Tech Lead Evaporating Too?

        California trailed only Massachusetts in the bi-annual Science and Technology Index rankings released in March 2004 by the Milken Institute. The rankings rate 75 factors in an attempt to encapsulate each state's comprehensive inventory of technology and science assets that can be leveraged to promote economic development. An in-depth benchmarking assessment of California conducted by the organization in tandem with its national report called attention to a few red flags.

San Diego Action Shot The video game universe is not confined to L.A. Long known for its defense work, biotech and border-related commerce, San Diego has an entertainment option in Carlsbad besides wondering what its many golf club companies are going to secretly develop next. Capturing the tastes of both its home state and its talent base, Sammy Studios' new digs in Carlsbad are a hit with a work force that has almost doubled in one year.         Among the interesting projects to hit San Diego in the past year was a 66,000-sq.-ft. (6,131-sq.-m.) headquarters in Carlsbad for Sammy Studios, a subsidiary of Japan-based Sammy Corp. created in 2002. Constructed primarily for interactive game development, the HQ features no contiguous walls, Southern California lifestyle motifs and optical motion capture facilities. The company also maintains a complex in L.A.'s San Fernando Valley, which has been in operation since 2002. The parent company projects revenue of $2 billion in 2004, and a key part of that will be development of its own original game content.         "We set out to create an environment that is fun to work in, one that will motivate and inspire us," said John Rowe, president and chief operating officer of Sammy Studios, at the September 2003 launch. "Our goal at Sammy Studios is to attract key technology and creative talent who will lead our product development into the future. Today we employ nearly 100 people, and in the next 18 months we will double that number."         Indeed, confirms Alex Armour, public relations coordinator for Sammy Studios, that payroll has already shot up to around 150, or almost doubled in the past year. And selling Southern California is not a bad arrow in the quiver when you're a high-tech entertainment company recruiting worldwide for the best talent. "We're in the middle of a growing slew of offices becoming larger industries," says Armour, noting that the business sector is really taking off in the South Carlsbad area near Palomar Airport.

        "California must continue to increase funding of science and technology in its university systems or risk losing one of its most important historical comparative advantages," the study says. Among the factors causing concern are declines in business start-ups, academic R&D dollars and educational attainment level.
        Many of those departed jobs would have gone anyway, by virtue of the down economy. But what research group Kosmont Companies has termed "anti-manufacturing bias" in state legislation hasn't helped. Nor have land use policies that make facility development difficult. The state corporate tax rate is 8.84 percent, a fairly high rate to go with its high minimum tax. And the state depends on this tax for a much higher percentage of total revenue (7.6 percent) than the state average nationwide (5.7 percent).
        A recent scoring of the fairness of state taxes by Annette Nellen, professor of accounting and finance at San Jose State University and the author of the textbook Tax Aspects of Business Transactions, concluded that "consideration should be given as to whether the corporate tax rate and minimum tax are too high and whether it affects a business's decisions as to whether or not to locate or expand in California."
        Her analysis also calls for further study of whether the sales factor used for apportionment ought to continue to be double-weighted or single-weighted, as many business groups are suggesting. And she suggests that income tax revenue might be shared with cities and counties in order to incentivize them to attract high-wage jobs.
        But the biggest sticking point continues to be worker's compensation costs, which rose on average from $2.25 per $100 payroll in 1999 to $5.10 in 2002.