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Kosmont-Rose Institute 2024 Cost of Doing Business Survey
Claremont McKenna College’s Rose Institute of State and Local Government is pleased to present the Kosmont-Rose Institute 2024 Cost of Doing Business Survey. The Survey presents comparative information on business costs, including taxes, fees, wages, and rents, in 216 cities. Most of this Survey’s cities are either in a four-county region in Southern California (Los Angeles, Orange, Riverside, and San Bernardino Counties) or are top out-of-state destinations for businesses when they leave the state. The Survey tests the widely held perception that it is more expensive to do business in California than in other states and that some parts of California are more costly than others. Our findings generally confirm these beliefs. Overall, cities in Los Angeles County were more costly places to do business, with Santa Monica ranking as the Survey’s most expensive city. By contrast, most of the lowest cost cities were outside of California, with Boise, Idaho, ranking as the least costly.
The Rose Institute began working with the Kosmont Companies more than 20 years ago to conduct Surveys on the cost of doing business in various local jurisdictions in the United States. From its inception, the Kosmont-Rose Institute Cost of Doing Business Survey has used the city as the basic unit of analysis and has highlighted differences between cities in business costs, including taxes, fees, wages, and rents. The Survey also includes variables that go beyond direct financial costs to include other measures of what can make a city more or less attractive to do business, including crime rates and housing affordability. The Survey has always placed its emphasis on cities in the greater Los Angeles metropolitan region of Southern California, where the Rose Institute is located and where the Kosmont Companies are headquartered. In recent years, we have focused on comparing this region to cities in the West where businesses most frequently relocate when they leave California.
Our approach is based on the premise that cities in Southern California compete for businesses with each other and, increasingly, with cities in other western states. Many of the region’s business owners complain that their costs have become prohibitively high and are forcing them to move to lower-cost areas of California or lower-cost states. And, as noted in numerous studies, net business migration out of California has increased in recent years.[1] Of course, many businesses choose to remain in high-cost areas of California due to the offsetting advantages these cities offer, including proximity to critical infrastructure, suppliers, and a pool of talented and educated workers. Yet employers have to weigh these benefits against the costs of doing business in these areas. The Survey focuses on the cost side of the calculation by providing accessible, comparative data on business costs in cities in Southern California and in competing regions.
Survey Design
In the last Kosmont-Rose Institute Cost of Doing Business Survey (published in 2022), we analyzed data for 158 cities in the western United States, including 118 cities in California. The current Survey expands the number of cities we survey to 216. The main change from the previous Survey is that we now present data on all 88 incorporated cities in Los Angeles County, as well as all incorporated cities in Orange, San Bernardino, and Riverside Counties. This comprehensive approach allows us to make direct comparisons between all 174 incorporated cities in this four-county region. In focusing on these four counties, the Survey does not include cities in other parts of Southern California, such as Ventura and San Diego Counties. As the Rose Institute expands its database of local jurisdictions, we hope to collect and present comparable data on more cities in Southern California. This year’s Survey again presents comparative data on two large northern California cities (San Francisco and San José).
The Survey also includes cities in other western states that in recent years have ranked among the top destinations for businesses leaving California. As we noted in our 2022 Survey, we identified these cities by analyzing data from the National Establishment Time Series (NETS) dataset by Walls Associates, which provides extensive information including business location on more than 70 million business establishments in the United States dating back to 1990. This dataset allowed us to map business migration in and out of California and other states and to determine the new locations of businesses leaving California. We selected the top 40 destination cities in the western United States for businesses leaving California in 2019. The majority of these cities were in three states: Arizona (9), Nevada (7), and Texas (6).[2] We used the same list in this year’s Survey.
In the current Survey, we consider seven cost variables: business license fee, utility tax, sales tax, minimum wage, average commercial rent, crime rates, and housing affordability. Student researchers at the Rose Institute collected data on these seven variables from publicly available sources for each city, where available, and organized the data for purposes of analysis. Most of the Survey’s data was published in 2024 (the Methodology section provides more detail on each variable). We have ranked the cities from most to least costly for each variable and have also calculated a composite ranking. The Survey presents the data in color-block tables coded to reflect which of the five tiers each city falls into for each variable and for the composite rank, with red representing the most costly tier and dark green the least costly. This format provides a visualization of the comparative cost of doing business in jurisdictions in California and other western states, allowing for clear comparisons between jurisdictions.
Key Findings
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. Of the 216 cities in the Survey, we ranked 26 as the most costly (see Table 1). Twenty-two of these 26 cities (and nine of the top ten) are located in Los Angeles County. Further, of the 46 cities in the Survey’s highest cost tier (coded red), 38 are located in Los Angeles County (see Appendix 1). Put another way, nearly half (43%) of the 88 cities in Los Angeles County are in the top tier of the Survey’s cost ranking. Another 30 cities in Los Angeles County (34%) are in the second most costly tier. Thus, more than three-quarters (77%) of cities in Los Angeles County rank in the Survey’s top-two cost tiers.
By contrast, no city in Los Angeles County ranks among the Survey’s 30 least costly cities (see Table 2), and only one city in the county (Santa Clarita) appears in the lowest cost tier (coded dark green) (see Appendix 1). Los Angeles thus clearly emerged as the most costly county to do business in the parts of Southern California we surveyed.
Most Costly Cities: Concentration in Los Angeles County
Table 1 presents the highest cost cities in the Survey, as measured by the composite of their rankings in Survey’s seven cost categories. As noted above, nearly all the highest cost cities in the Survey come from Los Angeles County. They include the top two, Santa Monica and Culver City; Malibu (fourth); the City of Los Angeles (tied for fifth); and the San Gabriel Valley cities of Pasadena, Arcadia, Huntington Park, and South Pasadena (all in the top ten). Several of these cities were not part of previous Surveys; their inclusion in the current Survey highlights the clustering of high-cost jurisdictions in and around Los Angeles.
Figure 1 maps the Survey’s composite cost of doing business ranking for the four-county Southern California region, clearly illustrating that Los Angeles and neighboring cities tend to be more costly places to do business than other jurisdictions.
NOTE: Cities colored red are the Survey’s most expensive; green are the least expensive.
Other Southern California Counties and Other States
Among the four major Southern California counties we surveyed, cities in San Bernardino County fared best, followed closely by cities in Riverside County. Of the 24 cities in San Bernardino County, fifteen (63%) placed in the Survey’s two lowest cost tiers and none in the highest cost “red” tier. In Riverside County, 17 of 28 cities (61%) ranked in the two lowest cost tiers and only one (Palm Springs) in the highest cost tier. Meanwhile, cities in Orange County collectively fell in the Survey’s middle range, on average more expensive for doing business than cities in the Inland Empire and out of state, but less costly than in Los Angeles County. Thirteen of Orange County’s 34 cities (38%) were in the two lowest cost categories, while eight cities (24%) were in the two highest cost tiers, with only one (Los Alamitos) in the highest cost tier.
Looking across state lines, the Survey provides evidence that, on balance, it is more expensive to do business in California than in out-of-state cities where many businesses are moving. Collectively, the 40 non-California cities in the Survey fared far better than the California cities. Again, these cities were selected because they are the places in the western United States where businesses leaving California most frequently locate. Whereas only four of these out-of-state jurisdictions (Bellevue WA, Seattle WA, Spokane WA, and Denver, CO) ranked among the Survey’s most expensive cities, 19 of them (or nearly half) ranked in the lowest-cost tier, and 30 (or 75%) in the two lowest cost tiers combined.
Lowest Cost Cities
Several out-of-state cities that attract California businesses ranked among the Survey’s 30 best. Boise, Idaho was the Survey’s least expensive city for doing business overall. This fast-growing municipality was joined at the top of the list by four cities in Nevada (Carson City, Gardnerville, Henderson, and North Las Vegas) and two Texas powerhouses, Dallas and Houston. Overall, of the Survey’s 40 out-of-state comparison cities, 17 ranked in the Top-30 for the lowest cost of doing business — six from Nevada, five from Arizona, four from Texas, and one each from Idaho and New Mexico.
Among the California cities we surveyed, Fontana in San Bernardino County was the least costly, tying for fifth overall in the Survey. Among the Survey’s top 30 least expensive cities, six were in San Bernardino County, five in Orange County, and two in Riverside County.
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. 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.
Data: Methodology and Sources
We used the following nine variables for this analysis: business license fee, utility tax, sales tax, minimum wage, average commercial rent, crime index, and housing affordability index. Data for the individual variables was collected and analyzed as follows:
- Business License Fee. On a city-by-city basis, we calculated the Business License Fee as the fee that would be generally applicable to businesses attempting to set up in a given city, including administrative fees and estimated gross receipts tax (if applicable) for a business with $500,000 in gross receipts and 10 employees as of 2023. We did not include fire marshal fees, occupancy certificates, other location-specific fees, or gross receipts tax not due at the time of application. Notably, there is a state charge of four dollars in addition to each listed business license fee. We were unable to collect business license fee data for 50 cities in the Survey, often because they required a specific business application in order to calculate the anticipated fees.
- Utility Tax. For cities in California, we used data from the California State Controller’s report titled California Cities Utility Users Taxes Revenue and Tax Rate Fiscal Year 2021-22 (Including the City and County of San Francisco), January 5, 2024 (presenting data from Fiscal Year 2021-22), https://www.sco.ca.gov/Files-ARD-Local/LocRep/2021-22_Cities_UUT.pdf. For 33 of the Survey’s 40 non-California cities, we were able to obtain utility tax data from city websites. We have included Utility User Taxes applicable to jurisdictions exactly coterminous with a subject city; special taxation districts with different borders are not included. Utility User Taxes generally apply across utilities such as electric, gas, and telecommunications.
- Sales Tax. We obtained local sales tax rates as of April 2024 for all cities in the Survey. Our source for California cities was the California Department of Tax and Fee Administration website, California City & County Sales & Use Tax Rates (effective April 1, 2024), https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx. We determined non-California cities’ sales tax rates, if any, through separate research on each city.
- Minimum Wage. The minimum wage is established by federal law, but some states (including California) and some cities raise the minimum wage above the federal base. We calculated the minimum wage for all cities in the Survey as of January 1, 2024. Some cities are scheduled to raise their minimum wage in 2024. This data was obtained from The Economic Policy Institute, Minimum Wage Tracker, https://www.epi.org/minimum-wage-tracker/, cross-referenced with UC Berkeley Labor Center, Inventory of US City and County Minimum Wage Ordinances, https://laborcenter.berkeley.edu/inventory-of-us-city-and-county-minimum-wage-ordinances/. Nevada’s minimum wage is $11.25/hour if no qualifying healthcare benefits are offered and $10.50/hour if qualifying healthcare benefits are offered. On April 1, 2024, California’s minimum wage for most restaurant workers increased to $20/hour.
- Average Commercial Rent. We obtained data on average commercial rent for office properties for 145 cities from a source called Commercial Cafe, a national commercial real estate internet listing service. See https://www.commercialcafe.com/. This source provides city-level data on office properties across the United States that are equal to or larger than 25,000 square feet in size, and thus is limited to cities with a substantial supply of large commercial properties. The Survey’s average commercial rent data is based on values from January 1, 2023 through December 31, 2023.
- Crime Index. We obtained crime data for 210 cities in the Survey from Neighborhood Scout, a source that compiles and analyzes crime data reported by local law enforcement agencies across the United States to create a total crime index (number of crimes per 1,000 residents) for most U.S. cities. See https://www.neighborhoodscout.com/about-the-data/crime-rates. The index includes the following seven categories of crimes: burglary, larceny-theft, vehicle theft, homicide, rape, armed robbery, and aggravated assault. This data was released in January 2024 and reflects crimes, as defined, reported in each city in the calendar year 2022.
- Housing Affordability Index. We obtained data on housing affordability at the city level for 214 cities from the ESRI 2022 Housing Affordability Index, available as part of the Esri Updated Demographics data for 2022. The Housing Affordability Index (HAI) quantifies the ability of a typical resident to purchase an existing home in the area by employing the national average effective mortgage rate with the assumption of a 30-year fixed mortgage and a down payment of 20 percent of the median home value of all owned dwellings in a specific area. According to the data, when an area’s HAI is greater than 100, the median household income is sufficient to purchase a median-valued home. This report uses the average HAI score of all ZIP codes within a defined city boundary as the effective HAI score for all given cities, as applicable.
Finally, for each variable, we rank-ordered the cities from highest cost to lowest and grouped them into five tiers, dividing them roughly into quintiles or following natural breaks in the data. We also computed a composite rank based on the average tier rank across the nine variables. See Appendix 1 for the composite rank. See Appendices 2-8 for city ranking by variable. (See Appendices in the full report linked below.)
Appendix 1: Composite Rank
Appendix 2: Business License Fee
Appendix 3: Utility Tax
Appendix 4: Sales Tax
Appendix 5: Minimum Wage
Appendix 6: Average Commercial Rent
Appendix 7: Crime Index
Appendix 8: Housing Affordability Index
Contributors
Liann Bielicki, CMC ’24
Jada Cook, CMC ’26
Richard Cordero, CMC ’26
Cary Dornier, PZ ’25
Joan Hanson, SC ’26
Samuel Johnson-Saeger, CMC ’26
Larry Kosmont, Kosmont Companies
Sanskriti Kumar, CMC ’26
Katherine Lanzalotto, CMC ’25
Annie McDonald, CMC ’26
Chad McElroy, CMC ’26
Kenneth P. Miller, Rose Institute
Marionette Moore, Rose Institute
Bipasa Nadon, Rose Institute
Jemma Nazarali, CMC ’25
Andrea Santillan, CMC ’25
Ryan Shabika, CMC ’26
Noah Swanson, CMC ’25
Robert Valenti, Kosmont Companies
Nolan Windham, CMC ’25
Joseph Zhong, CMC ’26
FOOTNOTES
[1] See Rose Institute of State and Local Government, Kosmont-Rose Institute 2022 Cost of Doing Business Survey, December 2022: 2-3. https://roseinstitute.org/costofdoingbusiness/; Manfred Keil, et al., California’s Competitiveness: A Regional Approach. Inland Empire Economic Center and Los Angeles Chamber of Commerce, June 2023: 27-30. https://www.lowe-institute.org/wp-content/uploads/2023/06/23_Competitiveness-Study.pdf.
[2] Rose Institute of State and Local Government, Kosmont-Rose Institute 2022 Cost of Doing Business Survey: 2-3.