Hoping to mine gold from the Golden State

Governor Mitt Romney wants Massachusetts to get in on the competition. "There is no question that knocking on the doors of California companies is a good idea right now," said Romney in a recent interview. The governor said Massachusetts has lower taxes than California and the Bay State wins on "smoke, smog, and the supply of electricity," a reference to California's fires, air pollution and well-publicized blackouts.

It remains to be seen how successful Massachusetts can be in luring companies from the West Coast. Massachusetts' recruiting efforts are more modest than those of many other states, and are targeted narrowly at high-tech and biotech companies. Still, the mere fact that Romney is talking about poaching California firms is quite a switch for a state where historically the traffic has flowed in the other direction.

The change says a little bit about the improvement in Massachusetts' business climate and a great deal about the deterioration in California's. "Many businesspeople here have reached the end of their rope," said Allan Zaremberg, the president of the California Chamber of Commerce. California's business community enthusiastically backed Arnold Schwarzenegger in the recent recall election, largely because it was so unhappy with former Governor Gray Davis and the state's Democrat-controlled Legislature. Schwarzenegger took office Monday, vowing to revive the California economy.

A handful of companies have decided to make Massachusetts their home base recently. 3Com Corp. a networking company, moved its headquarters from California to Marlborough in August because being in the Eastern time zone made it easier to communicate with Europe, according to a company spokesman. In March, another technology firm, Enterasys Networks, moved its headquarters from New Hampshire to Andover. "We wanted to tap into a deeper and richer talent pool," explained Mark Aslett, the firm's president.

Jeffrey Bussgang, a venture capitalist with IDG Ventures in Boston, is in the process of moving a start-up wireless company to Massachusetts from Pittsburgh, again mainly to be closer to where the action is. "The customers are here and the executive talent is here," said Bussgang, who declined to name the company.

None of the three recent arrivals mentioned the classic business climate issues such as taxes and insurance costs. But Mark Canepa of Sun Microsystems Inc., based in Santa Clara, Calif., said it would be a mistake to assume those issues aren't critical in location decisions. Canepa works on both coasts, and he can tick off the pluses and minuses of California versus Massachusetts. He remembers how much California's electricity problems disrupted Sun's business, and he knows just how much it costs to buy a house in suburban Boston. According to Canepa, Massachusetts is a slightly cheaper place to do business than California, but he has a warning for both states:

"High-tech people are mobile," he said. "Governments have to be mindful of that and recognize that they are in fierce competition."

Business' list of California complaints is a long one and includes the state's estimated $10 billion budget deficit, workers' compensation costs that have almost tripled in four years, electricity prices that have spiked since a major power crisis in 2001 and legislation, passed this fall, that requires all businesses with more than 50 employees to provide health insurance.

A recent study commissioned by several California business groups gave California an "F" grade for its business climate and concluded that among major competitor states only New York was less friendly to business. Massachusetts received a "C" grade in the study. Last spring more than 75 percent of the firms responding to a chamber of commerce survey said California was "on the wrong track." About 20 percent said they were thinking about expanding outside California; 15 percent said they had been contacted by recruiters from other states.

Most of the recruiting is being done by Western states such as Nevada, Arizona, and Texas, states that are close by, cheap and business-friendly. Romney readily concedes Massachusetts can't win in a competition based solely on low prices, but says the state can attract firms looking for both a decent business climate and a rich technology infrastructure.

So where does Massachusetts have the edge on California?

Taxes, for one. California's top income tax rate is 9.3 percent compared to 5 percent in Massachusetts. California's sales tax rate is 7.25 percent; Massachusetts has a 5 percent sales tax. California's corporate tax rates are lower. On workers' compensation, Massachusetts has even a bigger advantage. Based on 2001 numbers, California had the highest workers' comp rates in the nation. Massachusetts ranked 32d among the states with rates 65 percent below California levels.

In education, Massachusetts students easily outpace their counterparts in California. On the most recent set of national sets, 40 percent of fourth graders in Massachusetts performed at a "proficient" level in reading and math. Only 21 percent of fourth graders in California did as well. In a September speech he delivered in Boston, John Chambers, chief executive of Cisco Systems, a prominent electronics firm, sharply criticized California schools. Cisco is based in Silicon Valley, but also has operations in Massachusetts.

California has lower healthcare costs than Massachusetts. It also has lower costs for unemployment insurance. Sun Microsystems pays $259 a year per employee for unemployment insurance in California versus $327 for Massachusetts. "We pay attention to this stuff," said Canepa who has discussed the issue with Romney. The Massachusetts Legislature is threatening to boost the unemployment insurance tax substantially, a move the governor has denounced as antibusiness.

Historically, California has gotten the better of Massachusetts when it comes to business competition. Silicon Valley, home to companies such as Intel Corp., Hewlett-Packard Co., and Cisco, dwarfs the collection of firms located along Route 128. In biotechnology Massachusetts comes closer, but California boasts the country's two premier biotech companies, Amgen Inc. and Genentech Inc.

Romney is not worried. "This is a golden opportunity for us," he said.

When it comes to recruiting, Massachusetts relies on both public and private sector people to identify potential prospects. Typically the companies identified are those known to be contemplating an expansion or a relocation. Government officials make phone calls and encourage industry executives to do the same. Romney says he recently called the chief executive of a firm that is considering several states, including Massachusetts and California, for a possible expansion. He declined to identify the firm.

Charles Stein can be reached at stein@globe.com.