California Still Holds Multiple High Tech Firsts But Faces Stiffer Competition From Other States, National Survey Finds

California continues to lead the nation in high tech employment, wages, payroll and number of businesses, according to Cyberstates 2010, an annual national analysis of the high tech industry by the TechAmerica Foundation.

In 2008, the most recent year in which state-by-state information is available, the Golden State led the nation in number of high tech workers – 993,300 out the state’s estimated 15.9 million workforce – and the size of its high tech payroll, nearly $105 billion.

It also had the most high tech firms in the country – 42,300 – and, at $105,500, the highest average high tech wage, which is more than double California’s average private sector salary of $50,704.

However, in interviews, TechAmerica representatives caution that California could lose its edge as other states work harder to lure companies or convince California firms to expand elsewhere.

“California is experiencing a lack of focus and an increase in volatility in it’s business environment. Currently, California is one of three states that doesn’t offer some sort of sales and use tax exemption for manufacturing and research and develop equipment. That’s approximately an 8 percent higher cost when planning to build a new manufacturing or research facility here,” said Joe Gregorich, director of TechAmerica’s government affairs in California.

“Companies usually plan 10 years out. When looking at growing or establishing somewhere else, if there’s a state they can accurately project what their tax liability is going to be for 10 years that offers more certainty than California where it’s likely to be a gray number,” Gregorich said.

For example, The Washington Post reported April 27 that defense giant Northrop Grumman is moving its headquarters from Los Angeles to Northern Virginia after the state offered between $12 million and $14 million in cash and other incentives.

At 283,406 jobs, Virginia is now fifth nationally in high tech employment with 95 of every 1,000 private sector jobs in high tech firms. California has 76 of every 1,000 private sector jobs in high tech.

Texas also has an aggressive program for luring high tech and other businesses. At 492,400 jobs, it is second behind California in high tech employment.

A sample of the Lone Star State’s marketing:

Like California, Texas added high tech jobs between 2007 and 2008. California’s high tech workforce climbed by 15,800, TechAmerica’s analysis shows. Texas increased high tech jobs by 14,600. Virginia: 5,700.

Virginia is second behind California in computer systems design – 133,600 employees to California’s 205,600.

In semiconductor manufacturing, Texas is second at 35,700 jobs to California’s 57,700.

In part to battle the perception California is not business-friendly, Gov. Arnold Schwarzenegger on April 8 opened the Governor’s Office of Economic Development. The aim is to assist companies in siting new facilities or expanding existing ones. There’s a tab on the office’s website titled “Why California.”

“California businesses, California workers, California communities and California as a whole need a single entry, a single source for economic development information on programs and services, all with the purpose of bringing more capital, more companies and more jobs to California,” the GOP governor said at the office’s opening.

TechAmerica’s top legislative priorities in California are restoring the state’s “Manufacturer’s Investment Tax Credit” which forgave the state’s share of sales tax – 5 percent – for purchases of manufacturing equipment.

Under the terms of the legislation creating the credit, if manufacturing employment didn’t exceed 1994 manufacturing employment levels by more than 100,000, the law would expire. The law expired seven years ago when manufacturing employment was actually more than 10,000 jobs less than the 1994 number.

California is now one of three states that don’t have such as credit. The other two are Wyoming and South Dakota.

Boosting the California’s research and development tax credit from 15 percent to the 20 percent in federal tax law would also help, Gregorich said.

“California used to have the most robust research and development tax credit in the country. But in recent years we’ve fallen to fourth – behind Arizona, Rhode Island and Hawaii, all of whom recently increased their tax credits,” Gregorich said.

Gregorich acknowledges that given the state’s budget shortfall, the two tax breaks are unlikely to be enacted this legislative session.

Nationally, high tech employment figures are available for 2009. The TechAmerica analysis shows a 245,600 drop in jobs between 2008 and 2009 from over 6.1 million to 5.9 million.

Nearly half the job losses – 112,600 were in high tech manufacturing.

High tech employment peaked in 2000 at 6.6 million. After the Dot Com Bubble burst, it declined for four years straight before growing again in 2005, TechAmerica found.

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