Sayonara Toyota: The LA Exodus

LEANING RIGHT-Sayonara Toyota. I get the feeling that LA ain’t seen nothing yet. Just wait and see what happens if sales tax is increased by ½ cent. 

Everybody is aware that California in general and Los Angeles in particular are in the throes of devastating downward economic spirals. I learned this morning that city officials are addressing this impending disaster by proposing a half cent sales tax hike on the November ballot.  

I have learned the half cent tax hike initiative coincident to learning of the worsening plight of the movie industry.

In 1958, Ed Michelson started a motion picture catering company — Michelson Food Services — and made food for the cast and crew on such classic films as "West Side Story" and "Some Like it Hot."

Michelson was one of the first to operate a food service truck on film sets, and for decades business boomed, back when virtually all the big studio movies were filmed in Los Angeles.

Today, son Steve Michelson said that's no longer the case. When his father died, Michelson decided to start his own catering company, Sylmar-based Limelight Catering, which employs about 50 people and has been in business for 14 years.

But Michelson said his catering company would be making millions of dollars more a year — and even expanding the business by adding more food trucks — if production stayed in California.

"We have the best weather and the best locations and it doesn't matter," Where else does one get deserts, snow, valleys, and ocean and sea-scape venues for movie venues. Michelson said. "Even if a show or movie is supposed to be based in Los Angeles, they go to other states because they are getting offered bigger incentives." I wonder if we would have to change the name “Hollywood” to “dudsville.” I don’t know if we would remove the Hollywood sign.

He's not alone in the fight to keep his industry-dependent business afloat. Catering companies, dry cleaners, prop houses and many other businesses that rely on production companies for the bulk of their revenue have been forced to relocate to other states, slash payrolls, file for bankruptcy or close because of the lack of jobs in California.

Southland Lumber & Supply Co. in Inglewood closed in February after 68 years of being one of the leading suppliers of lumber to the entertainment industry. House of Props, one of Los Angeles' oldest prop houses, closed in December.

On Saturday, Michelson joined more than 600 other businesses, industry groups, politicians and community members at a rally to support legislation that would extend and expand California's film and TV tax credit, which is due to expire in 2017.

Founded in 1977, Independent Studio Services, which employs about 160 people, is one of the Southland's largest prop houses. To keep up with business that has left California, the company has opened offices in several other popular filming locations, including Louisiana, Georgia, New Mexico, New York, Massachusetts and even overseas in London.

Jason Waggoner, owner of trailer rental firm Star Waggons Studio Rentals, was one of three business owners or employees who spoke at the rally. Star Waggons, whose trailers are ubiquitous on sets across the U.S., is based in Sylmar and employs just under 100 people.

California must remain competitive, Waggoner said, or risk "losing this unique industry forever."

"Our industry is packing up and leaving our state, and unfortunately it's leaving faster and faster," he said. "It's affecting all corners of the economy. Whether it be that we have to cut payroll from jobs or limit spending to literally hundreds of local vendors, the effects are real."

Co-host Ray Bidenost, principal of Chef Robert Catering in Sun Valley, also said legislative changes are necessary. Although Bidenost's company has locations in Atlanta and Louisiana, he said he wants more filming to return to his home state.

"We always talk about runaway production — but what about runaway businesses?" he said in an interview. "Industry businesses are leaving or shutting down. I believe if we extend and increase [the tax credit], more production will come back."

The other factors that are helping to drive the latest nail into the coffin are: 

•  California already has the highest sales tax in the nation.
• Property taxes are the 10^th highest in the nation
• Rick Perry from Texas is waltzing in again to woe California businesses.
• Occidental Petroleum is relocating to Texas.
• Northrop Grunman relocated from California to Virginia.

California businesses are bailing right and left.

Every now and then, one state governor or another will head to California to pitch businesses on leaving the Golden State. Canada’s immigration chief has been trying his luck, too. The coaxing usually provokes some pundits to bash the state’ high taxes and others to reassure middle-class Californians that employers aren’t planning on jumping ship before the state drifts off into the Pacific Ocean.

Much of the angst about California’s economy has been about jobs and whether employers are picking up stakes and heading for Texas. Bureau of Labor Statistics data compiled by Bloomberg News and published this week don’t answer the jobs question, but they do indicate that California is losing ground in a related category: the number of business establishments.

There were 1.3 million businesses in California at the end of 2012, 5.2 percent fewer than in the previous year (that’s about 73,000 fewer). To put that in perspective, Massachusetts lost 5,200 businesses, the second-highest amount, and Kansas had 3.1 percent fewer businesses in 2012 than in 2011, the second-highest loss rate. Nebraska added businesses at 11.9 percent, the fastest rate. Because BLS releases the data on a lag, the end of 2012 is the latest date for which numbers are available.

In 2011, 254 California companies moved some or all of their work and jobs out of state, 26% more than in 2010, according to Irvine business consultant Joe Vranich who has been tracking these departures since 2009.

Twenty-eight of these companies were in Orange County. Seven of them moved or expanded to Texas, three to New Mexico, two to Washington and one each to 16 other states, said Vranich. The pace is accelerating, Vranich said. An average of 4.9 businesses left California each week of 2011, compared to 3.9 per week (202 total) in 2010 and one a week (51 total) in 2009.

In what he calls "disinvestment events," Vranich counts companies that move jobs, facilities or headquarters out of California and

In what he calls "disinvestment events," Vranich counts companies that move jobs, facilities or headquarters out of California and "in carefully selected instances, companies making major capital investments in plants elsewhere that in the past would have been built in California," Vranich said.

He doesn't count companies that invest outside the state for growth or marketing reasons.

In this latest report, Vranich does not include a list of departing companies by name.

"Hassles arise when it becomes known that a company is going to move and politicians call to try to persuade them to change their mind. That includes calls from Gov. Brown's office," Vranich said. "In effect, I've added fuel to a fire that had started to simmer down. I don't want to make life more difficult for other people in business so I'm no longer naming the companies."

But based on news reports, here is a sampling of companies that moved partly or completely out of California in 2011:

Some are well known: Dunn-Edwards Paints in Vernon; and eBay Inc. in San Jose which will add 1,000 high-paying jobs in Austin, Texas, after receiving government incentives to locate there. The new owner of Claim Jumper and Bubba Gump Shrimp Co. restaurants moved the headquarters for both chains to Houston. Hyundai Capital America in Irvine transferred 71 jobs to Georgia and Texas.

In addition, Rockwell Collins in Irvine moved its electromechanical systems work to Mexico and Florida. Tickets.com in Costa Mesa closed its Concord office and moved the call center and customer service work to Texas. Wells Fargo Bank moved 59 jobs from Orange County to India.

The Orange County Register shows that the number of companies leaving California per week went from 1.0 in 2009 to 5.0 in 2011. Remember: we ain’t seen nothing yet.

 

(Kay Martin is an author and a CityWatch contributor. His new book, Along for the Ride, is now available. He can be reached at [email protected] )

-cw

 

 

 

 

 

 

 

 

 

CityWatch

Vol 12 Issue 41

Pub: May 20, 2014