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Friday, April 01, 2005 | This is part three in a three-part series.

The mass exodus of companies moving out of San Diego County slowed down to a trickle in the last half of 2004.

The total number of customers and prospects in our database that relocated by choice or acquisition or that went out of business only grew from 85 at the beginning of the year to just over 100 by the end of the year (compared to doubling from 40 to 85 in 2003). Many company owners I’ve interviewed in the past year were waiting to see if Gov. Schwarzenegger would be able to turn California around and begin to improve the business climate. If disillusionment sets in from lack of progress this year, the exodus will begin to accelerate again.

San Diego has always been a “start-up business” area where companies grew to a certain size and were acquired by mostly out-of-the area companies. The new owners usually kept the division or subsidiary in San Diego because they were afraid of losing key people if they moved the company out of the area. However, in the last three years, these out-of-state owners took a look at their bottom line for their San Diego-based acquired company, and decided they couldn’t afford to stay in California. In my report, I document that San Diego companies have been consolidated to states formerly thought of as being unfriendly to business, such as Ohio, Minnesota and Maryland.

At the 20th annual Economic Roundtable held in San Diego in January 2005, it was reported that California had dropped to No. 50 in the overall 2004 Small Business Survival Index 2004 by the Small Business Entrepreneurship Council in Washington, D. C. This overall ranking was based on California’s ranking in the following areas:

Cost of worker’s compensation premiums

Electric utility costs

Corporate income tax rates

Personal income tax rates

State and local property tax rates

California’s low ranking for the small business survival index corroborates the main reasons companies are moving out of California from my interviews with executives prior to their moves. The reasons given have been:

High cost of workers’ compensation

High cost of unemployment insurance

High cost of medical insurance for employees

High cost of energy

High cost of taxes

Based on employment data for companies listed in the 2000 Technology Directory for San Diego County and estimating 20 employees for companies not listed in the directory, my list of companies represents a loss of more than 6,000 jobs. The California Manufacturing and Technology Association estimates that we lost nearly 300,000 manufacturing jobs in California since early 2001.

In addition to the global market pressures, California’s budget deficit and unfavorable business climate are taking their toll. As we go through this painful transition period for our state and national economy, we need to make some drastic changes in California’s business climate so that we can maintain as much as possible of our manufacturing base in San Diego and California for as long as possible to retain the higher paying jobs we need to survive and prosper in California.

Every direct manufacturing job creates three to four other jobs while service jobs only create one to two other jobs. Low-paying service jobs downgrade the standard of living of the American worker. If we lose manufacturing as the economic base for our society, we would lose our middle class and become a nation of “haves” and “have-nots.”

While Gov. Schwarzenegger vetoed the 10 “job killer” bills identified by the California Chamber of Commerce last fall, the Legislature will come up with a plethora of new “job killer” bills this year. Also, the reform of workers’ compensation that went into effect in January 2004 only reduced rates by 10 percent to 15 percent after the rates had tripled or quadrupled during the previous four years, and there are still not enough insurance carriers willing to do business in California to create competition.

Gov. Schwarzenegger and the state Legislature need to put aside their partisan political differences to do what is right for California before it’s too late. Besides the major reform of workers’ compensation that went into effect last year, we need to restructure our unemployment insurance system, lower corporate and personal income taxes, and reduce costs for energy if we want to stem the tide of companies leaving California or going out of business.

Business and government have to work together or we will become a bankrupt state. Remember the job you save may be your own.

Michele Nash-Hoff has been a principal in ElectroFab Sales since 1985, specializing in working with emerging and existing companies to select the right manufacturing processes and outsourcing options for their products. She is the author of numerous articles on technology, manufacturing and business incubation.

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