May 21 2012 by JP Donlon
Texas and California are once again at opposite ends of our annual rankings by CEOs of the best and worst states in which to do business. We take a closer look at the Texas model, but an equally interesting contrast is between the golden state of California versus the sunshine state of Florida. Both depend heavily on agriculture and tourism and have high rates of undocumented immigrants. CEOs rate both comparably well on living environment, one of the three principle areas on which we asked them to grade state performance. And, of course, these two are the only states with a Disney attraction. After this similarity, the paths diverge. CEOs give Florida’s workforce quality a good but not superlative rating of 6.73. California is rated at 5.82, not as bad as Hawaii or New Mexico, but not as good as 48th-ranked Illinois either. When it comes to taxation and regulation, however, California’s score plummets to 1.74—the lowest by far of any state, and well below Florida’s rating of 7.27. No wonder it’s called “Taxifornia.” It even gives Massachusetts a good name.
But the biggest difference is not in the numbers. Most business leaders say attitude toward business is a real differentiator. “California has driven away business with bad rules and refusal to acknowledge its problems,” opined one CEO. “We should let it become its own country. The legislature is horrible.” Another summed it up succinctly: “California should be put on death watch.” By contrast, leaders commenting on the Sunshine state were generally, well, sunny. “It’s getting better,” said one.
It’s not hard to see why. On January 4, 2010, Richard (Rick) Scott signed his first executive order after being sworn into office as Florida’s 45th governor, suspending all rulemaking of the state agencies so as not to burden the private sector further in its attempts to pull out of the recession. Last year, he eliminated 1,100 regulations that were unnecessary and retarded business formation, and he appointed people who were pro-business to the state’s agencies. Recently, we spoke to Scott, a former health insurance CEO who ran Columbia/HCA until its run-in with the Justice Department over Medicare fraud. We asked him about his cold-calling businesses around the country, pitching his state. “I try to reach out to businesses directly to find out why they don’t relocate to our state,” Scott recently told us. “We have a great story.” He was in New York to appear on CNBC’s Squawk Box where he said the easiest states from which to entice firms were Illinois, New York and Connecticut—all at the bottom of our ranking.
With respect to the latter, nutmeg state governor Dan Malloy should be aware that Scott is wooing hedge funds. “Why would you want to pay an extra 10 percent of your income when you could be in a nice warm place with good schools and a lower cost of living?” said Scott. Some are reportedly giving it careful consideration. One tries to imagine California’s Jerry Brown making a similar pitch to business leaders wondering what on earth he could say—but fantasy isn’t our strong suit.
Critics say Scott isn’t wildly popular among Floridians despite the fact that on his watch 77,100 net new jobs have been created. He generated $1 billion in tax cuts and exempted nearly two-thirds of businesses in the state—mostly small ones—from punitive taxes. In addition, the governor got rid of teacher tenure at K to 12 schools and boosted the number of charter schools in the state. Last year, when he sent a tongue-in-cheek letter to Texas governor Rick Perry that Florida was coming after Texas’s No. 1 rank in Chief Executive’s survey, it seems he was serious.