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California’s poor business climate straining recyclers

Jul 31, 2014 | 08:00 PM | Lisa Gordon

Tags  metal recyclers, scrap, California, American Legislative Exchange Council, ALEC, Jonathan Williams, Texas, Toyota Motor Copart

Metal recyclers are facing challenging times, but it could be worse--unless they are on the West Coast. California may pride itself on offering a “green” lifestyle, but companies are leaving the state in droves for friendlier business climates with fewer regulations and agreeable tax requirements.

The cost of being in the metal recycling business, or any business in California for that matter, is among the highest in the country. Auto recycling giant Copart Inc. moved its headquarters to the Lone Star state from Fairfield, Calif., in 2012.

“The overall hostility to business is really making a difference,” said Jonathan Williams, director of the American Legislative Exchange Council, a Washington-based think-tank that ranks a compendium of economic policies in its annual “Rich States, Poor States” report. California ranked 47th in its 2014 economic outlook.

“The huge exodus has been under way for years and ... has accelerated, with companies like Toyota (Motor Corp.), which has been there since the 1950s, moving to Texas,” Williams said. “The state has lost 1.5 million Americans over the last 10 years, which is unbelievable considering how beautiful California is.” With residents leaving the state in search of jobs, California has lost more than $46 billion in annual gross adjusted income since Williams’ organization began charting data in 1992.

California has an 8.84-percent corporate tax rate, a top individual income tax rate of 13.3 percent and a minimum wage of $9 per hour, while Texas has no corporate income tax, no individual income tax and is a “right-to-work state” with a minimum wage of $7.25 per hour, making it a sanctuary for corporations. Nevada also is a right-to-work state with no personal or corporate income tax, and Arizona offers more favorable tax rates as well.

Higher labor costs and some of the costliest electricity in the country also work to drive up the cost of doing business in California.

Companies also have had a difficult time complying with the state’s emission standards, with Milton, Ga.-based lead battery recycler Exide Technologies Ltd. a prime example. The company’s Vernon, Calif., lead smelting facility was forced to lay off 124 employees while it upgrades pollution controls at the facility. Exide had hoped to remain open while it invested $5 million to upgrade the facility to meet state emission standards, but the South Coast Air Quality Management District denied the company’s request for more time to gain compliance. The company was unsuccessful in its attempt to get a preliminary injunction to stop the order, and was forced to outsource the processing of 25,000 batteries per day.

The United Steelworkers union criticized the regulators. “As California works to grow its green economy, we need our state leaders and local regulators to work collaboratively with large manufacturing companies to help them achieve California’s rigorous air quality standards, protect public health and concurrently provide these types of solid jobs to local families,” David Campbell, secretary-treasurer of United Steelworkers union Local 675, said at the time of the closing.

The state’s seven shredders also are facing legislation that would make the Department of Toxic Substances Control responsible for regulating waste from shredded automobiles. Recyclers are lobbying for changes to the legislation, which would give the agency the right to regulate the auto shredder facility itself and not just the shredder residue.

Texas Gov. Rick Perry recognizes corporations’ increasing frustration and has been courting California businesses to move to his state, where his efforts have been largely successful. “We understand the importance of individual freedom, and we work hard to keep the government as far removed from people’s lives as possible,” Perry wrote in a letter to the editor of California’s Orange County Register. “That extends to our business climate as well, and that’s been a big reason innovators and visionaries are increasingly relocating to or expanding in our state.”

Perry credits low taxes, predictable regulation and fair courts with attracting businesses. Unfortunately, recyclers cannot move to another state and businesses that stay put are finding another high cost in what has been described as a “judicial hellhole.”

Environmental lawsuits filed by nonprofit groups that target recyclers appear to pay off handsomely. The California Sportfishing Protection Alliance’s 2011 income tax filing indicates that its revenue totaled $1.5 million, including just $14,543 in membership fees, and it spent $1.2 million in legal fees that year.

“Environmentalists have gone overboard in California. Everyone wants to be green, but this has real consequences to real people,” Williams said.

At some point, the Golden State may wake up and move closer to the economic golden rule of “He who has the gold makes the rules.”

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