California's budget crisis is turning into a worldwide spectacle that could harm the state's business climate -- and chase companies away.
Rival states are revving up their economic-development efforts as global news outlets fixate on the $26.3 billion deficit and the IOUs the state started issuing last week.
Tina Sumner, Clovis' economic-development director, got a firsthand glimpse of California's problem while attending a trade show in Las Vegas recently and meeting an economic-development official from Phoenix.
"One of the things that struck me was how enthusiastic he was about how easy the pickings were, for taking businesses from California and bringing them over to Arizona," Sumner said. "He was kind of almost giddy."
California companies are making inquiries to out-of-state groups like the Economic Development Authority of Northern Nevada. Besides asking about tax rates and other expenses, many are worried about California's "general overall chaos, that uncertainty," authority marketing director Julie Ardito said from her office in Reno.
The recession is freezing many companies in place. But as the economy begins to stir, CEOs are starting to compare the costs of doing business in California vs. going elsewhere. Ardito said the volume of calls to her organization -- from California and other states -- has jumped 40% from a year ago.
Jack Boyd of the Boyd Co., a relocation consultant in New Jersey, predicted "a new wave of companies ... leaving California." Many other firms looking to reach California consumers will do so from locations just outside the state, he said. Boyd said Sacramento's budget problems are feeding the perception that California is a high-cost, overregulated, out-of-control place to do business.
"The California business climate has always been difficult," he said. "This is a whole new overlay to that."
Asked at a news conference Wednesday whether he was embarrassed for California, Gov. Arnold Schwarzenegger said, "I'm proud of California, even though we have our crisis. No one can point fingers, because as you can see, there are 30 states right now that have their fiscal year starting today that also don't have a budget, so, I mean, let's not get carried away and just look at California as [if] we are the only state that cannot manage the budget."
A 2007 study by the Public Policy Institute of California dismissed the notion of a mass business exodus. The study said California's share of the national job market, just under 11%, has held steady over the years.
For all its recruitment, the Reno-Sparks area just across the Nevada line has lured only 35 companies and 1,200 jobs from California the past six years, Ardito said.
And there seem to be companies still interested in moving to California. Barbara Hayes, head of the Sacramento Area Commerce and Trade Organization, said the "pipeline" of companies inquiring about Sacramento hasn't waned.
Yet others say California's image is causing it real economic headaches. Even if other states have problems, they're considered less scary than California's.The Metro Denver Economic Development Corp. just persuaded a medical-device maker from Southern California to relocate its headquarters.
The Nevada Development Authority, which serves the Las Vegas area, just hosted a visit by a Los Angeles-area manufacturing executive who has vowed to leave California because of the costs. "That's the kind of calls we're getting, without any advertising by us at all," said Somer Hollingsworth, the authority's chief executive.