California, Here I Goby
Wilford D. "Woody" Godbold Jr., like a lot of California executives, started having his doubts about the Golden State's economy a few years back. So the 54-year-old chairman of Los Angeles-based Zero Corp. laid out $4.5 million to buy a 300,000-square-foot factory in Salt Lake City. Zero, which brings in $160 million a year making cargo containers and electronic enclosures, still has seven plants in California. But Godbold thinks he may soon move one or more of them.
California was once business' promised land. Drawn by a probusiness political climate and a state economy larger than that of most countries, companies started flocking there in the 1920s, and the influx never stopped. Until now. Aggressive environmental regulation, sharply higher jury awards to injured workers, even the 1989 San Francisco earthquake have chased hundreds of businesses out. A recent study by Southern California Edison Co. estimates that 668 manufacturing companies have left the state since 1987, taking with them 92,000 jobs.
WESTWARD HO. The exodus may just be beginning. Whole convoys of moving vans may head for the state line in November if Proposition 167 passes. The ballot initiative, backed by the state's powerful teachers' and municipal employees' unions, could hike a wide variety of business taxes by up to 20%.
Placed on the ballot in response to the California legislature's decision last January to cut education and social spending this year instead of raising taxes, Proposition 167 would raise the corporate tax rate to 10.3% from 9.3%. It would also hike levies on insurers and oil companies and limit the deductions banks could take for bad loans. In all, its backers say, it would raise $1.5 billion in its first full year, jumping to $4 billion annually by 1996. Says Lenny Goldberg, executive director of the California Tax Reform Assn., which is organizing the $5 million push for Prop 167: "We'rejust trying to share the pain with the people who walked off with the store in the '80s."
Maybe, but the ballot initiative is also giving fresh heartburn to state leaders who worry about accelerating the corporate retreat from California. As many as one-quarter of the 1,462 companies surveyed by the California Business Roundtable last fall said they were planning to relocate outside the state, taking an average of 174 jobs with them. Reasons for the departure ranged from escalating health care costs to the time it takes to obtain permits. "The state simply doesn't act like it wants us to stay," explains Richard L. Sinclair, president of Compton-based furniture maker Executive Office Concepts. Sinclair is planning to remain in California, despite a near-doubling in his workers' compensation premiums in two years.
NEVADA OR BUST. The timing of Prop 167 couldn't be worse. Cuts in the aerospace, energy, and computer industries already have claimed 760,000 jobs in the past three years, and as many as 100,000 more will be lost in the next year, predicts the latest University of California-Los Angeles business forecast. Many of those lost jobs will be government workers, victims of the $6 billion in spending cuts that ended California's recent 64-day budget crisis. But the cost of doing business in California also plays a key role: Hughes Aircraft Co.'s operating costs are as much as 30% higher in California than in Arizona. It recently announced it would relocate 1,700 jobs from its Southern California missile-building sites to Tucson.
Neighboring states are preparing a warm welcome for the Golden State's business refugees. "The number of calls we're getting is twice what it was last year," says Dennis H. Stein, president of the Nevada Development Authority. "Prop 167 is going to do good things for us." Last year, Stein's group welcomed 18 companies from California that brought with them 1,000 jobs.
Prop 167's opponents are counterattacking. A business group with a budget of some $12 million has hired veteran political consultant Dick Woodward to wage a campaign against the measure. The group spent nearly $1 million recently on a four-week radio blitz with spots labeling the initiative "the job terminator."
Despite the ads, Woodward's polls show that Prop 167 would probably pass today. And initiative supporter Goldberg says the plan would help the economy by pouring billions into public-works programs. Woody Godbold, and a lot of executives like him, figure the only way Prop 167 will put people to work is if they go looking for jobs in some other state.
GOODBYE, GOLDEN STATE Where Why ARIZONA Nonunion work force, lower workers' compensation costs MEXICO Lower wages, fewer regulations NEVADA No corporate income tax, less regulation TEXAS Lower taxes, lower workers' compensation costs UTAH Lower taxes, lower wages, highly skilled work force DATA: ECONOMIC DEVELOPMENT CORP. OF LOS ANGELES COUNTY