BUSINESS - Fewer new businesses are opening in Los Angeles than during any period in at least the past 20 years, raising the specter of dwindling tax receipts at the very moment the city is confronting a yawning budget gap.
In 2024, the city’s Department of Finance issued 30,452 new business licenses, according to publicly available data. That marks a 7.4% drop from the previous year and a nearly 50% decline from a decade ago.
The drop in new businesses is a worrisome indicator of the city’s potentially shrinking economic vitality. New businesses account for a disproportionate amount of employment growth. And just-opened businesses that rent local real estate and hire local labor are a pillar of the city’s tax base.
Now, Los Angeles’s growing budget deficit, predicted to be close to $1 billion in the recent city budget, and the dwindling number of new businesses risk reinforcing one another: Fewer businesses generate fewer tax receipts, which forces the city to cut back services, which, in turn, makes opening and running a new firm harder and more expensive.
“Is the L.A. economy kind of stagnating? Yes, of course it is,” said Chris Thornberg, a partner at independent research firm Beacon Economics. “The reason is simple: Our labor force is contracting, and you have a fight going on between existing businesses for a dwindling labor supply.”
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High rent, low traffic
Business owners in Los Angeles cite a range of issues beyond workforce about why operating in the city can be so difficult. Johnny Coppola opened a high-end Italian sandwich shop last year on Melrose Ave. in the Fairfax neighborhood. Last month, he closed and moved the business, Sì Roma, to Glendale.
“Rent was incredibly high and wasn’t worth what we were paying,” said Coppola.
Including utilities, his Melrose rent reached $8,000 a month. But the block he was on had little foot traffic and customer turnover was high. In Glendale, near the Americana at Brand shopping mall, he now pays $4,000, and business is brisk. “What took two weeks on Melrose I now get in two days in Glendale,” he said.
The situation in Los Angeles appears to be out of step with what’s taking place nationally. New business formation surged during the pandemic as many people who lost their job struck out on their own. Some economists now see that as a blip, and applications to launch startups are reverting back to the mean, though they remain far above pre-COVID levels.
In the city of Los Angeles, the decline dates back years and has not relented. City-issued business licenses are required for all entities operating in Los Angeles, though some skate by without one. Also, there are a number of firms that hold a license to do business in the city, but are located outside the city borders.
Some of the struggles are beyond the Los Angeles’s control. The pandemic ushered in an era of work from home. That has pushed office vacancy rates to record levels. Colliers International pegs the current rate at 23.8% in the greater Los Angeles area. Vacancy rates in Downtown are higher, at 27.5%, though that has fallen slightly from the previous quarter. That’s not just a hit to commercial real estate. Businesses that depend on office workers eating lunch and shopping have suffered.
Slowdown at City Hall
Nella McOsker is the president of the Central City Association, a business advocacy group representing Downtown Los Angeles. “The low foot traffic and public safety challenges in Downtown is a piece of the story,” she said, calling it “a vicious cycle.” However, Downtown has seen a growth in residents in recent years, meaning that some businesses which cater to an after-work crowd are doing well.
She noted a variety of factors that are creating a punishing business climate, such as the downstream impact of declining film and TV production in the city. Filming days fell 22.4% in the first quarter this year compared with the same period in 2024. “There is an ecosystem that relies on that: catering, dry cleaning, so many small businesses are part of the supply chain.”
But McOsker feels that some of the biggest problems in the city are self-inflicted. The pace of acquiring business and building permits – a prerequisite for most new businesses – has slowed to a crawl, and she says there appears to be little awareness or concern at city hall. “It really translates to the fundamental bureaucracy of permitting and small business support,” she said, noting that many new businesses end up having to hire a specialist to navigate approvals from various city agencies.
She recounted the case of a restaurant group that had opened several locations in Los Angeles County. When they tried to set up shop in central Los Angeles, the process took 18 months, far longer than elsewhere.
“Something has definitely slowed. There’s nothing different about the rules or the regs, but [city workers] are not incentivized to get to yes,” she said. She is hoping that the current budget crisis can be turned into an opportunity to change the office culture at city agencies. The alternative, she warned, is much worse.
“We’re short a billion dollars. Where do we think that money comes from?”
How we did it: Crosstown analyzed 20 years of data from the Los Angeles Department of Finance on the issuing of new business permits.
Have questions about our data? Write to us at askus@xtown.la
(Gabriel Kahn is a USC Annenberg professor and co-director of the Media, Economics and Entrepreneurship (M{2e}) program, specializing in media innovation and journalism. He is also the founder of Crosstown, a data-driven platform for hyperlocal news.)
