Legislature needs to understand why a solar company chose Oregon

by Dorothy Rothrock
March 29, 2010
As printed in the North Bay Business Journal on March 29, 2010 (NBBJ article)

California’s economic woes didn’t begin when the housing market imploded in 2008. It has taken years of increasingly punitive over-regulation to create the state’s hostile business environment, resulting in a disastrous loss of high-wage jobs as manufacturers choose to grow in other locations. But if the legislative will is there, actions can be taken now to reverse the decline, spur new investments and add manufacturing jobs.

Although California’s manufacturing sector generates billions for the state in economic activity and tax revenue, the industry has been allowed to wither through neglect. Rather than nurturing innovation and enterprise, the Legislature has turned a blind eye toward initiatives that make us more competitive and adopted policies that raised business costs so high that California manufacturers have been priced out of the market.

For example, industrial electricity prices are nearly double those in our Western competitor states because utility costs for aggressive energy-efficiency programs and ambitious renewable-power goals are imposed on industry without regard for their impacts. These costs will go even higher when climate regulations go into effect.

Since 2001, our manufacturing base has declined 32 percent, costing the state more than 600,000 jobs and, according to the Milken Institute, $75 billion in lost wages and $5 billion in lost tax revenue from 2000 to 2007 – revenue and robust economic activity that could fix a lot of problems in this state.

Most lawmakers agree that manufacturing is important, and California should be making the state more appealing for new investment and high-wage job growth. They know that for every manufacturing job, we get at least 2.5 more jobs in a multiplier effect. That’s higher than any other industry sector. It’s a mystery why lawmakers are standing by, and even making the situation worse, while other states eat our lunch. The Milken Institute found that seven other states are either growing more or losing less high-tech manufacturing than we are. Those are companies born in California we’ve allowed to leave without a fight.

Many businesses have simply given up on California. Santa Clara-based Solaicx has decided to manufacture its silicon wafers for solar panels in Oregon. It’s become just too expensive and difficult to grow a business. In 2008, the Small Business & Entrepreneurship Council ranked California among the least friendly policy environments in the nation for entre­preneurship. When it comes to attracting and keeping businesses, California is consistently at the bottom of the heap. Chief Executive magazine has named California the worst state in the nation for jobs and business growth for the past four years.

California desperately needs a boost to reignite innovative industries such as biotech, aerospace, technology and other emerging sectors into the next generation of California manufacturers. There is a long way to go, but taking the first steps is not difficult or expensive. While California still has big advantages in its world-class universities and access to markets, its regulatory and tax environment is a man-made disaster.

To help revive our battered economy, California lawmakers should immediately address two challenges that are blocking our path to a robust and revitalized manufacturing sector.

The first challenge is that, for decades, the Legislature has imposed many California-only burdens without understanding impacts on manufacturing jobs. Other states don’t have restrictive meal-and-rest period rules and overtime laws, nor will they be joining a California cap-and-trade program to address climate change.

Lawmakers should require fair and independent economic impact studies before adopting new California rules. Moreover, the Legislature should review regulations already on the books and require periodic review going forward. This oversight will ensure that regulations on the books are working as intended and the Legislature can eliminate those that are ineffective, redundant or outdated. It’s time to clean house.

The Legislature’s second challenge is to change the “do not invest here” message caused by our California-only tax on our manufacturers. We should conform our tax policies to those of 47 other states and exempt the sales tax on manufacturing equipment purchases to ensure that manufacturers can compete. Studies show exponential economic activity and job growth as the result of the exemption. A Milken Institute study said the policy would result in 14,000 new manufacturing jobs and 50,000 overall jobs per year, over 10 years.

This is why states like Texas use the policy to reduce their tax burden and grow manufacturing. California is the only industrial state that levies a sales tax on the purchase of manufacturing equipment – a particular burden for new green businesses and established businesses looking to modernize their operations.

The Legislature has the power to take serious steps to reverse California’s economic decline. The time to take those steps is now. We can’t afford to wait.

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