California's fight to stop corporate flight

"Legislators don't seem to get it that businesses have far more options now. They can open another factory in another state, send manufacturing offshore, go into the cash economy, or even go out of business," says Mr. Kyser. "How they deal with the reforms will have serious consequences on states around us for years."

Business raiders from Phoenix, Salt Lake City, and Las Vegas have been eager to welcome frustrated California businesses, and developers can barely suppress smiles over new home sales generated by newly arrived California families.

Another recent major initiative by Schwarzenegger - a sweeping plan to revamp every corner of state government - is being seen as promising in the long run but without any short-term fixes.

Partly because of California's housing costs, higher taxes, more regulation, and higher utility rates, Arizona, Utah, and Nevada are all faring better than California from job growth to personal income. Because employment and the ability to spend are the springboard to all other aspects of economic well-being - generating the spending and tax revenue that get state economies moving - economists are touting the latest figures as evidence of how the West overall (excluding California) is doing better than the nation as a whole.

"People have never really stopped moving to Nevada and Arizona, so those states are chugging along," says Tracy Clark, spokesman for ASU's Economic Outlook Center, which publishes the Blue Chip forecast. "Population growth, some of it from California, continues to drive those numbers up," he says.

If the California numbers which occupy the cellar position of these four states are the bad news, the good news is that Moody's Investment Services recently raised the state's bond rating for the first time in four years - the first time that has ever happened before the state's annual budget was announced.

"Arnold has prevented more hemorrhaging," says Joel Kotkin, senior economist at the Pepperdine Business School. "Had he not come in, the state would be in even worse shape. His influence for now is more about what he has prevented than what he has accomplished."

The Golden State isn't out of the woods yet, however. The state recently sought and won voter approval to borrow billions of dollars to avoid deep cuts in government services when it passed a $103 billion budget. And many analysts say the recovery has not hit the state evenly, with inland and southern regions doing far better than the north.

The area was hit hard by the bursting of the high-tech bubble and is still struggling from the loss of 25 percent of its jobs between 1993 to 2001. "The best way to describe California and much of the West is that the further from San Jose you are the better off you are," says Ed Leamer, economist with the UCLA Anderson Business Forecasting.

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