Surf City to Sin City

Tuesday, January 17, 2006 | When Bruce Cowan relocated his company, Acclaim Electronics, from Carlsbad to Las Vegas, he left behind a few surfers who were unwilling to make the move 300 miles into the desert.

It was a small price to pay.

Since moving his company away from San Diego, Cowan said he has reaped the rewards of lower taxes, affordable real estate and a quality of life that far outstrips America’s Finest City. He said his company’s running costs have dropped 40 percent since he relocated.

Cities around the country have benefited from San Diego’s fiscal fallout and the spiraling cost of doing business in California. Political problems, combined with the region’s super-heated property market have contributed to an exodus of manufacturing and other businesses away from San Diego. Las Vegas is one city that recently set its sights on attracting a new class of could-be castaways.

Las Vegas officials are plotting their tactics. They are planning marketing campaigns and one-on-one meetings with San Diego CEOs over the coming weeks. Their aim is to extol the virtues of a move to a city that was once known for little more than casinos and dancing girls, and their efforts are about to shift into top gear.

“It couldn’t be a better time, there’s a lot of chaos and confusion down there,” said Somer Hollingsworth, president and CEO of the Nevada Development Authority, an organization that works to attract businesses to Nevada.

Not much data is compiled on the businesses that leave San Diego.

Michelle Nash-Hoff, president of ElectroFab sales, a manufacturing company in downtown San Diego, has been keeping an unofficial list of high-tech companies that have left San Diego or have gone out of business since 2000. Nash-Hoff’s latest list details almost 120 tech companies that have ceased doing business in San Diego in that time. Only one of those – Acclaim Electronics – went to Las Vegas.

Hollingsworth said other companies have made the move, however. Perhaps most notably, he said, Qualcomm recently decided to move its satellite tracking project to Nevada, and has just broken ground on a new state-of-the-art facility in Las Vegas. Despite the fact that California traditionally is great hunting ground for his team, Hollingsworth admitted San Diego has been a tough nut to crack. However, he said that might all be about to change.

“With the things that have been happening lately, we think there might be a little bit of a flaw in the armor,” he said. “It will give us an opportunity to go down there and tell the Vegas story.”

Nash-Hoff agreed. Apart from the financial problems at City Hall, she said, home prices have reached a level in San Diego that simply scares off businesses looking to relocate here, and makes it difficult for home-grown businesses to recruit staff.

“People sell their home in Tennessee or wherever, and they just can’t buy out here,” she said.

A recent study by Moody’s Economy, an account of which was published in The New York Times, showed that the San Diego/Carlsbad/San Marcos region is the sixth least-affordable housing market in the United States. San Diegans shell out, on average, 52.4 percent of their incomes on housing. In the Las Vegas/Paradise region in Nevada that figure is 30.6 percent.

Translated, that data means “a million-dollar house in Las Vegas looks like a million- dollar house,” Cowan said. He thinks San Diegans are being “ripped off” when it comes to paying for their homes, and he said he’s had a much easier time attracting good staff to Las Vegas than to Carlsbad.

Aside from property prices, however, the real selling point for Las Vegas, as far as attracting businesses, is the state of Nevada’s low taxes.

The Small Business Survival Index of 2005, published by the Small Business and Entrepreneurship Council, lists California as the second-worst state in which to do business after the District of Columbia. By contrast, the index places Nevada as the second-best scoring state in the nation.

State personal income, corporate income and inventory tax are all key factors in San Diego. California has all three, Nevada has none. Nor does Nevada have a personal inheritance tax.

“It’s an extremely business-friendly state, we’ve always prided ourselves on that,” said Hollingsworth.

Cowan said his adopted city also has none of the traffic woes of Southern California, and stressed that the infrastructure of the city and the state rivals anything in San Diego. In short, Cowan said, he would not even consider moving back to San Diego.

Hollingsworth is counting on all of these factors to convince San Diego’s business leaders that there’s nothing stopping them from following in the footsteps of companies such as Acclaim and Qualcomm. He plans to start an advertising campaign in San Diego aimed at high-tech and bio-tech companies, and will also be holding private dinners with the presidents and CEOs of local companies.

Standing in the way of Hollingsworth’s sales pitch will be San Diego Mayor Jerry Sanders. In his State of the City speech last week, Sanders made a commitment to San Diego’s business community.

“For San Diego to remain competitive in attracting knowledge-based industries against stiff competition from other localities, it is essential that the mayor reflect the city’s intent to be business-friendly with a reasonable tax structure, access to business facilities, predictable timelines in the permitting process and a supportive physical infrastructure,” Sanders said.

These changes, if implemented, could go some way towards reversing some of the factors that contributed to businesspeople like Cowan taking their companies elsewhere. Either way, Cowan’s not convinced.

“The government causes most of these problems,” he said. “To me, there’s no reason to operate in California.”

Please contact Will Carless directly at