Relief is probably the best way to sum up the reaction of California business owners to last week’s election, as voters generally sided with their interests on just about every important measure.
Voters repealed employer-mandated health care, opted to fund stem cell research that could help jumpstart a new industry in the state, and agreed to curtail unfair business practice lawsuits.
A handful of propositions did not go the way business interests would have liked, including an effort to make the primary process less partisan. And Gov. Arnold Schwarzenegger’s coattails were not long enough to make the Legislature more business friendly by ousting targeted Democrats.
“I think (the election) is a positive thing, but there are no quick fixes here,” said Christopher Thornberg, a senior economist at the UCLA Anderson Forecast. “It got a little better, but the business climate is a long-run drag, not a short-run drag.”
While some thorny problems remain unresolved including a rise in the uninsured that has been linked to increases in the cost of health care the results are being taken as another sign that the state’s business climate is warming.
“From a Schwarzenegger-business community perspective, it was almost an
unalloyed victory,” said Rob DeRocker, executive vice president of New York-based Development Counsellors International, a consulting firm that helps California communities attract new business. “All eyes were on Arnold. You can live that way and you can die that way. He won that way big time.”
The one issue most important to business interests was Proposition 72, a referendum placed on the ballot by the California Chamber of Commerce on the landmark law SB 2.
The legislation, passed last year in the waning days of the Gray Davis administration, would have required large- and medium-sized businesses to provide health care to their workers.
California would have been the only state aside from Hawaii to have such a mandate, and the chamber and other business groups saw it as a threat in attracting and retaining businesses, especially those that employ lower-wage workers.
“The defeat of Proposition 72 is a victory for all Californians because it sends the message across the country that California continues to be serious about bringing employers and jobs back to our state,” said Chamber President Allan Zaremberg.
The law was turned down by 50.9 percent of voters, a margin of 160,755 votes. Some proponents suggested there were enough uncounted provisional and absentee ballots to overturn the result, but that was unclear late last week.
Also going down was Proposition 67, which would have placed a tax on in-state telephone calls generating an estimated $600 million to support emergency services, including the 911 system, hospital emergency rooms and emergency medical specialists.
Telecommunications companies and small businesses vigorously opposed the measure, which was defeated by nearly 72 percent.
The one industry that did take it on the chin was health care. “We are not on the cusp of a crisis. We are in a crisis,” said Jan Emerson, vice president of external affairs for the Healthcare Association of Southern California, a hospital trade group.
Not even the passage of Proposition 61, which set aside $750 million in bond money to renovate 13 children’s hospitals, lessened the blow. Emerson blames a good share of the industry’s problems on the rising number of patients who are uninsured.
The trade group plans to try to come up with a plan more acceptable to other businesses to cover more of the uninsured. And last week, the governor agreed to relax the state’s nurse staff ratios for hospitals, which the industry said had been driving up costs.
“The real story of SB2 is how close it came to passing even with the huge opposition from the business community,” said Jerry Flanagan, a health care expert with the Foundation for Taxpayer and Consumer Rights, who vowed the group would try to get its own health care initiative on the 2006 ballot.
If Proposition 72 was the top business priority, Proposition 64 was not far behind. The measure, which won with nearly 59 percent support, placed limits on a state statute that allows private citizens to bring lawsuits against businesses for unfair practices.
Proponents argued that the law, which was liberalized in 1992, had allowed unscrupulous attorneys to “shake down” small businesses for alleged minor violations of the law. The proposition will require any such lawsuits to go forward only if there is a named, harmed victim of the allegedly unfair practices.
Consumer and environmental groups vigorously opposed the measure, saying the law had been an effective tool in curbing false advertising, pollution and other problems. However, attempts to amend the statute and curb its abuse by some attorneys repeatedly failed in the Legislature, leading to business groups to bring for the proposition.
“The law was used as a bludgeon,” said Jim Burgess, a partner in the Century City office of Sheppard Mullin Richter & Hampton LLP, who represents businesses in such lawsuits. “The litigation costs of defending these cases often have exceeded the entire profit made by selling in California. I think the referendum will level the playing field between California and other states.”
Many business groups also cheered the passage of Proposition 71, which will set aside $3 billion in bond money over 10 years to assist universities and start-up companies working on stem cell research and treatments.
The biotech industry contends that the measure, promoted by venture capitalists and advocacy groups for diabetes, Parkinson’s disease and other illnesses, could give California a huge lead in the promising field, especially since the Bush Administration, citing religious concerns, has limited federal funding.
“There will be more venture capital money and other private investors willing to pour money into projects with this, since part of the costs will be paid by the taxpayers of California,” said Allan Wolfe, general partner of UV Partners, a life science and technology venture capital firm with offices in Los Angeles. He nevertheless warned that it could up take up to two decades for commercially successful medical treatments to be developed.
For all the good news for business interests, there was a consensus that many issues remained to be solved.
Costs for California businesses remain much higher than in neighboring Arizona and Nevada including energy and worker’s compensation insurance, which is still pricey as businesses wait for the full effect of last year’s reform package.
Other big concerns are the state’s regulatory framework for planning and environmental issues, which can make it very difficult for a business to expand without spending big money and time on lawyers and consultants.
The Nevada Development Authority, among the groups that has been sponsoring a $650,000 advertising campaign to lure California business, said it had no plans to rethink its efforts.
“I think our honey is still good,” said Somer Hollingworth, chief executive of the Nevada group. “California still needs to see a reduction in power rates. There also is the family leave problem and disability (issues).”
Moreover, others in the business community mourned the defeat of Proposition 62, which would have returned the state to an open primary system, likely leading to less polarization in the Legislature and more moderate Democrats supportive of business.
Still, the feeling among businesses after Election Day was a good one, especially as Schwarzenegger vowed to continue working to improve the state’s business climate.
“The perception of momentum in the right direction is just as important as the substance,” DeRocker said. “You have a built a better mousetrap. Spare no effort in telling the world about it.”