California, Here We Stay : More Businesses Are Finding Reasons to Remain in the State

After Freeman Cosmetics decided to expand its manufacturing operations back in 1991, it did what hundreds of other companies in Southern California have done in recent years: It moved elsewhere.

Citing the usual array of problems that the region’s corporate executives have long complained about--a long list that ranged from high real estate values to burdensome pollution regulations--the cosmetics maker emptied out its manufacturing plant in Long Beach and headed for the Las Vegas area, lured by cheap land and no state income tax. The company took about 100 jobs with it.

Now the fast-growing shampoo and skin care company needs an even bigger facility, in part because its work force has grown to 350. But rather than simply expand its current Nevada plant, Freeman is moving again--back to Southern California.

“I can’t say that today’s California is completely different than the one we left a few years ago, but it’s certainly a better place to do business than it once was,” said Larry Freeman, the firm’s chief executive. “And frankly, a lot of my best executives are sick of 115-degree heat.”

Although experts say the exodus of companies from California isn’t over, the wagon train is at least getting shorter.

Relocations to other states peaked in 1992, when 140 companies announced plans to move nearly 18,000 jobs out of Los Angeles, Orange, Ventura, Riverside and San Bernardino counties, according to the Economic Development Corp. of Los Angeles County. About 44 firms began packing their bags in 1993, taking nearly 7,100 jobs with them.

Southern California is still feeling the ripple effects of those moves. The last of the 800 workers at Transamerica Insurance Group, which decided to move about a year ago, are just now cleaning out their Woodland Hills offices, with the few who still have jobs with the company heading for its new corporate headquarters in Texas. Officials at Haas Automation, a fast-growing machine tool manufacturer with more than 200 workers in Chatsworth, said earlier this month that it wants to depart by 1996.

So far this year, though, only eight companies, employing a total of slightly more than 2,000 workers, have officially announced plans to leave the region.

And though few of the firms that left earlier have taken the extraordinary step of coming back, Freeman’s plan to “re-relocate” in either Covina or the Rancho Dominguez area is the latest in a string of signs that California is beginning to shed its image as a lousy place to do business.

“You can’t turn a state’s reputation around overnight, but California is taking steps toward becoming a little more business-friendly, and its economy is definitely on the upswing,” said David Hensley, who left his job as UCLA’s chief forecasting czar about a year ago and is now a regional economist for Salomon Bros. in New York.

“I think some (California) companies are starting to look around and realize that the grass isn’t necessarily greener in other states,” he said.

Even MagneTek, an electrical equipment firm that announced Tuesday that it will move its headquarters from Los Angeles to Tennessee as part of a corporate restructuring, said California’s business climate had nothing to do with the move.

The 50 jobs MagneTek will take with it will be offset by the 100 that will be created by BHP Steel USA, which began building a new wing at its existing Rancho Cucamonga plant Tuesday after deciding against moving out of state.

*

Much of the luster that has returned to the Golden State’s business image stems from last year’s well-publicized overhaul of California’s fraud-ridden workers’ compensation system and the package of state tax incentives approved for companies that want to expand or modernize their plants.

“If the governor and the Legislature didn’t push those changes through, there would be a lot fewer jobs in California than there are today,” said Bill George, Gov. Pete Wilson’s deputy director of the Department of Commerce and Trade.

However, there is another key factor now keeping businesses from leaving: a long, recession-induced decline in real estate prices that has cut as much as 50% from the cost of building or renting space over the past four years.

It was soaring real estate values that helped fuel the business exodus from California in the first place, experts say. When property values were rising more than 20% annually in the late 1980s, many companies wanting to expand moved to states where land was cheaper because rents and real estate prices were simply too high here.

“Even if they were willing to put up with all of California’s other problems, a lot of companies just couldn’t cope with our high real estate prices,” said Adrian Sanchez, regional economist at the First Interstate Bank headquarters in Los Angeles. High rents pushed operating costs out of sight, Sanchez said, and exorbitant home values made it difficult to recruit and keep good workers.

Although Southern California real estate prices had peaked near 1990, the exodus continued because many firms had by then become fed up with government red tape and were nervous about the looming recession, Sanchez said.

Now, though, the regional economy is back on track and government bureaucracy has gotten a little smaller.

Property values have tumbled so far that it is actually cheaper to rent first-class office space in Downtown Los Angeles than in Phoenix or Seattle, or to buy a manufacturing facility in the South Bay or Riverside than to build one in Las Vegas, said Bob Bach, research director for commercial brokerage giant Grubb & Ellis Co.

Large companies still based in Southern California are quietly using the current glut of office and industrial space as a powerful weapon to wrest deep concessions from landlords and to slash overhead costs by millions of dollars a year.

Taco Bell Corp.’s recent decision to keep its corporate headquarters and 1,000-person work force in Irvine rather than take them to Texas came only after it was able to wring a new lease from its landlord, a move that is expected to save the fast-food company more than $350,000 a month.

Companies that can squeeze their landlords and get help from their local or state government can compound their winnings.

When Carson-based Leiner Health Care Products needed to expand its vitamin- and drug-making plant in the South Bay last year, officials in Nevada, Arizona and Colorado tried to woo its executives with tax credits, job-training subsidies and reimbursement for relocation expenses.

*

But Leiner instead found two vacant 250,000-square-foot warehouses in Carson owned by a landlord ready to deal.

The governor’s office offered some state tax credits of its own, and the city of Carson chipped in $600,000 to help fund construction of a conveyor bridge linking the two buildings.

Leiner’s 1,200 employees will move into their new facility next month, and the company may add a few hundred more jobs soon.

“We didn’t really think that anybody in the government would care if we packed up our bags and left,” said Gale Bensussen, Leiner’s president. “Pleasantly, we were dead wrong.”

Staying Put

Although no government estimates are available, the number of businesses leaving the greater Los Angeles area--which includes Ventura, Orange, Riverside and San Bernardino counties--appears to have peaked in 1992 and has dropped dramatically since then.

Year Firms leaving Employees 1990 75 14,295 1991 85 13,556 1992 140 17,735 1993 44 7,064 1994* 8 2,085

* Through July 1

Source: Economic Development Corp. of Los Angeles County, based on surveys of real estate brokers and economic development agencies

Keeping Jobs

Taco Bell’s well-publicized decision last month to remain in Irvine rather than move to Texas saved 1,000 jobs. Other companies have considered moving over the past several months but have quietly chosen to stay put or expand in Southern California after getting help from government officials. A partial list:

Jobs saved Company City or created California Steel Industries Fontana 1,000* Leiner Health Care Carson 700* Mission Foods Rancho Cucamonga 600 R.R. Donnelly Torrance 660 Industrial Dynamics Torrance 450 Johanson Dielectrics Sylmar 250 Fender Guitars Corona 100** BHP Steel Rancho Cucamonga 100

* 300 additional jobs may be added

** 200 additional jobs may be added

Sources: Governor’s office, corporate executives