California regulatory and competitiveness survey shows we need to get smarter

Posted by Gino DiCaro, Vice President, Communications on April 8, 2011

A coalition of industries and employers fighting for a competitive California and a smarter regulatory environment released the first round of results this week from a survey to understand how companies feel about the regulatory climate in California. The Los Angeles Times wrote the first story this morning.

More than 400 companies have answered the survey. Of those 400, 84 percent said they would not consider locating a new business here if they were not already in California and 72 percent said they did not have formal plans to grow in the state by more than 10 percent in the next five years.

Two findings are becoming clear:

Existing and future regulations will have a major negative impact on job creation, and
Favorable attributes of California don’t outweigh the negative regulatory climate.

The coalition is releasing the first round of results to inform a legislative hearing on bills to develop a smarter rule-making and review process. The bills capture different policies for independent economic impact analysis, sunset reviews and regulatory triggers.

Those regulatory process reform bills being heard on Tuesday, April 12 in the Senate Government Organization hearing include :

SB 396 (Huff) Analysis on existing regs and 5-year reviews on regs going forward | Letter
SB 400 (Dutton) Cost and job impact analysis on regs | Letter
SB 401 (Fuller) 5- year expiration date on new regs | Letter
SB 553 (Fuller) Extend effective date for regs from 30 to 180 days | Letter
SB 560 (Wright) Alternatives for compliance | Letter
SB 688 (Wright) Delay dates for major regulations to allow time for review | Letter

The coalition is asking all California employers to take five minutes to answer the survey. We need thousands of responses.

Key survey results so far include:

84% said they would not consider locating a new business here, if they were not already here.
72% said they did not have plans to grow in California by more than 10% in the next five years.
80% said California's attributes will not, or might not, encourage them to make new investments in the state.
50% said the possibility of future California laws or regulations discourage them from retaining/adding employees or making new investments.

Link to survey:

http://cmta.calrecovery.biz/compete/

Download key results so far:

http://www.calrecovery.biz/key_results.pdf

See overall results so far (two parts):

Manufacturers, construction, restaurants, etc. (257) http://calrecovery.biz/survey/results
NFIB (159) http://www.calrecovery.biz/nfib_results.pdf

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Small gains in manufacturing do not tell California's story

Posted by Gino DiCaro, Vice President, Communications on March 25, 2011

California gained 3,600 manufacturing jobs in February and totaled 9,500 manufacturing jobs over the last year, according to the state's Labor Market Information Department press release today. Our unemployment rate also dropped to 12.2%.

This good news masks two larger California problems though.

California is dead last in new manufacturing investment among 50 states from 2007 to 2010, according to Site Selection Magazine data. (this chart has been updated with 2010 data since you might have last seen it)
Also California's 9,500 new manufacturing jobs since February 2010 account for only three percent of the country's 311,000 new manufacturing jobs in the same period. California has 12 percent of the country's population and has long had 12 percent of the U.S. manufacturing base.

We can't lose sight of the need to gain back the 34 percent of our manufacturing base we lost over the last decade. Issues such as Senator Bob Dutton's sales tax exemption on manufacturing equipment (bringing us in line with 47 other states) or legislative attempts to provide a smarter regulatory review process with independent analysis will go a long way in making our state more attractive for these jobs.

Eventually Gov. Jerry Brown and the legislature are going to have to make someone or some agency accountable for making conditions better in California to grow our manufacturing base. The status quo is not keeping pace.

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California is fifth worst in new manufacturing investment

Posted by Gino DiCaro, Vice President, Communications on Feb. 11, 2011

California has been the largest manufacturing state for more than 50 years. That economic leadership will change if new manufacturing investment dollars continue to bleed to the rest of the country.

CMTA recently merged population data with Site Selection Magazine's new and expanded manufacturing facilities and showed that California was far below the national average for facility growth from 2007 to 2009 (3.7 facilities per one million people vs. 28.7 per one million nationally). We took it one step further this week and merged the actual investment dollars compared to the rest of the country.

The results were not good. California attracted only $354 investment dollars per person from 2007 to 2009, while the rest of the country amassed $1,335 per person. We were 5th lowest in the country. Have a look for yourself:

Our state's economic leadership has always been dependent on manufacturing's massive economic footprints, generating high wages and long local supply chains. Based on these numbers, our state's recovery will lag far behind the rest of the nation and, if these numbers persist, we could be in big trouble.

Gov. Jerry Brown, our Legislature, and our regulators must send titanic and clear signals to potential new manufacturing investment that we will do anything it takes to facilitate their growth within California's borders.

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A smart regulatory-making process will generate California revenue

Posted by Gino DiCaro, Vice President, Communications on Feb. 4, 2011

Last week we heard about California's budget crisis in Gov. Jerry Brown's 20-minute State of the State address.

While Gov Brown stuck to state budget details in his address, the regulatory crisis movement is gaining momentum as a realistic solution to revenue shortfalls here and across the country.

For example:

In late Jnauary, there were some particular light-shedding developments in a hearing at the Little Hoover Commission on California's regulatory process.

California has thousands of regulations that impact the way we operate. Given the state of our economy, many people ask the very valid but overwhelming question, "If there were just a few regulations that we could fix or eliminate to help us compete, what would they be?" That was not the question before the hearing last week.

This is too daunting a question, at least for the moment. For a state with 37 million people, tens of thousands of businesses, a $1.7 trillion economy, and -- after years of the rule-making status quo -- thousands of regulations that might or might not be cost effective, a hundred people will give you 100 different answers to that simple question.

We learned in the hearing what most of us already felt. California is flying blind on the cost effectiveness of new regulations, with only a politically charged environment as its guide.

It's not that people aren't doing their job. Legislators are passing bills that they think are valuable. Agency rule-makers are implementing those laws or goals with regulations based on input. The folks tasked with economic impact analysis, Office of Administrative Law (OAL), are providing opinions on those impacts.

The problem lies in the anemic levels of economic analysis and an expedient culture to rule-making. Depending on the step in the process, you either get a foregone conclusion or a cursory analysis because of limited resources.

But here's the big kicker that came out of last week's hearing: When the hard working folks at the OAL suggest to a rulemaking agency that a regulation might have some negative economic impact on an industry or a consumer, they have almost no recourse to pull that regulation back. It was stated by OAL that not one regulation has been pulled back once their disagreement with an agency reached a judge who had authority to do so.

Overall, the OAL said the following:

Resources are too limited for sufficient cost-benefit analysis on regulations.
When they do see a potential problem, the process only provides for an expedient way to approve a regulation anyway.
There are too many "underground regulations" that circumvent the analysis-requiring Administrative Procedures Act.

If you watch the hearing, you'll wonder, "What has everyone been so afraid of?" Why has one of the most effective tools -- independent economic analysis -- been shunned by California?

Don't let one industry, one person, or one consumer tell us what regulation should be fixed or repealed. We can all make our case for certain regulatory fixes or relief (and we will), but independent economic analysis must be the government's guide or, at the very least, a well-regarded tool in their rulemaking for smarter regulations. Last week's hearing (the second conducted by the commission) went a long way in getting us there.

UC Davis economist, James Sanchirico (comments), and Harvard economist, Robert Stavins (comments) both provided compelling points that also underscored the need for sufficiently funded, independent and rigorous regulatory assessment.

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California lost another 1,500 manufacturing jobs in November: Time for job creation 101

Posted by Dorothy Rothrock, Sr. Vice President, Government Relations on Dec. 20, 2010

On Friday we learned that California lost another 1,500 manufacturing jobs in November and that our overall unemployment is second worst in the country.

California Assembly Speaker John Perez showed his concern in his "welcome" speech to our new Legislature two weeks ago and said that increasing jobs for Californians is the main solution for the budget crisis.

We agree. But he didn’t take the time to describe what it takes to create a job. Let’s not assume that everyone knows.

Job Creation 101 - What creates a job? First you need an entrepreneur with an idea for a new or better way to do things, who can find someone to accomplish the work. Then the entrepreneur must develop and sell the product or service for more than the wages paid and other costs.

Do we have what it takes to create new jobs in California? Let’s break it down:

1. A good idea for new products or services

No shortage here – California is bursting with talent and innovation. We boast huge numbers of patents, venture capital investments and small business start-ups. But we are not alone. Other states and nations are getting better at this.

2. Market demand for the product or service

California is a large market with international reach – an ideal place for market research, to conduct early commercialization and connect with suppliers. Other locations are also favorable with greater ease of travel, communications, etc. The “flat earth” is lessening our advantage in this area.

3. Predictable costs of operation and ability to maintain or grow facilities

This is one area where California falls drastically short. The regulatory and tax environment is uncertain and punitive. Entrepreneurs justifiably fear that costs and taxes will go higher with little regard to impact on job creation. This is often reflected in surveys of CEOs and site selection managers. We are famous for long and uncertain timelines for licensing and permitting facilities. A businessowner recently summed it up perfectly: "It is not about a single regulation. It is about an attitude of no respect or concern for business of any kind in this state."

4. Total costs of operations, wages, and taxes are less than the price of the product or service

Another black mark for California. Costs for manufacturers are 23% higher than the national average, for example. Taxes are at the high end compared to other states. Wages are competitive, but taxes, workers' compensation, and other costs associated with each employee is high. Electricity costs 50% more than the national average. The ability to raise prices to overcome the higher costs is lower due to flat earth dynamics.

5. Access to workers with the skills that are needed to accomplish the work to be done

California once had a world-class education system but we are sadly seeing this decline. Other states and nations are catching up. Manufacturing job creation is particularly hurt by the drop in career and technical education in the public schools. Two decades ago, 75 percent of our high school students enrolled in vocational courses, now barely 30 percent. Housing is also expensive in California, putting upward pressure on wages and discouraging qualified workers from moving to California.

6. Adequate public infrastructure to support commerce and operations (energy and water supply, transportation, etc.)

A troubling area for California. Budget deficits make it more expensive to borrow for public infrastructure and taxpayers are less likely to support new bonds while deficits and taxes are too high. The prospect of higher costs in the future to pay for crumbling infrastructure will dampen enthusiasm for new job creation in California.

Looks like we come up short in some critical areas. CMTA looks forward to working with Speaker Perez and his colleagues to address these concerns and add the jobs we need to bring California back in the black.

To fully understand the need for Job Creation 101 in California, have a look at the country's 14 most unemployed regions.

In 2011, every bill in our State Legislature should work toward improving one or more of these policies for job creation.

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