Business Bashing in the Golden State — How to Reverse Course

mickey mouse politicsRecently, when my firm completed a study that found about 10,000 companies left California in the last eight years, it hardly surprised leaders in the business community.

Some say there is one thing in California worse than taxes – and that is the complex set of directives enforced by unforgiving state inspectors. In fact, many business owners consider the state’s regulatory environment to be worse than its notorious tax burden.

California’s political elite and their regulatory enforcers don’t understand that business owners enjoy running their enterprises and virtually all of them try to do the right thing. One example can be found in Kallisto Greenhouses, which closed in Fontana in response to Sacramento stinging them from many directions like a group of killer bees.

Suffocating a Nursery

Even a non-polluting, greenhouse-gas reducing, job-creating, tax-paying, greenhouse run by good employers can’t escape the punishing regulatory noose.

Kallisto Greenhouses operated with a peak of 36 employees shipping tropical indoor plants to ten western states and Calgary Canada since 1977. But the owners padlocked the doors because of actions by the California Air Resources Board (CARB) and California’s Occupational Safety and Health office (Cal-OSHA).

CARB required heaters that underperformed despite costing tens of thousands of dollars and also insisted that their truck – which almost certainly would be legal in most states – be replaced by a new vehicle with an unaffordable price tag.

“Contributing factors included the ripple effect of an increase in the minimum wage and addition of paid sick leave,” said Kathye Rietkerk, co-owner. “But the nail in the coffin was Cal-OSHA. We got a letter saying we had the choice to invite in a visit by a Cal-OSHA consultant to review employee manuals or take the chance of being visited by an inspector.”

Naturally, the company opted for help from the state’s consultant. Upon his arrival he noted that a numerical calculation on a certain OSHA form was in the wrong column, which resulted in a $5,000 fine. Not that the number was incorrect. Only that it was in the wrong place on the form.

By the time he was done, the fines he felt he could assess had he visited not as a consultant but as an “inspector” would have been in the hundreds of thousands of dollars for similar mistakes.

“Also, the corrections to procedures and existing manuals were deemed not exact enough to suit the Cal-OSHA consultant, so it took six months of staff time to satisfy him.” she said. “They wanted us to be rigorous on things that aren’t that important.”

For example, the agency wanted a requirement that mandatory disciplinary proceedings be initiated for certain employee mistakes even if the employer doesn’t want to treat long-term employees that way.

“To be forced to be inflexible makes you an adversary to your employees, and we should be allowed to determine when discipline makes sense and when it does not,” Rietkerk said. I contacted workplace expert Tom Martin of People Management Professionals in Riverside, Calif., who confirmed her viewpoint that Cal-OSHA indeed makes inflexible “one size fits all” demands.

Company Hit Hard

Meanwhile, the company’s operating costs kept increasing as water bills rose despite having installed $300,000 in sophisticated water-saving technology, health insurance prices went up, electricity became more expensive, and taxes continued to climb.

“The day after the OSHA consultant left we called the developers who had been seeking to buy our property for yet another distribution warehouse to serve ‘products imported from abroad,’” Rietkerk said. The company owned ten acres, six of which were covered by 257,000 square feet of greenhouses.

Kallisto Greenhouses had loyal employees (76 percent with more than 20 years of service) and offered health insurance since the early 1980’s, three weeks vacation to long-term employees, seven paid holidays and flexible working conditions.

“We were forced to make decisions we never dreamed of because of the incredibly hostile small business environment in California,” she said. “It is sad that government programs that are ideally intended to protect employees can result in complete job loss instead.”

“We got into business because it was enjoyable and we loved producing a product that enhanced people’s lives. People who create jobs are not ‘the enemy’ and we were grateful to have choices when the onslaught of regulations made the choice of closing more attractive,” Rietkerk said.

It appears that the majority of California legislators, Gov. Jerry Brown’s “jobs czar” Michael Rossi, and state bureaucrats are just fine with ignoring the hardships the state imposed on Kallisto Greenhouses and continues to inflict on other businesses.

Hold the State Accountable

It’s time we make life uncomfortable for state inspectors who have been allowed to remain anonymous while inflicting unreasonable demands on entrepreneurs.

I have such a way – it’s called accountability.

Let’s begin requiring that California regulatory agencies publish online the names of inspectors every time a business shuts down or leaves the state because they decided there was a regulatory “failure.” The inspector would be free to list the details of infractions, but, in the same posting, an option should be available for the company’s leadership to tell their side of the story.

Doing so would help journalists and the public better understand how harsh treatment by public agencies motivates companies to transfer jobs and capital to other states or close their doors.

California needs such disclosures because the majority of voters are ill-informed about what it takes to run a successful enterprise. Such voters elect majorities of business-bashing politicians to the state legislature and to city councils in liberal strongholds like Los Angeles and San Francisco.

Consider the popularity of Presidential Candidate Bernie Sanders, a fierce socialist who attracted a huge crowd in San Diego on Tuesday. It seems that the ranks of voters antagonistic toward business are expanding.

If we fail to expose how California politicians and their regulatory armies treat companies, the proverbial man in the street will continue to be unaware of the pain that leaders of commercial enterprises have to endure.

An Astonishing Contrast

Many California Democrats represent a Jekyll-and-Hyde disorder by being contemptuous toward business interests while coddling state agencies that are guilty of far worse behavior.

For example, legislators recently blocked the State Auditor from examining financial mismanagement at the California High Speed Rail Authority (CHSRA); they did that after eliminating the rail agency’s obligation to report twice yearly on a project likely to cost in excess of 100 billion. Now, the CHSRA must report only once every two years despite evidence of serious cost overruns, dubious changes in plans and multiple statements that lack credibility.

Members of the Authority’s board ignore the stipulations contained in Proposition 1A, which voters passed into law in the 2008 election. California propositions that pass at the ballot box become law, and that high-speed rail law is being violated in so many ways that the list is too long to publish here.

Can you imagine the outcry if Kallisto Greenhouses had copycatted the High Speed Rail Authority by demanding elimination of audits by the California Franchise Tax Board or the Internal Revenue Service? Or obfuscated details in documents required by state law?

The double standard in the way California treats businesses and public agencies is enough to turn the stomach of any business owner. Without more voters becoming concerned, we will continue to see company relocations to friendlier states, or – as in the case of Kallisto Greenhouses – simply go out of business.

he Irvine-based Principal of Spectrum Location Solutions helps companies plan and select ideal sites for new facilities across the U.S. and internationally.

This piece was originally published by Fox and Hounds Daily

Carl’s Jr. Latest Company to Ditch California

After the 2013 death of the founder of Carl’s Jr. — the ubiquitous California fast-food restaurant chain — the Orange County Register published an obituary that captured the one-time spirit of the state: “Carl Karcher, the Ohio farm boy with an eighth-grade education who turned his $326 investment in a hot dog stand into a multimillion-dollar fast food empire, died Friday afternoon. He was 90.” For decades, this was a place where anyone could earn a fortune.

Carl's_Jr._DentonEarlier this week, Carl’s Jr.’s parent company (CKE Restaurants) announced it would relocate from Ventura County to Nashville, Tennessee. The company issued a bland statement. It is “re-franchising” many of its company-owned locations. “As such, early next year we will be consolidating our Carpinteria and St. Louis corporate offices in Nashville, which is centrally located and is one of the markets where we have retained company-owned restaurants.”

In 2011, I reported on a California Chamber of Commerce event, where CKE Chief Executive Officer Andrew Puzder “complained about the permitting process here, where it takes eight months to two years to open a new restaurant compared to an average of 1 1/2 months in Texas.” Then there are all those lawsuits, and work rules that force companies to pay overtime based on daily, rather than weekly, hours. He was mulling a move to Texas then.

Granted, CKE is moving its headquarters, not its restaurants. But the point is well-taken. There is a cottage industry here that denies industrial-era work rules and a maddening regulatory process make any difference to business owners. The idea that there’s a business exodus is just right-wing nonsense, they insist, and they point to research purportedly showing that businesses aren’t really leaving.

Not many big brick-and-mortar businesses shut down and rebuild elsewhere. But companies do shift operations, build their new plants in other states, or just never get started. Corporate types don’t like to blame state officials publicly — that invites pushback. But at one business-closing press event I attended in a Los Angeles area industrial park, departing owners compared notes about the best places to move outside of California.

However much CEOs would rather live in Malibu than Fort Worth, Texas, they’re not usually apt to actually build a manufacturing plant in Los Angeles or Santa Barbara, despite what liberal economists and reporters might argue.

One widely discussed 2014 article suggested that higher tax rates are, the harder we all will work. “Some research into tax rates indicates that high rates have the opposite effect: People may work harder, trying to make more money to achieve a desired after-tax income and may slough off if tax rates are lowered,” wrote David Cay Johnston in the Sacramento Bee. Work makes us free, I suppose.

“California proves every day that conservative economic theories are s[–]t. Every. Single. Day,” wrote the left-wing Daily Kos, noting that California grows even though it ranks at the bottom of business-climate surveys. I give Kos credit for using a word often ignored: despite. California remains a global economic leader “despite its high cost of living, taxes and regulations,” he added. But imagine the growth if it had a sane economic policy.

That high cost of living, by the way, is largely the result of government land-use restrictions that artificially drive up the cost of developable land. It’s also why California has the highest poverty rate in the nation under the U.S. Census Bureau’s new formula. You’d think folks who claim to care about the poor might think more deeply about this.

A recent study found about 10,000 California businesses “disinvested” in the state over seven years, meaning they moved, closed down, or shifted jobs out of state. Business researcher Joseph Vranich relied on public records. His report includes a long list of companies and what happened to them. He only included “disinvestments” clearly tied to the business climate.

Officials react as Gov. Jerry Brown did when former Texas Gov. Rick Perry ran an ad campaign luring businesses to the Lone Star State. “It’s not a serious story, guys,” Brown said during a speech. “It’s not a burp. It’s barely a fart.” Vranich’s report was a response to Brown’s “business czar,” who in 2012 said: “[T]here is no data anywhere where you can find numbers of companies that have either entered or left this state. It’s just not kept … so there is no justification for the statement that there is this mass exodus from the state of California.”

The resulting data was voluminous. But it was barely a burp in the state Capitol. Currently, the only point of contention is between the Democratic governor and the Democratic Legislature. They both want to spend more on programs, but the former wants to be sure to have enough cash when there’s an eventual recession. The November election is likely to see union-backed voter initiatives to raise taxes and spend more. How can they hurt, given we’ll all be good oxen and pull harder?

This week, legislators are introducing a bill to allow independent contractors to collectively bargain (through a new type of association) with Uber and other companies in the sharing economy. Brown and legislators often point to Silicon Valley’s enduring growth as evidence that California remains an economic hub. Yet this looks like a direct assault on the Golden State’s golden-egg-laying goose, not that state leaders will get it.

They can argue high taxes, regulation, and unionization are good for the economy. But if you were an Ohio farm boy today with $300 in your pocket, would you try to make your fortune in California or, say, Tennessee?

Steven Greenhut is a senior fellow and Western region director for the R Street Institute. He is based in Sacramento.

This piece was originally published by The American Spectator