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A big part of the reason I spent months trying to understand San Diego’s business climate was because of all the talk.
Between the push to raise the minimum wage, a few high-profile company departures and the affordable housing fee fight, San Diego’s civic debate was being dominated by a seemingly endless stream of business owners, local leaders and armchair economists who insisted San Diego was an increasingly tough place to do business.
I wanted to dig in and give their specific concerns top billing in a months-long quest to separate fact from fiction on what it’s like doing business in the region.
That cacophony of voices seemed to clam up, though, once I began reaching out to companies to understand what was holding them back. Sure, reporters regularly run up against people who don’t want to talk to the media. But even I was surprised by this radio silence.
So, as I wrap this quest to determine what factors are holding back local businesses, I’m adding one more to the list: businesses themselves. Particularly, the reticence to talk openly about the challenges companies face.
Maintaining a thriving local economy is always going to take a lot of work, but business leaders make it harder on themselves by refusing to talk openly about some of their biggest concerns.
One of those business leaders agrees.
“As a region we have to be big enough that if we think there are things hurting the business community that may be coming from within the business community we have to look in the mirror and be big enough to talk about it,” said Mark Cafferty, CEO of the Economic Development Corp. “Sometimes that’s still not happening.”
Cafferty said businesses’ reluctance could be chalked up in part to concerns about not wanting to ruffle the feathers of other businesses or groups they must continue working with, say the company selling them workers’ comp insurance or the San Diego County Regional Airport Authority.
In the end, I did manage to find some company executives who were willing to open up, many of them with histories of speaking out. But assessing the region’s business climate wasn’t as straightforward as it should’ve been.
Here’s a rundown of the business beefs that I found to be valid – and those I found that turned out to be overblown.
Let’s start with those that we should tune out.
• The Beef: San Diego businesses are fleeing to states like Texas in droves.
Far more companies move to Riverside County than Texas. In fact, San Diego’s actually a net gainer of jobs and businesses due to company moves. Focusing on those moves, though, misses the point. The number of jobs and businesses created as a result of relocations are minuscule when you compare them with the number of total jobs and businesses in San Diego County. That idea is best articulated in what may be the Quote of the Quest, from an economist who dubbed business relocations “a pimple on the state of California economy.”
• The Beef: Business rankings put San Diego at the bottom of the pack.
The results of an endless stream of business rankings – some of which also rate the region favorably – purport to measure what it’s like doing business here. But they all rely on different data sets chosen on a highly subjective basis.
• The Beef: San Diego essentially bans startups with a rule that bars companies with multiple employees from working at home.
Lots of other startup hubs have the same rule, and it’s not clear any San Diego startups have been booted or even fined as a result of the city ordinance.
OK, now let’s focus on the facts, beginning with the four most pressing issues facing San Diego companies.
• The region’s relatively high cost of living forces companies to pay more for workers and commercial property. That can cut into profits and influence decisions on where to expand, particularly when a business can find lots of workers to do the same job for far less in another city.
• San Diego companies pay much higher workers’ compensation premiums than their counterparts in other states.
• Manufacturers face a higher tax burden in California than in most other states, giving other states an opening to poach local companies even as state and San Diego leaders express eagerness to bolster local manufacturing.
• San Diego companies pay higher energy rates than their counterparts in other major metros and the rates went up significantly last year, another convenient selling point for other states looking to lure California companies to expand elsewhere.
• The California Environmental Quality Act, a law meant to force builders and cities to reveal the potential environmental impacts of their projects, creates major uncertainty for companies here. It cuts at the two elements most crucial to business owners’ plans: when a project will be ready to go and how much it’ll cost.
CEQA is also a convenient weapon for neighbors, unions and even other businesses to gain leverage or slow a project.
Other environmental regulations in the state, such as a new retrofit mandate meant to help the state meet energy efficiency goals, also come with costs for businesses.
• As those issues show, when San Diego companies complain about the business climate, they’re often talking more about California regulations and taxes than local ones.
• California has more worker-friendly regulations than other states, rules that protect workers but can frustrate companies due to their lack of flexibility and the sheer number of new laws passed each year.
There are some San Diego-specific realities that come up repeatedly, though.
• San Diego’s airport doesn’t offer as many direct or international flights as many companies would like.
• San Diego doesn’t have much open space for the middle-class manufacturing jobs. But a shifting economy and local focus on smaller-scale production make it unclear how big of a deal this will be over the long haul.
• Companies that choose to be in San Diego are often those looking to tap into the region’s tech talent or the specific niche of customers or businesses they serve. They’re willing to put up with the region’s higher costs in exchange for that access.
• San Diego trails other major metros when it comes to venture capital funding, cash that’s crucial for startups looking to scale up in the region.
• Decades after efforts to de-emphasize San Diego’s reliance on military investment, the government remains the region’s top moneymaker. Lots of companies and workers depend on the government to pay the bills.