Viewing blog posts written by Gino DiCaro


Why not California #2

Posted by Gino DiCaro, VP, Communications on Jan. 28, 2008

Last week, Intel announced that it will be closing the last semiconductor manufacturing facility in Santa Clara, California, affecting 500 jobs -- many of  which carried salaries above $70,000.  A large portion of the wafer fabrication plant's past growth was a direct result of the 1993 California Manufacturers Investment Credit - a credit that disappeared in 2003, leaving California as one of only four states that taxes capital manufacturing equipment.   Intel executives have argued for some time that it had become increasingly difficult to compete globally and manufacture in the State because of California’s tax and economic development policies and the resulting relatively high costs.  Though challenging to manufacture domestically, nonetheless, Intel continues to do so in four other states, in part, due to their tax and economic development laws and policies.

Intel is now looking at a possible re-use of the Santa Clara facility as a wafer mask design shop, but at considerably less property tax value, and very likely less jobs.   Both bad signs for the State's economy, budget and working families.

The Pacific Policy Institute of California's (PPIC) job-migration report last November said there was "little cause for concern about California's business climate".  According to the PPIC, California trends with the rest of the country in terms of actual loss and sees mostly internal job migration.  However, they use data from 1992 to 2004 to come up with aggregate migration numbers for industries.  Assuming this is the most current comprehensive data, there are two very important points:  First, we need to look at the migration number from 2001 to 2007, a time period that yielded the precipitous decline of just under 400,000 manufacturing jobs with no apparent bounce back, and secondly, we need to understand the decisions we don't know about ...  in other words, the growth and opportunity that could have been started in California but never got off the ground with decision makers.  The first problem, for now, is an available data challenge and the second will always be an unknown, at least without installing cameras in every board room across the country.

We know this:  It is costly for manufacturers to move production.  If we struggle to keep Intel and others operating in the State, how can we expect to attract new facilities from elsewhere.   For corporate Boards to decide to stay in, move to, and grow within a certain region, they need to understand the certainty of their costs and know that they can compete with businesses in other states and countries. Apparently, for Intel, those two questions did not produce relatively favorable answers.

Wisconsin showed recently that it understands these dynamics by sending a virtual beacon to wavering manufacturing facilities by packaging up new and existing tax credits, totaling $85 million, for manufacturers that create jobs and train workers. Now that's how you attract new growth from the highest-wage sector of our economy.



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