Three quarters of a century ago, Walt Disney threatened to move his southern California studio to Nevada unless California cut him a better deal. It was an early instance of California businesses playing the Golden State off against the Silver State.
California Assemblymember Dan Logue is leading a delegation of Californians coming to Nevada on April 24 to try to find out how to stem the tide of businesses fleeing his state.
If there is such a flight.
“Businesses fleeing California” is a Groundhog Day-style story in journalism, one that keeps coming back at regular intervals.
Every couple of years, California politicians revive it, and it becomes a headline on both sides of the border. In Nevada, it is usually used without examining its premise, but in California it is usually accompanied by more questions.
The claim of businesses leaving California is usually supported mostly by anecdotal information and the recent relocation of some famous-name company. In 2003, for instance, it was the departure of Buck Knives Inc. from California for Idaho. But these bursts of attention to the problem—if it is a problem—have come to be seen by some groups as a form of lobbying for less regulation.
Logue’s news release last week read, “Since 2001, California has lost 523,500 manufacturing jobs, representing almost 30 percent of the state’s industrial base. Over the past eight years, the state has shed nearly 600,000 private sector jobs overall, according to the Employment Development Department. In December 2000, there were 12.5 million private sector jobs. This February, that number had declined to 11.9 million.”
But a study by the Public Policy Institute of California using more current data reached a different conclusion by looking at additional figures—those showing how much workers and business were coming into the state. The Institute’s conclusion: More business—including employees working for companies based elsewhere—is coming into the state than is leaving. It calls the effect of business relocations on California “trivial.”
From Nevada’s point of view, the businesses arriving from California are—and have been for decades—real and not so trivial. A small number of businesses arriving in a state of only 2,570,000 people is a big deal, and very newsworthy. But the departure of the same number of businesses from a state of 33,870,000 would, indeed, be minor for that state, particularly if it is being offset by more new arrivals.
California economist Ross Starr said, “The usual argument is that Nevada has lower tax rates than California. The argument on the other side is that California has superior public services.”
In surveys of corporations that have changed locations, tax rates are usually ranked low in the reasons they relocated—17th in one survey.
Starr added, “One of the anecdotes that was common a few years ago but that we hear less now was that California environmental regulations discouraged business.”
Another section of the Logue news release reads, “In the past year, Nevada has spent upwards of $1.5 million on ads designed to persuade California businesses to move out of the Golden State. It seems to be working as 135,173 more people moved out of California than moved in from other states, according to the California Department of Finance. This represents a trend that began in 2005, long before the current financial meltdown.”
However, the Public Policy Institute has produced studies with more current figures and they conclude otherwise. The Institute has released studies of the issue in October 2005, February 2007 and November 2007, all with essentially the same findings. One reads:
“In any year from 1993 to 2002, the net job loss from business relocation was never higher than one-tenth of 1 percent of the total number of jobs. At this rate, it would take more than 10 years for California to lose 1 percent of its employment.”
The latest Institute study says, “Even in footloose industries, net job loss from relocation is very small, and in-migration largely offsets out-migration.”
The Institute also found that “business relocation is not an informative indicator or ‘barometer’ of the business climate. Instead, we are likely to learn much more about employment change in California by focusing on births, deaths, expansions, and contractions.”
Starr said, “The Public Policy Institute is very highly regarded, no matter where you are on the spectrum.”
Starr said the places where California right now is weak are also areas where Nevada is weak, with the result that a company relocating would be more likely to choose unregulated low wage areas like Malaysia or Singapore right now.
“California right now has to worry about high unemployment, but that’s not related to regulation or taxation,” he said. “It simply reflects the real estate downturn—and Nevada is experiencing the same thing.”
Nevada has endured the highest foreclosure rate per capita of any state.
And while California has been experiencing an unusual downturn in population, Nevada recently fell out of its normal slot of “fastest growing state in the nation.”
Nevada and California both have high jobless rates. And those wanting to pay low or minimum wage must now deal with the fact that the Nevada minimum wage, by voter directive, is a dollar higher than the national minimum.
Two Sacramento business columnists, Jim Wasserman and Dale Kasler, dealt with the same theme when Logue announced his meeting in Nevada.
“Over the years, we’ve written about the economic interplay between California and Nevada,” they wrote. “Business lobbyists will tell you that Nevada’s low-tax climate is a constant threat to California’s well-being, luring companies and wealthy individuals eager to flee California’s high costs of doing business. Some economists say that idea is overblown.
“The point of the April 24 forum is obvious: California is self-destructing with its high taxes and heavy regulation. The Republicans are hoping to spotlight ex-California companies that have relocated to Nevada. … Now, you know that [this column] is relentless nonpartisan. But I wonder if the Republicans will discuss just how bad Nevada’s economy has become. True, its unemployment rate is still lower than California’s (10.1 percent vs. 10.5 percent). But according to Palo Alto economist Stephen Levy, Nevada is third-worst in the United States for job loss over the past year, at 5.2 percent. California is ranked tenth on that scale, having lost 4 percent of its jobs.”
Nevada economist Glen Atkinson said Nevada should be cautious about welcoming businesses leaving another state if those businesses want to pay workers less or pollute the environment more.
“We should be seeking companies that want to contribute to our community and make it better,” he said.
He noted that a report to the Economic Development Authority of Western Nevada, Target 2010, warned against trying to develop on the cheap. “Rising costs are not always bad,” he said. “Businesses that are just getting by in another state could be a problem for Nevada.”
Nevada has tried to shed its reputation as a low-wage Mecca, and the frequent references to its getting low tech, low-paying businesses from California have not helped.
In 2007, California columnist Frank Russo wrote, “Last June, the [California Chamber of Commerce] issued a list of 32 ‘job killer’ bills then pending in the California legislature—all of them by Democratic authors, a number of them subsequently signed by Governor Schwarzenegger. Among them [is] the landmark global warming bill and a raise in the minimum wage. This year it will probably be universal health care. If history is any guide they will want [to] present us with the same false choices between clean air and jobs and the like.”
The Nevada end of the California legislators’ forum in Reno is being handled by Nevada Motor Transport Association lobbyist Paul Enos. Gov. Jim Gibbons will be participating in some fashion, which probably accounts for his sudden change of message to bringing California businesses to Nevada. He used it on Sam Shad’s political program on KRNV last week. Enos will recruit some Nevada state legislators to participate in the forum. Their names were not available at press time.
Starr said that at the moment, California is in pretty good shape for retaining more business than it loses. “The property tax is more attractive than other parts of the country,” he said.
And some California advantages, he said, cannot be duplicated in Nevada, or anywhere else. “You look at Silicon Valley where they are close to the Berkeley campus, San Diego with its Biotech industries and others. We should all have problems like that.”