Fool’s Golden State

Investor’s Business Daily | February 19, 2009

The world’s leading maker of microprocessors plans to create 7,000 jobs in new and expanded plants that will churn out computer chips 30% more powerful than the current generation of chips. But California-based Intel won’t make them in California.

Instead, the company is expanding in Oregon, Arizona and New Mexico. Anywhere but California, which is now so unfriendly to business, even its home-grown firms don’t want to expand there.

This is bad news for the Golden State, which has one of the worst business environments in the country. And it won’t be helped a bit by the recent budget deal reached between Gov. Arnold Schwarzenegger and the Democrat-led legislature.

That deal seeks to shrink an expected $42 billion state deficit with spending cuts of $15 billion, a $13 billion “temporary” tax hike and billions in aid from President Obama’s stimulus plan.

Democratic lawmakers were able to get the last Republican vote needed to pass their tax hikes by trading a planned 12-cent-a-gallon hike in gasoline taxes for a quarter-point jack in the state’s already-high income-tax rate. Some deal. It will only make living and doing business in the state costlier.

As Intel shows, businesses are struggling to stay and grow in California. In the first 10 months of last year, the state lost 25,000 high-quality manufacturing jobs — and has lost 25% of its industrial work force since 2001, according to the California Manufacturers & Technology Association.

As a story in the Wall Street Journal recently noted, “Several Western states are launching aggressive efforts to poach jobs, talent and industry from California, sensing an opportunity to capitalize on the Golden State’s current political and financial woes.”

Well-trained, well-educated Californians are leaving in droves — and are being replaced by poor immigrants from Latin America and Asia. Since 2005, there’s been a net outflow of middle-class Californians — and 260,000 people left for other states in 2007.

Think this hasn’t further hurt California’s housing market? Nothing wrong with immigrants, mind you, but the last thing you want as a state is to lose the entrepreneurs and intellectual capital that made you great.

The simple reason for this is California has priced itself out of the market. Its environmental and industrial regulations are among the nation’s strictest. Its taxes are high, and so is the cost of living.

Businesses face huge costs to remain or expand. According to the Milken Institute’s Business Cost Index, California businesses face overall costs that are 23% higher than other states on average.

Taxes are 21% higher, and industrial and commercial space costs more. Even wages in a state that has millions of low-paid illegal immigrants are on average 15% higher than other states’ wages.

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