Mounting support for competitive tax policy for manufacturing growth

Posted by Gino DiCaro, Vice President, Communications on Feb. 21, 2013

 

In 2003 California manufacturers lost a sales tax credit on their capital equipment purchases, making them approximately six percent less competitive than manufacturers in most other states.  Since then, there have been no less than 20 proposed exemptions in different forms before our state legislature.  None -- with one failing exception -- have made it to even a second committee hearing.

The annual proposals indicate that some legislators, like those in most states, understand the importance of competitive tax policy for manufacturers -- and the jobs, innovation and ripple effect they bring to a regional economy.  Unfortunately the proposals stumble every year on an unwarranted fear of lost state revenues.

This year, after a decade of limited bipartisan support, that might change.

Correa Stewart STE

Yesterday, Senator Lou Correa and Assemblyman Kevin Mullin held a press conference at CMTA's office to announce new legislation to provide a sales tax exemption designed to stimulate our manufacturing base. 

CMTA president Jack Stewart summed it up with clarity at the press conference, "By creating a sales tax exemption for manufacturing equipment, California sends a strong signal to investors around the United States and around the world that California is serious about attracting new investment."

Competitive state tax policy is absolutely critical for California to attract domestic manufacturing investment.

California is the largest manufacturing state, but our state has been among the lowest performing states in per capita manufacturing investment in the last decade.

There are many reasons for this, but the state’s total valuation of costs makes it very difficult to compete for new manufacturing start-ups and expansions. 

Advanced manufacturing equipment is expensive, often resulting in millions of dollars per year in new equipment or retrofits for a company.  A six percent tax disadvantage on these critical inputs means less investment and fewer middle-class jobs for California.  Often this doesn't result in companies moving out of state, but  means a company quietly elects to grow elsewhere.

Some folks think the exemption equates to less revenue for the state.  The opposite is true.  A study done by the Milken Institute on a similar exemption showed that after the first three years of the policy, the state would reap more than 45,000 jobs and bring in more than $500 million in new state revenues with a net increase of $39 million to the state.  Senator Correa’s legislation delays a company’s ability to recognize the tax savings for the first three years, allowing the state to reap the revenue benefits before paying for the exemption. 

The legislation is more popular than ever with co-authors from both parties jumping on board.  There is no reason our legislature shouldn’t fully embrace this concept when so many other states already do.





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

Posted by Gino DiCaro, Vice President, 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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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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