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State’s assault on profits bad for business

By   /   Friday, December 23rd, 2011  /   Comments Off on State’s assault on profits bad for business

The conflicts between private enterprises and public agencies are growing larger and more intense.

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Looking over the recent headlines in Pacific Coast Business Times, it is striking how many times we’ve reported on the squeeze on profits that corporations face from dealing with a variety of state agencies.

The basic tale comes in two flavors. First, a state agency or state-run venture is desperately looking for cash. It finds a corporation that may or may not have paid its fair share of the bills and it mounts a furious, taxpayer-funded assault.

Flavor No. 2 goes like this: A state agency or state entity is building a new building. It is under tremendous budget constraints, therefore it slashes budgets to the bone, setting in motion numerous conflicts as contractors and subcontractors vie for a very slim piece of profitability.

Look, businesses are not your fairy godmother. They make mistakes, they sometimes operate as close to the line as possible, they generally resent paying taxes and they often are too quick to claim over-regulation.

But it seems to me that, reading these headlines, one unintended consequence of California’s massive budget woes is a war on profits that’s threatening the future of our state.

After all, profits are not just an afterthought that happens when a business operates — they are the essential reason why businesses are formed in the first place. And if state and local governments are going to mount an all-out assault on corporate profits, businesses are going to go elsewhere or they are going to cease operating.

Was it really necessary for California’s worker compensation fund to launch a civil racketeering complaint against Select Personnel Services and several managers?

No doubt Select owes the fund a ton of money after it lost a suit over the classification of temporary workers. But misclassifications happen every day in the impossible-to-understate rulemaking that goes along with the multi-billion-dollar fund, and that doesn’t trigger a racketeering claim.

I’m not sure it makes sense to go after Select and its brass on these grounds, nor am I sure it would happen if the state wasn’t facing what most experts think is a huge upcoming shortfall in funding.

A close reading of the documents suggests the state’s attorneys crafted their original suit in a way that’s going to make it hard for them to collect and they are filing the RICO complaint as a way of strong-arming a settlement. The better path seems like a negotiated settlement.

Then there is the State Lands Commission and its lawsuit against Venoco over royalty payments for its large operation in California. Venoco now claims it overpaid and a legal duel is on — but does that make California look like a good place to do business?

This week we learned that the Santa Barbara Courthouse project will take a roughly $12 million haircut — some of the money may come out of reduced costs for materials on the project, estimated to cost more than $300 million. But I’ll bet most of it will come out of the profits the general contractor and his or her subcontractors were hoping to make, after they pay their bonding fees, workers comp costs and other overheads.

Meanwhile in Ventura County, the assessor’s office and property owners at the RiverPark project in Oxnard are locking horns in court over property appraisals of the property. At issue are millions of dollars in future property taxes — the difference of opinion on valuation are vast, and so the stakes for both sides are sky high.

We are all grownups and we know that business isn’t easy — nor is it supposed to be. But as the Pacific Coast Business Times reports every week, the conflicts between private enterprises and public agencies are growing larger and more intense.

Is there an end in sight? With California’s budget mess getting worse and businesses struggling to remain viable in an economy that’s recovering at a painfully slow pace, I am afraid the answer is no.

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