Taking Off the Gloves : Long Complacent, California Now is Fighting to Retain Business

Stanley Cheng looked at California, Oregon, Washington and Texas for the first U.S. production site of his family-owned Hong Kong company. His decision was not what one might expect.

Meyer Corp., the world’s third-largest maker of cookware, decided to build in California, the notorious land of impossibly high costs and too many taxes, bureaucrats and lawyers.

To be sure, the state’s troublesome reputation remains accurate. “California is as expensive as it gets,” Cheng said. But he also believes that the advantages long claimed by other states--notably cheap real estate--have narrowed as California land values have fallen and growth elsewhere has driven prices up.

“The East Bay is full of unoccupied buildings,” Cheng said. “And Seattle isn’t all that cheap anymore.”

The $11.5-million Meyer plant, with 80 to 100 employees, is small stuff compared to some of the industrial prizes California has lost to other states. It wasn’t the subject of a heated interstate bidding war.

Yet, in a vivid sign of how times are changing, California officials have begun actively wooing companies big and small--Meyer Corp. among them. While the overall results have been mixed, the mere fact that a major effort is under way is a novelty for a state that never used to play the economic-development game.

The action amounts to a counterattack aimed at improving the state’s image and stemming an outpouring of jobs. Economic promoters are trying to generate optimism about California by emphasizing its enduring strengths and downplaying the problems over which it has little control.

In Cheng’s case, California clearly outplayed the teams from Washington and Oregon by shedding its usual complacency. Acting as a go-between, the state helped Meyer Corp. buy land at a good price and obtain an interest-free loan to cover unexpected construction costs.

Earlier this month, in an unusual display of turf consciousness, state officials unfurled the new “Team California” promotional banner at a corporate-relocation conference in San Jose. The gathering was intended to serve as a forum for other states seeking to woo California businesses.

Even Gov. Pete Wilson, criticized as too reluctant a salesman for the state, is preparing for a two-week trade mission to the Far East in late November, to notify that part of the world that California is “back in business.”

Boosters like to point out that California is still perched on the Pacific Rim, still has the nation’s greatest concentration of technology, still attracts huge volumes of money and people. Meyer, for example, attached more importance to airport and seaport access and to vast retail markets than to the high cost of operating in the state.

Another piece of the puzzle, some say, is this year’s apparent break in the legislative gridlock, resulting in an economic stimulus package and various measures intended to bring California more in line with other states on certain tax policies and related yardsticks.

A recent Times survey found that California’s business tax burden is fairly typical. Yet certain policies--especially the treatment of multinational firms and the sales tax on equipment--often put the state at a disadvantage against other locales. Both those rules were eased in the latest legislative session.

“It certainly makes my job easier,” said Julie Meier Wright, director of the state Department of Trade and Commerce, which is charged with selling California to businesses.

Yet improving the business climate alone is hardly the whole answer. Most believe that business complaints about taxes and regulations are dwarfed by forces beyond the state’s reach: sluggish export markets, high costs, immigration burdens, military base closures and deep cuts in the aerospace industry.

Some also say that the changes intended to stoke the economic furnace are not much more substantive than the advertising campaign the state plans to launch in early 1994, touting the “improved” climate.

After all, the $400 million in tax cuts the Legislature passed is less than the revenue the state lost from the departures of Hughes Aircraft plants in recent years.

Meanwhile, some California cities continue to spend time and energy poaching jobs from each other, and some of the tax shifts favor low-paying employment over better jobs. Such complaints only confirm that California’s problems aren’t over.

However, by bringing California closer to the mainstream on certain economic policies, the changes approved by the Legislature should lend momentum and credibility to the state’s belated effort to sell itself.

While most other states were honing their economic development skills through the retrenchments of the 1970s and ‘80s, California was creating 300,000 jobs a year without trying.

Leaders of the world’s seventh-largest economy, as Californians still like to describe their “nation-state,” didn’t rush to the airport to meet touring business executives with flowers and building permits.

All that began to change several years ago, when California’s leaders looked up to find themselves surrounded by “foreign” governors offering businesses lavish inducements to move or expand into their states.

Anecdotal evidence of factory flight was documented: Nearly 900 plants and about 118,000 jobs were lost to other locales from 1987 to 1992, according to one estimate by five California utilities.

The stated reasons--taxes, regulations, costs--seemed genuine. And the inhospitable business climate became part of a national cliche about an overcrowded, violent, polluted and unaffordable California.

The imagery was devastating, and various analyses, notably Peter Ueberroth’s Council on California Competitiveness in 1992, faulted the state’s lack of preparedness and disorganization in tending to the needs of business and in combatting the raids by other states.

Wilson hired Wright, an energetic public relations executive from aerospace firm TRW, to head a department newly upgraded to reflect the importance suddenly attached to its work.

With her own boss among those bashing California’s business policies and calling for change, Wright’s job was a little like that of a Chrysler salesman in 1980: While informing Congress that it was dead broke and needed a bailout, the auto maker was telling customers that their warranties were good as gold.

“We spent so long bashing ourselves in order to get everyone’s attention and achieve reform, I felt like a manic-depressive trying to sell the state,” Wright said. “But if we hadn’t gone through that process, we wouldn’t be where we are today, and where we are today is great. We were selling a flawed product. Now we can sell with great credibility.”

A state’s success at selling itself is often gauged by its ability to outbid other states for industrial prizes. The process was epitomized recently when Alabama offered $250 million worth of incentives to get a Mercedes-Benz auto plant with 1,200 jobs.

California’s efforts have been less of a sales campaign than a finger-in-the-dike scramble. The skirmishes, mostly efforts to talk companies out of leaving, have been fought largely by overwhelmed local and regional economic development groups and public utilities.

For example, when Loral Corp., the aerospace company with a big operation in Newport Beach, recently decided to keep its 1,300 jobs in California, it was the result of three years of effort by Southern California Edison Co. and a consortium of Orange County groups.

Though many local groups were aggressive and sophisticated, they bemoaned California’s lack of a visible salesman--a role filled in other states by the governor. And the lack of an information network left official California in the dark as to which employers planned to leave.

“There was a total lack of communication and coordination,” said Marco Brown, executive director of a 31-city economic development consortium in the San Gabriel Valley.

Only within the past year, under Wilson’s “Team California,” has the state lent its imprimatur to such efforts.

The team, a loose association of local and regional economic development groups, public utilities and other parties, represents the state’s effort to finally speak with one voice and serve as a clearinghouse of tips on jobs and companies coming or going.

Now, as word circulates on problems and opportunities, Wright’s agency responds by forming temporary groups of experts, dubbed “red teams,” that are right for the case at hand. Dozens of red teams have been set up, with mixed results.

The most ambitious, made up of more than 40 state and local entities, public and private, resulted in a big-league failure when Intel Corp., the quintessential California high-tech company, decided to build a $1-billion factory in New Mexico instead of its home state.

And there have been snafus. Trade and Commerce dropped the ball in the case of Burt Rutan, a highly respected California aeronautical designer who sought state help on a wide range of complaints.

Wright’s department sent a man to listen to the woes of Rutan’s Scaled Composites in Mojave. The man promptly quit his job without telling anyone about the Rutan case, according to Wright.

Now Rutan is moving his design firm and 75 jobs into the wide-open arms of Montrose, Colo. Conceded Wright: “That clearly was our fault.”

You win some and you lose some, she said. The wins for which the state can claim some credit have been decidedly modest, though notable for the teamwork and coordination demonstrated. Last winter, the state helped Conner Peripherals Inc., the big computer disk drive maker based in Milpitas, get construction permits quickly enough to meet an eight-month expansion deadline and save 260 manufacturing jobs.

“They said, ‘Give us your time line and we’ll meet it.’ I think the state deserves part of the credit,” said Bob Smith, director of advanced manufacturing for Conner’s disk division.

An Armageddon over a bird was averted at California’s only remaining auto assembly plant--New United Motors Manufacturing Inc. in Fremont.

The Department of Fish and Game coaxed a burrowing owl away from the site of NUMMI’s proposed new plastics manufacturing plant rather than force the company to spend $1.6 million to accommodate the creature.

Meanwhile, the yardsticks of profitability have shifted in the company’s favor. It was the only auto plant in North America that paid sales tax every time it retooled--typically for hundreds of millions of dollars--to update car models.

Under the new legislative reforms, it and other businesses will recover most costs of that type through an investment tax credit.

California Steel Industries, the Japanese-owned company in Fontana, is building a $170-million electric arc furnace to help it keep up with competitors. It maintains about 925 jobs.

A red team is helping California Steel comply with regulations for approval of about 100 permits: “I would have to characterize this as a positive experience,” said CSI’s James Declusion.

These special efforts will help preserve California’s manufacturing base, and a number of such successes may be more meaningful in the long run than some front-page victory over, say, Idaho.

In Vallejo, Meyer Corp. broke ground this month for its new plant. It promises, for starters, 80 jobs for local people; eventually it will employ 100. That’s welcome news, especially since the region will lose 6,000 jobs with the expected closing of the Mare Island military facility in 1996.

Said Walter Graham, Vallejo’s city manager: “We would have to replicate Meyer 60 or 70 times to make up for Mare Island.”