Competition among cities trying to keep businesses or lure new ones is heating up as more and more companies look to relocate to pare their costs of doing business. An improving economy will spur moves as firms feel more confident about their futures.
Los Angeles, for example, recently implemented a three-year holiday on business taxes for companies that are new to the city. The tax holiday helps bump L.A. off a list of the top 10 most expensive cities to do business in, though it still falls within the top 20, according to the Kosmont-Rose Institute’s Cost of Doing Business Survey.
The Kosmont Companies and the Rose Institute of State and Local Government at Claremont-McKenna College in Claremont, Calif., survey over 400 cities annually based on tax rates that affect businesses. Property taxes and business license fees carry the most weight in the survey. Business license fees represent the average for each city. The survey also looks at sales taxes, various utility taxes, parking taxes, economic incentives, transportation options and zoning restrictions.
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The push by cities to keep and lure companies is nothing new, of course. But as Larry Kosmont, president and CEO of Kosmont Companies, says: “Cities are really struggling right now…they have become much more in tune with economic development and trying to find a way to attract investment and jobs."
Setting up technology research centers is proving to be another effective way for many cities to lure large firms as well as to attract life services, information technology and other entrepreneurs who can go on to build lucrative businesses that in turn spawn other enterprises.
New York City, for example, recently subsidized the building of the Alexandria Center for Life Science at East River Science Park -- a biotechnology research facility located along the East River. Eli Lilly and Co., a pharmaceutical company with headquarters in Indianapolis became the anchor tenant, signing a 15-year lease to use the space to conduct cancer research.
Many states and cities are also doing a good job of persuading companies to stay. Navistar International Corp., for example, was in talks to move its headquarters from Illinois to any number of states where operational costs would be less expensive. The state put together a $65-million incentive package to keep Navistar from leaving, saving nearly 3,000 jobs.
Economic incentives aren’t the only draws. Companies also seek an educated workforce and good schools as well as cultural and other amenities. “They don’t want to be in a sterile environment,” says Jay Biggins, a partner at Biggins Lacy Shapiro & Co., a business location consulting firm.
And while incentives and amenities are important, companies looking for a specific skill set in its workforce may often have to be willing to do business in a more expensive city.
“There are a lot of ways to cut a deal, but in the end the company has to be where it wants to be. If you are in a place where the talent you need doesn’t exist or would be difficult to import it to, the low cost of doing business would be almost irrelevant,” says Rob DeRocker, a Tarrytown, N.Y.-based economic development consultant.
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