Cities Compete for Means to Keep Business From Fleeing : Economy: Five communities statewide will be chosen to set up ‘enterprise zones,’ which use tax breaks to restart development.
After 22 years of operating his custom cabinet manufacturing business on the city’s southwest side, Ron Alms has decided to pack and move his 25-employee shop to Utah next September. The high cost of doing business in Orange County is running him out of town, he said.
Another manufacturing company with 150 employees may leave Santa Ana and head for Corona in order to expand on land that is at least three times cheaper, said Patti Nunn, Santa Ana’s economic development manager. City officials are attempting to reverse that decision.
In Anaheim, where Disneyland, professional sports and other tourist attractions have bolstered the local economy, recent job layoffs--including 130 announced earlier this month by Rockwell International Corp.--also are signaling an anemic economy.
“The census tract that Disneyland, ‘The Happiest Place on Earth,’ is located in is a depressed area,” said Kevin Carrigan, the city’s community development project manager. “Anaheim has had a pretty healthy economy, but nevertheless, we are seeing the onset of business flight that could become a major problem.”
Hoping to stop the loss of jobs and lure new manufacturers into their cities, Santa Ana and Anaheim officials find themselves competing against each other in a major bidding war at the state Capitol to win one of five “enterprise zone” slots available statewide.
The competition promises to be stiff, with about 60 other cities expected to submit applications for a state program that offers tax breaks to restart development in economically depressed areas.
If captured, Nunn said, an enterprise zone offers the “crowning touch” needed by businesses to compete in the current recession.
“Their profit margin in a worldwide market is becoming more and more slender, and anything that affects that bottom line affects the ability to do business,” Nunn said.
“It seems like we hear about a new business every few days that announces layoffs or that they are leaving,” Carrigan said. “I think that’s something that the state, as a whole, is experiencing. We cannot afford to see that many jobs leave the area.”
For California businesses, the “bottom line” costs have continued to rise because of environmental regulations, expensive workers’ compensation insurance and other fees, local officials said. In Orange County, the high cost of land exacerbates the problem by making it too expensive for manufacturers to relocate or expand here, they added.
According to a study by Santa Ana officials, more than 16,000 employees were laid off by 95 Orange County companies between September, 1990, and July, 1991. Of the jobs lost, 73% were manufacturing-related--a field that Nunn said is critical to Santa Ana to meet the needs of its largely unskilled labor force.
For Alms, it is with a great sense of frustration that he has decided to move his entry-level jobs out of state, he said.
“My net savings for my company to move to Utah, just in the workers’ comp category, will be $40,000” annually, Alms said. “I can lease a building at 13 cents per square foot, and here it’s 56 cents to 65 cents.
“The labor pool here is great, but what we are finding is that the cost of living is very, very high here,” he said. “So I have to pay $13 per hour because (the employee) has to go down the street and rent an $800-per-month apartment. In Utah, I can hire the same man for $8.”
After sitting down with a business recruiter from Utah and penciling in trucking costs and extra taxes to ship the goods to California, Alms estimated his annual net savings would total $130,000.
“The incentives are so incredible that they are offering, that it makes no sense to stay here,” he said. “Businesses are moving out, not by the week, but by the minute.”
The out-of-state recruitment efforts are not lost on local officials.
“It’s difficult for (local businesses) to stay in California,” Carrigan said. “And then we have other states that are bending over backward to bring them to other states.”
But an enterprise zone, he added, would give an eligible area “an edge” by offering businesses incentives to stay in place and expand their operations.
Under the state program that already exists in 20 other areas around California, companies that expand or relocate to enterprise zones receive a variety of tax breaks. They include a tax credit for sales and use taxes paid on machinery purchases, a tax credit for hiring qualified employees, and after 1992, the ability to carry over net operating losses to future years to reduce the amount of taxable income for those years.
In selecting a site, the state Department of Commerce looks for an area that is economically depressed, is located in a community that will market the program, has job training and development programs, and has available real estate for commercial and industrial development.
If that economic magnet were already in effect in Santa Ana, Nunn said, she is convinced several firms interested in relocating to Southern California would have been drawn to the city.
She points to a Taiwanese valve-manufacturing firm that was looking for a base for its U.S. production and distribution center. The firm recently decided to bypass Santa Ana in favor of San Diego, where an enterprise zone already exists.
The Santa Ana City Council is scheduled to approve next week its application for an enterprise zone, and Anaheim officials are also working toward the March 2 deadline.
Officials acknowledge that while both cities are competing against each other, a successful bid by either one can help both areas.
“Of course, we would like to have it come here,” Nunn said. But if Anaheim gets an enterprise zone, “still, the (workers) would come from here, so whatever will work to get them here.”
