California: Still Too Costly For Business

Republican Governor Arnold Schwarzenegger is doing a notably good job. Confounding his critics, he has pushed through ballot initiatives to borrow $15 billion to finance California's huge budget deficits. More important, he has persuaded a Democratic-led legislature to cut the state's soaring workers' compensation costs by overhauling medical coverage. Short-term, California no longer faces a financial crisis. But the ex-actor will have to use more of his charm in Sacramento if California is going to improve its business climate and stop companies from leaving for such states as Texas, Arizona, or Oregon.

California is still paying a steep price for a botched effort at deregulating electricity that left it open to massive price manipulation by Enron and others. Brownouts threaten the state this summer, while electricity rates appear to be too high for many businesses but too low to stimulate construction of more generating capacity. Texas doesn't have this problem. California has to find a way to solve it, too.

California is also putting new financial and regulatory burdens on companies just as they struggle to gain footing in the recovery. Mandating "family leave" for all workers, including fathers, may be a social good, but the timing is bad. It is one more pressure on businesses to move out of the state.

Schwarzenegger is proving that a tough guy can impose a modicum of civility on battling partisan politicians to solve the problems at hand. Now the legislature must meet him more than halfway to ensure California's long-term economic future.

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