May 6 2013 by Dale Buss
There are some hopeful signs for California in the most recent assessments of state business climates. For example, it continues to climb in the annual Kauffman Foundation ranking of each state’s friendliness to new entrepreneurs.
But Silicon Valley and its unique sphere aside, there are real doubts about whether California could ever make itself so attractive to most business owners and corporate executives that they would stop Texas Gov. Rick Perry at the border when he attempts another one of his recruiting excursions to the Golden State.
Even more to the point: It doesn’t seem likely that the populace of California has developed the collective will to recover its appeal to business.
There are too many opponents, too much legacy infrastructure and too much ennui in the way.
“On any particular element, if New Jersey is an ‘8’ on the pain-in-the-ass scale, California is a ‘9,’” says Pete Offermann, CEO and president of Cellotape, a $20 million printing business in Fremont, California. “It’s an ungovernable state, and there’s no movement that will change that, though there are people who want to,” adds Offermann, who spent most of his business career in the Northeast.
The most recent major jolt to the hopes of some Californians that the state might improve its attractiveness to business, of course, was passage in November of Proposition 30, which raised California’s sales tax to 7.5 percent from 7.25 percent and imposed four levels of increased taxes—up to 13.3 percent—on high-income Californians. The total yield is expected to be $6 billion for the depleted state coffers.
California business owners also are coping with the August decision by the California Court of Appeals in Cutler v. Franchise Tax Board that cuts their ability to take advantage of small-business tax credits.
It’s another sign of the times that the closest thing many business advocates see as a friend in Sacramento is Gov. Jerry Brown, a liberal Democrat who couldn’t qualify as the voice of capitalism anywhere else in the country. “The most frustrating thing our members hear is that they get a verbal pat on the back from political candidates who tell them they’re the backbone of the California economy—only to find them going in completely the opposite direction when they end up in a committee room in Sacramento,” complains John Kabateck, executive director of the National Federation of Independent Business (NFIB) in California.
To Kabateck and many others, the institutional hostility to business owners and most companies in California will remain as long as public-sector unions maintain their political stranglehold on the state. It’s one concern that drove an 11 percent increase in NFIB membership in the state in just the last year.
The equation for California might be more promising if citizens got more bang for their tax buck, says Raphael Bostic, director of the Bedrosian Center on Governance at the University of Southern California. “It’s an element that isn’t discussed enough here,” he notes.
So has California—once the very engine of American entrepreneurship and business growth and still representative with the presence of the headquarters of Apple, Google and hundreds of other companies driving the technological edge of the U.S. economy—passed the point of no return?
“I don’t think anyone knows,” Bostic says. “But that’s got to be the concern.”
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