NEWS ANALYSIS : Cost of Moving, Lifestyle Kept Taco Bell Here
Taco Bell’s decision to keep its 1,000 headquarters jobs in Orange County rather than flee to Texas is being heralded as an important corporate endorsement of a new, smarter and more business-friendly California--a “signature event” for the state, in the words of one economist.
That may be. But for all the self-congratulations by state and local leaders after Friday’s announcement, it appears that the fast-food giant was also responding to more fundamental ingredients:
A landscape of economic woes that ironically is starting to work to California’s advantage compared to other states, the often-prohibitive cost of moving and rebuilding anywhere, and the enduring Southern California lifestyle that made many of Taco Bell’s employees balk at the very idea of leaving.
Such factors appear to dwarf anything that state and local governments could do, analysts said.
A bargain-basement lease in Irvine put forward by Taco Bell’s hard-pressed Japanese landlord, will save it an estimated $19 million in rent over five years--nearly double the entire tax incentive package that Texas had on the table.
Thus California’s long recession and steep real estate decline have begun to make the state more competitive by bringing its overvalued properties back down to earth, said Joel Kotkin, a fellow at Pepperdine University’s School of Business.
“This is the market mechanism working to our benefit,” Kotkin said Saturday. “Now we’re more nearly in balance with other regions, and that’s a good thing,”
Although the economic pendulum appears to be swinging to California’s benefit, it is also clear that state and local officials have been galvanized into action after decades of indifference born of pre-1990 prosperity.
In a bipartisan groundswell, the Legislature last year enacted a series of business-climate changes, including investment tax credits and workers’ compensation reform, which have attracted attention in other states and begun to ease the pinch on businesses. Among other things, the reforms were cited as one reason the Danish toy maker Lego recently chose Carlsbad over a Virginia site for a $100-million theme park.
“California has certainly gotten more aggressive in economic development,” said Peter Eisinger, who follows such matters at a University of Wisconsin think tank.
Other states’ business recruiters say that most of the best prospects still come from California, but that the pickings are not as easy as before.
“I think California is doing a great job of addressing the problem,” said Tim Carlson, Nevada’s director of economic development. “Where California went wrong was (businesses) used to be asking for things to be done and they were just ignored. Now (the state) is paying attention.”
Yet state and local officials are still compiling a mixed record in listening to business. Earlier this year, Thrifty Drug--another corporate fixture in Southern California--tallied up the pluses and minuses of remaining here and came to a far different conclusion.
In an episode that showed the vulnerability of political leaders on the “business climate” issue, Thrifty’s top executive, Leonard Green, blasted Los Angeles Mayor Richard Riordan for supposed inattention to Thrifty’s proposed move.
In fact, Thrifty’s decision to move its headquarters to the town in Oregon that is headquarters to PayLess, a drug chain that Thrifty had just acquired, was probably a foregone conclusion more related to geography than California’s business climate.
But the city and Los Angeles County economic development officials approached Thrifty only belatedly, and Riordan then angered the company by announcing that the firm was moving, adding that the relocation and loss of 650 jobs were inevitable.
“I would never do that to a company,” said Julie Meier Wright, director of the California Department of Trade and Commerce. “You lose the trust and faith of companies on future projects.”
By contrast, the Taco Bell case demonstrates what can happen when a community mobilizes. One of Wright’s “red teams” was formed last year when the company disclosed that it might move, and more than 20 state and local groups put on a full-court press.
As symbols go, California could hardly have chosen a more appropriate company for which to go to bat. Taco Bell Corp. blossomed into a home-grown success whose 59-cent tacos, colorful marketing and reverence for the drive-through car culture are as synonymous with Southern California as bikinis and Frisbees.
So the company became the showcase for what state officials want to portray as a newfound business conscience. But the jury is still out on the Taco Bell case.
Although the company’s chief executive, John Martin, applauded the state’s initiatives, he made it clear that other factors, such as the cheap lease and high cost of relocating, dominated. Nor did Martin explain how the PepsiCo subsidiary would accommodate the rapid expansion at its headquarters in Irvine that he had once cited as the major reason for a move.
That expansion could take place anywhere, including the suburban Dallas site where Taco Bell almost relocated, said Fred Mickelson, who headed the red team assigned to Taco Bell. The first phase of Taco Bell’s new lease expires in 2000.
“I think they are keeping their options open,” Mickelson said. “We will continue to pay attention to Taco Bell. This is not a done deal.”
In addition to crediting a more helpful approach by California’s elected officials, Taco Bell’s Martin cited something that Californians had not heard lately: Its employees like it here.
For countless natives and transplants, appreciation of the lifestyle remains an offset to California’s various penalties. Even when executives are considering moving their company, California is such a powerful lure that some want to have it both ways.
Bill Teague of North Carolina’s economic development office said he figured out why some CEOs did not want to move their firms more than three hours by air from California: They wanted to commute.
“They manage the plant during the day and go back to California in the evening,” he said.
