Finding Ways to Bolster San Diego Manufacturing

San Diego is poised to see return of manufacturing as overseas costs increase Area manufacturers specialize in prototype development, low-volume production and just-in-time delivery Government regulations, taxes, environmental issues, utility costs and availability challenge manufacturers Biggest threat to San Diego manufacturing is sequestration Many manufacturers unaware of assistance programs available to them Read part one of this series, San Diego Region Prepares for Increased 'Reshoring' Opportunities

The manufacturing industry is the largest business sector that provides goods and services to the military in San Diego County, states the San Diego Military Advisory Council in the “San Diego Regional Manufacturing Sector Report,” prepared by the South County Economic Development Council and funded by a grant from the San Diego Workforce Partnership. The total economic impact of output for manufacturing is $7.2 billion. Manufacturing-related expenditures totaled $4.8 billion or 45% of all procurement for the military industry in FY2009.

Therefore, the looming potential threat to San Diego’s manufacturing industry is “sequestration, the legislatively mandated, across the board 10% cut in Department of Defense budgets on January 2, 2013 (if Congress does not act to make other deficit reduction decisions).” Over 1,700 companies reported military and government contracts so “an orchestrated approach to future defense downsizing and its impact on the manufacturing sector is needed.”

The report provides numerous recommendations -- a few of the most important are:

Change State Tax -- Amend the state tax and revenue code to allow cities to rebate their portion of the property and sales tax for business transactions that occur locally. The authority to rebate the local jurisdictions portions of the taxes could be held at the local level. Local cities and counties could be empowered to choose to rebate their portion of a specific tax and use this as an incentive to encourage companies to create new jobs through company expansion and location within their respective areas.

Holiday on New Regulations -- take a one-year moratorium on regulations impacting the manufacturing industry while information and education is provided to manufacturing business owners about forthcoming regulations.

Streamline and Reduce Existing Regulations -- Combine regulatory requirements from the various local, state and federal agencies to avoid confusion by the business owner. It is recommended that the state and local agencies work together to consolidate the number of required inspections and approvals, especially fire department, air pollution control district and environmental health compliance inspections.

Cohesive Proactive Communication with Manufacturers -- Governing bodies should prepare industrial businesses to comply more efficiently and cost-effectively with forthcoming regulations, well in advance of the enforcement period. Local government should provide more communication and work with local business owners through a series of educational awareness campaigns prior to enacting new laws or regulations. An active and open discussion prior to making changes will allow industrial businesses to plan and ensure that they are part of the implemented solutions.

Made in the San Diego Region Campaign -- Spread the word and provide the information to consumers on the diverse manufacturing base to assist them in making choices that support the local economy. Initiate a “Made in the San Diego Region” campaign that includes some type of identification on the product that will increase the awareness around the world of what is made in the San Diego region.

Connectory.com -- All government and non-profit entities should encourage manufacturers to use the Connectory.com. The government entities should provide resources to link and publicize the Connectory.com, linking businesses to each other and to provide information about the industrial and technology base of the economy.

Prepare for Sequestration -- In the San Diego region, one-third of all companies reported some dependency on the defense industry. San Diego’s residents are unaware of this impending crisis, believing that we are protected from sequestration by the nation’s increased focus on Asian-Pacific defense. We recommend the region engage in a pointed, targeted, and unvarnished reporting of the potential negative impacts of sequestration

Risks and Rewards

The report concludes that the “San Diego region has one of the largest economies in the world, resilient in its diversity and blessed with multiple sources of incoming investment…the San Diego region has a very good opportunity to flourish, but it lacks the acknowledgement from local government and the appreciation of the overall population, of the risks it faces, and the rewards its success can offer.”

Four of the above recommendations have been made as a result of previous manufacturing industry reports, conferences, summits and task forces of which I was a part, but there has been no action on the part of California’s legislature or regional and local governing bodies. Until we change the complexion of the state legislature to one friendlier to employers, it is unlikely that we will see any action on these statewide issues.

We need to foster a business environment that is conducive to the manufacturing sector in both San Diego as a region and California as a whole. This would necessitate bringing manufacturers into discussions about regulations, taxes and government purchasing. Manufacturing today requires highly skilled workers proficient in a wide range of advanced technologies. More preparation of the workforce is necessary to meet the anticipated increase in demand for manufacturing through training and retraining. Providing training opportunities to address the skill gap of existing workers would go a long way to enabling growth of the manufacturing sector.

The report states that regional leadership is the key to helping the manufacturing industry thrive in the San Diego region. I agree, but leadership is also the key to restoring California as the “golden state of opportunity” for manufacturers and all other businesses.

The SCEDC study concludes that the manufacturing sector lacks the necessary resources to conduct business successfully on a large scale. The wealth of tax credits and business assistance programs are not as widely used as expected, further emphasizing the need for leadership and an expansive educational campaign. This report is meant to spark discussion and action to enable San Diego to grow its existing manufacturing industry. As a follow up to the report, the South County EDC is planning an Economic Summit on Friday, September 21, 2012.

We also need to spark discussion and action on a state level. To this end, the Coalition for a Prosperous America (CPA) is facilitating an economic summit on October 11, 2012, entitled, “Manufacturing in the Golden State -- Making California Thrive,” co-hosted by California State Senator Mark Wyland and Assembly member Toni Atkins. As the newly appointed State Chair for CPA, you may contact me to become involved at [email protected]or Sara Haimowitz at [email protected].

Michele Nash-Hoff is president of ElectroFab Sales. She is the author of "Can American Manufacturing Be Saved?"

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