Nestle’s Move Hard to Swallow

It’s been a month since Nestle USA announced it was moving out of Glendale, and still it bothers me. Why? It occurred to me that Nestle’s publicly announced reason for moving to the Virginia suburbs of Washington, D.C. – to be nearer its vendors, factories and the like – doesn’t ring quite right. Oh, sure, there’s an element of logic to that explanation. But proximity to stakeholders is less important with today’s technology. Besides, the advantage of proximity will be outweighed by the disruption of moving or losing 1,200 headquarters employees. I suspect the real impetus for Nestle’s decision to move is the burden of doing business in California. No doubt you know that the state is often held up as the poster child for heavy corporate taxes and regulations, so let’s not recite those again. Instead, let’s consider a couple of oft-overlooked challenges. One is high individual income taxes. California’s personal tax rates are as high as 13.3 percent, by far the steepest and more than double Virginia’s top rate of 5.75 percent. And in November, voters passed Proposition 55, which extended a “temporary” tax hike on the highest earners. That means a C-level worker could well get tens of thousands of dollars more a year just for moving to Virginia. And remember, that C-level exec may be among the few making the decision to move. Another oft-overlooked challenge: litigation. The state is a hive for anti-business lawsuits. Nestle got stung with one in late 2015, for example, challenging its right to continue bottling San Bernardino water under its Arrowhead brand. Nestle ultimately prevailed a few months ago, but it was costly and time consuming. California is blessed in that it is a magnet for attracting entrepreneurs. It has a culture that fosters startups. But the ongoing challenge for the state is keeping businesses once they grow up. • • • Here’s a study you may find interesting: Among all states, California spends the lowest percent of its budget on infrastructure, according to a report last year from the Center for Budget and Policy Priorities. The Golden State invested only 3.3 percent of its budget in 2013 on infrastructure, one of only three states that spent less than 4 percent. Texas, the most comparable state in size and population, spent almost twice as much at 6.4 percent. We can easily see the result of this neglect. California’s roads and bridges are among the worst in the country, and the Oroville dam’s two spillways, when finally called upon to work in February, were quickly rendered useless, creating the potential for a devastating flood. Incredibly, the state was warned in 2005 that the emergency spillway at Oroville was totally inadequate. Three environmental groups pointed out that because the spillway is a hill of bare dirt and not covered in concrete, that dirt would quickly erode as soon as water hit it, creating a potential lake-draining catastrophe. And that is exactly what happened, forcing officials to evacuate nearly 200,000 people downstream. Despite the warning, the state chose to do nothing for 12 years. For that matter, the state has done little over the years to capture more water to supply the increasing population. That means a good deal of the heavy rainfall from this winter is draining into the ocean. To his credit, Gov. Jerry Brown did admit recently that the state has not spent what it should on infrastructure and there is now $187 billion worth of unmet needs. Continued failure to invest, he said, could lead to an “apocalypse and absolute disaster.” And to their credit, the state’s business community has long pushed for more infrastructure investment, seeing it as the foundation for a sound economy. So now everyone agrees that something needs to be done. The only real question is how it will all be paid for. You can almost predict where this is headed: The legislature will push for some kind of tax increase. Even though the state has a record general fund budget and even though legislators have diverted money from infrastructure for years, the statehouse gang will cry that they just don’t have the money to pay for it all. Lack of money. That’s the problem, they’ll say. Well, here’s another study you may find interesting: Among all states, California collects the sixth-highest amount of tax money on a per capita basis, according to the Tax Policy Center, a left-leaning think tank. In other words, the state already taxes its people and businesses heavily. Money is not the problem. Poor spending is the problem. Charles Crumpley is editor and publisher of the San Fernando Valley Business Journal. He can be reached at [email protected].