Few Heed State Business Study
Jan. 18, 2020
By KATY GRIMES
A small business study published September 2009 by the Governor’s Office of Small Business Advocate did not get the attention it should have, given the economic black hole facing the state.
The detailed study showed that regulations on small businesses in California have cost the state’s economy $492 billion. Published by California State University-Sacramento Professors Sanjay Varshney, Ph.D. and Dennis H. Tootelian, Ph.D., the study detailed the total cost of regulation to the state of California:
- $492 billion;
- Almost five times the state’s general fund budget;
- Almost a third of the state’s gross product;
- An employment loss of 3.8 million jobs, which is a tenth of the State’s population.
Since small businesses constitute 99.2 percent of all employer businesses in California, the regulatory cost is borne almost completely by small business.
According to Marty Keller, Director of the Governor’s Office of Small Business Advocate, the liaison agency to state resources, programs and compliance assistance for small business, “Manufacturing started to decline in the 1960s. It has been happening slowly and painfully for decades, but now, the process seems to be speeding up because of overbearing regulations.”
In the CSUS study, Varshney and Tootelian found that small firms in the manufacturing sector pay 60 percent more than their larger counterparts; they pay 364 percent more for environmental regulations, and 67 percent more for tax compliance than larger firms, (as a percentage of their gross) and small firms bear a disproportional cost of the federal regulatory burden — almost 45 percent more per employee.
Keller explained, “Regulations come about when lawmakers see a problem, and then create a law to fix it. New laws rarely ‘fix’ a problem but appear to address the issue, when in fact, the purpose of new regulatory laws is to impose a fine, a tax, or some other fee on businesses to compensate for the problem.” Each new regulatory issue comes with the threat of large fines for non-compliance.
Marty Keller said he is confident that removing burdensome regulations would stimulate small and medium businesses “from the bottom up.” According to the California Small Business Advocate, reduction of even half of the regulatory burden on businesses in California could create almost 2 million jobs and kick-start our state’s economy.
Gino DiCaro, vice president of communications for the California Manufacturers and Technology Association (CMTA) confirmed that the cost of business regulations in the state is staggering and hurting business. A CMTA member, Cal Portland Cement Company, estimates that the cap-and-trade that the California Air Resources Board is trying to pass will cost them $250 million. Cal Portland has already closed down one cement plant in the state due to increasing regulations. Another CMTA member, Vulcan Materials Co. testified last year to the state Assembly that inspections had increased 26 percent, from 165 in 2008, to 208 in 2009, without any company growth or expansion.
DiCaro referred to a recent Milken Institute cost index report that found California has 24 percent higher business costs than the rest of the country. In the same report, the cost of California businesses was compared to Texas: taxes are 57 percent higher in California, electricity is 17 percent higher, and there is a 13 percent wage burden on California businesses that Texas does not have. Texas congregates its Legislature in only odd years and requires a two-thirds majority on every bill, and created 70 percent of the new jobs in the United States in 2008, and had a $2 billion budget surplus in 2009.
The uncertainty of the rising costs and increasing regulations is behind many California businesses choosing to pack up and leave the state.
DiCaro said that California has lost 600,000 manufacturing jobs since 2001.
Stanley Young with the California Air Resources Board (CARB) had a different take on regulations imposed by the state on business. “Our concerns are single minded and revolve around public health,” Young said. Young identified the successful combating of smog and improvement of air quality in the state. He said that the last remaining ingredient in the smog battle is diesel.
The state stands to risk losing hundreds of millions in federal transportation dollars, according to Young, if CARB does not ensure that air quality remains up to federal standards. CARB, funded mostly through “special funding,” according to Young.
The Milken Institute study also came out with a top-performing cities index that shows four Texas metropolitan areas in top 10. California had none in Milken’s top 25. How did California fare in the top-cities index? Bakersfield ranked No. 36, Santa Barbara at No. 43, San Jose was No. 50, San Diego ranked No. 83 and San Francisco listed at No. 85, with Fresno and Stockton making the “Biggest Decliners” list.
Here is the link to the CSUS study.
Here is the link to the Milken Institute’s top-performing cities index.
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