Eastward exodus: the phantom menace?

Three quarters of a century ago, Walt Disney threatened to move his Southern California studio to Nevada unless California cut him a better deal. It was an early instance of California businesses playing the Golden State off against the Silver State.

Last Friday (April 24), North State Assemblyman Dan Logue led a delegation of Californians (including Sam Aanestad, his state senate counterpart) to Nevada to try to find out how to stem the tide of businesses fleeing the state.

If there is such a flight.

“Businesses fleeing California” is a Groundhog Day-style story in journalism, one that keeps coming back at regular intervals. Every couple of years, California politicians revive it, and it becomes a headline on both sides of the state line.

Logue’s news release announcing the trip read, “Since 2001, California has lost 523,500 manufacturing jobs, representing almost 30 percent of the state’s industrial base. Over the past eight years, the state has shed nearly 600,000 private sector jobs overall, according to the Employment Development Department. In December 2000, there were 12.5 million private sector jobs. This February, that number had declined to 11.9 million.”

But a study by the Public Policy Institute of California using more current data reached a different conclusion by looking at additional figures—those showing how much workers and business were coming into the state.

The institute’s conclusion: More business—including employees working for companies based elsewhere—is coming into the state than is leaving. It calls the effect of business relocations on California “trivial.”

That is not the only discrepancy between the assemblyman and the institute.

Another section of the Logue news release reads, “In the past year, Nevada has spent upwards of $1.5 million on ads designed to persuade California businesses to move out of the Golden State. It seems to be working as 135,173 more people moved out of California than moved in from other states, according to the California Department of Finance. This represents a trend that began in 2005, long before the current financial meltdown.”

However, the Public Policy Institute has produced studies with more current figures and they conclude otherwise. The institute has released studies of the issue in October 2005, February 2007 and November 2007, all with essentially the same findings. The latest institute study says, “Even in footloose industries, net job loss from relocation is very small, and in-migration largely offsets out-migration.”

The institute also found that “business relocation is not an informative indicator or ‘barometer’ of the business climate. Instead, we are likely to learn much more about employment change in California by focusing on births, deaths, expansions, and contractions.”

What to make of the institute’s findings? California economist Ross Starr said, “The Public Policy Institute is very highly regarded, no matter where you are on the [political] spectrum.”

According to Starr, the places where California right now is weak are also areas where Nevada is weak, with the result that a company relocating would be more likely to choose unregulated low-wage areas like Malaysia or Singapore right now.

“California right now has to worry about high unemployment, but that’s not related to regulation or taxation,” he said. “It simply reflects the real estate downturn—and Nevada is experiencing the same thing.”

Nevada has endured the highest foreclosure rate per capita of any state. And while California has been experiencing an unusual downturn in population, Nevada recently fell out of its normal slot of “fastest growing state in the nation.”

California and Nevada both have high jobless rates. And those wanting to pay low or minimum wage must now deal with the fact that the Nevada minimum wage, by voter directive, is a dollar higher than the national minimum.

Two Sacramento business columnists, Jim Wasserman and Dale Kasler, dealt with the same theme when Logue announced his meeting in Nevada.

“Over the years, we’ve written about the economic interplay between California and Nevada,” they wrote.

“Business lobbyists will tell you that Nevada’s low-tax climate is a constant threat to California’s well-being, luring companies and wealthy individuals eager to flee California’s high costs of doing business. Some economists say that idea is overblown,” they wrote. “The point of the April 24 forum is obvious: California is self-destructing with its high taxes and heavy regulation. The Republicans are hoping to spotlight ex-California companies that have relocated to Nevada.”

Starr said that at the moment, California is in pretty good shape for retaining more business than it loses. “The property tax is more attractive than other parts of the country,” he said. And some California advantages, he said, cannot be duplicated in Nevada, or anywhere else: “You look at Silicon Valley where they are close to the Berkeley campus, San Diego with its Biotech industries and others. We should all have problems like that.”