THE TIMES POLL : Valley Firms Rank Grievances : Survey: Most think the local economy is on shaky ground but believe the outlook for their companies will improve if the recession ends.
San Fernando Valley businesses say the recession, workers’ compensation and health insurance costs, traffic and crime are among their biggest headaches. They are divided over whether the Valley is less desirable a business site than elsewhere in California.
Those were among the findings of a Times Poll of Valley businesses conducted this summer.
The survey also showed that most businesses say the local economy and their own companies are on shaky ground. Proprietors of one in every seven are giving serious thought to moving at least some of their operations out of the Valley.
However, a majority believe their outlook will improve if the recession ends. And those predicting improvement outnumber the ones predicting further economic decline in the year to come.
Half of the companies contend that California as a whole offers below-average business conditions compared to the rest of the nation. Of those considering a move outside of the Valley, 54% said they would move or expand their operations to another state or another country.
“Right now the region is probably suffering more from the state’s poor image as a place to do business than from any particular local problem,” said John Brennan, director of The Times Poll.
The companies that are considering escaping California cited the need to cut costs, to operate with less government regulation and to enjoy an improved overall business climate.
“It’s getting more and more difficult to do business in the state,” said Robert L. Frazier, owner of Frazier Aviation Inc., a North Hollywood maker of aircraft components that is eyeing Seattle or St. Louis as a new home. “We’re getting no cooperation from the state” in solving the escalating costs related to workers’ compensation and government regulation, he asserted.
The poll sampled 1,059 businesses’ executives in the San Fernando Valley, Burbank and Glendale between June 19 and July 31--735 of whom responded. The sample was selected from the 1992 Southern California Business Directory and Buyers Guide, a database sponsored by the Los Angeles Chamber of Commerce.
The sample was designed to provide a cross-section of businesses by size, type and geography. It included an over-sampling of larger businesses with a major impact on the region, to ensure that their opinions would be included.
Big and small, the Valley companies were decidedly negative on California’s general condition, with 85% of the respondents saying the state was headed in the “wrong direction.” The results mirrored a Times Poll of California’s general public in May, in which 80% said the state was on the wrong track.
The pessimism was particularly evident in discussing the economy. When asked to describe California’s economy, 95% said it was “shaky.” Four percent said it was robust. A 58% majority also called conditions at their own companies shaky.
But there was optimism that prospects will improve. In looking ahead a year, 55% of the Valley firms said their own performance will turn up, while 33% said they expect no change. Forty-six percent expect their sales to increase during the next year and only 12% expect them to decline.
That optimism follows a difficult period. Forty-six percent of the firms said their sales fell during the past year, and 49% said they cut their work forces. Only 23% plan to add staff this year.
In other words, even if their predictions of improvement come true, it is an open question whether the companies will return to their previous levels of sales and employment.
“The survey shows much of that improvement may involve reversing declines felt over the last year,” The Times’ Brennan said. “Valley businesses seem to still face a hard, long climb ahead. There does not appear to be a big rebound in the offing.”
And manufacturers were more pessimistic than service companies about current business conditions and the outlook for improvement.
Only 25% of the manufacturers said they expected California’s economy to turn up during the next year, compared to 40% of the service firms. Also, 39% of the manufacturers said they were “somewhat likely” or “very likely” to move some of their operations out of the Valley, as opposed to 26% of the service companies.
Overall, only 14% of the Valley businesses said they were “very likely” to move some of their operations out of the area in the next year or two; 17% said they are “somewhat likely,” and 66% said they are not likely to move.
“Being in the Valley is 5%” of the problem “and the economy and government is 95%,” said Albert Gold, chairman of Gold Graphics Manufacturing Co., a graphic-arts firm in Pacoima.
Nonetheless, another manufacturer who responded to the survey said, “There are numerous customers and suppliers that have told me of plans to move out of the state over the next one to three years, which will affect my business.”
When the Valley firms were asked what problems ranked as the most important in hampering their performance, the economic recession and two other factors were dominant: workers’ compensation and overall health insurance costs.
Sixty-five percent of the respondents said workers’ compensation costs were among their most important problems, 50% cited health insurance costs and 47% named the recession. A third of the firms also said state taxes and environmental regulations were their most important problems.
But when pressed to name the one change that would help the success of their businesses, ending the recession was cited by 52% of the companies. Only 24% said easing government regulations would be key; 15% said they required more investment.
In citing the workers’ compensation system, though, the Valley firms thus echoed a complaint heard from business statewide. The program, which reimburses workers for illnesses and injuries sustained on the job, has been marred by escalating claims--many of which are fraudulent--and rising coverage costs.
One-fourth of the companies said their workers’ compensation costs had climbed at least 25% over the past two years. Two out of three companies said they had experienced some increase in the cost.
The standard rate insurers can charge for workers’ comp is capped by the state’s Department of Insurance--but only if a company has been free of claims. If a company’s workers have filed claims, then insurers can use that “loss experience” to ratchet up rates, said Morgan O’Keefe, vice president of O’Keefe Investigations, a Northridge firm that investigates workers’ comp fraud.
“Virtually every company that we’ve investigated for has complained about their workers’ comp rates,” O’Keefe said, adding that “at least 30% of the claims are fraudulent.” Ironically, O’Keefe’s own premiums for his employees’ workers’ comp have soared 200% over the past two years, he said.
Gold Graphics was among those citing environmental rules. The firm, with 75 employees, is grappling with regulators’ efforts to ban inks that contain solvents contributing to air pollution.
“We’re spending a lot of time, money and energy finding out just what will conform” to the new rules, Gold said. “We’re doing it, at great expense.”
When asked about specifically doing business in the San Fernando Valley, the most often mentioned grievance--cited by 23% of the firms--was traffic. That was followed by crime (13%), smog (13%) and government regulations (12%). The cost of labor in the region was cited by only 4% of the companies.
What did they like about the Valley? Its mere location, which was named by 62% of the respondents. The general business climate was named by 19%, followed by the Valley’s labor base (13%) and the area’s overall lifestyle (11%).
The firms also were divided about how the Valley compared to the rest of California as a home for business. While 36% said the Valley was better, 35% said it was average and 25% termed the Valley below average.
Finally, the riots in April are not expected to have a widespread, lasting effect on the region’s business, the survey showed. When asked what long-term effect the riots would have, only 11% said a “great deal” or a “good amount.” Sixty-five percent said the riots would affect their operations “very little” or “not at all.”
Valley business people are annoyed by traffic, crime and smog.
Q. What are the things you LEAST like about having your business located in the San Fernando Valley, Burbank or Glendale? Traffic: 23%
Crime: 13%
Smog: 13%
Government regulations: 12%
The recession and regulations are bugging business people.
Q. What are the most important problems facing your business today? Recession: 23%
Government regulations: 20%
Business is down: 20%
Workers’ compensation insurance: 18%
The Valley gets mixed marks as a place to do business.
Q. Overall, when it comes to conditions for doing business, how would you compare your location in the San Fernando Valley, Burbank or Glendale with other parts of California? Do you think it is: The best place to do business: 5%
An above average place: 31%
An average place: 35%
A below average place: 23%
The worst place to do business: 2%
Don’t know: 4%
Few businesses have definite plans to move out of the Valley.
Q. What are the chances that, in the next year or two, you may move some of your business operations outside the San Fernando Valley, Burbank or Glendale? Very likely: 14%
Somewhat likely: 17%
Not too likely: 22%
Not at all likely: 44%
Don’t know: 3%
Most believe the economy is shaky ...
Q. Would you describe the economy of the San Fernando Valley, Burbank and Glendale these days as ... ? Very robust: -
Fairly robust: 10%
Fairly shaky: 63%
Very shaky: 23%
Don’t know: 4%
Q. Would you describe the business conditions for your own business establishment these days as ... ? Very robust: 6%
Fairly robust: 34%
Fairly shaky: 47%
Very shaky: 11%
Don’t know: 2%
The outlook for the Valley economy is mixed ...
Q. One year from now, do you expect the economy of the San Fernando Valley, Burbank and Glendale will be ... ? Better: 33%
The same: 41%
Worse: 23%
Don’t know: 3%
Q. One year from now, do you expect business conditions for your own business establishment will be ... ? Better: 55%
The same: 33%
Worse: 9%
Don’t know: 3%
In citing the workers’ compensation system, Valley firms echoed a complaint heard from business statewide. The program has been marred by escalating claims--many of which are fraudulent--and rising coverage costs.
HOW THE POLL WAS CONDUCTED The Times Poll sampled 1,059 business executives in the San Fernando Valley, Burbank and Glendale between June 19 and July 31, 735 of whom responded. The sample was selected from the 1992 Southern California Business Directory and Buyers Guide, a database sponsored by the Los Angeles Chamber of Commerce.
The sample was designed to provide a cross-section of businesses by size, type and geography. It also included an over-sampling of the area’s larger businesses--those with 100 employees or more--to ensure that their views would be included.
Of the companies responding, 43% are in service industries and 32% are in manufacturing. Other categories of business included financial/insurance/real estate, wholesale and retail trades, transportation/utilities, construction and agriculture/forestry.
Types of businesss polled: Manufacturing: 32% Other: 25% Services: 43%
What Hampers Valley Businesses Execuetives were asked to rate the following items on a list of possible problems with doing business in the Valley. Chart shows the percentages of respondents who answered that items wer “one of hte most important problems.” Workers’ compensation insurance: 65% Health insurance costs: 50% The recession / poor sales: 47% Cost of employee fringe benefits: 35% Environmental regulations: 34% State taxes: 325 Uncooperative govt. officials: 31% Crime and vandalism: 26% Local educational system: 20% High cost of living in this area: 19% Bank’s reluctance to lend money: 18% Getting reliable employees: 17% Delays in getting govt. permits: 15% Property taxes: 13% Safety regulations: 13% Car pooling / transporation regulations: 8% Foreign competition: 8% Poor quality of life in this are: 7% Quality of local transportation: 7% Union relations: 3% Source: Times Poll
