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

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  1. Tylerle13
    Tylerle13 1 October, 2010, 12:10

    Thats sad to hear, I hope things turn around for you guys.

    I’m sure there will be many many more just like your husbands company if CA doesnt wake up. Business owners have been standing in front of Govt agencies for years and begging them to loosen their stragle hold on us, but they just turn their backs and continue ramming their personal agendas down our throats, no matter how damaging their actions are.

    Every time we tell them that people are going out of business, they just counter by saying that it doesnt matter because California will be the Hub for all of the new Green companies that will come to the state.

    Every time we tell them that companies are rushing to the border to leave the state, they say it doesnt matter because they will be replaced by all of the new Green companies that will come to the state.

    Unfortunately for the people who are suffering the consequences of the regulators actions, those people making the rules never actually see the factory that has been shut down, the stores that have closed, and the businesses that are relocating or expanding in to other states. These regulators just form their opinions based on their “Artists Renditions” that they dream up of some new Green Utopia. They are all like minded, so there is never a descenting opinion that they believe is worthy of consideration. They all get in a big group think circle and tell eachother how enlightened they are.

    Unfortunately, by the time they realize that a majority of those new green companies are going to states that offer a much more lucrative business environment, they will have killed off all of the industries that have carried Califoria all of these years. They all live in their worlds based on “Theory” & “Statistical Models”(most of which are manipulated) and they cannot accept the fact that their ideas do not work in the real world. They have never run a real business, so they have no idea what a burdon their utopian rules are on every single business in the state. Hopefully they will wake up before the state ends up in bankruptcy.

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  2. larry 62
    larry 62 5 October, 2010, 13:09

    I can vouch for Katy Grimes and the information contained in this article because I worked for this company for 44 plus years. I am now drawing unemployment for the first time in my life and am not proud to say so. I would have continued working for a couple of more years but thanks in large part to California and its crazy laws and regulations I will not be paying any more taxes than necessary to this state. Were it not for my wife still having to work, I would probably leave this beautiful but badly managed state, that has been my home for 55 years. My youngest son has left his birth place for better opportunities in another state and I believe many more young people will unless California elects some people that care as much for LEGAL residents as they do for so called undocumented immigrants. Good luck to the next generation. I lived through Jerry Brown one and am not looking forward to round two, if he indeed wins.

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  3. dan
    dan 6 October, 2010, 08:13

    This is well put but I would like to ask for some additional color. (1.) What percentage of this failure do you attribute to government intrusion vs lost sales due to changes in the market? (2.) Can you put a number to how much your competition operating in more attractive environments was underpricing you on bids? In other words, were you you always out-priced by 10%, 20%, simply due to the higher cost of operating in California – do you know what this number was? Thanks.

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  4. Joe Sullivan
    Joe Sullivan 6 October, 2010, 15:28

    Katy-I hate hearing the story about your husband’s loss because I admire you and your family, and fear the same thing is happening to literally hundreds of other small business operations in the state. We are the nation’s worst in our approach to business operations and the restraints, requirements, and costs we impose on them.

    My story doesn’t match yours, but hurts also. While working for the DoD in Washington, D.C. I made many trips to CA., and fell in love with the state.I was a government GS15, and to get here, in 1974 I took a voluntary downgrade to the top step of a GS12. My son, manager of a major rental and repair Ryder Depot in Maryland, visited often and also fell in love with CA. Like father, like son, he asked Ryder to transfer him to CA. They did, but he had to take a down-grade to mechanic. He arrived in Sacramento in Nov.1988,imported his family, and produced two of our grandchildren.In Aug. 2003 he told me he could no longer afford to live in CA. He had become an advanced computer nerd with Rider with the U.S. as his territory. He worked from his home office, and reported to the Ryder in Miami. He told me he was moving to Tennessee, and did so in Sept. 2003, cutting his expenses in half. So high costs in CA. cost Kay and I our only son and two grandchildren. Of interest is that Dateline Television News of NBC featured my son’s move in a special covering those Voting With Their Feet to leave CA.

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  5. Richard English
    Richard English 9 October, 2010, 00:44

    Old English says:It is outrageous that law abiding companies that are obeying the laws,paying taxes and taking care of their employees are going out of business because of our government official’s ignorance.It’s come to the point where our government is hurting the people it supposed to being protecting. Our State is being taken over by companies that are being allowed to operate in the Underground Economy.I worked in the furniture moving industry for 30 years.For the last ten years I watched six companies go into the Underground Economy and get away with tax fraud, tax evasion,payroll in cash ,pay no overtime, employees not getting all hours worked, wages not reported, companies changes name half way through the year so they don’t get caught.And our government agencies haven’t done a thing to stop them.I reported these companies for years. I even lost my job because of it. Denied unemployment because my former employer lied.The DLSE,is treating me like I’m the bad guy.In the last four years I contacted half a dozen agencies to start an investigation,still waiting for an answer.In 2005 the Governor started the EEEC a group of departments and agencies to stop these companies. The sad thing about that is: when I told the Governors office about the problems with taxes and wages that they needed to be investigated, there reply:it was out of their jurisdiction.Told me to get an attorney. There is so much more to this story to be told. What would you do in this situation. MORE ABOUT THIS TO COME.

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