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How can CA win the Lottery?: Become a powerful magnet for the next wave of innovative products

Posted by Gino DiCaro, VP, Communications on May 20, 2009

This week the Assembly Revenue and Taxation Committee passed -- with 6 voting yes and 3 not voting -- a bill that brings California in line with 47 other states by exempting the sales tax on manufacturing equipment and giving working families a fighting chance for higher paying careers.  The bill is AB 829 by Assemblymember Anna Caballero.  Unfortunately, the bill was amended to include offsetting revenue sources, a difficult circumstance during tough budget times.  But the vote on the bill shows that legislators want to put out the welcome mat for high wage employers.

Many in both the capitol and media circles have argued that companies aren't leaving the state and they often use that as carte blanche to oppose the removal of any barriers to conducting business in California -- including reinstatement of the sales tax exemption that our employers lost back in 2003.

I don't even care anymore about proving the decisions of current and potential California companies.    It's like arguing whether a last place basketball team is really the worst in the league - no offense to the Sacramento Kings.  It's not even an interesting question anymore, and a last place team needs to do only one thing - improve.   Yes California is beautiful ... no, California doesn't lose thousands of jobs daily to other states ... yes, we don't know the reasons for all of the decisions being made all over the country that don't include California ... no, the state won't crumble into the ocean ... yes we've lost more than 30 percent of our industrial base -- most of those 530,000 job losses coming before the recent economic recession.

Let's just fix the problem.  Everything starts with signals to manufacturers that this state wants these types of operations.

CMTA's president, Jack Stewart, issued a formal media statement today that summed it up perfectly:

"California has a chance to lead the world out of recession and into a prosperous future if we make economic recovery the front and center goal in the debate on how to solve the budget crisis. Only through private sector investment and new middle-class jobs, such as manufacturing jobs paying an average $65,000 per year, can California enjoy sustainable tax revenue growth to pay for important government services.  To do this we must capitalize on emerging and innovative sectors in new and traditional technologies and products."


The Sac Bee's Dan Walters wrote an entire piece this weekend on understanding California's woes and then called out "silly Republicans" for trying to understand certain reasons for migrations to Nevada.  That trip was meant simply to gather information going forward and the facts still proved a 2 percent growth in industrial jobs in Nevada during the same time California's sector plummeted by 28 percent.  No one ever said Nevada stole all our manufacturing jobs.  Eight legislators just wanted to ask some questions about what Nevada was doing right.  What everyone in that room found was that Nevada was actively hunting down business as a lifeblood of the state's success.

Even Gov. Schwarzenegger's administration has gotten in on the act.  Two weeks ago, Brian McGowan, the Deputy Secretary for Economic Development and Commerce at the state's Business, Transportation and Housing Agency wrote in the Capitol Weekly that California "remains a powerful magnet for business."  I challenge anyone to find two companies that are exploring growth options that agree with that statement.

If we were a powerful magnet for employers, a $21 billion deficit wouldn't be sitting on every Californians doorstep today.  This brings me to a formula that we should all understand going forward after yesterday's iniative failures:
    Take the state’s annual budget and divide that by the state population.  That gives you the per capita number for running the state:  Basically divide $132 billion by 27 million working age people and you get $4,888 per person.

    Then look at the per employee tax revenue of a manufacturer. This is all the taxes the company pays in the state (divided by the number of employees) plus the taxes an employee pays.   I asked one of our member companies for their sample numbers.  Basically their per employee tax revenue amounted to $19,255 per year, which does not include the taxes their employees pay on an average $60,000 salary.  Compare that to the revenue the state generates from the service sector that pays far less tax revenue overall and a wage that is, on average, $20,000 less.
At that point, removing barriers for manufacturing growth becomes an obvious step in the right direction for the state.

Like Walters said in the end of his piece, we should solely pay attention to our future.  Agreed completely.  Then one must ask what we want to look like in 2 years?  For many reasons, we want Californians making more money, the state producing and selling innovative products, employment numbers growing and a budget balanced to pay for bold government programs.   Making us a "powerful magnet" for the next wave of innovative products will get us there.  Global recession or not, California will be in a better place.



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