Next Test for California: Fixing Business Climate ; Reforms to the Controversial Workers' Compensation Laws Constitute Schwarzenegger's Next Major Challenge

Article excerpt

When John Lawrence says his business is thriving, it is not a profession of pride. It is a statement of defiance. The way Mr. Lawrence sees it, his manufacturing firm has been under siege the past few years - not so much from an indecisive economy or overseas competition, but from the state of California itself.

Unemployment insurance rates are doubling. The minimum wage has increased. New rules have expanded overtime. And payments to the $20 billion workers' compensation system have spiraled beyond all reason.

Now, as Gov. Arnold Schwarzenegger nears a deal to reform the system, business owners like Lawrence are watching. It is the first test of whether the governor can change California's business climate and stand up to what he called "Sacramento's job-killing philosophy."

Yet the debate over an arcane California program hints at much more, even the future of the American workplace. In recent years, California passed an unprecedented suite of worker-friendly bills, from employer-paid healthcare to the broadest paid family-leave program in the US.

To some, it is a path that can only hurt California, as businesses increasingly take their jobs to other states and California lags behind the US in job creation. To others, though, the Golden State is at the forefront of a shift in workplace values. Where California ends up on workers' comp, both agree, will provide insight into which way Schwarzenegger's California will lead.

"The pendulum had swung far to the left," says Jack Kyser of the Los Angeles Economic Development Corporation. "Now it is swinging back toward the center."

On workers' compensation, both sides of the political spectrum acknowledge the need for reform - a change that could come soon, according to some reports, with "a fair to strong" possibility that the Assembly and Senate would see legislation as early as Thursday. California's system of compensating workers for job-related injuries is widely criticized as the worst in the nation. It demands the highest premiums of employers and pays some of the lowest benefits to workers.

Fixing it "is a big deal," says Steven Levy of the Center for the Continuing Study of the California Economy in Palo Alto, Calif. "Every other [workplace issue here] is sort of chump change by comparison."

Business owner Carmen Murray has seen her monthly premiums quadruple in the past year or so, even though her carpet mill sees relatively few injuries. If things haven't improved by the time her lease runs out in 2007, she'll likely move. "I'm giving it a lot of thought," says Ms. Murray, based in Los Angeles. "It's just getting worse."

The bottom line, she and other owners say, is that it is expensive to do business in California. …