The Warning of No Money and No Business

This article was originally published in the “CAPITOL BUSINESS : The Business-Government Connection” section of the Sacramento Union on July 3rd, 1991.

For the first time in over fifty years, the State Government of California has had a decline in its revenue from previous years.  The 1990-91 fiscal year just closed a few days ago on June 30th with a serious warning for policy makers – a revenue gap of $462 million dollars.  Not since the Great Depression in the 1930’s has California faced the problem of having declining revenues.

The economy is not totally to blame.  We have rarely seen so many years of sustained economic growth as we have in the recent past, even with our slight recessional dips here and there.  In fact, this recent recession appears to be bottoming out much sooner than many forecasters predicted.

While there are many reasons for the lost of revenue, in part I believe it is indicative of our state’s economic engine being dismantled business by business as California loses its economic and competitive advantage to our states.  After all, this is a free economy and nothing says that business has to stay here (or new ones come here), even if we are the land of Hollywood, glamour and sun-drenched beaches.

You may recall that even Jim Morgan, husband of State Senator Rebecca Morgan (R-Los Altos Hills), decided a few months ago to take his new $100 million facility for 2,000 employees out of California to Texas.  According to Mr. Morgan, “the attitude of state and local government toward industry is pathetic.”

When you consider the rising cost of living; workers compensation rates which are almost double some of our neighboring states; prevailing wage legislation; the potential of mandated health care; the proposals for split-role property taxes for business (which will keep coming back); and all of the regulatory hassles (such as SB 198 and the detailed worker safety requirements), why stay?

Aerospace officials expect that most of the Aerospace industry will flee California over the next several decades for all of these reasons.  And that is an unfortunate blow to the California economy when you consider that Aerospace alone employs over 150,000 Californians.  Those employees buy what they need within our local communities, and local government needs every sales tax dollar it can lay its hands on.  Furthermore, each manufacturing employee on average creates 2.25 jobs elsewhere in the state economy.

One company I am familiar with is moving out of its Los Angeles headquarters to the Midwest with the next two years, and taking over 700 employees with it.  The reasons?  First, the cost of living and doing business is over 25% less than in Southern California.  This will save the company millions of dollars which can be better used in product development and valuable new facilities.  Secondly, its employees struggle with the quality of life in Los Angeles area.  Homes are outrageously priced and thousands of man-hours are wasted behind the wheel in traffic jams.  Thirdly, new facilities out-of-state are less expensive than constructing new buildings within California.  Finally, medical care alone will cost one million dollars less than in California.  Given all the facts, they have little choice.  California is pricing itself out of the market.

Given all of the facts, our state and local governments better listen to the economic warnings of our first statewide revenue decline since the Great Depression.  The bell tolls for us.

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