Thursday, May 31, 2012

California Business Alert #1:
Governor’s Contempt for Biz Environment
Is Warning Flag for Future Woes

This is the launch of a new series of occasional business alerts relating to the abusive treatment businesses receive from California’s state and local governments.

If you are a California business person who has been hoping that treatment from the state would somehow become better, it’s time to give up that dream. The reason? Well, psychologists say that attitudes shape action, and we have to be worried about the state’s political elites continuing to broadcast business-hostile messages.

The latest example is Gov. Jerry Brown’s office ridiculing the idea that population losses to other states are linked to employers relocating facilities to other states.

A bit of background: The Tax Foundation found in a recent two-year period that 406,883 Californians migrated to other states, while 365,673 people came here, for a net out-migration of 41,210. This is more fully explored in an Orange County Register piece entitled "Editorial: Still heading for exits from California."

The governor’s spokesperson, Gil Duran – in denying that people move out because companies move out – was contemptuous enough to say that “businesses are not fleeing the state for the cold, empty and desolate hinterlands." [Note: He was referring to Iowa.]

The statement is absurd. People follow opportunity, and they do so even to “hinterlands” like Gardnerville, Nevada. A small business, Aerospace and Commercial Precision Machining, recently left Palmdale and took eight of their nine employees with them to Northern Nevada. See "Aerospace manufacturer relocates to Gardnerville."

One must wonder what California officials think of South Dakota. Capital One recently announced it will open a new credit-card processing center in Sioux Falls at the same time it announced it will close its 850-employee Salinas facility by mid-2013. See "Capital One moves out of Salinas, lays off 850 workers."

Also, what does Sacramento make of the following sampling of “hinterland” moves within the last year or two?

Name of Company
California Departure Community
Out-of-State Arrival Community
Acacia Research Group LLC
Newport Beach
Frisco, Texas
Adrienne’s Gourmet Foods
Santa Barbara
Sandusky, Ohio
Allegro Industries
Garden Grove
Anderson, South Carolina
Amiad USA
Mooresville, North Carolina
El Segundo
Marshalltown, Iowa*
Dot Hill Systems Corp.
Longmont, Colorado
Fonality, Inc.
Los Angeles
Plano, Texas
Howell Precision Machine
Colorado Springs, Colorado
Legacy Electronics
San Clemente
Sioux Falls, South Dakota
Rockwell Collins
San Jose
Cedar Rapids & Manchester, Iowa
Star Trac
Vancouver, Washington
Thomas Brothers Maps
Skokie, Illinois
*contracted work

Some relocations are unique, like when BMC Select, a building materials supply company, moved its headquarters from Boise, Idaho to San Francisco. Then they moved again – back to Boise.

Companies relocate to many “non-hinterland” communities. In Texas, the top draws for California companies are Dallas, Houston, Austin and San Antonio. Some businesses “hop over” to Phoenix, Tucson, Reno and Las Vegas because short airplane flights allow employees easy visits to friends and family who stayed behind. Mountain backdrops and four seasons attract California companies to Salt Lake City and Denver. We can’t ignore southern charm that has in part lured companies to Atlanta and Nashville. Even so-called “rust-belt” cities like Indianapolis and Pittsburgh, which have re-invented themselves, have seen moving vans arrive from California.

The way these cities sparkle in the glow of sunsets can be as captivating as any city in California; cultural events whether stage, dance or symphony are sell outs; sports fans are intensely loyal, and in older areas the adaptive reuse of historic buildings is enough to make an architect swoon.

Two years ago when Hilton Worldwide moved corporate headquarters from Beverly Hills to McLean, Va., the company said approximately 80% of the employees invited to move east accepted the invitation. “My impression is they’ve settled into the area very well, regardless if they are in new roles or the same roles,” said President and CEO Chris Nassetta. “It’s seamless at this point.” He also said that “It’s worked out even better than we thought it would. There were a lot of reasons that we did it, and we knew that, at the same time there would be benefits, it would be disruptive. But in the end, it’s been less disruptive than we thought.” See more of his comments in the story "Hilton thrives amid massive changes."

Using conservative information, I found that 254 California companies conducted “disinvestment events” that resulted in some or all of their jobs being placed outside of California in 2011. I relied solely on public domain information for my compilation, which makes it impossible for politicians to deny events reported in reputable publications. My finding was 26 percent more than in 2010 and 5 times higher than 2009. Using different criteria, other researchers have found higher business losses.

But don’t expect the governor’s office to agree. The Register's editorial concluded, "Mr. Duran's comment, reflecting the sentiments of Gov. Brown, shows how insulated they are from what's really going on in California." Well said. Obscuring this issue makes it easier to remain tough on business.

Business Alert – What This Issue Means for the Future:

Today, California businesses can reduce costs by 20 percent in many states and up to 45 percent in “hinterland” areas. Who is to say that within a year out-of-state advantages won’t grow to a range of 25 percent to 50 percent?

Growing cost disparities can result from California increasing business and personal taxes, in higher capital expenditures required to comply with new regulations, in still more fees and fines from all sorts of agencies, and in soaring utility costs sparked by “green” energy-renewable laws. Meanwhile, Sacramento will preserve big-spending programs despite growing state budget deficits and a bottom-level credit rating.

A company interested in exiting California in part or in full between 2013 and 2015 should initiate project planning now because a careful relocation or expansion elsewhere can take from one to three years to implement.

Joseph Vranich is available for public speaking on the subject of business relocation in the United States regardless of whether California issues are involved.

© Copyright by Joseph Vranich, 2010. Use is permitted provided attribution is given to "Joseph Vranich, The Business Relocation Coach, located in Irvine, Calif."