L.A. business uneasy about congressional power switch.

While L.A. businesses were jubilant over the outcome of last week's statewide election, there was more caution about what the Democratic takeover of Congress means for their fortunes.

Concern over possible impacts of a federal minimum wage increase and more scrutiny of corporate practices and of foreign trade agreements tempered the optimism that business interests generally display about divided government.

What's more, Democrat leaders' pledges to reduce the prices of Medicare prescription drugs, reorient the nation's defense spending and impose higher taxes on oil companies have firms in those industries very concerned about what may lie ahead.

"This is going to be a monumental change for a lot of business groups," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

Indeed, stocks of Northrop Grumman Corp., Amgen Corp. and Occidental Petroleum Corp. all experienced slight hiccups last week as the election results became clear, though only Northrop's stock was lower on the week. Kyser said that the change in power in Congress may delay a decision on a proposed new U.S. Air Force tanker, for which Northrop is a contender.

But some businesses in Los Angeles may benefit from the change in power in Congress. With San Francisco Democrat Nancy Pelosi poised to become Speaker of the House, and California's two U.S. Senators now in the majority party, the longstanding attitude in Congress of "anything but California" may give way, allowing more funds to flow in for vital infrastructure and homeland security projects here.

"California has more political clout in Washington now than it's had in the last 12 years," said Gary Toebben, president and chief executive of the Los Angeles Area Chamber of Commerce.

Toebben and other business leaders also expressed hope that with Democrats in control of Congress, a higher priority will be placed on an urban agenda, including more funding for health care for the uninsured and more housing subsidies.

Also, some in the business community are hopeful that an agreement can be reached on immigration reform. President Bush and Democrats in Congress were fairly closely aligned on the need for a guest worker program; conservative Republican opposition in the House of Representatives killed that proposal in the last session.

"This could be one of the most significant issues that they could reach agreement on and would be a major accomplishment," said Bob Millman, chairman of Littler Mendelson PC, a San Francisco-based labor and employment law firm.

Minimum Wage

Tops on the Democrats' agenda, however, is increasing the minimum wage, which Pelosi said the House would pass within 100 hours after the start of the next session. At a press conference on Wednesday, President George W. Bush said he was amenable to reaching a compromise on the minimum wage.

While an increase in the federal minimum wage is not likely to have much of a direct impact on California--which is due to increase its minimum wage to $8 an hour by Jan. 1, 2008 thanks to an agreement Gov. Arnold Schwarzenegger reached with Democrats in the state Legislature--it could have an indirect impact.

"Minimum wage advocates here always want the California wage to be a certain amount above the national minimum wage because they argue the cost of living is higher here. So you can bet if the feds increase their wage, the pressure will be on for further increases here," said Michael Shaw, assistant state director for the National Federation of Independent Business.

Of course, an increase in the federal minimum wage would hit the bottom lines of restaurant and supermarket chains and other companies based in Los Angeles that have operations in other states.

Meanwhile, Democrats have promised to give more scrutiny to proposed trade agreements, to see if they have adequate worker and environmental protections. This could mean the end of fast-tracked trade agreements, which Kyser said could affect the huge import-export sector in the L.A. area.

Democrats have also pledged to cap the prices that pharmaceutical companies can charge the federal Medicare program for prescription drugs, which could cut into the profits of pharmaceutical companies. Also, pressure may build to rein in profits of managed care companies and other health care insurance providers. Many health care and pharmaceutical companies saw their shares drop last week on these concerns.

With Democrats in charge, oil and energy companies can also expect rough treatment, with possible hearings on price gouging when gas prices spike again and a push to levy a windfall profits tax.

But on these fronts, Democrats in Congress will be limited by the threat of a Bush veto and--in the Senate at least--Republican filibusters. That's why overall, business interests were not in panic mode last week.

"I believe Rep. Nancy Pelosi will assume the House Speaker's gavel with a determination to deliver results for the American people to enable her party to govern beyond two years," said Jay Timmons, senior vice president for policy and government relations of the National Association of Manufacturers. "To do this, I anticipate she and her leadership team will bring nontraditional allies together to forge consensus on key issues, and that will include the business community."

BY HOWARD FINE

Staff Reporter