(March 10, 2004) Improving the jobs climate in California will go a long ways toward addressing competitiveness issues behind companies’ decisions to outsource activities out of state, the California Chamber of Commerce told a Senate committee yesterday.

“Overseas offshoring is a symptom of the larger problem, the hostile and costly business climate in California,” said Dominic DiMare, Chamber vice president of government relations, at a joint hearing of the Senate Business and Professions Committee and the Senate Select Committee on International Trade Policy and State Legislation.

He pointed out that a report recently released by Bain & Company, in cooperation with the California Business Roundtable, found that more jobs are moving out of California to locations within the United States than have gone overseas, encouraged by those other states.

Dominic DiMare, Chamber vice president of government relations, testifies at a Senate committee hearing.

“Economic development agencies in Nevada advertise daily in our newspapers about the business-friendly climate in Nevada and invite business leaders to visit and relocate. Many have,” DiMare stated.

High Cost of Doing Business
The Bain report concluded one of the major reasons for moving jobs out of California is the cost of doing business here:

• Taxes are 19 percent higher than in other western states.
• The cost of electricity is 127 percent higher.
• Property costs are 77 percent higher.
• State regulatory costs are 105 percent higher.
• Employee costs are 25 percent higher.

Moreover, California far exceeds any other state in both the uncertainty of regulations and in the complexity and time involved in meeting the requirements, the report found.

In a comparison of an average company’s projected operating income, the Bain report calculated that a company which would earn $200,000 in operating income in California would earn $600,000 in Arizona, $1.4 million in Nevada, $1.5 million in South Carolina, $1.8 million in Georgia and $1.9 million in Alabama.

More Jobs Moving to Texas than Overseas
The Bain report found that 60 percent of jobs are moving out of California to locations within the United States, with two-thirds of those jobs going to Texas. More California jobs are going to Texas than to China and India combined, according to the report.

“This presents a challenge for those who seek to statutorily curb the use of outsourcing,” DiMare said. “First, can you prevent a company doing business in California from outsourcing its work to Texas, and second, would you want to?”

Constitutional Issues
DiMare noted that restricting a business from contracting with businesses in other states is unconstitutional and that the Chamber believes the Constitution also prohibits the state from placing statutory restrictions on companies that worldwide outsource, reserving to Congress the power to regulate interstate and foreign commerce to the exclusion of the states.

Foreign Trade
Moreover, many California businesses that depend on foreign trade “harbor valid concerns that legislative actions taken here in California will lead to retaliation by our trading partners. Such retaliation would be detrimental to these export-dependent companies and the state’s economy. California is a major exporter and can ill afford to endanger its trade relations with its trading partners,” DiMare said.

“Like it or not, we exist in a global economy where technology has made it easier to manufacture goods and perform services in foreign countries for domestic consumption. No amount of legislation will change this reality. It is also important to note that the development and rise of overseas economies creates new demands for U.S exports, which can be good for California companies.”

DiMare said that to remain globally competitive, companies have to contain their costs. “The cost of doing business in California is the highest in the country. Workers compensation, unemployment insurance, energy, housing, transportation and wages are just a few of the costs that make California uncompetitive.'

While California may never be as inexpensive as locations in other states or overseas, “California can remain competitive if we enhance the return on investment in California,” DiMare said. “We need to empower companies to maximize their return on investment in California in order to promote job creation. Without job creation we cannot remain globally competitive. Doing no more harm to business would go a long way toward improving the jobs climate in California.”

DiMare urged legislators to make their decision “in a thoughtful and studied manner,” leaving a packet of articles to emphasize the point. “Outsourcing is a tremendously important issue to the nation’s economy and one that requires a steady thoughtfulness on the behalf of policymakers,” he said. “None of us can afford the consequences of an uninformed and hastily crafted policy response to the challenges that outsourcing presents.”

Staff Contact: Dominic DiMare