While improving appearances on the financial front, albeit at the expense of higher taxes, California’s true recovery depends on increasing private sector employment. Publicly, Governor Brown and his GoBiz office have acknowledged as much; many of the employment damaging policies occurred prior to his watch. But how his administration moves forward will be extremely important in a state with abundant natural and human resources that conversely boasts 45th in national employment stats. “Live to fight another day” is not a growth business model.

The first rule of thumb should be “do no harm” to existing businesses; new businesses must be additive. Retaining employers requires flexibility in regulations, not divide and conquer. For example, one would think that timber and lumber would form a natural alliance. Ditto for automobile (retailers and manufacturers), fuel producers, and truck and heavy equipment manufacturers and users. But, when it comes to regulation and who pays, those industries that can’t immediately relocate out of state are forced to surrender alliances to survive.

Specifically this year the “car tax” and the “lumber tax” created fissures in the business community. Often disparaged as “special interests,” said interests do employ people, and we need the jobs they provide. Many are simply given the Hobson’s choice of going out of business or finding a way to “pay for compliance.” While jobs may be temporarily preserved in one segment, job losses resulting from increasing compliance costs occur in the other, such that employment becomes a zero sum game.

The purpose of the taxes were to provide grants, loans, and guarantees for the development and deployment of “innovative technologies that would transform” us to attain the state’s climate change goals.

The car tax, an extension and/or increase in a variety of automobile taxes, purportedly allowed payment for 100 hydrogen fueling stations throughout the state, subsidized farm and heavy equipment replacements and other climate change mandates.   Due to regulations, petroleum and other fuel producers were required to provide equipment and/or facilities for hydrogen fuel providers. Not only in many instances did they not own the fueling stations they were supposed to augment with  hydrogen pumps, but they didn’t produce hydrogen fuels. As for heavy equipment, truck and farm vehicles, the owners of the vehicles (many small or family businesses) needed equity in the equipment or “trade in value” as the down payment for the new “cleaner” vehicle.  But under new regulations the used vehicle had no trade in value – hence the plea for subsidies to purchase compliant equipment, or grants under the Carl Moyer Program.

The lumber tax, to pay for new crushing regulations on the timber industry, adds an additional 1% sales tax to some wood products, while sparing others. Implementation for the lumber retailer or hardware store requires a complex computerized cash register and inventory and sales mechanism, as well as staff education to comply. Estimated as a one-time reimbursable state mandated cost of $250 per location, costs can be $5,500+ per outlet. Already negatively impacted by rogue suppliers of products from out-of-state where sales taxes are less or non-existent, lumber retailers may be forced to consolidate outlets, negating the salvation of jobs in the shrinking timber industry.

While agriculture and timber may lack “new economy” appeal, we see similar survival behavior occurring in health care, energy, fuel, information technology and other innovative industries. The closure of the Boeing assembly and manufacturing facility in Long Beach effectively sends 2,000 highly paid jobs out-of-state, where cost of regulatory compliance is less. While the company may indeed be expanding hiring of engineers in another California location, the skill sets are not interchangeable, or zero sum for employment. We witness similar behavior in the biotech industry, where out-of-state cost of power, water and living are less.

When combined with the increasing California unemployment premiums, health care costs and future unknown burdens for employers, the Governor and his GoBiz director will have an impossible task getting Californian’s back to work if the full range of impacts is not considered. Facing 8-9% unemployment, businesses retention while embracing a “new economy” for the future is key. Looking forward requires more than survival today. Shifting regulatory burdens is a zero sum game, not the path to building a new economy, reducing unemployment and recovery for a heavily burdened state. As usual, Californian’s want it all, and with restraint, retention and planning we can have it.