Valley Business Leaders Cautiously Optimistic By JACQUELINE FOX Staff Reporter Leaders in the Valley’s business community appear to be heading into the year relatively optimistic about the economy, but, while there were nominal layoffs and cuts in spending at their firms in 2003, some are still treading into 2004 cautiously, holding out on capital improvements and, to some degree, staff expansions. According to the results of The San Fernando Valley Leadership Survey distributed in late 2003, a quarterly joint project between the Business Journal and Cooper Communications Inc., 76 percent of those who responded to the survey said they felt optimistic about the nation and state’s economic recovery. There was a 50/50 split, however, between those respondents who reported that they did not hold an optimistic outlook about the economy or their business and those who are unsure. And, while an overwhelming majority of those respondents said they did not curtail spending in 2003 on business upgrades or capital improvements, the gap narrows when it comes to the year ahead: 37 percent said they did not expect to make investments in their businesses this year, compared to 37 percent who said they did, and 26 percent who said they were not sure. Marty Cooper, president of Cooper Communications, said the mixture of optimism and uncertainty is not surprising, given the fact that this recovery period began more than a year ago and has taken its time picking up steam. “The recovery is as was predicted, slow and undramatic,” said Cooper. “In light of that, it’s understandable that despite a business-friendly governor and slight gains in economic figures, that business people would be as cautious as they are optimistic.” Mirroring economic data also released in late 2003 by Cal State Northridge, layoffs across all business sectors in the Valley remained relatively low. According to the responses, 68 percent said they did not have to lay workers off last year, compared to 32 percent who said they did. In addition, 45 percent said they intend to hire more workers in 2004, compared to the 26 percent who said they did not and the 29 percent who said they were undecided. Cooper says the region’s rich base of skilled workers helped keep local job cuts to a minimum. Skilled workforce “One of the key reasons that our business community has avoided draconian layoffs is the fact that we are blessed with a highly skilled workforce,” said Cooper. “Because of that, employers in our region are probably more likely to keep employees on the payroll even in tough times, compared to some other regions.” That same logic, however, Cooper suggested, also works in reverse. “Because many of our employers perceive that they have good employees, and were unwilling to let them go even in a difficult time, it is understandable that now that the turnaround is beginning, they would not feel the need to make dramatic increases in their workforce now.” In other words, the “doing more with less” strategy is likely to continue to rule in 2004 as companies look for more ways to capitalize on existing resources to spur growth as the economy regains its strength. Not surprisingly, the No. 1 obstacle for businesses, according to the survey results, is the high cost of workers’ compensation insurance: 72 percent identified workers’ comp. costs over business taxes as the most pressing problem impacting operating costs, compared to the 28 percent who said business taxes presented their biggest concerns. “While not as dramatic as the governor’s threat to put workers’ comp. reform on the ballot, should the Legislature fail to recommend substantial reforms by March 1, the fact that 72 percent of those responding to the survey designated workers’ comp. as their biggest obstacle for business success should send an unmistakable message to our legislators in Sacramento,” said Cooper. Flip Smith, owner of Flip’s Tire Center in Van Nuys, said he made some heavy investments in his inventory base in 2003, despite uncertainty about the economy going forward. But, he said, the spending will slow down dramatically this year and he intends to hold tight until he sees a pattern of sustained growth and recovery. He did not lay off workers in 2003 and says he doesn’t want to have to this year either. “The business is off a little and I’m not interested in putting in a big inventory here,” said Smith, who participated in the survey. “I just want to maintain it now. I have 28 employees and I don’t want to have to lose any of them. I just want to make sure we remain efficient and see what happens.” Smith, who’s been in business 37 years, said his annual workers’ comp costs went from $50,000 in 2002 to $78,000 in 2003. “Today, it’s not just about selling tires,” said Smith. “You’ve got to be a well-rounded businessperson to handle the balls that are thrown at you. Otherwise, you won’t make it.” Growing firm Barry Cohn, president of RGEB Inc., an employee benefits firm in Tarzana, said he did hold out on spending last year, partially because the company invested roughly $35,000 in computer and software upgrades in 2002, but also due to uncertainty about the pace of the recovery. This year there will be no upgrades, however, but the company does intend to hire two more employees. “We are up to eight people now and will probably get up to 10 by the end of year,” said Cohn. “Growth is causing a need for more people. In 2003 we doubled our revenues and it looks likely that we may do so again in 2004.” A majority of the respondents said they believed Gov. Arnold Schwarzenegger could and would likely implement further changes to make the state more business friendly. Of the 38 responses, 53 percent said they also supported Schwarzenegger’s plan to float bonds to pull the state out of the red, compared to the 35 percent who oppose the idea and 12 percent who remain unsure. Of the 205 surveys distributed to a vast cross section of the Valley’s business community, 38 were answered, representing a 19 percent return rate, which is on par with previous response rates for the quarterly surveys, which have averaged between 19 and 22 percent. “The fact that our leadership surveys continue to draw such high responses, demonstrates the concern, involvement and commitment of our business community toward improving our society and its quality of life,” said Cooper. Brighter Outlook Are you optimistic about the economy for 2004? Yes: 68 percent No: 16 percent Not sure: 16 percent Will your company hire more employees in 2004? Yes: 45 percent No: 26 percent Not sure: 29 percent