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Tuesday, Oct 4, 2022

Improving the Business Climate is Long-term Job for Governor

Gov. Arnold Schwarzenegger’s first year in office has significantly improved perceptions about doing business in the state, but those perceptions have yet to make much impact for the bottom lines of California companies

That could change over the next year as the effects of workers’ compensation reform and other pro-business legislation signed into law begin to be felt. Even now, California is again on site selection lists for companies considering expanding or consolidating facilities, and some companies in the state have put decisions to relocate on hold.

But several propositions on the Nov. 2 ballot, especially Proposition 72, which would require many employers to provide health care coverage, could quickly dislodge whatever business-friendly inroads the governor has made.

“I voted for Arnold and I’m pleased to see the direction he’s moving in, but my costs haven’t come down at all in fact, my energy costs have gone up, not down,” said Jim Ball, president of Sure-Grip International, a South Gate-based maker of roller skates and inline skates.

Sure-Grip is continuing with plans to lay off local workers and move its manufacturing operations offshore. In the last 18 months, roughly half of the company’s 45 workers have been laid off.

What’s more, other states are stepping up their campaigns to lure frustrated California businesses away with slogans like “You can’t hang on,” or “Will your business be terminated?” This week, Nevada economic development officials will be in Los Angeles to introduce a $650,000 campaign to woo California businesses.

In the greater Las Vegas area, economic development officials say they received 319 inquiries from California companies between July 1, 2003 and June 30, 2004. That’s up from the 259 inquiries received in the previous 12 months.

Somer Hollingsworth, president and chief executive of the Nevada Development Authority, said there was a slight dip in the number of inquiries for a few weeks after Schwarzenegger took office and again after workers’ compensation reform passed.

“However, those inquiries went right back up again once people realized that relief would be slow in coming,” Hollingsworth said.

Promoting business

But unlike the previous administration under Gov. Gray Davis, Schwarzenegger has been using his bully pulpit to attract and retain business. Earlier this summer, the governor made a high-profile visit to Las Vegas, equipped with a van, and helped a sign company move back to California.

The administration has also put up billboards in several states showing the muscle-bound bodybuilder and former actor with the caption: “Arnold says, California wants your business!”

That prompted a response last week from Massachusetts Gov. Mitt Romney, who put up signs featuring himself saying: “Smaller muscles, but lower taxes! Massachusetts means business.”

Behind the scenes, the Schwarzenegger administration has taken a more hands-on approach to business retention and attraction, re-instituting “red teams” that pull together officials from various state and local agencies for special business assistance.

“We’re talking with the Schwarzenegger economic development team for a number of our clients and they are much, much more upbeat and helpful than the state was a few years ago,” said Frank Spano, associate director of planning for the facilities location group at Cleveland-based Austin Co.

As a result, California is back in play for major national or international companies considering expanding or consolidating facilities.

“A year ago, California had become a no-fly zone for businesses looking to site new or consolidated facilities,” said Rob DeRocker, executive vice president of Development Counsellors International, a Chicago-based economic development consulting firm. “Now, we’re seeing clients put California on their first-round list of sites.”

But such efforts only have limited effect, because the costs are still very high.

Workers’ comp premiums, for example, have come down only slightly from their astronomically high levels, while energy costs have remained 30 percent to 40 percent above the national average. Workers’ comp premiums this summer went down 5 percent to 10 percent, compared with the 110 percent increase over the previous four years.

This has all continued to lead many companies, especially manufacturers, into relocating some or all their operations out-of-state.

Two factors are blamed for the minimal drop in rates: uncertainty over the formulation of new regulations and the unwillingness of insurance companies to lower premiums without evidence that claims costs were going down. Supporters of the reforms say greater savings should kick in starting with next year’s premium renewals.

“Except for some minor savings in workers’ comp, the rest of the costs are all still there. It’s going to take some time to turn all this around,” said Larry Kosmont, a Los Angeles economic development.

Schwarzenegger did veto legislation calling for a $1-per-hour hike in the minimum wage, as well as gender pay equity and additional health care coverage mandates. All these measures would have imposed additional costs on many California businesses.

But the governor has had limited success with legislation aimed at reducing business costs. For example, efforts to restore the ability of manufacturers to shop for cheaper electricity rates died in the Legislature, as did an attempt to restore a key tax credit for manufacturers.

Now, the attention of California businesses and corporate site selection consultants is focused on four measures on the Nov. 2 ballot.

Proposition 72 would mandate that all employers with at least 50 workers either provide health care coverage for their workers or pay into a state health care fund.

Proposition 67 would levy a 3 percent telephone surcharge on both businesses and residents to fund emergency room operations. Proposition 63 would levy higher taxes on individuals with more than $1 million in income to pay for mental health services.

And Proposition 64, which is supported by business, would place sharp limits on lawsuits that can be filed against companies alleging unfair business practices.

“If all of these propositions break business’ way, that would send another powerful signal about California’s business climate and could cause another major shift in perception,” Kosmont said.

Executives at PolyTainer Corp., a Simi Valley-based maker of plastic containers that employs about 300, are still considering relocating some operations to either Arizona or Nevada. But Paul Strong, president and chief executive, said “Gov. Schwarzenegger’s actions to date have caused us to postpone our decision whether or not to relocate, at least until after next month’s election.”

Strong said that if Proposition 72 fails, he might shelve the company’s relocation plans altogether.

“Look, we really would rather stay in California if at all possible,” he said. “Sacramento is beginning to move in the right direction and I’m more optimistic. But there are still some bitter fights ahead with Democrats in the Legislature.”

Howard Fine
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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