Changes in California Inspire Business Confidence

13 Jan, 2014

By Rachel Duran

It is a new day in California’s economy, where tax incentives, regulatory changes, and fiscal responsibility — which typically do not come to mind in regard to California — are sparking confidence in business investors. While there are undeniable truths about California’s business climate strengths, including a market of 38 million people, access to capital and R&D, and strong international connectivity, California is  often perceived as unfriendly to business.

“It is critical that while we have natural advantages that businesses see leadership like the kind that the governor [Jerry Brown] is displaying and that our office is executing under his leadership — they need to see that we get it,” says Kish Rajan, director, California Governor’s Office of Economic Development (Go-Biz). “And that we will continue to improve on the tax side and the regulatory side so they can feel confident that we will get the government out of their way where we need to so they can take full advantages of the opportunities that California presents. I think that is what is businesses are increasingly feeling.”

One component of the state’s business climate that is inspiring confidence is the Governor’s Economic Development Initiative, which passed in the most recent legislative session. Rajan says it takes the Enterprise Zone program, which was spending money from the general fund, and repurposes that spend into “what we think are much richer and attractive economic development tools.”

In July, the sales and use tax exemption for the purchase of equipment related to manufacturing, biotech and related R&D will take effect. It translates into a 4.9 percent discount off the top when purchasing equipment relative to those operations, Rajan says.

The second element of the initiative continues a hiring tax credit for companies that hire people in California in areas designated as the highest in need in terms of poverty and unemployment indicators.

The third element of the initiative is new in the state. Under California Competes, Rajan’s office will have up to $780 million in deal closing income tax credits to assist companies with location decisions. The program began January 1 and will run for five years.

“Together these three elements show California is becoming far more aggressive and competitive in leveraging a richer set of tools,” Rajan says. “We are much more determined to partner with businesses to win opportunities.

“What is creating even greater momentum is on the cost side of the equation, under Gov. Brown’s leadership, I think businesses are much more inspired that we understand and are tackling the cost side,” Rajan continues. “Those tax incentives are inspiring confidence.”

Businesses are also reassured by initiatives at the local level. In Clovis, located in the Central Valley region, development fees have been reduced by 70 percent to support developments in the core area of the city. A result of the process was a discussion on unfriendly development codes, which make infill developments difficult. “The city council has approved the introduction of an ordnance amendment to deal with the issues,” says Tina Sumner, community and economic development director, city of Clovis.

In Ontario, located in the Inland Empire region of the state, in San Bernardino County, the “city council is focused on business success because here at the local level they understand business success translates into good public services for the residents,” says John Andrews, economic development director, city of Ontario Economic Development.

To that end, the city is in the midst of an aggressive effort to transfer the La/Ontario International Airport to local control from the Los Angeles World Airports, which also manages Los Angeles International Airport. “Our local city council, and more than 130 cities in the west end of the Inland Empire in north Orange County, and in eastern Los Angeles County believe an airport that is run by a local entity will result in a better product and services, and frankly, more competitive,” Andrews notes.

Industries and Innovations

California is home to a variety of economic sectors, a result of industry clustering and the substantial size of the state. California is home to 58 counties and more than 480 incorporated cities, which form 10 regions, and a wide range of opportunities.

Recent noteworthy announcements include the fourth state-of-the-art distribution and fulfillment center for Amazon.com. The company is building a 1 million-square-foot facility in Tracy.

In 2012, Samsung Information Systems America Inc., announced it was moving its U.S. headquarters from north San Jose to Mountainview.  In the same year, Samsung’s Semiconductor division announced plans to expand the company’s R&D facility in San Jose.

In 2011, Caterpillar Logistics Inc. announced a new parts distribution center in Southern California, which is a 400,000-square-foot facility that is now operational.

At the local level, Niacc-Avitech Technologies has moved into the Clovis market to manufacture airplane components. The company located to an existing facility, and Clovis city officials worked with the company’s officials to help them with building code and other issues. “Our focus is to attract those tech-based manufacturers,” Sumner says. “In Clovis, property is more expensive than elsewhere in the valley. So to burn up 300 acres for a logistics center, for example, doesn’t make sense for our community. Creating small scale manufacturing opportunities is a good fit for us.”

Sumner says the Clovis Community Medical Center has expanded its campus and is looking at opportunities to work with medical device manufacturers and other related groups. “We are working on an effort regarding a technology firm,” Sumner says. “The hospital is working to create all computerized records so having this technology firm located in the research and technology business park, which is adjacent to the hospital, would be beneficial.”

Clovis is also home to Pelco by Schneider Electric, which manufactures cameras for public spaces and facilities. The company, which was started by a local entrepreneur and acquired by Schneider Electric a few years ago, is Schneider’s campus of manufacturing excellence, where it employs 1,500 to 1,600 people.

In Ontario, industrial, logistics and distribution space have been a high point in the last year, Andrews says. “We hit a benchmark in regard to overall inventory in industrial, logistics and distribution space with 100 million square feet in inventory. Our overall vacancy rate is 4.9 percent.” Significant projects include announcements by Samsung for a 600,000 square foot distribution center; and California Cartage for a 500,000 square foot facility, among other projects.

Moving to the state’s Los Angeles region, the city of Industry is an industrial suburb of Los Angeles. The city, which is home to less than 450 residents and 2,500 businesses, is a leading destination for manufacturing and warehouse and distribution operations. The leading sectors include food processing, particularly for Hispanic and Chinese foods; computers; furniture, shoes and clothing.

Recent projects in Industry include Jacmar Food Service Distribution, which is moving from an 87,000-square-foot building in Irwindale to a 232,000-square-foot facility in Industry, says Don Sachs, executive director, Industry Manufacturers Council, which is part of the city’s chamber of commerce.

Talent and Education

In regard to workforce, California has a robust pipeline of skilled workers, home to some of the greatest talent that exists in the world, Rajan says. “Businesses need great talent to operate and be successful.”

At the local level, officials in Clovis are developing a niche in education. The community is located adjacent to California State University-Fresno, and the new Willow International Community College Center. Central California Medical University will open its pharmacy school in Clovis in the fall. “We are developing a focus on education, and when you combine higher education with the nationally recognized school district we have, it creates a strong educational package for the community,” Sumner adds.

In Ontario, city officials have partnered with the county of San Bernardino, which offers a number of workforce programs, to train the workforce. The skill sets available in the area include lower and middle management. “There is a lot of new training offered through the county,” says Chris Kennedy, economic development coordinator, city of Ontario Economic Development. “The county also offers reimbursement for training. They will also do background checks on new hires.”

Ontario’s officials also partner with the chamber of commerce and conduct 40-to-50 site visits per month with businesses to learn their workforce needs and take these needs back to their partners in the higher education system.

Assets

The closing of a statewide program has opened up real estate opportunities for developers and companies. In 2012, the governor eliminated the state’s redevelopment agencies. “Out of 450 redevelopment agencies in the state, we were No. 5,” Sachs says. “So we were a big player in redevelopment. The requirement by the state and the county is that those properties that we acquired over the past 35 years have to be disposed of.”

The properties can either be conveyed to a city, or put for sale. Of the properties put up for sale, a city has the first shot at buying them at an appraised value by a third party. “In Industry, out of the 76 parcels in the city, about 26 of them will be conveyed to the city,” Sachs says. “There are others that are 10 acres to 24 acres that will go up for sale.”

In Clovis, officials are developing projects to utilize remaining bond funds from the redevelopment agency. Two finished pads will be available for commercial or office development in the Old Town area. Preparing these pads for development, combined with the core area fee reduction, creates a favorable opportunity for commercial developers.

Remaining bond funds are being used to complete the infrastructure in the Dry Creek Business Park. “The activity will open up an additional 33 acres of the business park,” Sumner says. “We are also using the funds for an entry feature into the business park to make it more visible from the freeway.”

Sumner says officials in Clovis are working to break down barriers and avoid holding businesses up, creating a smooth and quick process.

In the city of Industry, Sachs says companies can tap into a fast track building permit program, and they pay only one city tax, a property value tax. “When you look at other cities and match that up to their taxes, on a scale of one to 10, we are two or three; other cities are eight or nine, looking for any revenue they can get.”

Sachs says another asset is a 600-acre site, which will feature $172 million worth of infrastructure developments. The plan is to create a sports stadium to support an LA-based team; however, an industrial park is an alternative for the site.

Lifestyle

In Ontario, the city council has done a great job of creating a plan for the city that is equal parts land use plan and business plan, Andrews says. Quality of life also figures prominently in the city council’s vision, which includes a focus on maintaining public infrastructure, parks and facilities. Officials have also annexed an area south of the city, which is called the New Model Colony, which will support residential and some mixed-use developments.

In Clovis, Sumner says the community is safe and home to a nationally recognized school district. “And we have a real business friendly effort and character that we are creating,” she says. “Our goal is to have you want to do business in our community.”

More Info

www.business.ca.gov

www.visitcalifornia.com

www.cityofclovis.com

www.industrychamber.org

www.ontariothinksbusiness.com

 Illustration by Stuart Miles at Free Digital Photos.net

Down To Business

• As of October 2013,California’s employers had addedjobs for 26 straight months, the longest streak in the nation.

• California’s GDP growth in 2012 was fifth-best in the nation, and California had the sixth-fastest growing economy. Source: U.S. Bureau of Economic Analysis.

• California led Fortune’s 2012 list with 24 of the 100 Fastest Growing companies, more than double its next closest competitor, Texas.

• California ended 10 years of budget deficits as Gov. Jerry Brown not only signed his third consecutive balanced budget but one that included more than a $1 billion surplus. As a result, in March 2013 the ratings service Fitch changed the state’s outlook from “stable” to “positive.” In June 2013, Moody’s upgraded its ratings for California’s Economic Recovery Bonds.

Outdoors and Recreation

If you plan to ski in California, visit between December and February, when the Sierra Nevada almost always has snow. It’s not uncommon for ski resorts to open by late October, but the snow is rarely as good as it will be later in the season. Source: www.visitcalifornia.com.

Rachel Duran

Rachel Duran is the editor in chief for Business Xpansion Journal. Contact her at rduran@latitude3.com.

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