As California businesses make an exodus, Idaho is hoping to lure the firms with the promise of low business operating costs

California´s reputation as a poor place to do business has never been stronger, and Idaho hopes to benefit from the Golden State´s slump.

Jay Engstrom – Idaho Department of Commerce official The Idaho Statesman

Idaho has kicked off an advertising campaign to show California business leaders how much they could save if they moved or expanded to Idaho.

The ads, paid for out of the Idaho Commerce Department´s $120,000 economic development budget, have been running in the California editions of the Wall Street Journal and business journals in the state´s major cities.

Idaho isn´t alone. Oregon and Nevada have launched campaigns, too. Nevada is spending $650,000 on its campaign, nearly six times more than the Idaho Department of Commerce has to spend on its entire economic development efforts for the fiscal year.

But if the ads help lure a business to Idaho, the taxes paid will more than make up for the cost of the campaign.

The state estimates that businesses pay $2,546 a year per person in state and local taxes. That means a new company with 50 employees would pay annual taxes of $127,300 — not to mention the wages earned by those new employees and the money they would spend in the local economy.

The hope of luring business away from California is widespread these days, spurred in large measure by business leaders in the state itself.

An April survey of 400 California business leaders by the California Chamber of Commerce found that one-fifth planned to expand or relocate out of state. Fifteen percent reported being actively courted by other states.

“California has become one of the worst places to do business, not only in the United States but around the world,” said Chuck Mulloy, a spokesman for computer chip manufacturer Intel Corp. of Santa Clara, Calif. Intel has 12,000 employees in California and 15,000 in Oregon.

Idaho´s economic development experts are trying to take advantage of California´s economic upheaval by wooing its companies with the promise of low business operating costs.

“It´s consistently a high-cost state to do business in,” said Jay Engstrom, an administrator with the economic development division of the Idaho Department of Commerce.

According to the Commerce Department, Idaho beats California in every category of business expenses, from electricity prices to overall business costs.

The one category that really stands out is workers´ compensation costs. In Idaho, an electronics company employing 200 people will pay just under $40,000 a year, while a similar company in California will pay more than $445,000 a year.

Idaho is using side-by-side comparisons to show how various elements in California have taken a dramatic turn for the worse.

California´s tax rate is 24 percent higher than the national average, and workers´ compensation rates have increased fourfold since 1999. The state has an $8 billion deficit and the lowest credit rating in the nation.

Engstrom says the new advertising campaign hasn´t been under way long enough to measure its effectiveness, but Idaho has already had some earlier successes.

Just last week a California company, Hydro Fitting Manufacturing Corp., announced it was relocating its plant to Twin Falls because California labor laws were too restrictive and living costs were too high. Company officials made their first contact with Twin Falls in June. The move will bring 37 new jobs to Idaho.

Johanne Schwartz, a co-owner of the company, said one factor that led to their decision to leave California was the state´s criticism of a “four/10” work week, in which employees work four 10-hour shifts and then get three days off — even though the workers voted to keep the schedule.

In January Buck Knives announced it was moving its headquarters and manufacturing operations to Post Falls from its current location in El Cajon, Calif.

That move, scheduled to be be completed in 2005, will bring more than 200 jobs to the Post Falls area.

Although the company was formed in California more than 50 years ago, company leaders say the business climate in California made it impossible to stay.

“In California we were having a hard time being profitable and still being competitive with all the competition in the outdoor knife market,” said Chuck Buck, the chairman of Buck Knives. “We cut back expenses as far as we could, doubled up responsibilities, cut fixed expenses and took cuts in pay.”

Buck said the company had been looking at Oregon and Washington as well, but chose Idaho in part because of its conservative and business-friendly climate.

The cost savings are also significant.

Buck said the company expects save about $400,000 a year in power costs and $500,000 to $600,000 a year in workers compensation costs.

Although he´s leaving the state, Buck said he hopes California can turn things around.

“I don´t want to see California go down,” Buck said. “I have a lot of memories here. My whole life is here.”

Another California company that makes earthquake relief safety valves for natural gas applications has also expanded to the Gem State.

Plumber One Inc. of Carson, Calif. announced in spring that it plans to open a new production plant in the north Idaho town of Orofino with the promise of bringing more than 100 jobs.

One of Idaho´s higher profile successes in recruiting a California business was the decision by AMI Semiconductors to move its company headquarters to Pocatello in 2001. The company also opened a new $4.5 million engineering and research center there this past May.

AMI President and CEO Christine King figures prominently as a spokesperson in the state´s latest California campaign, touting the cost benefits of moving to Idaho.

King, who joined the company as its new CEO in the summer of 2001, made it a condition of her hiring that the company would move its headquarters to Pocatello, which already was the site of the company´s largest manufacturing plant, according to Arlen Wittrock, director of public affairs for AMI.

Wittrock, who also chairs the Pocatello Chamber of Commerce, said the lower business costs and Idaho´s more rural lifestyle are key factors that have kept AMI in the city.

“If you´re looking for the amenities of the big city, Pocatello isn´t for you, but if have a love for the great outdoors and those amenities, this is the place,” he said, adding that many new employees who come to Idaho enjoy the lower prices of homes and better education systems.

Tough competition

There´s no shortage of competition between states vying for California companies.

Oregon Gov. Ted Kulongoski has even mailed personal letters to California businesses.

Two days after the state´s recall election that brought in new governor Arnold Schwarzenegger, Kulongoski started a letter-writing campaign.

He sent out 250 letters to California businesses, urging them to consider a move to Oregon.

“It´s always terrible when you take advantage of a sister state in difficult times,” Kulongoski said. “But the truth of it is, I´ve been talking to a number of people for some time about the advantages Oregon has as a place to do business.”

In Nevada, the state pooled together $650,000 to launch an advertising campaign in major California publications.

By comparison Idaho´s efforts to lure California businesses aren´t quite as dramatic.

The state has to work within its existing economic development budget — about a sixth of what Nevada is spending in California alone.

And Idaho Gov. Dirk Kempthorne hasn´t issued any personal invitations to visit Idaho.

Mike Journee, Kempthorne´s spokesman, said in many ways that Idaho hasn´t had to do a lot of promotion to attract the companies.

“California companies are looking to go without anybody´s prompting,” Journee said. “And Idaho is an obvious place to look after being in the high taxes, highly regulated business arena in California.”

The Arnold factor

Arnold Schwarzenegger´s election as governor has created optimism among the state´s business leaders that California is going to turn things around.

“You keep hearing about California and how bad things are here,” said Christopher Thornberg, a senior economist with UCLA Anderson Forecast. “But there´s no evidence that California is doing any worse than anyone else.”

Schwarzenegger, who ran on a pro-business campaign, may help reverse the perception that the state is bad for business.

But Engstrom still believes Idaho will have ample opportunities to entice California companies.

“He´s definitely got his work cut out for him,” Engstrom said. “If he is extremely successful in turning things around it´s going to take many, many months and probably years.”

http://www.idahostatesman.com/story.asp?ID=53205