USD Magazine, Spring 1993

primary reason for relocating. Workers' compensation costs, which have nearly tripled since 1982 in California, are driving some companies away, and some business executives say the sys– tem is the No. 1 business issue in the state. In preliminary findings of a study by five California utilities, the business climate was the overwhelming reason companies left the state. The report says California lost 668 manufactur- ing plants or planned expan– sions between 1987 and 1992. Nearly 80 per– cent cited high costs -t axes, wages and workers' compensation premi– ums-as the motiva– tion. More than 20 percent of these opera– tions moved to Mexico, a trend that labor leaders fear will be amplified by the North American Free Trade Agreement, which topples trade barriers between the U.S. and its poorer neighbor to the south. California leads the nation

Ed Aloe '86, a loan officer with Western Cities Mortgage Co., stuck it out in Southern California when the recession had its own impact on him. While still an undergraduate at USD, the Chicago native had worked with a small company that bought and sold investment apartment buildings. Six months after graduation he left to sell apartment buildings for a much larger company. In 5-1/2 years, he had sold $43 million in apartment buildings and looked like he was on his way to a phenomenal success in real estate. Then the commercial real estate market crashed for a vari– ety of reasons--overbuilding, the 1986 tax reform act that took away a lot of the incentives, and a shrinking capital market attributed partly to the savings and loan crisis. Some apartment owners were simply locking the doors and walking away. "If the owner of an apartment building pays 10 percent down and the property value suddenly goes down 20 percent, they have no equity," Aloe explains. "If an owner has a $4 million loan and suddenly the property is worth only $3 million, it's better to just walk away." So Aloe wisely swapped commercial real estate for a career in mortgage banking, financing single-family loans for single– family properties. Despite a forced career change and the economic climate, Aloe never considered leaving Southern California. "My family is here now," he says, explaining that his par– ents had relocated to San Diego during his senior year at USD. "I believe in this state, and I think it will come back." But that comeback won't be here anytime soon, economists predict. The end of the Cold War is shrinking the defense industry. High-wage, low-skilled factory jobs are migrating overseas or south of the border, and more than 65 percent of the jobs lost were in Southern California, primarily Los Angeles, Riverside and San Diego counties: defense layoffs, a downturn in home– building, painful restructuring in the retail and high-tech sec– tors, a decline in industries that support defense. One in four California manufac- turers has indicated

in manufacturers that are moving to Mexico, and will lead the country in military-contractor and base shutdowns, analysts predict. "California as a state is to blame to some extent, because its EPA mentality has really regulated itself out of business," notes Michael Fowlkes '83 (M.B.A. '88), special project coor– dinator for the career center of the San Diego Consortium and Private Industry Council. Fowlkes is coordinating the start-up of four regional career centers throughout San Diego County, which will help provide job search assistance, training and retraining for thousands of San Diegans who have been laid off. Citing the cost of workers' compensation, bureaucratic red tape and high property taxes, Fowlkes says the cost of doing business in California outweighs the benefits-more than 50 local and state agencies regulate and issue permits to Califor– nia businesses. "People are leaving for places where property taxes are lower and that give tax incentives to business," he says. "Other states offer very attractive packages-such as two– or three-day turnaround in permits or cash incentives-to companies that move there." Alan Gin, who specializes in economic forecasting for San Diego County, says streamlining the regulatory process is a short-term way to improve a local economy that doesn't antici-

interest in relocating out of the state, says Alan Gin, assistant profes– sor of economics at USD. Chief executive officers cite the cost of doing business in California as the

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