On the heels of a recent election, Californians are exploring opportunities to
reverse the economic conditions of the Golden State.

Recently, The Southern California Association of Governments called for new
emergency measures and business-friendly laws during its first-ever ‘Road to
Economic Recovery Summit.’ The event was attended by hundreds of local
political and business leaders worried that a harsh business climate is
impacting California’s economic comeback. The Summit was organized to challenge
myths about the state’s business climate. Participants also discussed  potential
legislative actions to oil the gears of business and begin to formulate an
economic strategy specifically for the geographic area that the association of
governments represents.

State Sen. Bob Dutton, R-Rancho Cucamonga, identified that, "The main thing we
need is regulatory relief from the backs of the business community, so it can
survive."  Former Governor Gray Davis, who joined another former Governor George
Deukmejian at the Summit, called for the urgency to address the regulatory issues.
"Give the next governor the emergency power to cut red tape," said Davis.

Numerous taxes and fees have put the Golden State at the bottom of many rankings
and ratings, such as the Beacon Hill Institute’s Competitiveness Report by Boston’s
Suffolk University and the American Legislative Exchange Council’s report -
Rich State’s, Poor State’s.  Recognizing this, the input from the Summit identified
three key actions:

• Ask state lawmakers to reject legislation that would negatively impact 
  businesses for the next three years.

• Ask lawmakers to pass legislation empowering the governor to declare an 
  economic emergency, just as he could for a natural disaster, until 
  unemployment falls below 7 percent.

• Support manufacturing along research and development firms through 
  investment credits and other means.

However, in a December 3rd 2010 article on the Summit by the Orange County Register,
Chris Thornberg principal at Beacon Economics and consultant to the state controller’s
office identified that making the permitting process more efficient or reducing
government regulation takes a long time to affect the economy. Additionally the state
budget did just fine under the current regulatory scheme when the economy was strong
before the housing bubble burst. “More often than not, businesses leave California
because of the high cost of labor and land, not because of government regulation,”
said Stephen Levy, director of the Center for the Continuing Study of the California
Economy in Palo Alto. “Businesses are hurting today because they don't have customers,
not because of regulations,” he said. “And there's few things state government can do
to fix that in the short term,” he said. "I'm just skeptical that there are that many
inefficiencies in the regulatory process to affect the state economy,” Levy said. In
the end, job creation is not a quick fix, economists say. 

But don’t tell that to the former president and chief executive officer of the Gilroy
Economic Development Corporation, Richard Spitler.  In an article in the Gilroy Dispatch,
he identified one of the problems. "The city government has policies and procedures,"
Spitler said. "The hook is set deep and it's hard for staff to change their way of
doing things. . .” 

And according to a 2009 study by Sacramento State University, the total cost of state
regulations on businesses is $493 billion and 3.8 million jobs according to the first-
of-its kind study. That’s an average of $134,122 per California business, $13,801 per
household and $4,685 per resident each year. The California report is significant,
according to the Governor’s Office of Small Business Advocate, because small businesses
are 98 percent of the state’s enterprises and provide 52 percent of the jobs.

The study parallels a 2005 federal report on business regulations commissioned by the
Office of Advocacy within the U.S. Small Business Administration. That report concluded
that federal regulations cost $7,647 per employee for businesses with fewer than 20
employees. This state report is based on data used by Forbes magazine’s annual ranking
of states for business friendliness. However, it does not single out specific regulations
that drive up costs.

Among the California conclusions:

• The total cost of regulations is ($493 billion) almost five times the state’s general fund budget
  and a third of the state’s gross product

• The 3.8 million jobs lost equals one-tenth of California’s population. California has
  about 14 million jobs, down 1 million from the peak in July 2007

• The total cost breakdown is $266.5 billion in direct costs of various regulations,
  $210.5 billion lost labor income and $16 billion in business taxes the state would
  get  without the regulations

This appears to be a key issue to be resolved that would go a long way to fix the state’s
problems for business.

Meanwhile, Spitler has gone on to become Calistoga’s city manager.  Based upon his
action, Spitler unlike the economists see's the implications of regulations.  As many
in the economic development community know before the collapse the profit margins were
bigger, thus the regulatory process was tolerated.  But today, businesses in the state
do not have sufficient customers and capital but are left with a complex regulatory
environment to conduct business.

It appears the politicians understand the issues.  Now if they will only enact them.



Tim Johnson
tjohnson@californiabusinessminute.com