November 30, 2010 / 4:36 PM / 9 years ago

Analysis: Republican states eye California businesses

SAN FRANCISCO (Reuters) - The first order of business for rookie Republican governors taking office in the coming weeks will be to make their states more “business friendly” by cutting taxes and regulations.

The second order of business: Grab California companies disaffected with the state’s business climate.

Republicans took at least 56 state legislative chambers and 29 governors’ seats in the November 2 general election, promising policies tilted toward business. That spells bad news for California, which desperately needs companies to add jobs to reduce one of the highest unemployment rates in the nation.

Ohio Republican Governor-elect John Kasich said he plans to tap his old Lehman Brothers ties to pitch California venture capitalists on relocating their high-tech start-ups.

“More of the same is not acceptable to the business community in California,” Kasich told Reuters.

Voters in the Golden State this month gave control of their governor’s office and legislature to Democrats, who must now contend with how the newly redrawn U.S. political map may further challenge California’s economy.

It has for years lost businesses to other states, led by both Republicans and Democrats, with more affordable land, labor and energy, less regulation and lower taxes.

Outgoing Michigan Governor Jennifer Granholm, a Democrat, has pitched California’s hi-tech community on siting factories in her state, an effort her Republican successor, venture capitalist Rick Snyder, will likely also press.

“I’ve been out to Silicon Valley a number of times,” Granholm said. “When they want to commercialize, we’re the place to go.”

Republican stronghold Utah has landed expansions by marquee California companies Adobe Systems Inc (ADBE.O), eBay Inc (EBAY.O), Oracle Corp ORCL.O and Twitter, along with small California firms like Fasst Company, and is looking for more.

The owners of Fasst, an off-road motorcycle parts maker, settled on Utah because of the state’s campaign to nurture an outdoor recreation industry and its general business climate.

“If we want to expand our business, get into some other kind of metals processing, it’ll be easier to get the ball rolling here,” said Fasst partner Chris Tidwell. “They don’t want to hold you back.”

Utah Governor Gary Herbert expects a raft of states will send that message: “There is going to be more competition out there in the marketplace with more Republican governors.”

EMULATING TEXAS

California Democrats this month extended a four-decade hold on the legislature, where unions enjoy huge sway, while Democrat Jerry Brown trounced former eBay CEO Meg Whitman in the governor’s race.

“It’s a testament to California’s voters that they had the foresight to beat back the tidal wave of corporate-controlled candidates that swept much of the rest of the country,” said California Labor Federation head Art Pulaski.

But according to Somer Hollingsworth of the Nevada Development Authority, that makes California “even more fair game.”

Texas in particular has been busy scouring California for companies tired of high taxes and unpredictable regulations, and analysts see the Lone Star State as a lodestar for new GOP-led states eager to spur business.

“You can’t argue with success,” said Jonathan Williams of the American Legislative Exchange Council, noting Texas has weathered the recession far better than California, in part because of its aggressive business recruiting. Texas’ October jobless rate was 8.1 percent. California’s was 12.4 percent.

Texas has set its sights on companies in the Golden State because “California is a target-rich environment,” said Ray Sullivan, Republican Governor Rick Perry’s chief of staff.

BAD REPUTATION

California’s “green” technology enthusiasts, including many in Silicon Valley, say the state’s future is in that sector, which Governor-elect Brown has said he will champion.

At the same time Brown has not been deaf to concerns about the state’s business climate and has proposed a “strike team” to attract and retain jobs with incentives and other state programs. He has also proposed cutting “onerous” regulations and has not ruled out tax breaks for manufacturers.

Irvine, California consultant Joseph Vranich, who advises companies on relocation and other matters, said the state urgently needs to reverse its reputation. He noted Chief Executive magazine ranks the state as the worst for business.

California also failed to place in the top 25 metro areas in this year’s Milken Institute Best-Performing Cities Index. Eleven of its top 25 areas were in Texas.

“The presumption in Texas is if a business wants to create jobs, it’s good. That presumption doesn’t exist in California, it seems to me, to the extent it did 20 to 30 years ago,” said Milken economist Ross DeVol.

Comerica Bank economist Dana Johnson said California’s business climate has had a real cost: the state’s per capita income rank averaged tenth among states over the past 20 years, down from fourth in the prior 60 years.

“My sense is its rank will continue to slide unless the state creates a more welcoming business environment,” he said.

Reporting by Jim Christie; additional reporting by Peter Henderson in San Francisco; Editing by Dan Grebler

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