This will become a developing story. The Sacramento Bee is reporting on the release today of a new report commissioned by Senator Steinberg on the increasing costs of tax expenditure programs such as the research and development tax credit. The full report is available here.

According to their press release:

The California Chamber of Commerce today released an updated version of its “Renew California” economic recovery plan, reminding legislators to refocus efforts on job creation in the final weeks of this year’s session.

“There are solutions that will make California more competitive,” said California Chamber of Commerce President and CEO Allan Zaremberg. “First, we must do no more harm to this economy. No more job killing legislation or bills that place California companies at a competitive disadvantage should be introduced or passed into law. Second, immediate action should be taken on proposals that will help improve our job creation prospects by creating certainty for those who will invest in our economy. Lawmakers must focus entirely on eliminating the perception—and reality—that California has a bad business climate. The timing and strength of an economic rebound will depend upon making California more competitive for job creation, new business formation and investment.”

One of the items on their list of policies is:

Defend and strengthen these important economic and community development incentives. In 2010 and again during this year’s budget debate, the Legislature and the voters rejected proposals to limit enterprise zone incentives.

Fred Fruehan, a businessman in San Bernardino published the following editorial in the San Bernardino Sun:

For administrators and advocates of the enterprise zone program, each year feels like another round on one of the nation’s top reality competition TV shows. Stakes are high, competition is fierce and elimination is always on the line. Although the program made the final cut again this year, what about next year and the year after that?

Continued uncertainty about the future of the program is limiting its opportunities to perform its purpose – to spur economic growth in low-income areas and incentivize businesses to hire local workers who face barriers to employment. Instead of allowing this program to help generate the economic activity and jobs we need to climb out this recession, special interest groups continue to try to dismantle it year after year, further hurting the areas that desperately need business and jobs.

Each year, ambiguity prevents many existing businesses from making new investments in their zone. Ongoing threats to the program are making businesses hesitant to step up production and hire additional employees.

During recent years, companies like my own have tabled expansion plans and become very cautious about growing their footprint in zone areas. Instead of generating new demand and positioning for growth, businesses have become more stagnant waiting for the outcome of the program to become clearer.

Additionally, debate over enterprise zones is harming the state’s efforts to attract new business and jobs. It is common knowledge that doing business in California is expensive and enterprise zones have served as a great economic development tool to attracting large employers during the last few decades.
But loss of confidence in the program is now causing businesses to overlook enterprise zones, and the state, as a possible site for location. Instead of bringing in new businesses that can provide jobs, we are losing out to neighboring states that can deliver on their incentive packages.

Enterprise zones are critical to helping businesses make expansion and work force investments in areas characterized by high unemployment and low income. This program is contributing to the general welfare of the state by incentivizing companies big and small to provide good-paying jobs to local residents during a time when pro-growth decisions are risky.

Since the state budget was passed, several reform bills – A.B. 1411 and A.B. 1278 – have been introduced to improve the effectiveness of the program.

Although these reforms have good intentions, some simply make it more difficult for businesses to qualify for the incentives, which reduces the programs ability to impact job creation. Pushing reforms that make it more challenging for employers to use and navigate the program will only scare more businesses and jobs away.

Program advocates and opponents agree that the enterprise zone program is not flawless. Reform is needed to create greater transparency and accountability. Moving forward it will be important to focus on discussing common-sense reforms that will make the program better, not worse – something I think everyone can accept.

The enterprise zone program is one of the only economic development tools left in California. During next year’s budget process, where more eliminations might be necessary, any talk of abolishing the program will be a step backward. We need to end this constant struggle over the existence of the program, so we can stop wasting time and resources and focus on making it work better for us. These are steps in the right direction.

The following essay is by eminent historian and Central Valley farmer Victor Davis Hanson via RealClearPolitics.com:

California Gov. Jerry Brown must rapidly close a $25 billion budgetary shortfall. But right now it seems almost a hopeless task since the state’s disastrous budget is a symptom, not the cause, of California’s much larger nightmare.

Take unemployment. It currently runs 12.6 percent in California, the nation’s second-highest rate. Take livability. A recent Forbes magazine survey listing the most miserable 20 cities in the nation ranked four California municipalities among the index’s five worst places to live.

Take education. California public schools test near rock bottom in national math and science scores. Take the business climate. A recent survey conducted among CEOs ranked California dead last for jobs and business growth.

Take taxes. California has the highest gasoline tax in the nation, and its combined sales and local/state income tax rates are among the nation’s steepest. California incarcerates the highest number of prisoners in the nation. It costs nearly $50,000 per year to house each one, near the highest per-capita cost in the country.

I could go on, but you get the picture that the newly inaugurated Brown has problems well beyond even a massive budget shortfall.

Perhaps the state’s problems are not of its own making, but arise from a deficit of natural riches? Hardly. California has the most fertile soil and most conducive farming climate in the country.

Tourists flock to see the beauty of Yosemite, Death Valley and a 1,000-mile coastline. San Diego and San Francisco Bay are among the most naturally endowed harbors in the world. The state is rich in gas, oil, minerals and timber. It has the largest population in the nation at 37 million residents.

OK, but maybe prior generations failed to develop such natural bounty? Again, no. At one time California educators ensured that their tripartite system of higher education was the envy of the world. The Golden Gate and Oakland Bay bridges, along with the Los Angeles freeway system and the complex network of state dams and canals, were once considered engineering marvels far ahead of their time. Visionaries made Napa Valley the world’s premier wine-producing center. California’s farmers found a way to produce 400 crops and half the nation’s fruits, nuts and vegetables, and created the richest food region in the nation. Silicon Valley and Hollywood are still the global leaders in computer innovation and entertainment, respectively.

Perhaps California did not invest in its public workers, skimped on entitlements, and turned away newcomers? Not really. Its teachers and public servants in many comparative surveys remain the highest compensated and best pensioned in the nation. Its welfare system is still the most generous in the nation. Seventy percent of its budget continues to go for education and social services. A state that accounts for 12 percent of the nation’s population generously provides for 30 percent of the national welfare load. More than a quarter of the nation’s illegal aliens are welcomed into California.

So in truth, the state’s problems involve a larger “California philosophy” that is relatively new in its history; one that now curbs production but not consumption, and worries more about passing laws than how to pay for them.

California uses more gasoline than any other state and has the most voracious appetite for electricity. But Californians also enact the most obstacles to producing their own sources of oil, natural gas and nuclear power. State referenda and the legislature have made it the hardest state in the nation to raise taxes and the easiest to pass costly new laws.

The state’s mineral and timber industries are nearly moribund. At a time of skyrocketing food prices, more than a quarter-million acres of some of the wealthiest agricultural land in California’s Central Valley lie idle due to court-driven irrigation cutoffs – costing thousands of jobs and robbing the state of millions of dollars in revenue.

Home prices stay prohibitive along the upscale coastal corridor from San Francisco to San Diego, even as millions of acres of open spaces there remain off limits for new housing construction.

Most refined Californians who regulate how the state’s natural resources are used live on the coast far away from – and do not always understand – those earthier people who struggle to develop them.

California does not ask its millions of foreign immigrants to come with legal status, speak English or arrive with high school diplomas, but then is confused when its entitlement and legal costs skyrocket. Billions of dollars in remittances are sent from California to Mexico – but without the state being curious whether some of the remitters are on some sort of state-funded public assistance.

Somehow, Jerry Brown must not only change the way Californians act, but also the strange way they now seem to think – convincing the present generation to produce far more private wealth while consuming far fewer public funds. Otherwise, the revenue-strapped and reform-minded governor is little more than a modern Sisyphus – endlessly pushing his enormous rock uphill, never quite reaching the top.

Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and author, most recently, of “A War Like No Other: How the Athenians and Spartans Fought the Peloponnesian War.” You can reach him by e-mailing author@victorhanson.com.

While California continues to propose policies that are increasingly unfriendly to business, the rhetoric from Washington tends to go in the other direction. As CNBC reports:

President Barack Obama Tuesday ordered a government-wide review of regulations with the goal of eliminating those that hurt job creation and make the U.S. economy less competitive.

Obama took action after unveiling his plan in an op-ed piece in the Wall Street Journal in which he said some rules have placed “unreasonable burdens on business — burdens that have stifled innovation and have had a chilling effect on growth and jobs.”

Bruce Dobb writes a blog called “Government money for Small Biz,” where he has taken an interest in the Enterprise Zone program. In his latest post he examines how small businesses can take advantage of the EZ credits by partnering with Work Source centers. Dobb makes a good point that we could be doing more to ensure the health of our businesses by encouraging and facilitating this kind of partnership.

Smaller companies can avoid the time and brain damage of qualifying new hires if they connect with our LA Based Workforce Center. Here at the Southeast LA-Watts Work-Source Center (SELAWATTS) we pre-screen applicants and insure that if we send them to an employer for a job opening they WILL qualify for both the State and Federal tax credit hiring programs.

The state law clearly reads that an applicant is eligible for the hiring tax credit program if he receives assistance from a state funded workforce center. On the federal side, the requirements are more detailed and an applicant must fit into one of thirteen categories to qualify – something we can easily do because of our access to various data basis for public assistance and government information. It also means we get to ask the embarrassing personal questions so you don’t have to.

Besides the tax credits, our center can provide you with On-the-Job (OJT) training dollars (typically at about $ 1,500 to $2,000 per hire) as well as free job advertising and posting services. We can even be sure your new hire has a bus pass, child care or appropriate work clothing the day he or she starts work.

Just in case you have already chosen a hire but want to make sure he or she qualifies for tax credits; you can still have us pre-qualify you candidate provided you send him to us for a 45 minute screening before their start date.

I’ve been working as a special consultant to SELAWATTS this fall to provide a linkage to the various business incentive programs created to spur private sector hiring. The odd part about incentive programs is that somehow they don’t connect with job applicants. My assignment here is to make sure that happens and we’ve had remarkable luck in the area of hiring credits.

From the Los Angeles Times:

Augusttax As New York celebrates the long-awaited renewal and expansion of its film tax credit program, California confronts a sobering reality: Its film tax credit money for the current year has run dry.

The California Film Commission has allocated all of the $100 million in tax credits available this year to 30 projects and now has a waiting list of 45 projects.

“The demand is far exceeding the supply,” said California Film Commission Executive Director Amy Lemisch. “We ran out on the first day of funding.”

There is a great deal of speculation that tax policy helped fuel LeBron James’ decision to move to Miami. The same was true of Tiger Woods a number of years back. It’s apparently too late now, but I saw one proposal mentioned in a few places that Ohio should declare LeBron James to be an Enterprise Zone:

The outlook is so grim that some economists are calling on the state legislature to declare James an enterprise zone, abate his taxes and grant him ownership of the county of his choice if he will agree to sign a new contract with the Cavaliers.

The Governor’s office released the following press release in response to new employment figures from EDD:

Governor Arnold Schwarzenegger today issued the following statement after the California Employment Development Department released employment numbers for the month of May:

“While the decline of our unemployment rate is welcome news, there are still far too many Californians out of work. To achieve a full recovery, there must be accelerated hiring in the private sector, and that’s exactly why we must not burden California employers and consumers with higher taxes. Now is the time for government to be a partner to economic growth, not an obstacle to it. Just this week, Baxter’s BioScience business announced it would continue investing in California because of the efforts of Los Angeles and my Administration to expand the East Los Angeles Enterprise Zone. These are the type of efforts we should focus on, and I encourage the legislature to consider this as they continue budget deliberations.”

The EDD report notes that the unemployment rate in California dropped one tenth of once percent from April to May. According to the report, the following sectors added jobs:

Government 30,000 65%
Information 4,700 10.2
Professional and business services 4,200 9.1
Leisure and hospitality 3,600 7.8
Other services 2,400 5.2
Manufacturing 1,300 2.7

Sectors that gained jobs in May: 46,200 100%

After appearing with Mayor Villaraigosa in Los Angeles Yesterday, the Governor spoke at the Summit on the Advanced Transportation Industry and repeated his admiration for the expansion of the East L.A. EZ. The video and transcript are available on the Governor’s website here.

There were some very interesting comments about the Enterprise Zone program made at the Los Angeles event. The following transcripts are taken from the video of the event (the video is on the Governor’s web page, or archived here):

Governor Schwarzenegger said:

I want to thank also, of course, the company, Baxter, for keeping the company here and eventually expanding the company. So this is great, great news, so let’s give the company also a big hand for their decision. (Applause)

And I also again want to say thank you to the mayor and to the deputy mayor for getting involved. And we are celebrating also here today not only to have this company stay here but of the great team effort.

Because let me tell you something, that when this company decided — whenever there is a downturn economically you have to go and start looking at where can you save money. That’s a natural thing. The state of California is doing it, businesses are doing it not only in California but all over the world. And so it was very important for this company to look at how can we do business cheaper? And one of the things that comes to your mind right away is, let’s look at other states, what they have to offer in tax incentives, how expensive is it to do business there.

And this is when the mayor and the deputy mayor jumped into action and said, “Wait a minute. Before you even start thinking about moving out of the state and making all these people lose their jobs, let’s go and get creative. Maybe we should expand the East Los Angeles Enterprise Zone and therefore create extra tax incentives for you.”

And this is when they got in touch with the state of California but then it was bogged down by red tape, as it usually does in government. But this is why it is important that we appoint people and we have special offices, like you have an Office of Economic Development; so did we, we created an Office of Economic Development. And when you got bogged down with red tape they got in touch with the Economic Development Office of the Governor and within no time we took care of everything so we can expand the East Los Angeles Enterprise Zone.

And this is why this company is now staying here. And I think this is a very important move, that the local government and the state government worked together and showed great partnership. And as you can also see, I’m a Republican, he’s a Democrat. There are Democrats and Republicans here. We all worked together because we don’t care about the party; we care about one thing, to serve the people and to serve you, the workers, to keep the jobs here and to help businesses. That is the important thing for California and for Los Angeles. (Applause)

Mayor Villaraigosa said:

Since last February our office has been meeting with Baxter to figure out what we could do to keep their company here and the vital jobs that they’ve created here. We listened to the employees of Baxter and learned how to develop and implement policies that will attract and retain businesses as well as create good-paying jobs right here in L.A.

And then we started to work hard to actually get it done. In fact, one particularly smart, business-savvy policy, the approval of Los Angeles’s State Enterprise Zone, directly contributed to Baxter’s decision to stay. When the East Side Enterprise Zone was expanded to include Baxter BioScience, the company was able to lower its operating costs with their newfound eligibility for special tax credits. And this is happening to other companies as well throughout the entire city.

And so I want to acknowledge the Governor again, because there are some people in this state that want to mess with those tax credits and with that enterprise zone. They want to change the formulas, they want to redirect the funds. And here in L.A. we are going to say to them, we want you to work with us to create jobs so the state can have revenue — the state of California can have revenues — see, I say California. So the state of California can have revenues and so our city can have jobs.

And as we’ve aggressively expanded our enterprise zones we’ve gained the remarkable distinction of having the most acreage in the state with enterprise zone designation. And the bottom line here is that Baxter is just one example. It’s impossible to know how many other companies have decided to stay in L.A. and hire more people because of the tax credits and deductions they gained from being in a special economic zone. Their success story frames the mantra of the newly refocused Office of Economic and Business Policy and that mantra is “Deadlines, not headlines.”

Joy Amundson, President of Baxter BioScience said:

You know, we recognize the importance of nurturing a vibrant business community and appreciate the value in retaining and creating jobs in L.A. Were it not for the approval of the State Enterprise Zone we would not have been able to undertake the renovation in which we are now going to engage. We are committed to continuing playing a major role in elevating biotechnology in the state of California, this great state of California.

Baxter’s continued presence means providing hundreds of jobs and millions of tax revenue for the state of California. Continuing full operations in this L.A. facility represents our strong and continued investment in the city of Los Angeles and the state of California. It positions Baxter well to provide a meaningful number of jobs and preserves a good portion of Baxter’s over $25 million in California tax payments. Baxter is very pleased and honored to call California home. (Applause)

I’ve got to make a special call out to the councilmen who made this possible but especially Austin Beutner, first deputy mayor. Many of you know him as the “Job Czar.” He brings real business experience — real business experience. He knows the importance of jobs and he knows the importance of what jobs can do for a community and what communities can do for a city and what a city can do for a state. We are hailing this investment today thanks to the support of Austin and his team in expanding this enterprise zone.

Councilman Richard Alarcon said:

Let me say that politics at the local level are very different than politics at the state level. Councilman Smith, who is joining me in introducing the Business Tax Holiday motion, is my polar opposite. I’m a liberal Democrat and I’m very proud of that. But I’m also a huge champion of enterprise zones. In fact, when Austin Beutner approached us, I said, “Look, if you can get Greg and I to agree on it, it’s a done deal. Everybody else is going to fall in between.”

But the reason I support enterprise zone credits is because I’ve seen them work. When the General Motors plant was shuttered it was the enterprise zone credits that created hundreds and hundreds of jobs because businesses wanted to use those credits. Just in the last several months 83 businesses have used those enterprise zone credits just in my district. And I can tell you that it’s an incredible thing. Governor, if you need any help to advocate on behalf of enterprise zone credits, know that you have a friend in L.A., because they work.

From the audio available here:

Lou Desmond: Are you familiar with the program called the Enterprise Zone Program in California?

Steve Poisner: Yes.

LD: Ok, where do you stand on that program and do you want me to, well let me tell the audience a little bit about it; The Enterprise Zone Program is a program, It is the only economic development program currently in the state of California. It is where an area is designated under certain conditions to be a certain way economically depressed and businesses inside that zone get special incentives from the state of California to hire people, buy equipment, and do business. So you’re a supporter of the enterprise zone program, how come?

SP: Well I support any initiative that will help bring more jobs back to the State of California. I support the enterprise zones, but more importantly I want to make the entire state of California attractive for job growth again. That’s why the centerpiece of my campaign are these tax cuts, these bold across the board tax cuts. Now here again Meg Whitman and I have major differences, she doesn’t believe we can afford across the board tax cuts and she’s wrong. We differ on that. So cutting taxes for everybody will create job growth everywhere in California.

Candidate Steve Poizner was interviewed on the Inland Empire News Hour yesterday (May 20), and host Lou Desmond asked him for his opinion of the Enterprise Zone program. Here is the clip of those comments:

The entire interview can be heard here.

Meg Whitman appeared on the same program on two occasions and was also asked about the EZ program. Here is the first, and the second, and here is the transcript from the second, more extensive, interview.

Today, the Governor signed an executive order to create the Governor’s Office of Economic Development (GoED). From the press release:

Governor Arnold Schwarzenegger today signed an executive order establishing the Governor’s Office of Economic Development (GoED), a one-stop shop to help businesses acquire the direction, information and resources they need to invest, succeed and expand in California. The Governor appointed Joel Ayala, former president and chief executive officer of the California Hispanic Chambers of Commerce, as director of the new office.

“California is the best place in the world to do business, and by cutting red tape and streamlining functions, my Office of Economic Development will make the state an even better partner to the economy,” said Governor Schwarzenegger. “This office is exactly what businesses need to navigate through state requirements and take advantage of state resources, and Joel Ayala is exactly the person to head it up. He knows what it takes to create jobs and bring businesses to our state, and I am looking forward to working with him to boost California’s economy.”

Those who want to do business in California must interact with the state in many ways, such as establishing, registering and maintaining their businesses, obtaining permits and licenses, reporting required information and paying taxes. The state also has more than 100 individual economic development programs and services available to businesses. At GoED, experienced staff will guide businesses through the various state requirements and help them access state resources.

The new website is http://business.ca.gov/

Consider this article in the Wall Street Journal when contemplating why the public employee labor unions are so particularly opposed to the Enterprise Zone program. We have shown before how the private sector labor unions tend to be supportive of the program.

“The Government Pay Boom”
America’s most privileged class are public union workers.

It turns out there really is growing inequality in America. It’s the 45% premium in pay and benefits that government workers receive over the poor saps who create wealth in the private economy.

And the gap is growing. According to the U.S. Bureau of Labor Statistics (BLS), from 1998 to 2008 public employee compensation grew by 28.6%, compared with 19.3% for private workers. In the recession year of 2009, with almost no inflation and record budget deficits, more than half the states awarded pay raises to their employees. Even as deficits in state capitals widen and are forcing cuts in services, few politicians are willing to eliminate these pay inequities that enrich the few who wield political power.

Let’s walk through the math. In 2008 almost half of all state and local government expenditures, or an estimated $1.1 trillion, went toward the pay and benefits of public workers. According to the BLS, in 2009 the average state or local public employee received $39.66 in total compensation per hour versus $27.42 for private workers. This means that for every $1 in pay and benefits a private employee earned, a state or local government worker received $1.45.

The BLS study breaks down where that 45% premium comes from. It turns out that public employees earn salaries that are about one-third higher on average than what is provided to private workers per hour worked. But the real windfall for government workers is in benefits. Those are 70% higher than what standard private employers offer, as shown in the nearby table. Government health benefits are twice as generous as what workers employed by private employees earn. By the way, nearly this entire benefits gap is accounted for by unionized public employees. Nonunion public employees are paid roughly what private workers receive.

What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.

In a separate survey, the federal Bureau of Economic Analysis compares the compensation of public versus private workers in each of the 50 states. Perhaps not coincidentally, the pay gap is widest in states that have the biggest budget deficits, such as New Jersey, Nevada and Hawaii. Of the 40 states that have a budget deficit so far this year, 28 would have a balanced budget were it not for the windfall to government workers.

But these current fiscal problems are a picnic compared to the long-term benefit commitments that state and local politicians have made to public retirees. A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household.

The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives.

Illinois’s pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities. Near-bankrupt New Jersey would have to pay $7 billion a year if it properly accounted for its pension and health benefits.

California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job. This is called retire and rehire.

As the Columbus Dispatch reported last year: “Across the state, Ohio’s State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan.” Some teachers can earn nearly $200,000 a year in pensions and salaries.

The union response is that government workers deserve all this because they are more educated and highly skilled. That may account for some of the pay differential but not the blowout benefits. The unions also neglect one of the greatest perks of government employment: job security. Short of shooting up a Post Office, government workers rarely get fired or laid off.

If government workers were underpaid, we’d expect high attrition rates, as they pursued better private opportunities. The reality is the opposite. Cato Institute economist Chris Edwards has analyzed Department of Labor statistics and found that private workers are three times more likely to quit their jobs than are government workers.

So if your state is broke, this is a major reason. Eventually, governors, state legislators and city council members are going to have to decide whether protecting America’s privileged class of government workers is a higher priority than funding such core functions of government as public safety. Something has to give. It’s time to close the biggest pay gap in America.

Here is the transcript of the Meg Whitman interview. Audio posted here.

Lou Desmond: Now the whole reason that you here is because is because last time you were here I asked you what you knew about the Enterprise Zone program and you had a some familiarity with it that it was basically a program that helped businesses in California be competitive. I said look, I would love to have you out the next time you’re in Southern California to introduce you to some businesses that are benefitting from the San Bernardino Valley Enterprise Zone because this is our local zone, of course, we have one in the Coachella Valley as well I have listeners out there, and they are working on one in the high desert. But this is the most active one here in this region right now. So, were at Cannon Safes what did you learn here today about the enterprise zone program?

Meg Whitman: Well first of all I can’t thank you enough for inviting me to come. It was completely your idea and I bet you were a little surprised when I showed up weren’t you?

LD: Yea I was

MW: So, Cannon Safes is quite a remarkable California success story. You know, one of the last, you know fully integrated manufacturers of safes here and thanks to the Enterprise Zone. I mean, the CEO was very clear that he wouldn’t be here had it not been for the enterprise zone which offered him some tax benefits and incentives to hire people. And so they’ve got 200 people who work basically 20 hours a day. Demand for safes right now is high because of the economic uncertainty.

LD: Isn’t that funny how that works?

MW: Yes, well when people are nervous they want to protect their documents and their you know goods, so he’s got a lot of demand for his safes and it was great to see it, you know many of the folks have worked for this company for 20 years 25 years, tremendous loyalty, very low turnover, and as a result its economical to manufacture in California because the company pays well and the benefits are good the turnover is almost none so he has tremendous expertise so it was great fun to see.

LD: And great productivity. Now you just said something that I am going to go straight to. You said people are nervous, that’s why they’re buying safes, why are they nervous?

MW: I think its completely economic uncertainty. And what I mean by that is, are you still going to have a job three months from now, six months from now, and everyone knows someone who’s lost a job who’s hours have been cut back, who’s company left for Arizona or Colorado or Utah and I think that’s fundamentally the source of peoples’ anxiety.

LD: I wish people weren’t nervous don’t you?

MW: Oh absolutely.

LD: I think that’s holding a lot of businesses back from making decisions because they’re nervous about what’s going to happen tomorrow. As far as what you saw from his comments about doing business in California and the enterprise zone what can we emulate or do better what the enterprise zone is doing?

MW: Well it’s creating incentives for businesses to stay in California, and as you know we lose more businesses to Colorado Arizona, Texas, Utah because its cheaper and easier to do business. And effectively in miniature, what an enterprise zone has done is frankly what we should do across the board in California, which is make it more affordable to do business here. You know, create reasons for businesses to be here. What I say on the campaign trail every day, is if we do not put Californians back to work, if we don’t change the business climate in California, there’s no way out of this mess. And in a microcosm, the San Bernardino Enterprise Zone, that’s exactly what’s happening.

LD: So as far as Cannon Safes and exactly what he had to say, Mr. Baker, in terms of being the owner of Cannon Safes, what specific things did he say to you cause I couldn’t hear everything that he was telling you when we were doing the tour of the facility that uh he would like to see happen or that the enterprise zone does that helps him in specifics?

MW: Yeah, well first just tax incentives to stay here so, you know, tax incentives on the building he just moved into — this brand new building which is really lovely and very efficient for him – it’s got, you know, the rail right outside, it’s got the big bays for the big trucks to come in and out. He runs very lean, you know, it’s called lean manufacturing, very few days of inventory. And then he’s got some incentives to hire people who were out of work, incentives to hire people who were on welfare before, and so there’s some incentives to hire, and he’s hired 40 people since January of this year which he may be the only business in California that’s been hiring people.

LD: Well I hope there are more businesses that are hiring people. He’s certainly a success story in terms of getting people back to work and getting them off services. Isn’t that just much better than having people on services? I mean what is it up in Sacramento that they don’t understand about the fact that it is much better to have somebody have a job in the private sector and not need services than to be putting together program after program after program to help people who don’t have work?

MW: I mean you and I are on the same page on this. The much better thing is to create a better business environment where companies want to stay and grow here where they hire people because the job is the best welfare program anyone ever had. You know typically they will get health insurance there’s the dignity of being able to work 40 hours a week and support your family and that’s what I saw on the factory floor this morning.

LD: Jay Craig, an economist who is on the show all the time says you know its not that hard to understand it’s a lot better when somebody has a job and they’re putting money back into the system then simply taking money out of the system. AB32 are you still committed to absolutely stopping that monstrous thing from happening?

MW: You know I was I think the very first candidate to call for a one year moratorium on AB32. You know this I see it every day that companies are moving out of California because no neighboring state has anything like AB32, and we’re putting California once again at an economic disadvantage. You know, everyone thinks of Oregon as a pretty green state they have nothing like AB32, and so you know you’re seeing companies move out. We should own the green technology in California, but AB32 is not the way to own that. We should do some targeted tax incentives for that industry. By the way, you know the solar industry, you know what their biggest impediment is to growth in California? To put solar arrays in? It’s environmental regulation. You know, the tortoise in the desert, and we could own solar here, but actually our environmental regulations are keeping us from being — from creating the next terrific environmentally sound industry.

LD: That’s and irony that I hit on, on the show every now and then, for example, in far northern California, Shasta County area, they were talking about doing this giant wind farm they could not get any route from the wind farm to getting power down to the Bay Area, they just couldn’t get it approved, so they quit and they gave up. So its funny, you have environmental singers saying like you said: we need to be doing solar, we need to be doing wind, we need to be doing this, but then we actually go to implement that and the same environmentalists stop you. How do we fix Sacramento? I mean what do we need to do? And I’m telling you, I had a frank conversation with the people on your staff today and I said: she says the right things — great, but Sacramento is so broken and the power is so vested in the unions and the legislators that they hold into them how do we break that cycle?

MW: Well first of all it’s about leadership. In the end it’s about leadership. It’s about what great leaders do is they focus on a small number of things they inspire people to make change for the positive and that’s what I aim to do. And first is we’ve got to focus on a small number of things. Sacramento is so broken that if we go to Sacramento and try to boil the ocean, you know, solve every problem, we’re going to get killed by the incumbent bureaucracy, by the legislature. So the number one priority is jobs. If we do not, as I said, put Californians back to work…

LD: Ok so steps, give me 1,2,3 things you want to do right away.

MW: So, first thing is a moratorium on all new regulations. As I have traveled the state more regulation is strangling businesses of all sizes. From AB32 to, you know, you name it, there are regulations that are killing every business.

LD: Right, regulations on regulations

MW: And competing agencies to regulate the same thing. So a moratorium on all new regulations. And then, let’s dissect this and say, ok, what can we reduce, how can we harmonize regulatory authority? And lets put some sanity back into this. And then what we should do is what Texas did, is create a master application where you as a business person put all of your information in, and then there is a state agency that helps you get the permit you need for building, or the permit that you need for expansion. And AB32, of course, would be on the first day I would say…

LD: What about what a lot of businesses are talking about which is tax cuts?

MW: Absolutely. So we need to do two kinds of tax cuts, and I want to do them in sequence. The first tax cut, if you believe we got to put people back to work, then let’s do targeted tax cuts that lead to hiring. For example, let’s eliminate what I call the “factory tax” which is in California. We are one of only three states where you have to pay a sales tax on the manufacturing equipment that you buy to manufacture in California. So Cannon Safes you saw those huge drill presses…

LD: Those cost hundreds of thousands of dollars if you buy a lot of equipment.

MW: And it’s the best reason I know to go to Nevada or Arizona. So let’s eliminate the factory tax, so if you’re a manufacturer, and you’re thinking about expanding you’ll expand here as opposed to Arizona, and you might stay here as opposed to going to Arizona or Nevada. So that’s one thing. Another is, how about we reduce or eliminate the LLC tax. So if you’re and entrepreneur, do you know the first thing, before you hire a person, before you make a product, you pay $800 LLC tax.

LD: Yea I did it. Three times

MW: And you pay it every year

LD: Right

MW: So these are the kind of… I want to extend the R&D tax credit to 20% in California so it comports with the national average. So what we do is targeted tax cuts to get hiring going, then we cut government spending so we create some capacity to invest, and then we really jump start the economy even further by doing an across the board tax cut. But the reason I don’t want to start with an across the board tax cut is we can’t afford it. With the 20 billion dollar budget deficit we’ll run that budget deficit to 30 billion and we’ll have an even higher debt and as you know debt in California may well sink the whole state.

LD: Well like you said we’re going to have to grow our way out of this problem and that’s going to mean creating new jobs in California like some of the first things you had to say. Glad you could come out and um meet Cannon Safes and also some of the folks that run the San Bernardino Valley Enterprise Zone thank you so much.

MW: Well it was great to be here.