MAKING THE RENT the Kosmont-Rose Institute, a Los-Angeles-based economic development firm.
The firm looked at more than 400 cities in California and across the nation and examined factors like business tax rates, utility taxes, sales tax, property taxes and state corporate income taxes. Santa Monica’s cost of doing business has continued to escalate, thanks in part to one of the higher utility tax rates in the county at 10 percent.
Also, over the years, various sectors of the city’s business community have been targeted for mandates and regulations, including an ultimately futile attempt six years ago to impose a coastal zone living wage — aimed at the big beachfront hotels — and increased regulations on auto-related businesses.
“The city has done everything they can to make it difficult for small businesses,” said Mike Howell, owner of Santa Monica Lock & Safe Co., which has been a fixture in the Pico Neighborhood since 1967. “By making us take some of our signage down, it’s hard for a store like mine [that is setback from the street] to be seen by people driving by. Streets have been made narrower, creating more traffic and parking is a mess … They are just not business friendly.”
In addition to the rules and regulations are the assessments to help pay for street cleaning and other improvements. Moe Taherian, president of Santa Monica Tobacco on Fourth Street in downtown, is concerned about discussions around creating a new business district that would include higher assessments. The added cost means Taherian and his business partner may have to pass along the increase to customers, something he does not want to do because customer satisfaction is crucial to survival.
“Our biggest challenge is overhead, keeping our costs low,” said Taherian, who recently opened a smoking lounge at his tobacco store for customers to relax and enjoy their cigars while watching a big screen television. “We work ourselves instead of hiring employees to keep our costs down. We try to put everything on our shoulders and not pass along the costs, but it is difficult.”
Paying assessments is hard to justify especially when a business owner does not see the benefits. Taherian said Fourth Street is often dirty, whereas the Third Street Promenade gets cleaned daily. But if Taherian were to move away from the promenade area, he would certainly see his sales drop.
“If we were two blocks down (on Second Street) our business would be cut by half,” he said.
City officials sympathize and have made attempts to make it easier for small businesses to set up shop and remain open. City Council members have often said that these types of businesses are the backbone of the community and contribute to Santa Monica’s charm.
“These [businesses] are landmarks in the community,” said Councilmember Pam O’Connor, who works as an independent consultant working on historical preservation, and is herself a small business owner. “These businesses serve as inspiration for those who may have a great idea but are hesitant. It shows the younger generation that if you have an idea, you can start a business, watch it grow and have a thriving career.”
City officials defend the city’s costs, noting that Santa Monica has a burgeoning local economy. In 2005, the council voted to exempt small businesses from having to pay a business license tax.
When it comes to leasing property the city owns, oftentimes local businesses are given a preference over larger chains, said Miriam Mack, economic development director for City Hall.
“Small businesses are a big priority for the City Council,” Mack said. “We have reviewed how we frame [requests for proposals] to make it easier or understandable so that it is not so difficult and costly to respond.”
City Hall also has a strong partnership with the Small Business Development Center at Santa Monica College, which provides advice to independently-owned businesses to assure the success of local new businesses and entrepreneurs.
“When compared to other cities, unfortunately the taxes here are higher than some of our neighbors, but in actuality, what business people have to pay in fees to the city is really a small part of their decision to remain in a community when they decide to locate in a community,” Mack said. “What’s more important is the market, the competition from other businesses and real estate. What the city charges is offset by the community and the economics in this area.”
Eileen Fogarty, the director of planning and community development at City Hall, said current discussions about the completion of a new Land Use and Circulation Element will include how planning decisions affect local businesses. She said changes can be made to streets to help mom and pops draw traffic to their stores. Sidewalks can be widened and bike lanes added to make the area more pedestrian friendly.
That said, she admitted that there is a delicate balance that must be reached so that traffic does not back up and people become so frustrated that they decide not to come back to a particular part of town.
A good example of that is the recent restriping of Ocean Park Boulevard. City planners removed two lanes of traffic and created a left turn lane to force people to slow down and not swerve around those waiting to make a left turn, which has been the cause of several accidents involving pedestrians.
Some have complained that the restriping has increased traffic congestion, while others have praised the change, saying more pedestrians feel safe walking the streets and drivers are now able to park safely without having someone behind them honking their horns.
“The optimal speed [for retail] is 25 mph,” Fogarty said. “Not 40 or 60 mph. It gives people a chance to see what businesses are there and then if there is a parking space. We are looking at our retail streets and identifying speeds you have streets that are much more friendly to retail businesses.”
Another issue that is being examined is parking.
“The biggest issue in some locations in the city, particularly along Pico, is that they can’t expand because of parking requirements,” Fogarty said. “We are looking at identifying areas where we can put together some kind of parking district or shared parking program so that we can really help small businesses if they want to expand.”
When looking at the challenges mom and pops face, it is important to remember that City Hall only has so much control over the economy and real estate prices, Mack said. While City Hall can give preference to a local mom and pop when leasing its own property, it has no say over private property.
Rent seems to be one of the major concerns of local business owners. Rents for office and retail space have jumped dramatically over the last few years, especially in popular shopping districts such as the promenade, Main Street and Montana Avenue.
Santa Monica is home to some of the highest office lease rates in the county. In the first quarter of ‘07, the asking rent for Class A office space in Santa Monica was $5.17 per square foot, up from $3.94 per square foot a year earlier, according to Grubb & Ellis Co. By comparison, lease rates in downtown L.A. were $2.89 per square foot in the first quarter.
Peet’s Coffee & Tea in the Edgemar Center recently renewed a lease, signing on
Originally published in the Santa Monica Daily Press print edition on February 9, 2008. Read the original PDF.