The political battle in Sacramento over trying to keep Taco Bell from moving its corporate headquarters from Irvine to Texas has become a lightning rod in the debate over California's competitiveness. At some point, legislators will have to decide whether the need to boost the state's economy justifies granting sizable tax incentives to the company.
We think that the timing is right. The investment is worth making. The granting of incentives would make a statement about post-recession California and serve as a triggering mechanism for new investment and growth.
Last week a bill by Assembly Speaker Willie Brown, (D-San Francisco) that would have given tax breaks to companies that expanded or established corporate headquarters in the state was turned back narrowly in the Senate Revenue and Taxation Committee. But that is not likely to be the end of it.
On the one hand, there was the argument that granting immediate breaks for new businesses would cost too much in the short term because the state already is in a fiscal bind. On the other hand, a bipartisan group that includes Gov. Pete Wilson has argued that the investment would pay off down the road by generating new income taxes and other revenues associated with an increase in business.
Legislators are still sorting out the arguments, but for now the defeat of the Brown measure is a setback in the effort to keep Taco Bell's headquarters in the state.
The Taco Bell situation is precisely illustrative not only because it is a high-profile situation that could go either way but because it contains so many of the prevailing concerns related to California business competitiveness. The company has said all along that it would stay in California if the numbers could be made to pencil out but that it would leave if incentives offered elsewhere proved irresistible.
The Brown plan in effect would have given Taco Bell breaks close to the $10 million in incentives being offered by Texas. Under the scenario envisioned by the Assembly Speaker, the dislocation and $20 million in moving costs would have been a price that Taco Bell was unwilling to pay. Whether the bill is changed or is added to other legislation later, some kind of incentive should be found to hold and attract companies like Taco Bell.
It is important to keep in mind that if Taco Bell or any other big corporation were to leave California, all the hand-wringing about the short-term cost to the state resulting from tax breaks would not matter in the end anyway. After all, the revenue that arises from having the headquarters in the state now would vanish. And by helping invest in the future of companies, California ultimately will invest in itself.