Nearby States Still at Work Luring California Companies

Sacramento Business Journal, August 2005

For economic developers across the nation, California remains the Golden State -- a rich vein of jobs to recruit to their areas. As the state struggles with budget woes and rising business costs, other regions continue to see glimmering opportunities. Those other states have been spending marketing money for several years targeting Golden State companies looking for greener pastures.

It is difficult to judge whether neighboring states are getting a good financial return on their marketing investments, but the series of campaigns by rival states shows no sign of ending.

The Silver State just wrapped up its "Nevada to the Rescue" campaign featuring print and outdoor ads and guerrilla marketing. The provocative ads -- depicting battered businesspeople -- asked, "Will your business be terminated?" Nevada economic development officials hit the streets in Sacramento and other large cities, where they set up life-size standup cutouts of the "walking wounded" businesspeople and handed out pamphlets touting their state.

Taking a gentler approach, Oregon this year launched a print-ad campaign inviting business owners to "Come for a week. Stay forever." The slogan is a takeoff of a now-infamous quote from a former governor who told people to visit Oregon, but not to move there. The remark is three decades old, but state officials still hear about it when they're on the road.

Utah gets its share of tire-kicking calls from frustrated California businesspeople, but officials there say they haven't put much effort into luring Californians.

In 2001, when California energy costs were so high, North Dakota officials started twice-annual visits to the Bay Area, in part because quite a few former residents of the Flicktertail State now live there.

"California is a gold mine because of all the businesses here," said Barbara Hayes, executive director of the Sacramento Area Commerce and Trade Organization. "Lots of states are doing this. I've gotten mailers from Mississippi, Michigan and Idaho."

Hayes remains unruffled, though, because she's seen it all before. Although exploiting other regions' hardships from natural disasters is out of bounds, seizing opportunity in manmade disasters -- such as spiraling workers' compensation costs -- is fair game.

Hayes said other regions did similar marketing campaigns in the early 1990s when California's economy tanked, and a budget crisis hit state government. The campaigning intensified after Newsweek ran a cover story about the "tarnished" Golden State.

Hayes said she thinks the push by other states to lure California businesses peaked a couple of years ago.

'My CEO saw your ad': The recent round of campaigns heated up a couple of years ago as the state's rising costs to do business and government budget woes took center stage in the national media.

Statistics such as those in a dire February 2004 report by Bain & Co. for the California Business Roundtable were widely reported. In its survey of small and large businesses, almost 40 percent of California decision-makers planned to relocate jobs out of state. Half the companies had policies to halt employment growth.

In reading such survey results, Debby Kennedy, director of Brand Oregon, declared, "There's my target."

She said Oregon was already getting lots of inquiries from California CEOs wanting out, and this year's ad campaign has netted 117 leads so far.

"You'd be surprised how many calls I get from people saying, 'My CEO saw your ad and asked to me to follow up,' " she said.

Nevada launched its campaign because economic development agencies were getting so many inquiries from California firms, said Julie Ardito, public relations manager of the Economic Development Authority of Western Nevada based in Reno, one of five agencies, including the state Commission on Economic Development, that sponsored the campaign.

Measuring the results is difficult, Ardito said, because moving is a three- to five-year process for most companies. The campaign wasn't about prompting businesses to move, but rather to put Nevada on the radar screen of CEOs already thinking about moving or expanding out of state.

Northern Nevada is on an economic development roll. Inc. magazine in its May 2005 issue ranked Reno the nation's No. 1 city for doing business -- a pearl in a recent string of favorable national rankings. And for the second consecutive year, the economic development authority reported a record number of new and expanding companies, boosting the local economy by $267 million in fiscal 2004-05 ended June 30. In that fiscal year, the authority said, northern Nevada enjoyed 40 new or expanding companies, 29 that moved there from other regions. Fifteen came from California.

One who left town: Among them was Kimmie Candy Co., which moved to Reno in January. The company, which makes chocolate-covered sunflower seeds, chocolate rock candy and other products, kept offices in the Sacramento area and had its manufacturing operation in Korea. Now CEO Joe Dutra is moving production to Reno, too, and plans to start tours and open a gift shop this fall. By the end of the year, the company will employ about 30.

Pulling up stakes was tough because Dutra's family has deep roots in California as one of the Sacramento Valley's old farming families. But it just became too expensive to expand the business, he said.

In his move to Reno, Dutra saved a ton on workers' compensation -- Nevada rates are about a third of those in California -- found a good deal on a building and saved on utilities and taxes. Nevada has no corporate or personal income taxes.

But Dutra also found other advantages, including greater access to community and business leaders.

"Reno is the way Sacramento used to be 30 years ago," he said. "You're able to meet everybody. When Arnold Schwarzenegger goes to lunch, he has four or five bodyguards around him. In Reno, you're at lunch, and somebody will say, 'Hey, come over and meet the governor,' and you get introduced and shake hands."

Different tack in southern Nevada: Not all regions are taking the same marketing tack to recruit companies. The city of Henderson, next to Las Vegas, did not join in the state's Nevada to the Rescue campaign.

Ad campaigns, said Henderson economic development manager Bob Cooper, "are too generic and too expensive." Instead his agency buys databases with contacts for the kinds of companies it wants to draw, and then targets CEOs with direct mailings and e-mails. Cooper said interest from California has remained strong for years. Henderson is booming. The city's population hit 240,000 this year -- quadruple its size in 1990.

Various former California companies are finding homes there. Nancy Munoz moved her business, Specialty Vehicles, there two years ago from Huntington Beach after her attorney and CPA told her she either had to fire all 10 employees and work out of her home, or move.

The company, which distributes people-moving vehicles such as trolleys and trams, hit hard times after the Sept. 11 attacks temporarily crippled the tourism industry.

With the move, she said, "We were able to buy a lovely new building for half the price of renting a dilapidated building in Huntington Beach." Other costs dropped, too. Her product liability insurance in Nevada is $38,000 -- less than a third of the $150,000 tab in California. The company is flourishing now, she said. "We're very competitive in our market."

Kicking tires in the Wasatch: Utah has not aggressively marketed to California businesses because economic development officials have been too busy just fielding calls from California companies interested in moving there.

Through EDCUTAH, a public-private partnership that handles the state's economic development, Utah also wanted to define the types of companies it wants before launching a campaign.

EDCUTAH spokesman Shawn Stinson said employers are attracted to Utah's lower cost of living, lower cost of doing business, educated work force and quality of life. "The average Utah employee has a 22-minute commute. That doesn't mean much for Missouri, but for Californians that's an attractive feature."

No diaspora: There's hardly a mass exodus from California.

Those 15 firms Reno gained at California's expense may be a boon to that city, said Ardito of the development agency in Reno, but it's a mere drop in the bucket to a huge economy like California's.

Quantifying the number of businesses that leave is tough because state employment figures don't account for job losses due to businesses moving away.

"Companies don't have to register at the border that they're leaving," Hayes said. "And they're not all running for the borders anyway. We have good companies here that are expanding."

California does need to address business climate challenges, said Wayne Schell, president and chief executive of the California Association for Local Economic Development, a trade group for economic development professionals in Sacramento. But the issues get so heavily publicized that people tend to lose perspective, he said. "It's all about how much noise you can make about a problem. It makes it sound like California is just a snake pit, and we're not."

For instance, California generates more new businesses and jobs than any other state and many nations. Also, the state has three of Inc. magazine's 25 most successful large metropolitan areas: Riverside-San Bernardino, Orange County and San Diego. So what do economic development officials do when other states tromp on their turf?

Schell said the good ones continue doing what they're already doing to retain businesses, rather than planning counterattacks.