employees who contribute to Santa Monica’s local economy every day.”
The Rose Institute of State and Local Government, founded in 1973 at Claremont McKenna College, describes itself as a premier resource on California’s government, focusing on demographic, economic, and political data, especially in Southern California. It specializes in survey research, fiscal analysis, demographic studies, and legal and regulatory analysis.
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