States More Aggressive in Competing With One Another
May 6 2013 by JP Donlon
“Moved from California to Texas for personal and business benefit,” quips Omnific Advertising owner Don Glacy. “Best decision I’ve made.”
“California is a nightmare for business,” adds George Benjamin, chairman of West Melbourne, Florida-based Relm Wireless. Citing onerous regulations, escalating taxes and, above all, a hostile attitude toward business, a number of California survey respondents, who asked not to be identified, indicated that they intend to move most or all of their operations to other states, with Texas, Arizona and Nevada leading the list. (See “California Dreaming”)
Intel CEO Paul Otellini told Venture Capital Dispatch last October that California was on a downhill slide. The San Francisco native and fifth generation Californian said, “I would like to be bullish, but I worry that we have to hit the abyss before we can fix things; I worry the abyss will be more like Greece.” Otellini added that Intel had not added a job in California in 10 or 12 years and closed its last factory in the state six years ago. Governor Jerry Brown’s so-called balanced budget does nothing to lesson Sacramento’s voracious spending appetite. The state, as The Los Angeles Times reported: “owes Wall Street more per resident than almost every other state. It has also accumulated a crushing load of debt for retiree pensions and health care, now totaling more than taxpayers spend each year on all state programs combined.”
While not yet overtaking the Lone Star state, Florida has shaved some of the distance between itself and Texas across the three major indices of the CEO survey. “Florida has gained significant momentum with the new governor, who actually has manufacturing on the top priority list of his agenda,” says Hannes Hunschofsky, president of Hoerbiger Corp of America, a German industrial manufacturer with its U.S. base in Pompano, Florida. A former CEO himself (of Columbia HCA), governor Rick Scott has made it his priority to streamline state government, reducing 2,300 needless regulations and 12,000 government positions. Under two years of Scott’s policies, 282,000 private sector jobs have been created; in the previous four years the state had lost 825,000 jobs. The past two years have set records for tourism, Florida’s biggest industry. In 2012, 89.3 million people visited Florida; up 2.3 percent from the previous record-setting year.
Scott cut property taxes by more than $210 million and eliminated the state tax for 63 percent of the businesses that paid it when he was elected. He is doubling down in the current legislative session by proposing to eliminate the tax for all manufacturing companies—which would mean that 70 percent of all Florida businesses would no longer pay the tax. He intends to grow that figure to 100 percent. Personal income has also risen by 6.6 percent in Florida since Scott took office, going against a national trend where family incomes have been stretched razor thin.
Better than California, New York nonetheless continues its lackluster performance in the minds of most business leaders. The unemployment rate has risen to 8.4 percent from 8.2 percent since governor Cuomo took office two years ago. Cuomo’s 8.82 percent “temporary” tax rate on incomes above $1 million might as well be permanent. Millionaires pay a higher rate in Manhattan—12.46 percent—than anywhere else in the nation except California. The Tax Foundation reckons that New York has the highest state and local burden and the worst business climate in the U.S. Perhaps this is why 1.6 million New Yorkers have left the state over the last decade, according to the Empire Center for New York State Policy.
New York is not alone in its misery. Massachusetts, Connecticut and most Northeastern states get a black eye for regulatory bureaucracy and high taxes. But Illinois stands apart. “It’s a complete and utter disaster when it comes to fiscal management,” says the CEO of a Chicago pharmaceutical company. “The inability to address key issues that are driving debt and instead increasing the tax burden on businesses and residents is mind-boggling. This is precisely why I intend to move my company to Florida or Tennessee.” Four recent Illinois governors have gone to prison, Rod Blagojevich being the most recent, suggesting to Stephen Hicks, who runs a web site on state developments, that the state should have a new motto: Illinois: Where governors go to jail and business can go to hell.
At the center of the survey results are two developments. In the midst of a sluggish recovery where every job counts and every job creator counts for even more, states that tax less and regulate with a lighter touch tend to grow more and attract more business. (See American Legislative Exchange Council’s “Rich States, Poor States.”) For their part, CEOs realize that in an age of mobility and advanced communications, one’s operations can be based anywhere. Twenty years ago, Walter Wriston, the legendary Citibank leader and international banker, said that international capital is drawn to places where it is well treated. That goes for domestic investment too. Politicians who think that their state’s legacy advantages will carry them indefinitely into the future are in for a nasty surprise.
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