Go West young man! The adage was true a long, long time ago when the West Coast of the United States represented a land rich in gold and sunshine and, well, opportunity. Does this still hold true today?
Recent news out of California tells of a contentious gubernatorial election emblazoned with debate about taxation, regulation, a high cost of living, and a state government deeply in debt, while boasting of a population that just won't quit. Today's California still seems to hold its appeal to many who call it home. But does it still offer the opportunity it once did?
A Trend Line for Growth
Dan Stephenson seems to think so. He is the founder and chairman of the Murrieta, California-based Rancon Group - an integrated network of real estate-related companies serving buyers, sellers, developers, investors, and owners of real property in Southern California.
"Southern California is still a very desirable place to live, work, and raise a family. The region's physical beauty and ideal weather are difficult to match anywhere else in America, and people will always want to locate here," he says. "We think California offers us and those that we represent.an almost unprecedented opportunity today. Those who understand the long-term viability of California are looking at this current situation and seeing underpriced assets.that will bring rewards to anyone with an appetite for some risk and a medium-term return as California reverts to its trend line of growth and prosperity. "
Deborah Sweeney, CEO of MyCorporation.com based in Calabasas, California, concurs. She says California continues to hold its allure with its large population, entrepreneurial spirit, and numerous new business start-ups driven by a high unemployment rate.
Seth Weissman, a partner with the law firm of Jeffer Mangels Butler & Mitchell LLP based in Los Angeles, accents the inherent characteristics of the state and its technological prowess: "With respect to clients who may be considering expanding to California, the marketplace offers a massive consumer base, access to leading technology providers - an expected driver for almost all businesses over time - access to media and entertainment providers, great weather, solid industrial infrastructure, and a highly educated employee base."
While many are still upbeat about California, others are cautiously optimistic about the state's fiscal solvency.
"There is an element of uncertainty with respect to state and local taxation, which could have both a direct and indirect impact on our clients. For example, were there to be a repeal of Proposition 13 for commercial properties, long-term owners of commercial real estate and their tenants could face unexpected tax increases, which would impact net income," explains Weissman. "Whether such a change would motivate those holding real estate to sell their properties and offer opportunities for other investors to come into the marketplace is unclear. One thing is clear: the recession has devalued California real estate, which makes it an excellent long-term opportunity for investors that have cash and patience. The recession has also motivated some lawmakers to try to find ways to incentivize businesses to come to California."
The downswing has actually ripened the opportunity for some. "The state's fiscal condition and resulting layoffs have led to significant unemployment, which leads people to start businesses - incorporate or form LLCs - and turn hobbies into new businesses," explains Deborah Sweeney, whose company helps start-ups become legal entities. "We have seen an increase in new business starts, which helps our business," she notes.
Dan Stephenson is in concert with this ideology: a downswing presents certain unique opportunities. But there needs to be some systemic change by government leadership in order to fully realize the potential of such opportunities.
"I've always believed that necessity is the mother of invention," Stephenson says. "The fiscal problems can be repaired when the governor and state legislators come to the realization that a truly balanced budget needs to be achieved and current budgeting tactics are at best a short-term bandage. They also need to curb business regulations to encourage, rather than discourage, business expansion. When that occurs, California business will be able to pull the state up by its bootstraps and a balanced budget will be in sight."
and Favorable Climate
No business owner, leader, or relocation consultant can overlook the state's rich resources and favorable climate. This literally comes with the territory and will always be a unique facet of the location that will never change. This appeal has never been lost and probably never will be, in spite of the tumultuous fiscal climate.
"California should have a tremendous competitive advantage when it comes to business attraction and retention," adds Stephenson. "The weather, easy access to major transportation corridors, the size and skill of its work force, and its large consumer base are attributes that are very difficult to find in one geographic location. When regulations and development costs are streamlined, I believe there will be no major impediment to business expansion in the state and California's economy will once again lead the nation."
Seth Weissman concurs and cites California's dense population, technology, and excellent weather - a major productivity driver. "We also have some of the busiest ports in the country and substantial inventory of affordable industrial facilities," he adds. "Its location makes California a key driver for business throughout the Pacific Rim."
Weissman also adds that the labor force is enhanced by the state's renowned educational resources. "While the higher education system has been under some financial stress, at an academic level, we have one of the best, most diverse public university systems in the country, as well as fantastic private universities," he says. "As a law firm, we recruit from top schools throughout the country, but draw most of our talent from great schools here in California, including Stanford, Cal (University of California at Berkeley), UCLA, and USC.
"The lower-cost California labor force has been helpful, as people are willing to accept jobs with lower salaries as an alternative to being unemployed," notes Deborah Sweeney. "Because our business employs many [low-skilled] customer-service based [individuals], this is an important factor. We are able to retain higher-quality employees for lower cost."
In addition, California offers a good base of independent consultants who are critical to development, and this is appealing to Dan Stephenson.
"In our business we depend a great deal on independent consultants," he explains. "We always need to contract with quality engineers, architects, environmental professionals, and a host of other disciplines. The bad news is that the pool of firms to choose from has diminished some as a result of the contraction of the industry in this weak economy. The good news is that the strong firms have survived and their fees have been reduced. While a prolonged economic downturn is bad for everyone, California still has a strong labor pool, especially among professionals. Therefore new or expanding companies should not have any problem filling their requirements."
Do Your Due Diligence
Nevertheless, companies looking to grow their business in California should do their homework, according to Dan Stephenson. "The current climate of expanded federal and state regulation, which can cause delays and additional expense for developers, is not ideal," he explains. "Although we all hope for relief of the regulatory environment.there is still no substitute for doing your homework. Make sure you do your due diligence so that you know precisely what is expected."
Deborah Sweeney pulls no punches in stating that "taxes are significant in California, and the legal requirements of doing business in California are significant." She warns, "California is often considered an employee-friendly state, so California employers must beware and take necessary precautions."
And Seth Weissman cautions, "Don't expect things to change overnight. As the economy improves, more financing will be available and things will normalize. But it could take some time." Yet, "there is a great opportunity to .position for longer-term growth," he adds.
What Does the Future Hold?
So what advice do these individuals offer to those considering expanding their operations in - or to - California, and how do they see the future?
"If you already do business in California and are looking to shorten supply and distribution chains and reach more customers, this looks like an excellent time to establish a greater physical base in [the state]," says Weissman. "On the real estate front, there is an oversupply of good properties for owner-users, particularly in the Inland Empire and Orange County. For real estate investors, access to third-party financing remains tight, but those with liquidity are seeing great opportunities. This is a market where cash is king, but patience will be rewarded."
Weissman continues, "I think the economy wants to explode. Success begets success, and as things improve, there should be exponential growth in investment in technology. California leads the way in technological innovation and, as we have seen for several decades, innovation demands labor which demands expansion of facilities. Our clients are bullish on California and we are bullish on our clients."
Dan Stephenson says that if you don't ask, you don't receive. California cities and counties are hungry for new, job-creating businesses and the opportunity is there.
"There are potential incentives and concessions available but municipalities are slow to offer them if they don't think they will be necessary," Stephenson says. "This is especially true for businesses that are sales tax producers. Cities and counties are facing the very real probability of losing key federal and state funding sources as all agencies are struggling to balance their budgets. New and expanded businesses give the locals the opportunity to be independent and they consider that very desirable," he explains.
Although many states face fiscal challenges, most states cannot claim all the intrinsic qualities that California offers: large port facilities that open up trade with the Pacific nations; an extensive intermodal transportation system that allows connection to the rest of the country by road and rail; a large skilled work force; renowned educational institutions; and an enviable quality of life. When all is said and done, California's sunny climate makes it easy to convince employees to relocate.
California is what it always has been: a state with opportunities and advantages that a growing business can prosper from.