Report Raises Firms’ Hopes, Critics’ Fears

Companies big and small cheered a report Thursday that gave new impetus to some of their pet proposals to make California a more attractive place to do business. But some economists and other critics worried that the recommendations could harm Californians and drain state coffers without spurring new business growth.

The California Chamber of Commerce noted that most of the suggestions in the 100-plus pages of the report by the Council on California Competitiveness have been made before. But the group welcomed the package nonetheless. Kirk West, the chamber’s president, said the report sends a message to businesses of all sizes that the state is willing to try to improve its economic climate.

“Clearly, it identifies steps that would be a big plus for the economy and save jobs,” West said.

The response from small-business groups was positive as well. Martyn Hopper, state director of the National Federation of Independent Business in Sacramento, said the group was pleased that the council highlighted workers’ compensation as an area in need of immediate reform.

“It’s such a major concern when you think of hiring people,” said Hopper, whose group represents 44,000 companies in California with an average of eight employees.

He, too, acknowledged that the council’s ideas, which he described as “marching orders” for the governor, were not necessarily new. “The difference,” he said, “is this council has some credibility.”

The council’s report focused primarily on suggestions for revamping workers’ compensation insurance, simplifying the regulatory process, changing the rules for suing companies and boosting tax incentives for business. The 17-member council is headed by Peter V. Ueberroth, the Orange County investor who ran the 1984 Summer Olympics in Los Angeles and later served as major league baseball commissioner.

A news release accompanying the report noted that by some estimates California lost more than 500,000 jobs in the last 18 months, mainly through layoffs. The release blamed the state’s business climate. “People are coming, but jobs are going,” Ueberroth said in the statement. “California has become a costly and difficult place to do business.”

However, in the long-running debate over whether California is a hostile place for business, many economists have contended that the state’s economic woes result primarily from the recession, Pentagon cutbacks and other changes to the economy--not from burdensome laws and regulations.

The report drew some criticism from one of the council’s members, Jack Henning, executive secretary-treasurer of the California Labor Federation, AFL-CIO.

Henning called the report “well intentioned” but faulted it for ignoring the effects of the national recession. Henning, who dissented from some of the report’s recommendations on workers’ compensation reform, said the report placed far too much blame for the state’s economic problems on workers’ compensation.

Lynn Reaser, chief economist at First Interstate Bancorp, saw tax incentives proposed by the panel as positive, particularly the elimination of the capital gains tax on investments in small businesses.

If properly implemented, she said, it could create enough new business to offset any loss in state revenues.

She was less enthusiastic about a proposed investment tax credit for new equipment purchases because it would favor certain kinds of businesses. It would apply to capital equipment, for example, “so it’s a more specific tax-incentive approach,” she said.

Reaser generally favored recommendations that would remove impediments to doing business over tax and other incentives that could cost the state money.

“There is always the danger that (a tax package) could become a very expensive package as it moves through the Legislature,” she said.

Noting that more than 850,000 civil lawsuits were filed in California last year, the council urged that steps be taken to unclog the courts. Trial lawyers reacted with anger.

Ian Herzog, past president of the California Trial Lawyers Assn. and a Santa Monica lawyer, heatedly argued that the council’s suggested changes would “totally eviscerate the civil justice system.”

“The Republican Administration has decided to use the civil justice system as a whipping boy for the state of the economy and for the profligate economic policies of the last 10 years and the outrageous deficits that are finally tearing our economy apart,” he said. “They have to blame somebody.”

In particular, he attacked recommendations to revise product liability laws, to repeal the state’s corporate criminal liability act and to limit punitive damages in civil judgments. The Trial Lawyers’ Assn. argues that existing product liability laws do little to increase the costs of doing business in the state.

For their part, environmentalists remained suspicious of calls to simplify environmental regulations in the state. The report, citing what it called a time-consuming, costly overlap of jurisdictions on environmental matters, urged that the state strive for speedier project approvals and establish control over all regulatory agency budgets, fees and fine structures.

“To the extent the streamlining recommendation does not result in a watering down or relaxation of standards, we don’t object to that,” said Ann Notthoff, a senior planner with the Natural Resources Defense Council in San Francisco. “But the word streamlining . . . is often a code word for relaxation, and that we would be very opposed to.”

Notthoff particularly opposed a suggestion that California’s environmental standards not exceed federal ones.

Groves reported from San Francisco and Lee from Los Angeles. Times staff writer Stuart Silverstein contributed to this article.

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