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Reason Foundation

Los Angeles Daily News

Companies Can't Leave CA Fast Enough

State lost 21,500 jobs last month alone

George Passantino
June 19, 2003

California lost 21,500 jobs last month - more than the rest of the country combined. The largest title insurer in the country, Fidelity National Financial, announced it is moving its headquarters from Southern California to Florida. Buck Knives, a long-time Southern California business, recently announced it is moving to Idaho. Yes, Idaho.

When compared to other states, once invincible California now suffers from a "competitiveness crisis" that is draining our economic vitality and threatening the state's long-term fiscal health. And the way the budget debate is being handled; it is only going to get worse.

Last month Forbes ranked the "Best Cities for Business" and California took a major hit. In 2002, California dominated the list — the two best cities in the U.S. for business were both in California (San Diego and Santa Rosa) and six of the top ten cities were from this state. Now, just one year later, California's highest-ranking city, Santa Rosa, is 23rd. Los Angeles is not even in the top 125 - falling from number 100 in 2002 to 126 this year, and Ventura plummeted from 4th to 67th.

Why did the state tumble down the ratings? And why are so many businesses fleeing Southern California with its highly trained labor pool, access to international trade, and abundant natural resources?

For starters, the state's tax and regulatory structure are crippling industry. A new study out by the Tax Foundation ranked California 49th- only Mississippi is worse in terms of its business tax climate. But it isn't just taxes, California is plummeting across the board: California companies pay three times as much for workers' compensation as neighboring Arizona; the state boasts some of highest retail energy rates in the nation and yet has less reliability (remember those blackouts); and gridlocked Los Angeles has fewer miles of freeways per capita than most major metropolitan areas.

In nearly universal fashion, California taxpayers and businesses pay more for less. Ideally, the budget crisis would have been viewed as a fantastic opportunity to reverse this trend by fundamentally reforming state government.

Instead we are getting the same old, same old - we must raise taxes and or cut vital, quality-of-life services like education and social services. But, let's think about this for a second. What will happen to our competitiveness if we increase the price of government (increase taxes) and reduce the delivery of services (cut quality of life programs)? Californians will be paying even more for even less. And you can hear those moving vans carrying companies out of the state as fast as they can.

To rescue California from this predicament, state lawmakers must view the deficit through the lens of fundamental reform. They must confront some of the state's most powerful political forces - no more pork for prison guards, straightforward performance oriented contracts with teachers unions, and so on. Our public services should be subject to regular competition between government providers, nonprofits, and private businesses. If a state worker is mowing the grass in front of a state building, let's find out if a local landscaping company will provide the service at a lower cost. Every time we go to the grocery store we find sale items and bargains illustrating how competition improves quality and reduces costs. Public employee unions will undoubtedly fight reforms, but the grave consequences of inaction are greater than their political goals.

It is dumbfounding that the Golden State finds itself competing with Idaho and Mississippi for businesses. But that's our new reality. Fortunately, facing this reality and committing to fundamental economic reform and increased competitiveness will lead California to brighter days.

So the next time somebody says that the budget crisis should be confronted with a "balanced" approach of tax increases and service cuts, suggest they talk to the former employees of Buck Knives whose jobs moved to Idaho. Better yet, suggest they ask Idaho Governor Dirk Kempthorne what he thinks about California's budget plan. I bet he is a big fan.

George Passantino is director of government affairs at Reason Foundation. He served as a director on Gov. Arnold Schwarzenegger's California Performance Review.


George Passantino is Senior Fellow


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