The Not-So-Golden State?

Economic optimism is gathering steam across most of the country.
In California, however, a new survey indicates a slightly different
picture.

By Roger Franklin in New York for Businessweek

Just about everywhere a small-business owner turns
these days, it seems that the news is, if not good, at
least promising. The National Federation of
Independent Business (NFIB) found that just shy of half
those who responded to to a recent poll believe the
economy is poised to improve. Much the same reassuring conclusion could be
drawn from the Federal Reserve’s report that manufacturing is rising.

So everything is sweetness and light, right?

Well, not according to the findings of another survey, this one restricted to
California’s small-business community. Unlike nationwide polls, this one paints a
decidedly downbeat portrait of small-business confidence as the Golden State
tries to put the recession behind it.

SUGGESTIONS, PLEASE. The survey, which was faxed to NFIB members, could not
have been more straightforward: First, respondents were asked what measures
they had taken to ride out the recession. Second, they were invited to suggest
ways the state’s lawmakers could speed the local recovery.

Finally, there was the survey’s third section: An open invitation to make one
suggestion for boosting the small-business sector that "you would like to drive
home to legislators and governor." As Martyn Hopper, the NFIB’s state director
puts it, his fax machine was soon working overtime as the responses poured in —
more than 3,000 of them.

"Although taxes and regulations, both of which have increased in proportion to the
growth of state government, were the undisputed tag-team champions of
small-business misery," Hopper says, "many lamented the fact that they see no
value in return for their money. One small-business wondered where the 30 cents
to 50 cents extra a gallon Californians pay for gas is going — certainly…not for
road repair."

EMPTY SEATS. The outpouring of entrepreneurial exasperation went beyond the
predictable gripes, with numerous respondents directing their frustration at what
they see as a political and bureaucratic logjam in Sacramento, the state capital.
"Many governmental commissions and agencies are still waiting to be filled,"
notes Hopper, "most notably [an appointee] to head the state’s Office of Small
Business Advocacy."

Why the divergence in opinion between the cheerful tidings of the NFIB’s national
polling and the California-only survey? According to Hopper, it boils down to a
simple matter of raw numbers: The national survey tapped the opinions of just 553
respondents across the country while his "fax finding" drew responses from
almost six times that number.

What makes the eruption of ire so telling is an earlier NFIB survey that found
California’s entrepreneurs are only just recovering from the economic dislocation
that followed September 11. In that study, 51% of 1,670 state members said they
had suffered losses as a direct result of the terrorist massacres, and more than
half lamented that business had decreased in the five months after the attacks —
17% saying they had seen their bottom lines shrink by between 16% and 26%,
and another 9% estimating losses at up to 40%.

RED TAPE AND TAXES. As with the subsequent survey, an overwhelming majority
said the most useful thing Sacramento could do would be to cut the state income
tax (42%) and reduce red tape (32%). Hopper notes that small-business owners
are worth heeding, since they employ between 50% and 60% of the state’s total
workforce. If any one group has its collective ear tuned to catch the growing
rumble of economic trends, he says, it is those who are closest to the ground.

And perhaps he has a point. Shortly after entrepreneurs vented their misgivings
about the state of economic stewardship in California, an analysis from the Office
of the Legislative Analyst appeared to confirm their impressions: The projected
deficit would be close to $22 billion because of a shortfall in personal income tax
receipts.

"In short, the state needs more taxpayers," says Hopper. "Taxes come from
workers. While corporations continue to slash their workforce, small businesses
with between 1 and 19 employees are generating 80% of all new net jobs." If
lawmakers are inclined to concentrate on just one element of the NFIB’s state
survey, entrepreneurs would no doubt hope that the need to expand the workforce
tops the list.

By Roger Franklin in New York for Businessweek

http://www.businessweek.com/smallbiz/content/apr2002/sb20020425_7859.htm