Productivity of Manufacturing Jobs Critical for California Capitol Punishment By Gregory N. Lippe Over the past year, California lost 39,600 manufacturing jobs. In the three-year period from 1999 to 2002, 261,000 manufacturing jobs and $98 billion in gross sales of California-manufactured products vanished. The primary reason for this decline continues to be California’s higher cost of doing business. Other reasons include a legislative and regulatory environment in California that has been increasingly hostile to the creation of manufacturing jobs. According to a recent report by The Keystone Group, a collaborative of Southern and Central California economic development organizations, local land use policies have exacerbated this environment. The report found that local land use decisions are increasingly driven by the desire of cities and counties to gain sales tax revenue. As a result, these cities and counties would prefer to have their land utilized by sales tax revenue generators such as automobile malls and “big box” retailers instead of by manufacturers. Since the report also found that manufacturing development would create between three and four times as many total jobs as retail development, the result of these decisions is a significant decrease in total jobs. California companies continue to find that outsourcing the manufacturing of certain product lines to other states or countries and, in some cases, moving their entire manufacturing operations to foreign soils can make the difference between earning a profit or suffering a loss in our state’s highly competitive environment. To soothe the frustration of those whose jobs have been displaced, some officials and economists are professing that outsourcing is actually healthy for the economy and is a natural effect of the global economic system. They say that shedding the lower skilled jobs that can be performed more efficiently elsewhere enables our work force to be trained for higher skilled jobs that will result in these employees having a higher quality of life in the future. Flawed concept Unfortunately, there are two significant flaws in this concept, first, not everyone is capable of being trained to perform a higher level job and second, those who are trained for the higher level jobs will soon find their new jobs being displaced because other countries are already providing highly skilled talent at lower labor costs than many of our unskilled jobs. Additionally, there are consulting firms that specialize in “offshoring,” helping companies to cut costs by sending work to India, the Philippines and other nations with cheaper labor. California is simply not playing on a level field. There are other states that have significantly lower labor costs because they don’t have legislation requiring many of the costly employee benefits mandated in California and there are foreign countries that do not require payment of, what we would consider, a living wage. If we continue to allow the displacement of jobs to other states and countries we could find ourselves in a downward spiral that we will not be able to stop. Instead of driving businesses and jobs out of California by mandating costly benefits and creating a hostile regulatory environment, why aren’t we thinking about providing incentives such as reinstating the manufacturers’ investment tax credit and encouraging land use for manufacturing facilities? California assembly? The Los Angeles region once had flourishing Chrysler and General Motors assembly plants. Now Chrysler manufactures most of its vehicles in Canada or Mexico and although General Motors still manufactures a number of it’s vehicles in the U.S., it also uses Canada and Mexico. I encourage anyone who has creative ideas as to how we can save and increase manufacturing jobs in California to write your legislators or me c/o the Business Journal. I will forward them to the appropriate legislators. Anti-business bills The anti-business bills I have chosen to profile this month are as follows: -AB 2889: This bill makes employers liable for all types of harassment (racial, disability, religious etc.) by clients, customers, and other third parties, over whom the employer has no control, when the employer “knew or should have known” of the harassment, and failed to make “reasonable efforts” to stop it. The potential effects are increased insurance costs, legal costs and damages, resulting in increased product costs, lower profits and possible lay-offs. Status: Passed Assembly May 20, 2004, currently in Senate. Valley Assemblymembers voting for bill: Koretz, Levine, Montanez, Pavley. Valley Assemblymembers voting against bill: Richman, Strickland Valley Assemblymembers absent, abstaining or not voting: Frommer -SB 557: This bill places a per-board-foot user fee (constituting a tax) at the point of purchase on lumber produced within California. The fee is to be used for timber restoration, fire risk reduction, timber harvest plan review and creation of new environmental programs. This fee or tax penalizes California lumber and imposes a collection task on retailers. Status: Passed Senate Jan. 26, 2004, currently in Assembly. Valley Senators voting for bill: Alarcon, Kuehl (author), Scott. Valley Senators voting against bill: Knight, McClintock. Valley Senators absent, abstaining or not voting: Margett. Gregory N. Lippe, CPA, is managing partner of the Woodland Hills-based CPA firm of Lever, Lippe, Hellie & Russell LLP (LLHR) and a director of the Valley Industry and Commerce Association (VICA).
Productivity of Manufacturing Jobs Critical for California