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Extracted from Consolidated Report

This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.

Los Angeles County Grand Jury • 1991-1992

Gangs Committee

30 pages
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Findings 8 findings

F1
Growing Southern California Economy Existing industries such as aircraft, entertainment, furniture and garment manufacturing drew many businesses to Los Angeles County. These principal industries required constant supplies of materials and components to fuel their large manufacturing and production plants. Many small suppliers developed in the local community to meet the demand. As these industries grew during the 1940's the population soared 50 percent, and yet another 50 percent during the 1950's. California's population rose 26 percent during the 1980's, 2½ times the national average.4 With this influx came highly skilled and educated individuals from across the United States to supply the technological skills required in California's emerging high-tech industries. Scientists, engineers and industry specialists were in great demand with the advent of aircraft manufacturers venturing into the aerospace industry. Educational institutions flourished during this period, becoming centers for the transformation and application of new technological 4 Frederick Rose, "California A Place Long in the Sun, Now is Clouded by Doubts," Wall Street Journal, February 25, 1992. Exit L.A. Committee
F2
Geographic Location and Strong Transportation Infrastructure The strategic geographic location provided access to Asian and Latin American markets which further enhanced business growth. County taxpayers invested heavily in new international airport and port facilities such as the Ports of Los Angeles and Long Beach and the Los Angeles International Airport. The advent of containerized cargo and intermodal transportation in the 1960's, coupled with the rise of Japanese and other Asian trade, helped further establish the ports of Los Angeles and Long Beach as focal points for transportation to LX United States markets. In addition, the local transportation infrastructure was equally attractive to new businesses. Extensive freeway projects undertaken during the 1930's through the 1950's enabled local businesses quick and easy access throughout the county.
F3
Quality of Life All of the business representatives interviewed mentioned the quality of life Los Angeles offered. This is a broad category that includes factors such as:
F4
Cost of Compliance Aside from the time element of the regulatory process, there is the issue of the overall cost of compliance. From our interview we learned that county businesses spend anywhere from $48,000 to $60,000 per year (small business) to $100,000 to $200,000 (large business) on regulatory compliance. Yet the state has predicted even higher compliance costs for small businesses in the Los Angeles four-county basin. According to Forbes Magazine, the Office of Small Business in the California Department of Commerce estimates that it will cost a total of between $3 billion and $6 billion annually for the 67,000 small businesses located in Los Angeles four-county basin to comply with regulations.
F5
Inflexible Bureaucracy One of the primary complaints of those interviewed was the inflexible and sometimes intimidating posture of governmental enforcement authorities. Findings from the group interview with City of Los Angeles officials indicated that regulators believe they must enforce each regulation to the letter of the law. Many of the respondents felt they did not have the authority to solve problems and make decisions on matters in a "grey area." These sentiments were echoed by the businesses the Grand Jury interviewed. Representatives of the motion picture/TV industry provided examples where regulators enforce permit requirements to the letter of the law causing expensive production delays. This has resulted in some production companies leaving to film elsewhere. Other examples of the inflexibility of regulators contained in this report demonstrate the extent by which regulations are enforced in a "blanket fashion," with regulators imposing indiscriminately heavy penalties to force companies into compliance.
F6
Lack of Cost/Benefit Analysis The economic consequences of new regulations often seem to be poorly understood or balanced versus intended social benefits. One of the more powerful regulatory agencies is the South Coast Air Quality Management District (SCAQMD) which regulates any entity that causes air pollution in Los Angeles, Orange and Riverside counties 78 Exit L.A. Committee and the non-desert portion of San Bernardino County. In 1989 the governing Board of SCAQMD, consisting of 12 appointed officials, approved a 20-year air pollution plan that economist Steven Hayward of the Claremont Institute described as "an inflexible bureaucratic plan that will be frightfully expensive, impose potentially impossible burdens on businesses, reduce employment by 50,000 jobs or more, and most probably fail to clean up the air." Although it is beyond the scope of this report to evaluate the effectiveness of the SCAQMD, the agency has made recent efforts to conduct cost/benefit studies of their regulatory programs. Further information on SCAQMD's "New Direction Concept" is contained in the full report. In some instances industry has attempted to comply with the new L regulations which have created artificial benchmark standards for the use of technology that either is in the early stages of development or simply does not exist. Also, there is the problem of arbitrarily imposed regulations and fines. The following are a few examples: Friedman Bag Company was required to discontinue the use of oil based inks because of the toxins they generate. Water based inks were introduced even though the use of water based inks for their product line was in the experimental stages. The result led to an inferior product, making it less competitive according to Alvin Lanfeld, President of Friedman Bag Company. Consequently, Friedman Bag has experienced a decline in sales and has had to expend additional resources to improve their products and maintain customer satisfaction. Adding costs to such businesses cripples their competitiveness, especially at a time when a softening economy makes it difficult for them to pass on cost increases. W.R. Grace & Company, a polystyrene plant, was inspected by the SCAQMD and was required to have an "Operating Permit" even though its manufacturing machines had already been permitted. W.R. Grace eventually had to appeal the agency's decision in court. The court ruled that the SCAQMD had inappropriately applied regulation 1175 to an industry that did not fall under its purview. The court's ruling clearly demonstrated that the SCAQMD does have the flexibility to interpret its own regulations but is reluctant to do so. Eventually W.R. Grace 79 Exit L.A. Committee
F7
Demographic Factors Several demographic factors make Los Angeles County a difficult location in which to do business, especially the cost of housing and cost of labor. In the past decade Los Angeles has become a poor area for heavy manufacturing because of its high labor costs — linked to high local housing prices. For instance, the average cost of a single- family home in the county is $290,000; the national average is one third of that. The problems are not confined to manufacturers, they also impair service firms and educational institutions. Statistic obtained from Sandy Reagan, Manager of the MIS Department at the Los Angeles Board of Realtors. Exit L.A. Committee
F8
Intense Recruitment by Other States Los Angeles' vulnerability has created many opportunities for business recruiters from other states and cities. Alabama, Arizona, Georgia, Nevada, New Mexico, Oregon, Texas, Utah, and Washington have full- time offices in the region for contacting relocation prospects. The primary incentives offered by other states and regions are: • Quality of Life. Affordable housing, superior schools, convenient public transportation and a more healthful environment. Cost of Doing Business. Lower labor costs, taxes, and environmental

Recommendations 6