It's time for 15 economic recovery policies in California

Posted by Gino DiCaro, Vice President, Communications on Jan. 23, 2009

Yesterday, a coalition of employers from a wide spectrum of industries -- including the manufacturers -- deeply concerned about California's economy delivered to legislators and the governor their recommendations for policies to support job growth and improve state finances.

California is dependent on income, sales, corporate and property tax for its general fund dollars. More than 50 percent of the general fund is dependant on income tax alone. Our government programs survive on profitable businesses employing a high-wage workforce. With the country's third worst unemployment rate (9.3 percent), and few growing sectors outside government services, the state will not get out of the current crisis without improving the business climate.

These recommendations by a very diverse group of industries are meant to create a springboard for the state's economic recovery and change the legislature's attitude toward a healthy business climate. Without real incentives -- like the one Tesla Motors received back in June -- and long term certainty in California, we will not see the growth that is mandatory for our recovery.

The manufacturers are firmly behind this growing effort, and this group -- titled "California Businesses for Economic Recovery"-- will not stop advocating for the collective proposals now and in the future. While each proposal has a different value for individual organizations, we all agree that the combined list deserves serious attention.

Key points for lawmakers and media to consider as impetus for the listed recommendations:

•    The uncertainty of California's regulatory and fiscal environment makes it almost impossible for short and long term business growth
•    Taxes, fees, mandates and regulations are currently enacted without considering their cumulative and dynamic impact
•     Industries such as high tech, manufacturing, entertainment and agriculture are being lured away by Nevada, Arizona and other regions
•    Business costs in California are 23 percent higher than the national average
•    California’s unemployment rate (8.4%) is third worst in the country and at its highest level since the early 90's

Recommendations titles:

•    Delayed sales tax exemption
•    Design build
•    Eliminate corporate penalty
•    Employment training panel
•    Energy infrastructure Development
•    Flexible workweek/alternative schedules
•    Greenhouse gas emissions AB 32 and CEQA
•    Homebuyer tax credit
•    Infrastructure bonds
•    Meal and rest period clarification
•    Public private partnerships
•    Research and development tax credit
•    SB 375 land use and transportation bill clean up
•    Tourism tax repair

See cover letter to legislature
See details of proposals
See press release
See economic recovery two-pager

Coalition

    * AeA
    * American Council of Engineering Companies
    * Antelope Valley Board of Trade
    * Assn. of Destination Management Companies
    * California Business Properties Assn.
    * California Building Industry Assn.
    * California Grocers Assn.
    * California Independent Petroleum Assn.
    * California Manufacturers & Technology Assn.
    * California Restaurant Assn.
    * California Retailers Assn.
    * California Space Authority
    * California Trucking Assn.
    * Chemical Industry Council
    * National Federation of Independent Business
    * Santa Barbara Technology & Industry Assn.
    * Technology Council of Southern California

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Why Not California #6: California's business climate needs a major overhaul

Posted by Jack Stewart, President on Jan. 20, 2009

The Sacramento Bee reported this weekend that "business groups" are starting to support tax increases as a partial solution to California’s historic budget shortfall. It is important to note that new tax proposals must come with a plan for true economic stimulus. Without it we'll continue to lose companies like Opti-Solar who announced last week that they were laying off 105 employees, while its solar panel competitors thrive in Oregon, and APL who recently announced it is moving its shipping line headquarters from Oakland to Arizona to take advantage of lower operating costs. Can you imagine a shipping company moving to landlocked Arizona because the cost of doing business in California is too high? It's true and now California has lost a company that operates 130 ships worldwide that had its headquarters in the Bay Area for longer than California has been a state.

If we don’t make California a more favorable place to do business we risk repeating the current budget crisis again and again. Even before an estimated $6.4 billion in business tax increases from last year's budget, California employers already paid taxes that were 20 percent more than the national average. It’s beyond me how we can expect to have the most costly state government in America, and at the same time neglect and abuse the primary source of our wealth. When you have a goose that is laying golden eggs, the wise course of action is to keep the goose healthy and productive.

Later this week a group of diverse employers and associations will release a list of proposals to stimulate our economic revival and, hopefully, change the Legislature's attitude about the need for a healthy business climate. Since 2001, the average annual wage of the new jobs we have created is $40,000, while the jobs we have lost have averaged $66,000. If we sustain the policies that are responsible for that trend, we can only expect more of the same.

Business provides the jobs, fees and taxes California government depends upon to fund a wide range of services. The wages employers pay their workers in turn contribute to sales and property taxes. With a continuing loss in employers and operations, added costs on business will only hasten California’s economic decline. Over the past several decades, we have implemented far too many well intentioned policies that collectively have made it increasingly difficult for business to thrive and grow in California. Every environmental regulation adds to the cost of doing business as does every workplace mandate. Our energy costs & business taxes are among the highest in the nation and, now, we look forward to new greenhouse gas reduction mandates that promise an expensive new wave of business costs.

Senate pro Tem Darrell Steinberg was recently quoted in the Sacramento Bee saying "We aren't creating enough middle class jobs." Well, employers can’t create middle class jobs if they can’t grow their businesses in California.

Today, President Barack Obama gave his inauguration address and made his first official plea for economic change. He called for bold swift action to create jobs and create a new foundation for economic growth. California’s leaders must make the same pledge.

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Legislature's budget frame of mind: 'Hope for the best and ignore the obvious'

Posted by Gino DiCaro, Vice President, Communications on Jan. 6, 2009

I wrote before Christmas that momentum was growing for real economic stimulus in California. Even President-Elect Obama is pushing a $300 billion federal tax cut to stimulate crucial job growth. Unfortunately, the annual return to the State Capitol seems to have dampened economic growth and stimulus appetites, so here's a few more items for California policymakers, media and citizenry to consider:

The genesis of this blog's title came from an excerpt in the report, An economic backdrop for fiscal reform in California, released in November 2008. The authors cautioned that assumptions had become very unrealistic in Sacramento. The report predicts an 11 percent decline in sales, income and corporate tax revenues in the state over the next two years as a result of precipitous corporate profit declines, labor market concerns, consumer trepidation and, of course, the housing crisis. Given the state's reliance on these taxes for revenue, this prediction indicates that the edge of California's "fiscal cliff" is near and that temporary revenue increases and budget cuts dangerously assume an automatic economic recovery in the private sector. You can raise taxes but the base is weakening. The report specifically argues for California's fiscal reform but also makes a perfect case for growing and stabilizing our revenue sources (In other words the jobs and salaries that increase our three core tax revenues). Make no mistake, the economic stimulus that creates high wage job growth and our tax base is the light, the beacon, the granddaddy, the engine, the start and the future of California. This can't be overstated.

Sacramento Bee columnist Dan Walters made the previous point very well in his New Year's Day piece, indicating that economic growth (and by default real stimulus for middle class jobs) must occur alongside of temporary quick fixes. Otherwise, in two years, we'll find ourselves right back here at the cliff .... or over it.

To put perspective on the Walters argument, about two years back we here at CMTA created a chart to show the declining and growing sectors in California, and their respective wages. We found a clear indication of the growing loss of wealth. The average wage of growing sectors was $40,000 and the average wage of declining sectors was $66,000. You can see it here. That reality no doubt made a national downturn much worse here in California over the last two years. We'll dive in and see how those numbers have changed in 2009 and provide in upcoming blog.

Governor Arnold Schwarzenegger released his letter to President-Elect Obama today outlining his economic stimulus wish list for Washington. It shows his deepening interest for growing high wage jobs. This is good, but overall the feds will not seek to make California more competitive than other states and reduce our costs to national averages. That crucial component has to start here in California with the Legislature and Governor agreeing that any economic recovery assumptions must start with BIG signals (example) to high wage job creators and a full economic understanding of policy impacts -- which does not occur now.

Let's stop ignoring the obvious and hope for reality.

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The capitol should be teeming with economists

Posted by Jack Stewart, President on Dec. 15, 2008

Is any Californian alarmed that snap judgments without the benefit of professional economic analysis are being made to negotiate the state's budget and economic recovery?

Economic impacts must always take precedent in a state that leads the nation in bold government programs. The unintended consequences of previous policies and budget solutions have exacerbated the current emergency and still we see almost no economists in the Capitol laying out the long and short term effects for the myriad policy debates that make up our budget negotiations.

Today, CMTA and 25 other employer groups sent a joint letter to the Legislature insisting that economic stimulus must be the third leg of budget negotiations.

With this letter a consortium of employer groups are urging lawmakers to negotiate in good faith to resolve the budget crisis for the good of all Californians. A crucial part of the solution is understanding and building the foundation for a healthy economic recovery -- a dynamic we do not currently enjoy.

Lawmakers must understand that, in the coming months and years, this state will only thrive by growing the industries that create both wealth and high paying jobs -- such as manufacturing. That will in turn produce robust economic activity and new state revenue.

The state has already lost 25,000 manufacturing jobs through the first ten months of 2008 rounding out an unbelievable loss of a quarter of its industrial workforce since 2001.

California has reached an economic tipping point where current economic activity can no longer produce the revenues needed to sustain state spending. It is important that legislators focus on how spending cut and tax increases impact jobs and future economic growth. For example, a sales tax increase would further discourage manufacturing investments. Because, unlike 47 other states, California applies full sales tax on the purchase of capital equipment. Our state's tax burden on business is already 20 percent higher than the rest of the country, along with overall costs that are 23 percent higher.

The coalition is simply asking that economic recovery guide budget decisions and that negotiators fully account for jobs and revenue lost or gained as a result of budget outcomes.

Abbreviated principles are as follows:

Sufficient business activity and a growing tax base is critical to reach California's public funding goals.
State policy and regulatory regimes for the future must be assessed in terms of their impact on overall economic development.
California must become more cost-competitive to retain and grow high wage jobs.

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Win, win, win: A sales tax exemption on manufacturing equipment

Posted by Gino DiCaro, Vice President, Communications on Nov. 14, 2008

Yesterday, a new UC Berkeley report claimed that California risks $2.5 trillion in long-term damages in the absence of broad climate change mitigation.   Part of the Berkeley report insists that resources should be thrown at the climate change problem to build new infrastructure, expand technical assessment, and provide incentives for long-term "adaptation".

Guess what, we have an idea!!!

If the Berkely report is right, we must help manufacturers invest in more energy efficiencies and the state must find resources to build new climate friendly infrastructures and accurately assess existing conditions and mitigation tools.

A sales tax exemption on manufacturing equipment could contribute in a positive way to all those parameters.    Along with the tremendous economic stimulus that will help this year's deficit crisis (read up on those at this blog item and in CMTA's one-pager), here's how it could be beneficial:

California manufacturers emit less greenhouse gas emissions per capita than all other industrial states and most of the rest of the country.   These companies have invested in expensive technologies over the years to use less energy because those costs have been so much higher in the region. If they are to find even more efficient technologies, it will be costly and it will likely put at risk any chance of their competitive edge.

California manufacturers operate in 1 of only 3 states that tax capital equipment purchases. After a similar credit expired in 2003, the tax has been another contributor to the state's higher business costs, limiting the growth in middle class jobs and investments in newer technologies.

After the 2nd year of a 5-cent sales tax exemption on this equipment, new economic activity will bring in millions in new net revenue to the state. In fact over ten years it should net out more than $400 million. This is money that could back-fill the budget deficit, freeing up money for the resources the state needs to build infrastructure, assess climate change liabilities and otherwise work toward the very bold California-only global warming agenda.

CMTA proposes to implement the incentive so that the exemptions would be postponed until the state's budget deficit is eliminated, but no later than 2013. This completely alleviates any of the first and second year initial revenue loss.

The economy wins because of increased economic activity and high-wage job retention and growth. The war on global warming wins because there is a new pot of state money for climate change resources and a larger investment purse for manufacturing facilities to purchase efficient technology.

Berkeley report right or wrong, a sales tax exemption on equipment is a win, win, win for Californians and the economy.

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