New Studies on Vernon and California Warn of Business Woes

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

A study released today by Capitol Matrix Consulting headed by former State Finance Director Mike Genest and former Democratic and Republican legislative fiscal consultants, Brad Williams and Peter Schaafsma, claims if the City of Vernon is dissolved there will be a potential of 11,620 jobs lost with a loss in state and local revenue of more than $42 million.

Another study released by the United States Chamber of Commerce yesterday placed California in the lowest tier of states for business friendly environments.

The state takes a one-two punch from these studies on California’s business environment.

VERNON STUDY

As I wrote yesterday, the state legislature is considering AB 46 authored by Assembly Speaker John Perez, on disincorporation of Vernon. While city officials have been involved in scandalous activity, which prompted the Speaker’s bill, a key question about disincorporation is how it would affect jobs and businesses in the city.

According to the Capitol Matrix report disincorporation would create the following fiscal effects:

• Potential loss of $1.5 billion in economic output, 11,620 jobs and $420 million in wages.

• This would result in a major reduction in state and local revenues – possibly exceeding $42 million annually.

• Direct state General Fund revenue losses of potentially several millions of dollars arm ally due to increased business fees and taxes, which are deductible on state corporation and personal
income taxes.

• Potential increased General Fund costs of several million dollars for additional demand for
Medi-Cal and social services due to job and wage losses and loss of health benefits.

• Increased costs to the successor local agency of up to $50 million, partly offset by redirection
of existing property and sales taxes allocated to Vernon and its redevelopment agency and
partly offset by the application of higher successor agency business license and utility tax rates
to Vernon businesses.

• Potential default on over $1 billion in revenue bonds and contracts secured by the city
electrical system, with potentially major impacts on the future borrowing costs of the acquiring
local agency and the State of California.

The report analyzes Vernon’s business benefits offering local businesses reduced taxes and fees and low cost and reliable utility services while offering what the report calls Focused Police Protection, Class 1 Fire Protection and One-Stop Business Service.

The report suggests that a manufacturing business in Vernon would face higher utility rates, taxes and insurance costs in the range of 20% to 40% depending on the kind of firm and to which jurisdiction the city of Vernon is annexed, if disincorporation takes place.

Specifically, the study says if the City of Los Angeles annexes what is now Vernon, a mid-sized food processing plant located in Vernon “would see its electrical utility bills and business taxes rise from about $1.5 million up to $2 million annually, a one-third increase.”

Business owners facing the potential of higher costs and taxes have threatened to abandon the area if Vernon is dissolved.

The full report can be found here.

U.S. CHAMBER OF COMMERCE STUDY

The United States Chamber of Commerce released a 50-state study on the impact of state employment laws on job growth across the nation and California ended up in the bottom tier.

A leading employment and labor law firm, Seyfarth Shaw LLP, conducted the Chamber study.

California was highlighted in the study along with a handful of states including Massachusetts, New York and Illinois, which the Chamber claims, “inhibit” job growth in most categories.

California took an additional hit when it was noted that the Seyfarth Shaw firm recently published a handbook on the unique laws that challenge employers in California and Massachusetts.

The full U.S. Chamber study can be found here.

All in all, more verification for what businesses already know – it is tough to do business in California.

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