California Tax Increase Plans Force Business to Look Elsewhere

Posted August 25, 2015 by bizlocate
Categories: Businesses leave California, California taxes, Economic Development, Gov. Jerry Brown, Site Selection, Worst States for Business

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California is considering imposing the most ruthless set of taxes ever placed on businesses – a tsunami of levies that may trigger the worst raid on private-sector finances ever organized by the state’s politicians. One result will be an increasing number of businesses leaving California for greener domestic or international pastures.

Gov. Jerry Brown and legislators will consider several proposals – including a new tax on previously untaxed services that will force companies to pay more for routine transactions, such as shipping a FedEx package, conducting bank transactions, hiring a contractor or relying on an independent auditor.

Fault map – businesses worry more about California politicians than earthquakes

This “let’s tax everything in sight” measure will be on the backs of enterprises ranging from Fortune 500 corporations down to a one-person entrepreneurial company. Estimated annual cost to businesses: $10 billion.

Then there is the fanatical $6 billion annual escalation in fuel and motor vehicle taxes, sure to hit any operation that owns or leases trucks or automobiles.

Also damaging is the potential elimination of Proposition 13’s tax-limiting protections for companies that own offices, data centers and factories – a “split roll” that would include virtually all non-residential properties. That will be another $9 billion paid annually by commercial enterprises.

Public employee unions are insisting on a multi-year extension of Proposition 30, which pushed income and sales taxes to the highest in the nation. That passed in 2012 after voters were told they were “temporary” taxes. Cost: $6-7 billion annually on businesses and individuals.

And so it goes, even though the state is awash in an unanticipated $6 billion tax surplus above Gov. Brown’s budget, according to the Howard Jarvis Taxpayers Association. Astonishing.

It’s little wonder that companies leave California in full or in part, as reflected in a sampling of moves that have occurred quite recently.

Right now, Sage North America is relocating its headquarters from Irvine to Atlanta, where it will create 400 jobs. A company official said the project happened “very quickly.”

Another firm, iDiscovery Solutions, Inc., will shift its West Coast headquarters from Costa Mesa to Seattle – the latter office having opened only six weeks prior to the relocation announcement.

Los Angeles sees many company departures, the latest being Go West Creative. The marketing agency said it didn’t intend to relocate its headquarters to Nashville when it opened there a few months ago, but that’s precisely what happened.

None of this is surprising because the state’s political establishment routinely ignores concerns expressed by business leaders.

For example, Ehsan Gharatappeh, CEO of CellPoint Corp. of Costa Mesa, when launching a new facility in Fort Worth, said, “Even if California were to eliminate the state income taxes tomorrow, that still would not be enough to put my manufacturing operations back in California.”

Think about Dan Castilleja, president of DHF Technical Products, who said when relocating that it’s easier to expand in New Mexico than in the Los Angeles area where “We are hampered by everything from payroll to taxes to regulation.”

Examples abound of companies leaving for other states – even to the so-called “Rust Belt” – because their friendlier business environments far outshine our disadvantages.

California’s public officials come across as being uncaring about the damage they inflict on businesses, investors, employees and their families, and to the towns that lose jobs to distant locations.

As the California political parade demanding higher taxes becomes longer, look for the list of companies leaving California to become longer, too.

Published yesterday at the Orange County Register and today at Fox and Hounds.

One focus of this blog has been to address California’s ever-growing hostility toward business. California has virtually institutionalized antagonism toward and intimidation of companies of all types. For examples of legislative proposals to increase taxes and and implement even more punishing regulations on businesses, see the California Chamber of Commerce and the California Manufacturers & Technology Association.

Joe Vranich of  Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-tax, high-cost, over-regulated states. More information is available at Biography and Speaking Availability

© Excerpts from this blog may be used, but only if attribution is given to “Joseph Vranich of Spectrum Location Solutions in Irvine, Calif.” 

California May Face Oil Limits

Posted July 29, 2015 by bizlocate
Categories: Business Relocation, Businesses leave California, California taxes, Cap-and-Trade, Gas Tax, Gov. Jerry Brown, Site Selection, Worst States for Business

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The ever-escalating prices for energy in California contribute to the high cost of doing business in the state. For that reason, the column below, written by Ronald Stein, is being republished here.

The crusade to obliterate the oil industry in California would not only damage the state economy, but increase our costs of imported energy sources to supply the state with the energy it needs.

Loading docks under blue sky.

California fuel & transport costs keep increasing

The California economy would be more dependent on importing our energy via trucks, rail and ships from other states and jurisdictions with less stringent environmental regulations, resulting in an increase in greenhouse gases as well as a rise in costs for our transportation fuels, energy and every product that is the basis of our standard of living in California.

California remains one of the largest economies in the world even though the Golden State’s 38 million citizens live on an “energy island” with the Pacific Ocean on one side and the Rocky Mountains on the other. In the past 40 years, California’s population has doubled, but the air is cleaner today than it was in the 1970s.

The state economy is dependent on the continued mobility of its 30 million registered vehicles and the fuel supply to maintain its growing fleet. With our unique mandates on transportation fuels in California, the state is subjected to gas prices that are constantly higher than the national average.

California’s 100,000 electric vehicles are the most any state has. However, the other 97 percent of California’s 30 million vehicles that do not run on electricity or other alternative fuels consume more than 40 million gallons of transportation fuels daily. This equates to just over one gallon of gasoline or diesel a day per vehicle. Additionally, trucks transporting cargo containers shipped into the state’s ports, and planes flying in and out of private and commercial California airports rely heavily on transportation and aviation fuels from in-state manufacturers.

California is the third-largest producer of oil in the United States, supporting hundreds of thousands of jobs and billions in state and local tax revenues that fund public safety, schools and other valued services. The more oil we produce in state, the less we have to rely on foreign and out-of-state oil to meet our energy needs. However, California has the most aggressive climate change and energy regulatory standards in the country.

The state produces less than 40 percent of its crude oil in state, and augments its needs with foreign imports and importing decreasing amounts from Alaska, via tankers into our ports, and some by rail from other states to support the in-state manufacturers of our transportation fuels.

California’s flagship climate change policy, Assembly Bill 32, was signed into law in 2006, at a time when the state was contributing a minuscule 1 percent to the world’s greenhouse gases. AB32 has dramatically changed the state’s transportation fuels and shifted our energy sources away from oil to renewables..

Improved efficiencies

Transportation technologies and fuel standards developed over the years have resulted in improved transportation efficiencies. Nearly a decade later, California still contributes a miniscule 1 percent and has had little to no impact on the reduction of global greenhouse gas emissions. Yet, the state is on a go-it-alone crusade that generates millions of dollars for the government at the expense of businesses and the financially challenged.

Just last month, Gov. Jerry Brown proposed an ambitious 40 percent reduction target in greenhouse gases by 2030. Brown has also made it his goal to increase the state’s renewables to 50 percent by 2030 – up from the current 33 percent renewable portfolio standard by 2020 – and to cut petroleum use by 50 percent.

These policies present a major challenge because much of the technology has yet to be developed, and there will be massive infrastructure investments required to make these additions. Biofuels are not yet available at the commercial scale needed for widespread adoption, and electric vehicles remain costly and out of reach for most California drivers.

Many of the state’s industries and much of its infrastructure depend on energy from oil and gas – sewage treatment, water purification systems, irrigation, agricultural productivity, air conditioning, central power stations and communication systems, to name a few. Oil and gas have industrialized the world around us and power our economy, which drives new technologies and developments.

California needs a balance in its energy sources, not the elimination of an energy source that has supplied the state with dependable and affordable energy since the late 19th century.

Ronald Stein is founder of PTS Staffing Solutions, a technical staffing agency headquartered in Irvine. His column, RON STEIN: Don’t forget oil’s role, first appeared in the Press Enterprise in Riverside, Calif., and in the Los Angeles Business Journal.  Reprinted with Ron Stein’s permission.

Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-cost, high-tax, over-regulated states. More information is available at Biography and Speaking Availability

Cost of Doing Business Report Again Shows California as Most Expensive

Posted June 30, 2015 by bizlocate
Categories: Best States for Business, Business Relocation, Business Tax, Businesses leave California, California taxes, Economic Development, Income Tax, Location Studies, Site Selection, Tax abuse, Worst States for Business

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“California continues to have the highest business tax climate on the West Coast. This reality compels businesses to reconsider their relationship with the State and look elsewhere for a lower-cost solution.” – Larry Kosmont

For ten years now I’ve been posting opinion and news pieces on the Internet, but today marks the first time that I’m republishing someone’s news release. I’m doing so because of the excellent findings in a well-respected Cost of Doing Business Survey. For an abridged version of the announcement, read on . . .

Claremont, Calif., June 29, 2015 – Claremont McKenna College’s Rose Institute of State & Local Government today released the 20th annual Kosmont-Rose Institute Cost of Doing Business Survey. The Rose Institute gathers business fees and a variety of tax rates from 305 selected cities, focusing on the states where business relocation is the most active.

The 2014 edition encompasses the most recent calendar year and takes a close look at business costs in California along with eight other western states that many companies view as possible alternatives to California (Arizona, Colorado, Nevada, New Mexico, Oregon, Texas, Utah and Washington).

Rankings for each city are divided into one of five “Cost Ratings” groups: Very Low Cost ($), Low Cost ($$), Average Cost ($$$), High Cost ($$$$), and Very High Cost ($$$$$).

Highlights: Most Expensive Cities

Of the 20 most expensive cities surveyed, 12 are located in California; 9 are in Southern California and 3 are in the San Francisco Bay Area. Los Angeles and the San Francisco Bay Area are the two most expensive metropolitan areas in the western United States.

Seven out of the twenty most expensive western cities surveyed are in Los Angeles County: Those cities are Bell, Beverly Hills, Culver City, El Segundo, Inglewood, Los Angeles, and Santa Monica.

Highlights: Least Expensive Cities

Texas stands out as a low-cost state, with six cities on the list of twenty least expensive western cities surveyed. Both of the least expensive cities in California, Moorpark and Mission Viejo, are located in Southern California.

California Cities Continue to Rank as High Cost – No Relief in Sight

“California continues to have the highest business tax climate on the West Coast. This reality compels businesses to reconsider their relationship with the State and look elsewhere for a lower-cost solution,” according to Larry Kosmont, President of Kosmont Companies and founding publisher of the Kosmont-Rose Institute Cost of Doing Business Survey.

Kosmont maintains that firms still want to locate in California, citing the Golden State’s world-class weather (although recently dry), amenities, large and diverse workforce, and strategic Pacific Rim location. “Mid-to-large corporations have a love-hate relationship with California. They may want to be in California, but in their attempt to control costs and remain competitive, many CEO’s are motivated to ask, ‘How small an operation in California can I manage and still service that market?’ As a result, the sales, design office, or distribution unit may stay or even expand in places in or nearby Los Angeles, San Diego or the Bay Area, but other operating units are more likely to end up in states like Nevada, Arizona or Texas,” says Kosmont.

[From experience, I can say that Mr. Kosmont’s views are quite accurate. – J.V.]

Fueling an environment unfriendly to business, numerous city elections during the past few years have resulted in increased taxes at the local level. In 2014, an astounding 65 local sales tax measures were decided, and of this total, 50 were approved by voters.

Almost every year, the California Legislature considers whether the Property Tax on businesses should be increased. Called the split roll, if adopted, it would require businesses to pay property taxes at a rate higher than the homeowners’ rate versus the present system where property taxes are taxed based on the same formula, whether a residence, apartment building, or property used for commercial or industrial purposes.

The twenty most expensive cities in the West in 2014 are (in alphabetical order):

Bell, Calif.
Bellingham, Wash.
Berkeley, Calif.
Beverly Hills, Calif.
Chandler, Ariz.
Culver City, Calif.
Denver, Colo.
El Segundo, Calif.
Glendale, Calif.
Inglewood, Calif.
Los Angeles, Calif.
Oakland, Calif.
Phoenix, Ariz.
Portland, Ore.
San Bernardino, Calif.
San Francisco, Calif.
Santa Monica, Calif.
Seattle, Wash.
Tacoma, Wash.
Tucson, Ariz.

The twenty least expensive cities in the West in 2014 are (in alphabetical order):

Abilene, Texas
Corpus Christi, Texas
Dallas, Texas
Eugene, Ore.
Everett, Wash.
Federal Way, Wash.
Fort Worth, Texas
Gresham, Ore.
Henderson, Nev.
Houston, Texas
Kent, Wash.
Las Vegas, Nev.
Mission Viejo, Calif.
Moorpark, Calif.
Ogden, Utah
Plano, Texas
Reno, Nev.
Sparks, Nev.
Spokane, Wash.
Yakima, Wash.

The complete news release can be found at PRWEB.

Some background information about the survey is here.

The Rose Institute’s interesting history is here.

To purchase the 2014 survey, click on the Institute’s logo, below:

The Rose Institute of State and Local Government

Congratulations to all who worked on this excellent survey.

Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-cost, high-tax, over-regulated states. More information is available at Biography and Speaking Availability

Growing California Company Moving One Operations Center to Three Other States

Posted June 9, 2015 by bizlocate
Categories: Business Relocation, Businesses leave California, California Regulations, California taxes, Economic Development, Site Selection

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There are times when being a site selection consultant means it’s time to kick back, have a bourbon, light a cigar and be delighted about how an assignment worked out. Well, I don’t drink bourbon, nor do I smoke anything, but that describes the mood I’m in now that a California client has wrapped up a project and will relocate employees to three out-of-state metropolitan areas.

The company’s executive leadership knew that it was time to cut costs. They understood that moving jobs elsewhere would lower expenses, but they worried about the reaction of employees. Because of decent pay, excellent benefits, and continual displays of respect at the firm, employee loyalty is strong – so strong that employees stay for many years. Will a potential move ding employee morale?

The CEO, who has direct communication with many employees, was open about the prospects of moving the Operations Center. He asked potentially affected employees for their thoughts; also, Human Resources conducted a “Tell us where you are willing to move to” survey.

The results showed quite a number of employees were willing to relocate, and they ranked their preferences against a list of about a dozen metro areas in numerous states. Some respondents marked up their surveys and volunteered metro areas they thought should be candidates.

My part of the project was pretty much the “standard stuff” in evaluating a dozen metro areas, inquiring about business factors like the cost of operations, available local workforce, tax climate, litigation environment, cluster analysis, political risks, and so forth. Since the company has facilities in different parts of the country, we also examined each airport’s non-stop flight pattern.

Part of the objective was to find suburban locations with office leasing rates lower than what they’re facing in California. That part was easy since every location studied was able to deliver on smile-inducing rates.

Significant effort went into examining qualify-of-life factors important to employees. We examined cost of living – especially housing prices – spousal employment opportunities, health care options, childcare options, quality of education, personal tax burdens, and access to local colleges and universities. Included were assessments of the local cultural and sports assets.

My requests to Economic Development agencies treated lightly the prospect of economic incentives because it was probable that the number of relocating employees would be below required thresholds. Executives didn’t bat an eye at the lack of inducements, saying, “We always assumed we wouldn’t qualify for incentives and planned to move the jobs anyway.”

As I write this, office leases are being negotiated in three out-of-California metropolitan areas. Employees of the company are volunteering to move to this or that location. And apparently the entire process was completed without a lot of anguish within the company.

Oh! Almost forgot to say that of the metro areas that were passed over, two impressed company officials so much that they are now on a list for consideration for future projects.

If you are interested in the project and why it was so successful, just let me know. People in my field know that I’m unable to identify the company, but even so I can share valuable insights with you.

Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-cost, high-tax, over-regulated states. More information is available at Biography and Speaking Availability

Note to California Manufacturers: Brace Yourself for Higher Costs

Posted May 30, 2015 by bizlocate
Categories: Best States for Business, Business Relocation, Businesses leave California, California taxes, Cap-and-Trade, Manufacturing, Site Selection, Worst States for Business

I’m indebted to Tom Martin, Executive Director & Legislative Chairman of the Small Manufacturers Association of California, for permission to reprint this column, which I shortened a bit. Credit is also due Michael B. Marois, a Bloomberg reporter, for his focus on this event that inspired Mr. Martin’s column.

California manufacturers from food processors to apparel makers are warning costs will skyrocket if state regulators proceed with a plan to reduce their allocations of free greenhouse gas emission credits.

Starting in 2018, some companies California considers to be at risk of losing business to competitors outside the state’s landmark emissions cap and trade market will receive up to 50 percent fewer free pollution credits. That means they will either have to buy more allowances at auction or invest in ways to cut carbon pollution even more.

California has the toughest greenhouse gas curbs in the U.S., seeking to cut discharges to 1990 levels by 2020. The pushback from industry comes as Gov. Jerry Brown and other state Democratic leaders are looking to advance those climate change policies further even as business leaders warn that lack of a national and global carbon emission market puts companies in the state at a competitive disadvantage.

“Manufacturers are the canaries,” said Dorothy Rothrock, president of the California Manufacturers & Technology Association. “All of the costs in this system are radiating up and concentrate in manufacturing. It’s cumulative and it’s not happening anywhere else like this. California is doing it to its manufacturers in a way that no other state is contemplating.”

Brown has proposed cutting the state’s petroleum consumption in half by 2030 in an effort to curb carbon pollution. He also wants to expand renewable energy mandates to require utilities to obtain 50 percent of electricity from renewable sources, up from 33 percent.

Marois reports that California has capped greenhouse-gas emissions from industry since 2013 and began imposing limits on transportation fuel suppliers this year. The statewide cap, set at about 394.5 metric tons for 2015, shrinks roughly 3 percent annually to achieve a 15 percent reduction by 2020.

Companies must surrender allowances that permit the release of a metric ton of carbon dioxide. While allowances, issued by the state, are sold in quarterly auctions, most have been handed out for free, with industries such as food manufacturing receiving allocations as transitional assistance.

State Allowances Shrinking

The total state allowances available shrinks with the cap over time, and so do the handouts. Under the current level of free allowances, the state is on track to meet the 2020 limit, Rothrock said.

“You don’t need to do it to reach the 2020 goal,” she added. “It’s simply increasing the amount of revenue that will be raised by the state. It’s just a tax.” [Note: There are other ways California’s politicians want to increase taxes on businesses in 2015, but that’s another story. – J.V.]

California’s program is intended to operate in a global market where companies in other states and in other countries would face similar pressures to reduce emissions or spend money to buy pollution credits. California a year ago linked its cap and trade market to one in Quebec.

Companies in California already are some of the most energy-efficient and environmentally friendly in the nation because of climate-change programs.

The state gets 23 percent of its electricity from renewable sources and is on track to meet its 33 percent goal by 2020. That compares with 13 percent nationally, according to the U.S. Department of Energy.

“It’s going to be an additional cost of doing business in California that only the one or two affected steel mills in California will have to pay,” said Brett Guge, executive vice president of finance and administration for California Steel Industries Inc. a maker of flat-rolled steel in San Bernardino County. “We will do everything we can to comply, but it’s a big concern.”

During the state’s auctions, companies submit confidential bids for the number of allowances they want at specific prices. The highest bidder is awarded permits first, and then the second-highest, and so on until all of the permits for sale have been called. Then all bidders pay the price of the lowest winning offer.

The state is supposed to spend the money it earns from the auctions on projects to reduce greenhouse gas emissions. Brown’s budget estimates the state will earn about $1 billion from carbon auctions in the fiscal year that begins July 1.

Emission Reduction Increases Costs

Also, manufacturers’ cost to transport goods and materials is higher because transportation fuel suppliers are now required to participate in carbon-emission reduction programs.

Manufacturers in the state paid an average of 11.93 cents per kilowatt-hour in November, according to the U.S. Energy Information Administration. That was 79 percent higher than the national average of 6.67 cents.

“We are doing everything we can to be as efficient as we can, but at the end the day, if you burn natural gas, which we have to do, there will be carbon emissions,” Guge said. “When you look around the world, the hunger for carbon-based energy isn’t diminishing, it’s growing. So whatever California does, it certainly has a cost to companies here, but it’s not making a dent in worldwide carbon emissions.”

Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-cost, high-tax, over-regulated states. More information is available at Biography and Speaking Availability

 

Chief Executive Magazine Again Finds California, New York & Illinois ‘Worst States’ for Business

Posted May 23, 2015 by bizlocate
Categories: Best States for Business, Business Relocation, Businesses leave California, California Regulations, California taxes, Chief Executive, Economic Development, Site Selection, Worst States for Business

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In an annual survey of CEOs, California came in last in the ranking of best-states, worst states for businesses — a position Chief Executive magazine has identified for an unenviable 11 years straight. New York and Illinois ranked as the second and third worst states, respectively.

The top three were Texas, Florida and North Carolina, and ranking high were Tennessee, Georgia, Indiana, Nevada and Arizona.

Taxes play a role in the rankings. The article , entitled, “CEOs Favor Pro-Growth, Low-Tax States,” quotes economist Arthur Laffer as saying:

“[H]igh taxes don’t redistribute income; they redistribute people. Americans are more mobile than ever, and as demonstrated throughout the past two decades, not at all averse to moving away from states with oppressive income tax climates and into pro-growth states that offer more attractive economic environments that are beneficial to both businesses and individuals alike.”

The article also addresses how Louisiana, Wisconsin, Ohio and Indiana have transformed themselves over the last six years and improved their standings, and rankings for Idaho and Pennsylvania also climbed.

The article is found at CEOs Favor Pro-Growth, Low-Tax States and the complete 50-state listing is here: 2015 Best & Worst States for Business.

I find a remarkable correlation between the rankings and my clients’ preferences for states to consider and states to avoid. To my knowledge, none of my clients participated in the survey.

Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-cost, high-tax, over-regulated states. More information is available at Biography and Speaking Availability

 

Cuomo’s Start-Up NY Development Program Blasted for its Absurdity

Posted April 16, 2015 by bizlocate
Categories: Best States for Business, Business Relocation, Economic Development, New York, Site Selection, Worst States for Business

Finally, someone has exposed New York’s wasteful, ineffective program where it spent $53 million and created only 76 jobs. An unlikely coalition from New York’s political right and left has called for the suspension of Gov. Andrew Cuomo’s Start-Up NY economic development program, a coalition that includes the state Conservative Party and the state chapter of the National Federation of Independent Businesses from the right along with the left-leaning Working Families Party and Fiscal Policy Institute.

Also, even though the highest unemployment rates are in upstate New York, nearly one-third of the companies admitted to the program last year are in Long Island or New York City.

Cuomo is virtually advertising his recklessness regarding economic development. How? Well, he will soon undertake a foreign trade mission to a small, impoverished island nation that outlaws free enterprise — Cuba.

See more at Groups from left, right join to blast Cuomo’s Start-Up NY development program and Cuomo’s Sluggish “Start-up.”

Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-cost, high-tax, over-regulated states. More information is available at Biography and Speaking Availability.


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