Schwarzenegger Has Long To-Do List to Boost Business

One down, many more to go.

After signing a massive workers’ compensation insurance overhaul bill Monday, Gov. Arnold Schwarzenegger now is turning his persuasive powers to the next steps he deems necessary to bring clear skies to California’s business climate.

Executives and economists are heartened. They want the governor to keep the job-creation momentum going by balancing the state’s deficit-ridden budget, refinancing the unemployment insurance program and streamlining regulatory and permitting processes.

And, if that’s not enough, Schwarzenegger has committed his administration to guaranteeing supplies of affordable electricity, boosting affordable housing and reining in costly anti-business lawsuits.

At a bill-signing ceremony at a Boeing Co. plant in Long Beach, the governor proclaimed that last week’s passage of the workers’ comp overhaul sent “a message to the rest of the country and the world ... that California is open for business” and is “once again a powerful, job-creating machine.”

The governor’s fans in the business community are certainly impressed.

“It’s a huge step in the right direction,” said Gene Voiland, president of Aera Energy of Bakersfield, the state’s biggest crude oil producer. “The governor has inspired a feeling of hope that we’re not going to go down the tubes ... that we’re going to try to make California more competitive.”

But bringing rationality to a troubled program for aiding injured workers -- tagged by business as the No. 1 “job killer” -- doesn’t mean that Republican Schwarzenegger can easily deliver on all the promises he made during last fall’s campaign to replace Democrat Gray Davis.

Despite his popularity, the governor could face tough political opposition from a Democratic-controlled Legislature. And some trade-offs in the budget process could slice into programs that businesses want to make the state more business-friendly.

The governor also may need to take stands on other tough issues, such as whether to repeal a new law requiring small businesses to provide health insurance.

Schwarzenegger’s next priorities are:

* Closing the budget shortfall.

His backers definitely want him to fill a $14-billion hole in next year’s budget. But while they demand a balanced, on-time budget, business groups remain adamant about not paying higher taxes or cutting deeply into spending for transportation and higher education, which help companies find capable workers and move products to market.

“The budget is the biggest test.... Choices become tougher because there are more stakeholders,” said Jean Ross, director of the California Budget Project, a liberal-leaning think tank in Sacramento.

Edward Leamer, director of economic forecasting at UCLA’s Anderson School of Management, warns that Schwarzenegger can expect “the next couple of months to be a difficult period in Sacramento.”

Seeing a budget passed without cutting important state services to the bone is going to require Schwarzenegger to seriously consider some tax increase, predicted Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento). The governor will look at a larger picture than just catering to businesses’ wish list, he said.

“We’re going to have to cut, no question about it. But we can harm the economy in a significant way if we cut transportation and higher education,” he said.

Business and the governor have to realize that “there is a disconnect between what we want and what we know we need and our willingness to pay for what we need,” Steinberg explained. “The business community needs to help bridge that disconnect.”

Politically tough decisions had an uncanny way of looking easy during Schwarzenegger’s first few months in office. The governor has a knack of using his powerful personality and movie stardom to get things done that eluded his more pedestrian predecessors, longtime Sacramento insiders said.

“He has an ability to reach to the individual Californian and resonate incredibly on boring complex issues such as workers’ compensation,” said Martyn Hopper, state director of the National Federation of Independent Business. “He’s been tremendously successful because of the way he’s been able to concentrate on one issue at a time.”

Picking off issue after issue, whether it’s lowering the car registration tax, getting voter approval for debt bonds or crafting a compromise on workers’ comp, is the secret of Schwarzenegger’s negotiating strategy, said Michael Dardia, an economist with the Sphere Institute, a nonprofit think tank in Burlingame, Calif. Combine that doggedness with flexibility and a charm that works on diverse groups like labor and management, and deals come together, he said.

“He’s certainly shown he’s on a roll,” Dardia said. “The string of victories enables him to be successful in substantial negotiations. He’s earned the trust of business.”

* Boosting energy supplies.

Even if Schwarzenegger puts together the budget puzzle close to the July 1 start of the new spending year, he faces a potential challenge in meeting potential electric brownouts during the hot summer months.

Although he’s unlikely to face a full-blown crisis like the one that bedeviled Davis in 2001, Schwarzenegger still must tackle impending problems in both supply and price. Since the electric deregulation crisis, business and residential users have been hit by some of the highest energy prices in the country.

With re-regulation and the state locked in to high-priced, long-term contracts, businesses again are calling for some sort of free-market solution.

The governor “has to find a way to bring competition into the system without getting skunked,” said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto.

Schwarzenegger needs to navigate a careful path that would allow large business owners to negotiate individual deals to purchase low-cost electricity, without forcing small commercial and residential customers to pay more than their share for power from regulated utilities like Southern California Edison and Pacific Gas & Electric Co.

* Refinancing unemployment insurance.

With workers’ comp overhaul behind him, the governor can train his sights on the state’s broken unemployment insurance program.

Employers, who pay a tax on payrolls to provide coverage for laid-off workers, are expected to see their costs rocket further, from $2.59 billion in 2002 to $5.1 billion in 2005.

“The unemployment insurance fund is broke and is a major concern for employers,” said Hopper of the National Federation of Independent Business, which represents small, non-publicly traded companies.

The jump was caused by a rise in joblessness in the late 1990s and recent benefit increases. The decline in tax revenues and surge in benefit costs threatened to bankrupt the system and forced Schwarzenegger to apply for a $1.4-billion emergency loan from the federal government. The state Economic Development Department projects a $1.2-billion shortfall by year-end and a $2.3-billion budget gap by the end of 2005.

* Other issues.

Even if the governor makes it through the summer without being hit by at least an electricity mini-crisis, he still faces some tough political decisions in the fall.

Employers, led by the California Chamber of Commerce, are pushing a referendum on the November ballot to overturn a law signed by Davis requiring all companies with 50 or more workers to provide health insurance.

Business organizations also have turned in enough voter signatures to put an initiative on the November ballot to limit use of the state’s Unfair Competition Law to file alleged frivolous lawsuits against companies.

While he’s expressed sympathies with both efforts, Schwarzenegger has yet to take a formal position on either measure.

Moving on more than half a dozen pro-business fronts in the next few months is a daunting task for the governor, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

Nevertheless, he predicted that Schwarzenegger’s successful first effort in addressing the workers’ comp crisis boded well for later this year.

“It shows that the governor can move things along through the morass that we call Sacramento,” Kyser said. “My sense is that the business community likes what they’ve seen so far. They trust him.”

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Times staff writer Peter Nicholas contributed to this report.

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Losing jobs

California has lost 1.9% of its nonfarm payroll jobs in the last three years, worse than the U.S. but better than some other high-tech and industrial states.

Percentage change in nonfarm payroll jobs from February 2001 to February 2004

Massachusetts -6.5% Michigan -5.1 Colorado -5.1 Ohio -4.2 North Carolina -3.7 New York -3.0 California -1.9 United States -1.7 Texas -1.7

Florida +2.8 Nevada +5.8

Source: Institute of Regional and Urban Studies *

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Where the jobs are -- and aren’t

While the San Francisco Bay Area has lost many jobs over the last three years, a number of areas in California have seen job growth.

Percentage change in nonfarm payroll jobs from March 2001 to March 2004

Bay Area -11.3% California -1.9 United States -1.5 Southern California -0.6 Coast -0.1

Northern California +1.3 Northern Sacramento Valley +1.8 Mexico border area +2.9 Sacramento +3.7 Sierra Nevada region +3.8 Central Valley +4.0

Source: Institute of Regional and Urban Studies