Gov. Arnold Schwarzenegger’s first year in office has bolstered perceptions about doing business in the state. But the changes haven’t had much impact on the bottom lines of California companies.
That could change in the next year as the effects of workers’ compensation reform and other pro-business changes are felt. Even now, California again is on site selection lists for companies considering expanding or consolidating facilities. And some companies have put decisions to move on hold.
But several November initiatives, especially Proposition 72, requiring employers to provide healthcare coverage, could dislodge gains the governor has made.
“We’ve been somewhat optimistic about the future compared to how it was,” said Alex Bhathal, vice president of strategic planning at Tustin swimsuit maker Raj Manufacturing Inc., which employs about 400 people in Orange County. “But there’s still a definite attitude against businesses coming out of Sacramento.”
What’s more, other states are stepping up their campaigns to lure frustrated California businesses with slogans such as “Will your business be terminated?”
In the greater Las Vegas area, economic development officials say they received about 300 inquiries from California companies from July 2003 to June 2004. That’s up from 259 a year earlier.
Somer Hollingsworth, chief executive of the Nevada Development Authority, said there was a slight dip in inquiries for a few weeks after Schwarzenegger took office and again after workers’ compensation reform passed.
“Those inquiries went right back up again once people realized that relief would be slow in coming,” he said.
Unlike 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 and helped a sign company move back to California.
The administration also has put up billboards in several states showing the muscle-bound Schwarzenegger 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, reviving “red teams” that pull together state and local officials to help businesses.
“We’re talking with the Schwarzenegger economic development team for a number of our clients and they are 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.
“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, an economic development consultant. “Now we’re seeing clients put California on their first-round list of sites.”
But doing business here still is expensive.
Workers’ comp premiums have come down only slightly from astronomically high levels. Energy costs still are up to 40% above the national average.
“It’s going to take some time to turn all this around,” said Larry Kosmont, a Los Angeles economic development consultant who publishes an annual survey comparing the cost of doing business in scores of cities around the nation.
Schwarzenegger did veto legislation calling for a $1-per-hour hike in the minimum wage, as well as gender pay equity and additional healthcare coverage mandates. All these measures would have imposed more costs on businesses.
But the governor has had limited success with legislation aimed at reducing business costs. 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.
Attention now is on four measures on the Nov. 2 ballot.
Proposition 72 would mandate that all employers with at least 50 workers either provide healthcare coverage for their workers or pay into a state healthcare fund.
Proposition 67 would levy a 3% telephone surcharge on businesses and homes 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,” Kosmont said.
