Front Page	E-mail PagePrint Version

New report re-ignites the debate on California’s business ''exodus''

SAN FRANCISCO - 12/01/05 - The great debate over whether California companies are fleeing the state to find a better, more business-friendly environment elsewhere has ratcheted-up with the recent publication of a report by the Public Policy Institute of California.

The report disputes what it says is the "conventional wisdom of business advocates who have promoted the notion that businesses are leaving the state for greener pastures" who, it claims, "have relied on anecdotal evidence to make their case" and argue for the need for policy changes in Sacramento.

"I hope it gets people off of claiming that there's this big problem of businesses fleeing the state and that it is proof that we have a bad business climate," said David Neumark, a senior fellow at the Public Policy Institute of California and one of the authors of the report.

"There may still be a bad business climate," he said. "But these particular anecdotes are not borne out in the data and don't prove anything at all."

According to the Sacramento Business Journal, the findings "are important because as policy makers wrestle with efforts to stimulate employment, it shows that efforts to prevent job loss by focusing on policies to dissuade companies from moving out of California will be an ineffective means to bolstering employment."

Instead, the paper said, they argue that policies that promote new business formation and help existing businesses survive "would be far more effective at protecting and creating jobs."
 
Several influential business groups that have in the past pointed to business relocations out of California as dramatic evidence of the state's perceived hostile business environment, however, have dismissed the PPIC study, saying it fails to take into account large companies that remained here but shifted jobs out of California. 

They also faulted the study because its data didn't look beyond 2002 and failed to include the period when the workers' compensation crisis in California peaked.

"It doesn't have all the data," said Sara Lee, spokeswoman for the California Chamber of Commerce in Sacramento. "This study is not relevant because it is incomplete."

Bill Hauck, president of the California Business Roundtable (CBR), a public policy group made up of chief executives, told the Sacramento Business Journal that the PPIC's report "misses the mark."
 
He said by looking at overall job figures, it obscures the "steady weakening of California's competitive advantages in the high-value jobs that are mobile -  the most critical sectors to long-term economic performance."

These so-called "mobile sectors" refer to operations that can be relocated to other states or countries and include industries such as entertainment, computer software and electronics.

A 2004 CBR report found that 27% of California's jobs were in mobile sectors.

"The PPIC study masks what is happening in the state and is misleading," said Hauck. "On the surface, this data appears to be positive, however it lacks a specific analysis related to the 27 percent of jobs that could leave the state."

The PPIC report has also been taken to task by the Los Angeles Economic Development Corp. (LAEDC), which told the Pasadena Star-News recently that it is actively petitioning state leaders "to make California more business friendly."

Nissan Motors' recent decision to move its North American headquarters and 1,300 jobs from Carson in Southern California to Nashville, Tennessee "is the latest blow," the LAEDC said.

Industry analysts say the Nissan move could seriously threaten Southern California's dominance as a hub for Japanese automakers and strengthen the US Southeast's standing as a major manufacturing center for automakers.

The company, they said, will invest more than $70 million to build a new headquarters building in Franklin, near Nashville, which is expected to be complete by 2008.
 
The first employees will transfer to Tennessee next summer and work out of temporary offices in downtown Nashville.
 
One source, Tom Libby, an automotive analyst with JD Power and Associates, said Nissan's relocation "could make other Japanese automakers in Southern California -  Honda Motor Co., Mitsubishi Motors Corp. and Mazda Motor Corp. - consider a move out of the state" closer to their manufacturing and assembly facilities in the US Midwest and Southeast.
 
Overall, more than 80 businesses have left Southern California alone since the fall of 2003 "because of uncompetitive tax rates, the high cost of employee benefits and the region's regulatory environment," the LAEDC report said, adding that "those businesses have taken more than 13,000 jobs with them."

The economic think tank lists such local companies as Libbey Glass Inc. and Saint-Gobain Calmar Inc. in the Los Angeles suburb of Industry; AAA Electrical Supply and Pacific Precision Metals Inc. - both in the San Gabriel Valley, southeast of Los Angeles - as either moving or expanding operations out of state.

Workers' compensation insurance, electricity bills and rules and regulations not found in other states add to the cost of doing business in California, said Jack Kyser, the LAEDC's chief economist and senior vice president.
 
"Firms are either expanding into other states or moving operations, taking more high-end jobs with them," he said, adding "the type of jobs moving are getting very worrisome."

Also worth consideration, he said, "is if you listen to leaders in Sacramento they want to make things better for the working family. They don't understand the working family isn't a working family unless someone is there to give them a job."

Retail will continue to come to California because the market is too big to ignore, but firms creating good, quality jobs may stay away, Kyser told the paper.

In addition, the modernization of California's highways and rail systems could lead to growth in international trade and the potential for another one million jobs throughout the state, he said.
 
The LAEDC wants legislators to form a task force to improve the business environment to attract and retain successful growing companies, recommending legislation that would adjust overtime laws and restore the manufacturers' investment tax credit, Kyser said.

If companies continue to leave, the job gap will widen with high-end and low-end jobs available but nothing in the middle, Kyser said.

The state's infrastructure needs top $100 billion, which would not be fully addressed even if a state bond passes, said State Assemblyman Bob Huff (R-Diamond Bar).

One possibility is creating toll roads for trucks, which would take a lot of traffic off freeways, he said. "I'm not a big fan of truck lanes or toll roads that cost extra money, but it's one of the few ways to address the situation sooner rather than later."
 
State Assemblyman Ed Chavez (D-City of Industry) told the Star-News that he would "welcome a task force to examine the problem."

The state, he said, "has already made some improvements, including streamlining the application process for small businesses and lowering workers' compensation rates" and that "without a strong job market and job base the state would not be able to provide services."

But, despite the improvements, a number of companies have joined Nissan, Libbey Glass, and the others in announcing their decision to shift selected operations elsewhere, shut down operations here, or move out of California entirely.

Fluidigm Corp., a Bay Area maker of tools that accelerate the pace and reduce the cost of life science research, said it is moving its chip manufacturing from its South San Francisco headquarters to Singapore next year.

The company had considered several locations including Sacramento as a final location for the facility. The economic incentives offered by Singapore made the decision to move the work "an easy choice," according to a company spokesman.

Steel fabricator Aleris International Inc. plans to close and dismantle its Carson, California rolling mill and coil coating facility by the middle of next year because of "unfavorable cost structures." The company has said it will serve its US West Coast customers from its 33 other production facilities in the USD, Brazil, Germany, Mexico, and Wales.

At the same time, 3-D Systems Corp., a digital imaging company with significant international operations, said it will be moving its headquarters and a research facility to Rock Hill, South Carolina next year - a move that will transplant 145 jobs with an average salary of $80,000 per year out of the state.

3-D President and CEO Abe Reichental told the press that the company was offered substantial investment and tax benefits to make the move.
 
"Businesses close down or scale back their operations for countless reasons," said the PPIC's David Neumark.

"The public policy implications and solutions may be very different for those dynamics than they are for businesses moving out to set up shop elsewhere," he concluded.

Go back, or read the latest Front Page stories:

China Projected to Take Manufacturing Crown

BOSTON, Mass. – 08/18/08 – Rapid growth in certain manufacturing segments will help China overtake the US as the world's leading manufacturer within a decade, according to Global Insight, the Massachusetts-based economics consultancy; but, rather than being a cause for concern, the forecasted explosive growth of China’s manufacturing sector “is not a sign of weakening future prospects for the US” and ''is more likely to open up greater opportunities for the US, as well as other producers,'' the company said.