California Expenses Putting a Strain on Business

Cross-posted at NewGeography.com

Is it any wonder why California’s economy has been so sluggish during the recession? According to the 2010 Kosmont-Rose Institute Cost of Doing Business Survey, one-third of the nation’s forty most expensive cities are located in California, deterring businesses from setting up shop in the state. The increases in sales, income, and vehicle taxes in 2009 further depressed the business climate and exacerbated the problem of unemployment. Though local governments are trying to cut costs and boost local businesses, they have not been able to reverse the effects of outrageous taxes and fees.

As one would predict, the ten most expensive cities in California in 2010 are located almost exclusively in the Bay Area or Los Angeles Area. Berkeley, Oakland, and San Francisco round out the Bay Area localities with San Francisco actually making the top ten national rankings as well. Beverly Hills, Culver City, Inglewood, Los Angeles, San Bernardino, and Santa Monica all represent Los Angeles County while Rancho Santa Margarita fills the final spot. However, none of these cities joined San Francisco on the national list.

There is one thing missing from Kosmont’s national list of most expensive cities: the Great Plains states and Midwest. With the exception of Chicago, there are no cities on the list from the area between Arizona and Ohio. Even in the West, there are only three cities, San Francisco, Portland, and Phoenix, that made the top ten.

Where do we find the least expensive cities? They are in the middle of the country, of course. Five of 2010’s least expensive cities are in Texas, one is in Nevada, and one is in Wyoming. Texas has fared surprisingly well during the recession, as have states like North Dakota. Low business costs and a bustling energy industry have made these states havens for new businesses and job seekers alike.

Companies in California are now packing up and moving north and west to save money. Friendlier and more stimulating business climates in states such as Arizona, Washington, Oregon, and Colorado are luring companies like Google, Hilton, and Genentech. As Larry Kosmont, President and CEO of Kosmont Companies, commented, "Just being located in California, cities are at a ‘cost’ disadvantage right out of the gate." If California wants to keep the companies that bolstered its success during the beginning of the decade, it must reconsider its recent tax hikes and have faith that improving the business climate will stimulate the economic growth that the state sorely needs.