As More Businesses Flee California, Schwarzenegger Deserves ‘Worst Governor’ Award

Joseph Vranich
The Irvine-based Principal of Spectrum Location Solutions helps companies plan and select ideal sites for new facilities across the U.S. and internationally.

Yesterday, while attending the delightful little musical "Daddy Long Legs" at the Laguna Beach Playhouse, none other than Arnold Schwarzenegger popped into my mind. Why? Well, the song, "I Couldn’t Know Someone Less" reminded me of him. When he became governor he showed promise that he would reform our dysfunctional state government. But he turned out to be an abject failure.

Someone has to say it, so I will: Arnold Schwarzenegger is the worst governor in California’s recent history. If we were doing articles of impeachment, then "injuring virtually every industry" would be one of many charges.

He deserves that distinction for many reasons, but the tipping point for me came last week during the appearance by Aaron McLear, Schwarzenegger’s press secretary, on Fox Business News. While speaking on "Varney & Co," he misrepresented California’s economic condition by saying that when it comes to companies leaving the state, well, he "doesn’t see evidence of that"; and by gosh the state’s "private sector is doing great"; and that our tax rate is about the same as in other states. When asked about unemployment, he said, "Well, unemployment is bad everywhere." Does the governor know that last week so many jobless people called the Employment Development Department that their phones crashed?

Our state’s chief executive must be unaware that for two years in a row Chief Executive magazine found California to be the worst state in the nation in which to do business.

Schwarzenegger’s office doesn’t see evidence of company departures? Let me help his sight-impaired staff by pointing to the new list I’ve posted today, entitled, "New Record for Calif. Companies Departing or Shifting Work Out: 193 – Nearly Four Times Last Year’s Level."

Read it and weep for the no-longer-so-golden state.

Occasionally, a company leader will be candid about a relocation. For example, Digital Domain after buying In-Three is shifting those jobs from Westlake Village to Florida. Company CEO Cliff Plumer said, "I’d rather keep the jobs in California," but Florida is "more economical than California, I’m sorry to say," he told the Los Angeles Times.

Every site selection firm in the nation knows that.

One of the businesses re-directing capital is Los Angeles-based Investor’s Business Daily, which is expanding in Plano, Texas, and admitted "It’s possible that we might move the headquarters there at some point." Starting soon, 200 jobs will be there, not here.

Company exits are understated. Most companies "lie low" when moving for greener pastures for good reasons. Political correctness has reached a state of frenzy in California and people running a company have little time for rhetorical nonsense. Also, with state inspectors ready to issue as many fines as possible on departing companies – they are, after all, easy prey – it’s best to have little fanfare about an exit.

To understand how my compilations are understated, I recommend looking at my Examples of Companies Excluded From California Disinvestment Event Listings. In short, when a company is expanding it quite normally puts new facilities in other places. That’s why Intel’s new $1 billion factorY in Vietnam and Google’s new facility in Pittsburgh, Pa., are not on the "capital re-directed list” but are on the excluded list.

We heard from Schwarzenegger’s press secretary three times that the private sector is "doing quite well here in California." In truth, we have one of the worst business-bankruptcy records of any state. In the first nine months of this year, while small-business bankruptcies fell in many parts of the nation, the four metropolitan areas with the highest volume were all in California. It continues to rise in Los Angeles, increasing by 4.6 percent from a year earlier in the third quarter. In Riverside, San Bernardino and Ontario, bankruptcies climbed 10 percent. We owe thanks to Equifax for this perspective.

Then there was the mind-boggling assertion that our taxes are about the same as in other states. Here are the facts: The Tax Foundation in their 2011 State Business Tax Climate Index lists California at No. 49 for tax fairness. CFO Magazine ranked California the worst state for tax treatment. The Council on State Taxation ranks California as the only state to receive a D- grade (the lowest grade). In March 2010, the National Conference of State Legislatures said California remains the number one state in raising taxes – raising them higher than any other state that increased taxes in 2009.

But, really, you ask. Schwarzenegger has been our worst governor in recent times? Worse than Gray Davis? Worse than Jerry Brown’s first go-round?

It’s easy to say he’s worse than Davis. Schwarzenegger promised to reduce spending and cut up the state’s "credit cards." He did neither. In fact, after pushing through our largest tax increase in history, Schwarzenegger increased spending over Gray Davis’s lavish outlays.

Well, can Schwarzenegger be worse than Gov. Jerry Brown who in his first term as governor helped entrench the public-sector employee union system? Brown’s legacy sparked additional billions of dollars in costs that we have paid and one future generation after another will also have have to pay.

Schwarzenegger’s legacy may also saddle untold generations with a huge price tag through a high-speed rail program for which fantasy-land cost calculations exist. A point of disclosure here: I’ve written in favor of high-speed train systems since my first report 40 years ago and with my book Supertrains (see the New York Times book review) and I’ve also testified before Congress many times in favor of such trains. The only high-speed rail project anywhere in the world that I’ve opposed is California’s. As I testified before a California Senate Committee, our trains will be slower than promoters claim (which means they will not be competitive with air travel), will carry fewer people than they predict, and will cost much more than they admit – construction alone will exceed the assumed $45 billion and will reach about $81 billion.

Schwarzenegger claimed he would "blow up the boxes" in Sacramento, yet he has let the world’s most incompetently planned high-speed rail system proceed; failed to cut off expensive contractors who have produced one fraudulent study after another; and hasn’t replaced board members who have conflicts of interest as outlined here and here. Schwarzenegger did nothing to reform a board that has been a colossal failure in carrying out its fiduciary duties.

So Schwarzenegger’s system, if ever built – a possible “train to nowhere" – will be a white elephant that will burden California’s taxpayers with never-ending costs similar to the effect of Jerry Brown and the public-sector unions.

And we have Schwarzenegger’s endorsement of the California Global Warming Solutions Act, which I call the California Economic Self-Destruction Act. Perhaps the governor doesn’t know about Bain & Co.’s “regulatory hassle index” that found "California is far worse than any other state by a very significant margin" – and that was before AB 32’s new regulations begin to harm virtually every industry. If Mr. Brown shows even half the enthusiasm for that misguided legislation as his predecessor has, Californians will suffer higher costs, diminished business opportunities and fewer job openings.

The best summary I’ve seen about our condition was by Investor’s Business Daily, which editorialized in "Schwarzenegger’s Sorry Legacy" that "By almost any measure, it’s the most frustrating state in the union to do business. In 10 years, it has lost 640,000 factory jobs, or 34% of its manufacturing base. Unemployment, which in ’04 stood at 6.1%, is today at 12.4% – close to its all-time high of 12.6%. Some 2.3 million Californians are without work. No wonder the state, with 12% of the nation’s population, has 36% of the welfare recipients."

I’m not the only one who, when considering Schwarzenegger’s record, thought of the song, "I Couldn’t Know Someone Less." Last week a business leader agreed when I called Schwarzenegger "California’s worst governor." He, wary of the upcoming Brown administration, asked, "Can California survive three terrible governors in a row?” I said I didn’t know, but I’ll ponder the question as I take a call from another business wanting to relocate to another state.

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