Kosmont-Rose Institute 2022 Cost of Doing Business Survey

The Rose Institute of State and Local Government is pleased to present the 2022 Kosmont-Rose Institute Cost of Doing Business Survey. The Rose Institute began working with the Kosmont Companies 20 years ago to produce a cost of doing business survey. For many years, the Survey gathered data from more than 400 cities across the country to assign cost ratings. We revised the project in 2012 to focus on cities in the western United States, while maintaining the cost rating methodology.

We now present a new version of the Survey that analyzes seven variables for 158 cities in the western United States, including a selection of 118 California cities (mostly in the Los Angeles metropolitan area and inland Southern California). Analyzing sales tax, utility tax, business license fees, average office rent, FBI Crime Index, median home value, and minimum wage, the Survey ranks the cities from most costly to least for each variable and also offers a composite ranking. The revised survey provides enhanced visualization of the cost data, allowing for clearer comparison between jurisdictions and regions.  More specifically, we have presented the data in color-block tables coded to reflect which of five tiers each city falls into for each variable and for the composite rank. The raw data is also available on this website.

In addition, we have coded this data onto maps, as seen below.  The maps allow users to toggle between variables to display the data visually. The map above shows composite rank coding for the Southern California cities in our study. The color-block tables, maps, and raw data are all available here.

Southern California Cities by Composite Rank

Hover over the map, then click on the layers button to toggle from overview through each of the seven variables.

 

           CLICK for PDFs:

Business Migration

Circles are sized by net migration to and from the corresponding state – green indicates positive net migration (more businesses are moving to the state than from it), red indicates negative net migration (more businesses are moving away from the state than to it). Hover over a state for raw numbers. Click a state to view migration flows to and from that state – again, green indicates net gain for the selected state, red indicates net loss.

 

 

Source:  National Establishment Time Series (NETS) Database, 1990, 2019 |  Visualization:  Nolan Windham CMC’25

Where are these businesses going?

With the notable exception of New York City, businesses primarily leave California for cities in the west. Las Vegas is the most popular destination with almost double the number of moves compared to the second city (New York).  Among the top 20 destinations, New York, Chicago, and Atlanta are the only cities not in the west. Cities in Nevada, Arizona, Texas, and Oregon are the destination for 64% businesses moving out of California.  See Appendix 1 for the list of top 50 destination cities.

Table 2:  1990 – 2019 Top 20 Destination Cities for Businesses Leaving California

Destination City	State	Number of Moves
Las Vegas	NV	2,832
New York	NY	1,455
Reno	NV	1,088
Phoenix	AZ	883
Portland	OR	868
Austin	TX	816
Henderson	NV	771
Houston	TX	721
Scottsdale	AZ	666
Seattle	WA	607
Dallas	TX	534
Tucson	AZ	530
Chicago	IL	472
Denver	CO	449
San Antonio	TX	431
Bend	OR	427
Carson City	NV	379
Atlanta	GA	362
Lake Havasu City	AZ	355
Colorado Springs	CO	339

Source: National Establishment Time Series

Why are businesses leaving California?

The Hoover Institution recently published a study titled “Why Company Headquarters Are Leaving California in Unprecedented Numbers.” The study found that these exits reflect a business environment in California “that ranks near the bottom of all U.S. states in many dimensions, including taxes, regulations, litigation costs, labor costs, energy and utility costs, and employee cost of living.” The Hoover study cites a 2021 survey by Chief Executive Magazine on the three criteria CEOs value most in site selection:  tax policy (37% rank it first), regulatory climate (35%), and talent availability (25%). Texas topped the Chief Executive ranking of best state for business and California came in dead last. The Hoover study also cites a 2022 State Business Tax Climate Index produced by the Tax Foundation. California came in at number 48, only New York and New Jersey were worse.

Doing business in California is expensive. We analyzed data for 158 cities in the western United States, looking at seven variables:  sales tax, utility tax, business license fees, average office rent, FBI crime index, median home value, and minimum wage. For each variable, we 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 seven variables. We found that cities in California ranked among the highest cost; 18 of the 21 highest cost cities are in California. Indeed, among the 50 highest cost cities, California claims 43 spots.  See Appendix 2 for the composite rank of all 158 cities.

California’s costliness for businesses is difficult to overstate. While many cities will assert competitiveness or business friendliness, some even receiving local awards of recognition, the bottom-line cost levels of many California cities stand out as measurably higher than cities in other states. Culver City in Los Angeles County ties Seattle as the Survey’s costliest city. San Francisco, Irwindale, San Jose, Los Angeles, and Inglewood, El Segundo, Long Beach, and Covina fill the third through tenth spots on the list. Nine of the ten costliest cities in the Survey are in California.

Table 3:  Composite Ranking of Most Costly Cities

On the other end of the spectrum, only four California cities rank among the 19 lowest cost cities. They are Lake Forest, Adelanto, Yucaipa, and Laguna Woods. Notably, all of those cities are in Orange County or San Bernardino County. Laguna Woods is the only California city to make it into the list of the 10 lowest cost cities. Comprised of only 16,000 residents, mostly living in retirement communities such as Leisure World, Laguna Woods does not rely on significant other business activity.

Albuquerque, New Mexico is the least costly city in our study, followed by Boise, Idaho, and Lake Havasu City, Arizona, and Fort Worth, Texas. Three Texas cities – Fort Worth, Irving, and San Antonio – are all in the ten least expensive cities. It is worth noting that all three are large cities and commercial hubs. Dallas and Houston also make it into the list of 50 least costly cities.

Table 4:  Composite Ranking of Least Costly Cities

In general, California’s business climate is not as affordable as the business climates of several other western states. However, certain cities in California, particularly those in Orange and San Bernardino Counties, manage to keep business costs somewhat lower.

Methodology

This study includes 158 cities, chosen by moving outward from the Rose Institute’s location in eastern Los Angeles County/Inland Empire region. We include all incorporated cities in San Bernardino, Riverside, and Orange Counties, as well as all Los Angeles County cities located east of the 605 freeway or located in the region known as the South Bay, which is currently a hub for new businesses. The report includes a small sample of comparison cities in Northern California as well as out-of-state cities drawn from the list of top 50 destinations for California businesses, but limited to those located west of the Mississippi River. The states represented are Arizona, California, Colorado, Hawaii, Idaho, Minnesota, New Mexico, Nevada, Oregon, Texas, Utah, and Washington.

We utilized seven variables for this analysis:  sales tax, utility tax, business license fees, average office rent, FBI crime index, median home value, and minimum wage.

1. Sales Tax. These data were publicly available for all 158 cities, generally on the city’s website.
2. Utility Tax. These data were available for almost every city, though generally hidden deeper on the city’s website than Sales Tax. We include Utility User Taxes applicable to jurisdictions exactly coterminous with a subject city; special taxation districts with different borders could not be included. Utility User Taxes generally apply across utilities such as electric, gas, and telecommunications.
3. Business License Fee. We calculated Business License Fee as the fees 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. We did not include fire marshal fees, occupancy certificates, other location-specific fees, or gross receipts tax not due at the time of application.
4. Average Office Rent. These data were available for some, but not all, of the cities we studied. We collected the data from commercialcafe.com as of May 2022.
5. FBI Crime Index. We used the FBI’s 2019 Uniform Crime Report data and calculated the Crime Index as equal to the total number of criminal incidents in a city (including both property crime and violent crime) divided by the city’s population.
6. Median Home Value. We used data from the Census Bureau’s 2019 American Community Survey, median value of owner-occupied housing units, 5-year estimates.
7. Minimum Wage. Minimum wage is typically established by state law, but some cities have raised the minimum wage above that amount. As with Sales Tax, this information was generally available on a city’s website. California’s state minimum wage will increase to $15.50 per hour on January 1, 2023.

Finally, for each variable, we 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 seven variables. See Appendix 2 for the composite rank. See Appendices 3-8 for city ranking by variable.

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Contributors:

Nikhil Agarwal, CMC ’24
George Ashford, CMC ’25
Liann Bielicki, CMC ’24
Helen Bovington, CMC ’24
Andrew E. Busch, Rose Institute
Audrey Donahue, CMC ’25
Grace Hong, CMC ’24
Katherine Jackson, CMC ’25
Larry Kosmont, Kosmont Companies
Ryan Lenney, CMC ’25
Desmond Mantle, CMC ’23
Kenneth P. Miller, Rose Institute
Marionette Moore, Rose Institute
Catherine Murphy, CMC ’24
Bipasa Nadon, Rose Institute
Anna Short, Pomona ’24
Cameron Stevens, CMC ’23
Charles Warren, Duke ’25
Nolan Windham, CMC ’25
Robert Valenti, Kosmont Companies
Pieter van Wingerden, CMC ’24