COLUMN ONE : Business’s Gripe With California : Tale of three firms sheds light on what infuriates executives. But irksome regulations and workers’ comp don’t fully explain why some companies leave.

There’s the no-nonsense Latina entrepreneur, in a white hair net and smock amid steel tubs of ground chorizo in the Vernon sausage factory she helped rescue from bankruptcy.

There’s the tinkerer’s daughter who loves the delicacy of Japanese art but who spends her days steeped in the grunge of the tiny Hawthorne auto parts rebuilding shop she inherited from her father.

And there’s the Anglo corporate executive in his gray suit, the manager of a bustling office furniture company whose computerized factory in Torrance would be a prize in any state--especially Idaho, where it is moving.

As different as they seem, these business people are alike in significant ways. They are all trying to run a company and survive in a recession. But, each argue, they are doing so in a state hostile to businesses like theirs.

They share the same complaint, familiar to a growing number of business owners in Southern California: Excessive regulation, high taxes and workers’ compensation costs and an unresponsive bureaucracy have conspired to drive businesses away.

These factors, coupled with high labor, housing and utility costs, were among the reasons cited by Hughes Aircraft Co. this week in its announcement that it was moving all of its Southern California missile-building operations--and 4,500 jobs--to Arizona.

But is it true?

Some economists have challenged the argument, saying that California’s economy is suffering from the effects of the national recession and structural changes like the shrinkage of the aerospace and defense industry, not from a hostile business climate.

For these three businesses--one small, one medium and one moderately big--the truth about the state’s business climate lies somewhere between the two extremes. Their experiences shed light on what has become one of the hottest issues facing California businesses as they grapple with the worst recession since the Great Depression and try to make their voices heard in Sacramento.

All three business operators relate anecdotes of seemingly absurd regulations, burdensome costs and maddening delays.

But they also admit that none of it is enough to drive them away or put them out of business. Many things can go into a decision to stay or move out of state, quite apart from questions about the business climate: proximity to suppliers or markets, costs to move, quality of the labor supply, familiarity with the area.

Even the furniture company executive, whose company has already announced it is pulling up stakes for the rural fields of Idaho, admits that it is not so much the regulations or bureaucracy driving his firm away, but the costs of labor and electricity--things over which the state has little or no control.

With regard to strict environmental regulations, the Natural Resources Defense Council environmental group has found that the South Coast Air Quality Management District--the focus of much criticism and the subject of a protest last week by business owners--has in fact dramatically curtailed the number of smog violation notices it issues.

Still, the “hostile business climate” rap endures, right up to Gov. Pete Wilson, who once called the state a “bad product.”

A new study by the state’s utilities finds that 668 manufacturing plants have either left or expanded outside California since 1987, resulting in the loss of 92,000 jobs. Mexico captured 21% of such plants and 17% of the jobs, according to Barry Sedlik, manager of business retention for Southern California Edison Co., who prepared the study.

The overwhelming reason for leaving was “business climate,” but--as with the furniture company--that translated to mean high costs, particularly for labor, as well as for workers’ compensation insurance, taxes and other things.

Companies cited poor government relations and delays in getting permits as a secondary reason for leaving. The study found that businesses ranked the state’s strict environmental regulations below the others.

“All of our surveys show there is a perception that the state imposes tax burdens that are too high, that the regulatory processes are confused and insulting, and that the workers’ compensation system is broken,” said James R. Hunter, a principal consultant to the Assembly Democratic Economic Prosperity Team, formed to study the issue. “Those are the three primary ones we’re hit with all the time.”

For Laura Balverde-Sanchez, co-owner of the New El Rey Sausage Co. in Vernon, the state’s business climate has been at the top of her mind since she took over management of the company in 1983. She and her husband, independent grocer Joe Sanchez, bought the bankrupt company with two other partners.

That first year, the company employed eight and had $600,000 in sales. Balverde-Sanchez, who has held executive positions at Foremost Foods and General Telephone, hired new staff, improved recipes and even redesigned the packaging. She also made personal sales calls to push the firm’s sausage.

Now the company employs 51 in a new plant, and has $5 million in sales, with distribution in 14 states. The company’s Mexican-style chorizo--including a new chicken sausage--is sold in grocery stores and restaurants around Southern California.

The work is not pretty. In El Rey’s Vernon plant, men in hard hats load boxes of meat into huge grinding machines, which ooze a red, seasoned mixture at the other end. The ground meat, redolent of spice and vinegar, is placed in steel tubs, then poured into stuffing machines that extrude lengths of sausage that other workers deftly twist into links.

Balverde-Sanchez says El Rey is subject to a myriad of federal and state occupational safety and health rules, city of Vernon health rules, city Fire Department regulations and others.

Recently, the city required El Rey to install fluorescent exit signs, at a cost of up to $39 apiece, to illuminate doors at night--though no one usually works a night shift.

The company pays an average $4,440 a year as its share of the cost for a U. S. Department of Agriculture inspector, who checks the plant and several others in the area every morning.

But easily the company’s biggest regulatory cost is workers’ compensation insurance, she says.

“Our workers’ compensation costs have skyrocketed,” she says. Premiums have gone from $19,000 a year in 1983 to $150,000 now.

That, in part, is because workers’ compensation claims rose until 1988, mainly for stress or back injuries sustained by workers who slipped on slick floors, she says. She says several of the claims were fraudulent. Nevertheless, the company has had to contest 19 workers’ compensation actions over the years, she says.

Since 1988, when the company instituted a series of meetings with employees, the claims have fallen. Even so, her premiums remain at their peak level, she says, and the company has gone through four insurance companies since 1983.

Apart from the costs, Balverde-Sanchez fumes at the attitude of regulators. For her, that is crystallized in an incident involving an inspector from the South Coast Air Quality Management District two years ago.

Balverde-Sanchez said she had arrived at work to find the plant beset with electrical problems. “Something had gone (wrong) in the machinery, it was very hectic,” she recalls.

At that moment, an AQMD inspector knocked on the front door. Balverde-Sanchez asked if the inspector could return in 15 minutes, when the plant got back into production.

“She became very irate that we would ask her to come back. . . . And she said, ‘No, you either let me inspect your facility now, or I will shut you down.’ . . . We screamed back and forth at each other,” she recalls.

Finally, Balverde-Sanchez relented, and let the inspector in. The inspector looked around, found no sources of emissions, and left. The inspection cost the company nothing. But the unpleasantness clearly colors Balverde-Sanchez’s perceptions of the agency and focuses her frustration.

“Small businesses are at a disadvantage,” she said. “We don’t have enough personnel to follow up on complaints, and write letters, and diligently call to get disciplinary action taken on inspectors. When we do, it means we have to stop doing whatever we’re doing to get that situation” taken care of.

Bill Kelly, a spokesman for the AQMD, said he was not familiar with the details of the El Rey inspection, but added that it is customary for inspectors to drop in unannounced so that companies with problems don’t have a chance to “tidy up.”

But he said the agency has a strong policy against rudeness, and since last fall has required its inspectors to leave a survey form with businesses to evaluate the inspector’s behavior.

The results of surveys have shown that most businesses give AQMD inspectors a “B” grade, he says.

In any case, Balverde-Sanchez says none of the problems is enough to make her move. “I would never consider moving to another state,” she said.

“I think that the solution is changing our Legislature,” she added. “If you’re not giving the right solutions, any state will become like California. And there’s more of a recognition that we have a problem, and that’s 50% of the solution.”

Judy Schuman owns and runs Acme Exchange Parts Inc., a ramshackle shop in Hawthorne that rebuilds something called starter armatures: wire-coiled devices used in automobile starters. It is a decidedly low-tech operation that is half salvage work and half auto parts business.

Schuman got into the business after the death, in 1980, of her father, an inveterate tinkerer who started the company in his garage in the 1940s after the family moved to Southern California from Boston.

For a time, business was good. By 1984, she was bringing in a half-million dollars in sales and employing 18 people. She borrowed money against her Beverly Glen house to install new machinery. She boasted customers as far away as Egypt and Australia. She made enough to put her two sons through college at her alma mater, UC Berkeley.

Then the recession hit. Four of her customers, auto parts suppliers, filed for bankruptcy protection and she expects sales to fall to about $200,000 this year. She let most of her staff go, and now employs only six.

And she remains ridden by debts, particularly $19,000 in inheritance taxes.

Now she says she spends most of her time dealing with “government stuff, not my business.”

She estimates she spends $3,000 a year to recycle wastes under state law, $2,000 a year for AQMD permits, $1,000 a year for business licenses, scale permits and public health permits.

Inspectors come and go. “Whenever you see a strange car parked outside, your heart sinks.”

She is familiar with bureaucratic delays. When business was booming, she spent $10,000 to buy a new furnace to replace the Rube Goldberg contraptions her father had designed. It took 14 months before she could turn it on, she recalls.

“By the time I put (the machine) in, it cost $7,000 in AQMD permits, city permits and the stuff to put it in. . . . It had to be checked every time the plumber did his thing, and every time the electrician did his thing,” she said.

Like Balverde-Sanchez, Schuman says her main problem is workers’ compensation costs. She says she pays $11.28 for every $100 of her payroll in premiums, $25,000 a year in all. And until she started leasing her employees through a personnel service firm, her costs were double that, at one point amounting to 46% of her total payroll.

Still, she says she will hang on, mainly because she can’t sell the business or move. “I’m 56 years old, and I should be able to look forward to something, but I just see a mountain to climb and I’m a burned-out woman.”

Harpers, which has made steel office furniture in Southern California since 1954, seems like a model of the kind of company California should want to keep. Employing 500 workers, with sales of more than $60 million, it is housed in a 12-year-old state-of-the-art computerized plant in a low-slung building in Torrance.

On the spotless factory floor, massive machines stamp, punch, cut and form sheet metal, which is then painted and assembled by a relatively high-paid, unionized work force. The pace is brisk and an observer sees little waste. In fact, everything from paint sludge to steel chips to cardboard is recycled.

But Joseph M. Wisniewski, executive vice president and general manager of the firm, a subsidiary of Kimball International, says the company will move to Post Falls, in northern Idaho, by 1994. The reason: costs.

“Generally, the workers’ compensation costs here run about 12.5 cents on every dollar we pay our employees. In the state we’re moving to, it’s a little over 6 cents. . . . We’re looking at a savings, if you calculate it out, of pretty close to half a million dollars there.”

There are other savings. Permits for air, water, sewers and other operations cost the company $250,000 a year; in Idaho, that cost will be about $5,000, Wisniewski said.

And there are the nuisance fines, he says. He speaks with irritation about a $15,000 settlement paid to the AQMD to dispose of a 1990 citation that in part found improper emissions by a new machine that applied a water-based adhesive to furniture parts. The citation was issued in error, he argues.

A follow-up test on the adhesive, performed in an AQMD lab in March, showed no improper emissions, he says. Still, “we paid $15,000 so we wouldn’t have to go to court,” he says. “It would have cost us $50,000 to prove we were right.”

Diana Love, chief prosecutor with the AQMD, disputes Wisniewski’s account. The settlement covered two other violations as well, including one for falsifying records that she called “serious.”

She admitted that there were “inconsistencies” in test results on the adhesive, and said some normal procedures were not carried out the first time around. But she added that the amount of the settlement reflected that, and was much lower than it might otherwise have been.

In any case, Wisniewski says that the state’s red tape also has cost the company in lost production.

Still, he admits that the company would stay in California, for all its business climate disadvantages, if wages and utility costs were comparable to Idaho. Wages are on average about $2 an hour less in Idaho, he said.

“We can provide our employees with about the same level of benefits that they have here for about $800,000 a year less in Idaho, mainly because of the cost of medical care in California,” he adds.

California “has an excellent climate for software development companies, for research and development, office workers and office employment,” but not for manufacturing, he said. “It’s a great place for us to sell our furniture, but not the best place for us to build it.”