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Posted on 09/19/2003 12:08:58 PM PDT by BurbankKarl
With some 9,000 employees in Ventura County and the San Fernando Valley, Countrywide Financial Corp. has had its roots in Southern California since its founding in 1969.
But when the Calabasas-based home lending giant announced plans earlier this year to open a centralized processing and underwriting center, management chose to put it in Chandler, Ariz., near Phoenix. The decision cost the Southland about 450 new jobs.
"The company is not looking to move out of Southern California. We'll always be here," Countrywide spokesman Rick Simon said. "But we're looking outside the state for the development of new facilities when it makes sense."
Chandler made sense for many reasons, Simon said, among them the projected workers' compensation insurance costs -- $32,400 a year compared with $239,400 in California. The figures were calculated before a workers' compensation reform package was adopted by lawmakers late Friday. The legislation is expected to be signed soon by Gov. Gray Davis.
Other reasons are a potentially costly paid family leave law that takes effect in January, the state's litigious climate, and labor and employment regulations that company officials say provide dubious protections for workers while imposing unnecessary costs on employers.
Countrywide's decision is part of an emerging trend, said Bill Buratto, president and CEO of the Ventura County Economic Development Association.
Amid what they see as California's increasingly unfriendly employer environment, many company managers consider leaving the state a desirable, but usually impractical, idea. Opening new departments, spinoff businesses and expanded operations in other states, however, can be viable.
Technology makes it relatively easy, Buratto said, and potential savings can be huge. The chief financial officer of a Ventura County high-tech company that Buratto refused to identify is on the verge of recommending an unrelated start-up business be located in a neighboring state.
"Looking at the numbers, it's very, very difficult for him to make a recommendation that they build a new facility and try to start a new operation here," Buratto said. "He's probably going to recommend that they look toward Arizona as an option."
Other states lure companies
With promises of lower taxes, cheaper energy, greatly reduced employee costs and business-friendly regulations, Arizona, Colorado, Nevada and other states are aggressively wooing California companies.
In ads featuring the line "Look hard at doing business in Nevada or face the possibility of not doing business at all," the Nevada Development Authority, a privately financed advocacy organization, launched a yearlong, $600,000 campaign last month inviting California businesses to the Las Vegas area.
The ad, running in the San Francisco Chronicle, the San Jose Mercury-News, the San Diego Union-Tribune and business journals statewide, says California's workers' compensation costs are 30 percent to 60 percent higher than Nevada's, and utility bills are 28 percent to 36 percent more. It also says Nevada workers taking family medical leave are back to work in the federally required three months, not the six months California workers will be allowed when the state's more generous law takes effect next year.
The campaign was launched because inquiries from California businesses have been on the rise since January, said Nevada Development Authority President and CEO Somer Hollingsworth. Once accounting for 15 percent to 20 percent of his calls, inquiries from California businesses now make up half.
His agency, Hollingsworth said, has persuaded seven California companies to move to Las Vegas this year, and he believes the ad will get more to consider it.
People complain about an anti-business climate in California, where they are not listened to and seem to be treated as enemies if they want to expand, Hollingsworth said. They worry that employee contributions, which average $27 per year, will be inadequate to finance California's new family medical leave, and lawmakers might demand businesses to foot the bill.
He also said many small-business owners cannot afford the mandatory health-care coverage the Legislature approved last week. The bill, subject to Davis' signature, would require any company in California with 200 or more employees to buy health insurance for workers and their dependents or pay a fee into a state health-insurance pool. The companies would need to begin coverage or pay the fee starting in 2006. The bill gives smaller companies until 2007 to do the same. Critics say the health-care measure would cost California businesses $7 billion more each year and force many to move to cheaper states.
Hollingsworth's pitch notes that Nevada has no personal or corporate state income tax, and the average price of a 2,500-square-foot Las Vegas house is $200,000. And there are some homes as low as $80,000.
The fast-growing city's good air, ground transportation arteries, cutting-edge technology infrastructure and extensive warehousing and manufacturing facilities are part of the package.
Revising operations
About 10 days before to testifying last month before the legislative conference committee that finally drafted a workers' compensation cost-cutting package, Jim Sinegal, president and CEO of Costco Wholesale Inc., stationed employees with petitions at the company's 97 California warehouse discount stores.
Demanding reform, the petition said in part that while 36 percent of Costco's employees are in California, workers' compensation costs here total 70 percent of those costs in the 36 states where Costco does business.
His employees collected about 325,000 customers' signatures, said Sinegal, who personally handed them to the committee. Costco's California sales should exceed $13 billion this year. The company won't close any of its stores, but for the first time management is considering moving support facilities such as distribution centers, meat packaging plants and optical laboratories to neighboring states, he said in a brief telephone interview.
"We don't want to do that, because the state of California has traditionally been very good to us. We certainly wouldn't do it at the risk of harming our employees," Sinegal said. "But we would rather offer our employees an opportunity to move than to continue to support what we consider to be a corrupt system."
Fidelity National Title Insurance Co. announced recently it would move its corporate headquarters from Santa Barbara to Jacksonville, Fla., in a consolidation that will cut about 400 area jobs.
Earlier this year biotech giant Amgen Inc. relocated its cancer research division from Thousand Oaks to Seattle, citing a greater availability of experts in the cancer field.
Both companies' reasons are valid, said Mark Schniepp, director of the California Economic Forecast Project in Santa Barbara, but often companies are reluctant to publicly cite issues such as the business climate and high housing costs for fear of burning bridges.
"They don't leave a lot of telltale evidence that that's the reason they're doing it because they just don't want to say that," Schniepp said. "But it's funny, we see a lot of this stuff happening, a lot of consolidations right now. They ... move out to the consolidated parent's firm, out of state normally."
Companies considering leaving California should analyze the idea carefully because they could be harmed, said Brian Gabler, a Simi Valley assistant city manager and director of economic development. He knows of no businesses in his city planning to leave.
"In fact, what we've seen is that when there are consolidations it's happening with another plant in California quite frankly," said Gabler. "It's not practical to leave the state. It's very difficult ... When this took place in the ... early '90s, it was a short-lived type of thing. A lot of the businesses that we talked to that ended up leaving have told us they ended up regretting it in the long run. They lost valued employees, they lost production time, and once the benefits ran out in those other states, it really wasn't such a good deal after all."
At least some business leaders apparently agree.
The Los Angeles Business Journal reported in August that since 2001 nearly 500 companies outside of Los Angeles County worth a total of $38.6 billion have been purchased by L.A.-based firms. That compares with 474 Los Angeles companies worth a combined $24.7 billion that were bought by firms from outside L.A. County during the same period, the weekly newspaper said.
"The numbers refute the popular notion that companies are leaving California, and L.A. in particular, because of political uncertainty and an unfavorable business climate," the newspaper said.
Truely identifying itself as Mexifornia.
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