State’s Regulators Laying a Gentler Hand on Business : Commerce: As officials strive to retain industry and jobs, firms find them more flexible and courteous.

Four years ago, facing a required $750,000 investment in pollution-control equipment and lured by the siren song of less environmental regulation and low labor costs, M & J Desk and Seating Manufacturing Co. moved much of its operation to El Presidente, Mexico.

Today, it has returned. The City of Industry-based company became disillusioned with transportation holdups, poor quality control, unexpectedly high employee taxes and a turnover in labor that forced it to hire twice as many workers as in Southern California--and to keep almost a fifth of them in training at any given time.

“We lost a lot of ground,” said Adolfo Agramonte, executive vice president. After looking at its ledger again--and with help from state regulators, the South Coast Air Quality Management District and Southern California Edison--M & J decided it was better off back in Southern California.

M & J’s story is likely to be discussed at the state’s economic summit that begins Tuesday in Los Angeles, sponsored by Assembly Speaker Willie Brown and supported by Gov. Pete Wilson. One theme at the two-day conference will be how business and government can work together to improve the state’s business climate.

M & J’s return is a dramatic example of what may be the early fruits of a new government activism in trying to keep businesses from leaving the state. California regulators are being pressed to be more solicitous of business needs in the wake of years of complaints. And they are beginning to take a lesson from neighboring states by proposing a streamlined permit process, more flexibility in rule interpretations and even simple business courtesy.

James M. Strock, head of the California Environmental Protection Agency, recently set telephone-answering standards for workers at the agency’s switchboard. Always give callers your name and phone number, he instructed, and tell them to call back if they have more problems.

The AQMD recently showed new flexibility in delaying by a year its deadline for the aerospace industry to switch to new low-emission coatings. It is considering a similar delay that would help some furniture manufacturers. The AQMD’s help for small businesses, including loan guarantees to buy emission control equipment, also has been beefed up. And on Friday, the agency simplified its car-pooling rules.

M & J’s return is apparently the first by a California furniture manufacturer, an industry that has hotly criticized the state’s environmental regulations. There are no statistics on how many furniture makers have left the state.

M & J’s change of heart also reflects a changing attitude among a growing number of businesses that have been packing their bags for other states and countries.

“California regulators are making a change--and part of that change is just a smile across the desk, not being treated like a criminal,” says Wilford D. Godbold, chief executive of Los Angeles-based Zero Corp. and chairman of the California Chamber of Commerce.

Zero Corp. and its 1,750 employees make high-tech aluminum cargo containers, cabinets and briefcases. The company moved its case-manufacturing unit to Salt Lake City in 1990.

“In Utah, there was total cooperation among state and local agencies, so that we provided information only once,” Godbold said. They got an environmental permit within six weeks. “This clarity of response, and quickness of response California can learn,” he said, “and is learning now.”

Last year when Zero Corp. moved its cabinet manufacturing from North Hollywood to Pacoima, “the AQMD issued their permit on a very timely basis,” said Godbold. This had not been his experience in previous years.

The public perception has been that a big reason for companies leaving the state is overly burdensome environmental regulation. Yet environmental rules have only rarely been the major cause of a business’s flight. And many executives now agree with environmentalists and others who say that the negatives of California environmental rules have been overstated.

In most cases, the regulations themselves are not much more onerous than in other states, say many business leaders. The objections stem more from the way they have been administered.

Environmental authorities in Reno “were very thorough” enforcing rules that were not greatly different from those in California, said Russ Gilbert, chief executive of Cimco Inc., a major Orange County employer that manufactures plastic computer housings and other injection-molded parts.

Cimco moved to Reno after becoming disillusioned with mandatory ride-sharing rules to lower air pollution from cars. Gilbert also became angry when an AQMD inspection of a new $100,000 filter and vacuum system developed by Cimco turned into an investigation for other air-pollution violations in the plant, resulting in fines as well as orders to install new equipment.

In Southern California, the battle between environmental regulators and businesses heated up during the 1980s as AQMD air-pollution rules descended on one industry after another. Many industries felt unfairly targeted and complained that they were being told to spend a lot of money for negligible improvements in air quality.

The region’s furniture-makers, forced to lower emissions from traditional oil-based lacquers and sealers, argued that meeting the new air-quality rules would require investments exceeding the net worth of many of the small, family-owned businesses.

In other cases, the equipment necessary to cut air pollution used hazardous chemicals regulated by different environmental agencies.

A 1992 report by a Council on California Competitiveness task force, chaired by Peter V. Ueberroth, found 72 federal, state and local agencies with environmental authority in Southern California. The report strongly recommended streamlining a California regulatory system that it called “out of control.”

But a bigger problem for many businesses has been the uncertainty of when or whether they would be issued the required environmental permits. The regulations themselves were specific, so companies at least knew what they had to do to meet them. But financing expanded operations became tougher than in other states when the timing of final permits could not be depended upon.

By November, 1991, the California Business Roundtable estimated that 23% of all California companies had plans to relocate part or all of their operations outside the state.

“That is probably on the high side,” said Barry R. Sedlik, Edison’s manager of business retention recently. “Probably fewer had serious intentions to move.”

Edison’s own studies show 700 businesses and 100,000 jobs were lost from the state in the past five years. “But it wasn’t per se the stringency of the environmental regulations” that caused them to leave, Sedlik says. “Overall, what we see is a combination of factors” most often led by the much-criticized worker’s compensation system.

Sedlik notes that the cost of doing business in California has been higher than in surrounding states since World War II. In fact, the advantages of moving may always have been less clear-cut than many businesses supposed.

Aerospace manufacturer Allied Signal, for instance, found that the air-quality permit that takes three to four months to obtain in Torrance might normally take just a month in Tucson, Ariz.--but six months to two years in Phoenix.

As for M & J’s tale, it illustrates the sober reality that companies can experience when they pack up and leave.

In 1988, the company did not like the performance of the new water-based furniture coatings that had just been developed to replace oil-based coatings that emitted volatile organic compounds, which help form smog. The medium-size firm, with $12 million a year in sales, saw its only option to be installing a kind of furnace, called an afterburner, that would burn up the compounds before they were released into the atmosphere. But the afterburner would cost about $750,000, with another $80,000 annually for maintenance and fuel.

Company executives began to look for a new home for the portion of their manufacturing that would not meet AQMD requirements. Ultimately, they listened to international business consultants and Mexican bureaucrats who extolled the advantages of manufacturing in Mexico, not least the low labor costs and no limits on air-pollution emissions.

They did find low labor rates of 90 cents an hour, but much higher than expected payroll taxes. Then there were the bonuses: to get workers to show up on time, to get them to stay with the company, even to simply do their work. In truth, they paid about $1.75 an hour.

Job-hopping was endemic as well, so M & J had to stay overstaffed to be sure it had enough trained workers on any given day to produce the goods. The same level of production that took 35 to 40 workers in Southern California required 70 to 140 workers in Mexico.

Transporting raw material and finished desks and chairs back and forth to Mexico also added weeks to their production schedule, seriously eroding the company’s competitiveness in an industry in which buyers value fast turnarounds as a way of keeping inventories low and warehouse expenses cheap.

Worse, product quality suffered. Finished furniture that had to be reworked because of damage jumped from 5% to 7% of the total produced in Southern California to 10% to 15% in Mexico.

The company estimates that in the first six to nine months, it lost half its volume of customer orders.

When M & J asked California officials about the possibility of returning, this time the welcome wagon was dispatched. Edison’s Customer Technology Applications Center, in Irwindale, found an improved water-based coating system that M & J liked. The AQMD, taking into account the method to be used to apply the coatings, recalculated the company’s air-emissions ceiling. The expensive afterburner wouldn’t be needed after all. The facility began the move back in October.

“We’re happy to be back,” said Agramonte of M & J. “We never wanted to leave California.”