Story Of A Business Closure

SEPT. 30, 2010

My husband recently closed his manufacturing business. Only a few years ago, the company had 250 employees and two sizable commercial printing plants, sales were on the upswing and he was planning on making more equipment purchases.

His was a thriving business that provided high paying jobs, health and retirement benefits, and on-the-job training and careers for many people, over the four decades he owned it. There were employees who had been employed with him for several decades. He was proud of the longevity of his employees, and of making more than 1,000 payrolls during his 40 years in business.

Every large printing press that he purchased (costing several million dollars each) resulted in the employment of at least 20 more employees.

But the California business and political climate rather rapidly, squeezed and penalized him to the point of business closure.

His company was classified as a “small business” with the state, but because it was a non-union company, business with state and local agencies was diminishing. Locally, as a non-union company, his sales representatives were increasingly noticing they were not invited to even bid on some government projects or projects that had a government component.

Most people know that taxes have been continuing to increase, but don’t realize that government regulations and inspections are not just on the rise now, but have been on the rise for years. Mandatory workers comp insurance is going up, even with the massive rollback by Governor Schwarzenegger in 2006, the costs are stupendous, and particularly for a company that already provides health insurance for employees. Adding to the pain, business health insurance costs have been increasing (ours increased 33 percent in 2010), and numerous clients sought relief in Bankruptcy court last year.

Corporate business owners are doubly taxed – they pay taxes on the corporation as well as personal taxes. The size of the business does not matter.

Sales and use taxes are paid to the Board Of Equalization, income taxes to the Franchise Tax Board and IRS. There are employment taxes, Social Security, unemployment taxes and state disability taxes, to name just a few. And audits can be, and often are, initiated by any of the agencies, every year, costing the employer greatly in accounting fees and staff time.

Depending on the industry, regulatory agencies include Cal-OSHA, CalEPA, the local fire department and fire marshall, the state and local air quality district.

With the business climate becoming so hostile in California, Joe Vranich, a California Business Relocation Coach has been keeping tabs on the hemorrhaging of California business to other states. In just slightly less than the first three quarters of this year, Vranich now lists 144 companies that have departed the state in 2010.

And he’s only keeping tabs on the companies that have survived and can make the move. My husband could not pick up and move his 100,000 square foot manufacturing plant for less than $1 million – the cost to only move the equipment, or he might have called Vranich last year.

The change in business climate became most noticeable not just during the dot.com meltdown in 2000, but leading up to, and especially in 2006 when Congress was taken over by the Democrats. Any California business that operated across state lines felt the changes.

Credit was already tightening up, and becoming more expensive. Employment laws were getting more restrictive, emboldening unethical employees and lawyers to file trumped up charges of discrimination, harassment or unfair workplace practice lawsuits against employers, to shake a few bucks out of the boss.  Bogus Worker’s Compensation claims were on the rise, with employers bearing the burden of the cost of legal defense.

Everywhere we turned, the cost of defending the right to do business in California was on the rise.

In 2006, the state Legislature in California passed AB32, emboldening state and local regulatory agencies to crack down on small businesses for environmental and compliance issues, charging outrageous penalty fees. And that was the straw that broke the camel’s back.

Environmental regulatory issues were already front and center, and had been on the rise. But in 2006 it seemed that every month, some state or local agency was demanding inspection of the plant, and threatening exorbitant penalty fees if we were out of compliance with laws we didn’t even know had changed. It was becoming a vindictive atmosphere throughout the state.

The commercial printing business has a tremendous number of environmental compliance issues. I worked in human resources, and managed the employment, health and safety regulations at my husband’s company, and he had a full-time compliance maintenance manager to perform the work necessary on equipment. It was in our best interest to keep the equipment running well, just as it is with a car. But with large commercial presses, the state requires installation of catalytic converters for air quality, and “air source tests” are required regularly by the California Air Resources Board. If a press does not pass the rigorous standards, the penalty fees are massive, and the threat of shutting the press down looms large.

The commercial printers we competed with from the Midwest, South or East do not have the same expensive air quality regulations or employment laws that California has, often rendering us non-competitive when bidding for large projects.

And then the election of 2008 came and went, and so did business. Our clients were not just local or regional; we had many national accounts for catalogs, magazines and marketing collateral.

After the election, our national accounts stopped buying printing in California. Several filed for bankruptcy protection in federal court, costing us not only what they owed us for work already done, but we were ordered by the bankruptcy courts to pay back everything paid to us by the bankrupt company in the 90 days preceding the bankruptcy.

Perhaps most egregious was that California state agencies that we had been doing business with for years, were telling our sales reps that they had orders “from the top” to buy printing wherever they could get it cheapest, because “doing business in California was too expensive.” We lost California state agency work to New Hampshire, Missouri, Nevada, Texas and Oregon, where the environmental and labor laws are far less restricting and much less costly for businesses.

My husband closed the business in April, only after finding jobs for nearly every remaining employee. He auctioned off the equipment to pay remaining debt.

Today, the once thriving 100,000 square foot manufacturing plant that housed huge six-color web and sheet fed presses, a bindery and shipping department, and 250 round-the-clock employees, sits empty.

The state lost the tax revenue paid by my husband on the $28 million in annual sales (during our best years), as well as the taxes paid by the well-compensated employees. And the state, county and city of Sacramento will be losing out on the millions of dollars paid each year by my husband’s business, in fees, licenses, permits and even penalties.

It’s my husband who should be testifying before the Assembly and Senate about what their legislative decisions really cost taxpayers and small business owners – most of our elected officials really don’t have a clue.

– -Katy Grimes