Texas Trip Confirms: California Needs a Plan to Create Jobs

Posted by Jack Stewart, President on April 19, 2011

California has an unemployment rate of 12 percent, lost 11,600 jobs last month and has no plan for creating jobs for the more than two million California workers who are looking for work. Texas has an unemployment rate of 8.1 percent, created 37,200 jobs last month and has an aggressive plan for investment and job creation.

Last week provided an eye-opening look at some of the important differences between California and Texas for a delegation of California legislators, Lt. Governor Gavin Newsom and business association leaders who traveled to Austin, Texas on an economic development fact finding mission.

The mission was conceived by Assemblyman Dan Logue who arranged for ten legislators to spend two days in Austin talking to California companies who had recently moved or expanded operations in Texas. The group also met with Governor Rick Perry, officials from his administration and members of the Texas Legislature.

The big take-away from the two days in Austin was the commitment Texas has to providing a positive business climate for its employers and to creating job opportunities for its workers. That commitment appears to start with Governor Rick Perry, who prides himself in saying, “creating and growing employers is his number one job – with a healthy, growing economy other problems become less daunting.”

There is no question that Governor Perry is the quarterback of Texas’ economic development team. His enthusiasm and commitment permeates a state bureaucracy where government agencies are sensitive to employers who are willing to invest in Texas. Governor Perry leads regular economic development missions to California, New York and other states and nations to recruit employers who bring jobs to his state.

The Texas economic development strategy was born out of the 2003 recession when state revenues dropped, creating a massive budget deficit. To address the 2003 crisis, Perry made two decisive moves: 1. to aggressively promote Texas’ affordable business climate to grow revenues to the state through economic expansion; 2. move the state to a zero-base budget process to control the growth in government spending.

His plan appears to be working. While it’s difficult to understand all aspects of the Texas business climate in just a few days, the U.S. Bureau of Labor Statistics shows solid job growth in Texas over the past decade, while California’s job numbers are far below its 2001 levels.

This is not to say Texas has all the answers or that California doesn’t have its own set of attributes, but the fact is California’s business climate is very unpredictable and investors shy away from unpredictability. Texas places a high premium on a predictable business climate and investors seem to agree.

Over the past few months, I‘ve often greeted California legislators by saying, “Without having heard one of your campaign speeches or read a single piece of your campaign literature, I’m certain your number one campaign pledge was to create jobs.” The response is always a big smile and an affirmation that my guess was correct. My following comment is, “Now that you’re here, you have no idea how you’re going to fulfill that promise.” I typically get a very sober response, confirming that my second observation is also correct.

California hasn’t had an economic development strategy for more than a decade. We’ve been resting on our laurels while other states and nations aggressively recruit our brightest and best entrepreneurs and innovators. It doesn’t have to be this way. California can become competitive for investors if we put our economic house and business climate in order.

For the past ten years, our Governors and Legislatures have focused on spending cuts and tax increases as the solution to our state’s economic woes. There is a third leg to that stool, an aggressive plan for economic growth. If job creation is truly our highest priority, then let’s create a plan to grow jobs. Look to the future as Governor Perry did in 2003, set job creation goals for the next 15 years and develop a strategy to achieve those goals. It’s simple, but it won’t be easy.

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Another CA manufacturer gone, but we fail to acknowledge the problem

Posted by Gino DiCaro, Vice President, Communications on Feb. 23, 2011

Yesterday the Inland Daily Bulletin wrote about a California-based hydrogen-powered fuel cell company, Bing Energy, deciding to locate its manufacturing, along with a headquarters and a technology lab, in Tallahassee, Florida.

Bing officials indicated clearly that it was 15 percent cheaper to operate in Florida and that the Sunshine state unequivocally wanted them there.

In the same article, Chris Thornberg of Beacon economics countered, "we've lost a lot of manufacturing jobs, but a lot less than in other states. California (manufacturing) is weathering the storm better than the nation overall."

The Public Policy Institute of California similarly countered that, "only a small fraction of the state's job losses are due to businesses leaving the state."

Brad Kemp, also of Beacon Economics, indicated that any statements about California's negative business climate become a self-fulfilling prophecy.

What? These are highly respected economists and institutions, but we can't just will this problem away.

I offer the following retort:

To Thornberg's "CA losing less" remark: California lost 37 percent of it's manufacturing base since 1990 while the country lost 34 percent. This period included the high technology boom in California so we are really losing ground in traditional manufacturing employment. But more important - look at recent manufacturing investment and facility growth compared to other states. This tells us our future. It's not good. Since 2007, California is among the worst in investment dollars and new facilities.

New manufacturing investment has come in at only $235 per person in California but a whopping $1,335 per person nationally. chart

New and expanded manufacturing facilities have been built or expanded at only 3.7 facilities per million people in California compared to 28.7 per million nationally. chart

This tells us all we need to know about the climate for manufacturing in California. We are near the bottom in new manufacturing growth.

To PPIC's "fraction of job losses due to leaving" remark: California businesses actually picking up and moving entire operations to other states has always been just a part of the equation. The important question is who is expanding in the state? It's the lack of new growth that is the most troubling.

To Kemp's "self-fulfilling prophecy" remark: If mere words repeated again and again could improve the business climate for California manufacturing, this blog would be shouting to the rooftops. Sadly, investors actually run the numbers prior to putting millions of dollars at risk. I don't think Bing Energy, the subject of the article, looked to comments made in the news about California's business climate to make their decision.

This raises a troubling question: If we can’t count on economists to avoid magical thinking, how can we expect legislators to govern with a higher standard?

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Why not California #15 - More solar manufacturing losses

Posted by Gino DiCaro, Vice President, Communications on Jan. 6, 2011

Add another big loss to the mounting list of solar start-ups that opt to manufacture their product outside of California.

This week, Stion Solar Panels announced it would build it's manufacturing plant in Hattiesburg, Mississippi after getting a $75 million loan from the state and citing lower wages and a more trainable workforce. (CORRECTION: This sentence reads as if California provided the $75 million loan. It was Mississippi that provided the loan.)

California's inability to manufacture it's home grown innovations continues to play out against its own economy and workers. Let's face it, without manufacturing, innovation is just a good idea. California has a tremendous market and we have cutting-edge research & development. We don't, however, have a competitive environment to make our products and employ thousands of workers. And it seems to be getting worse, not better.

The approximate 200 to 300 high-wage jobs that the Mississippi solar plant will produce in 2011 (1,000 by 2017) would have been a blessing to some of the 2.2 million unemployed Californians and a boon to state revenues.

More intriguing is the announcement from many states this month that they should and would more actively recruit companies from California, citing the difficult business climate. Add Mississipi to the list of states taking advantage of California's woes.

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Why Not California #14

Posted by Gino DiCaro, Vice President, Communications on Dec. 1, 2010

As we approach 2011, we took a quick look back at manufacturing growth and decline in the two biggest states in the west in 2010. Looks like Texas grabbed new high wage manufacturing jobs at a clip of 1,100 per one million of its citizens, while California LOST approximately 32 jobs per one million of its own hard workers. Ouch.

These 2010 numbers, combined with California's 34% manufacturing decline over the last decade, and statements like the following in a recent Reuters article should be "ground zero" for the state's new Legislature and Governor in 2011.

"The first order of business for rookie Republican governors taking office in the coming weeks will be to make their states more 'business friendly' by cutting taxes and regulations.
The second order of business: Grab California companies disaffected with the state's business climate."

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Why not California #11 & #12 -- MiaSole and Facebook

Posted by Gino DiCaro, Vice President, Communications on Jan. 28, 2010

California took more employment and innovation bruises this month with two announcements from companies producing the state's favorite products - web technology and solar power.

Palo Alto based Facebook will build new facility in Oregon
Employing 200 people during construction and 35 full time employees upon completion

"The social media powerhouse confirmed Thursday that it has picked the economically depressed Central Oregon town for Facebook's first company-owned data center, drawn to the region by reliable and affordable power, a favorable climate and tax breaks."

Article link

Silicon Valley based MiaSole solar company will build manufacturing facility in Georgia
Employing potentially 1,000 workers

"A Silicon Valley-based company that makes low-cost, high-efficiency solar modules is planning a manufacturing plant in metro Atlanta that could employ up to 1,000. While California remains a hub for solar startups, Oregon, Texas, Colorado and Arizona are becoming destinations as solar firms chase skilled labor and low operating costs, said Terry Peterson, a San Carlos, Calif.-based solar power consultant. While Georgia’s cheap fossil-fueled electricity lowers manufacturing costs, it squelches local demand for solar power."

Article link

These announcements bring more pain to the state's economy and workers after California lost another 5,900 manufacturing jobs in December, bringing the total since 2001 to more than 607,000.

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