The rumors are true: California is an expensive place to do business

So says the annual report by a Los Angeles real estate firm on the cost of doing business in the western United States. However, one economist says the issue is overstated.

San Bernardino is among the 20 most expensive cities in the western United States in which to do business, according to a report released this month.

No other Inland Empire city made that list, and no Inland city made the list of least expensive places in the western region to do business, according to the 2014 Kosmont-Rose Institute Cost of Doing Business Survey.

San Bernardino was ranked among the least business-friendly cities [see chart] based on its 8.25 percent sales tax, its 1.31 percent property tax and the business fees it charges its retail establishments, the main criteria used for ranking each city.

Business license fees can vary widely depending on the city and the size and nature of the company, but a medium-sized retailer in San Bernardino will pay an average of $7,549 in various business license fees to the city during the course of one year, according to the survey.

Other California cities with high-business license fees: San Francisco, $60,500, Inglewood, $11,022 and Beverly Hills, $12,500.

By comparison, Mission Viejo in Orange County was one of eight cities on the least-expensive list that charge no business fees, a great incentive to attract any business, especially manufacturing. Mission Viejo and Moorpark in the San Fernando Valley were the only California cities to make the list of business-friendly municipalities, according to the survey, which the Kosmont Cos. in Los Angeles compiled in partnership with The Rose Institute of State and Local Government at Claremont McKenna College.

Besides California, the report examines eight other western states – Arizona, Colorado, Nevada, New Mexico, Oregon, Texas, Utah and Washington – that businesses often consider an alternative to California.

California has long had a reputation for being unfriendly to business, and this year’s survey – the 19th such analysis conducted by the Kosmont Cos. and its tenth in partnership with The Rose Institute – does nothing to dispel that notion, according to the person whose name is on the report.

“California continues to be the equivalent of a white-table cloth restaurant,” said Larry Kosmont, president and chief executive officer of the Kosmont Cos. a real estate and economic development firm. “We have some of the highest corporate income taxes and sales taxes in the country, and some of the highest business license fees.

“Businesses here have to operate with one hand tied behind their back, and sometimes one leg tied behind their back.”

This year’s report was status quo regarding the Inland Empire and the other major metropolitan regions in California, said Brian Eckhardt, a research assistant at the Rose Institute and the report’s project manager.

“From an analysis standpoint, I don’t think there were any surprises,” Eckhardt said of the report, which includes data from more than 300 cities. Nine research assistants spend one year working on the annual study, with half the data updated every year.

“In the case of the Inland Empire, it’s a little more expensive place to do business there than in places like Arizona or Utah, and it’s not quite as expensive as Los Angeles or Orange County,” said Eckhardt, a economics-accounting major at Claremont McKenna. “But [the Inland region] isn’t a cheap place to do business, either.”

Each city is given one of five designations to show how expensive it is to do business there: very low cost, low cost, average cost, high cost or very high cost.

In Riverside County, only Coachella received a ranking of very high cost. Seven other cities – Cathedral City, Desert Hot Springs, Indio, Moreno Valley, Riverside, Palm Springs and Beaumont – were designated high-cost cities.

The remaining 14 Riverside County cities in the report, and unincorporated Riverside County, were either average cost or below, according to the report.

Three San Bernardino County cities were ranked very-high-cost cities in which to conduct business: San Bernardino, Fontana and Colton. Unincorporated San Bernardino County was also given that designation.

Redlands was named a high-cost city, while the remaining 14 San Bernardino County cities in the report were designated average cost or below, according to the study.

Both California and the Inland Empire have earned their reputations for being expensive places to do business, Kosmont said.

The two-county region is a more difficult business climate than Orange County, a region with its share of high-end businesses and affluent communities. Only Seal Beach received a ranking of very high cost, while Placentia was the lone Orange County city designated one notch below that, high cost.

“The Inland Empire is a more expensive place to do business than Orange County, believe it or not,” Kosmont said. “Half the cities in Orange County are low-cost places to do business. They don’t believe in taxes, and it shows in their ranking.”

The Brown Administration’s decision to do away with redevelopment to help solve the state’s budget crisis, a move that was upheld by the state Supreme Court, has reinforced the notion throughout the country that California is not a friendly business environment, Kosmont said.

“Some cites are offering tax incentives to attract businesses, but tax incentives will never replace redevelopment,” said Kosmont, who has helped some cities dissolve their redevelopment agencies. “We aren’t giving businesses enough reasons to come here, and we aren’t giving them enough reasons to stay here.”

Manufacturers are particularly reluctant to locate in the Inland Empire, said Len Santoro, senior vice president with CBRE Group Inc. Ontario and a specialist in industrial projects.

“If I’m showing a building to a manufacturer I figure I have no more better than a 10 percent chance to get them,” said Santoro, who has worked in the Inland Empire for 36 years. “If it’s not manufacturing I feel like I have a chance, but the cost of doing business is always an issue. A lot of businesses look at the spread sheet and find out that Arizona and Nevada work better for them.”

But the idea that businesses don’t want to come to California, or that the ones that are here are looking to leave, is greatly exaggerated, said Chris Thornberg, principal with Beacon Economics in Los Angeles.

“The state’s economy is fine,” Thornberg said. “Is it over-regulated? Probably in some areas, but it doesn’t seem to matter because a lot of people still want to do business here. New York is the most expensive place anywhere to do business, and yet a lot of businesses want to be there.”

Twenty most expensive cities to do business in the western U.S.:

Bell, Calif.
Bellingham, Wash.
Berkeley, Calif.
Beverly Hills, Calif.
Compton, Calif.
Culver City, Calif.
Denver, Colo.
El Segundo, Calif.
Glendale, Ariz.
Inglewood, Calif.
Los Angeles, Calif.
Oakland, Calif.
Phoenix, Ariz.
Portland, Ore.
San Bernardino, Calif.
San Francisco, Calif.
Santa Monica, Calif.
Seattle, Wash.
Tacoma, Wash.
Tucson, Ariz.

Source: 2014 Kosmont-Rose Institute Cost of Doing Business Survey