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States hope to lure businesses away from California turmoil

They’re gunning for California again.

Seizing on the state’s pricey business climate, budget mess and political circus, other states are stepping up efforts to lure companies away from California.

By DALE KASLER
Scripps-McClatchy Western Service and Tribune Staff
Great Falls Tribune

"It’s open season on California," said Jack Boyd, a corporate relocation consultant based in New Jersey. "There are war chests that have been accumulated, economic development war chests."

The first big shot is scheduled to be fired Monday, with the appearance of a series of newspaper advertisements produced by the Nevada Commission on Economic Development. The ads pick on California’s high cost of electricity and workers’ compensation, and criticize the state’s new paid family-leave law.

In years past, Nevada officials went after businesses across the country and Canada. Now they’re training their $700,000 ad budget on just one state.

"We feel like this is a prime time," said Jeanie Ashe, marketing manager at the Nevada commission. "This year it’s like, ‘Let’s take all of our money and put it in California.’ "

Great Falls Development Authority President John Kramer said his organization is also courting California-based companies. But it’s not an easy task.

"We are there, but in my experience it’s hard to get California people to move across the mountains," Kramer said. "They think it’s too far away.

"But we are seriously looking at businesses there that fit into our target markets," he said. "It’s very competitive right now."

Montana’s Office of Economic Development doesn’t have a budget to do state-sponsored business recruitment efforts, said David Gibson, the department’s director.

"Our focus is on supporting what local groups do," said Gibson.

To a certain extent, there’s nothing new going on. Other states have always recruited in California, in good times and bad.

"You go where the honey is," said Dan Malachuk, a relocation consultant at CB Richard Ellis real estate in New York.

But experts say the recruiting usually intensifies when California stumbles, as in the recessionary early 1990s. During the energy crisis two years ago, Tennessee officials mailed flashlights to hundreds of California manufacturing executives, and Michigan sent glow-in-the-dark computer mouse pads.

The energy crisis didn’t spark a massive rush for the exits. But some California economists believe the state’s latest problems could trigger some sort of business exodus.

In 2001 the economy was slowing and "everybody was hunkering down," said economist Jack Kyser of the Los Angeles County Economic Development Corp. "Now, as the economy starts to expand, the question starts to be, ‘Where are we going to put that new plant?’ Now is when it starts to count."

Kyser and others said rising workers’ comp insurance premiums and unemployment taxes have made California more vulnerable to overtures from other states. Higher electricity costs, a legacy of the energy crisis, are another problem. So is the paid family-leave law, even though the leave is to be paid by workers through payroll deductions and not by employers.

The budget problems and the increasingly chaotic recall election facing Gov. Gray Davis crystallize the perception that California is a bad place to do business, some critics say.

"Tell Gov. Davis and the Legislature to keep up the good work," read a recent e-mail to Wayne Schell, chief executive of the California Association for Local Economic Development, from an old friend who recruits business for the city of Henderson, Nev.

Other states "don’t have to gear up to come get our companies," Schell said in an interview. "The companies are looking to get out."

California’s business-climate vulnerabilities are a matter of some debate. While Davis’ critics note that the state has lost 14 percent of its manufacturing jobs in the past three years, others say those jobs didn’t migrate to other, more competitive states. They simply disappeared because of the weak U.S. economy.

Indeed, Stephen Levy of the Center for Continuing Study of the California Economy said California’s manufacturing sector hasn’t suffered any more than the nation as a whole.

Davis’ spokesman Steve Maviglio said he doubts the recruitment efforts will work. "California’s advantage continues to be (that) we have the most productive work force in the country. That’s something you can’t … lift over the borders," he said.

And the state still has its selling points. From his perch in New York, Malachuk said Silicon Valley remains highly regarded as a tech center, San Diego commands respect for its growing biotech hub and Los Angeles is still a magnet for media and entertainment. Sacramento continues to be "seen as the alternative to the expensive Bay Area," he said.

At the same time, many of Malachuk’s clients "red line" California and refuse to consider locating in the state. "Too many lawsuits, too many issues," he said.

In newspaper ads and oral presentations, the out-of-staters usually stress differences in costs and avoid direct talk about the political and fiscal turmoil in Sacramento.

"I don’t come in and say ‘California’s in a mess,’ " said Kevin Johnson, a recruiter from the Greater Phoenix Economic Council who visited companies in Orange County last week. "I don’t ‘down-sell’ California; I ‘up-sell’ Arizona, I ‘up-sell’ Phoenix."

But he said California’s woes invariably come up in his discussions with business executives.

Also in California last week was a 20-person Colorado delegation, including the governor and Denver’s mayor, calling on businesses in Silicon Valley. The delegation talked up Colorado’s business climate but was careful to avoid bashing California, said trip organizer Tom Clark.

"We do not want to be seen as folks piling on," said Clark, chief executive of the Metro Denver Network, an arm of the chamber of commerce.

Idaho officials, however, aren’t shy about contrasting their state with California. Their newspaper ads depict a packing crate with printed comparisons of labor costs, tax rates and other business expenses. "Our message is, Idaho is a lower-cost place to operate," said Randy Shroll, marketing manager at the Idaho Department of Commerce.

The visits and ad campaigns have put California economic development officials on the defensive. "It’s chum in the water again," said Barbara Hayes, director of the Sacramento Area Commerce and Trade Organization. "It’s like it was in the early ’90s when we had floods, fires and earthquakes on top of the tough economic climate."

Andrew DiMino, founder of a small food distributor in Orange County, initiated his own search for a new headquarters and settled on Sparks, Nev. "I was finding it harder and harder to do business" in California, he said. "It was the cost of unemployment insurance, workers’ comp. The cost of rent was incredibly high. We heard that Davis was going to triple our car registration."

"I love California," he added. "I wish I could still be there."

http://www.greatfallstribune.com/news/stories/20030813/localnews/52918.html

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