State hopes to improve its business image

by Michael Shaw, Staff writer

Date: Friday, April 29, 2011, 3:00am PDT

Long known for high taxes and regulatory burdens, California consistently ranks at the bottom among states in measurements of its business climate.

But as the state’s sluggish job growth puts it behind many others in recovering from the recession, the heat is on legislators to take more seriously the need for California to be more business-friendly.

A new office of economic development, bills to help business owners clear regulatory hurdles and a legislative trip to Texas are among the efforts so far.

It’s less clear what practical changes may result, however.

“At least this year, the issue is being talked about,” said Larry Venus, spokesman for state Republican Senate leader Bob Dutton. But “we’re not seeing a lot of action.”

A recent report from a nonpartisan research organization examines the claim that the state’s policies are a drag on the economy and concludes that it’s time to act.

“At a minimum, policymakers need to take seriously concerns that high taxes and costs of doing business slow California’s growth,” said the Public Policy Institute of California in a report issued this month.

But the report’s surprising conclusion is that the state is doing much better than thought, despite its huge budget deficit, 12 percent unemployment rate, and exodus of some companies for what they see as greener pastures.

It found that California’s economic growth has been about average and its productivity above average over the past two decades. The study’s authors conclude that natural advantages — weather, coastline, population density, and diversity of commerce — often far outweigh the effect of policy decisions.

“Our findings imply that if we could improve the state’s poor business climate, California’s economic growth would outpace most other states,” the authors wrote.

A new attitude

State officials say the report puts the much-maligned state in proper perspective.

“Rhetoric aside, there are many indications that California is outperforming most of the country from an economic and productivity standpoint,” said Joel Ayala, director of the Governor’s Office of Economic Development.

And the state is working to cut red tape, he said.

“In the areas that California is criticized for struggling to remain competitive with other states — regulations and permitting — the state is working to address those issues both at the statewide and local level.”

Cities also are getting the message.

At a recent committee meeting with the mayor of Los Angeles, one small-business advocate was pleasantly surprised.

“I found it refreshing to hear that L.A. has instituted a policy of recognizing small business as their customers,” said Scott Hauge, president of the trade group Small Business California. “They said they have instituted a policy of not saying ‘no.’ ”

California’s economic crisis has pushed the idea of competitiveness to the forefront.

Relocation specialists have chronicled a migration of dozens of companies to more business-friendly environments as other states actively recruit in California. The exodus prompted a trip earlier this month to Texas to meet with that state’s legislators, business leaders and governor to learn from the competition. Delegates included mostly Republican lawmakers, but a prominent Democrat as well: Lt. Gov. Gavin Newsom.

The Public Policy Institute noted that Texas has lower costs for business than California but also lower productivity.

Steps toward reform

Cutting the cost of doing business in California can’t come soon enough for the business community.

“The (government’s) general philosophical view toward businesses is that you are lucky and fortunate to do business here,” said Curt Rocca, managing partner of DCA Capital Partners, a Sacramento venture capital firm that funds companies and also advises them how to survive in a tough economy. “That needs to change.”

California is uniquely poised as the country’s leader in venture capital investment, concentrated in innovation centers like Silicon Valley, Rocca said. He’d like to see programs that encourage investment, similar to U.S. Business Administration programs, to lessen risk for entrepreneurs that he said are waiting to deploy capital.

“The only way California is going to get out of this is more jobs,” he said.

The Governor’s Office of Economic Development was created just last year based on a recommendation from the Little Hoover Commission, a public policy oversight agency. A bill sponsored by Democrat Assembly speaker John Pérez seeks to provide the office with more authority as the center for the state’s economic strategy and marketing.

The office is tracking other bills addressing regulatory reform or economic development.

One bill, sponsored by Democrat Assemblyman Mike Gatto, is designed to expedite permits for property developers to help encourage economic development.

AB 49 would require cities of 100,000 people or more to designate a single point of contact for permit issues, clearly specify what’s needed to obtain permits for a development project, and even provides for mediation at the state level if a permit dispute arises between a local agency and developer.

Another bill, sponsored by Democratic state senators Ron Calderon and Fran Pavley, seeks to cut red tape by requiring all state agencies to root through all their regulations and eliminate overlapping, out-of-date or contradictory regulations.

SB 366 also seeks to streamline permit applications for agencies that oversee natural resources, environmental protection or other state functions.

Further action urged

Similar legislative moves for reform have failed in the past, however. Democrat Assemblyman Felipe Fuentes sponsored a bill last year that would require state agencies to perform economic impact analyses for proposed regulations that hurt businesses, but it died in the Senate. With the composition of the Legislature unchanged, there are no plans to reintroduce the legislation, said spokesman Ben Golombek.

Despite the hurdles, there are still companies that need and want to be in California. In March, Japanese food producer Nippon Shokken USA Inc. announced plans for a new U.S. headquarters in West Sacramento that will employ about 100 people. Adequate water supply and infrastructure were its main concerns but presumedly the location on the West Coast, with access to ports and other key delivery systems was crucial as well.

Despite the Public Policy Institute’s own conclusion that there’s little correlation between taxes and productivity and that nonpolicy factors like the weather are more determining of economic growth, the institute is urging leaders to examine welfare polices, reduce disincentives to work and simplify its corporate tax structure.

It remains to be seen whether that recent interest in making California more competitive turns into policies that foster more jobs.

“The national unemployment rate is about 9 percent,” said Larry Venus, spokesman for Republican leader Dutton. “If we had that rate, 600,000 more Californians would be working.”