Cost of Doing Business

By Ed Rast

Did you know that San Jose, without sufficient jobs for its residents and lacking the tax revenue that would generate — has raised taxes and fees to the point that the cost of doing business in our city is prohibitive to recruiting new businesses.

As I noted last week, San Jose loses 50,069 working residents — or 5.6% of our residential population — during the day when they commute to jobs in other cites.

Businesses looking to startup, grow, or relocate review many factors when making a decision about where to locate their operations: availability of skilled workers and management, housing for those workers, access to transportation, city service levels, quality of life, customers, suppliers, the city’s public policies, time to approve permits. All of these factors contribute to the “cost of doing business” in a particular locale.

A 2008 survey by the Kosmont-Rose Institute ranks San Jose as a “High Cost of Doing Business” city based on city business, sales, property, electric and phone utility rates, and state corporate income taxes. Community data takes into account city population, FBI Crime in the United States rates, taxable retail store sales, and transportation and economic development Incentives to create a complete understanding of the business climate in a city.

The Kosmont-Rose Survey User Guide explains the methodology behind the rankings.

The Kosmont-Rose survey is widely used by corporations, real estate developers, community planners, and public officials. Business relocation specialists use it to compare cities, especially when trying to decide between desirable locations.

Economic development officials use it to target companies in high cost cities that might be relocation candidates as we have seen with relocation campaigns run by states like Texas, Arizona and Nevada. Many former San Jose companies have moved their jobs or expanded in other states

California’s corporate tax rates are among the ten highest in the nation per the Kosmont-Rose Index of Corporate Tax Rates by State.

This Santa Clara County Cost of Doing Business and Jobs Map shows the cost of doing business ranking and the number of jobs per 100 employed residents for cities in Santa Clara County. Here are the top seven cities in jobs per 100 employees and their cost of doing business:

Palo Alto : Average CODB; 254 jobs per 100 employed residents
Santa Clara: Low CODB; 218 jobs per 100
Milpitas – Very low CODB; 164 jobs per 100
Mountain View: Average CODB; 147 jobs
Cupertino – Average CODB; 147 jobs
Campbell – Low CODB; 109 jobs
San Jose – High CODB; 88 jobs

This South Bay Area Cost of Doing Business Map shows other cities color-coded by cost of doing business. Note that job growth in Northern California has come mostly in inland cities with lower costs of doing business.

A February 2009 survey by the Ticon Company entitled Tenant Improvement Permits and Fees shows that fees and plan check times for a 10,000 square-foot tenant improvement with a valuation of $300,000.00 range from $4352 to $9763 on average. San Jose’s fee for the same permit is $24,000.

A high cost of doing business, while not the only factor that determines where a business will locate, is many times a “deal breaker” in these decisions, especially when the debate is between desirable neighboring cities, a problem San Jose knows all too well in Silicon Valley.

California city government revenues can be significantly increased or decreased by business activity – through jobs and consumer sales taxes or increases in business tax and fee rates. The local cities with more jobs and retail stores per resident have higher revenues and a lower cost of doing business than San Jose.

However, instead of trimming back on non-essential services, San Jose’s city administration chose to increase tax and fee rates to balance the City budget.

See my blog from last week for comparisons of local city tax revenue and jobs.