California’s Business Climate and Fiscal Crisis

Alright–it’s time to delve into the policy of California once more…actually, probably for the first time on this blog.

The state of California has had a rough going for the past 5-6 years, largely due to financial mismanagement at the highest level (former Governor Gray Davis). The economy has suffered, and businesses–especially smaller ones–have fled from California because of the incredibly high tax hikes and other factors that made the business climate in California unfavorable.

One of these factors was the minimum wage increase of 2001. This increase was detrimental to small business owners, primarily, and has caused a great deal of turmoil in the state’s economy. (Even though I benefit from that increase, I still do not approve of it because of what it has done to the state.) The reasons given for raising the wage were often illogical when examined: One, for example, said that due to the ever-increasing cost of living in this state, wages had to be raised. Okay, that makes sense on the surface…but when you evaluate this, it is not logical. By raising the minimum wage, businesses have to pay their workers more, which usually means that they have to raise the prices of their goods or service. Therefore, though the wage is increased, the costs have also increased, making it just as bad as it was before.

According to a study done by the California Chamber of Commerce,

81% rate business conditions in California as worse than they were two years ago, an increase of fourteen points since the 2001 survey.

65% believe that business conditions in their industry or field have become worse in the last two years.

53% percent say conditions for their company have gotten worse.

Also, in regards to relocation:

15% of respondents say they have been approached by other states to expand or relocate out of state.

51% of those who were approached were offered monetary or other incentives to relocate.

Of those, 37% were offered a more favorable tax structure in the new location.

California currently has a budget deficit of approximately $21 billion dollars…and though Governor Schwartzenegger has done a tremendous job already in balancing the budget and making necessary cuts, the state is still no where near being in the clear.

Why do I mention all this? The State Assembly just passed a bill to increase minimum wage once more…making it $7.75 by January 2006 (it is a two phase raise, just like the last one). WHAT?! Why on earth would you do such a thing right now, when the economy is just beginning to stabilize in California? Businesses can barely afford to do business here as it is, and I thought that the idea was to attract businesses to come to California, not drive them away!

This bill is expected to pass the Senate next week, and then it will be up to Gov. Arnold.

At least we have a governor now who isn’t putting up with garbage. He currently has a higher approval rating than when he was first elected, and this 65% approval rating is the highest of any governor in the past 45 years! He is approved by both Republicans and Democrats, and most say that they feel like they can “understand” Arnold and what he is doing–which is more than anyone could say for Gray Davis. Arnold is beginning to bring the real meaning of politics back to Sacramento: he is serving the people and meeting their needs.

Anyway, I felt this urge to delve into one of my many qualms with California, and I’d love to hear your comments or questions, as always. This state may be the “Golden State”, but it is definitely not shining.

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