Hell hath no fury: scorned, California businesses weigh their alternatives.

• Author: Ascierto, Jerry

No matter how you add it up, the numbers tell the tale. According to the California Chamber of Commerce, California's corporate tax burden is almost 40 percent above the national average; electricity costs are nearly double the national average--and are the highest in the contiguous United States; and California's overall business costs are 32 percent above the national average.

In short, the Golden State is looking a bit tarnished from a business perspective.

And businesses are responding by leaving California at an alarming rate. Nearly one-fifth of California's businesses said they are planning to expand or relocate out of state to relieve cost pressures, according to a recent Chamber of Commerce poll of 400 business.

High workers' compensation insurance, a high minimum wage and a taxing family medical leave act are just some of the reasons that many businesses are eyeing greener pastures in states such as Texas, Nevada, Colorado and Washington.

But it's not only businesses packing their bags. From 1995 to 2000, 760,000 people left California for other states--the second-most only to New York--marking the first time that more people left the state than arrived from other states.

And the state's recently passed budget only looks to further the perception that California is a business-unfriendly state.

"This year's budget was really a patchwork scenario," says Kathleen Wright, CPA, JD, a professor of accounting at California State University, Hayward. "California tried to, as it did last year, patch over its deficit without really addressing the much bigger problem. Government-imposed fees on doing business have led to this exodus. Taxes are high, but fees are the killer."

BUDGET CONSTRAINTS

The state's budget allowed a significant business tax credit to lapse and cut funding for some key economic development programs, while raiding other monies that would benefit business.

And despite the amputations, when Sacramento gets set to vote on next year's budget, the state will still have a deficit in excess of $8 billion.

"I saw very little in this budget that would help California's economy," says Tom Campbell, dean of the University of California, Berkeley's Haas School of Business. "I felt that the rollover of debt was disturbing. My worry is that, as the national recovery begins to build, we will lag behind.

"As firms rehire, they will rehire in Texas, for instance, and not in California, and that's directly related to the costs that we impose by our regulations and laws" related to workers' comp, high corporate tax burden and high energy costs.

California's business climate has become increasingly challenging, and in a sign of the times, Standard & Poor's recently downgraded California bonds to triple-B rating, the worst of any state in the nation and just two notches above junk bonds.

THE MIC AND BEYOND

While several business incentive program cutbacks were included in the budget, it was what the budget didn't include that may impact business the most.

"The most significant tax event in our budget is certainly the manufacturer's investment credit," says Wright, who also teaches at San Jose State University.

The manufacturer's investment credit...