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Firm Finds Way to Stay in State, At Least for Now

Firm Finds Way to Stay in State, At Least for Now By SHELLY GARCIA Senior Reporter Local manufacturer Fitness Products International has canceled plans to relocate out of state after piecing together a patchwork of tax incentives, cutbacks and other cost-saving programs. The eleventh hour solution came just weeks before the Sun Valley-based company was scheduled to move to Nevada because workers’ compensation premiums and other costs of operating in California had risen higher than the company’s ability to absorb them. Officials, who had made the initial decision to relocate reluctantly, say that while their initiatives compensate for the huge increases in workers’ comp premiums and other expenses this year, they are only a stopgap measure and may not work to keep the company in Los Angeles over the long haul. “It’s not the kind of thing you’re able to do once and say, ‘OK, we’re good for the long term,'” said Gene Lesniak, CFO of Fitness Products, which manufactures health club equipment under several brand names including Icarian. “It takes care of the immediate problem and then we have to wait until next year and see what happens.” Like many companies in the state, Fitness Products’ workers’ compensation premium has skyrocketed to $450,000 from $170,000 just two years ago. Enterprise Zone tax credits, which can amount to as much as 50 percent of each workers’ wages, will compensate for a significant portion, though not all of that increase. But with those credits in hand, officials were able to make enough cut backs in other areas to make staying at their location feasible. They have closed up a second warehouse, laying off about five of Fitness Products’ 120 workers, negotiated a lower lease rate on their facility, capped pay raises at 1 percent instead of the customary 4 percent or six and reduced the salaries of the four partners who own the company by about 25 percent. The initiatives will actually hamper the company’s growth to some extent. Whereas the move to Nevada would have allowed the company to add 10,000 or 15,000 square feet of warehouse space, the loss of the second warehouse in Sun Valley meant Fitness Products had to cut back on inventory. But officials said they felt an obligation to try whatever they could to keep the company in L.A. “We’re extremely loyal to our employees,” said Lesniak. “We have a considerable number that have been with us over 10 years and another chunk that have been with us five to eight years. These are people that have been extremely loyal to us, and if there was a way to stay where we are and allow those people to have jobs, that’s what we wanted to do.” The change of heart that will keep the company in L.A. began when a team from the Economic Alliance of Greater San Fernando Valley pointed out that there might be an opportunity for Fitness Products to capture so-called Enterprise Zone tax credits. The state offers such credits to firms that locate in certain areas deemed in need of economic development and hires workers who also reside in the area. The company had actually taken advantage of these tax credits at its prior location, but when Fitness Products moved to its current address in 1995, officials learned they would be outside the boundaries of the Enterprise Zone. Somewhere along the line, the company’s address was folded into the Enterprise Zone, but officials weren’t aware of it because the maps they consulted on the Internet were out of date. “There is a phenomenon of Enterprise Zones expanding, and so they can change over time,” said Max Shenker, director of analysis at The Tax Credit Company, a Los Angeles-based consultant that helps companies capture tax credit and other government incentives. “The other thing is there are often errors in the description of Enterprise Zones. Our very existence in some ways has depended on these sorts of errors.” The Tax Credit Company, which is compensated based on a percentage of the credits it captures for clients, determined that Fitness Products would indeed qualify for Enterprise Zone credits, a savings large enough to warrant a reexamination of the company’s other expenses. And Fitness Products was able to shave the needed $400,000 off its expenses. But its workers’ comp premium comes up for renewal in April, and there are so many bills threatening to raise the cost of business making the rounds in Sacramento, the specter of Nevada is never far away, Lesniak said. “Even if 20 percent of those (bills) pass, that’s a tremendous tax burden,” said Lesniak. “Everybody is right on the edge, and they all are extremely concerned about where is the next increase coming from, and is that the one that is going to put me out of business.”

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