Victor Monia is pleased that Gov. Arnold Schwarzenegger is wrapping his arms around the California workers' compensation problem. That doesn't mean the president of Visa Technologies, an electronics manufacturer in San Jose, is canceling his plans to move the 23-year-old business to Reno.
"Workman's comp is a big issue, but it's just one of many items," Monia said, rattling off a list of California's comparatively high operating costs: energy, rents, labor, taxes. "Even the garbage costs are cheaper in Nevada."
For other restless businesses in California, the progress Schwarzenegger and lawmakers have made on a new workers' comp reform plan is cause for hope. Some executives say they'll wait it out and see what the governor can do about what they say is the state's lousy business climate.
But Schwarzenegger is racing against powerful headwinds.
The exodus of businesses and jobs to lower-cost states like Nevada has picked up in the last year, experts say. Now, with the economy gaining steam, many companies are nearing a point where they must decide whether to expand in California or invest and create jobs elsewhere.
Many have already made up their minds. In a recent survey for the California Business Roundtable, consultants reported that nearly 30% of 50 California companies interviewed had explicit policies to move jobs out of state if possible. And half said they planned to avoid adding jobs in California. Some cited high housing costs, others the widening gap between operating expenses in California and other states.
If businesses continue to flee, it could make a notable dent in the state's job growth. State officials reported Friday that California added a measly 5,200 jobs in March, while the nation created 308,000 payroll jobs. It's unclear whether a shift of jobs to other states played a role in California's lagging performance. But there's little doubt that rising business costs are restraining hiring and discouraging new employers from setting up shop.
"California cannot expect any large companies that have a choice to come to this state, regardless of whether we fix workers' comp," said John Husing, an economist who specializes in the Inland Empire, a low-cost region that continues to grow rapidly but also finds itself struggling to keep manufacturing firms.
Recruiters from other states are stressing cost differentials in stepped-up campaigns. Last month, a delegation from North Dakota welcomed about 100 guests at the Beverly Hilton, where officials spoke about the virtues of their state -- including its workers' comp costs.
"Utility rates, tax rates, unemployment insurance rates are all less in North Dakota," Lee Peterson, commissioner of that state's Department of Commerce, said in an interview. "We believe there are tremendous opportunities to grow our economy by working with companies in California."
Nevada recently launched a print ad campaign with the slogan "You can't hang on." The campaign focuses heavily on workers' comp, reminding businesses that California's rates are double the national average and Nevada's rates have fallen 12.3% this year.
If workers' comp is overhauled, Nevada will just change the message to concentrate on something else, said Somer Hollingsworth, president of the Nevada Development Authority.
"You've still got the problem of the cost of power. You've still got the family leave program.... You still have the health insurance mandate, which will cost a bundle," he said. (The California law requiring employers with 50 or more workers to provide health insurance by 2006 could be overturned in a referendum vote in November; California's paid family leave program, which gives many workers up to six weeks' paid leave per year to care for a new child or a seriously ill family member, begins July 1.)
Nobody knows exactly how many businesses have left California. Unlike migration of people, the comings and goings of companies aren't tracked. By all indications, there wasn't a lot of movement until recently; relocating is expensive and disruptive, and during uncertain times, companies generally hunker down and focus on the basics.
Dennis Taylor, a corporate relocation specialist for consulting firm Runzheimer International, says corporate out-migration is picking up along with the strengthening economy. At the same time, Taylor doesn't see a mass movement because people in California "still have the weather, they still have the lifestyle," and "that's going to keep companies there."
Beyond that, many companies can offset higher operating expenses in California with higher productivity, which goes hand in hand with the state's vast infrastructure and brain trust for industries such as aerospace, entertainment, technology and biotech, said Ross DeVol, director of regional economics at the Milken Institute in Santa Monica.
"It's nice having suppliers virtually next door," said John Belzer, president of TCI Precision Metals in Gardena.
