Outsiders Make Bolder Moves to Steal L.A. Companies

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For Carmen Murray, owner of a custom carpet company in Commerce, the siren song from other states offering free land and lower business costs has finally become too enchanting to ignore.

Murray, who owns Rodeo Carpet Mills Corp., has been getting calls and brochures from other states for years, and she has generally ignored them. But now, faced with a combination of a brutal recession and soaring taxes, Murray is giving serious consideration to the thought of moving her 22-employee company to states as far away as North Carolina.

“The economy has hit us hard,” Murray said. “We’re looking at everything we can look at to cut expenses and to go forward with our company and that includes locating to a lower cost area.”

All over Southern California, business owners are receiving phone calls, e-mails, fancy brochures and even personal visits from economic development offices in other states. In recent years, most have come from states in the Western United States, chiefly Arizona, Nevada, Utah and Colorado. But other more distant states are now getting into the act, such as North Dakota and North Carolina.

Of course, states and cities have been trying for decades to convince business owners to move out of Southern California. But the activity picks up during down cycles when other states are trying to build up their economies, or when California lawmakers adopt anti-business measures. Both conditions are now in play.

“California, and particularly Southern California, has been a recruitment target by other states for more than two decades, in part because of its critical mass of companies,” said Rob DeRocker, senior counselor with Development Counsellors International, a New York-based economic development and relocation consulting firm. “What’s different about this time is the economic distress that’s driving those other states to an almost desperation level of activity.”

Take, for example, Medtronic Diabetes, the fast-growing Northridge division of Minneapolis device giant Medtronic Inc. It is being intensely courted by both San Antonio, Texas, and Kansas City, Mo., to open an expansion facility, and Henry Cisneros, the former San Antonio mayor and U.S. Housing and Urban Development secretary, even flew here to make a case for the Lone Star State.

Steve Sabicer, a company spokesman, emphasized that the company is not relocating but the expansion will occur elsewhere partly for cost-saving reasons; the decision as to where the expansion will occur likely will be made next month. (The division, which employs 1,500 people here, formerly was a company founded by Al Mann called MiniMed and was acquired by Medtronic in 2001.)


Denver’s push

The highest-profile sales pitch has come from Denver, which brought in a helicopter to fly over Los Angeles-area freeways on Valentine’s Day weekend. The state advertised as a low-cost place to do business. The total cost of the campaign, which included mailings and other advertising, was about $95,000.

The stunt netted about 50 inquiries from L.A.-area companies, according to Tom Clark, chairman of the Metro Denver Economic Development Corp.

Clark said Denver is targeting aerospace companies, as well as biotechnology and alternative energy companies.

As a follow-up, Denver Mayor John Hickenlooper is flying to Los Angeles later this month to meet one on one with L.A.-area business owners and with the media.

A more ambitious push is coming from the Las Vegas area, which next month will launch a yearlong, $1.5 million campaign to lure Southern California companies, especially those in the fields of technology, biotechnology/life sciences and alternative energy. The campaign will include direct-mail brochures, phone calls, advertising in local media and on-site visits.

An increasing number of Southern California businesses seem receptive to the message and are calling for more information.

The Nevada Development Authority, which represents the Las Vegas area, reports that inquiries from businesses in other states not just California are up 57 percent in the last 100 days compared with the same period a year ago. The authority’s chief executive estimates that about one-third of all inquiries come from California business owners.

Economic development officials in Los Angeles and the surrounding areas have stepped up contacts with local companies that are likely targets of these campaigns. When necessary, they are pulling together government officials to address business owners’ concerns.


No action

While there may be a rise in interest, apparently there have been no recent relocations yet.

That’s because the recession has hit so hard and so swiftly that companies are hunkering down in survival mode, and can’t pull the financing and logistics together for a move out of state.

“It’s taking a company much longer to pull the trigger and pick up and move,” said Julie Ardito, spokeswoman for the Economic Development Authority of Western Nevada, which represents the greater Reno area. “A few years back, a company would take a year or 18 months from initial inquiry to actual move; now a company takes about three to five years.”

Indeed, few local companies are now willing to make the jump, despite rising frustration with local and state government actions, and a cost structure that remains stubbornly high when compared with most other states.

An example of a company that’s reluctant to move is Laspec Lighting Co. of Vernon. Laspec Lighting has received brochures and faxes from Michigan over the last six months touting a much better business environment and a pool of skilled labor. The company makes decorative lighting for hotels, casinos and other hospitality industry clients; it had 40 employees last year and has since made layoffs.

But Laspec Lighting principal Jacob Melamed said the company isn’t considering moving now because of the prospect that such a move would decimate the ranks of senior employees. The company learned its lesson five years ago when it was recruited by the states of Arizona, Oregon and Washington. At the time, senior managers did not want to move, so the idea was scrapped.

“Many of our friends in the industry have left over the years, but we do not intend to if we can avoid it,” Melamed said.

The only wild card, he said, would be continued difficulties in dealing with various state and local regulatory agencies. He declined to specify the specific nature of the company’s issues with regulators.

Meanwhile, local skin-care products maker Dermalogica Worldwide has also received a barrage of brochures and phone calls from other states. Founder and Chief Executive Jane Wurwand said North Dakota has been “extremely aggressive,” while North Carolina and Kansas have been “persistent.”

Wurwand said Dermalogica, which has 340 employees in Carson, is not interested in moving to North Dakota or anywhere else outside of Southern California.

“We’re about to launch a California brand, so we’re staying,” she said.

But Wurwand’s frustration level with California especially government agencies is rising. The company was recently turned down in its attempt to receive state enterprise zone tax credits for new hires. In addition, she’s very nervous about what the impending increases in state and local sales taxes will do to her business.

Topping it all off, Wurwand has not received calls offering any assistance from state or local government officials.

“We’re a bit miffed,” she said. “They’ve completely ignored us.”


Red teams

Situations like that concern local economic development officials, who say they have stepped up the frequency of calls to local businesses.

“We’re trying to find out if these businesses have any issues that we can address,” said Carrie Rogers, vice president of business assistance with the Los Angeles County Economic Development Corp. The organization’s workers are going through databases and calling companies to offer whatever assistance they can.

Rogers said that the use of so-called red teams of local government officials has been expanded to address these problems. Red teams, which originated in the aerospace industry as impromptu fix-it teams, were widely employed to retain California businesses in the 1990s. These ad-hoc groups of state, local government and utility officials gathered to meet with companies and take whatever actions were feasible to keep the companies from leaving, from lowering utility bills to waiving permit fees.

But these red teams face more formidable obstacles today. Strapped government budgets mean there’s little flexibility to reduce taxes or fees, while recent actions in Sacramento have generally added to the problems. The one-cent hike in the state sales tax that was part of the budget deal takes effect April 1 and will slam retailers and manufacturers that sell products in the state. The increase in the personal income tax will likely hit partnerships and small business owners.

The higher taxes in the new state budget triggered the forthcoming Las Vegas campaign.

“Once the Legislature reached that budget deal, we saw an immediate increase in inquiries, with a lot of questions about sales tax rates,” said Somer Hollingsworth, chief executive of the Nevada Development Authority. “The big issue is how companies that are now slashing prices because of the recession are going to pass on that sales tax to customers.”

Hollingsworth noted that in much of L.A. County as of July 1, the sales tax will be nearly 10 percent; the sales tax in Clark County, Nev. (home to Las Vegas), is 7.75 percent.

But Hollingsworth said he is not expecting California companies to make the jump immediately.

“When the economy starts to show signs of recovery, that’s when they will start considering relocation,” he said. “And this campaign is intended to make us well-positioned to take advantage of that.”




Staff reporter Deborah Crowe contributed information to this article.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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