Prospecting for California Gold : Delegations From Across U.S. Try to Cash In on State’s Riches, Lure Businesses Away
With their governor leading the charge, 40 officials from Oregon swooped down on California last week in a bold raid on the state’s economic riches.
The aggressive Oregonians called upon 70 firms in the Golden State and held a lavish reception at a downtown Los Angeles hotel--where guests nibbled on Chinook salmon, sipped Oregon wines and watched videotaped testimonials--in an effort to persuade companies to make the move north.
“California is our No. 1 target,” said Steve Petersen, deputy director of the Oregon Economic Development Department. “This is the first shot in a long-term effort.”
Oregon has joined the ranks of other states--Arizona, Texas, Indiana and Colorado among them--that want to boost their economies by taking home some of California’s. This state’s crowded and expensive cities have made it an attractive target for other regions that can promise businesses lower costs, tax incentives and congestion-free highways.
Furthermore, many California officials seem more concerned about attracting business from the Far East than about losing companies to the Midwest.
In recent years, California has rivaled--even surpassed, some say--the New York metropolitan area as the nation’s most productive hunting ground for other cities and states hoping to attract disenchanted corporations.
Representatives from about 20 states, cities and utilities crisscross California during any given month, according to corporate relocation experts. In fact, while the Oregonians were in Los Angeles last week, a competing contingent from the Reno area was also passing through town.
California corporate expatriates have accounted for up to 35% of the annual business start-ups in Nevada. “We get fat from the crumbs off your table and you don’t even know it,” said Andy Grose, executive director of Nevada’s economic development commission.
Many argue that California is big and strong enough--the Los Angeles area alone created nearly 165,000 jobs last year--to survive economic assaults from other states. “Look at the job growth we are having,” said Bob Arnold, chairman of the Center for the Continuing Study of the California Economy. “It’s just phenomenal. You will always see some spillover when you’re this big.”
And that’s just what many other states figure. “A lot of these states are getting hungry,” said David Kolzow, an Orange County economic development consultant to cities. “And California has just continued to be a shining star in terms of economic growth.”
In high-profile delegations or two-member teams, officials from other states shop in California for specific companies. Houston wants to rebuild its economy--badly weakened by low oil prices and a troubled real estate market--with firms that would like to feed off its petrochemical industry and the nearby Johnson Space Center. Indiana wants high-tech firms to offset its reliance on heavy industry. Oregon’s utilities are partial to big users of electrical power.
Of course, one official joked, “We’ll take any of your fine companies.”
Some of the raiders offer incentives that California cannot match--like forgiving taxes--and will help find and train new employees, including top executives. They will videotape neighborhoods and industrial sites to help prospects make up their minds to move as well as try to match them to cities fitting their land and labor needs.
Growing firms are prime targets for job-hungry states. Other states are more likely to pick the fruits of corporate expansion--new factories and distribution centers, for example--than to lure away entire corporations.
“We’re finding a lot of small companies that are interested in talking to us because of the quality of life,” said George H. Gault, an official in Colorado’s economic development office. “They are tired of too many people, too much pollution.”
Looking Outside State
It also helps when you are in a part of the country that is attractive to top managers. “If the owner likes to fish and hunt in the mountains, that’s where the company goes,” said Darrell Plummer, economic development representative for Sierra Pacific Resources, a Nevada utility holding company.
Sometimes a major high-profile company does jump the state line. Motel 6 moved its headquarters, for example, from the beaches of Santa Barbara to the flatlands of Dallas, where the company says it is easier to keep tabs on the nationwide chain.
The many problems spawned by California’s success--high operating costs, slow-growth regulations, pollution controls and traffic congestion--make it easier to attract firms, say the economic development officials of other states. A recent study by Location Management Services, a Palo Alto firm that helps companies locate new homes, found that of Southern California firms planning to move or to build new plants outside the region, about 70% said they were looking at sites outside the state.
“It became clear that we would have a greater rate of success in California than we would have in the Northeast,” said R. Wayne Snead, marketing director for a Houston economic development group, who found at least three California firms willing to relocate while on a recent prospecting tour.
California companies also seem more receptive to the idea of moving than do firms in other high-cost parts of the nation, like Massachussetts. “They’ve got such a Stone Age mentality there,” said Fred S. Lindsey, an official with the Indiana Department of Commerce who recently completed a two-week hunt for California high-tech firms. “They think anything west of Pennsylvania is still wild. They will tolerate the high cost of everything.”
But there is resistance. “Some of the Californians don’t care what it is they are doing as long as they are doing it in California,” Snead said. Houston has “a lot to offer, a lot of diversity. But we don’t have the mountains with snow.”
And local California officials have been known to give a frosty reception to these economic prospectors. “I’m sure they are not too happy about us coming into their areas,” said Oregon’s Petersen.
Until recently, California offered little in the way of an organized counterattack to keep firms from moving or expanding across the state line.
“A lot of the economic development programs are really not geared much to retaining business,” said Kolzow, who himself is moving from Orange County to Dallas. And the public’s attitude, he says, is often: “Who cares if they move out? They just cause congestion and pollution.”
California officials concede that they have their work cut out for them. “It’s worrisome if I find that sometimes they (California firms) know more about what Arizona has to offer than what California has to offer,” said Janet Turner, director of business development for the State Department of Commerce. “We’re trying to make sure California firms know what opportunities exist within California.”
The state has identified several industries that it wants to retain and are vulnerable to moving, including companies in aerospace, furniture making, apparel and plastics. Through industry associations, surveys and meetings, the state tries to find out who might leave and offer solutions and alternatives to unhappy corporations.
For example, the department was tipped off that Los Angeles apparel maker Evy of California was ready to sign a lease for a new plant near Salt Lake City. Turner said the state recommended that Evy contact officials in several low-cost California towns. As a result, Evy opened a plant in Bakersfield in February.
“Utah was excellent,” said Evy President Kurt Krieser. “They were willing to do a lot, and there was a lot of building space.” But after looking at Bakersfield, Krieser found that the city offered many of the low-cost benefits that Utah did and was several hundred miles closer to company headquarters.
“The agency showed us that there is great potential here,” Krieser said.
California has also won praise for its advertising campaign--Discover the Californias--that has helped raise awareness among business people nationwide. State officials also make annual corporate recruiting trips to New York and the Boston area and will soon begin making treks to Chicago, Turner said.
Still, many California officials are not so inclined.
The Los Angeles Area Chamber of Commerce, for example, has arranged trips to Kuala Lumpur and Britain to drum up investment here, but has all but ignored other parts of the United States. “We haven’t concentrated in that area quite frankly,” chamber President Ray Remy said. “We are interested in the international markets.”
And many argue that California--rich and congested enough already--should not trouble itself to go after new business.
“When you’re going five miles an hour on the San Diego Freeway,” said Indiana’s Lindsey, “who needs to go out and advertise?”