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It was early June when a representative of the California Department of Water Resources called Robyn Rickansrud to say the state couldn't pay his $15,000 invoice or assign his company, Cantoo, any new work - at least until the budget crisis was resolved.
As the president of a small graphics business that counts on the state for 40 percent of its revenue, Rickansrud had grudgingly come to accept annual budget squabbles and payment delays as the cost of doing business with California. Sitting in his office in an industrial business park near Point Richmond, he initially shrugged off the news.
"Same as last year," he thought to himself.
Except that it wasn't.
Coupled with the staggering economic collapse, the consequences proved far more serious this time around. Over the next few weeks, he cut employee hours, clamped down on expenses, sold his car and seriously pondered bankruptcy. Rickansrud, a 52-year-old Richmond resident who expanded his business in recent years by producing display photos for the state, is one of thousands of businesspeople who weren't paid, received IOUs or lost government work during the last few months. And the economic devastation didn't stop at the doors of his office. It spilled over to his suppliers, employees and nearby retailers.
This version of trickle-down economics highlights how state budget cutbacks reverberate throughout the economy and redefine what economists describe in detached language as "multiplier effects" in real human terms.
The budget resolution has raised state contractors' hopes that government work and dollars will flow again soon. But the thrust of the solution was to slash spending on education, health care and welfare programs, and nearly all departments were directed to curtail discretionary expenses. That all suggests lots of vendors won't see new state projects anytime soon and promises many more tales like Rickansrud's.
'Horrible situation'
"It's a horrible situation," he said. "In 28 years I've never seen anything like it and I don't know how it's going to be turned around."
The $15,000 that Rickansrud still hasn't been able to collect from the state amounts to a month of operating expenses.
After that call from the water department, he cut back on supply orders, sold underused equipment and shifted three of his five workers to part time. He borrowed money from his father to keep the business he co-founded in 1981 open.
The genesis of the department's decision traces back to a June order by Gov. Arnold Schwarzenegger to eliminate funding for almost all state contracts signed after March 1. The executive order also prohibited new contracts and directed all departments to reduce spending by 15 percent.
It's unclear how many businesses were affected, but there were thousands of contracts worth a collective $17.3 billion for the period March 16 through July 20, according to the California Department of General Services.
For Rickansrud, it took a personal toll. He sold his Porsche 911 on eBay. He began packing his lunch instead of going out to Amini's by the Bay, the nearby deli he used to visit almost every workday.
He and his family stopped going out to the movies and restaurants. They clipped coupons. His eldest daughter, a senior in high school, worried about how to pay for college.
"I told her we're in the best possible position, because you have to be either really poor or really rich" to get scholarships, he said. "And we're definitely poor."
Rickansrud's response to the state cuts is typical. When businesses suddenly lose large contracts, they respond by cutting orders, employee pay, business and personal expenses, or all of the above, said Mark Zandi, chief economist with Economy.com of West Chester, Pa.
"And you're off and running," he said. "The negative ripple runs through the economy."
Every dollar reduction in government spending costs the economy between $1.60 and $1.70, he estimates. For businesses already grappling with the Great Recession, these lost customers and contracts sting that much more.
Spillover
Business has been sluggish for years at Amini's by the Bay, a grocery and delicatessen located a three-minute walk from Cantoo. But owner Hamid Amini now finds himself squeezed by rising costs and a drop-off in customers from the nearby business parks, people like Rickansrud, who have started packing their lunches.
"My competition is Costco," said the small, 56-year-old Iranian-born man who has operated the store overlooking the Richmond marina since 1989. "People are trying to save pennies if they can."
Compared with a year ago, sandwich sales are down by half and convenience revenue is off more than 30 percent. He used to order 800 to 1,000 items like chips, soda and gum from supplier Core-Mark International twice a month; now it's once every six weeks at most. He laid off two of his four employees, forcing him to work up to 16-hour days, seven days a week.
"I've lost a lot of money and I'm just trying to survive," he said.
Decline in business
It's difficult for Gerry Fults to pinpoint just one cause for the roughly 15 to 30 percent decline in his business, 15-year-old Sonoma Graphic Products.
His company is a major supplier to Cantoo, and did much more business with the company before the state cuts.
The Santa Rosa-based firm also furnishes clients as varied as Nordstrom and the aircraft carrier Ronald Reagan with digital printers, inks and papers.
Just about everybody is cutting back on signs, reprints and advertising, Fults said.
"When their customers can't pay them, they can't pay me, and then I can't pay my vendors," he said. "It's a true trickle-down effect."
To prevent layoffs, Sonoma Graphic, which also has offices in San Jose, Portland and Seattle, decided not to fill a handful of recent job vacancies and instituted two-day-a-month furloughs.
Hitting Subway
Kevin Wright, 41, was one of two Cantoo workers whose pay was reduced 15 percent earlier this year. That forced the production artist to ratchet down spending on "the fun stuff." He doesn't go out to the movies or restaurants nearly as much. He spaces out haircuts.
He used to regularly pick up coffee and lunch at Artisan Kitchen, a gourmet cooperative restaurant near his office where the sliced prosciutto sandwich costs $6.75. Now he tends to brew at home and hit Subway or skip lunch altogether.
Wright is hopeful that the recent budget resolution will mean the company's work - and his salary - are restored soon.
"We're crossing our fingers that that happens," he said. "If we closed our doors, I'd be kind of in trouble."
Optimism
Rickansrud, Amini and Fults are each striving to save their companies.
Sonoma Graphic, for example, has expanded its roster of eco-friendly inks and equipment with the goal of tapping into the growing green business movement.
Rickansrud is trying to diversify his business by toying with retail concepts like printing pictures onto blinds or producing magnetic calendars with customer-customized pictures. Meanwhile, he's one of the lucky vendors who is starting to get new work orders from the state and corporate orders are also coming in.
It has helped ease some of the immediate financial pressure, but Rickansrud has a deep hole to dig out of and the specter of bankruptcy still looms.
"That's a little farther off, but it's still a possibility," he said.
E-mail the writers at jtemple@sfchronicle.com and kzito@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cg...MNUH18UK4Q.DTL
The Accidental Entrepreneur
A month after he was laid off in October, 38-year-old Marcus Ronaldi realized he was facing the toughest job market he had ever experienced.
"I had been out of work before, but this time I wasn't getting any calls," said Ronaldi, a high-tech job recruiter.
In November, as he despaired of landing a full-time job, Ronaldi started taking subcontracts from other recruiters with hard-to-fill vacancies in technical or executive fields.
"At first I did it just to keep busy and to help pay the bills, while I continued looking for a job," said Ronaldi of Daly City.
But as he got more contracts, Ronaldi began to consider himself self-employed, a conviction that jelled a couple of weeks ago when he got a tip about a full-time job.
"I turned the tip over to a friend because I was happy doing the contingent stuff," he said
Ronaldi is an example of what Bay Area business analyst Carolyn Ockels calls "necessity-preneurs" - people who become self-employed because regular jobs are so tough to find.
"I think a lot of people are trying to fill the income gap with any skill or service they can find," said Ockels, managing partner of Emergent Research in Lafayette.
A July report from the Small Business Administration documents the self-employment surge nationwide. The SBA said the number of self-employed people grows about 2 to 3 percent a year when the economy is good. In 2008, the most recent year on record, the number of people working for themselves jumped 8.1 percent.
San Francisco resident Lisa Marie Grillos, 34, took the plunge in April, after being laid off three months earlier from a retail job.
"I was kind of floundering and wondering what to do with my time because there are only so many job postings you can apply to in a day," she said.
So she teamed up with her brother, Hernan Barangan, 36, of Santa Monica to found Hambone Designs, a craft business that sews purse-size pouches that hang from bicycle frames.
Grillos said the business grew out of a family tradition of giving only handmade gifts.
"I realized I had the time, so I could be doing this," she said.
Grillos said Hambone Designs has had some success selling its $20 to $45 bags online. And she loves the challenges involved in building the business.
Meanwhile, she continues to look for what she calls "gainful employment" while investing her time and energy in the business.
"If it wasn't for my husband having a full-time job I really don't think I would be able to focus on this," she said. "It takes a lot to get this off the ground."
Ockels said one characteristic of the current self-employment trend is the willingness of people to move in and out of full-time jobs, while keeping business interests brewing.
"I think people are testing part-time businesses they hope they can grow into something," she said.
Manisha Nagrani is indicative of this trend of juggling several options. Since the 32-year-old San Francisco woman lost her public relations job in September, she has done contract work while hunting for a full-time job.
About 10 weeks ago she also launched a matchmaking business that builds on what she describes as a natural proclivity for putting people together.
"There are probably 40-plus couples I have set up who have gone on to get married," she said.
Nagrani hasn't come up with a name for her endeavor but says she has a handful of clients willing to pay for services, like date coaching and matchmaking.
"In the ideal world," Nagrani said, "I would have a full-time job and make the matchmaking business something I can do on the side."
E-mail Tom Abate at tabate@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cg...BUF81974CT.DTL
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