Survey Finds State Has Become Less Attractive to Manufacturers

Times Staff Writer

Despite an ample work force, California has become a less attractive place for manufacturers because of the state's high wages and cost of living, according to an annual study released Tuesday.

The report by Grant Thornton, a Chicago-based accounting and consulting firm, ranked California only 30th among the 48 contiguous states in suitability for manufacturing. That was down from 26th a year ago.

But the study, which said North Dakota has the best manufacturing climate and Michigan the worst, was greeted with skepticism.

"North Dakota being No. 1 is a joke," said Jeff Spinner, policy analyst at the Citizens for Tax Justice, a Washington-based public interest group.

Spinner said the study wrongly suggests that "businesses across the country are stampeding to North Dakota."

"I don't think anyone in America sees it happening," he said.

Tony Quinn, director of the office of economic research at the California Department of Commerce, which supplied data to Grant Thornton, also criticized the report, saying: "This a real apples-to-oranges kind of thing in comparing these states."

Quinn said California declined in the rankings largely because Grant Thornton for the first time included cost-of-living in its analysis.

The 8-year-old study previously took into account only labor costs, state and local fiscal policies, state regulations and the availability of such resources as energy and skilled labor. This year the study was expanded to include quality of life considerations such as education, health care and transportation as well as cost of living.

Those new variables were added in part because of last year's criticism of Grant Thornton's report, which ranked South Dakota No. 1.

"We get a lot of criticism. We get a lot of praise," said Michael Hogan, a project manager for the Grant Thornton study. "There is direct correlation between a state's ranking and its critique of our study, but what people are particularly concerned about is the cost issue. It is not a site-selection handbook. We don't expect GM to (choose) a plant site based on our study."

A silver lining in the study for California was that it ranked first in the three-state western region, which also includes Oregon and Washington.

That is important, Hogan said, because companies tend to relocate within regions rather than cross-country. "How a region does is of bigger importance than what they do nationwide," he said.

Hogan said that California's rank fell this year because of the addition of such cost-of-living factors as commuting and health-care costs. In addition, state-regulated costs, such are workers' compensation insurance is high in California.

"Given the increased pressure that American manufacturers face from competition abroad, it's not surprising that bottom line costs such as wages and unionization are their top concerns," said Selwin C. Price, the executive in charge of the study.

"What is surprising is the lower importance placed on many of the selected 'quality of life' factors that our report measures for the first time," Price said.

Grant Thornton conducted its study by having manufacturers' associations rank the states on 21 factors that influence their locational decisions.

MANUFACTURING CLIMATE Best States 1. North Dakota

2. Nebraska

3. South Dakota

4. Virginia

5. Colorado

Worst States 1. Michigan

2. Ohio

3. Montana

4. Louisiana

5. Wyoming

California ranked 30th in this survey, which included the 48 contiguous states.

Source: Grant Thornton

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