A recent study by Claremont McKenna College’s Rose Institute of State and Local Government has revealed that Santa Monica is the most expensive city to conduct business in among 216 municipalities analyzed. This comprehensive study evaluates cities across Southern California and compares them with top business destinations in other states.
Study Overview
The study ranked cities into five tiers based on various business costs, including taxes, fees, wages, and rents. Santa Monica emerged as the most costly city, scoring the worst tier in all categories for a composite score of 5. Culver City followed closely, with similar high scores but a slightly better rating for minimum wage.
The top ten list of expensive cities includes Pasadena, Malibu, Arcadia, Huntington Park, Los Angeles, San Francisco, Burbank, and South Pasadena. Notably, Bellevue, WA, was the first non-California city on the list, ranking 25th with a score of 4.14. In contrast, Boise, ID, ranked as the least costly city with a composite score of 1.43, while Fontana, CA, had the lowest cost in California with a score of 1.83.
Cost Components Analyzed
The study used publicly available data to assess various cost factors:
Business License Fee: Calculated for a business with $500,000 in gross receipts and 10 employees, including administrative fees and gross receipts taxes but excluding specific location fees.
Utility Tax: Data sourced from California state reports and city websites for non-California cities, covering electric, gas, and telecommunications taxes.
Sales Tax: Local sales tax rates as of April 2024.
Minimum Wage: Based on January 1, 2024 data with local adjustments above federal levels.
Average Commercial Rent: Office rent data for properties over 25,000 square feet from January to December 2023.
Crime Index: Data covering seven crime categories from 2022.
Housing Affordability Index (HAI): Based on income and local housing costs from ESRI’s 2022 report.
Implications for Santa Monica
Santa Monica’s high costs reflect broader trends in Los Angeles County, which collectively faces higher business expenses compared to other regions. The study suggests that while Southern California has attractive attributes for businesses, its high costs are a significant factor driving relocation considerations.
In response to these challenges, Santa Monica is making efforts to ease the burden on businesses. Recently, the city approved a $3.8 million, five-year contract with Speridian Technologies to implement the Clariti permitting system, which aims to streamline the building permit process.
Additionally, the city is seeking voter approval for Measure F in the upcoming November elections. If passed, this measure would revise the business license system, including raising the gross revenue exemption and reducing tax rates for businesses with annual gross receipts below $5 million. The measure also proposes changes to tax rates and penalties for auto dealers and small property owners.
City’s Response
In a statement, Communications and Public Information Manager Lauren G. Howland defended the city’s costs, highlighting that Santa Monica’s business environment aligns with other similar cities. She emphasized the city’s commitment to community values such as ensuring a living wage, supporting sustainability, and fostering innovation.
“The city has dedicated increased resources toward enhancing public safety, expanding our police force, using new technology to combat crime, and implementing proactive strategies to support our residents and the thousands of visitors and employees who contribute to Santa Monica’s local economy every day,” Howland stated.
About the Rose Institute
The Rose Institute of State and Local Government, founded in 1973, is a leading resource on California’s government, focusing on demographic, economic, and political data. It specializes in survey research, fiscal analysis, and legal and regulatory studies.
