2016 STS - Scott Bragg: Navigating the California Business Environment

For decades, people have been saying that California’s today is every other state’s tomorrow. In this session, Mr. Bragg wil detail the many aspects that make California such a unique and often difficult place to operate and his business solutions. Among the topics touched upon will be environmental compliance, the tax structure, permitting with public agencies, and the litigious human resources environment.

Speaker: Scott Bragg, Vice President, Bragg Companies

1. Navigating the California Business Climate Scott Bragg – Bragg Companies

2. Introduction – Scott Bragg 35 years of experience in the crane, rigging and heavy haul industries COO of Heavy Transport in Long Beach, CA 53 tractors working throughout the United States Bragg Crane Service operates 130 tractors Through continued involvement with many associations, the Bragg Companies have been heavily involved in CA policy reform

3. “California Dreamin ” – Fantasy vs Reality

4. Industries that Thrive in California California is known for three major industries Tourism Film Industry Technology

5. Favored Industries in California California provides incentives for these industries, including $330 Million for film production Source: R. Verrier , (2014). Are film tax credits cost effective ?, LA Times California created a tax credit bill giving priority to high tech manufacturing Source: http ://www.bizjournals.com/sacramento/news/2014/06/05/newcalifornia-bill-offers-incentives-to-lure.html California Travel & Tourism Commission produces tourism videos like the one we just saw Source: www.visitcalifornia. com

6. In Contrast - The heavy haul and transportation industries located in California receive few incentives California’s heavy haul and transportation industries are highly regulated, taxed and fined There are no videos being made about the contributions the heavy haul industry makes to the California economy

7. Transportation Industry – Working in California

8. Permits for hauling Obstacles

9. Permits for Hauling In California transportation companies must answer to CADOT and in addition are required to have permits for individual cities and counties More permits require more time for planning a routine haul Additional permits increase fees for hauling in the state

10. 2015 Heavy Transport Haul Load: Empty Convection Box Max Dimensions 18’Wx19’2”Hx185’L Gross Weight – 515,050lbs Equipment : Dual Lane 12 Axle at 18' wide

11. Texas Permitting – Dual Lane 12 Line Load at 18’Wide Miles Traveled – 897.4 Fees Paid - $1,435.00 Number of Permits Required – 1 Number of Pages in Permit - 6

12. California Permitting – Dual Lane 12 Line Load at 18’Wide Miles Traveled – 373 Fees Paid - $5,788.93 Number of Permits Required – 24 Number of Pages in Permit - 69

13. California DOT $ 316.00 County of Riverside $40.00 City of Desert Hot Springs $16.00 City of Palm Springs $16.00 Banning $17.00 Beaumont $17.00 San Jacinto $16.00 City of Perris $15.00 County of Riverside $40.00 City of Ontario $17.00 City of Montclair $50.00 County of San Bernardino $60.00 City of Pomona $15.00 LA County Dept of Public Works $963.00 City of Whittier $16.00 City of Norwalk $34.00 City of LaPalma $314.00 LA County Dept of Public Works $963.00 City of Los Angeles $531.73 City of Torrance $29.00 City of Redondo Beach $65.00 City of El Segundo $2,205.00 City of Manhattan Beach $ 17.00   TOTAL $5,772.93 California Permits Required

14. California Permitting Miles Traveled – 373 Fees Paid - $ 5,772.93 Number of Permits Required – 24 Number of Pages of Permits - 69 Texas Permitting Miles Traveled – 897.4 Fees Paid - $1,435.00 Number of Permits Required – 1 Number of Pages of Permit - 6

15. 524 fewer miles traveled in Texas than in California California was 4 times more expensive than Texas California required 23 times more permits California vs. Texas Permitting WINNER

16. Emissions Regulations & Agencies Obstacles

17. California Leads in Environmental Initiatives California is known for being a “leader” in environmental initiatives California’s regulations are more strict than the Federal EPA standards Equipment owners are still required to report to federal agencies Home to nearly half of the Plugin electric vehicles in the United States Third highest gas tax in the nation, Californians pay 65.98 cents per gallon

18. Emissions Regulations & Regulatory Agencies CARB – California Air Resources Board In 2008 CARB implemented strict regulations, more stringent that federal regulations Requires diesel trucks to reduce particulate emissions by 85% or more These CARB compliant trucks have increased the purchase price from $110,000 per truck to $200,000 per truck Applies to more than 1 million diesel trucks operating in California

19. SCAQMD Regulatory Agency SCAQMD – South Coast Air Quality Management District Managing agency over all Southern California emissions regulations Separate from CARB, the state run agency Requires emissions reporting from fleet, similar to CARB

20. Port Compliance & Regulations California Ports Trucking industry is tied heavily to the ports in California and across the nation Port of Long Beach maintains higher standards that are required by CARB and SCAQMD Does not allow for filtered trucks to enter the ports, trucks must be one model year newer than the CARB standard, 2009 model year.

21. The Cost of Non-Compliance - $400,000 The penalties and fines levied against non-compliant carriers in California can be excessive and for some companies these penalties can be financially devastating. Recent examples of penalties issued by the state include Estes Trucking. The EPA levied fines against Estes Express Lines for driving 73 non-compliant trucks in California Fines totaled over $400,000 for operating tractors in California without particulate filters installed Fines amounted to roughly $5,500 per truck

22. Fees Collected by CARB In 2013 CARB collected fees amounting to $2 million* 10 years ago there were less than 50 settled cases, in 2015 there were over 200 cases settled* Large companies are not alone in their struggles to comply, an owner of a single rig was fined $18,500 in 2015 for improper installation of a filter* No one is exempt from fines, cities, large companies and owner operators have all been fined by CARB * Information retrieved from Air Resources Board website

23. Infrastructure Issues Obstacles

24. California’s Crumbling Infrastructure As a result of the number of electric vehicles in CA, “Gas Use Tax” revenue has decreased significantly in the last decade Less revenue = less funding for expansion and infrastructure maintenance in California

25. Impact of Lost Revenue Due to a lack of funding, California’s infrastructure maintenance has decreased, creating routing difficulties for transportation companies California has been downgrading bridges and their weight capacities making it harder to find routes that allow heavier tractors Tractors are heavier because of CARB regulations, an increase of approximately, 4,000 pounds per truck

26. California’s Crumbling Infrastructure I-10 is a major corridor to Arizona and New Mexico Cal Trans cannot allow heavy haul loads on I-10, resulting in a 100 mile reroute through Parker, AZ on California Highway 62 The I-10 has been a primary corridor for hauling into and from California July 21 st , 2015 – Eastbound I10 Freeway

27. California’s Crumbling Infrastructure As of 2015 the Federal Highway Administration has designated 119 Obsolete Bridges and 79 structurally deficient bridges in Riverside County Alone Currently the I605 to I10 bridge has been downgraded due to construction, closing off the primary route to our home office ( Source: California DOT) The 2016 El Nino season poses an added risk to these structures with increased rainfall and potential flooding, threatening obsolete bridges Source: Desert Sun; Greg Toppo , USA TODAY; July 21, 2015

28. California’s Possible Tax Solution Currently exploring a change from a “Gas Use Tax” to a mileage driven tax The tax will charge a registered vehicle 1.5 cents per mile driven annually Current “Gas Use Tax” charges 18 cents per gallon A similar program is being studied in Oregon with 5,000 volunteers How will this effect fleet and commercial vehicles in our industry? Source: LA Times, Patrick McGreevy, Jan 21, 2015

29. Taxes, Lawsuits, and regulatory restrictions Obstacles

30. Top Reasons Businesses Leave California Taxes Overly Litigious Environment Regulatory Restrictions

31. California Tax Rankings – 2016 According to taxfoundation.org, California remains 48 th of 50 states in regards to its tax climate, has been in this position for 6 years On the State Business Tax Climate Index California Ranked Unemployment Insurance Tax Rank – 13 th Property Tax Rank – 13 th Corporate Tax Rank – 35 th Sales Tax Rank – 40 th Individual Income Tax Rank – 50 th Overall Rank – 48 th

32. California Tax Ranking – 2016

33. Regulatory Restrictions/Labor Laws California is a heavily unionized state Federal minimum wage is $10 per hour Long Beach, where we are headquartered, recently voted to raise minimum wage by 50% to $15 per hour by 2019 Prevailing wage law (Heavy Transport 405 Project Example) Project Labor Agreement, for contractors onsite Heavy Transport was not onsite but running a truck back and forth between sites Heavy Transport had to pay a higher wage in back pay based on the PLA agreement Had to pay into the construction teamster training trust

34. Excessively Litigious Environment “…in a state where citizens and businesses can’t possibly be expected to stay abreast of the many hundreds of new statutes and attendant rules churned out by hyperactive lawmakers and regulators each year, it’s no wonder that the latest data available from the Court Statistics Project of the National Center for State Courts show that more than a million new lawsuits are being filed annually in California’s state courts alone. Tens of thousands more are filed in federal courts there .” –ATR Foundation

35. Excessively Litigious Environment California ranking of economic freedom.

36. Excessively Litigious Environment

37. Excessively Litigious Environment 1M laws filed annually, which equates to 83,334 lawsuits filed per month. Most lawsuits filed in California seek profits rather than justice The American Tort Reform Foundation, ranked California as the #1 “Judicial Hellhole” in the nation. – American Tort Reform Foundation

38. Excessively Litigious Environment Businesses in California spend excessive capital on attorney fees, defending them against lawsuits We spend money on lobbyists to represent our industry and our interests in Sacramento “California allows residents, whether or not they have been harmed, to sue for a number of technical violations.” Leads to frivolous lawsuits by people who make a career out of suing businesses

39. Specialized transportation in California Direct Effect

40. Cost of Equipment Increases Due to California Environmental Regulation the cost of a heavy haul tractor increases nearly 100% (110K to 200K) Tier IV engines and particulate filters increase the cost of tractors by $35,000 to $45,000 per tractor Purchasing the required particulate filters cost the Bragg companies $400,000 to $500,000

41. Replacing Existing Functional Equipment Newer trucks in our fleet with plenty of life were required to be replaced due to new emissions regulations Accessory haul trucks with 20% utilization also required replacement Port of LA and Long Beach requires an even more strict emissions standard which keeps owner operators out of the port

42. Specialized transportation in California The Outcome

43. Business is Leaving California Joe Vranich has made a career out of shepherding business through the process of leaving the state legally, he states the following: Between 2008-2014 it is estimated that 9,000 businesses have left California “Dollars diverted to out-of-state locations totaled $70.5 billion in the 2008-2015 period, only a fraction of the actual experience because few information sources specified capital costs .” – Joe Vranich Source: National Review

44. The Benefits of Leaving California Companies are saving 20%-35% in business costs by leaving the state Farmer Brothers (1,200 employees) expects to save $15 million a year moving to Texas Beyond the direct dollar savings, businesses moving to Texas benefit from stronger property rights that enable companies to build new headquarters and factories in months as opposed to the years it takes in California. – National Review

45. The Impact of Losing Businesses – Reduced Tax Revenue for the State This is a small list of businesses that have abandoned California or invested elsewhere, some of them were founded in California. Farmer Brothers Coffee Co. TABC Kaiser Permanente HJ Heinz Dex Media Abbot Laboratories Raytheon Charles Schwab Lyft Inc. Oracle Faraday Future

46. Continued Woes – 2016 Business Forecasts Slow , steady, and unexceptional growth is expected in California for 2016 – LA Times “According to Vranich , state officials are currently considering enacting still more taxes and fees on businesses in 2016 and 2017, which would ‘trigger the worst demands on private-sector finances ever organized by the state’s politicians.’” – National Review

47. Bragg Companies – Navigating the California Climate We have remained fiscally conservative, through three generations Continually reinvesting into our fleet of cranes and tractors, keeping our fleet ahead of compliance and regulation standards We are fortunate to be able to manage our fleet using our outlying branch offices, sending our non-compliant equipment out of the state Dedicated AQMD compliance employee, focuses on our emissions standards

48. Questions?