California Legislators Take Steps to Keep Business in the State

CALIFORNIA lawmakers are finally responding to corporate cries about how to reverse the state's worst economic slump since the Depression.

In a move widely seen as forestalling the exodus of Hughes Corporation, one of California's largest industrial employers, the state legislature earlier this month passed a multibill package of business tax cuts and incentives. The package also includes laws to streamline environmental reviews required before construction can begin on housing developments, industrial parks, and other major complexes.

On the heels of a state budget (passed on schedule for the first time in three years), and an overhaul of workmen's compensation laws passed last spring, the new package is regarded as a third major cornerstone for an improved business climate.

``These are all very, very significant signs and the business community is responding strongly already,'' says Jack Kyser, chief economist of the Los Angeles Economic Development Corporation. ``On a scale of 1 to 10, for ways to fix California, I'd give [the tax incentive legislation] a 9.5.''

Republican Gov. Pete Wilson called the package ``the most sweeping tax reform in the state since Proposition 13,'' and Democratic Assembly Speaker Brown has called it a ``bipartisan ... series of items that represents significant changes in the lives of people of this state.''

But more weight is being given to the about-face of Hughes Aircraft Company Chairman C. Michael Armstrong, who this week announced that headquarters would remain in California. Mr. Armstrong has long been a very visible and vocal critic of high business costs and overregulation in the state.

The legislation, Senate Bill 671, offers investment tax credits and sales tax exemptions for manufacturing equipment (allowing up to 6 percent tax credit on purchase of equipment used in manufacturing, research, and development). It also exempts from taxation half the capital gain realized from the sale of some small business stocks. It reduces tax surcharges on income in family-owned businesses by 40 percent and repeals the ``unitary tax'' on profits of multinational firms doing business in California.

SOME state economists have grumbled that the cost of the legislation is too high - estimated to forfeit about $500 million a year in tax revenue - at a time when education and welfare are already being drastically cut. Others say the laws do not go far enough.

``They address one of the big challenges facing California, namely competitiveness,'' says Steve Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy. ``But they leave out a host of others.''

H. D. Palmer, spokesman for the state Finance Department, says losses in state revenue will be more than offset by new businesses and job creation. ``We expect net gains of hundreds of millions of dollars as the incentives create business in the years ahead,'' he says.

Many of the ideas behind the new legislation were highlighted by a task force appointed by Governor Wilson and a separate panel appointed by Democratic legislators. The failure to implement such recommendations was a major complaint of dozens of business executives, legislators, and national and state economists at an economic summit held in Los Angeles last January.

``California has turned the corner,'' says Wilford Godbold, chief executive officer of the L.A.-based Zero Corporation. Mr. Godbold testified at the fall economic summit about how state inaction had led his company to move many of its facilities out of the state. ``You'll find more and more businesses saying that the legislature and the governor are working together,'' he now says.

California businesses are welcoming another bill as well. The state legislature approved changes to the California Environmental Quality Act, making it less costly for businesses to comply with environmental laws.