The Golden State Recovers Some Luster for Companies

Legislature tries to improve business climate with regulation, tax reforms. But firms say state still has way to go.

CALIFORNIA'S business climate, a central political concern here in the recession of the 1990s, may be getting balmier. At least a few degrees.

The state that always greeted a CEO at the airport, if it did at all, with a handshake rather than a sewer permit is now aggressively courting firms and building on other changes that officials hope will catch the eye of corporate America.

But analysts caution that California still has a long way to go before it is competitive in the great war between the states over manufacturing jobs - and in boosting the economy.

``We have taken some positive steps that are going to be beneficial,'' says Jack Kyser, chief economist for the Economic Development Corporation, a Los Angeles-based group that works with new companies. ``But a lot more has to be done.''

Two developments in the past week illustrate the problems and progress.

Intel comes back

Last April, Intel Corporation, the big California semiconductor firm, decided to locate a new state-of-the-art chip plant, and its 1,500 jobs, in New Mexico.

One reason it jettisoned California as a site was the state's costly tax laws. For the business community, it became a metaphor for everything wrong with the way the state treats its corporate kin.

Last week the Silicon Valley firm was back with another announcement: It will be more than doubling the size of a research-and-development facility near Sacramento, creating at least 1,000 new jobs. A prime reason: the state's improved business climate.

Could this be another metaphor?

Well, not quite. For even as California's corporate recruiters were pinning smile buttons on their lapels over Intel, another high-tech jewel, AST Research Inc., was giving notice that it will be moving some operations out of state.

The Orange County firm - a home-grown company that went from a dream in a garage to the nation's fourth largest computer maker - is making cutbacks at several plants around the world because of a computer price war. But it is also shifting some of its work here to facilities in Texas and Ireland, where the company says it's cheaper to do business.

What optimism there is over a friendlier business climate in California is due in part to action taken this year by the state Legislature.

Emboldened by recession and an exodus of companies out of the state that, by one estimate, reached nearly 900 companies between 1987 and 1992, politicians on both sides of the aisle came together on an economic stimulus package and measures designed to make the Golden State more competitive.

This included reform of the state's much-maligned worker compensation laws. There was some streamlining of the regulatory process. Lawmakers passed a 6 percent investment tax credit for purchases of manufacturing equipment, made permanent a research-and-development credit, and changed the often-criticized unitary tax code.

These were no small things.

When Intel ruled out California as a site for its new chip factory last spring, one reason it cited was the state's tax on manufacturing equipment, which it calculated would have cost an additional $70 million.

``What the Legislature did this year was a good first step,'' says Bill George of the California Manufacturers Association.

Besides reforming rules and regulations, the state is trying to become more of a P.T. Barnum. In the boom years of the 1970s and 1980s, state officials didn't have to recruit firms or worry about economic development. The state's thriving economy, the world's seventh largest, was catnip enough for companies.

Now they are being forced go after firms like every other Tom, Dick, and Harrisburg - belatedly so. As part of this effort, the state Department of Trade and Commerce's ``Team California'' has had at least some success.

The association of local and regional economic development agencies and other public and private groups works to lure outside firms and to keep local ones from bolting. It acts as a clearinghouse for permitting and other information.

When necessary, the state dispatches special ``red teams'' to handle individual cases.

`Raiding parties'

``Governors are leading raiding parties into California from other states,'' says Jeanne Winnick, a marketing specialist with the state. ``We've had to respond to that.''

For his part, California Gov. Pete Wilson (R) will leave this week on a rare two-week trade mission to the Far East. He will be touting the state's virtues: diverse economy, educated work force, strategic location, concentration of technology - and improved business climate.

Yet even with all the salesmanship and new mood in the state, California still faces daunting problems: high costs, defense downturn, major corporate restructuring, immigration burdens, smog.

Reminds Mr. George: ``The California economy isn't going to turn around on a dime.''

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