Bill signings send conflicting signals to California's struggling manufacturing communityPosted by Gino DiCaro, Vice President, Communications on Oct. 1, 2010
California's bill signing deadline passed last night. The outcomes of a few specific bills send conflicting signals to manufacturers and private sector job creators about the state's interest in their ability to compete and grow jobs.
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Optimism (and employment) wanes for California's futurePosted by Gino DiCaro, Vice President, Communications on Jan. 7, 2010
California plunged again last month in high wage manufacturing employment by 2,300 jobs. The national media continues to single out California, using it as a narrative blueprint for how to overwhelm a once-thriving state economy, and almost dares anyone to bet on California's recovery.
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Classroom vs. Boardroom: Economic Theory and Reality Collide in CaliforniaPosted by Greg Hines, Legislative Director, Tax & Corporate Counsel on Oct. 16, 2009
The 2008-09 budget cycle will long be remembered as a tipping point in California's economy. But will we learn from it, or will the state repeat mistakes (or make new ones as the case may be) that will continue our long-standing hold on the precipice of economic collapse?
As California stumbled into 2009 having "solved" a budget crisis just three months earlier that proved to be no real solution, the Governor, teaming with the Democratic leadership, formed California's Commission on the 21st Century Economy, a commission who's purpose was to evaluate the state's outdated and volatile tax system in hopes of bringing some measure of reforms, and with it stability to the state's revenue stream. After 9 months, the final product provides no more answers to the state's ills than the current system, in fact, creates even more uncertainty and unpredictability. What it does do however, is provide an opportunity for a classic battle between academic economic theory versus boardroom/dining room economic realities.
We applaud the commission for their efforts and contributions to this seemingly herculean task of reforming the state's tax system. I believe that most everyone understands and agrees with the fundamental need for reform. Unfortunately, that appears to be where the similarities of thought end.
As the Assembly Revenue and Taxation Committee conducted informational hearings on the Commission's proposals end of last week and yesterday, it became even more clear that stark contrast of the academic exercise conducted by the Commission versus the economic realities of the state's economic base. During testimony last week, former Assembly Speaker and current commissioner Curt Pringle recognized that there were many industries and taxpayers that would be adversely affected by the proposal, but suggested that it was "not the Commission's job to look at the impact of their decisions on various industries or taxpayers, but rather very basically to look at a very finite, static view of volatility." Unfortunately, it is this very narrow view that has led to today's current chaos.
The Commission has ignored what is likely the single most important component of California's revenue stream, the effect on the taxpayer. The most significant contributors to any economy's volatility are the decisions made in high-wage company board rooms (i.e. manufacturers) and at family dining room tables (i.e. manufacturing employees averaging $66,000 wages).
The Commission's economic theory related to the Business Net Receipts Tax (BNRT) proposal suggests that any such tax increase can be passed through to consumers or to internal cost reductions in the form of salary and benefits cutbacks. Economic realities in day-to-day boardroom, tax department and dining room family budgeting discussions suggest the opposite however. Our domestic and global competition gets tighter every day. California produced products are either faced with raising prices to uncompetitive levels, or internalizing the cost, affecting already razor-thin margins. In other words, reality steps in and suggests that California companies will be placed at a significant disadvantage.
While having admittedly struggled over the past decade, California manufacturers still employ 1.35 million Californians with an average annual salary over $65k (over $20k more than a comparable service economy job). The industry also carries a multiplier jobs effect of 2.5, higher than almost any other industry. It is not a far stretch to understand that continuing to implement policies (even under the cloak of "reform") that provide further erosion of California's manufacturing and research & development base is the clear path to increased volatility, not less.
Statistically we know we've already lost 31 percent of our manufacturing base in the last eight years. Perceptively we know that California's nascent trend of lost high wage jobs and irretrievable opportunity for growth is now becoming a noose around the neck of our economy. Anecdotally we know a large tax increase on business will make our manufacturers less competitive. Because California is so dependent on a wide range of production based jobs, allowing a reform proposal to go forward that has the potential for significant harm to this industry seems perilous to California's economic well-being.
CMTA strongly encourages the legislature to utilize the resources and experts available to them to fully evaluate the economic impact of implementing these proposed reforms. Otherwise, the Commission's attempt to reduce volatility in the tax system could create significant volatility in the state's industry base, and thus a draconian and potentially irreversible erosion of California's economy. This is one theory California cannot afford to test.
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California, take a breathPosted by Gino DiCaro, Vice President, Communications on June 4, 2009
The media likes a good fight, and the bell has rung in Sacramento for a heavyweight bout. In this corner, greedy businesses get tax breaks and in that corner the poorest and most vulnerable citizens are denied healthcare. But the question is: Will the policy choices at the end of this cage match make us a better and more successful state?
Last night I heard a father tell his screaming, red-faced child: "Take a breath, buddy, take a breath." We have become that child. Let’s take a breath.
Policymakers have daunting decisions to make. We need to be guided by deep analysis to make strategic value-driven decisions. We don’t need the media to perpetuate the notion that this should or will be decided simply by who has the strongest lobby in Sacramento.
Sadly, this notion was perpetuated in a San Jose Mercury non-editorial piece this week that in so many words, and with limited retort, stated that the poor will lose because of back room deals that gave business $2.5 billion dollars.
Readers and voters should be afforded more than this. Let's face it, after the recent May 19 "elective yawp" on taxes and the budget, the voters have finally become very real pressure points for our policymakers to make decisions. So let's give them the entire picture.
Here are some point/counterpoints to consider for the article:
MPowered: That budget analyst is a well respected and ubiquitous lobbyist for the poor in the State Capitol but that statement is very inflammatory and does nothing to solve any problems. A further analysis would indicate that California has one of the highest corporate tax rates in the country. Businesses were hit with $9 billion in tax increases in the last two budget deals -- one increase was a first-in-the-country corporate tax penalty policy that was completed in 24 hours in the fall budget and now has removed $2.7 billion dollars from the economy in the form of overpayments.
SJ Mercury: "The problem with dark-of-the-night deals is that you never get a chance to get a debate over value choices," she said. "These tax breaks represent a reduction of one-third the income taxes paid by California corporations..."
MPowered: The same lobbyist used "dead-of-the-night" in her first quote and "dark-of-the-night" in her second. It's like a Martin Scorcese film in here. Again, the entire quote needs more analysis. "Value choices" is a spot-on term for the budget tipping point(s). Solutions will all come down to what we value most. Programs for the poor are the very obvious part of that equation. Creating more opportunity for careers and high wage jobs is equally as important. If we value the high wage employment so desperately needed in California, we need to a certain extent tax policy articles (and a debate) that juxtapose the $9 billion in increases heaped on corporations versus job creating tax policies. Again, we already have one of the highest tax rates in the country, as well as one of the highest per capita government spending budgets.
SJ Mercury: "The single sales factor, the memo said, spurs job creation by eliminating the tax penalty for increasing the number of employees on payroll. A 2005 study contradicted those arguments. The Center on Budget and Policy Priorities, a nonprofit research institute in Washington, D.C., found that while most states have lost manufacturing jobs since 1995, states that went to the single sales tax formula did not fare much better."
MPowered: Most states have lost manufacturing jobs since since 2000 (a common CMTA year of reference) and I'm assuming since 1995, per the article. As a percentage of gross state product (GSP) though, no competing state has lost as much as California since 2000. According to a yet-to-be-released report on California manufacturing, the industry's share of the state's GSP has declined 9.8 percent. Comparatively, Texas manufacturing gained 24 percent of its GSP and Oregon gained 66 percent. And as stated so many times before in this blog, California has lost 30 percent of its industrial base since December, 2000, more than any other state.
SJ Mercury: "While the Franchise Tax Board is not authorized to release the names of taxpayers, Ross noted that a handful have aggressively pushed the single sales factor legislation in previous efforts, including Apple, Genentech, Paramount Theaters, Disney, Intel and Warner Brothers.
MPowered: Are we to deduce that a large portion of Californians don't want the jobs these companies bring to California? Is the fact that we've gained 163,000 government jobs and lost 235,000 private sector jobs since 2001 a good thing?
Tags: Arnold Schwarzenegger economic recovery Jean Ross single sales factor state budget Steve Harmon
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Greening California without mandates - two examplesPosted by Gino DiCaro, Vice President, Communications on May 4, 2009
California's Air Resources Board continues to formulate plans for cap and trade, mandatory reporting, carbon offsets and other mandates to reach bold California-only emission goals. There are, though, other forces out there promoting change that are a win-win for everyone. Take for example the Caterpillar D7E Track Type Tractor (what we call a bulldozer and pictured below) that was unveiled last week in front of the Cal EPA building. This innovation screamer is a result of Caterpillar's focus on the marketplace and reducing the operating costs of their customers. CARB acknowledged this innovative approach for powering these off-road machines at the recent unveiling of their new funding program for clean engine technologies (see CARB release).
The machine looks like all the others you see working at various construction sites across the state. It's only when you open the hood that you find that this machine is not like all the others because it relies on a new diesel electric drive technology that like a hybrid uses an engine to generate electricity which then runs most of the applications on the machine. Unlike a hybrid it doesn't store the energy but uses it to keep the machine cutting through the dirt - at a 20-30 percent fuel economy improvement (which equates to an equal amount of CO2 reductions).
So why is this Important? California leads the way on emission efficiencies, ranking second only behind Rhode Island according to the "2009 Competitiveness Redbook". This position is the result of the ingenuity of California's workforce and manufacturers, and measures like CARB's grant program that incent cutting edge companies to help California lead the way. We must ensure that the state's greenhouse gas policies and mandates don't hamper these innovations which have made California a recognized leader.
Governor Schwarzenegger has laid out lofty greenhouse gas reduction goals -- 20 percent by 2020 and 80 percent by 2050 -- so maybe a 20 to 30 percent fuel economy improvement for a bulldozer doesn't seem like much, but when you add up the fact that this machine can burn through more than 2,500 gallons of fuel a year, those savings start to add up.
2. International Paper grows its West Sacramento recycling facility
Last month, International Paper rolled out its newest recycling facility in West Sacramento -- 57,000 feet of acreage and 30 employees will take their place in IP's Recycling Business which manages over 6 million tons of recycled paper per year. IP said they intend to grow more in West Sacramento, but of course operating costs will dictate if and when that plays out. This facility alone (one of three in California) will process 4,000 tons of material per month. West Sacramento Mayor Christopher Cabaldon and California Integrated Waste Management Board Chairwoman Margo Reid Brown both appeared at the ceremony to congratulate IP on its leadership.
Why is this important you ask? This is the second company in California that unveiled in the last two weeks yet more green contributions that were not a result of government mandates, but outcomes of public awareness campaigns, market shrewdness, innovation and customer demand.
Interesting facts about the recycling industry:
Cost range for a bale of recycled paper: $30 to $450
Salaries & wages: $4 billion
Good & services: $10 billion
First California recycling campaign: 1981
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