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Empowering Manufacturers to Lead the Way
November 8, 2001
on Three Proposals to Stimulate Economy
Sacramento, CA -- On Thursday, November 8, 2001, Jack M. Stewart proposed CMTA's three economic stimulus measures before the California State Assembly Committee on Jobs, Economic Development and the Economy. His testimony is transcribed below:
 CMTA's Jack M. Stewart and Baxter Healthcare's Elise Rhodes testify on Stimulus packages for California |
I want to talk about manufacturing and employment first. California has about 2 million manufacturing jobs, double any other state, and is by far the largest manufacturing state in the country. Manufacturing jobs provide wages 40% above California's average. It’s a very important industry for California and also creates wealth in the economy.
This week, EDD reported that California has lost about 76,600 manufacturing jobs in the last year. About 10,000 occurred in the month preceding the September 11th attacks and 13,000 the following month. So, there was already a downturn in manufacturing in California before September.
 Stewart and Rhodes answer questions from Committee Chair Sarah Reyes |
Two weeks ago, the National Venture Capital Association announced that venture capital investment in the Silicon Valley was down about 75% compared to last year. Last week, the National Purchasing Management Association, one of the economic indicators that Wall Street follows, stated that manufacturing was down about 8% - from 47 to 39 - on their index. And, as you know, the U.S. Department of Labor announced last week that the country has lost 142,000 manufacturing jobs.
With all that said, I want to let you know what CMTA is putting on the table.
One, is a sales tax exemption for machinery and equipment used in the manufacturing process at 6%. We also suggest that the exemption be extended to research and development equipment and telecommunications. We believe that encouraging the telecom industry to make investments, especially in broadband, will:
(1) Require equipment to be made for installing broadband.
(2) Develop new demand for new products using broadband communications.
You need research to do that, and manufacturers to accomplish that. That strikes directly at the Silicon Valley high-tech community, and the exemption from sales tax works for all manufacturers in California.
Now, when anyone does an analysis on this, I would encourage a dynamic - not a static - analysis. One could say that the investment tax credit costs $380 million, and this year, the sales tax will be about the same thing. But the question is: Are all those investments going to be made this year? We must look at a dynamic model, not a static model, when evaluating the tax credit.
Our second proposal doesn’t require legislative approval: for the PUC to roll back energy costs passed onto business last year to industrial large users. That is one of the reasons the manufacturing segment of the economy started to lag, and it happened because the PUC implemented a rate increase 87% higher for the largest users. In reality, some manufacturers were seeing rates as high as 190% more than the year before.
If a company is a large energy user (which most manufacturers are) and energy already represents 5% of your operating costs, and you double that or triple that, that’s going to hurt business. We need immediate attention paid to those high energy costs, and it’s something the PUC can do very quickly to stimulate the manufacturing sector.
The third thing we’d like to see is a moratorium on new fees and increases in state-mandated fees for all business, not just manufacturers.
So often during an economic downturn, government agencies try to make up for lost general fund revenue by increasing fees on businesses. And, of course, once the economy improves, those fees continue on and on.
We suggest a 24-month moratorium on all state-mandated regulatory fees, as well as the encouragement of local cities and counties to go along without mandating it. We’d like to see the 6% sales tax exemption, coupled with encouraging cities and counties to allow their portion as well, but that would have to be mandated to them and that would be a state cost.
The final thing I want to talk about is a workforce issue. Today, billions of dollars are spent in California on worker training, and only Employment Training Panel funds really target company workers. That’s a special tax employers pay that goes back to employers to retrain workers. In the past, when budgets get short, that money starts to get re-appropriated to other budget areas. We would like to make sure that the money stays with the Employment Training Panel.
There’s also billions of dollars coming into California for the workforce investment program. We encourage the state to implement policies making those funds applicable to workers as well. If businesses could take advantage of some of those billions of dollars of training funds from the Federal government, it would be a great incentive for businesses to retrain workers.
In conclusion, I don’t see how we can come out of this economic downturn without a strong and vibrant manufacturing sector. Our proposals are common sense investments that will grow the economy, not costs that will reduce revenue. These packages can be implemented very quickly, and could stimulate the economy in a very short period of time.
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It's a Useful Summit After All - Opinion Editorial by Jack M. Stewart that ran in the Los Angeles Daily News on November 2, 2001
Letter to Governor Davis
E-mail Jack M. Stewart with comments