Small Business, Big Disillusionment

TIMES STAFF WRITER

On the wall of Lisa Deem's machine shop in Santa Ana are nine color photos. Taped together, they show a panorama of her 2 1/2-acre ranch near Flagstaff, Ariz., under a big blue sky and the snow-capped peaks of the San Francisco Mountains.

"My building's going to go right there," she said, her grimy finger pointing to a spot next to a gray house on her spread. "Golden eagles hunt over my property. You don't have the congestion and the people are friendly."

As owner of Deem Enterprises, her convictions for leaving California are more than personal. From a white file cabinet in her sparse office, she pulled out an invoice for $35 from the fire department for a self-inspection fee. "No, they don't make it easy for you," she said, opening another drawer chock-full of more bills and regulatory forms from the city, county and state.

"It's not worth it here anymore," said Deem, 43, a small woman with a ruddy face and big green eyes. She has three employees and has been in business in Orange County for 20 years. "As soon as my girls are out of school, I'm gone."

Deem has plenty of company. About 15% of small-business owners in Southern California are considering leaving the state, according to a survey by the Los Angeles Times and USC's Marshall School of Business.

That may not seem like much given the extraordinary flight of businesses and people from Southern California during the recession earlier this decade. It's also true that even in the best of times, some businesses can always be expected to pull up stakes, for whatever reason.

Still, by most national measures, economists and small-business advocates say, 15% is a disturbing number. Although the figure doesn't mean they will all actually leave--in fact, some of those interviewed said they had no idea where they would go--it does mean that a significant chunk of small enterprises feel that doing business in Southern California is so torturous that they would leave if they could.

"It's surprisingly high given that the economy is doing well and that California has started to address a lot of the issues that in the past were problematic," said John Rooney, president of the Valley Economic Development Center, a small-business resource group in Sherman Oaks.

Rooney said his organization and others have had some success in retaining businesses by knocking on their doors in the San Fernando Valley in the last couple of years. But he said that is not enough.

"It's going to take a regionally organized collaboration and some funding to reach out to all the small companies systematically," he said. "We need to be organized as a small-business economy, and we're not."

Disillusionment Spans the Region

Survey respondents who said they are thinking about leaving included many manufacturers and a number of retailers and services. And surprisingly, the poll of 1,670 businesses earlier this summer found no marked geographic difference in this regard. From San Diego to Ventura to San Bernardino, a similar percentage of businesses expressed a desire to relocate.

In interviews, owners in Los Angeles County seemed to voice the harshest complaints, often about small annoyances such as senseless fees and unresponsive bureaucrats. These, they said, when combined with the state's high corporate taxes and other business costs, all conspire to drive the small-business operator out of town.

The owner of a silk-screen printing business in Vernon recalled phoning a county official recently to ask a tax question. He said he got a recording that said, "We can't talk to you now. Goodbye."

"I felt like jerking my phone out of the wall," he said.

"It's like standing on a bridge," he said of himself, his son and his grandson, all of whom work in the business. "We don't know whether to jump or not. If somebody pushes us, we'll go."

That somebody, he said, could be government, or it could be a representative of another state. The survey showed that 13% of small-business owners, including some of those who are considering leaving, had been contacted by other states, notably Arizona and Nevada.

At the same time, California officials say they believe that business conditions in the state have improved significantly in recent years.

Jesus Arredondo of the California Trade and Commerce Agency, for example, spoke about workers' compensation reform, new tax credits and other business rules that have been relaxed. He said his agency has no evidence that the number of business relocations has slowed. But he added, "If there was a significant number of companies leaving, we wouldn't have an eight-year low in unemployment."

Perhaps. But other economists see reasons to be worried in the Southern California Business Climate Survey.

"There's still a pretty strong underlying skepticism about the long-term prospects of business in L.A.," said economist David Friedman after learning of the survey. He is especially alarmed about the survey results because, he said, there is a complacency in public and private corridors, now that the state's economy is healthy again.

Jack Kyser, chief economist at the Los Angeles Economic Development Corp., whose mission is to retain and create jobs, agreed: "We've had trouble keeping people engaged because they say times are good. They think economic development is [needed] only when times are bad."

Trio Tool & Die Co. in Hawthorne was among those saying that it was considering leaving California. John Arroues, company president, said Trio has plants in Hawthorne and Phoenix. But the Arizona plant, he said, has grown over the years to two dozen workers, while employment in Hawthorne has shrunk to half that number.

Regulators Are Seen Reasserting Themselves

The reason: the big cost differential. Workers' compensation, he said, is 30% to 40% cheaper in Arizona; labor rates are 15% lower. Trio gets tax incentives for buying capital equipment there. "Just the whole atmosphere is better," Arroues said.

That doesn't mean Trio will abandon Southern California, which has become its marketing and administrative center. But Arroues said: "I think we'll always have a stronger presence in Phoenix."

That worries Barry Sedlick, manager of economic and business development at Southern California Edison in Rosemead, a unit that started in early 1992 largely to keep customers from fleeing to other states. Sedlick believes the regulatory environment in the region has "gotten less onerous." But he sees some agencies like the South Coast Air Quality Management District now beginning to reassert themselves. "We're seeing the pendulum swing back," he said.

What is more, he said, Southland businesses today are more inclined to consider relocating, having seen the flood gates open earlier.

Since 1992, Edison has successfully worked with 570 businesses to help them remain or expand in Southern California. But none of these were the typical small business in the region, which has three employees, as indicated by the survey. Their departures often go unnoticed by government, and few public or private agencies have undertaken any serious effort to get small businesses to stay.

Certainly Jim Brown feels he's been neglected. After 50 years in Southern California, the optimistic young man who settled in the San Fernando Valley after World War II is now planning to abandon his two-man metal-fabrication business, Champion Iron Works, in Canyon Country.

Brown, 59, recited a litany of annoyances, the latest a nine-page form from Los Angeles County concerning an employee who left three years ago who now owes back child support. Brown said his bookkeeper completed that same paperwork only a month earlier, at a cost of $50 an hour. She billed him for 1 1/2 hours.

"It's a total losing battle," Brown said. "Granted, I think you should go after child support. But to put it all on the employers--it's all coming out of the employer's pocket."

Brown hasn't made up his mind when he will go, but he knows where: Henderson, Nev., a fast-growing suburb of Las Vegas. Born in Colorado and raised in Oregon, Brown says he doesn't relish the prospect of moving to the desert.

"I don't really like the idea of living there," he said. "But I can't make it here."

More information on the business climate survey is available online at http://www.latimes.com. The poll results will be discussed at The Times' Small Business Strategies Conference Oct. 17-18 at the Los Angeles Convention Center. For more information, call (800) 350-3211 or visit http://www.latimes.com/sbsc.

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Why Move?

Small businesses that are thinking about leaving the state cited a variety of complaints. Most said they wanted to escape from high taxes and the long arms of government. A sampling of what owners said was driving them away:

* "L.A. city and county policies."

--Restaurateur, Los Angeles

* "Crime and lack of civility."

--Business services, North Hollywood

* "Cost of real estate and traffic."

--Business services, Mission Viejo

* "To obtain bigger space."

--Legal services, San Diego

* "Taxes."

--Computer software, West Los Angeles

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