I have no intention of discussing Al Gore, or weather, or perceptions of more or fewer storms this year or last. Instead, I want to talk about change in business climate. Specifically, I want to address what is happening in California as a microcosm of what is happening in the country as a whole.
First, personal experience, then, some statistics that I think are relevant and finally some conclusions:
Personal Experience – In 1966, our business was started by my step-father who bought a small welding and fabrication shop in San Jose, California that employed two. He invested in new equipment, worked hard and by the time of his death, 8 years later, the business had grown to employ 13 people. Eventually, by the late ’80s, it employed 35 and was housed in a building of about 25,000 square feet on two acres. In 1990 the business was moved from Silicon Valley to the Central Valley of California. It was becoming too difficult and too costly to manufacture in the San Francisco Bay area. Proof of this was the fact that only 5 of the 25 large fruit and vegetable processing plants that existed in the San Jose area in 1966 were still there when we moved out in 1990. The City of San Jose and the Bay Area Air Quality District were making and enforcing rules with the good intentions of preventing air and ground pollution. Unfortunately they were working from book knowledge not hands-on knowledge and created a serious burden for manufacturers, except for the Silicon Valley Industries that created “clean jobs.” This, to me, was an early example of government choosing winners and losers in private sector businesses. But that is a tale for another day.
When we moved the business from San Jose in 1990, it cost over $50,000 to clean up ‘hazardous materials’ from our property before we could sell it. The hazardous material was an unidentified (according to the member of the S.J. Fire Department given the job of inspecting our property) substance with a red color that in the inspector’s words, “… looks poisonous to me.” The material was garnet sand. We used it in our sandblasting operation, blasting rust off of steel to prep it for painting or welding. We argued and complained but no official in the city would dream of overturning the ruling of a firefighter (who had taken a 3 month course in inspecting for ground pollution). Long story short: we needed to money from the sale of the property to make the move – the City had to approve our ‘decommissioning of our permitted paint and sandblast operation – so we paid for the “clean-up” (we vacuumed up two 55 gallon barrels of sand and had it shipped to a hazardous storage area – yep, over $50,00 cost plus more paperwork than you would believe), got the City to approve the property sale, finalized the sale, and moved.
We moved into a much larger facility in Woodland, Yolo County, California. It was within the territory of the Yolo-Solano Air Quality Management District. In order to start up a paint and sandblast operation at our new site, I needed to get permits from the YSAQMD. They employed 5 people and worked out of a leased office space of less than 1,000 square feet in Woodland. Fourteen years later when we moved from Woodland to Oregon, we again had to get permission to close out our permits for paint and sandblast booths. This time there was no (perceived) hazardous materials issue. However, we had to drive to the town of Davis to find the YSAQMD which now leased a purpose-built 19,000 building to house their over 100 employees. Twenty times the space and twenty times the employees in 14 years. This was possible even with a declining manufacturing base and fewer painting booth permits because the AQMD was “self-funding” in the jargon of California government. By “self-funding” that meant that each year, the AQMD would develop a budget of what they thought they would spend to do their job. They would then divide that number by the number of permits and send out the bills. You can imagine how fast and how high our permit costs rose. And, each year the AQMD added restrictions as to how much and what we could spray in our booths. By about 1999, we were only allowed to spray paint with super-low VOC (volatile organic compounds). Our standard, legal industrial paint that we used on our products cost almost $100 per gallon. We had a competitor in Texas who used an enamel that cost him under $10 per gallon, and it did a better job of protecting the surface. Side note: this and other government-induced costs led us to lose a product to the Texas company. They essentially copied a water trailer that we made and were able to sell it at a profit for less than our cost of manufacture. We had to walk away from the product because we could no longer compete.
Our inability to compete with non-California companies was the main reason for moving out of state. If we were to stay in business, we could not remain in California. We lost one product to a Texas Company (who could sell it for less than our cost to build it) while we watched our sales drop significantly in California and increase significantly in Texas.
Currently, California has a population of over 37,000,000 people but about 200,000 are leaving the state each year. Texas has about two thirds as many people as California but has a net population inflow of about the same as California’s outflow.
Californians pay out 10.6% of their income to pay for state and local government. For comparison, Texans pay less than 8%.
Californians pay for over 250 non-education bureaucrats per 10,000 people. Texas has fewer than 200.
Yet, California has 252 Education Employees per 10,000. Texas has 295. It’s no mystery that Texas schools outperform national averages in education outcomes while California schools badly underperform the national averages.
California has a State personal income tax rate of 10.55%. There is no personal Income Tax in Texas.
California has a sales tax rate that is 2% more than that of Texas.
Is it a wonder that Texas is the home of more Fortune 500 companies than any other state? Or that Apple just announced that they would build a new facility in Austin, Texas to employ over 3,000 people?
My conclusions: California is leading the way in taxing its people at new heights. It has led, and continues to lead in advancing “diversity” while failing to assimilate most of these diverse populations. California is driving investors to invest elsewhere and businesses to look for more fertile ground. In the short term, California is living off the wealth created by its great climate and natural beauty, agriculture, silicon valley companies, and earlier policies which made the state attractive. I think as its government gets more controlling, its attractiveness will diminish and it will suffer hard economic times sooner than most believe.