Businesses Would Feel Pinch of Budget Plan
Business groups have overwhelmingly supported Gov. Arnold Schwarzenegger’s no-new-taxes pledge. But that doesn’t mean corporate California is going to be free from pain as Sacramento looks to close the state’s deep budget gap.
The belt-tightening proposed by Schwarzenegger would mean fewer government contracts for some California companies, skimpier reimbursements for others and a new round of fees on businesses at the state and local levels.
This reality underscores that as much as Schwarzenegger has vowed to improve California’s business climate, there is no easy way to do that until the state’s fiscal house is in order.
Linda Clifford, chief financial officer of C.C. Myers Inc. of Rancho Cordova, a privately held highway engineering and bridge-building firm, counts herself as a strong backer of Schwarzenegger’s efforts to fix the budget mess. She expressed concern, however, that an ongoing crimp in state-financed construction would squeeze her industry.
It would mean “less jobs for everybody to bid,” she said.
That’s a feeling shared by Robert Rivinius, chief executive of the California Building Industry Assn.
“I certainly don’t want to be a critic, because I understand what has to be done” in terms of fiscal austerity, he said. “But obviously we have some concerns.”
He is unhappy, in particular, about Schwarzenegger’s plan to use more than $1 billion in gasoline sales-tax revenue previously earmarked for transportation projects to help cope with the estimated $14-billion budget shortfall.
Others say they worry about the long-term effects of spending cutbacks on the Golden State’s competitive position. According to the California Business Roundtable, California ranks 48th among the states in investment on highways and 40th in overall infrastructure investment based on personal income. The California Transportation Commission estimates that the state has more than $100 billion in unmet transportation needs.
The governor “needs to recognize that these cuts will run our roads into the ground and, ultimately, cost taxpayers money,” said Jacque Underdown, a spokeswoman for Watsonville-based Granite Construction Inc.
“Overall, it’s not good for Granite -- and it’s not good for California’s economy.”
In Northern California, meanwhile, forest products firms are fuming over the fine print in the governor’s mammoth budget plan. It seeks $10 million in new fees from loggers.
Companies complain that they already pay out tens of thousands of dollars to hire scientists and technicians to put together permit applications to harvest trees. Now, they’d have to cover part of the state Department of Forestry’s expenses, paying even more to get the same plans approved.
“That’s a pretty rough deal for us,” said Neal Ewald, general manager of Simpson Resource Co., a Seattle-based firm that operates in Humboldt County.
Cecil Wetsel, whose family-owned sawmill in El Dorado County closed in October, said the added costs could force some timberland owners to pare production.
“I don’t think the governor totally understands the concept of a $10-million increase,” Wetsel said.
It’s not just the state with its hand out, either.
Cash-strapped cities and counties have raised all manner of fees, admissions, permits and fines to cope with budget shortfalls over the last couple of years. And more may be coming if Schwarzenegger’s plans to divert $1.3 billion in property taxes from local governments is approved by the Legislature.
Much of the effect falls on businesses. Los Angeles last year raised sewer and trash fees. Oakland has upped its garbage rates. Berkeley has boosted parking permits and fines. San Francisco has hiked fees for everything from bus fares and fire inspections to fortune tellers and burglar alarms.
San Francisco insurance agent Scott Hauge was recently hit with a $200 fine after his janitor tripped the office burglar alarm one time too many. Hauge said he understands that police have better things to do than respond to false alarms.
“But after a while, you sort of wonder what you’re paying taxes for,” Hauge said. “Everywhere you look, you’re being nickeled-and-dimed. Eventually it all adds up to real money.”
Another segment of the business community bracing for spending cutbacks from Sacramento are health-care providers -- especially those reimbursed by the state’s Medi-Cal system, which serves the indigent and others. Cuts under the governor’s budget plan, combined with already pending reductions, could shrink their payments by as much as 15%.
“When I go, I don’t know who is going to take care of these people,” said Ralph Kuon, a Montebello vascular and thoracic surgeon who fears that a reduction in Medi-Cal payments, which account for 40% of his practice, would force him to close. “This is the richest country in the world. How can this be?”
In Livermore, institutional food purveyor Cathy Feltz hopes Schwarzenegger can bridge California’s budget chasm without taking her pies from the mouths of convicts.
Feltz, whose Feltz Food Sales provides the state Department of Corrections with 6 million of the three-ounce fruit snacks each year, fears that a proposed $400-million cut in the state prison budget could crimp her firm’s sales. Although the reduction might be good for the state’s coffers, she said, “it could hurt us.”
Giving felons their just desserts might seem extravagant at a time when the governor is proposing welfare cuts for law-abiding citizens. But Feltz insists that pie plays a crucial role in controlling prisoners.
“It’s a little dangling carrot for good behavior,” Feltz said. “Why should someone be good for jello?”