What's Next For Business? Check Out The California Ballot

The state's myriad initiatives often become national trends

Forget the image of the laid-back Californian surfer. Put a ballot in those suntanned hands, and it's enough to turn the mellowest voter into an angry citizen. In the 1970s, it was taxes. By the 1980s, it was car insurance. This year, the issue is business. And initiatives to dictate how it's done in the Golden State are piling up like rush hour traffic on an L.A. freeway.

In November, the California ballot will take on 15 separate measures encompassing everything from health care to higher taxes on small companies (table). With several key initiatives riding high in the polls, executives are getting jittery. "It feels like we're under siege," says Tony Roland, a Burger King franchisee in Riverside County.

The hand-wringing extends far beyond state lines: Like hula hoops and auto-emission standards, California ballot initiatives tend to spark nationwide trends. The tax-revolt enthusiasm stirred by Proposition 13 helped propel Ronald Reagan into the White House. Two years ago, Prop 187 set off a heated debate prompting federal legislation to crack down on immigrants. This time around, an initiative to eliminate hiring preferences for education and government contracting is attracting national attention. "California is making it tougher and tougher for us to do business," says Ronald A. McDougall, chief executive of Dallas-based Brinker International Inc. "They are always at the forefront of anti-business initiatives."

For California companies, the spate of anti-business measures comes at a most unwelcome time. The state is in the midst of its most pronounced upswing in years, with unemployment dropping to 7% from 7.8% in the past year. For the first time since 1991, more people are moving to the state than leaving, according to the Center for the Continuing Study of the California Economy. "California growth is out in front of the U.S. for the first time in years," says David G. Hensley, an economist at Salomon Brothers Inc.

The state's business community, unaccustomed to such prosperity, is fast mobilizing to counter the potentially harmful ballot measures. Take the minimum-wage measure, Prop 210, which analysts believe will pass. Unions have poured $1.5 million into supporting the initiative, which would raise the California minimum wage to $5 per hour in March, 1997, and $5.75 in 1988, both higher than the federal minimum.

To fight the measure, the restaurant and hotel industries have banded together to raise $750,000 for an anti-Prop 210 ad campaign. According to the Alliance to Protect Small Businesses & Jobs, passage of Prop 210 would boost costs by about 9% for a restaurant with $1 million in annual sales. Owners say the measure would force them to raise prices or lay off workers--most often, entry-level employees and part-timers.

Such spending, however, pales compared with the amounts being thrown at a controversial measure that would make it easier to file shareholder suits against the securities industry and companies with falling stock prices. Proponents have spent $9 million on advertising and lobbying; opponents have shelled out $27 million, warning that it would bring on a flood of frivolous suits and cause legal costs to soar.

"IDIOT." Leading the charge are Silicon Valley companies, whose volatile stocks make them a favorite target of shareholder suits. "It's going to create a gold rush of lawyers to California courts," says C. Michael Cook, chief executive of Deloitte & Touche LLP. But the initiative has also raised the hackles of business leaders across the country. If the California measure passes, "most of the outside directors will just leave," says Andrew J. Filipowski, CEO of Platinum Technology Inc., a fast-growing Oakbrook Terrace (Ill.) software company. "There would be no reason to stay unless you are an idiot."

The shareholder proposition is ahead in the polls. Other measures are less certain. An initiative to impose a 10% tax on families with incomes over $220,000, for instance, would raise $800 million annually for schools and local governments. But opponents appear to be winning over voters by arguing that the tax would unfairly burden entrepreneurs who pay personal rather than corporate income taxes. Since 60% of new jobs come from small businesses, they argue, the tax could sharply depress growth. "If passed, other states could use this for industrial poaching," says Jack Kyser, chief economist at Los Angeles County's Economic Development Corp.

Ultimately, business may find salvation in the sheer number of measures crowding the ballot. In past years, when California voters have been overwhelmed by a myriad of complex initiatives, they have tended simply to vote them down. With this year's slate of choices the most cluttered in recent memory, voters may end up letting employers off easy.

Before it's here, it's on the Bloomberg Terminal.